How Asia’s next crypto investment wave will be ignited from Bitcoin ETFs

On January 10, 2024, the U.S. Securities and Exchange Commission (SEC) approved multiple applications for spot Bitcoin ETFs. On day one, $4.6B in shares were traded, with cumulative trading volume exceeding the $50B mark by February 22. The ETF approval in the U.S. is expected to have a far-reaching impact across Asian markets where investment flows are already significant, especially in institutional investing, and picking up pace.

The question on the minds of observers, investors, and industry participants is: “What’s next?” By taking stock of what has happened in the US and as we look East, we can better understand what to expect in markets like Hong Kong and other countries in the region.

Spotlight on Hong Kong

Optimism for approval exists about a spot Bitcoin ETF in Hong Kong. In January, they accepted the first application from one of China’s major asset funds, Harvest Fund Management. Although hopes existed for approval as early as Q1 2024, it wouldn’t be surprising to see it take until at least Q2. Approvals of traditional ETFs by Hong Kong’s Securities and Futures Commission (SFC) typically take weeks to months.

Given that Hong Kong has already approved a few crypto ETF futures funds—including the CSOP Bitcoin Futures, CSOP Ether Futures, and Samsung Bitcoin Futures—one can reasonably hope that the path to a spot ETF approval will come with time.

On the face of it, giving those approvals would make sense all around. Hong Kong serves as a conduit to China’s wealth and has established a regulatory environment to go alongside the depth of its asset and wealth management sector. Plus, because Hong Kong already offers Ethereum futures, they may be more open to spot Ethereum ETFs.

In comparison to the U.S., the SEC has received applications for spot Ethereum ETFs with a response required by May 23, although it was allowable earlier; on February 7, the SEC issued a delay statement.

Assessing the Likelihood of Approval From Other Asian Countries

The only major countries in the APAC region in which spot Bitcoin ETFs are not in any stage of development seem to be China, Thailand, and Singapore. Major Asian countries that will likely follow in the general pathway of the U.S. and Hong Kong include Japan, South Korea, and Australia; although these are relatively early days, people are already expressing interest in these products. Regulations in each country are somewhat different, and so the paths towards crypto product approvals will also differ.

South Korea

The country’s Virtual Asset User Protection Act is set to go into effect in July 2024. This gives South Korea’s Financial Services Commission and the Bank of Korea the authority to oversee crypto exchanges and custodians. Although news stories have provided conflicting information about the likelihood of spot Bitcoin approvals, two key factors point to optimism.

First, politicians running for election are more open to the idea. Next, Governor Lee Bok-hyun of the Financial Supervisory Service is set to meet with the U.S. SEC’s chair, Gary Gensler, in May to discuss spot Bitcoin ETFs. At minimum, this shows South Korea’s openness to the financial product.

Japan

Encouraging signs also exist in Japan. According to the Ministry of Economy, Trade, and Industry, the country’s cabinet approved a bill that permits the nation’s investment funds and venture capital companies to acquire crypto. If passed by Parliament, then this will become law. Plus, some of the country’s largest financial institutions, as part of a consortium of more than seventy Japanese companies, are expected to launch a yen-backed digital currency in July 2024 privately.

This comes alongside Japan’s government pension fund recently mentioning that it is requesting information on “illiquidity assets,” such as bitcoin, as part of research into potential new investments. Although neither of these actions would directly allow a spot Bitcoin ETF, they both will play a role in creating a more crypto-friendly environment.

Australia

Australia’s enthusiasm for Bitcoin has “demonstrably shifted” after the SEC approval. Across demographics, positive Bitcoin sentiment increased by 25 percent while, specifically looking at people aged fifty-five and up, the news boosted Bitcoin favorability by 100 percent. Plus, this enthusiasm already has an outlet with many people in Australia able to invest in the U.S. ETFs, with predictions suggesting that the Australian Securities Exchange will soon make similar products available.

It’s already highly anticipated that Monochrome Asset Management, located in Brisbane, Australia, will launch a spot Bitcoin ETF in H1 2024, with the U.S. approval possibility speeding up the approval.

What’s Stopping More Regulatory-Approved Crypto Businesses?

As countries create regulations and structures for crypto products worldwide, two key topics regularly arise the need for anti-money laundering (AML) rules and counter-terrorism financing (CTF). This may be especially important in Asia, where the threat of money laundering and terrorist funding is significant,

Hong Kong and Singapore, for example, have strict requirements for exchanges that want to receive a crypto license. Then, transactions are stringently monitored with know your customers (KYC) procedures diligently followed. Because these are key financial centers, tripping up can have costly effects, including on the reputations of the firms that skip steps or otherwise don’t conform.

In South Korea, all registered and licensed exchanges need to have a banking partner because of money laundering concerns and the related terrorist financing of North Korea. When opening a crypto account in that Asian country, banking details and KYC data are linked to the crypto exchange account for transparent fund flows to satisfy regulator concerns.

For spot Bitcoin ETF approval, questions about market manipulation—a concern listed by Gensler when delaying U.S. approval—will also need to be addressed to the satisfaction of Asian regulators. Visibility is also important to allow regulators and investors to feel confident, which will help crypto products become a bigger part of the financial pie. These structures and guardrails can allay concerns and lay the foundation for further growth. Plus, safe, secure custody for crypto products must be firmly in place in Asia and worldwide.

Optimism exists for all of this foundational work to occur in ways that allow Asian countries to participate in the in-demand crypto products like spot Bitcoin and spot Ether ETFs in ways that satisfy AML, CTF, and market manipulation concerns with safe and secure custody provided.

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