Hong Kong Gives Initial Bitcoin, Ether ETF Nod, Issuers Say

April 15, 2024

2 minutes read

(Bloomberg) — Hong Kong gave conditional approvals for asset managers to start spot-Bitcoin and Ether exchange-traded funds, the firms said, a development that boosted both tokens and the wider crypto market.

Most Read from Bloomberg

Harvest Global Investments Ltd. and a partnership between HashKey Capital Ltd. and Bosera Asset Management (International) Co. announced initial approvals in separate statements on Monday.

The Hong Kong unit of China Asset Management said it had received approval from the city’s Securities & Futures Commission for the provision of virtual-asset management services and is deploying resources to develop products.

Hong Kong is vying with the likes of Singapore and Dubai to become a digital-asset hub after rolling out a dedicated regulatory regime last year. Officials are trying to restore the city’s reputation as a modern financial hub following a crackdown on dissent that dulled its allure.

Listing Approval Pending

The SFC said the agency issues a conditional authorization letter to an ETF application if it generally satisfies its requirements, subject to various conditions. An applicant would then apply to Hong Kong Exchanges and Clearing Ltd. for listing approval, the SFC added.

In a statement, OSL Digital Securities Ltd. said it would provide custodial services for Bitcoin and Ether products from the China Asset Management unit as well as Harvest.

The crypto market got a boost from the latest developments. Bitcoin rose as much as 4.3% and Ether 6.5%. The tokens traded at $66,232 and $3,253 respectively as of 4:30 p.m. Monday in Hong Kong.

Spot-crypto ETFs have been in the spotlight after Bitcoin funds from companies including BlackRock Inc. and Fidelity Investments debuted in the US in January. The portfolios have attracted a net inflow of $12.5 billion to date, demand that helped take the largest digital asset to a record high of $73,798 in mid-March. It’s unclear if the US will approve pending applications to start ETFs that directly hold second-ranked token Ether.

In-Kind Redemption

HashKey Capital and Bosera said the Hong Kong spot-ETFs would have an in-kind subscription and redemption mechanism, where the underlying assets are swapped for ETF units and vice versa. That contrasts with the US funds, which operate on a cash redemption model.

The in-kind approach is a “potentially smoother and cheaper process” that may bolster the appeal of the Hong Kong products, said Justin d’Anethan, head of business development for APAC at Keyrock, a crypto market maker.

The big unknown is the likely level of demand for the city’s ETFs. Hong Kong already allows futures-based crypto ETFs and three have listed so far: CSOP Bitcoin Futures, CSOP Ether Futures and Samsung Bitcoin Futures. They have combined assets of about $170 million, a fraction of equivalent US offerings.

Aside from ETFs, Hong Kong is mulling a batch of applications to expand its roster of licensed digital-asset exchanges and working on a framework for stablecoins, which are usually pegged 1-1 to fiat currency and typically backed by reserves of cash and bonds.

(Updates with more context on ETFs from the seventh paragraph.)