- Spot Bitcoin ETFs gain traction globally, with Hong Kong preparing to approve them with in-kind redemptions, enhancing market efficiency.
- The Hong Kong SFC’s move to allow in-kind Spot Bitcoin ETFs contrasts with the US’s cash redemption approach, potentially boosting Asian crypto markets.
- The London Stock Exchange is scheduled to introduce Bitcoin and Ethereum as ETNs, targeting institutional investors, marking another step toward mainstream crypto adoption.
The Spot Bitcoin ETFs in the United States have attracted a lot of media attention and saw record inflows. But other countries have not been sleeping on the issuance of these ETFs. While Australia and many European countries had Spot Bitcoin ETFs for a while, now it’s time for Hong Kong to shine.
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As per Bloomberg reports, the Hong Kong Securities and Futures Commission (SFC)—which is Hong Kong’s financial watchdog similar to the US SEC—is set to approve Spot Bitcoin ETFs in the second quarter of 2024. But here is the twist: these ETFs will allow in-kind creations and redemptions, unlike the US ETFs, which permit only cash redemptions.
Cash Vs In-Kind Redemptions
The boring bits first, but let’s keep it simple:
In-kind redemptions are generally preferred by both investors and issuers of ETFs due to their efficiency in cost, tax implications, and liquidity maintenance. They allow ETFs to operate with greater flexibility and efficiency, benefiting from the ETF structure.
Cash redemptions, while necessary in certain situations—such as with ETFs holding hard-to-transfer assets or in markets where in-kind transactions are not feasible—can introduce higher costs and tax implications.
This is an important development because, as Bloomberg’s Eric Balchunas notes, this could significantly boost adoption in Hong Kong and increase AUM (assets under management) and volume in the fast-growing Asian crypto markets.
UK: London Stock Exchange To List Ethereum, Bitcoin Notes
Meanwhile over in the United Kingdom, from 28 May some related, exciting developments are set to happen.
The London Stock Exchange (LSE) is set to allow for Bitcoin and Ethereum being traded as Exchange Traded Notes (ETNs). ETNs are a type of bond, but unlike classical bonds, they do not pay interest to holders. They represent a promise by the issuer to pay the holder a return that matches the performance of a specific benchmark or index, minus fees.
Specific requirements for the ETNs are that they need to be denominated in BTC and ETH only, and must be held in cold storage. They can also not use leverage, and at this point these products are for institutional investors only.
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The news out of Hong Kong and the UK are promising, albeit small steps on the road to adoption. It will be interesting to see how these products will be received in their respective jurisdictions.
Of course it’s not all sunshine and roses in crypto land—as we impatiently await a decision of Ethereum ETFs in the US—something the experts at Bloomberg now give a small chance to be granted in May 2024.
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