Hong Kong to Welcome New Era of Cryptocurrency ETFs with Physical Bitcoin and Ether Trading

Hong Kong prepares to launch spot Bitcoin and Ether exchange-traded funds (ETFs) on April 30th, a significant milestone in the development of regulated crypto investment products worldwide. Three Chinese firms, China Asset Management, Bosera Asset Management, and Harvest Global Investments, will introduce in-kind created ETFs, differing from cash-based ETFs in the United States. Despite the launch, mainland Chinese investors will likely be restricted from purchasing these ETFs due to the country's crypto ban. The market size in Hong Kong remains relatively small compared to the US but is expected to attract significant interest.

Hong Kong Poised to Usher in New Era of Cryptocurrency ETFs with Spot Bitcoin and Ether Trading Debut

On April 30th, Hong Kong is poised to make waves in the financial world with the long-awaited launch of spot Bitcoin and Ether exchange-traded funds (ETFs). This pivotal event marks a significant milestone in the global landscape of regulated cryptocurrency investment products, following the groundbreaking launch of spot Bitcoin ETFs in the United States earlier this year.

As the countdown to the Hong Kong ETF launch draws near, Cointelegraph delves deeper into this highly anticipated event, exploring its key features, potential impact, and implications for investors.

HKEX: A Hub for Cryptocurrency Futures ETFs

The introduction of spot crypto ETFs into the Hong Kong ETF market is not the first foray into cryptocurrency-related products on the Hong Kong Stock Exchange (HKEX). In late 2022, HKEX made its initial foray into crypto ETFs with the launch of the CSOP Bitcoin Futures ETF and the CSOP Ether Futures ETF, both managed by CSOP Asset Management. These ETFs track cash-settled Bitcoin futures contracts and Ether futures contracts traded on the Chicago Mercantile Exchange (CME).

Samsung Asset Management Hong Kong joined the fray in January 2023 with the launch of the Samsung Bitcoin Futures Active ETF, another futures-based Bitcoin ETF. As of April 29th, 2024, these three futures crypto ETFs on HKEX have accumulated a combined $170 million in assets under management.

Hong Kong ETFs: A Smaller Market with Potential

In comparison to the vast ETF market in the United States, the Hong Kong ETF market is relatively smaller. As of March 2024, the U.S. ETF industry boasted 3,457 products with assets worth a staggering $8.9 trillion listed on three exchanges. In contrast, Hong Kong's ETF market is estimated to be worth approximately $50 billion, according to Bloomberg data analyst Jack Wang.

Despite its smaller size, Hong Kong's ETF market has witnessed significant growth in recent years. In June 2019, HKEX launched its first active ETF, and by late 2023, had grown to include 24 active ETFs with a combined capitalization of $1 billion. Notably, China's ETF market surpassed $238 billion in 2023, highlighting the potential for growth in the Asia-Pacific region.

In-Kind Crypto ETFs: A Distinctive Feature

Hong Kong's spot crypto ETFs will be characterized by a distinct feature that sets them apart from their U.S. counterparts: their in-kind creation and redemption process. Unlike U.S. spot Bitcoin ETFs, which are cash-created, Hong Kong's ETFs will allow intermediaries to provide issuers with actual cryptocurrencies, such as Bitcoin, when creating new ETF shares.

This in-kind approach is expected to differentiate Hong Kong's spot crypto ETFs from their U.S. counterparts, according to Bloomberg's senior ETF analyst Rebecca Sin.

Hong Kong's Ether ETF: A Global First

In addition to in-kind spot cryptocurrency ETFs, Hong Kong's ETF launch is also notable for introducing the first spot Ether ETF. U.S. securities regulators are anticipated to deny spot Ether ETF applications in May, further delaying the approval of such products.

However, Hong Kong's spot Ether ETF will not be the first of its kind globally. In April 2021, Canadian regulators approved the first Ether futures ETFs, making Canada a pioneer in launching such investment products.

Limited Access for Mainland China Investors

While the launch of spot crypto ETFs in Hong Kong has fueled optimism regarding mainland China's stance on cryptocurrency, it is unlikely to translate into immediate investment opportunities for Chinese citizens. Due to China's prohibition on crypto-related activities, mainland Chinese investors are expected to be barred from purchasing Hong Kong's spot crypto ETFs.

China AMC: A Major Player in the ETF Issuance

Among the three spot crypto ETF issuers in Hong Kong, China AMC stands out as the largest asset management company. With 15 ETFs listed in Hong Kong and $3.6 billion in assets under management, China AMC is poised to play a pivotal role in the upcoming ETF launch.

In a bullish scenario, industry experts anticipate that Hong Kong's spot crypto ETFs could collectively attract $1 billion in assets under management within the first one to two years of operation.