Key Points
- Hong Kong asset managers may soon launch spot bitcoin exchange-traded funds (ETFs).
- The approval moves the industry closer to launching spot crypto ETFs.
Hong Kong-based asset managers, including divisions of China Asset Management (ChinaAMC) and Harvest Global, are potentially on the verge of launching their spot bitcoin ETFs. This could happen as early as the end of this month. Patrick Pan, the CEO of OSL, reported that a spot bitcoin ETF might start in late April, followed shortly by a spot Ethereum ETF.
Approval and Demand
Pan’s statements come after the Hong Kong Securities and Futures Commission gave in-principle approval for several asset managers to offer spot bitcoin and ether ETFs. OSL will function as a sub-custodian and infrastructure service provider for the ETFs issued by ChinaAMC and Harvest. Katie He, head of product and strategy of ChinaAMC (HK), stated that the demand for their upcoming spot crypto ETFs could be significant.
Hong Kong-based investors will have three options to gain exposure to cryptocurrency when spot crypto ETFs go live. They can access spot bitcoin on the SFC-licensed VATPs, get access through futures-based bitcoin or ether ETFs, or invest in US-listed spot ETFs. The introduction of spot products in Hong Kong really provides the investment opportunity to a wider audience.
Market Reaction
However, some market analysts have expressed skepticism. Eric Balchunas, a Senior ETF Analyst, suggested that the Hong Kong ETF market is small and Chinese locals cannot buy these, at least officially. Some in the crypto industry have said that the upcoming Hong Kong spot crypto ETFs may attract substantial investor interest from the Chinese mainland through the Southbound Stock Connect program. However, this argument may be weak as the Stock Connect program currently does not allow mainland investors to invest in crypto futures ETFs in Hong Kong.
Gary Tiu, executive director and head of regulatory affairs of OSL, mentioned that crypto ETFs have not been included in the eligible securities list of the Stock Connect program yet, but the potential for such inclusion is something that the market certainly likes.
Unique Features
What sets the upcoming Hong Kong spot crypto products apart from their U.S. counterparts is their in-kind feature. The in-kind dealing provides convenience to switch spot Bitcoin to a fully regulated spot Bitcoin ETF managed by a professional fund manager and regulated custodians. This reduces the various risks such as hacking and fraud encountered by investors when investing directly in Bitcoin.
Tiu of OSL stated that the in-kind feature is significant as it hasn’t been done in other markets. It means if an investor has long BTC, and they don’t want to exit the BTC position, they can swap it for another type of instrument, such as an ETF instrument or for an interest in the fund that tracks the performance of BTC.