Hong Kong is preparing to launch its first-ever spot Bitcoin Exchange-Traded Fund (ETF) by the end of April, following in the footsteps of the United States. The Securities and Futures Commission (SFC) has already approved China Asset Management (Hong Kong), in partnership with OSL Digital Securities and BOC International Prudential Trusteeship, to issue spot Bitcoin and Ether ETFs. However, experts are cautioning that the expectations for the Hong Kong ETF should be adjusted to reflect the city’s smaller financial sector and lack of name recognition compared to US giants like BlackRock.
The three-month-old US spot Bitcoin Fund has already attracted $56 billion in assets. It sparked a race among financial giants and multinational companies to dominate the US ETF market, generating significant interest and anticipation. In contrast, Hong Kong issuers, such as Harvest Global Investments Ltd and a partnership between HashKey Capital Ltd. and Bosera Asset Management (International) Co., lack the same level of name recognition.
While the US Securities and Exchange Commission (SEC) approved direct investment in Bitcoin through ETFs, it has been slower to approve an Ether ETF. However, Hong Kong’s counterpart has given the green light for both spot Bitcoin and Ether funds. One notable difference is that the Hong Kong spot ETFs will use an in-kind subscription and redemption mechanism, allowing the underlying asset to be exchanged for an ETF unit and vice versa. This differs from the US funds, which operate on a cash redemption model.
According to Evgeny Gaevoy, co-founder of Wintermute Trading Ltd, the in-kind approach used by Hong Kong offers greater efficiency and arbitrage opportunities, making it attractive to “crypto natives, market makers, and digital-asset exchanges.” However, Gaevoy emphasizes the importance of setting realistic expectations for the Hong Kong ETF market, given the region’s relatively modest size and existing futures ETFs.
The approval of the spot Bitcoin ETF in Hong Kong has surprised many, with some speculating that it was influenced by the city’s ambition to become a crypto hub. However, experts believe that its success in this regard is still uncertain. It will take time for the virtual-asset ETF infrastructure to develop fully, but once it does, more players will be able to participate, resulting in increased flows, improved prices, tighter spreads, more liquidity, and cheaper fees.