In a move marking potential competition for existing US Bitcoin products, Hong Kong has debuted its inaugural batch of cryptocurrency-focused ETFs, with issuers anticipating approximately $300 million in combined first-day inflows, primarily favoring Bitcoin funds.
Harvest Global Investments Ltd., the local unit of China Asset Management, and a partnership between HashKey Capital Ltd. and Bosera Asset Management (International) Co. have listed Bitcoin and Ether ETFs in the city.
This development comes after the US witnessed the launch of spot Bitcoin ETFs from BlackRock Inc. and Fidelity Investments in January, accumulating a historic $52 billion in assets to date. Bloomberg Intelligence’s Rebecca Sin estimates that Bitcoin and Ether funds in Hong Kong could attract around $1 billion over the next two years.
However, Han Tongli, CEO of Harvest Global, believes this estimate to be too conservative, highlighting the broad investor acceptance of financial products and services in Hong Kong, catering to both Western and Eastern investors. Consequently, issuers anticipate significant first-day inflows for the six new Hong Kong spot-crypto ETFs, with a preference for Bitcoin funds.
Potential sources for these inflows include Chinese wealth domiciled in the city and active crypto exchanges and market makers across the Asia Pacific region. Despite the ban on crypto trading in mainland China, the new funds are positioned outside the scope of the program granting Chinese investors access to select Hong Kong ETFs, sparking discussions on potential program expansions.
Setting Hong Kong apart is its adoption of an in-kind ETF subscription and redemption mechanism, allowing for the exchange of underlying assets for fund units and vice versa. This approach contrasts with the cash redemption model used by US Bitcoin funds, potentially enhancing the appeal of Hong Kong’s products and projecting an eventual uptake three times larger than that of US funds.
However, some caution against overly optimistic projections, citing Hong Kong’s smaller financial sector. While the city already permits crypto-futures-based ETFs, their total assets of around $164 million pale in comparison to the $2.3 billion held by the ProShares Bitcoin Strategy ETF, a derivatives-based product in the US.
Despite potential challenges, Hong Kong’s local products hold appeal due to easy access, particularly during Asian trading hours. Ethan Li, Head of Products at Bosera Asset Management (International), expressed confidence in the appeal of Hong Kong ETFs, outlining plans for team expansion and a digital-asset product pipeline.
While digital assets have experienced a significant rebound since the market collapse in 2022, the recent revival has stalled, with Bitcoin’s price hovering around $63,540, approximately $10,000 below its record high in March.
