Hong Kong is set to launch Bitcoin and Ethereum exchange-traded funds (ETFs) by the end of April, with Bosera-HashKey Capital spot ETFs scheduled to begin trading on April 30. The city’s Securities and Futures Commission recently granted approval to several fund managers to offer these ETFs in an effort to establish itself as a hub for digital assets. Chinese asset managers are also preparing for the introduction of spot Bitcoin and Ether ETFs, with potential sources of demand including Chinese wealth invested in the city and Asia-Pacific crypto exchanges. Bloomberg Intelligence ETF Analyst Rebecca Sin estimates that these funds could accumulate $1 billion in assets under management over the next two years.
US-based Bitcoin funds have attracted significant investment and global interest, with major players like BlackRock Inc. and Fidelity Investments offering such products. However, the prospective Hong Kong issuers, including Harvest Global Investments Ltd. and a partnership between HashKey Capital Ltd. and Bosera Asset Management (International) Co., may lack the same level of recognition. Expectations for ETF demand in Hong Kong should be adjusted given the city’s smaller financial sector. The US Securities and Exchange Commission reluctantly allowed ETFs investing directly in Bitcoin earlier this year, but remains skeptical of cryptocurrencies due to market volatility and past incidents of fraud.
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. This mechanism allows for the direct exchange of underlying assets for ETF units, offering greater efficiency and arbitrage opportunities compared to the cash redemption model employed by US funds. The city already permits crypto futures-based ETFs, and a framework for stablecoins is also in development. Although the success of Hong Kong as a crypto hub remains uncertain, 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, with a mixed outlook for stocks and a weak real estate sector, the demand for cryptocurrencies remains strong. However, crypto trading is prohibited on the mainland, leading to underground activity. The upcoming fund launches in Hong Kong are likely to be beyond the reach of Chinese investors accessing Hong Kong ETFs through specific programs. 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. The approval of ETFs for Ether, the second-largest digital asset, may present additional challenges, but Hong Kong is moving forward with spot-Bitcoin and Ether offerings as part of its push to establish itself as a hub for digital assets.
