Can Chinese Investors Buy Hong Kong's New BTC and ETH ETFs?

On April 30, Hong Kong will mark a significant milestone in the cryptocurrency world by launching its first spot Bitcoin (BTC) and Ethereum (ETH) ETFs. Despite the enthusiasm surrounding these developments, mainland Chinese investors find themselves sidelined due to stringent regulatory frameworks that prohibit their participation.

China has one of the most restrictive approaches to cryptocurrencies globally. Following a comprehensive ban on the trading and mining of cryptocurrencies in 2021, the Chinese government continues to enforce a tight grip on digital asset activities. 

Chinese State Council directives issued in September 2021 further cemented these restrictions, prohibiting financial institutions from facilitating crypto-related transactions. This includes creating accounts, transferring funds, or providing any form of clearing services for crypto transactions.

Details of the ETF Launch

On April 15, a number of investment managers, including Harvest Fund Management, Bosera Asset Management, and China Asset Management, received conditional approvals from the Hong Kong Securities and Futures Commission (SFC) for the launch of Bitcoin and Ethereum spot ETFs.  

These issuers, though closely linked to mainland China, operate through their Hong Kong subsidiaries and are therefore compliant with the island city's regulatory norms which are distinct from those of mainland China.

The launch of these ETFs has been highly anticipated as a potential catalyst for increased Bitcoin and Ethereum prices due to the expected influx of investments. 

Analysts' Views on Market Impact

Initial speculations by firms like Matrixport suggested that these funds might attract as much as $25 billion from Chinese investors. However, realities differ significantly due to the regulatory barriers that prevent mainland capital from flowing into these Hong Kong-based ETFs.

Bloomberg analysts have clarified that the excitement might be overblown. They argue that despite Hong Kong's status as a financial hub, the actual market impact of these ETFs will be minimal when compared to the scale of the U.S. and mainland Chinese markets. 

James Seyffart of Bloomberg noted that while the Hong Kong ETF market is valued at around $50 billion, it pales in comparison to the nearly $9 trillion U.S. ETF market and the $325 billion ETF market of mainland China.

The distinct separation in market dynamics means that while the ETFs are a forward step for Hong Kong, they represent little more than a symbolic victory for the broader cryptocurrency industry, especially in terms of engaging Chinese investors. 

Thomas Zhu, head of digital assets at Hong Kong-based China Asset Management hinted that unless there are regulatory changes, mainland Chinese investors will remain on the sidelines.