Virtual Asset Spot ETF: A New Chapter in the Hong Kong Financial Market

The Bitcoin ETF seeks balance amid market expectations and skepticism. The bullish narrative pushed BTC to break new highs, followed by profit-taking that led to price corrections, which aligns with the logic of the commodity market.

Discussing Bitcoin/Ethereum Spot ETF from the perspective of product structure, key future issues include:

1. The regulatory and product situation of Bitcoin/Ethereum ETFs in Hong Kong
2. The global trading volume of Bitcoin/Ethereum ETFs has become the only Spot delivery opportunity in the world.
3. The game between traditional finance and the virtual asset market, sources and potential of funds, institutional layout situation.

Regulatory Attitude: Quick Decision vs Cautious Consideration

Different jurisdictions have varying attitudes towards virtual asset ETFs, reflecting the differences between centralized and decentralized regulatory systems. Europe (including Canada) relies on centralized decision-making, while the launch of ETFs in the United States has undergone multiple negotiations between the market and regulatory bodies.

Regulatory framework comparison:

| Country | Approval Time | Regulatory Authority | Reason | Approval Speed | |------|----------|----------|------|----------| | United States | January 2024 | CFTC, SEC | Commodity and securities disputes, regulatory jurisdiction issues | Slow | | Hong Kong | April 2024 | SFC | Centralized Regulatory Authority | Fast | | Canada | February 2021 | CSA | Upward Benchmarking Regulatory System | Medium |

Comparison of Cryptocurrency ETFs:

| | Hong Kong Virtual Asset Spot ETF | US Virtual Asset Spot ETF | Hong Kong Virtual Asset Futures ETF | |------------|---------------------|---------------------|---------------------| | Underlying Position | Bitcoin, Ethereum Spot | Bitcoin Spot | Bitcoin and Ethereum Futures | | Trading Currency | HKD, USD, CNY | USD | HKD | | Trading Hours | Asia Time | US Time | Asia Time | | Redemption Method | Physical Cryptocurrency or Cash | Cash Only (USD) | Cash Only (USD) | | Non-listed Shares | Yes | No | No | | Trading platform regulation | SFC regulation | Not regulated by SEC | Chicago Mercantile Exchange | | Custodian Regulation | SFC Regulation | Partially SEC Regulated | SFC Regulation | | Insurance | Yes | No | No | | Derivatives Risk | None | None | High Risk | | Rolling Cost | None | None | Expensive | | Qualified Investor | Hong Kong Professional and Retail Investors | For Hong Kong Professional Investors Only | Hong Kong Professional and Retail Investors |

Trading Benchmark: Pooling Capital Flow

1. Quantitative Analysis: It is expected that the size of the Bitcoin ETF in Hong Kong could reach 10 billion USD by the end of the year.

Total ETF Size (in 100 million USD):

• United States: 71900
• Hong Kong: 521
• Canada: 301

Maximum AUM ETF (in hundreds of millions):

• United States (SPY): 5030
• Hong Kong (2840): 590
• Canada (ZSP): 100

Maximum assets under management BTC ETF (in hundred million USD):

• United States (Grayscale): 264
• Hong Kong (Estimated): 100
• Canada (PURPOSE): 13

2. Qualitative Analysis: The Hong Kong Bitcoin/Ethereum ETF has unique spot arbitrage opportunities and advantages of exempting withholding tax on dividends.

• Spot delivery has basis risk, which promotes liquidity and market depth.
• Brings new opportunities to virtual asset exchanges and traditional brokerages
• Hong Kong has no capital gains tax, allowing investors to gain more profits.

Market Impact of BTC ETF

1. May accelerate the decline of Hong Kong stocks:

   • Reduce liquidity in the Hong Kong stock market
   • Funds are moving from the traditional stock market to Bitcoin/Ethereum ETF.

2. State-owned assets participate in improving financing and client expansion:

   • Public fund's Hong Kong company approved to issue virtual asset Spot ETF
   • The state-owned background provides credit endorsement, which helps to gain investors' trust.

3. Integrated Layout Strategy:

   • Traditional financial institutions need to closely cooperate and extend along the upstream and downstream of the industrial chain.
   • Expand exchange business and launch competitive products such as BTC ETF

Conclusion

The virtual asset Spot ETF is a milestone for the Hong Kong virtual asset market, providing a channel for compliant funds to enter, enhancing the image and legitimacy of virtual assets, increasing market liquidity and acceptance, promoting innovation and development in the crypto industry, and laying the foundation for Hong Kong to establish its position as a global Web3 financial center.