Virtual Asset Market Dynamics: Hong Kong ETF Listing, US Regulatory Outlook, and Ethereum Qualitative Controversy

On April 30, six virtual asset spot ETFs officially listed and opened for trading on the Hong Kong Stock Exchange. These ETFs were launched by Bosera, Huaxia, and Harvest Fund Management, covering the two main cryptocurrencies: Bitcoin and Ether.

A senior executive of a fund company stated in a media interview that the launch of these ETFs provides new investment options for investors holding RMB. With the increasing openness of the market, there may be more participation opportunities for mainland Chinese investors in the future. It is worth noting that currently, these ETFs are only open to Hong Kong residents.

The trading data on the first day shows that the total trading volume of the 6 virtual asset spot ETFs was approximately $12 million, which is significantly lower than the $4.6 billion trading volume of similar products in the United States on their first day. Nevertheless, industry insiders believe that this still opens the door for Hong Kong investors to alternative asset investments, and in the long run, market acceptance is expected to gradually improve. Considering the poor performance of the Chinese stock market and the turmoil in the real estate market, it is likely that more high-net-worth individuals will invest in Hong Kong's crypto asset ETFs through various channels in the future.

In the United States, an asset management company has included its spot Ethereum ETF on the Securities Depository Clearing Corporation (DTCC) website, identified as EZET. Although this is the first step in the trading process, it does not mean that regulatory approval is guaranteed. Currently, the U.S. Securities and Exchange Commission (SEC) has postponed its decision on the ETF application and requires further review of related rule changes.

The regulatory outlook for Ethereum ETFs is relatively uncertain compared to Bitcoin ETFs. Analysts estimate that the likelihood of approving an Ethereum ETF in May is only 35%. The SEC chairman's stance on Ethereum potentially being classified as a security adds complexity to the decision-making process. Some institutions expect that the approval of a spot Ethereum ETF may continue to be delayed and may even require legal action to push it forward, similar to the situation where a certain institution prompted the SEC to reconsider the Bitcoin ETF application.

Recent media reports have indicated that the SEC began attempting to classify Ethereum as an unregistered security at least a year ago. A blockchain technology company is challenging this attempt by the SEC through litigation. According to court documents, the SEC formally approved an investigation into "ETH 2.0" last March, authorizing the investigation of parties involved in ETH transactions.

The SEC chairman previously avoided the question of whether Ethereum is considered a security during a congressional hearing, which sparked some controversy. Some members of Congress accused the SEC of having a misleading stance on Ethereum, believing there is a clear disconnect between the SEC's public statements and private actions.

In 2018, the SEC clearly stated that Ethereum is not a security. However, following the appointment of the current SEC chair, the agency's stance on Ethereum seems to have undergone a subtle change. Particularly after Ethereum transitioned to a PoS consensus mechanism, the SEC chair hinted that the staking of tokens in a PoS blockchain may fit the definition of a security.

Currently, the SEC has taken enforcement actions against several cryptocurrency exchanges for selling unregistered securities. However, Ether has not been directly classified as a security in any SEC lawsuit.

Industry insiders believe that the SEC's attempt to classify Ethereum as a security may be a strategic move aimed at gaining regulatory authority over Ethereum and other similar tokens. Given Ethereum's position as the second-largest blockchain by market capitalization and its significant role in DeFi, DAOs, and NFTs, reclassifying it as a security would undoubtedly have a profound impact on the entire cryptocurrency asset industry.