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Hong Kong rivals US in Bitcoin ETF market after crypto renaissance
(Bloomberg) — A batch of exchange-traded funds investing directly in crypto debuted Tuesday in Hong Kong, heralding potential competition for U.S. Bitcoin products whose popularity has fueled a record rally in the digital asset.
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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 each listed Bitcoin and Ether ETFs in the city.
The level of demand for these funds will provide clues as to whether Hong Kong’s push for a tightly regulated digital asset hub is gaining traction. Officials hope the crypto pivot will help restore the city’s reputation as a modern financial center, a reputation that has been tarnished by a crackdown on dissent.
U.S. spot-Bitcoin ETFs from issuers including BlackRock Inc. and Fidelity Investments went live in January and have $52 billion in assets so far in a historic rollout. For Hong Kong, Bloomberg Intelligence’s Rebecca Sin estimates that the city’s Bitcoin and Ether funds could raise $1 billion over two years.
Such a projection is “too small,” Han Tongli, chief executive of Harvest Global, said in an interview. This is partly because financial products and services in Hong Kong are “accepted by investors in both the West and the East”, while the United States mainly caters to the former, he explained.
The six new ETFs saw a combined trading volume of $11 million in the first session, according to data compiled by Bloomberg. This is a far cry from the total volume of $4.6 billion that the 10 US spot-Bitcoin products recorded in their debut.
Issuers expect around $300 million in combined first-day inflows for new Hong Kong spot cryptocurrency ETFs, favoring Bitcoin funds, BI’s Sin said. Possible sources include Chinese wealth parked in the city, as well as crypto exchanges and market makers active in the Asia-Pacific region.
Cryptocurrency trading is banned in mainland China – leading to clandestine activity – and the new funds fall outside the scope of a program giving Chinese investors access to some Hong Kong ETFs. A key question is whether this program could be expanded over time.
The launch of ETFs “opens the door for many RMB holders” to seek alternative investments, Yimei Li, CEO of China Asset Management, said in an interview with Bloomberg Television.
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She added that she hoped there could be a “new opportunity” for mainland Chinese investors to “participate in this process” in the future.
Subscription in kind
Hong Kong adopts an in-kind ETF subscription and redemption mechanism, which allows underlying assets to be exchanged for fund shares and vice versa, while US Bitcoin funds use a cash redemption model.
Harvest Global’s Han said the in-kind approach boosts the appeal of the city’s products and is one reason why eventual adoption of Hong Kong ETFs could be up to three times greater than that of American funds.
Others cautioned that expected demand should be calibrated to Hong Kong’s smaller financial sector. The city already allows crypto-futures-based ETFs, but their total assets of about $164 million are just a fraction of the $2.3 billion ProShares Bitcoin Strategy ETF, a derivative product in the States -United.
Hong Kong may lag behind the US in launching spot cryptocurrency ETFs and has a smaller market for passive funds, but local products will remain attractive due to their ease access, especially during Asian trading hours, said Bosera Asset Management Director (International). products Ethan Li said in an interview.
Managing Director Doris Lian said Bosera was looking to expand its team and digital asset product portfolio. “Hong Kong will occupy an important place in the global virtual asset sphere,” she added.
Sparkling bounce
Digital assets have rebounded strongly after a deep rout in 2022, although the recovery has stalled of late. Bitcoin reversed earlier gains to fall 2% to $61,700 as of 11:40 a.m. Tuesday in London. Ether fell 4%.
The market collapse two years ago exposed risky practices and fraud, triggering a wave of bankruptcies and harsh criticism that still weighs on the sector. An alleged fraud on crypto exchange JPEX rocked Hong Kong last year.
Speaking at the ETF launch event, Christina Choi, executive director of the investment products division at the Securities and Futures Commission, said that just because the products are going online does not mean that the regulator approves cryptoassets or encourages crypto investments.
“A day in the cryptocurrency circle is equivalent to a year in the human world,” she said, referring to a Chinese meme about the high volatility that can shake digital assets.
Investors will likely look at inbound data from issuers to assess net inflows for Hong Kong vehicles. The equivalent figures for U.S. funds have sometimes caused cryptocurrency prices to fluctuate as demand waxed and waned.
–With help from Sidhartha Shukla, Zheping Huang and Kiuyan Wong.
(Updates with trading volume in sixth paragraph.)
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