The Bitcoin Boom Continues: Hong Kong Approves Spot ETFs

According to this source, the Hong Kong securities regulator has approved today the first spot Bitcoin and Ethereum exchange traded funds (ETFs). This milestone is significant, as regulators have traditionally been very cautious from an investor protection perspective when it comes to cryptocurrencies. However, is the trend shifting? Regulators are certainly realizing that cryptocurrencies are not just a passing fad but a permanent presence in the financial landscape. For instance, Europe has introduced MiCAR (read e.g. “ EU Crypto-Assets Market: Easier to File Complaints Against Stablecoin Issuers” for more info) to regulate the cryptocurrency environment. Following the SEC's lead, the SFC has now become the second regulator to approve spot Bitcoin and Ethereum ETFs, accepting now the popular cryptocurrencies as a mainstream investment tool.

Bitcoin and Ether

Bitcoin and Ether (the native cryptocurrency of the Ethereum network) are the two most popular cryptocurrencies and continue to be in demand. Although the prices of these cryptocurrencies have experienced fluctuations, such as bitcoin having a value close to zero in its early days back in 2009 and reaching all-time highs of around $70,000, it is today trading at approx. $65,044.70 (Ether is priced around $3,258.49). Unlike Ether, Bitcoin has a pre-defined limit on its total supply, set at 21 million.

With the approval of spot Bitcoin ETFs, Bitcoin will become more accessible for retail investors since the price has become too high for the average retail investor. Investors can now basically purchase shares (ETFs) in a basket of Bitcoin/Ether managed by an investment fund.

Is Europe next?

Now that this has happened, will Europe likely follow suit? There are currently no indications that regulators in the EU will allow spot Bitcoin or Ethereum ETFs to be traded to retail investors. On the contrary, a February blog post from the ECB, following the SEC approval, indicates a continued cautious stance towards bitcoins. The ESMA Trend Risk and Vulnerabilities report of April 10, 2024, clearly states that cryptocurrencies are to be viewed with caution and still pose potential risks (extreme volatility and bubble risks) to consumers.

But what about the Jacobi AM’s bitcoin ETF that is traded on Euronext Amsterdam? These are regulated by the Guernsey Financial Services Commission (GFSC) and only accessible to professional investors. Furthermore, the structure of the Bitcoin ETF is setup as an AIF (i.e. in accordance with the Alternative Investment Fund rules) and not as an UCITS (rules on undertakings for collective investment in transferable securities). UCITS provides more harmonised rules on (EU level) diversification, which an ETF must comply to.

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