- Hong Kong will introduce Spot Bitcoin and Ethereum ETFs by 30 April, marking it as the first Asian nation with such financial products.
- These ETFs are unique in that they will allow direct exchanges of the underlying assets for ETF units, differing from the cash redemption model in the US.
- The launch is anticipated to attract significant investment despite mainland China’s ban on cryptocurrencies, with projections of up to US$25 billion in inflow.
And it’s official: Hong Kong will get its own set of Spot Bitcoin and Ethereum exchange-traded funds (ETFs) by 30 April. As Bloomberg’s Eric Balchunas reports, the funds are approved and ready to trade Tuesday.
Balchunas said the fees for these funds are also lower than expected, with fees ranging from 0.3% to 0.99%.
Related: US ETFs Record Two Weeks of Net Outflows Amid Gloomy Economic Forecast
Fellow Bloomberg ETF analyst James Seyffart added that asset manager Harvest will even have a full fee waiver and lowest fees at 0.3% afterwards.
While cryptocurrencies are officially banned in mainland China, Hong Kong is taking a more crypto-friendly approach. The launch of these ETFs makes it the first Asian nation to offer such products.
While the US has Spot Bitcoin ETFs, Hong Kong has the lead over the United States when it comes to Spot Ethereum ETFs – which are now facing potential denials of applications in May.
Funds to Feature In-Kind Redemption Model
These newly introduced Spot Bitcoin and Ether ETFs feature a unique mechanism known as in-kind subscription and redemption. This process permits the direct exchange of the underlying assets – Bitcoin and Ether – for ETF units and vice versa.
Such a mechanism contrasts significantly with the model used by US-based funds, which primarily operate on a cash redemption basis. In the US model, transactions involving ETF shares are settled in cash rather than by exchanging the physical or digital assets themselves.
This key difference affects how liquidity is managed in the ETFs and can have implications for the trading dynamics and tax considerations for investors.
Chinese Investors Likely Left-out?
As reported earlier mainland Chinese investors will likely not have direct access to these ETFs – although there will possibly be ways to access them. The Bloomberg team therefore estimates that the funds will bring in US$1bn (AU$1.5bn) in the first year of trading.
Others, like Singapore-based analysts at Matrixport, suggested that some mainland China investors would find ways to access these funds which could flush a whopping US$25bn into these ETFs.
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Bitwise Asset Management senior analyst Ryan Rasmussen, told unchained that Bitcoin will be the main driver of the two ETFs and estimates they bring in a combined US$1bn:
I think we’ll have not the same level of impact from a price appreciation perspective, but we’ll have certainly a positive impact on price. It brings more demand in the market for bitcoin.
Ryan Rasmussen, Bitwise Asset Management senior analyst
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