Hong Kong’s Bitcoin and Ether ETF Approval to Challenge China’s Crypto Restrictions

The recent approvals of spot Bitcoin (BTC) and Ethereum (ETH) ETFs in Hong Kong are poised to challenge the Chinese restrictions on trading digital assets in the country.

According to a DL News report on Friday, citing an interview with Alessio Quaglini, co-founder and chief executive of Hex Trust, a crypto custodian company, the recent introduction of the crypto ETFs in the Hong Kong market could indirectly expose Chinese investors to the digital asset space.

China ETFs Law Not Clear

Recall that in 2021, China banned all crypto-related activities, including trading, staking, and mining. However, Quaglini believes that with digital asset ETFs coming to the Hong Kong market, investors in mainland China could be granted the opportunity to explore the new investment products.

The Hex Trust co-founder said this could be possible because the law regarding ETFs in mainland China remains unclear. He is optimistic that the region’s interest in alternative assets like gold could suggest a potential appetite for crypto.

He further stated that allowing investors in mainland China to invest in the crypto ETFs could bring billions of dollars into the industry if the digital assets stance in China does not apply to ETFs.

China Unlikely to Allow Investors to Trade ETFs

Despite Quaglini’s optimism that China’s crypto restrictions will not extend to ETFs, Bloomberg senior ETF analyst Eric Balchunas said in a post on X (Twitter) that it is highly unlikely to happen.

Agree.. if Chinese investors start buying and the govt doesn’t crack down that could change things but as far as we know the govt ban on bitcoin will incl the ETFs and they DEF won’t be on the southbound connect program.

— Eric Balchunas (@EricBalchunas) April 15, 2024

He also warned investors not to expect massive inflows to the newly approved financial products like that of the United States because Hong Kong’s ETF market is small and will be considered lucky to even get up to $500 million.

“Don’t expect a lot of flows (I saw one estimate of $25b that’s insane). We think they’ll be lucky to get $500m. Here’s why: 1. The HK ETF market is tiny, only $50b, and Chinese locals cannot buy these, at least officially,” he wrote on X.

He also stated that the Hong Kong Securities and Futures Commission (SFC) has yet to approve an ETF for a prominent company like BlackRock, which could affect the expected inflow.

Chinese Investors Still Have Access to Crypto

China used to have a vibrant crypto market and was a preferred location for miners due to the country’s low electricity costs.  However, the tables turned when the country’s financial authorities enacted the law to ban crypto, and the companies fled to neighboring nations for safety, with some even going to the United States.

Despite the ban, investors across the country still need to find a way to access the crypto economy. According to a report from Chainalysis, a blockchain analytics company, crypto transactions emanating from the Chinese market reached $86.4 billion between July 2022 and June 2023.

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