Hong Kong’s Digital-Asset Hub Aspirations to be Tested with Launch of Crypto ETF

Hong Kong is planning to launch its first-ever spot Bitcoin Exchange-Traded Fund (ETF) by the end of April, following in the footsteps of the United States. The Hong Kong Securities and Futures Commission has already given the green light for China Asset Management (Hong Kong) to partner with OSL Digital Securities and BOC International Prudential Trusteeship to issue spot Bitcoin and Ether ETFs. However, experts are cautioning that expectations should be adjusted given Hong Kong’s smaller financial sector and lack of name recognition compared to the US market. The US Securities and Exchange Commission (SEC) has approved direct investment in Bitcoin through ETFs but is yet to approve an Ether ETF. One key difference between the Hong Kong and US ETFs is that the former will operate on an in-kind subscription and redemption mechanism, allowing the underlying asset to be swapped for an ETF unit, while the latter operates on a cash redemption model. Experts believe that the in-kind approach used by Hong Kong enables greater efficiency and arbitrage opportunities. While the approval of the ETF is seen as a step towards Hong Kong establishing itself as a digital asset hub, experts note that the overall impact on the ETF ecosystem will take time to develop.