Key things to know as Hong Kong crypto ETFs launch tomorrow

Hong Kong is set to launch trading for spot Bitcoin and Ether exchange-traded funds (ETFs) on April 30, marking a significant milestone in developing regulated crypto investment products and ETFs worldwide.

Three Chinese firms, China Asset Management, Bosera Asset Management, and Harvest Global Investments, are expected to launch crypto ETFs through their Hong Kong subsidiaries on the Hong Kong Stock Exchange (HKEX) on April 30. The event will mark another milestone in developing regulated crypto investment products and ETFs worldwide, following a historic launch of spot Bitcoin ETFs in the United States in January 2024.

The Hong Kong ETF market is considerably smaller compared to the ETF market in the United States, with an estimated $50 billion size. By late 2023, HKEX had listed 24 active ETFs with a combined capitalization of 8.6 billion Hong Kong dollars ($1 billion). In comparison, China’s ETF market equaled $238 billion in 2023.

Hong Kong’s spot crypto ETFs will have at least one distinct feature that makes them significantly different from their American counterparts: the method of ETF redemption. Unlike US spot Bitcoin ETFs, Hong Kong’s spot crypto ETFs will be in-kind created, meaning that when ETF intermediaries want to make new ETF shares, they provide issuers with funds using actual cryptocurrencies like Bitcoin.

In contrast, US spot Bitcoin ETF providers are currently allowed to only issue cash-created spot crypto ETFs, meaning that intermediaries aren’t allowed to touch Bitcoin.

Hong Kong’s spot Ether ETF launch is exciting because it will bring not only the in-kind spot cryptocurrency ETFs but also a spot Ether ETF, which has yet to be approved in the United States. US securities regulators are expected to deny spot Ether ETF applications in May and further delay the decision regarding the matter.

Canada has been one of the first countries in the world to debut such investment products, with five Ether ETFs in Canada at the time of writing: the Purpose Ether ETF, Evolve Ether ETF, CI Galaxy Ethereum ETF, 3iQ CoinShares Ether ETF, and the Fidelity Advantage Ether ETF.

Mainland Chinese citizens are expected to be unable to purchase Hong Kong’s spot crypto ETFs despite the ETF issuers’ close ties with mainland China. Chinese investors will not invest in this kind of product in the short term.

Among the three spot crypto ETF issuers in Hong Kong, China AMC is the biggest asset management company, with 15 ETFs in Hong Kong with total assets under management of $3.6 billion. Its parent company in mainland China manages 1,400% more assets, or $55.7 billion.