Author: Xiao Sa, Lawyer
The Sa team had published an article a month ago, discussing the news that on April 15th, three fund companies announced through social media that they had been approved to issue ETF funds that can invest in spot Bitcoin and spot Ethereum. The news immediately triggered a global capital market reaction when it was announced, as Hong Kong, which has gone the furthest and fastest in the operation of crypto asset financial capital in the Asian region, added fuel to the crypto bull market on its own.
Just before Hong Kong approved the Bitcoin spot ETF, the U.S. Securities and Exchange Commission approved more than ten Bitcoin spot ETFs in one go, marking a milestone event in the crypto asset market. Following the United States, as a pioneer in crypto assets in the Asian region, Hong Kong's introduction of a Bitcoin spot ETF was a foregone conclusion. For those familiar with the regulatory direction of crypto assets in Hong Kong, the approval of the Bitcoin and Ethereum spot ETFs in Hong Kong was not surprising. According to public channels, two of the approved funds have chosen OSL as their licensed crypto asset trading platform, while the other has chosen to collaborate with HashKey. This shows that OSL and HashKey, as licensed crypto asset trading platforms allowed to serve retail clients, have begun to demonstrate significant advantages.
For Hong Kong residents, the Hong Kong Bitcoin/Ethereum ETF means that local residents can directly purchase spot Bitcoin and Ethereum using their securities accounts, without the need to open an account on a crypto asset exchange. Now the question arises, can mainland Chinese residents, like Hong Kong residents, directly trade spot Bitcoin ETFs using their securities accounts? Today, the Sa team will carefully discuss this issue.
Stock Connect, Shenzhen-Hong Kong Stock Connect, and the Hong Kong Bitcoin Spot ETF
Stock investors in the A-share market in China must have often seen a term: northbound funds. In the A-share market, "north" generally refers to the Shanghai and Shenzhen stock exchanges, while "south" refers to the Hong Kong stock market. Therefore, northbound funds refer to funds flowing from the Hong Kong stock market into the A-share market. When stock investors see a large influx of northbound funds, they subconsciously feel that a bull market is coming, and when they see a large outflow of northbound funds, they subconsciously feel that trouble is brewing and a bear market is imminent. The reason why funds from the Hong Kong stock market can flow into the A-share market (and vice versa, A-share funds can flow southbound into the Hong Kong stock market) is due to the Stock Connect and Shenzhen-Hong Kong Stock Connect mechanisms.
As the names suggest, the Shanghai-Hong Kong Stock Connect is an interconnection system for investors of the Shanghai Stock Exchange and the Hong Kong Stock Exchange, while the Shenzhen-Hong Kong Stock Connect is an interconnection system for investors of the Shenzhen Stock Exchange and the Hong Kong Stock Exchange. Through these two systems, investors of the Hong Kong Stock Exchange can invest in the A-share market (referred to as "northbound funds"); and A-share investors can also invest in the Hong Kong stock market (referred to as "southbound funds").
Returning to the topic of ETFs, the history of the Shenzhen-Hong Kong Stock Connect can be traced back to 2016, while the Shanghai-Hong Kong Stock Connect was established earlier, in November 2014. However, the interconnection of ETF products was much later. The ETF Interconnection officially started in July 2022. This mechanism allows qualified mainland and Hong Kong investors to cross-border invest in each other's ETF products.
From stock interconnection to ETF product interconnection, both the mainland's Shanghai and Shenzhen stock exchanges and the Hong Kong Stock Exchange are very cautious. The stocks that can be accessed by "northbound funds" must have sufficiently strong components, meeting a series of market value and liquidity requirements, usually consisting of the component stocks of major indices. The requirements for ETF products are even more stringent.
If mainland residents want to buy Hong Kong Bitcoin spot ETFs through the interconnection system, the Hong Kong Bitcoin spot ETFs must meet the various conditions set by the Hong Kong Stock Exchange. Can these conditions be met? The answer is currently no, but it is very likely to be possible in the future!
Index Components, a Current Issue, but Not Necessarily in the Future
The reason why the Sa team says that it is currently not possible to purchase Hong Kong spot Bitcoin ETFs through the interconnection system is because the Hong Kong Stock Exchange has clear requirements for the listing time and management scale of ETFs. However, from a developmental perspective, to be honest, these requirements can definitely be met in one or two years. The only current issue is the index components. Currently, the component securities of ETFs in the interconnection system mainly consist of Hong Kong stocks, but Bitcoin and Ethereum spot ETFs belong to virtual asset ETFs, which does not meet the requirement of having stocks as the main component securities. This is the core issue that urgently needs to be resolved. Of course, this issue is not insurmountable. In other words, this is purely a regulatory issue, and based on the currently disclosed information, a well-known fund investment company in Hong Kong has already indicated that it is currently working on opening Bitcoin and Ethereum exchange-traded funds to Chinese investors through the Stock Connect. The CEO of this well-known fund investment company also revealed through the media that if things progress smoothly in the next two years, there is no ruling out the possibility of applying to include its ETFs in the interconnection plan.
In other words, the Sa team predicts that it will take about two more years before mainland residents can invest in Hong Kong Bitcoin spot ETFs through the interconnection mechanism. So let's wait a little longer, what is meant to happen will eventually happen.
Final Thoughts
It must be said that Hong Kong Bitcoin and Ethereum ETFs have many advantages, the most important of which is security. Buying crypto asset spot ETFs does not require investors to physically hold and store assets such as Bitcoin and Ethereum, so investors no longer need to worry about situations such as the loss of their stored cryptocurrency private keys (a client of the Sa team once experienced a situation where a large number of Bitcoin private keys were lost due to improper storage). Another advantage is the low technical threshold. Hong Kong crypto asset spot ETFs can be traded directly on the Hong Kong Stock Exchange in a manner similar to trading traditional securities, without the need for more complex registration and KYC processes on major crypto asset trading platforms in Hong Kong. This significantly reduces the technical threshold for crypto asset trading, and traditional stock exchanges, due to their capital volume, have higher liquidity than most existing crypto asset trading platforms, and have more comprehensive regulatory measures.
It is precisely because of these many advantages that mainland investors also have the motivation to purchase Hong Kong Bitcoin spot ETFs. Of course, in recent exchanges with legal professionals, the Sa team has also heard other opinions, such as whether enabling mainland residents to purchase Hong Kong Bitcoin spot ETFs through the interconnection plan would violate the "Notice of the People's Bank of China and Seven Other Departments on Preventing the Risks of Issuing Financing with Tokens" and the "Notice on Further Preventing and Dealing with the Risks of Speculation in Virtual Currency Trading"? After all, these policies explicitly state that no account opening, fund settlement, and other services shall be provided for token-related businesses, and that virtual currency-related activities are illegal financial activities. The Sa team believes that this is not contradictory to the interconnection mechanism of the Hong Kong Bitcoin ETF. The background of the issuance of the above policies is that virtual assets lack regulation and seriously affect financial security and stability. However, the current investment in Hong Kong Bitcoin spot ETFs through the interconnection mechanism already has a sound mechanism and regulatory track record. In this situation, once the time is right, regulatory trends will naturally change, so let us look forward to the arrival of that day together.
免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。
