Veteran "10x Research" analyst Markus Thielen has informed Decrypt that exchange-traded funds (ETFs) for Bitcoin and Ethereum could start trading in Hong Kong by the end of the month. "While no trading date is set, expectations are for April 30," said Thielen, who also writes research reports for Singapore-based trading platform Matrixport and was previously its head of research and strategy.
Following the approval of Bitcoin spot ETFs in the US in January, demand for exposure to crypto assets surged, fuelling the most recent bull run. However, Thielen points out that the success of ETFs in Hong Kong will largely depend on the ability of mainland Chinese investors to buy them.
The Shanghai Stock Exchange offers a southbound connectivity programme that allows qualified investors from mainland China to access eligible financial assets in Hong Kong. This programme has a daily quota of ¥42 billion and if this is exceeded, trades will be rejected. Thielen added: "This programme allows mainland investors to buy up to ¥500 billion (US$69 billion) of Hong Kong-listed shares per year, equivalent to HK$540 billion annually."
For the time being, however, it seems unlikely that ETFs will be part of the Southbound programme over the next six months. "Most market participants expect that mainland investors will not be able to buy these products and that they will not be added to the Southbound programme," explained Thielen. Currently, Hong Kong ETFs must have been listed for six months, but regulations could still change.
That said, Thielen suggested that, due to China's "property worries" and a weak stock market over the past decade, the country could look to Bitcoin to diversify its assets. "Although some forms of Bitcoin activity are banned in China, the ban could be mainly driven by fears of social unrest due to scams, illegal capital raising etc," Thielen said. "A regulated product like Bitcoin and Ether ETFs is more favourable."
Hong Kong has since established itself as a major future hub for cryptocurrencies, allowing retail investors to participate in trading and approving cryptocurrency spot ETFs. Experts told Decrypt that China could use the territory as a "testing ground".
"Nothing happens in Hong Kong without China's blessing, not even a drop of rain," added Thielen. "So when the two main financial market authorities (HKMA and SFC) approve Bitcoin and Ethereum ETFs, there has to be a conscious decision and calculation around the impact this could have."
