A wave of exchange-traded funds (ETFs) delving directly into cryptocurrency has made its debut in Hong Kong, signaling a potential challenge to US-based Bitcoin products that have fueled a surge in the digital asset’s popularity.
Harvest Global Investments, in collaboration with China Asset Management, alongside a partnership between Hashkey Capital and Bosera Asset Management (International), have unveiled Bitcoin and Ether ETFs in the city, marking a significant development in Hong Kong’s efforts to establish itself as a tightly regulated digital asset hub.
The reception of these funds in the market will offer valuable insights into the traction gained by Hong Kong’s endeavor. With aspirations to rejuvenate its image as a modern financial center, the city aims to capitalize on the burgeoning crypto market, seeking to offset the repercussions of a crackdown on dissent.
In contrast to the historic rollout of US spot-bitcoin ETFs earlier this year, which have amassed a staggering $53 billion in assets, Bloomberg Intelligence’s Rebecca Sin estimates that Hong Kong’s Bitcoin and Ether funds could accrue $1 billion over a span of two years.
Han Tongli, CEO of Harvest Global, expressed optimism about the potential of the Hong Kong ETFs, attributing it to the city’s unique positioning catering to both Western and Eastern investors. This versatility, he argues, could significantly boost uptake compared to US offerings, which predominantly cater to Western markets.
Anticipated sources of inflows for these Hong Kong-based ETFs include Chinese wealth influx into the city and active participation from crypto exchanges and market makers in the Asia-Pacific region. Despite mainland China’s ban on crypto trading, Chinese investors may find indirect access through these Hong Kong-based products.
One distinguishing feature of the Hong Kong ETFs is their adoption of an in-kind subscription and redemption mechanism, contrasting with the cash redemption model utilized by US Bitcoin funds. This approach, according to Han, enhances the appeal of Hong Kong’s offerings and could potentially drive uptake three times higher than their US counterparts.
While Hong Kong’s financial sector may be smaller compared to the US, the convenience of access, especially during Asian trading hours, renders these local products attractive, asserts Ethan Li, head of products at Bosera Asset Management (International).
As digital assets experience a resurgence following a tumultuous period in 2022, investors keenly await data on net inflows into the Hong Kong ETFs, akin to the impact observed with US funds. These developments underscore Hong Kong’s emergence as a formidable player in the global crypto landscape, poised to reshape dynamics in the burgeoning ETF market.
