Hong Kong’s Crypto ETF Debut: 6 Must-Knows

Tomorrow, Hong Kong will launch spot exchange-traded funds (ETFs) tied to physical Bitcoin and Ether, which has generated excitement in the cryptocurrency community. Three Chinese firms are expected to launch crypto ETFs through their Hong Kong subsidiaries on the Hong Kong Stock Exchange (HKEX). This event follows the historic launch of spot Bitcoin ETFs in the United States earlier this year. Here are a few key facts about the upcoming trading debut:

1. HKEX already trades Bitcoin futures and other crypto contracts: Crypto ETFs have already been introduced to the Hong Kong ETF market, with the CSOP Bitcoin Futures ETF and the CSOP Ether Futures ETF being the first offerings. These ETFs track cash-settled Bitcoin futures contracts and Ether futures contracts traded on the Chicago Mercantile Exchange (CME). Samsung Asset Management Hong Kong later launched the Samsung Bitcoin Futures Active ETF.

2. Hong Kong’s ETF market is smaller compared to the US: The entire ETF industry in the US had 3,457 products with assets worth $8.9 trillion by the end of March 2024. In contrast, the size of Hong Kong’s ETF market is estimated to be around $50 billion. Hong Kong had accumulated 24 active ETFs with a combined capitalization of 8.6 billion HKD ($1 billion) by late 2023. China’s ETF market equaled $238 billion in 2023.

3. Hong Kong’s spot crypto ETFs will use in-kind creation: Unlike US spot Bitcoin ETFs, Hong Kong’s spot crypto ETFs will be in-kind created. This means that intermediaries will use actual cryptocurrencies like Bitcoin to create new ETF shares. In contrast, US spot Bitcoin ETFs are cash-created, meaning intermediaries cannot touch Bitcoin.

4. Hong Kong’s spot Ether ETF is not the first in the world: While the US is expected to deny spot Ether ETFs and delay the decision further, Hong Kong has succeeded in launching them. Hong Kong is not the first country to offer Ether ETFs. Canadian regulators approved the first Ether futures ETFs in April 2021, and there are currently five Ether ETFs in Canada.

5. Mainland China investors cannot buy Hong Kong Bitcoin ETFs: Despite the ETF issuers’ close ties with mainland China, it is expected that mainland Chinese citizens will be unable to purchase Hong Kong’s spot crypto ETFs. China prohibits citizens from any crypto-related activity, including investing in crypto ETFs.

6. China AMC is the largest issuer in terms of AUM: China AMC, the Hong Kong subsidiary of China Asset Management, is the biggest asset management company among the three issuers of spot crypto ETFs in Hong Kong. The parent company in mainland China manages 1,400% more assets than the Hong Kong subsidiary.

The launch of spot crypto ETFs in Hong Kong is expected to be a significant milestone in developing regulated crypto investment products and ETFs globally. These ETFs will offer a new way for investors to gain exposure to Bitcoin and Ether in a regulated and secure manner.