Hong Kong Welcomes First Bitcoin and Ether ETFs

In a landmark moment for cryptocurrency investment in Asia, Hong Kong witnessed the introduction of its inaugural spot Bitcoin and Ether Exchange-Traded Funds (ETFs) on Tuesday, according to Reuters. Despite high expectations, the launch received a lukewarm response from investors, with the six ETFs experiencing varied results in their initial trading session.

UPDATE: HONG KONG'S NEWLY LAUNCHED SPOT BITCOIN ETFS SEE A SUCCESSFUL DEBUT WITH THREE BITCOIN ETFS SURGING OVER 2% BY MIDDAY

— BSCN Headlines (@BSCNheadlines) April 30, 2024

Asia’s First Bitcoin and Ether ETFs Fail to Impress On Day One

This development represents a significant milestone as the first occurrence of spot cryptocurrency ETFs in Asia, following closely after the United States introduced its own spot Bitcoin ETFs. The difference in market reception was stark, with the Hong Kong ETFs’ first-day turnover totaling around $112 million, significantly lower than the $4.6 billion turnover of the U.S. ETFs on their debut day.

We tried to warn everyone to lower expectations re HK (esp vs that $25b hopium OD estimate). That said, if you localize numbers this was BIG: eg ChinaAMC bitcoin ETF took in $123m on Day One which already ranks it 6th of 82 ETFs launched in past 3yrs in HK and Top 20% overall pic.twitter.com/1nUKWgxgi3

— Eric Balchunas (@EricBalchunas) April 30, 2024

Hong Kong’s strategic positioning as a digital asset hub is part of a broader effort to solidify its status as a premier financial center, particularly as cryptocurrencies remain banned in mainland China. The ETFs, managed by China AMC, Harvest, and Bosera, saw modest gains ranging from 1.5% to 1.8%, while their Ether counterparts experienced slight declines. Concurrently, Bitcoin’s value fell by over 1%.

Despite the cautious start, the funds garnered significant pre-listing investments, indicating strong interest from both cryptocurrency enthusiasts and traditional investors. China AMC’s Bitcoin ETF emerged as the frontrunner, boasting an initial size of HK$950 million ($121 million).

The introduction of these ETFs positions Hong Kong as a contender in the global competition for cryptocurrency investment, challenging the United States. American spot Bitcoin ETFs have attracted approximately $12 billion in net inflows, significantly impacting Bitcoin’s price surge earlier in the year. However, spot Ether ETFs are still awaiting approval from U.S. regulators.

Looking ahead, the HashKey Group, a local crypto powerhouse, predicts that Hong Kong’s spot crypto ETF market could reach 20% of the U.S. market size within a year. Furthermore, there’s potential for these ETFs to become accessible to mainland Chinese investors, provided they demonstrate effective risk management.

Hong Kong ETF’s “In-Kind” Feature

A notable feature of Hong Kong’s crypto ETFs is the “in-kind” transaction mechanism, which allows the exchange of ETF shares for actual cryptocurrency tokens rather than cash. This approach provides an attractive option for token holders, enabling them to invest in ETFs without converting their assets into fiat currency, according to Robert Zhan of KPMG China.

However, the higher management fees for Hong Kong’s ETFs, ranging from 0.3% to 0.99%, may discourage some investors, especially when compared to their more affordable U.S. counterparts. This cost disparity is due to the limited number of regulated service providers within Hong Kong’s stringent legal framework, with Hashkey and OSL being the only two approved trading platforms currently.

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