In Hong Kong on Tuesday, a set of exchange-traded funds (ETFs) focused on cryptocurrencies made their debut, marking a potential challenge to similar products in the US, which have contributed to a surge in the value of digital currencies.
Harvest Global Investments Ltd., representing China Asset Management locally, and a collaboration between HashKey Capital Ltd. and Bosera Asset Management (International) Co., introduced Bitcoin and Ether ETFs in the city.
The demand for these funds will provide insight into whether Hong Kong’s efforts to become a regulated hub for digital assets are gaining traction. Authorities aim to enhance the city’s image as a modern financial center, which was somewhat marred by a crackdown on dissent.
US-based spot-Bitcoin ETFs, launched in January by firms like BlackRock Inc. and Fidelity Investments, have already amassed $52 billion in assets, marking a significant milestone. Bloomberg Intelligence’s Rebecca Sin estimates that Hong Kong’s Bitcoin and Ether funds could gather $1 billion over the next two years.
Harvest Global’s CEO, Han Tongli, believes this estimate is conservative, pointing out that Hong Kong’s financial products appeal to both Western and Eastern investors, unlike the US, which primarily targets Western markets.
It’s anticipated that the six new Hong Kong spot-crypto ETFs could attract around $300 million in combined first-day investments, with a preference for Bitcoin funds. Potential investors include Chinese wealth currently invested in Hong Kong, as well as crypto exchanges and market makers operating in the Asia Pacific region.
Despite cryptocurrency trading being banned in mainland China, the new funds offer an opportunity for Chinese investors, though questions remain about the potential expansion of access programs over time.
The ETFs in Hong Kong will adopt an in-kind subscription and redemption model, different from the cash redemption used by US Bitcoin funds. Harvest Global’s Han believes this approach enhances the appeal of Hong Kong’s products and could lead to uptake three times larger than US funds.
However, some caution is warranted, considering Hong Kong’s smaller financial sector. While the city already allows crypto-futures-based ETFs, their total assets are much smaller compared to US derivatives-based products.
Hong Kong may trail behind the US in launching spot-crypto ETFs, but the local products are expected to be attractive due to their accessibility, especially during Asian trading hours, according to Bosera Asset Management (International)’s Ethan Li.
Doris Lian, CEO of Bosera, sees Hong Kong as playing a significant role in the global virtual asset landscape and plans to expand the firm’s digital asset offerings.
The cryptocurrency market has seen a strong rebound since the downturn in 2022, although recent gains have slowed. Bitcoin, trading at $63,540 in Hong Kong on Tuesday, remains below its March peak, while Ether has stabilized.
Christina Choi of the Securities and Futures Commission emphasized at the ETF launch event that the regulator’s approval of these products does not signify endorsement of cryptoassets or encouragement of crypto investment.
Investors will closely monitor data from issuers to assess net inflows into Hong Kong’s ETFs, akin to how similar data for US funds impacts crypto prices.
