Clarification issued: Chinese investors prohibited from buying Hong Kong Bitcoin ETFs

Despite Matrixport’s initial predictions about a major influx of money from mainland Chinese investors into Bitcoin ETFs listed in Hong Kong, recent clarifications have dampened these expectations.

The statements clarified that Chinese funds are barred from investing in cryptocurrency-related ETFs due to regulatory restrictions.

Hong Kong poised for spot Bitcoin ETF launch

There’s talk of Hong Kong possibly launching spot bitcoin exchange-traded funds in the near future. Insiders suggest we might get news about the first approvals next week.

This means Hong Kong could be Asia’s first city to provide these sought-after ETFs, much ahead of the anticipated schedule later this year. According to an insider, regulators are hastening the approval process.

Once a vibrant global financial hub, China has experienced setbacks from pandemic restrictions, a shaky economy, and Sino-U.S. conflicts. In response, Hong Kong officials are working tirelessly to boost the city’s appeal for financial trading.

Adrian Wang, the CEO of Metalpha, a Hong Kong-based crypto wealth management firm, strongly believes in the potential of Hong Kong ETFs. He emphasizes their far-reaching significance, pointing out they could attract new global investment and catapult crypto adoption to unprecedented levels.

In January, the U.S. launched the first exchange-traded funds that followed spot bitcoin. According to data from BitMEX Research, these attracted around $12 billion.

Bitcoin’s value has increased by over 60% this year, reaching a record high of $73,803 in March. On Wednesday, it was valued at approximately $69,000. Reports suggest that a minimum of four asset management firms from mainland China and Hong Kong have applied to introduce the ETFs, as per two sources.

Units of China Asset Management, Harvest Fund Management, and Bosera Asset Management in Hong Kong are reportedly among the applicants. This information came from two sources and a third party who wished to remain anonymous due to a lack of media permissions.

The Hong Kong Securities and Futures Commission (SFC) and three Chinese firms chose not to respond to inquiries. This month, the Hong Kong branches of China Asset Management and Harvest Fund Management gained permission to handle portfolios with more than a 10% investment in digital assets, as evidenced on the SFC’s website.

These parent companies are some of China’s largest mutual fund firms, each managing assets worth more than 1 trillion yuan (or $138 billion). Although crypto trading might be prohibited in mainland China, Chinese banks based overseas are interested in growing crypto assets in Hong Kong.

In late 2022, Hong Kong gave its first cryptocurrency futures ETFs the green light. The biggest of these, the CSOP Bitcoin Futures ETF, has since seen a remarkable increase in the amount of money it’s managing. It’s grown sevenfold since September, now handling around $120 million.

The Hong Kong firm Value Partners is considering creating a spot bitcoin ETF but has yet to reveal whether it has applied for it.

Clarity on Chinese participation in ETFs

Recent statements from Hong Kong’s ETF issuers have clarified confusion about mainland Chinese investors’ ability to participate in the Southbound Stock Connect program.

Several issuers of Bitcoin ETFs in Hong Kong told WuBlockchain that southbound funds from mainland China are definitely unable to buy cryptocurrency ETFs, and the Matrixport report is false. An earlier Matrixport report indicated that Bitcoin spot ETFs listed in Hong Kong are…

— Wu Blockchain (@WuBlockchain) April 13, 2024

In light of recent events, multiple leading issuers have openly confirmed to WuBlockchain that mainland Chinese residents cannot currently buy cryptocurrency ETFs, including those for Bitcoin.

This statement contradicts Matrixport’s previous report suggesting up to US$25 billion could be transferred from mainland China to Bitcoin ETFs in Hong Kong.

Takeaway

China’s government, guided by the National Development and Reform Commission, maintains a firm grip on cryptocurrencies. This involves shutting down mining, declaring all transactions illegal, and probing into people and companies linked to overseas cryptocurrency exchanges.

At the same time, China, with the help of the People’s Bank of China, is developing its digital currency, the e-CNY. It’s designed to protect anonymity in small transactions and prevent money laundering.