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Hong Kong Firm Targets Spot Bitcoin ETF Launch in First Quarter

(Bloomberg) -- A Hong Kong financial services company aims to start an exchange-traded fund investing directly in Bitcoin this quarter as the city pushes ahead with efforts to develop a digital-asset hub.

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Venture Smart Financial Holdings Ltd. said it plans to lodge an application with the Securities and Futures Commission to start the ETF. The regulator last month issued guidelines for spot crypto fund approvals for the first time.

“It’s a market that has huge potential,” said Brian Chan, group head of investment and product at the company, also known as VSFG. “Our goal is $500 million in assets under management by the end of this year.”

Spot crypto ETFs are in the spotlight after a slew of much-hyped Bitcoin funds went live in the US, including from issuers such as BlackRock Inc. and Fidelity Investments. The largest digital asset more than doubled last year in anticipation of the US products but has slipped about 10% since the vehicles began trading on Jan. 11, as traders asses how much cash they attract.

Hong Kong allows futures-based crypto ETFs and three have listed so far: CSOP Bitcoin Futures, CSOP Ether Futures and Samsung Bitcoin Futures. They have relatively modest combined assets of about $50 million.

Samsung Asset Management said it wouldn’t “eliminate the possibility of exploring to launch a spot ETF.” CSOP Asset Management didn’t respond to a request for comment.

The SFC said it didn’t have any comment beyond the guidelines it published in December. If the history of traditional ETFs is any guide, the approval process for such products can take weeks to months.

VSFG offers traditional and digital wealth management services and is among Hong Kong’s first SFC-approved virtual asset managers, according to its website.

Aegis Custody, a digital-asset custodian, is in talks with four asset managers about listing spot crypto products in Hong Kong, the company’s Chief Executive Officer Serra Wei said. The city’s regulatory requirements are likely to lead issuers to charge higher fees compared with the low management levies at many of the new US spot Bitcoin ETFs, Wei said.

Hong Kong’s Framework

Hong Kong rolled out a dedicated virtual-asset regulatory framework in June, part of an effort to restore its luster as a cutting-edge financial center. The rules seek to woo companies but also focus on investor protection. Retail investors can trade major tokens like Bitcoin and Ether on licensed exchanges.

While Hong Kong offers a local market and a conduit to Chinese wealth, it remains unclear just how much crypto activity the city can really support.

“CSOP Asset Management could lead the race in the Asia Pacific” for spot digital-asset ETFs, said Bloomberg Intelligence ETF analyst Rebecca Sin. She pointed out CSOP products account for the bulk of the funds under management in the current futures-based digital-asset ETFs in Hong Kong.

The start of the US funds has ruffled some Asian jurisdictions, particularly South Korea, which remains well-known for periodic virtual-asset manias. South Korea’s presidential office asked the nation’s financial regulator to refrain from taking a specific stance on spot Bitcoin ETFs, amid confusion over whether brokers would break local laws if they allow investors to trade the products.

--With assistance from John Cheng, Kiuyan Wong and Shinhye Kang.

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