Hong Kong regulators are preparing to approve Bitcoin spot ETFs for public trading, following the United States’ lead. Analysts at Bloomberg Intelligence suggest that Hong Kong may allow these funds to use an “in-kind” redemption model, which differs from the cash redemption model used in the U.S. In the in-kind model, market makers can adjust the supply of ETF shares on the market and exchange them for Bitcoin. This unique characteristic could present a significant opportunity for Hong Kong’s market, as it may drive assets under management and trading volume in the region.
Before receiving approval in January, Bitcoin ETF sponsors in the U.S. faced challenges from the Securities and Exchange Commission (SEC) in their push for in-kind redemptions. Fund managers argued that the in-kind model offers lower transaction costs, less operating risk, and protection against market manipulation compared to the cash redemption model. Additionally, an in-kind model could involve fewer tax complications. However, the SEC was opposed to allowing U.S. domiciled broker-dealers to interact directly with Bitcoin.
Analyst Rebecca Sin suggests that the approval and launch of Bitcoin ETFs in Hong Kong could lead to a significant surge in assets under management within ETFs in the region. She notes that the U.S.-based ETF market has already reached an aggregate size of $62 billion, indicating potential for growth in Hong Kong’s market. The region already offers a variety of ETF options, including leveraged and inverse funds, actively managed funds, fixed-income ETFs, and covered call ETFs.
In January, Chinese asset manager Harvest Global Investments and Hong Kong-based firm Venture Smart Financial Holdings applied with Hong Kong’s Securities and Futures Commission (SFC) to launch a Bitcoin spot ETF. This development, along with the potential introduction of in-kind redemptions, could further boost the region’s ETF market and attract investors looking to gain exposure to Bitcoin through regulated investment vehicles.
Overall, the approval of Bitcoin spot ETFs in Hong Kong represents a significant step towards establishing the region as a key player in the cryptocurrency investment space. By allowing in-kind redemptions and adopting innovative approaches to ETF trading, Hong Kong’s regulators are poised to create new opportunities for investors and drive growth in the ETF market. As cryptocurrency adoption continues to trend upwards globally, Hong Kong’s decision to embrace Bitcoin ETFs could further solidify its position as a hub for digital asset investment.
