Unlike the US, Hong Kong may allow staking for spot Ethereum ETFs: Bloomberg

Hong Kong’s Securities and Futures Commission may reportedly allow staking of the ether held in spot Ethereum ETH +2.87% ETFs in the region.

The SFC has held talks with the city’s crypto ETF firms about providing staking services via licensed platforms, with the issuers scrapping together plans to stake ether if approved, Bloomberg reported citing people familiar with the matter.

Asia's first spot bitcoin and ether ETFs, managed by China Asset Management (ChinaAMC), Harvest Global and Bosera/HashKey, debuted on the Hong Kong Stock Exchange on April 30.

However, the Hong Kong ETFs are widely considered to have disappointed , generating minimal flows in both bitcoin and ether products in recent days, contrasting $154 million worth of inflows into the U.S. spot Bitcoin ETFs on Wednesday alone.

Talks are ongoing with no clear timeline for a decision, the sources told Bloomberg, asking to not be identified discussing private information. The SFC did not return a request for comment from The Block.

Prospective US spot Ethereum ETFs remove staking feature

Unlike Bitcoin, Ethereum’s proof-of-stake consensus protocol allows users to stake their assets on the network, contributing to its security in return for a yield — currently around 3% .

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If approved, staking of the ether held in the Hong Kong spot Ethereum ETFs could provide investors with a passive income in addition to the potential capital appreciation of their holdings and help reignite the city’s plans to become a global crypto hub. However, whether or not allowing staking will boost the current lackluster demand for ETFs in the region remains to be seen.

In the U.S., it’s a very different story, with issuers rushing to remove staking features from their spot Ethereum applications in recent days as the separation of ether, the asset, from its staking functionality seemingly became a crucial factor in potential spot Ethereum ETF approvals.

Ark Invest cut the staking component of its spot Ethereum ETF application last week, with Fidelity and Grayscale joining other firms in following suit on Tuesday.

This may be due to the SEC's concerns about staking cryptocurrencies. For example, the SEC sued Coinbase in June 2023 for providing access to staking through its platform, claiming it was violating securities laws.

While the removal of staking from prospective spot Ethereum ETFs may ease their approval in the U.S., for some investors they may pose a less attractive investment than holding ether and staking it elsewhere.

The SEC has final deadlines on Thursday and Friday to decide whether to approve or deny the applications for spot Ethereum ETFs submitted by VanEck and Ark Invest, respectively. Hashdex, Invesco, Fidelity, BlackRock, Grayscale, Franklin Templeton and Bitwise are also  among  spot Ethereum ETF applicants.