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Hong Kong to Launch Bitcoin and Ethereum ETFs

Hong Kong is set to launch its highly anticipated spot Bitcoin and Ethereum exchange-traded funds by the end of April
April 24, 2024

Hong Kong is poised to launch its highly anticipated spot Bitcoin and Ethereum exchange-traded funds (ETFs) by the end of April. Scheduled to commence trading on April 30, the Bosera-HashKey Capital spot ETFs represent a significant move by the city to establish itself as a hub for digital assets.

The Hong Kong Securities and Futures Commission (SFC) has recently approved several fund managers to offer these ETFs, aiming to introduce a range of cryptocurrency ETFs.

Chinese asset managers are also gearing up for the launch of spot Bitcoin and Ether ETFs, drawing parallels to the highly successful US Bitcoin funds that have amassed an impressive $56 billion in assets over the last three months.

Potential demand for Hong Kong’s spot crypto ETFs is expected to come from Chinese wealth invested in the city, as well as from Asia-Pacific crypto exchanges and market makers. Bloomberg Intelligence ETF Analyst Rebecca Sin estimates that these funds could accumulate $1 billion in assets under management over the next two years.

While US-based Bitcoin funds have attracted global interest and significant investment, Hong Kong issuers such as Harvest Global Investments Ltd. and a partnership between HashKey Capital Ltd. and Bosera Asset Management (International) Co. might lack the same level of recognition.

The expectations for ETF demand need to be adjusted, considering the smaller size of Hong Kong's financial sector, according to Roger Li, co-founder of One Satoshi, a Hong Kong-based chain of stores offering cash-to-crypto conversions.

While the US Securities and Exchange Commission (SEC) has reluctantly allowed ETFs investing directly in Bitcoin, it remains skeptical of cryptocurrencies due to market volatility and past incidents of fraud. Approving ETFs for Ether, the second-largest digital asset, is likely to present additional challenges.

In contrast, Hong Kong has given initial approval for spot Bitcoin and Ether ETFs. The HashKey Capital and Bosera offerings will utilize an in-kind subscription and redemption mechanism, allowing for the direct exchange of underlying assets for ETF units. This mechanism offers greater efficiency and arbitrage opportunities compared to the cash redemption model employed by US funds.

Hong Kong already permits crypto futures-based ETFs, and a framework for stablecoins is also in development. While the success of Hong Kong as a crypto hub remains uncertain, the ETF launches benefit from Bitcoin’s impressive rally over the past year, attracting significant interest from Bitcoin holders.

As digital assets continue to gain popularity in China, with a mixed outlook for stocks and a weak real estate sector, the demand for cryptocurrencies remains strong. However, crypto trading is prohibited on the mainland, leading to underground activity. The upcoming fund launches in Hong Kong are likely to be beyond the reach of Chinese investors accessing Hong Kong ETFs through specific programs.

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