Author: Ebunker
Hong Kong Virtual Asset Spot ETF
On April 30, a total of 6 virtual asset spot ETFs under Bosera HashKey, China Asset Management and Harvest Asset Management officially rang the bell and were listed on the Hong Kong Stock Exchange and opened for trading. They include Bosera HashKey Bitcoin ETF (3008.HK), Bosera HashKey Ethereum ETF (3009.HK), China Asset Management Bitcoin ETF (3042.HK), China Asset Management Ethereum ETF (3046.HK), Harvest Bitcoin Spot ETF (3439.HK) and Harvest Ethereum Spot ETF (3179.HK).
Li Yimei, CEO of China Asset Management, said in an interview with Bloomberg TV that the launch of Hong Kong spot Bitcoin and Ethereum ETFs "opens the door for many RMB holders to seek alternative investments. As the opening-up develops, hopefully there will be new opportunities for mainland Chinese investors to participate in this process in the future." (Note: Currently, ETFs launched in HK are only available to Hong Kong residents.)
However, from the data point of view, the first-day trading of Hong Kong virtual asset spot ETFs was not satisfactory, with the trading volume of 6 Bitcoin + Ethereum spot ETFs reaching 87.58 million Hong Kong dollars (12 million US dollars). In contrast, the first-day trading volume of the US Bitcoin ETF was 4.6 billion US dollars. Although the first-day trading data was not ideal, it still opened the door to alternative assets for Hong Kong investors, and the market will become more and more accepting of such financial products. Some industry insiders believe that due to the poor performance of China's stock market and the turbulent real estate market, in the medium and long term, China's high-net-worth individuals may invest in Hong Kong's crypto asset ETFs through various channels.
US ETH Spot ETF Outlook
Recently, asset manager Franklin Templeton listed its spot Ethereum ETF on the website of the Depository Trust & Clearing Corporation (DTCC) under the label EZET. In theory, the inclusion of this ETF on the DTCC website represents the first step in the trading process. However, this does not guarantee approval from the SEC, which will ultimately decide whether the ETF can be launched.
The DTCC website generally displays securities eligible for trading and settlement, including ETFs that meet specific registration or compliance requirements. While this list does not directly influence SEC decisions, it does help adjust ETFs to meet market demand, which in turn helps keep the ETF’s market price close to its net asset value (NAV).
In February of this year, Franklin Templeton, like BlackRock, Grayscale, Vaneck, and Ark Invest, submitted an application for an ETH spot ETF to the SEC. However, the SEC recently delayed its decision on Franklin Templeton's ETF application, citing the need to review proposed rule changes for the listing and trading of CBOE BZX Exchange shares. The SEC has an additional 45 days, until June 11, to conduct further evaluation.
Compared to Bitcoin ETF, the prospects for Ethereum ETF are not so optimistic. Bloomberg ETF analyst Eric Balchunas estimates that the probability of the SEC approving the Ethereum ETF in May is about 35%. He believes that the SEC's less active stance compared to the Bitcoin ETF application process indicates that this is a strategic move rather than just a delay. In addition, SEC Chairman Gary Gensler's position that ETH may be identified as a security adds complexity to the decision-making process.
JPMorgan analysts expect continued delays in regulatory approval of a spot Ethereum ETF, which could ultimately lead to legal action similar to Grayscale’s lawsuit, which prompted the SEC to reconsider its spot Bitcoin ETF application.
The SEC’s approval of an ETH futures ETF has long been used as an argument that an ETH spot ETF application should be approved. Grayscale believes that an SEC-approved Bitcoin futures ETF carries the same risks as a Bitcoin spot ETF, so this argument was strengthened after Grayscale won its legal battle against the SEC in August 2023. Van Buren Capital believes that it is possible that the SEC will approve an ETH spot ETF to avoid another loss in court, but it is more likely that it will be willing to take another gamble in court.
Despite the challenges, U.S. investors and businesses are still working towards the passage of the ETH spot ETF, as establishing a connection between cryptocurrencies and conventional financial products is seen as a huge step forward. It is unclear what action the SEC will take, but if the ETH spot ETF is approved, U.S. regulators will take a more progressive attitude towards cryptocurrencies.
Will ETH be considered a security?
Fox Business recently reported that according to court documents filed by Ethereum software giant Consensys, SEC Chairman Gary Gensler began trying to deem Ethereum as an unregistered security that does not comply with current federal regulations at least a year ago. Consensys is challenging the SEC's attempt to reclassify Ethereum as a security through litigation.
According to the document, on March 28, 2023, Gurbir Grewal, head of the SEC's enforcement division, approved a formal investigation order into "ETH 2.0," authorizing SEC staff to investigate and subpoena personnel from various project parties involved in ETH transactions.
FOX reported that the SEC was determined to keep the investigation confidential, and sources who received the subpoena said they were forced to sign a non-disclosure agreement. As one of the companies that received the SEC subpoena, Consensys filed a preemptive lawsuit against the SEC last week. The company revealed that it also received a "Wells Notice" from the SEC earlier this month, which may be a potential enforcement action involving its MetaMask Swaps and staking services.
(Note: "Wells Notice" refers to the informal reminder issued by the SEC to US listed companies before filing a civil lawsuit. Listed companies that receive the notice can communicate and negotiate with the SEC before receiving a formal lawsuit.)
Historically, SEC Chairman Gensler has not taken a clear position on the question of whether ETH is a security. In April 2023, when Congressman Patrick McHenry asked him whether ETH was a security at a congressional hearing, Gensler refused to answer the question in an attempt to cover up the SEC's initial determination that ETH was a security.
On April 30, House Financial Services Committee Chairman Patrick McHenry commented on the escalating dispute between the SEC and the cryptocurrency industry, accusing SEC Chairman Gary Gensler of "intentionally misleading Congress" about the SEC's stance on Ethereum, and new court documents show that this was a deliberate attempt to deliberately misrepresent the SEC's position. He pointed out that there is a clear disconnect between the SEC's public statements and private actions against ETH, and this enforcement approach against digital assets reflects the arbitrary and capricious nature of SEC regulation.
As of 2018, the SEC’s stance on Ethereum was relatively clear: Ethereum was not a security. At least, that was the position expressed in speeches by then-SEC Corporate Treasurer Bill Hinman and then-SEC Chairman Jay Clayton. However, after current SEC Chairman Gary Gensler took office, the agency’s stance on Ethereum has subtly changed. Shortly after Ethereum switched to a PoS consensus mechanism in 2022, Gensler said that in a PoS blockchain, users lock up their tokens to secure the network and are rewarded with tokens, which is an investment contract and can be classified as a security, but he did not specifically name ETH.
Under Gensler’s leadership, the SEC has filed enforcement actions against several crypto exchanges, including Coinbase, Kraken, and Binance, for selling unregistered securities such as Cardano’s ADA and Solana’s SOL to U.S. customers. However, Ethereum has never been directly identified as a security in any previous SEC action.
Cosensys believes this is a deliberate "power grab" by the SEC. Cosensys is challenging the SEC's actions on two fronts: first, insisting that Ethereum does not meet the definition of a security and is therefore not subject to such regulations, and second, accusing the SEC of unfairly targeting its MetaMask product.
The SEC has chosen not to comment on these ongoing legal matters. Ebunker believes that the case reflects the uncertain regulatory environment for cryptocurrencies in the United States and may affect the future classification of Ethereum as well. As to why the SEC is now trying to classify ETH as a security, many industry insiders believe that this is a strategic move to gain regulatory power over ETH and other suspected security tokens. As the second largest blockchain by market capitalization and the platform for most mainstream DeFi, DAO and NFT, reclassifying ETH as a security is bound to have a huge impact on the entire crypto asset industry.
