Hong Kong exchange breaks ground with spot bitcoin, ether ETFs

Hong Kong has stepped into the spotlight as the first Asian market to introduce retail investors to the trading of cryptocurrencies at spot prices, with the launch of six spot bitcoin and ether exchange traded funds (ETFs) on Tuesday. The ETFs, introduced by three Chinese firms — China Asset ManagementBosera Asset Management, and Harvest Global Investments — mark a significant development in the region’s financial landscape.

Hong Kong exchange breaks ground with spot bitcoin, ether ETFs

Approval for the ETF providers was granted by Hong Kong’s Securities and Futures Commission (SFC) just two weeks prior to the launch, signaling a proactive approach to embracing digital assets. During early trading, spot bitcoin ETFs by ChinaAMC, Bosera HashKey, and Harvest surged over 3%, though they later moderated to about a 1.5% increase. Similarly, ether ETFs initially traded over 1% higher but dipped into negative territory by the afternoon.

As of 3:50 a.m. ET, bitcoin was trading at $63,218, while ether stood at $3,159, according to Coin Metrics data. This move positions Hong Kong among the pioneers in approving an ether ETF, following the U.S. Securities and Exchange Commission’s (SEC) decision to allow bitcoin ETFs in January. Crypto ETFs offer investors exposure to the price movements of cryptocurrencies without the necessity of direct ownership, a factor likely to attract both institutional and retail investors seeking diversified portfolios.

Antoni Trenchev, co-founder of crypto exchange Nexo, emphasized the strategic advantage gained by Hong Kong, stating, “First mover advantage is everything in this game.” He further speculated that Japan, Singapore, and South Korea could follow suit in approving similar products within the next two years. Executives from the Chinese asset management firms heralded the debut of their ETFs at the Stock Exchange of Hong Kong, highlighting the regulatory framework facilitating institutional and retail participation in the crypto market.

Despite the swift regulatory approval and the excitement surrounding the launch, questions linger about the pace of demand growth in the region. While the spot crypto ETFs have received regulatory approval under the provision of virtual asset management services, futures ETFs for cryptocurrencies have been trading on the HKEX since late 2022.

The exchange reported a surge in investor interest in virtual asset ETFs since the introduction of VA Futures ETFs, with combined average daily turnover for three VA Futures ETFs reaching HK$51.3 million in the first quarter of 2024. Tongli Han, CEO of Harvest Global Investments, anticipates slow initial growth in crypto assets under management in Hong Kong, attributing it to investor caution. However, he remains optimistic about increasing demand over time.

Despite the promising prospects, it may take years for Hong Kong’s ETF market to match the substantial net inflows seen in its U.S. counterparts. Looking ahead, industry stakeholders, including Heddy Tsang, executive director of HashKey Exchange, advocate for a conducive regulatory environment that fosters innovation while ensuring investor protection.