The U.S. approval of a spot Bitcoin ETF has sparked a trading frenzy, setting the stage for growing institutional interest in Asia.

On January 10, 2024, the U.S. Securities and Exchange Commission (SEC) approved several applications for spot Bitcoin ETFs. The first-day trading volume reached $4.6 billion, and by February 22, the cumulative trading volume exceeded $50 billion. It is expected that the approval of ETFs in the United States will have a profound impact on the Asian market, especially in terms of the accelerated pace of institutional investment.

The question on the minds of observers, investors and industry participants is: “What happens next?” By taking stock of what’s happening in the U.S. and looking east, we can better understand markets like Hong Kong and what to expect in other countries in the region.

Focus on Hong Kong

There is optimism about Hong Kong approving a spot Bitcoin ETF. In January, they accepted the first application from a major Chinese asset fund (Harvest Fund Management). Although people are hoping for approval as early as the first quarter of 2024, it would not be surprising to see approval not appear until at least the second quarter. It usually takes weeks to months for the Hong Kong Securities and Futures Commission (SFC) to approve traditional ETFs.

Given that Hong Kong has already approved a number of cryptocurrency ETF futures funds (including CSOP Bitcoin Futures, CSOP Ethereum Futures, and Samsung Bitcoin Futures), it is reasonable to expect and believe that the path to spot ETF approval will follow over time.

On the surface, granting these approvals seems to make sense in every way. Hong Kong serves as a gateway to Chinese wealth and has built a regulatory environment that matches its depth of asset management and wealth management. In addition, because Hong Kong already offers Ethereum futures, they may be more willing to accept a spot Ethereum ETF.

In contrast to the United States, the SEC has received an application for a spot Ethereum ETF and is required to respond by May 23, although earlier submissions are allowed; on February 7, the SEC issued a delay statement.

Assessing the likelihood of ratification by other Asian countries

At present, it seems that in the Asia-Pacific region, three major countries, including China, Thailand and Singapore, have not yet started or entered any substantial development or approval stage. It is expected that major Asian countries such as Japan, South Korea and Australia may follow the general path of the United States and Hong Kong; although these countries are still in the early stages, people have expressed great interest in these products. The regulatory environment in each country is slightly different, so the path to the approval of crypto products will also be different.

South Korea

The country’s Virtual Asset User Protection Act will come into effect in July 2024. This gives the Financial Services Commission and the Bank of Korea the power to oversee cryptocurrency exchanges and custodians. While news reports offer conflicting information about the likelihood of spot Bitcoin approval, two key factors suggest optimism.

First, politicians running for office are more open to the idea. Second, Financial Supervisory Service Director Lee Bok-hyun will meet with U.S. SEC Chairman Gary Gensler in May to discuss a spot Bitcoin ETF. At the very least, this shows that South Korea is open to this financial product.

Japan

There are also encouraging signs in Japan. According to the Ministry of Economy, Trade and Industry, the country's cabinet approved a bill that would allow domestic investment funds and venture capital firms to acquire cryptocurrencies. If passed by parliament, it will become law. In addition, as part of a coalition of more than seventy Japanese companies, some of the country's largest financial institutions are expected to privately launch a yen-backed digital currency in July 2024.

Meanwhile, Japan’s government pension fund recently mentioned that it is requesting information on “liquid assets” such as Bitcoin as part of its research into potential new investments. While neither action would directly allow for a spot Bitcoin ETF, they would both play a role in creating a friendlier cryptocurrency environment.

Australia

Australia's enthusiasm for Bitcoin has "clearly shifted" following the SEC's approval. Across demographics, positive sentiment toward Bitcoin has increased by 25%, especially for those aged fifty and over, where the news boosted Bitcoin's favorability by 100%. Additionally, this enthusiasm has provided an outlet for many Australians to invest in US ETFs, with predictions that the Australian Stock Exchange will soon offer similar products.

Monochrome Asset Management, based in Brisbane, Australia, is expected to launch a spot Bitcoin ETF in the first half of 2024, with the possibility of U.S. approval accelerating the process.

What’s holding back more regulators from approving cryptocurrency businesses?

As countries around the world develop regulatory structures for crypto products, two key topics often come up: Anti-Money Laundering (AML) rules and the need to combat terrorist financing (CTF). This is particularly important in Asia, where the threat of money laundering and terrorist financing is very serious. For example, Hong Kong and Singapore have strict requirements for exchanges that want to obtain cryptocurrency licenses.

Transactions are then strictly monitored and know-your-customer (KYC) procedures are carefully enforced. Because these are major financial centers, making a mistake can have costly repercussions, including on the reputation of companies that skip steps or don’t follow the rules.

As such, transactions are strictly monitored and Know Your Customer (KYC) procedures are taken seriously. As these regions are important financial hubs, any missteps can have costly consequences, including reputational damage for companies that skip steps or fail to follow the rules.

In South Korea, all registered and licensed exchanges are required to have a banking partner due to concerns about money laundering and financing of terrorist groups linked to North Korea. When opening a cryptocurrency account in the Asian country, bank details and KYC data are linked to the cryptocurrency trading account to achieve transparent fund flows and satisfy regulators’ concerns.

For the approval process of a spot Bitcoin ETF, the issue of market manipulation (one of the concerns Gensler listed when delaying US approval) needs to be addressed to the satisfaction of Asian regulators. Transparency is essential to enhance the confidence of regulators and investors, which will help cryptocurrency products occupy a larger share of the financial market. These systems and safeguards can ease market concerns and lay a solid foundation for future growth. At the same time, strict security management and custody of cryptocurrency products must be ensured in Asia and around the world.

We are optimistic that all of this groundwork will be done in a way that satisfies AML, CTF, and market manipulation concerns, while providing safe, secure custody that will allow Asian countries to participate in high-demand crypto products such as spot Bitcoin and spot Ethereum ETFs.

There is widespread optimism that only by advancing all this groundwork will Asian countries be able to participate in popular cryptocurrency products such as spot Bitcoin and spot Ethereum ETFs, while addressing anti-money laundering, counter-terrorist financing and market manipulation issues by providing safe and reliable custody services. #比特币ETF #香港