Hong Kong “Forces” US to Approve Ethereum ETF
On April 15, 2024, spot ETFs for Bitcoin (BTC) and Ethereum (ETH), the cryptocurrency of the Ethereum network, were approved in Hong Kong.
These funds allow you to indirectly engage with these digital currencies through regulated stock instruments, much like trading stocks. The approval is not final, as applicants must still meet regulatory requirements and submit documents before listing on the Hong Kong Stock Exchange.
Regardless, everything is in motion, and BTC and ETH are soon to debut on the Hong Kong Stock Exchange, the world’s fifth-largest financial market.
The high expectations for cryptocurrency ETFs in Hong Kong are not due to the Hong Kong market itself. Investment fund expert Eric Balchunas explains, “The Hong Kong ETF market is small, only $50 billion.” Balchunas added, “Other countries adding Bitcoin ETFs is undoubtedly cumulative, but it’s insignificant compared to the robust US market.”
To understand why the approval of a Bitcoin ETF in Hong Kong is important, you must first know that Hong Kong is not an independent country but has been legally part of the People’s Republic of China since 1997—after being a British colony for 155 years. Even so, it is a Special Administrative Region with its own laws and regulations.
One of the differences between mainland China and Hong Kong is the use of Bitcoin and cryptocurrencies. While they are banned in mainland China, they are permitted and thrive in the Hong Kong islands.
You might think of Hong Kong as China’s financial testing ground. Therefore, if Bitcoin and Ethereum ETFs are successful on the island, the Chinese government might be forced to relax its stance on cryptocurrencies, if only to avoid being excluded from the industry.
Following this logic, the approval of Bitcoin and Ethereum ETFs in Hong Kong not only strengthens the position of these cryptocurrencies in the Asian market but also sets an important precedent that could influence regulatory decisions in other jurisdictions, particularly the United States.
The US has already approved a Bitcoin spot ETF, but regulation regarding Ethereum remains uncertain. The US Securities and Exchange Commission (SEC) has been debating whether Ether should be considered a security or a commodity. This distinction defines the range of regulations and oversight the asset would be subject to.
But now, the US may find itself in a position where not approving an Ethereum ETF would mean a significant portion of the market could be captured by Hong Kong.
Moreover, the geopolitical backdrop of these financial developments cannot be ignored. The economic competition between China and the US is evident in trade, technology, and finance. Given that Hong Kong can be seen as a testing ground for China’s cryptocurrency policies, the US faces significant pressure to adapt and compete.
In this context, there’s reason to believe that the approval of an Ethereum ETF in Hong Kong could act as a catalyst for the US to respond. This is not only due to the pressure of not falling behind in financial and technological innovations but also the pressure to maintain its status as a global financial superpower.
If Hong Kong successfully captures a significant share of the Ethereum market, the US may be compelled to follow suit to avoid losing influence in the cryptocurrency sector, increasingly viewed as a crucial part of the future of global finance.
Thus, the approval of an Ethereum ETF in Hong Kong seems not only likely but may indeed force the US to do the same. In this way, Hong Kong is not only testing its own market but might actually “force” the US to fully engage in the Ethereum ETF game.
Perhaps, we will know the outcome of this story on May 23, which is the deadline for the US SEC to decide whether to approve an Ethereum spot ETF.