Bitcoin
Hong Kong Rivals US in Bitcoin ETF Market After Crypto Revival
(Bloomberg) — A batch of exchange-traded funds that invest directly in cryptocurrencies debuted in Hong Kong on Tuesday, heralding potential competition for U.S. Bitcoin products whose popularity has sparked 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 listed Bitcoin and Ether ETFs in the city.
The level of demand for the funds will provide clues as to whether Hong Kong’s push for a strictly regulated digital asset hub is gaining momentum. Officials hope the crypto pivot will help restore the city’s reputation as a modern financial center, a position that has been tarnished by the crackdown on dissent.
US Bitcoin spot ETFs from issuers including BlackRock Inc. and Fidelity Investments went live in January and have $52 billion in assets so far in a historic launch. For Hong Kong, Rebecca Sin of Bloomberg Intelligence estimates that the city’s Bitcoin and Ether funds could accumulate $1 billion in two years.
Such a projection is “very small,” said Han Tongli, CEO of Harvest Global, 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 U.S. primarily caters to the former, he said.
The six new ETFs had a combined trading volume of $11 million in the first session, data compiled by Bloomberg show. This is a far cry from the $4.6 billion in total volume that the 10 US spot-Bitcoin products recorded in their debut.
Issuers expect about $300 million in combined first-day inflows for Hong Kong’s new spot crypto ETFs, tilted in favor of Bitcoin funds, said BI’s Sin. Possible sources include Chinese wealth parked in the city, as well as cryptocurrency exchanges and market makers active in Asia-Pacific.
Crypto trading is banned in mainland China – driving clandestine activity – and the new funds are outside the scope of a program that gives 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” seeking alternative investments, China Asset Management CEO Yimei Li said in an interview with Bloomberg Television.
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She added that she hopes there may be a “new opportunity” for mainland Chinese investors in the future to “participate in this process.”
Subscription in kind
Hong Kong is adopting an in-kind ETF subscription and redemption mechanism, which allows underlying assets to be exchanged for fund units and vice versa, while US Bitcoin funds use a cash redemption model.
Harvest Global’s Han said the in-kind approach increases the appeal of the city’s products and is among the reasons why the eventual uptake of Hong Kong ETFs could be up to three times greater than that of U.S. funds.
Others warned that expected demand should be calibrated in line with Hong Kong’s smaller financial sector. The city already allows ETFs based on crypto-futures, but its total assets of about $164 million are a fraction of the $2.3 billion ProShares Bitcoin Strategy ETF, a U.S. derivatives-based product.
Hong Kong may lag behind the US in launching spot crypto ETFs and have a smaller market for passive funds, but local products will still be attractive due to their ease of access, especially in Asian trading hours, said the head of Bosera Asset Management ( International). of Products Ethan Li said in an interview.
CEO Doris Lian said Bosera is looking to expand its team and digital asset product pipeline. “Hong Kong will have a significant place in the global virtual asset sphere,” she added.
Effervescent recovery
Digital assets recovered sharply from a deep rout in 2022, although the recovery has stalled recently. Bitcoin reversed earlier gains to fall 2% to $61,700 at 11:40 a.m. in London on Tuesday. Ether fell 4%.
The market collapse two years ago exposed risky practices and fraud, triggering a wave of bankruptcies and scathing criticism that still hangs over the industry. An alleged fraud on crypto exchange JPEX plagued Hong Kong last year.
Speaking at the ETF launch event, Christina Choi, executive director of the Securities and Futures Commission’s investment products division, said the fact that the products are being launched does not mean the regulator is endorsing crypto assets or encouraging investment in cryptocurrencies.
“A day in crypto circles is a year in the human world,” she said, referring to a Chinese meme about the strong volatility that can affect digital assets.
Investors will likely analyze data received from issuers to assess net inflows for Hong Kong vehicles. The equivalent numbers for US funds have sometimes led to fluctuations in cryptocurrency prices as demand rises and falls.
–With assistance from Sidhartha Shukla, Zheping Huang and Kiuyan Wong.
(Updates with trading volume in sixth paragraph.)
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