On Tuesday, six newly introduced spot bitcoin and ether exchange traded funds (ETFs) in Hong Kong saw positive gains during their debut, with three bitcoin ETFs surging over 2% by midday, showcasing Asian investor interest in cryptocurrency assets.
This marks the first instance of spot cryptocurrency ETF launches in Asia, following the United States’ introduction of its first spot bitcoin ETFs just three months earlier. China AMC, Harvest, and Bosera’s spot bitcoin ETFs all experienced approximately a 2.6% increase by the midday break, while the three ether ETFs managed by the same asset managers remained relatively stable.
Bitcoin saw a 1% increase in value today. China AMC announced the launch of its bitcoin ETF, starting with an initial size of HK$950 million ($121 million), making it the largest among the three issuers. Despite cryptocurrency being banned in mainland China, Hong Kong has been positioning itself as a global digital asset hub, aiming to uphold its status as a financial center.
Christina Choi, an executive director at the Securities and Futures Commission (SFC), described the product’s introduction as a significant event in Hong Kong’s ETF market but also cautioned about associated risks.
Choi emphasized during Tuesday’s launch event that virtual assets are highly speculative and exhibit significant volatility, thus underscoring their unsuitability for all investors. Additionally, the debut of the ETF positions Hong Kong in direct rivalry with the United States for cryptocurrency investors. While U.S. spot bitcoin ETFs have attracted approximately $12 billion in net inflows, fueling a spike in bitcoin’s value earlier this year, regulators in the United States have yet to greenlight ETFs that monitor spot ether prices.
Han Tongli, CEO of Harvest Global Investments, remarked, “The initial inflow surpasses expectations significantly.” He emphasized that Hong Kong holds substantial potential over the U.S. for crypto asset development, given its capacity to allure investors from both the western and eastern regions. Regarding the long-term outlook, Han expressed that if proven to manage risks effectively, crypto ETFs could potentially become accessible to investors in mainland China.
Hong Kong’s crypto ETFs differ from those in the U.S. by employing the “in-kind” transaction method, allowing investors to buy and sell ETF shares using crypto tokens rather than cash. This option is attractive as it eliminates the need to convert tokens to fiat currency, potentially saving on costs, as noted by Robert Zhan, KPMG China’s risk consulting director. Initial inflows are anticipated to come mainly from local retail investors due to cost considerations.
The management fees for Hong Kong’s crypto spot ETFs, ranging from 0.3% to 0.99%, are higher than those of U.S. counterparts, primarily due to the limited number of regulated service providers under the city’s strict legal framework. Currently, only Hashkey and OSL are approved trading platforms in Hong Kong.
Alex Chiu, Value Partners’ senior ETF strategist, suggests that if Hong Kong’s SFC approves more participants or trading platforms in the future, costs could decrease, making them more competitive. Bitcoin has surged around 50% this year, hitting a record high of $73,803 in March, and was trading at approximately $63,000 on Tuesday. Ether has seen a nearly 40% increase year-to-date. (1 USD equals 7.8253 Hong Kong dollars)
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