Hong Kong has recently launched its first batch of ETFs focused on cryptocurrencies, marking potential competition for the popular Bitcoin products in the United States. The ETFs listed in Hong Kong include Bitcoin and Ether funds from Harvest Global Investments Ltd. and a partnership between HashKey Capital Ltd. and Bosera Asset Management (International) Co. The US has already seen substantial success with spot Bitcoin ETFs, accumulating $52 billion in assets so far. Issuers in Hong Kong are expecting around $300 million in combined first-day inflows for the new spot-crypto ETFs, with a preference for Bitcoin funds. Bloomberg Intelligence’s Rebecca Sin estimates that Bitcoin and Ether funds in Hong Kong could attract around $1 billion over the next two years.
Han Tongli, the CEO of Harvest Global, believes that the estimate of $1 billion for BTC and ETH funds in Hong Kong is too conservative. He argues that financial products and services in Hong Kong are accepted by investors both in the West and the East, unlike in the US where the market primarily caters to Western investors. Potential sources for the anticipated inflows include Chinese wealth parked in the city, as well as active crypto exchanges and market makers in the Asia Pacific region. The adoption of an in-kind ETF subscription and redemption mechanism in Hong Kong sets it apart from the US, allowing for the underlying assets to be exchanged for fund units and vice versa, which could potentially result in larger uptake of the ETFs.
Despite the positive outlook, some caution that potential demand for the Hong Kong ETFs must be adjusted considering the size of Hong Kong’s financial sector. While Hong Kong already permits crypto-futures-based ETFs, their total assets are relatively small compared to US-based products. However, the ease of access to Hong Kong’s local products, particularly during Asian trading hours, is appealing to investors. Bosera Asset Management (International) is confident in the appeal of the Hong Kong ETFs and plans to expand its team and digital-asset product pipeline. Despite a recent stall in the market revival of digital assets, with Bitcoin’s price currently sitting around $63,540, efforts are being made to push for the adoption of the new ETFs.
The six new Hong Kong spot-crypto ETFs, including Bitcoin and Ether funds, are expected to attract significant first-day inflows from investors. While crypto trading is banned in mainland China, Chinese wealth parked in Hong Kong, along with active crypto exchanges and market makers in the Asia Pacific region, are potential sources for these inflows. The in-kind ETF subscription and redemption mechanism in Hong Kong, as opposed to the cash redemption model used by US Bitcoin funds, enhances the appeal of Hong Kong’s products. Despite the challenges posed by the smaller financial sector in Hong Kong, efforts are being made to promote and expand the reach of the new ETFs.
The competition between the new Hong Kong ETFs and the popular Bitcoin products in the United States is expected to bring attention to the growing interest in cryptocurrencies among investors. With projections of significant inflows, the success of the new ETFs in Hong Kong could pave the way for further expansion and adoption of digital assets in the region. Efforts to promote and improve access to these products, combined with the unique in-kind ETF subscription and redemption mechanism, set the stage for potential growth and success in the cryptocurrency market in Hong Kong. Despite challenges and market fluctuations, confidence remains high in the appeal and potential of the new ETFs, particularly during Asian trading hours.
