Huaxia Fund (Hong Kong) Limited (“Huaxia Fund (Hong Kong)”) held a press conference today to announce the launch of the “Asia’s First – Spot Huaxia Bitcoin ETF and Spot Huaxia Ethereum ETF.” Foresight News attended the conference and compiled a Q&A session with excerpts and summaries of the questions and answers. This quick Q&A format is provided as a reference for users on the eve of the listing of the Hong Kong Virtual Asset ETF.
This press conference was attended by Zhu Haokang, Head of Digital Asset Management and Family Wealth Management at Huaxia Fund (Hong Kong), and Wayne Huang, Head of OSL ETF and Custody Business, who answered the following questions:
Q: How does Huaxia Fund (Hong Kong) view the scale of funds inflow for the first day of trading of the Hong Kong Cryptocurrency ETF?
Zhu Haokang: We are very confident that the trading scale on the first day of listing of the Hong Kong Virtual Asset Spot ETF will exceed the scale of the first day of trading in the United States. On January 10th, ten US Bitcoin spot ETF issuers had an initial issuance scale of $125 million. Hong Kong will exceed $125 million, and Huaxia is confident in becoming the ETF issuer with the largest trading scale on the first day among the three issuers. The specific answer will be revealed to everyone tomorrow morning at 9:30.
Wayne Huang: There will be an announcement from the Hong Kong Stock Exchange tomorrow morning at 9:30. However, OSL has indeed completed the first day’s fundraising transactions today with two funds (including Huaxia) on OSL. Based on the numbers, the funds inflow for the first day of trading of the Hong Kong Bitcoin spot ETF is expected to far exceed that of the US Bitcoin spot ETF.
Q: What are the differences between the Spot Huaxia Bitcoin ETF and the Spot Huaxia Ethereum ETF and other ETFs?
Zhu Haokang: The first difference is that compared to the US Bitcoin spot ETF, we have spot and physical subscription and redemption, which the US Bitcoin spot ETF does not have.
In addition, there are two differences between Huaxia’s products and the other two. Huaxia Fund’s Hong Kong spot ETF is the only ETF with Hong Kong dollar, US dollar, and RMB counters. The second is that we have non-listed shares in addition to listed shares. These two points are not available in the other two.
Q: Besides Hong Kong, which other investors are participating in the Hong Kong Virtual Asset Spot ETF?
Zhu Haokang: Thanks to the physical subscription method, the first investors include Bitcoin mining farms, who can directly purchase the Hong Kong Virtual Asset Spot ETF with their Bitcoin holdings. Secondly, there are many interested investors from countries and regions outside Hong Kong that have not yet issued ETFs, such as Singapore and the Middle East. Additionally, despite the current large scale of the US Bitcoin spot ETF market, compared to the US, Hong Kong adopts cash and physical subscriptions and is open for trading during the Asian trading session, which will still attract many US investors. Finally, multiple family offices in Asia and overseas are also very interested in the spot cryptocurrency ETF.
Q: Currently, is Victory Securities the only brokerage firm qualified to conduct physical subscriptions?
Wayne Huang: Victory Securities is not the only one qualified to conduct physical subscriptions. With the support of OSL, Huaying Securities can also do so. Currently, there are three brokerage firms that can conduct physical subscriptions, and more will follow in the future. So after the ETF is listed tomorrow, many brokerage firms will follow suit, and there may be more brokerage firms participating in the entire ecosystem of virtual asset ETFs in May.
Q: What is the specific process for physical subscriptions?
Wayne Huang: Physical subscription is an innovation of the Hong Kong ETF compared to the US ETF. First, the brokerage firm needs to upgrade its license to be able to handle virtual asset transactions. Investors need to transfer their assets to OSL through the brokerage firm, and then transfer the shares to the fund’s custody account, completing the entire process of physical subscription.
Q: What is the anti-money laundering process for physical subscriptions at OSL? Can the counterparty of the transaction be a wallet from another exchange?
Wayne Huang: First, investors must open an account with OSL through a brokerage firm. We will conduct a whitelist verification of the wallet that will receive the funds, proving that the wallet is owned and controlled by the investor. Secondly, we will conduct a screening of the investor’s private wallet to see if there have been any suspicious transactions in the past dozens of transactions on the blockchain. Only wallets that pass the whitelist verification can receive the funds.
As for whether the wallet can be from another exchange, theoretically, it is possible if the anti-money laundering rules of the counterparty exchange are consistent with OSL’s rules. However, the counterparty exchange would need to provide certain customer information.
Q: Can the Hong Kong Cryptocurrency Spot ETF be opened to mainland Chinese investors? Is there a possibility of opening it to mainland Chinese investors in the future?
Zhu Haokang: Currently, mainland Chinese investors cannot invest in the Hong Kong Cryptocurrency Spot ETF. Qualified investors, institutional investors, retail investors, and eligible international investors in Hong Kong can all invest in the cryptocurrency spot ETF. For specific information, you can consult brokerage firms and sales channels and continue to pay attention to whether there will be corresponding regulatory adjustments or specific regulatory frameworks in the future.
Q: The Hong Kong Ethereum Spot ETF is the first of its kind globally, but will it be affected if the US eventually determines that “Ethereum” is a security?
Wayne Huang: It shouldn’t be, because whether the US defines Ethereum as a security does not affect the independent decision of the Hong Kong Securities and Futures Commission. The Securities and Futures Commission in Hong Kong has its own set of processes for determining whether a virtual asset is a security and whether it can be opened to retail traders. The regulatory framework in Hong Kong for Ethereum has been established early on. Ethereum is not considered a security but rather a non-security virtual asset that was included in Hong Kong’s regulation along with Bitcoin from the beginning and can be offered to retail traders as one of the two underlying assets.
Q: Will Hong Kong launch ETFs for other virtual assets?
Wayne Huang: Currently, only Bitcoin and Ethereum. We have had repeated discussions with the Securities and Futures Commission on the process of listing compliant trades in Hong Kong. I will briefly share it with you. First, we need the issuer of the virtual asset or ourselves to obtain a legal opinion stating whether the asset is a security or not, and then turn the legal opinion and our due diligence on the asset into a detailed research report to be submitted to the Securities and Futures Commission. After the Securities and Futures Commission approves it, it will initially be opened to professional investors. When it reaches a certain level of liquidity and is included in an index after a period of time, we can then apply to the Securities and Futures Commission to upgrade the asset to be available for retail traders.
But so far, after 4 years of operation, OSL can currently only offer Bitcoin and Ethereum for retail trading. In other words, for now, only these two assets meet the conditions for launching an ETF. However, we have been discussing and researching with the Securities and Futures Commission.
Q: Will you consider launching inverse leveraged ETFs for virtual assets?
Zhu Haokang: ETFs themselves are full of financial attributes, which involve the innovation of many financial products. We have also seen some international investment banks conducting financial innovation and developing derivatives-like products based on existing US products. We are closely monitoring and communicating with a large number of investment banks and brokerage firms. As a simple example, the Hong Kong Stock Exchange allows ETFs to be shorted and even do margin trading. We are also in communication with our partners to create more returns and financial product innovations for our ETF investors.
Q: How do you view whether the introduction of a cryptocurrency ETF will affect the price of cryptocurrencies?
Zhu Haokang: Based on multiple factors, we believe that a cryptocurrency ETF will be beneficial to the price of cryptocurrencies. Firstly, the Hong Kong cryptocurrency spot ETF market will inject more liquidity into the cryptocurrency market. Secondly, it will accelerate the compliance of the industry. Thirdly, it will expand the channels for funds. Fourthly, investors may be able to arbitrage between the ETF price and the spot price, which will attract more market makers and arbitrage investors to actively participate. Fifthly, with the launch of our cryptocurrency spot ETF, factors from traditional markets will directly impact the cryptocurrency market. Sixth, we believe that Hong Kong’s regulatory framework is relatively clear, and the issuance of Bitcoin and Ethereum ETF products provides great convenience. Lastly, we believe that as an international financial center, Hong Kong will attract Chinese investors to trade during the Asian trading session, increasing market liquidity and performing better than similar products in Europe or Canada.
Q: Huaxia’s fees are higher than the other two Hong Kong companies. Are you concerned about the lack of competitiveness?
Zhu Haokang: I think everyone is concerned about the fee issue. Firstly, the fee structure of Huaxia Fund Hong Kong fully complies with the standards of thematic and complex ETFs listed in Hong Kong. You can refer to the fee standards of past listed cryptocurrency, futures ETFs, and various thematic ETFs. Our fees are lower than the fees of similar types. Secondly, our products provide high flexibility in trading options, supporting both listed and non-listed shares, and all three counters of USD, HKD, and RMB. This is our unique advantage. The third point is that the complexity and innovation of the product determine the importance of our risk management and operational stability.