Hong Kong Receives First Spot Bitcoin ETF Application

Top Chinese asset management firm Harvest Global has officially submitted an application to the Hong Kong Securities and Futures Commission (SFC), marking the first spot Bitcoin ETF application globally since the spate of approvals earlier this month in the United States. According to a January 29 report from Tencent News, Harvest Global is the first institution to apply to operate a spot Bitcoin ETF in Hong Kong.

The Hong Kong Securities and Futures Commission (SFC) is reportedly looking to fast-track the application after the SEC announced 11 spot Bitcoin ETF approvals. The report indicated that the financial regulator hopes the first spot Bitcoin ETF makes it to the stock exchanges after the Spring Festival in China.

The report also hinted that Hong Kong will likely approve several spot Bitcoin ETF applications at once like the SEC did weeks ago. However, the regulator will need many more applications to approve half as much as the SEC, as Harvest Global remains the only applicant as of press time.

Also, CSOP Asset Management, the Hong Kong asset management firm, is reportedly in talks with the SFC but is yet to submit an official application for a spot crypto ETF.

About the Spot Bitcoin ETF Guidelines

Late last year, the Securities and Futures Commission (SFC) published a circular detailing its requirements to approve a spot crypto ETF. The release came before the SEC’s recent spot Bitcoin ETF approvals and opened the door for potential ETF issuers to submit their applications.

In the document, the Hong Kong regulator required issuers to possess a good track record of regulatory compliance and have at least “one competent staff member with relevant experience in the management of VA [virtual assets] or related products.” Additionally, the document required the virtual asset under management to be accessible to the Hong Kong public through licensed virtual asset trading platforms (VATPs). All cryptocurrency exchanges in Hong Kong must register with the SFC. It is illegal for residents in Hong Kong to purchase virtual assets, including cryptocurrencies like Bitcoin, from unlicensed exchanges.

Similarly, all SFC-authorized spot crypto ETFs in Hong Kong must transact with SFC-licensed VATPs only. So, a Hong Kong spot Bitcoin ETF cannot acquire Bitcoins from a cryptocurrency exchange or mining firm outside the country, for example. For comparison, the SEC has not published any guidelines for spot crypto ETFs, and spot Bitcoin ETFs can acquire virtual assets from exchanges outside the United States. The restrictive approach by the SFC is beneficial but will likely also introduce unintended difficulties to the innovation.

Hong Kong Bets Big on Crypto

After a long history of opposition to the cryptocurrency industry, Hong Kong is finally becoming (generally) liberal about virtual assets. In August last year, the region approved HashKey Exchange and OSL to become the first cryptocurrency exchange that accepts retail traders two months after publishing guidelines for their operations in Hong Kong.

Months later, the Securities and Futures Commission (SFC) announced readiness to start taking applications for spot crypto ETFs, publishing guidelines for holders to follow. Harvest Global became the first firm to apply for the spot virtual assets ETF licensing in Hong Kong after applying last week Friday.

If Hong Kong proceeds to approve the application, it would become a significant and positive departure from the traditional anti-cryptocurrency stance.

What Will be the Effect?

Reports from local news agencies indicate Hong Kong is keen to approve its first set of spot crypto ETFs as soon as possible, following the SEC model of approving many applications at once. However, the plan is already facing challenges, as Harvest Global’s application is the only one submitted. Nevertheless, the agency might be planning to reveal its verdict on the first set of applications by February after the Chinese Spring Festival, which ends on February 10, 2024.

We expect the Hong Kong regulator to approve all pending spot Bitcoin applications by the deadline, as it had earlier published a detailed guide holders are to follow before and after securing a listing on Hong Kong stock exchanges. If everything goes as planned, we should see a Spot Bitcoin ETF on Hong Kong exchanges by March.