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Hong Kong could become Asia’s crypto hub with Bitcoin and Ethereum ETFs

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Each day, Coinrule will run through the state of the digital assets market for Blockbeat, your home for news, analysis, opinion and commentary on blockchain and digital assets.

After the weekend’s volatility due to the increasing conflict in the Middle East, crypto saw some positive news coming from Hong Kong yesterday. Bitcoin and Ethereum spot exchange traded fund (ETF) applicants in Hong Kong posted on social media that authorities had approved their applications. The region will be the first in Asia to offer spot ETFs. Is this the beginning of Hong Kong’s crypto dominance? 

On Monday, four China and Hong Kong-based asset managers stated they have received approval for their spot Ethereum and Bitcoin ETF applications. The “one country, two systems” principle uniquely positions Hong Kong as China’s bridge to international financing. However, tight Chinese government capital controls limit international investments in non-yuan denominated assets. Regardless, an exodus of capital has occurred in Chinese markets, as perceptions of China’s economic prospects remain pessimistic. Deteriorating profits for Chinese financial firms appears to be a catalyst for change. Asset managers are now more open to diversifying their product offering into an emerging sector, such as crypto, through enabling ETFs. 

Over the past 12 months, the Shanghai Composite Index is down by over 8%. In comparison, the US’s S&P 500 is up nearly 25% and Bitcoin is up by nearly 120%. Gold has also experienced recent appreciation, as it pushed to new all-time highs on Friday of nearly $2,400. Gold’s move has been driven by Chinese citizens according to John Reade, chief market strategist at the World Gold Council. Eric Balchunas also reported last week that Chinese buying pushed a gold stock ETF to a 30% premium before it halted trading. Evidently, Chinese demand for decentralised international assets, acting as stores of value, is high. 

However, for now, Chinese investors are still unable to legally buy crypto, even if the demand is there. China has seemingly banned crypto several times, with the 2021 ban still in place. Nevertheless, non-compliance has not stopped Chinese investors from stacking crypto. According to ChainAnalysis, from May 2022 to June 2023, Chinese crypto volumes reached $86 billion, with Hong Kong’s volumes hitting $64 billion.

However, Hong Kong may have incoming crypto ETF competition in Asia. South Korea’s newly elected government has vowed to support Bitcoin spot ETFs. South Korean crypto demand is so high, Bitcoin is currently trading at a 7% premium on South Korean exchange UpBit. The exchange’s trading volumes also skyrocketed by over 172% from February to March. Let’s see who wins the battle for Asian crypto supremacy.

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