Application For ETF Submitted in China

Recent reports are saying that a Shenzhen-based asset manager has applied for the rights to offer a blockchain-focused ETF. Penghua Fund has applied for a “basket of goods” ETF that would track the performance of blockchain businesses. 

The fund would serve as the first blockchain-related ETF in China if it were approved. This is very distinct from tracking directly to cryptocurrencies but is a first step for the Chinese investing space as they hope to move to a more “pro-blockchain” position in the coming years. 

Concurrent Application by Shenzhen Exchange

In the same week, a Blockchain 50 Index was announced by the Shenzhen stock exchange. This will include blockchain-related companies across several different sectors and will reflect the fact that blockchain is less of an industry and more of a technology to be integrated into other industries. 

This application comes in stark juxtaposition to the recent crackdown by the Chinese government on cryptocurrency. China has had a very pro-blockchain stance recently, and many confuse this with the fact they are fairly against the use of private cryptocurrencies. This makes sense, since they are a relatively authoritarian country, and this would defy their ability to control the flow of funds in a very big way. 

At the same time, China may be the first country to roll out its own central bank-issued digital currency. The Bank of China has been aggressively moving forward development on its digital yuan, as well as continually making the distinction between it and Bitcoin

Putting It In Perspective

In the global context, there has been a race to get a US ETF approved for a while now. Several parties have put forth different manifestations, but everything has been rejected or withdrawn when it became clear nothing was going to come of it. 

Exchange-traded funds are important for a few reasons. First, they would allow for unfettered access to cryptocurrencies for many retail investors who don’t have the knowledge or inclination to set up different accounts on crypto exchanges. Second, they provide a level of diversity that is not easily available in the crypto world right now. Finally, they add credibility to the presence of cryptocurrencies in the investing world. 

Even if it was just a fund solely consisting of Bitcoin, that would be a financial innovation with massive trickle-down effects on the rest of the cryptocurrency sphere. Right now, a lot of the pushback is coming from the difficulties about how to regulate the asset in the mainstream. Additionally, there are custody issues that aren’t present with many other assets, and these need to be solved before the risk factor is increased with scaled investment. 

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