StakingMarketRegulationCryptostake ExplainsUncharted
Mainland China Investors Likely Excluded from Hong Kong's Bitcoin ETF Opportunity

Near-certain exclusion of Chinese crypto investors dwarfs the impact of the ETF approval in Hong Kong 

As previously reported by CryptoStake News, Hong Kong's financial authorities approved the first-ever spot Bitcoin and Ethereum exchange-traded funds (ETFs) – even beating the SEC to the punch on the Ethereum ETF. 

Key takeaways

  1. Chinese mainland investors might have only a very limited access to ETFs in Hong Kong. 
  2. Even with such access, Hong Kong approved EFTs won’t impact the market much.

While this could be a potential turning point for mainstream crypto adoption in Asia, a key question of whether mainland Chinese investors, representing a vast pool of potential capital, be granted access to these financial products - this question casts a shadow over this generally positive development. 

Brief recap of the Hong Kong ETF approval 

While an official announcement is pending, mainland Chinese investors are likely to be excluded from participating in Hong Kong's newly approved Bitcoin ETFs due to China's existing cryptocurrency restrictions.

On April 30th, 2024, Hong Kong granted conditional approval for the first spot Bitcoin and Ethereum exchange-traded funds (ETFs) in Asia, effectively positioning Hong Kong as a center for regulated crypto investment in Asia, with several Chinese asset managers receiving permission to launch their offerings. These firms include:

  • Bosera Asset Management: A prominent Chinese asset manager with over $120 billion in assets under management (AUM).
  • China Asset Management (Hong Kong) (ChinaAMC (HK)): The Hong Kong subsidiary of a leading Chinese asset manager, currently seeking regulatory clearance for virtual asset management services.
  • Harvest Fund Management: A major Chinese asset manager with a focus on various investment products, including potentially launching a spot Bitcoin and Ethereum ETF.

And while institutional players got their skin in the game, retail and smaller-scale investors in mainland China, which maintains a ban on cryptocurrencies, are unlikely to receive the same privilege. 

The Chinese crypto ban still stands, remember? 

While the prospect of mainland Chinese investor participation in these Hong Kong ETFs was initially enticing, the reality appears less optimistic. It's important to remember the strong stance taken by the Chinese government in September 2021, when the State Council issued a statement prohibiting financial institutions from facilitating any cryptocurrency transactions, including account creation, fund transfers, and clearing services. 

Reports from Chinese traders further indicate that brokers are swiftly rejecting trades related to futures-based crypto ETFs. These developments suggest a similar fate for the Hong Kong-approved spot ETFs, limiting access for mainland Chinese investors and significantly reducing the overall market impact.

The government might leave a small window open 

Despite the current restrictions, a narrow window for limited access for mainland Chinese investors remains, albeit a highly improbable one. This possibility hinges on potential upcoming regulatory changes. 

As a precedent, we can consider the successful establishment of the Mainland-Hong Kong Stock Connect program launched in 2014 through a collaborative effort by regulators on both sides. This program allows mainland investors to directly trade eligible Hong Kong stocks and ETFs. 

Bottom line: it’s won’t make any difference

Even if mainland Chinese investors were granted some form of limited access to these Hong Kong-based ETFs, their impact on the overall market might be relatively muted. The sheer size disparity between established markets and the fledgling Hong Kong scene is a significant factor. The US ETF market boasts a staggering $9 trillion in assets under management, dwarfing both Hong Kong's modest $50 billion and even mainland China's $325 billion. 

This suggests that even with some Chinese participation, the capital injection wouldn't be on the same scale as the US market. Consequently, the recent Hong Kong ETF approval has had, and likely will continue to have, a limited impact on the broader cryptocurrency market, regardless of potential limited access for mainland Chinese investors