Hong Kong spot crypto ETFs debut tomorrow: 6 things to know

Hong Kong spot crypto ETFs debut tomorrow: 6 things to know

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The cryptocurrency community is eagerly awaiting a significant industry event happening tomorrow: Hong Kong is poised to launch trading for spot exchange-traded funds (ETFs) tied to physical Bitcoin (BTC) and Ether (ETH) cryptocurrencies.

Three Chinese firms — China Asset Management, Bosera Asset Management and Harvest Global Investments — are expected to launch crypto ETFs through their Hong Kong subsidiaries on the Hong Kong Stock Exchange (HKEX) on April 30.

The event will mark another milestone in developing regulated crypto investment products and ETFs worldwide, following a historic launch of spot Bitcoin ETFs in the United States in January 2024.

As the ETF launch in Hong Kong approaches, cryptodirectories has gathered a few facts about the upcoming trading debut.

HKEX already trades Bitcoin futures and other crypto contracts

The introduction of spot crypto ETFs into the Hong Kong ETF market isn’t the first instance of crypto ETFs being traded on HKEX.

Crypto ETFs made their debut on HKEX in late 2022 with the introduction of the CSOP Bitcoin Futures ETF and the CSOP Ether Futures ETF, both managed by CSOP Asset Management. The ETFs track cash-settled Bitcoin futures contracts and Ether futures contracts traded on the Chicago Mercantile Exchange (CME).

Samsung Asset Management Hong Kong followed next by launching another futures-based Bitcoin ETF, the Samsung Bitcoin Futures Active ETF, in January 2023.

Crypto futures ETFs available in Hong Kong as of April 29, 2024. Source: HKEX

All three futures crypto ETFs on HKEX have 1.3 billion Hong Kong dollars ($170 million) in assets under management as of April 29, 2024, according to data from HKEX.

All Hong Kong ETFs account for 0.6% of the U.S. ETF market

From the data presented, it is evident that the Hong Kong ETF market is considerably smaller compared to the ETF market in the United States.

By the end of March 2024, the entire ETF industry in the United States had 3,457 products with assets worth $8.9 trillion, listed on three exchanges, according to data from ETFGI.

On the other hand, the size of Hong Kong’s ETF market is estimated to amount to $50 billion, according to Bloomberg data analyst Jack Wang.

According to HKEX, Hong Kong’s first active ETF was listed in June 2019. By late 2023, HKEX had  accumulated 24 active ETFs with a combined capitalization of 8.6 billion HKD ($1 billion).

In comparison, China’s ETF market equaled $238 billion in 2023, according to Bloomberg-compiled data.

In-kind crypto ETFs in Hong Kong vs. cash-create ETFs in the U.S.

Hong Kong’s spot crypto ETFs will have at least one distinct feature that makes it significantly different from such products in the United States — namely, the method of ETF redemption.

Unlike U.S. spot Bitcoin ETFs, Hong Kong’s spot crypto ETFs will be in-kind created, meaning that when ETF intermediaries want to make new ETF shares, they provide issuers with funds using actual cryptocurrencies like Bitcoin.

In contrast, U.S. spot Bitcoin ETF providers are currently allowed to only issue cash-created spot crypto ETFs, meaning that intermediaries aren’t allowed to touch Bitcoin.

“I think the reason why Hong Kong did in-kind is because ultimately we’re trying to differentiate ourselves from the United States,” Bloomberg’s senior ETF analyst Rebecca Sin said in a Bloomberg-hosted webinar on April 24.

Hong Kong’s spot Ether ETF will not be the first one in the world

Hong Kong’s spot crypto ETF launch is exciting because it will bring not only the in-kind spot cryptocurrency ETFs but also a spot Ether ETF, which has yet to be launched in the United States.

While U.S. securities regulators are expected to deny spot Ether ETFs in May and delay the decision regarding the matter further, Hong Kong authorities have succeeded in that way.

Hong Kong’s spot Ether ETF isn’t the only such ETF launched globally though. Canadian regulators approved the first Ether futures ETFs in the country in April 2021, making Canada one of the first countries in the world to debut such investment products.

According to Nasdaq, there are five Ether ETFs in Canada at the time of writing: Purpose Ether ETF, Evolve Ether ETF, CI Galaxy Ethereum ETF, 3iQ CoinShares Ether ETF and Fidelity Advantage Ether ETF.

Mainland China investors won’t be able to buy Hong Kong Bitcoin ETFs

The launch of spot crypto ETFs may have spurred some optimism regarding mainland China’s stance on crypto, which may not be true.

However, mainland Chinese citizens are expected to be unable to purchase Hong Kong’s spot crypto ETFs despite the ETF issuers’ close ties with mainland China.

According to Bloomberg analyst Wang, China prohibits citizens from any crypto-related activity, meaning that crypto ETF investments are also banned.

Related: Australia’s top exchange may approve spot Bitcoin ETFs this year: Report

“So even for the futures-based crypto ETF listed in Hong Kong — I actually tried to set a trade — the brokers will just directly reject the trade,” Wang said. He believes that Chinese investors will not invest in this kind of product in the short term.

China AMC is the biggest issuer in terms of AUM

Among the three spot crypto ETF issuers in Hong Kong, China AMC — the Hong Kong subsidiary of China Asset Management — is the biggest asset management company.

According to Bloomberg data, China AMC has 15 ETFs in Hong Kong with total assets under management of $3.6 billion. The parent company in mainland China manages 1,400% more assets, or $55.7 billion.

The other two issuers, Bosera and Harvest, handle $40 million and $16 million in AUM in Hong Kong.

Spot crypto ETF issuers in Hong Kong. Source: Bloomberg

According to Wang, Hong Kong’s spot crypto ETFs are well suited to collect $1 billion in assets under management in one or two years in a bullish scenario.

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