Hong Kong ETFs: Issuers Claim Mainland China Funds Cannot Invest In Crypto Products

Bitcoin and Ether spot exchange-traded funds (ETFs) are set to receive the final approvals in Hong Kong as early as Monday next week. According to a recent Matrixport report, these investment products could unlock up to $25 billion in demand from Chinese investors through the Southbound Stock Connect program.

However, the latest revelations and clarifications from several issuers have found this Matrixport report to be false. 

Why Mainland China Investors Can’t Buy Hong Kong-Listed ETFs

In a recent post on the X platform, crypto journalist Colin Wu revealed that Southbound funds from mainland China are not allowed to invest in crypto ETFs listed in Hong Kong. This contradicts previous reports forecasting substantial capital inflows from mainland Chinese investors into the investment vehicles.

Singapore-based crypto services provider Matrixport said in a report:

A likely approval of Hong Kong-listed Bitcoin Spot ETFs could attract several billion dollars of capital as mainland investors take advantage of the Southbound Connect program, which facilitates up to 500 billion RMB (HK$540 billion and $70 billion] per year in transactions.

Typically, the Southbound Stock Connect enables qualified mainland China investors to access eligible Hong Kong-listed shares. However, this does not include crypto investment products, such as the spot BTC and ETH exchange-traded funds.

Several issuers of Bitcoin ETFs in Hong Kong told WuBlockchain that southbound funds from mainland China are definitely unable to buy cryptocurrency ETFs, and the Matrixport report is false. An earlier Matrixport report indicated that Bitcoin spot ETFs listed in Hong Kong are…

— Wu Blockchain (@WuBlockchain) April 13, 2024

This restriction is due to mainland China’s strict measures and regulations on the use of cryptocurrencies and investment in crypto products. While mainland China has maintained its conservative stance on digital assets, Hong Kong has continued to position itself as a pivotal hub in the Asian cryptocurrency market.

Impact On The Debut Of ETF Trading

As reported by Bitcoinist, Hong Kong’s Securities and Futures Commission (SFC) is now in the final stages of approving the trading of Bitcoin and Ether ETFs in the special administrative region. The rollout of these products was expected to pull significant fresh capital not only from Hong Kongers but also from mainland China.

The launch of similar Bitcoin ETFs in the United States earlier in January has painted a positive picture of significant capital inflows into the digital asset sector. In fact, the success of these investment vehicles has been associated with the current bullishness of Bitcoin, the largest cryptocurrency by market capitalization, so far this year.

However, the latest clarification from the ETF issuers has sparked the need for a reassessment of the market expectations from the launch of these crypto investment products in Hong Kong. Investors anticipating significant market participation might want to reevaluate their positions, especially with the regulatory restrictions posing an obstacle to capital inflows from mainland China.