Hong Kong is set to launch spot Bitcoin and Ethereum exchange-traded funds (ETFs) by the end of April, with the Bosera-HashKey Capital spot ETFs scheduled to begin trading on April 30. The Hong Kong Securities and Futures Commission granted approval to several fund managers to offer these ETFs in an effort to establish itself as a hub for digital assets by introducing a range of cryptocurrency ETFs. Chinese asset managers are also preparing for the introduction of spot Bitcoin and Ether ETFs, drawing comparisons to the successful US Bitcoin funds that have accumulated $56 billion in assets to date.
Potential sources of demand for Hong Kong’s spot crypto ETFs include Chinese wealth invested in the city, as well as 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. The US-based Bitcoin funds offered by major players like BlackRock Inc. and Fidelity Investments have sparked global interest and attracted significant investment. However, the Hong Kong issuers may lack the same level of recognition.
The US Securities and Exchange Commission has reluctantly allowed ETFs investing directly in Bitcoin earlier this year but remains skeptical of cryptocurrencies due to market volatility and past incidents of fraud. Approving ETFs for Ether will likely present additional challenges. In contrast, Hong Kong has given initial approval for spot-Bitcoin and Ether ETFs, with the added distinction that the HashKey Capital and Bosera offerings will utilize an in-kind subscription and redemption mechanism, offering 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. The success of Hong Kong as a crypto hub remains uncertain, but 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, the demand for cryptocurrencies remains strong. However, crypto trading is prohibited on the mainland, leading to underground activity, and the upcoming fund launches in Hong Kong are likely to be beyond the reach of Chinese investors accessing Hong Kong ETFs through specific programs.
Roger Li, co-founder of One Satoshi, a Hong Kong-based chain of stores offering cash-to-crypto conversions, mentioned that expectations for ETF demand should be adjusted considering the city’s smaller financial sector. It will take time for the virtual asset ETF infrastructure to fully develop, opening the door for more participants, increased liquidity, and improved market conditions. With a mixed outlook for stocks and a weak real estate sector in China, the upcoming ETF launches in Hong Kong are set to attract interest from investors as digital assets continue to grow in popularity.
