This depends on a variety of factors, including regulatory developments, market education, and technological advancements.

From August 11 to 12, 2024, Foresight News, a leading Chinese-language vertical media outlet in the Web3 space, held the two-day annual "FORESIGHT 2024" summit in Hong Kong. During the event, numerous enterprises and institutions in Hong Kong, including Hashkey Group, OSL, Fosun Wealth, and China Asset Management (Hong Kong), participated in roundtable discussions themed around virtual asset ETFs. The participants expressed affirmative views on Hong Kong’s virtual asset ETFs, as illustrated by the following statements:

  • Livio, COO of HashKey Group: If Hong Kong implements Ethereum ETF staking, it will generate a global siphon effect.
  • Chen Zhao, Director of Digital Assets at Fosun Wealth: Virtual asset ETFs are an important channel for educating the market and investors about digital assets.
  • Gary Tiu, Executive Director of OSL: Hong Kong’s digital asset ETFs drive a win-win outcome for financial intermediaries and the crypto assets market.
  • Zhu Haokang, Head of Digital Asset Management at China Asset Management (Hong Kong): We are experiencing the fourth wave of financial innovation in Hong Kong, represented by the Web3 ecosystem. Spot virtual asset ETFs, tokenization of real-world assets (RWA), central bank digital currencies, and stablecoins are establishing connections between the real economy and virtual assets.

Whether in terms of acceptance of virtual asset ETFs, the pace of their implementation, or perspectives on their current status and future development, Hong Kong has demonstrated welcome, support, and encouragement. This naturally prompts curiosity among the lawyers at Mankun Law Firm as to whether virtual asset ETFs will bring about a new Web3 landscape in Hong Kong. To begin with, the lawyers at Mankun Law Firm will review the development and current status of virtual asset ETFs in Hong Kong.

 

Review of the Development of Virtual Asset ETFs in Hong Kong, China

As a financial hub in Asia, Hong Kong has provided substantial support for the promotion of virtual asset ETFs.

As early as December 19, 2022, Economic Daily reported that CSOP Asset Management Limited launched a virtual asset ETF, which was listed on the Hong Kong Stock Exchange on December 16. By 2024, following the U.S. approval of spot Bitcoin ETFs, calls for Hong Kong to advance spot Bitcoin ETFs grew louder. On April 6, Mr. Qiu Dagen, a member of the Legislative Council of the Hong Kong Special Administrative Region, stated in a speech at an event that “Hong Kong will soon see trading of spot Bitcoin ETFs,” and spot Bitcoin ETFs were subsequently listed by the end of the month. Meanwhile, Hong Kong took the lead in listing spot Ethereum ETFs, a development that indeed boosted morale across Hong Kong’s Web3 sector.

Currently, there are six spot virtual asset ETFs in Hong Kong, comprising three spot Bitcoin ETFs and three spot Ethereum ETFs, launched by AMC, Bosera & Hashkey, and Harvest. According to data from SoSoValue, as of August 13, the holdings of spot Bitcoin ETFs in Hong Kong totaled 4,200 BTC, with a market value of USD 894,300; spot Ethereum ETFs totaled 14,560 ETH, with a market value of USD 1.3 million.

Regarding the current state of development and market expectations for the future of virtual asset ETFs in Hong Kong, Jen Bai Zhen, Head of the Hong Kong Office of Mankun Law Firm, holds her own views.

 

Mankun Lawyer’s Perspective

Bai Zhen

Head of Mankun Law Firm’s Hong Kong Office

At the 2024 FORESIGHT Summit, Hong Kong’s strong support for virtual asset exchange-traded funds (ETFs) underscored the city’s global leadership in a new wave of financial innovation. Industry leaders such as HashKey Group and OSL have actively promoted the integration of digital assets with traditional financial instruments, demonstrating Hong Kong’s resolve to embrace the transformative potential of Web3. As virtual asset ETFs gain wider adoption, they will serve as a critical bridge between traditional finance and emerging decentralized technologies, laying the groundwork for a transition toward a more robust Web3 landscape. This new era will deepen the integration of blockchain, digital assets, and the real economy, bringing unprecedented opportunities for innovation and growth.

However, whether virtual asset ETFs can truly lead the development of the Web3 landscape depends on multiple factors, including regulatory developments, market education, and technological advancements. While support from industry leaders and financial intermediaries is encouraging, Hong Kong must continue to innovate and adapt to the rapidly evolving Web3 ecosystem to realize the profound market impact of virtual asset ETFs. This includes exploring new products such as staking for Ethereum ETFs, as noted by HashKey Group, which could trigger significant changes in global markets. Through proactive strategic positioning, Hong Kong is well positioned to lead the development of the global Web3 economy, deeply integrate digital assets into everyday financial practices, and set new standards for global markets.

Currently, within Hong Kong’s regulatory framework, the rules governing virtual asset ETFs are particularly stringent. The Securities and Futures Commission (SFC) requires that the management companies of these funds maintain a strong compliance record and be staffed with professional teams experienced in managing virtual asset products. In addition, service providers associated with these funds, such as fund administrators, market makers, and custodians, must meet the SFC’s high standards regarding competence and readiness. These requirements not only ensure the protection of investors’ interests but also enable them to access this emerging asset class.

The SFC’s regulatory oversight also extends to the valuation and custody of virtual assets held in these ETFs. For example, spot virtual assets must be primarily stored in cold wallets, with at least 98% of the assets safeguarded in this manner to mitigate risk. Furthermore, all transactions involving spot virtual assets must be conducted through SFC-licensed virtual asset trading platforms or institutions authorized by the Hong Kong Monetary Authority. This suite of regulatory measures reflects the SFC’s commitment to promoting the sound and transparent development of the virtual asset market while protecting investors.

Overall, the introduction of virtual asset ETFs in Hong Kong marks a significant advancement in the region’s financial markets. By allowing investors to gain direct exposure to virtual assets through spot ETFs, the SFC has not only facilitated broader access to this innovative asset class but also ensured that necessary protective measures are in place.

Special Disclaimer:

This article is an original work of Mankun Law Firm. It represents solely the personal views of the author and does not constitute legal advice or a legal opinion on any specific matter.

 

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