Can mainland investors participate in the investment? Will there be the issuance of its virtual asset spot ETF?
Compiled by: angelilu, Foresight News
Huaxia Fund (Hong Kong) Limited ("Huaxia Fund (Hong Kong)") held a press conference today on "Asia's First - Spot Huaxia Bitcoin ETF and Spot Huaxia Ethereum ETF." Foresight News attended the conference and compiled excerpts and summaries of the questions and answers at the press conference, which are presented in a Q&A format on the eve of the listing of virtual asset ETFs in Hong Kong for users' reference.
The press conference was conducted by Zhu Haokang, Director of Digital Asset Management, and Family Wealth Management of Huaxia Fund (Hong Kong), and Wayne Huang, Head of OSL ETF and Custody Business.
Q: How does Huaxia Fund (Hong Kong) view the scale of capital inflows on the first day of trading of the Hong Kong cryptocurrency ETF?
Zhu Haokang: We are very confident that the trading volume on the first day of the listing of the Hong Kong virtual asset spot ETF will exceed that of the United States. The issuance scale of 10 American Bitcoin spot ETF issuers on the first day on January 10 this year was $125 million. Hong Kong will exceed $125 million, and Huaxia is confident in becoming the largest ETF issuer in terms of trading volume on the first day among the three issuers. The specific details will be revealed to everyone at 9:30 tomorrow morning.
Wayne Huang: There will be an announcement by the Hong Kong Stock Exchange at 9:30 tomorrow morning. However, OSL has indeed completed the first day of fundraising transactions with two funds (including Huaxia and another fund cooperating with us) today. From a numerical perspective, it is indeed far beyond the capital inflow of the first day of trading of the American Bitcoin spot ETF.
Q: What are the differences between the Spot Huaxia Bitcoin ETF, Spot Huaxia Ethereum ETF, and other ETFs?
Zhu Haokang: The first difference is that compared to the American spot Bitcoin ETF, we have spot and physical subscription and redemption, which the American spot Bitcoin ETF does not have.
In addition, there are two differences between Huaxia's products and the other two: Huaxia Fund's Hong Kong spot ETF is the only ETF with counters in Hong Kong dollars, US dollars, and renminbi. The second is that in addition to listed shares, we have unlisted shares. These two points are not available in the other two.
Q: Besides Hong Kong, which other investors are participating in the Hong Kong virtual asset spot ETF?
Zhu Haokang: Thanks to the physical subscription method, first, investors include Bitcoin mining farms, etc., which can use their held Bitcoin to directly purchase the Hong Kong virtual asset spot ETF. Second, outside of Hong Kong, there are currently no countries and regions where ETFs have been issued, such as Singapore, the Middle East, etc., where we have also contacted a large number of highly interested investors. In addition, despite the current very large market size of the American spot Bitcoin ETF market, compared to the United States, Hong Kong adopts cash and physical subscription, and is open for trading during the Asian trading session, which will still attract many American investors. Finally, multiple family offices in Asia and overseas are also very interested in spot cryptocurrency ETFs.
Q: Is Victory Securities the only brokerage currently qualified to conduct related transactions in physical subscription?
Wayne Huang: Currently, only Victory Securities can conduct physical subscription, but OSL is cooperating with another brokerage, Huaying Securities, to jointly promote the entire process of physical subscription. Therefore, after the ETF is listed tomorrow, many brokerages may follow suit, and there may be more brokerages participating in the entire ecosystem of virtual asset ETFs in May.
Q: What is the specific process for physical subscription?
Wayne Huang: Physical subscription is an innovation that distinguishes Hong Kong ETFs from American ETFs. First, the brokerage firm needs to upgrade its license to handle virtual asset transactions. Investors transfer their coins to OSL through this brokerage, and then ultimately transfer the equity to the fund's custody account to complete the entire process of physical subscription.
Q: What is OSL's anti-money laundering process in physical subscription? Can it accept the counterparty's wallet from the opposite exchange?
Wayne Huang: First, investors must open an account through the brokerage to connect to OSL. We will conduct whitelist verification on the wallet that is about to receive the coins, proving that this wallet is owned and controlled by the investor. Second, we will conduct certain screening on the investor's private wallet to see if there are any suspicious transactions in the past dozens of transactions on the chain. Only wallets that pass the whitelist verification can receive the coins.
As for whether the wallet can be from the opposite exchange, theoretically, this can be achieved if the anti-money laundering rules of the opposite exchange are consistent with OSL's rules. However, the opposite exchange needs to provide certain customer information.
Q: Can mainland investors participate in the Hong Kong cryptocurrency spot ETF? Or is there a possibility of opening it to mainland investors in the future?
Zhu Haokang: Currently, mainland Chinese investors cannot invest in the Hong Kong cryptocurrency spot ETF. Qualified investors, institutional investors, retail investors, and international investors who meet the requirements in Hong Kong can all invest in the cryptocurrency spot ETF. Specific details can be obtained from brokerages and sales channels, and continuous attention should be paid to whether there will be corresponding regulatory adjustments or specific regulatory frameworks in the future.
Q: The Hong Kong Ethereum spot ETF is the first of its kind globally, but if the United States ultimately determines "Ethereum" to be a security, will it affect the Hong Kong Ethereum spot ETF?
Wayne Huang: It should not, because whether the United States defines Ethereum as a security does not affect the independent decision of the Hong Kong Securities and Futures Commission. The Hong Kong Securities and Futures Commission has its own set of processes for determining whether a virtual asset is a security and whether it can be opened to retail traders. It will not be affected by different opinions among various departments in the United States or unilateral definitions by them.
I also want to emphasize why Hong Kong can be the first in the world to release an Ethereum spot ETF, rather than the United States. The United States has multiple departments simultaneously speaking or attempting to regulate cryptocurrencies. Hong Kong has already determined who should regulate cryptocurrencies early on, which is the Securities and Futures Commission. The Securities and Futures Commission has already provided a very clear regulatory framework. Hong Kong has had a clear definition of Ethereum for a long time. Ethereum is not a security, but one of the first non-securities virtual assets to be included in Hong Kong's regulation along with Bitcoin, and it can be provided to retail traders.
Q: Will Hong Kong launch ETFs for other virtual assets?
Wayne Huang: Currently, only Bitcoin and Ethereum. We have repeatedly discussed with the Securities and Futures Commission how compliant trading of virtual assets can be listed. Let me briefly share the process. First, the issuer of the virtual asset or ourselves needs to find a legal opinion explaining whether the asset is a security or not, and turn the legal opinion and our due diligence on the asset into a detailed research report to be submitted to the Securities and Futures Commission. Then, after the Securities and Futures Commission approves it, it will first be opened to professional investors. After a certain level of liquidity is reached and it is included in an index for some time, we can apply to the Securities and Futures Commission to upgrade the asset to be available for retail traders.
But so far, after 4 years of operation, OSL currently only has Bitcoin and Ethereum that can be opened for trading by retail traders. So, for the time being, indeed only these two assets meet the conditions for launching an ETF. However, we have always been discussing and researching with the Securities and Futures Commission.
Q: Will you consider launching ETFs for virtual assets with reverse leverage and other types?
Zhu Haokang: ETFs themselves are full of financial attributes, and financial attributes involve the innovation of many financial products. We have also seen some international investment banks make financial innovations and develop products similar to derivatives on existing American products. We are also closely monitoring and communicating with a large number of investment banks and brokerages. As a simple example, the Hong Kong Stock Exchange also allows ETFs to go short, and even to do margin trading. We are also in communication with our partners to create more income and financial product innovations for our ETF investors.
Q: How do you view the impact of cryptocurrency ETFs on cryptocurrency prices going forward?
Zhu Haokang: We believe that cryptocurrency ETFs will benefit cryptocurrency prices for several reasons. First, the Hong Kong cryptocurrency spot ETF market will inject more liquidity into the cryptocurrency market. Second, it will accelerate industry compliance. Third, it will expand funding channels. Fourth, investors may be able to arbitrage between ETF prices and spot prices, encouraging more market makers and arbitrage investors to participate actively. Fifth, with the approval of our cryptocurrency spot ETF, factors in traditional markets will directly impact the cryptocurrency market. Sixth, we believe that Hong Kong's regulatory framework is relatively clear, providing great convenience for the issuance of Bitcoin and Ethereum ETF products. Seventh, we believe that Hong Kong, as an international financial center, will attract Chinese investors to trade during the Asian trading session, increasing market liquidity and outperforming similar products in Europe or Canada.
Q: Huaxia's fees are higher than the other two Hong Kong companies, are you concerned about lacking competitiveness?
Zhu Haokang: I think everyone is concerned about the fee issue. First, the fee structure of Huaxia Fund Hong Kong fully complies with the standards of thematic and complex ETFs listed in Hong Kong. You can refer to the fee standards of past listed cryptocurrency, futures ETFs, and various thematic ETFs. Our fees are lower than the fees of similar types. Second, our product provides very high flexibility in trading options, supporting both listed and unlisted shares, as well as trading in US dollars, Hong Kong dollars, and renminbi, which is our unique advantage. Third, the complexity and innovation of the product determine the importance of our risk management and operational stability.
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