Hong Kong has launched its first batch of ETFs focused on cryptocurrencies, specifically Bitcoin and Ether. Issuers are predicting that these six new spot-crypto ETFs could see approximately $300 million in combined first-day inflows, with a preference for Bitcoin funds. This move is seen as potential competition for popular Bitcoin products in the United States, where spot Bitcoin ETFs from issuers like BlackRock Inc. and Fidelity Investments have accumulated $52 billion in assets so far. Bloomberg Intelligence’s Rebecca Sin estimates that these new Bitcoin and Ether funds in Hong Kong could amass around $1 billion over the next two years, although Harvest Global’s CEO, Han Tongli, believes that estimate is too conservative.
Han Tongli argues that financial products and services in Hong Kong are accepted by both Western and Eastern investors, while the US primarily caters to the former. Potential sources for inflows into the new Hong Kong ETFs include Chinese wealth parked in the city, as well as active crypto exchanges and market makers in the Asia Pacific region. Despite crypto trading being banned in mainland China, the new funds fall outside the scope of the program that grants Chinese investors access to some Hong Kong ETFs. The adoption of an in-kind ETF subscription and redemption mechanism in Hong Kong sets it apart from US Bitcoin funds, potentially resulting in even greater uptake of these ETFs.
However, some caution that expected demand for Hong Kong’s ETFs should be adjusted considering the city’s smaller financial sector. While Hong Kong already permits crypto-futures-based ETFs, their total assets are a fraction of the derivatives-based ProShares Bitcoin Strategy ETF in the US. Despite these challenges, Hong Kong’s local products are appealing due to easy access, particularly during Asian trading hours. Bosera Asset Management (International)’s Head of Products, Ethan Li, expressed confidence in the appeal of the Hong Kong ETFs and mentioned plans to expand the team and digital-asset product pipeline.
While digital assets have experienced a significant rebound since the market collapse in 2022, the recent revival has stalled. Bitcoin’s price is currently around $63,540, approximately $10,000 below its record high in March. Overall, the launch of spot-crypto ETFs in Hong Kong marks an important development in the cryptocurrency investment landscape, with potential competition arising for similar products in the United States. The in-kind ETF subscription and redemption mechanism in Hong Kong sets it apart from US Bitcoin funds, potentially making the new ETFs even more appealing to investors. While challenges exist, Hong Kong’s local products are seen as promising due to easy access and a focus on the Asian trading hours.
