Hong Kong's First Bitcoin ETF Application as US Fees Slashed

Since the SEC's approval of Bitcoin ETFs, Bitcoin has traded relatively sideways. Up only 3% over the month, we've seen the world's leading cryptocurrency edge upwards, fall downwards, and recover again.

However, whilst Bitcoin hasn't made any significant advancements, the same can't be said for Bitcoin ETFs. As Skybridge Capital founder and managing partner Anthony Scaramucci waits for Bitcoin halving to boost the world's leading crypto to $170,000, Blockhead takes a look at how Bitcoin ETFs have been unfolding this month.

Hong Kong's Inevitable Steps

Shortly after the SEC approved Bitcoin ETFs in the US, Ripple's APAC Policy Director, Rahul Advani, told Blockhead that the regulator's decision could encourage other regulators in the region to consider greenlighting similar products.

"Hong Kong's Securities and Futures Commission (SFC) released a circular a few weeks ago indicating that they are open to retail-focused ETFs being listed in Hong Kong," he said. "It'll be interesting to see how this will impact the industry in the medium term. For the long term, it is positive for the industry."

According to Tencent News, the Hong Kong arm of Chinese asset manager Harvest Fund Management has submitted an application for a spot Bitcoin ETF to the SFC.

The firm hopes to launch Hong Kong's first ETF after the Lunar Year holiday, which is on 10 February.

According to OSL executive director and head of regulatory affairs Gary Tiu, Hong Kong could see its first crypto ETFs within a few months.

Tiu told local media that five to ten companies are studying such ETFs, with five progressing further than others. He added that there is pressure on the fund creators to maintain low competitive fees for these products.

“These ETFs offer several crucial benefits, including promoting orderly markets for underlying digital assets, establishing a model for local investor protection, and accelerating integration between regulated digital asset platforms and traditional financial institutions,” Tiu said to The Block.

There are currently only two licensed exchanges in Hong Kong: OSL and HashKey. The latter also believes ten companies are exploring launching crypto ETFs.

Earlier this month, Livio Weng, chief operating officer of Hong Kong crypto exchange HashKey, said that around 10 fund companies have started looking into launching potential spot crypto ETFs in the city.

Hong Kong-based Venture Smart Financial Holdings Ltd. (VSFG) said it aims to launch its spot bitcoin ETF within the first quarter, according to Bloomberg.

Singapore Still Says No

Questions over whether Hong Kong or Singapore will be the region's key digital asset hub have long been considered. However, whilst Hong Kong has expressed enthusiasm over Bitcoin ETFs, the Monetary Authority of Singapore (MAS) has fervently reiterated its stance.

ETFs are part of the collective investment schemes (CIS) accessible to retail investors in Singapore, and are regulated under the Securities and Futures Act, MAS said.

"Given this, spot Bitcoin ETFs are not approved by MAS for offer to retail investors," the regulator clarified.

US Fee Restructure

As Hong Kong regulators mull over approving Bitcoin ETFs while Singapore continues to play hardball, competition continues to heat up in the US.

Invesco Galaxy has reportedly lowered the fee for its Bitcoin ETF, BTCO. Fees have been waived for either the first six months or the first $5 billion of assets, after which a reduced fee from 0.39% to 0.25% will be implemented.

The new structure is in line with competitors Rock's BlackRock, Valkyrie, VanEck, and Fidelity.

This is what the fee table looks like now: pic.twitter.com/LPvd6YwGWJ
— James Seyffart (@JSeyff) January 29, 2024

Even ahead of the SEC's approval, these Bitcoin ETF issuers were already lowballing each other. Bitwise Bitcoin ETF, ARK 21Shares Bitcoin ETF and Invesco Galaxy ETF were set to launch with a fee of just 0%.

BlackRock, the OG Bitcoin ETF applicant, proposed a fee of just 0.20% on the first $5 billion and 0.30% thereafter for its iShares Bitcoin Trust.

WisdomTree placed a 0.5% fee on its trust whilst VanEck will impose a 0.25%. VanEck has also pledged 5% of its profits from the Bitcoin ETF to core developers at Brink.

Franklin Templeton now has the lowest fee of 0.19% after waiver whilst iShares, VanEck, and Grayscale are the only issuers implementing fees irrespective of waivers of 0.12%, 0.25%, and 1.5% respectively.

Nate Geraci, president of the ETF Store, said the number of issuers with low fees “speaks to how brutally competitive this category will be.”

Grayscale Bitcoin Trust (GBTC) redemptions exceeded $1.6 billion within the first four days of the ETF conversion. Some believe these investors rotated their funds into other ETFs due to GBTC's high fee.

"The GBTC fee at 1.5% still looks too high compared to other spot bitcoin ETFs risking further outflows even if for some institutional investors fees are not the only reason to consider when deciding whether to shift to cheaper spot bitcoin ETFs," JP Morgan analyst Nikolaos Panigirtzoglou said.

He also argues that GBTC investors who bought at a discount to net asset value (NAV) ahead of the ETF conversion might be taking profits.

"It looks like GBTC investors who over the past year had been buying the GBTC fund at a significant discount to NAV to position for its eventual ETF conversion, have been taking full profit post-ETF conversion by exiting the bitcoin space entirely rather than shifting to cheaper spot bitcoin ETFs," Panigirtzoglou said.