Hong Kong is set 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 Hong Kong Securities and Futures Commission has already given the green light for the ETF, which will be issued by China Asset Management (Hong Kong) in partnership with OSL Digital Securities and BOC International Prudential Trusteeship. However, experts caution that investors should temper their expectations, as Hong Kong’s financial sector lacks the same reputation as BlackRock.
The comparison has been drawn to the three-month-old US spot Bitcoin Fund, which has attracted $56 billion in assets. The race for dominance in the US ETF market involved major financial giants and multinational companies with trillions of dollars in assets under management, generating significant interest and anticipation. In contrast, the Hong Kong issuers, including Harvest Global Investments Ltd and a partnership between HashKey Capital Ltd. and Bosera Asset Management (International) Co., have less name recognition.
The US Securities and Exchange Commission (SEC) has approved direct investment in Bitcoin through ETFs but 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 interesting difference is that the Hong Kong spot ETFs will use an in-kind subscription and redemption mechanism, allowing the underlying asset to be swapped for an ETF unit and vice versa. This is different from the US funds, which operate on a cash redemption model.
Evgeny Gaevoy, co-founder of crypto liquidity provider Wintermute Trading Ltd, believes that the in-kind approach used by Hong Kong allows for greater efficiency and arbitrage opportunities, making it attractive to “crypto natives, market makers, and digital-asset exchanges.” Gaevoy also emphasizes the importance of setting realistic expectations for the Hong Kong ETF market, considering the relatively modest size of the region’s existing futures ETFs.
While the approval of the ETF product has taken many by surprise and is seen as a move to position Hong Kong as a crypto hub, experts believe that its success in this regard is still uncertain. The overall impact on the ETF ecosystem will take time to develop, as the virtual-asset ETF infrastructure needs to be developed. Once the ecosystem is established, more players will be able to participate, resulting in increased flows, improved prices, tighter spreads, more liquidity, and lower fees.