The cryptocurrency community is eagerly anticipating a major event in the industry: the launch of spot exchange-traded funds (ETFs) tied to physical Bitcoin (BTC) and Ether (ETH) cryptocurrencies in Hong Kong. Three Chinese firms, China Asset Management, Bosera Asset Management, and Harvest Global Investments, are set to launch crypto ETFs through their Hong Kong subsidiaries on the Hong Kong Stock Exchange (HKEX) on April 30. This event will mark another milestone in the development of regulated crypto investment products and ETFs globally, following the historic launch of spot Bitcoin ETFs in the United States in January 2024.
As the ETF launch in Hong Kong draws near, Cointelegraph has gathered some key facts about this upcoming trading debut. It’s worth noting that HKEX already trades Bitcoin futures and other crypto contracts. The introduction of spot crypto ETFs into the Hong Kong ETF market is not the first instance of crypto ETFs being traded on HKEX. In late 2022, crypto ETFs made their debut on HKEX with the CSOP Bitcoin Futures ETF and the CSOP Ether Futures ETF, both managed by CSOP Asset Management. These ETFs track cash-settled Bitcoin futures contracts and Ether futures contracts traded on the Chicago Mercantile Exchange (CME). In January 2023, Samsung Asset Management Hong Kong launched another futures-based Bitcoin ETF, the Samsung Bitcoin Futures Active ETF.
According to data from HKEX, all three futures crypto ETFs on HKEX have HKD 1.3 billion ($170 million) in assets under management as of April 29, 2024. However, the Hong Kong ETF market is considerably smaller compared to the ETF market in the United States. Data from ETFGI reveals that 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. In contrast, the size of Hong Kong’s ETF market is estimated to be around $50 billion, according to Bloomberg data analyst Jack Wang. HKEX states that Hong Kong’s first active ETF was listed in June 2019, and by late 2023, HKEX had accumulated 24 active ETFs with a combined capitalization of HKD 8.6 billion ($1 billion). In comparison, China’s ETF market reached $238 billion in 2023, according to Bloomberg-compiled data.
Hong Kong’s spot crypto ETFs will have a distinct feature that sets them apart from similar products in the United States. The method of ETF redemption will differ. Unlike U.S. spot Bitcoin ETFs, Hong Kong’s spot crypto ETFs will be created in-kind. This means that when ETF intermediaries want to create new ETF shares, they will provide issuers with funds using actual cryptocurrencies like Bitcoin. In contrast, U.S. spot Bitcoin ETF providers are currently only allowed to issue cash-created spot crypto ETFs, meaning that intermediaries cannot touch Bitcoin. Bloomberg’s senior ETF analyst Rebecca Sin believes that Hong Kong chose the in-kind method to differentiate itself from the United States.
While Hong Kong’s spot Ether ETF is exciting because it will introduce in-kind spot cryptocurrency ETFs, it is not the first one in the world. Canadian regulators approved the first Ether futures ETFs in the country in April 2021, making Canada one of the first countries to debut such investment products. According to Nasdaq, there are currently five Ether ETFs in Canada: Purpose Ether ETF, Evolve Ether ETF, CI Galaxy Ethereum ETF, 3iQ CoinShares Ether ETF, and Fidelity Advantage Ether ETF. Meanwhile, U.S. securities regulators are expected to deny spot Ether ETFs in May and delay the decision further.
Despite the launch of spot crypto ETFs in Hong Kong, mainland Chinese citizens are not expected to be able to purchase these ETFs. China prohibits its citizens from engaging in any crypto-related activities, including investing in crypto ETFs. Bloomberg analyst Wang believes that Chinese investors will not invest in this type of product in the short term.
Among the three spot crypto ETF issuers in Hong Kong, China Asset Management (China AMC) is the largest asset management company. China AMC has 15 ETFs in Hong Kong with total assets under management of $3.6 billion, while the parent company in mainland China manages 1,400% more assets, totaling $55.7 billion. The other two issuers, Bosera and Harvest, have $40 million and $16 million in assets under management in Hong Kong, respectively. Wang believes that Hong Kong’s spot crypto ETFs have the potential to accumulate $1 billion in assets under management in one or two years in a bullish scenario.