At the start of the week, spot Bitcoin and Ethereum ETFs were conditionally approved in Hong Kong. Alongside this news, digital assets platform OSL announced it will be a “sub-custodian partner” for both the China Asset Management, also known as ChinaAMC (HK), and Harvest Global Investment ETFs.

Looking forward, OSL's CEO believes that these ETFs could lead to a wave of “more progressive” regulation in China and potentially cause a ripple effect across the region.

“[It] is likely to set a precedent for other financial markets in Asia,” Patrick Pan, Chairman of the Board and CEO of OSL, told Decrypt. “For China, this development in Hong Kong solidifies Hong Kong’s place as a unique financial center for innovations and may influence future regulatory considerations and market openness towards crypto, potentially leading to more progressive policies aligned with global standards.”

China has a long and rocky history with cryptocurrencies—effectively banning crypto multiple times. 

“Presently, there are rigorous regulatory controls over cryptocurrency transactions, expressly prohibiting the operation of cryptocurrency exchanges within its territory,” Thomas Zhu, the ChinaAMC (HK) head of digital assets and head of family office business, told Decrypt.

But with Hong Kong's status as a Special Administrative Region controlled by China—which has been called a ‘testing ground’ for China—its financial decisions may set the table for future movements on mainland China.

Looking at the wider continent, both firms see the approval of spot ETFs as a catalyst for regulatory evolution.

“It may prompt regulators to accelerate their own frameworks to accommodate such products, which may lead to a broader acceptance and deeper integration of cryptocurrency into the Asian financial landscape,” Zhu said, “potentially setting the stage for a new era of digital asset trading and investment in the region.”

However, crypto-friendly countries like Japan, South Korea, and Singapore could be the first to be influenced, Zhu suggested.

The United States approved spot Bitcoin ETFs in January—11 years after the first application for a U.S. Bitcoin ETF was filed. This is a stark contrast to Hong Kong’s process, which OSL said has only taken four months. 

“In the U.S., where the legal framework and regulatory landscape have been highly fragmented—and at times, vulnerable to highly polarized political cycles—the journey for spot crypto ETF products has been far more arduous.” Pan told Decrypt. “Hong Kong’s framework has managed to prove once again that it can be mobilized quickly to innovate, while ensuring robust investor protection, setting a benchmark for crypto-related financial products in Asia.”

Despite this, the U.S. still beat Hong Kong to the punch. That means Hong Kong regulators and potential ETF issuers have been able to study the impact that spot crypto funds might have on the market. One primary lesson: ETFs significantly drive demand. The firms that spoke to Decrypt think it will be no different this time around.

“We anticipate a similar uplift in Hong Kong,” Pan said. “Given the structured and familiar investment mechanism of these ETFs, akin to those in traditional finance, they are likely to facilitate education and adoption among local investors. This positions the Hong Kong market to potentially experience substantial growth, tapping into a deep well of enthusiasm and capital.”

With Hong Kong’s population a fraction of the size of the U.S., its impact on the wider crypto ecosystem is likely to be less pronounced than January’s spot ETF approvals. But the ripple effect it could have on China and the rest of Asia may dwarf anything the U.S. could muster.

Edited by Stacy Elliott and Andrew Hayward