The approval and listing of Bitcoin and Ethereum spot ETFs have been the absolute focus of the Hong Kong market in April. On April 15, three major mainland public fund subsidiaries—Bosera Fund (International) Co., Ltd., China Asset Management (Hong Kong) Ltd., and Harvest International Asset Management Ltd.—simultaneously announced that they had received approval from the Securities and Futures Commission (SFC) of Hong Kong to provide virtual asset management services to investors, with plans to launch virtual asset spot products. Victory Securities, as the first participating securities dealer in Hong Kong to allow in-kind subscriptions with Bitcoin and Ethereum at the primary market level, will simultaneously open in-kind subscriptions for Bitcoin and Ethereum spot ETFs.
For virtual asset investors, in-kind subscription is undoubtedly one of the biggest highlights of Hong Kong's Bitcoin and Ethereum spot ETFs. Especially in the current environment where major banks in Hong Kong are still not fully supportive of virtual asset withdrawals from exchanges, the listing of ETFs opens a compliant "withdrawal" channel for Bitcoin and Ethereum, playing a crucial role in boosting market confidence.
This article provides a comprehensive overview of the relevant information for in-kind subscriptions to Hong Kong Bitcoin and Ethereum spot ETFs through Victory Securities at the primary market level, including account opening conditions and methods, in-kind subscription processes, fee structures, and arbitrage opportunities, to help investors prepare in advance.
Why Consider Bitcoin and Ethereum Spot ETFs?
For virtual asset investors, asset security is always the top priority. On one hand, blockchain networks are prone to hacking, which can cause irreversible losses to investors; on the other hand, regulatory pressures mean that the compliance of virtual assets always carries policy risks. Spot ETFs provide an excellent solution to these two key issues.
ETF fund companies will collaborate with large, reputable custodians to reduce the risks of hacking and fraud, while also addressing technical challenges related to private key and wallet management for investors. Moreover, since Bitcoin and Ethereum spot ETFs are strictly reviewed and regulated by the Hong Kong SFC, their inherent compliance offers traditional institutions a more diverse and liquid allocation choice. Particularly given that the U.S. SEC has not yet approved an Ethereum spot ETF, the listing of Hong Kong's Ethereum spot ETF is expected to provide greater risk exposure for major institutions, representing an unmissable market opportunity.
Primary Market In-Kind Subscription via Victory Securities
According to the requirements of the Hong Kong SFC, if Bitcoin and Ethereum spot ETFs adopt in-kind creation and redemption, virtual assets must be transferred into or out of the fund's custody account through SFC-recognized institutions. Victory Securities, with its领先的合规落地 (leading compliance implementation), has become the first participating securities dealer in Hong Kong to allow in-kind subscriptions with Bitcoin and Ethereum at the primary market level.
In the process of virtual asset compliance in Hong Kong, Victory Securities, as a representative securities firm, has largely established a first-mover advantage. Victory Securities has been granted virtual asset licenses Type 1 (virtual asset trading), Type 4 (virtual asset advisory services), and Type 9 (virtual asset management services), making it the first securities firm in Hong Kong to conduct virtual asset business for retail investors. The completeness of these licenses allows Victory Securities to commence operations as soon as possible.
Not long ago, Victory Securities became the first securities firm approved by the SFC to allow "coin-in, coin-out" transactions and launched VictoryX, an app covering virtual assets, Hong Kong stocks, and U.S. stocks, among other markets. The timely launch of the app aligns with the listing timeline of virtual asset spot ETFs and presents an opportunity for Victory Securities to expand rapidly.
Detailed Rules for Investor In-Kind Subscriptions
After the approval of the first batch of Bitcoin and Ethereum spot ETFs, Victory Securities will be the sole channel for primary market in-kind subscriptions. The following sections summarize the practical details of participating in ETF in-kind subscriptions through Victory Securities to help investors familiarize themselves with the subscription process.
Investor Account Eligibility
According to current trading methods in Hong Kong, anyone purchasing ETFs must buy a specific minimum number of fund units. Different entry thresholds can affect trading and costs.
Hong Kong imposes investor restrictions. As required by the Joint Circular, the sale of virtual asset-related products must comply with the requirements of the relevant jurisdiction, meaning that virtual asset spot ETFs are prohibited from being sold to mainland Chinese investors. Virtual asset-related products are not directly or indirectly issued or sold for the benefit of legal or natural persons in mainland China. Mainland Chinese legal or natural persons may not directly or indirectly purchase Bitcoin ETFs without prior obtaining all necessary government approvals in mainland China.
There are mixed opinions on whether "southbound capital" can be used for virtual asset spot ETF investments, but the probability of feasibility remains low.
Victory Securities Account Opening Requirements
To open an account with Victory Securities, visit their official website and navigate to "Customer Service" -> "Open an Account" for guidance on the account opening process. Alternatively, download the "VictoryX" app from the official website and click "Open an Account Now" on the homepage to quickly start the process.
Mainland Chinese residents opening individual accounts need to prepare the following documents:
- Mainland China second-generation ID card.
- A同名 debit card (same name) from a mainland Chinese bank (for实名 identity verification only, not for fund transfers to or from the Victory account).
- An email address for receiving Victory-related notifications and account information.
- If the declared address differs from that on the ID card, provide a copy of any address proof issued within the last three months (e.g., tax bill, utility bill, bank statement).
- A Hong Kong bank account (for fund transfers after account opening).
Hong Kong residents opening individual accounts need to prepare:
- Hong Kong resident ID card.
- A copy of any address proof issued within the last three months (e.g., tax bill, utility bill, bank statement).
- An email address for future notifications and account information.
- A Hong Kong bank account.
Hong Kong companies opening corporate accounts need to prepare:
- A copy of the board resolution.
- Copies of ID cards/passports and recent address proofs (within three months) for all directors, authorized traders, authorized signatories (as decided by the board), and ultimate beneficial owners (holding 10% or more of the company's ultimate interests/shares).
- Certificate of Incorporation (CI) and any subsequent name change certificates.
- Articles of Association or rules.
- Company address proof.
- Company bank account proof.
- The latest Annual Return, all subsequent notices of change of secretary and director (appointment/resignation) (Form D2A/ND2A), and share allocation return (Form SC1/NSC1) and/or transfer documents detailing current shareholder information (if applicable).
- A valid Business Registration Certificate (BR).
- A company ownership structure chart (signed by a director).
Overseas companies opening corporate accounts need to prepare:
- A copy of the board resolution.
- Copies of ID cards/passports and recent address proofs (within three months) for all directors, authorized traders, authorized signatories (as decided by the board), and ultimate beneficial owners (holding 10% or more of the company's ultimate interests/shares).
- Certificate of Incorporation (CI) and any subsequent name change certificates.
- Articles of Association or rules.
- Company address proof.
- Company bank account proof.
- Director and shareholder records.
- Certificate of Incumbency for directors (issued within the last six months; inquire with local corporate service providers or intermediaries).
- A company ownership structure chart (signed by a director).
To open a virtual asset account, after completing the individual or corporate securities account opening, fill out and sign four documents electronically or in paper form and submit them:
- Supplemental Agreement for Virtual Asset Trading.
- Additional Risk Disclosure Statement for Virtual Assets.
- Risk Tolerance Questionnaire.
- Virtual Asset Knowledge and Experience Questionnaire.
Primary Market Bitcoin and Ethereum Subscription
After setting up a securities account, investors holding Bitcoin or Ethereum spot can follow the process below for in-kind subscriptions to Bitcoin and Ethereum spot ETFs:
- Open an account: The client must open a securities account with Victory Securities.
- Deposit coins: The client deposits Ethereum/Bitcoin into Victory Securities' exchange account.
- Execute trade: After communicating with the client and evaluating their financial situation, investment goals, and suitability, the investment manager determines that the client is suitable for in-kind subscription of Ethereum/Bitcoin ETFs. The investment manager then issues a subscription instruction to Victory Securities, which uses the client's deposited Ethereum/Bitcoin to subscribe for the corresponding ETF shares.
- Settlement: Victory transfers the ETF shares to the client's account and sends monthly/ daily statements to the client's email.
Primary Market Cash Subscription
For new investors, cash subscription is an alternative way to participate in primary market subscriptions for spot ETFs. Although the risk of loss may be higher compared to in-kind subscriptions, subscribing to ETFs still offers greater asset security and compliance compared to direct investment in virtual assets.
- Open an account: The client must open an account with Victory Securities.
- Execute trade: The client gives trading instructions to Victory Securities, which handles the subscription.
- Deposit funds: The client deposits funds into Victory Securities, which then deposits the funds into the ETF's custodian bank.
- Settlement: The Hong Kong Securities Clearing Company (HKSCC) allocates shares to Victory Securities, which transfers the shares to the client and sends monthly/daily statements to the client's mailbox.
Subscription Fees
Fee structures for subscriptions may vary depending on the ETF product and the subscription method. Investors should check the latest fee schedule on Victory Securities' platform or consult their investment manager for detailed information.
Arbitrage Opportunities
It is worth noting that in-kind subscriptions for Bitcoin and Ethereum spot ETF shares may present arbitrage opportunities. Since there are many securities firms in the secondary market with a large user base and significant differences in capital size, shares subscribed to in the primary market often trade at a premium in the secondary market, implying opportunities for compliant profit-taking through arbitrage.
Even if the secondary market performance falls short of expectations, investors can redeem in-kind ("coin-in, coin-out"), meaning they do not lose their original virtual asset holdings, thus minimizing the risk of loss.
Tax Treatment
Taxation of Bitcoin ETFs involves capital gains tax, income tax, and withholding tax, depending on factors such as the ETF's registration地 and type, the investor's residence, and the jurisdiction where the investment is made. In the context of ETF sales and redemptions, sales are capital gains tax events, while redemptions are not taxable events and do not require tax payment. Additionally, dividends from Bitcoin ETFs invested in other countries or regions may involve withholding tax.
Hong Kong taxes only profits and income derived from Hong Kong, based on the territorial principle. Hong Kong does not tax capital gains for companies or individuals. However, if the holding period is short, capital gains from the sale of equity may be considered trading in nature and subject to profits tax. Therefore, when Hong Kong residents earn差价收入 (price difference income) from selling Bitcoin ETFs, they generally are not subject to profits tax. Similarly, dividends from Bitcoin ETFs received by Hong Kong residents in Hong Kong generally are not taxable.
For Hong Kong enterprises,差价收入 (price difference income) from selling Bitcoin ETFs is subject to profits tax. The first HKD 2 million of assessable profits is taxed at 8.25%, and any remaining assessable profits at 16.5%. For unincorporated businesses or partnerships, the two-tier profits tax rates are 7.5% and 15%, respectively. Corporate investors generally do not pay tax on dividends received from Bitcoin ETF investments.
Conclusion
With the launch of Bitcoin and Ethereum spot ETFs, the competition between Eastern and Western virtual asset markets will officially begin. Although the scale of the Hong Kong market is smaller, its regulatory framework is clear, and its policy environment is conducive to innovation and integration with traditional finance.
When will Hong Kong leverage its advantages to rival the United States? We shall wait and see.
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Frequently Asked Questions
What is an in-kind subscription for Bitcoin ETFs?
An in-kind subscription allows investors to use existing Bitcoin or Ethereum holdings to directly subscribe for shares of the corresponding spot ETF. This method avoids the need to convert crypto to fiat currency first and can offer potential arbitrage opportunities.
Who is eligible to invest in Hong Kong's virtual asset spot ETFs?
Currently, virtual asset spot ETFs in Hong Kong are prohibited from being sold to mainland Chinese investors. Hong Kong residents and compliant institutions meeting specific account requirements are eligible, subject to suitability assessments.
What are the main benefits of investing through a spot ETF?
Spot ETFs provide enhanced security through regulated custodians, compliance with local laws, and easier integration with traditional investment portfolios. They also eliminate the technical challenges of direct crypto ownership, like private key management.
How does the arbitrage mechanism work with these ETFs?
Since ETF shares can be created (through subscription) and redeemed in-kind, if the market price of the ETF share deviates from its Net Asset Value (NAV), authorized participants can exploit this difference by subscribing at NAV and selling on the secondary market, or vice versa.
Are there any risks specific to in-kind subscriptions?
The process involves transferring crypto to the securities firm's account, which carries counterparty risk during the transfer window. Investors should ensure they use SFC-licensed and reputable firms like Victory Securities to mitigate this risk.
What is the tax implication for a non-Hong Kong resident investing in these ETFs?
Tax liabilities depend on the investor's country of residence and its tax treaties with Hong Kong. Generally, non-residents are not subject to Hong Kong taxes on capital gains from ETF sales, but may be subject to taxes in their home jurisdiction. Professional advice is recommended.