Hong Kong Poised for Landmark Launch of Spot Cryptocurrency ETFs
The impending launch of spot cryptocurrency ETFs in Hong Kong marks a pivotal moment for the city's financial landscape. With anticipation building, three prominent Chinese firms—China Asset Management, Bosera Asset Management, and Harvest Global Investments—are set to debut trading for spot exchange-traded funds (ETFs) tied to physical Bitcoin and Ether currencies on the Hong Kong Stock Exchange (HKEX) come April 30.
This event represents a significant stride towards the broader adoption of regulated crypto investment products and ETFs globally, following the landmark introduction of spot Bitcoin ETFs in the United States in January 2024.
However, this isn't the first encounter with crypto ETFs on the HKEX. In late 2022, the scene was set with the launch of the CSOP Bitcoin Futures ETF and the CSOP Ether Futures ETF, both managed by CSOP Asset Management. Subsequently, Samsung Asset Management Hong Kong added to the mix with the introduction of the Samsung Bitcoin Futures Active ETF in January 2023. As of April 29, 2024, these three futures crypto ETFs on HKEX have amassed 1.3 billion Hong Kong dollars ($170 million) in assets under management.
Despite this progress, the Hong Kong ETF market still stands as a minor player compared to its US counterpart, comprising a mere 0.6% of the US ETF market. By March 2024, the US boasted 3,457 ETF products with assets totaling $8.9 trillion, while Hong Kong's ETF market was estimated at $50 billion.
In the ETF arena, Hong Kong has made strides since its first active ETF listing in June 2019, accumulating 24 active ETFs by late 2023. However, China's dominance in the ETF realm remains evident, with a market valued at $238 billion in 2023.
One distinctive feature of Hong Kong's spot crypto ETFs is their in-kind creation, contrasting with the cash-created ETFs prevalent in the US. This unique aspect allows for the issuance of new ETF shares backed by actual cryptocurrencies like Bitcoin, setting Hong Kong apart from the US market.
The launch of spot crypto ETFs in Hong Kong also introduces a spot Ether ETF, a first for the city and a significant move considering the US regulatory stance on similar products.
While optimism may abound, mainland Chinese investors are unlikely to partake in Hong Kong's spot crypto ETFs due to China's stringent regulations prohibiting crypto-related activities.
China AMC, the largest issuer among the three, underscores the potential for growth in the spot crypto ETF market, with projections suggesting assets under management could reach $1 billion within one to two years under bullish conditions.