As Hong Kong’s ether ETFs face US competition, different crypto investors may flock to city

Hong Kong’s approval of spot ether ETFs in April was seen as a unique but brief advantage for the city, which may now attract investors looking to avoid US taxes

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Representations of ether, the native token of the Ethereum blockchain, pictured on November 29, 2021. Photo: Reuters

Published: 7:00am, 18 Jul 2024Updated: 2:25pm, 19 Jul 2024

Hong Kong may face fresh challenges as its lead in offering exchange-traded funds (ETF) that invest directly in ether, the world’s second largest cryptocurrency token, may soon disappear with the imminent launch of similar products in the much larger US market, but the city could remain attractive to a specific set of investors it tries to become a virtual asset hub.

The US Securities and Exchange Commission (SEC) has given “preliminary approval” to some asset managers to launch their own spot ether ETFs, Reuters reported on Tuesday, citing anonymous sources. The regulator previously permitted stock exchanges to list ether products in May, following the landmark launch of a range of spot bitcoin ETFs on US exchanges in January.

Hong Kong was the first major financial market to approve spot ether ETFs, which launched on the city’s stock exchange along with spot bitcoin ETFs in April. By including ether in its crypto ETF approvals, Hong Kong was seen as having a unique advantage over the US, if only briefly.

Since late 2022, Hong Kong has been making a major push to attract crypto-related business to the city by offering regulatory clarity in difference segments of the industry. Spot crypto ETFs are one of the latest moves, along with proposed stablecoin regulations that on Wednesday concluded public consultation. The Hong Kong Monetary Authority (HKMA) said there was broad consensus for its proposals that include licensing for issuers of crypto tokens tied to fiat currency.

Physical representations of bitcoin and ether tokens are presented during the listing ceremony of the spot cryptocurrency ETFs issued by China Asset Management at the Hong Kong stock exchange on April 30, 2024. Photo: Bloomberg

With ETFs, similar product offerings in the US may overshadow those in Hong Kong given New York’s much larger trading volumes. However, experts said Hong Kong could still benefit from the upcoming launch.

US spot ether ETFs could increase investor awareness in Hong Kong of Ethereum, the blockchain for ether, according to Deng Chao, CEO of HashKey Capital, a local cryptocurrency firm that worked with Chinese fund house Bosera Asset Management to launch bitcoin and ether ETFs in the city.