Hong Kong’s ‘In-Kind’ Crypto ETFs: First Batch of Spot Bitcoin & Ether ETFs to Go Live April 30th

Table of Contents

• TLDR

Hong Kong is set to make history on April 30 with the launch of its first-ever spot Bitcoin and Ether exchange-traded funds (ETFs).

The Securities and Futures Commission (SFC) of Hong Kong has officially approved the first batch of these ETFs, marking a significant milestone in the city’s commitment to becoming a hub for digital asset investments.

TLDR

• Hong Kong’s Securities and Futures Commission (SFC) has officially approved the first batch of spot Bitcoin and Ether ETFs to start trading on April 30.
• The approved ETFs include offerings from China Asset Management (ChinaAMC), Harvest Fund Management, and Bosera Asset Management in partnership with HashKey.
• Hong Kong’s ETFs will utilize an ‘in-kind’ creation model, allowing the direct exchange of cryptocurrencies for fund shares, unlike the cash-creation model used in the United States.
• Analysts predict that the new ETFs will accumulate around $1 billion in assets under management within their first one to two years, despite the regulatory environment in Mainland China.
• The success of Hong Kong’s ETFs could prompt other markets, particularly in Asia, to consider similar structures and spur further innovation in digital asset trading.

The approved ETFs are managed by the Hong Kong units of China Asset Management (ChinaAMC), Harvest Fund Management, and Bosera Asset Management in partnership with HashKey.

These products are expected to provide investors with a more straightforward and regulated way to invest in Bitcoin and Ethereum without owning the cryptocurrencies directly.

JUST IN: ???????? Hong Kong spot #Bitcoin ETFs will begin trading on April 30: HashKey Capital

Asia is ready ???? pic.twitter.com/TDfNZTqPQU

— Bitcoin Magazine (@BitcoinMagazine) April 24, 2024

One of the key differentiators of Hong Kong’s ETFs is their use of an ‘in-kind’ creation model, which sets them apart from similar products in the United States. Unlike the cash-creation model used in the U.S., Hong Kong’s ETFs allow for the direct exchange of cryptocurrencies for fund shares.

This approach streamlines transactions, lowers costs for investors, and is expected to enhance liquidity and provide more accurate tracking of the underlying digital assets.

According to Thomas Zhu, head of digital assets and family office business at ChinaAMC, the in-kind feature of these ETFs will attract coin holders by offering them the ease of converting their coins to fully regulated ETFs managed by professional fund managers and regulated custodians.

With the growing adoption of ETFs in institutional asset allocation and retail trading in Hong Kong, Zhu expects robust demand for these offerings.

Market analysts predict that the new ETFs will accumulate around $1 billion in assets under management within their first one to two years.

While these figures are modest compared to the inflows seen by similar ETFs in the U.S., they represent a significant development for Hong Kong’s financial landscape, especially given the regulatory environment in Mainland China, where cryptocurrencies remain banned.

Rebecca Sin, an ETF analyst at Bloomberg, highlighted that the ‘in-kind’ model allows existing cryptocurrency holders to directly engage with the ETF market, potentially broadening the investor base.

Looks like Hong Kong is going to allow in-kind creations and redemptions for spot bitcoin ETFs in 2Q (unlike US which is cash creations only), which could help spark aum and volume in the fast-growing region via new note today from @Rebeccasin_SK https://t.co/IxcdWEFDvC pic.twitter.com/sDsS4nbzGi

— Eric Balchunas (@EricBalchunas) March 26, 2024

This unique feature of Hong Kong’s ETFs could serve as a key differentiator in attracting global investors looking for efficient ways to gain exposure to cryptocurrencies through established financial channels.

The launch of these ETFs is especially timely, as it coincides with a significant uptick in Bitcoin prices, which have surged more than 50% in the current year, reaching new heights.

This positive trend in the cryptocurrency market may increase investor interest in the ETFs at launch, providing a robust start to their trading on the Hong Kong Stock Exchange.

As Hong Kong prepares to launch these pioneering products, the global financial community is watching closely. The success of these ETFs could prompt other markets, particularly in Asia, to consider similar structures.

The introduction of these ETFs not only reinforces Hong Kong’s position as a leading financial hub but also showcases its forward-thinking approach to digital asset innovation.

As trading begins on April 30, the financial world will closely monitor the uptake and performance of these ‘in-kind’ spot Bitcoin and Ether ETFs as a gauge of the evolving landscape of cryptocurrency investment products.

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