Hong Kong is preparing to approve Bitcoin spot ETFs for public trading, following the United States’ lead, according to analysts at Bloomberg Intelligence. The region’s regulators may take it a step further by permitting funds to use an “in-kind” redemption model. This model involves market makers adjusting the supply of ETF shares on the market, sending them back to the issuer, and receiving Bitcoin in return. This is different from the “in-cash” model, where market makers receive cash equal to the amount of Bitcoin represented by their shares. Analysts believe that Hong Kong’s unique ‘in-kind’ characteristic could be a significant opportunity for the market.
Before receiving approval in January, Bitcoin ETF sponsors were in disagreement with the Securities and Exchange Commission (SEC) regarding in-kind redemptions for their ETFs. Fund managers argued that the in-kind model would have lower transaction costs, less operating risk, and resistance to market manipulation compared to an in-cash model. The SEC, however, opposed the idea of allowing U.S.-domiciled broker-dealers to interact with Bitcoin directly. Despite the challenges faced by ETF sponsors, Hong Kong’s assets under management within ETFs could increase significantly with the launch of Bitcoin ETFs in the region, given the success of their U.S.-based counterparts.
Analyst Rebecca Sin noted that the launch of Bitcoin ETFs in Hong Kong could lead to a surge in assets under management within ETFs, similar to the growth seen in the U.S. market where aggregate size has reached $62 billion. The Hong Kong ETF market already includes various types of ETFs such as leveraged and inverse, Bitcoin, actively managed, fixed income, and covered call ETFs. In January, Chinese asset manager Harvest Global Investments and Hong Kong-based firm Venture Smart Financial Holdings applied with Hong Kong’s Securities and Futures Commission (SFC) to launch a Bitcoin spot ETF, indicating a growing interest in this area.
The approval of Bitcoin spot ETFs in Hong Kong is expected to bring about several bullish catalysts for Bitcoin outside of monetary policy. This includes the upcoming halving in April, 13F filings for the Bitcoin ETFs in April/May, and the launch of the Hong Kong ETF in April. The region’s ETF assets have reportedly increased fivefold in just four months, indicating a growing appetite for Bitcoin investments in Hong Kong. As both East and West compete for dominance in the Bitcoin market, the approval of Bitcoin spot ETFs in Hong Kong could further fuel the growth of the cryptocurrency and attract more investors to the region.
In conclusion, Hong Kong is poised to approve Bitcoin spot ETFs for public trading, potentially allowing for an “in-kind” redemption model that could set it apart from its Western counterparts. Despite initial challenges with the SEC in the U.S., ETF sponsors are optimistic about the growth potential of Bitcoin ETFs in Hong Kong. The launch of Bitcoin ETFs in the region is expected to bring about positive developments for the cryptocurrency market and attract more investors to the fast-growing region. Overall, Hong Kong’s approval of Bitcoin spot ETFs represents a significant milestone in the evolution of Bitcoin investments on a global scale.
