Hong Kong ETF Launch Expected to Attract Greater Inflows Than US Counterparts

The Spot Bitcoin and Ethereum exchange-traded funds (ETFs) are ready to launch in Hong Kong on Tuesday. And while early excitement that these funds may be accessed by a flood of mainland Chinese Investors had been dampened, there are signs the ETFs could set new records and surpass their US counterparts.

Related: Bitfinex Analysis Shows Bitcoin Presents a Promising Buying Opportunity

Hong Kong issuers are reportedly expecting the first day of trading to exceed the US launch day trading of US$125 million (AU$190 million), Haokang Zhu, Head of Digital Asset Management and Head of Family Wealth at ChinaAMC Funds said: 

We are very confident that the size of the first day of listing of Hong Kong’s virtual asset spot ETFs (over US$125 million) will exceed the size of the first day of offering in the U.S., where the 10 U.S. issuers of U.S. bitcoin spot ETFs issued US$125 million on the first day of trading on 10 January this year.

Haokang Zhu, Head of Digital Asset Management and Head of Family Wealth at ChinaAMC Funds

According to Bloomberg, China’s Harvest also expects that assets under management (AUM) will outdo that of ETFs in the United States. Bloomberg analysts themselves have set a target of US$1 billion (AU$1.5 billion) inflows over the first two years.

Harvest Global CEO Han Tongli, argued that the target is too modest, mainly because the US caters only to local clients, whereas Hong Kong also allows foreigners access to its products and services.

Haokang Zhu added:

Additionally, in countries and regions outside of Hong Kong where ETFs have not yet been issued, such as Singapore and the Middle East, we have also connected with a large number of investors who are highly interested. Moreover, although the current US market size for spot Bitcoin ETFs is very large, compared to the US, Hong Kong’s adoption of cash and physical subscriptions, and the fact that it is open for trading during Asian trading hours, will still attract many US investors.

Haokang Zhu, Head of Digital Asset Management and Head of Family Wealth at ChinaAMC Funds

In-Kind Redemption To Boost Local Adoption

Hong Kong is implementing an in-kind ETF subscription and redemption mechanism, which lets investors exchange underlying assets directly for fund units and vice versa. This contrasts with the cash redemption model used by US Bitcoin funds.

According to Han Tongli, this in-kind method enhances the attractiveness of Hong Kong’s ETFs and could lead to their uptake being up to three times greater than that of US funds.

On the other hand, as per Bloomberg, the city’s future crypto ETFs only hold a fraction of what similar US funds hold. So, it remains to be seen what level of success these funds achieve.

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One thing is for sure though, the controversy in the US around Ethereum being a security or not, is not really an issue on anyone’s mind in Asia: