Hong Kong approves first spot bitcoin and ether ETFs

ETF shares can be created and redeemed directly using cryptocurrencies

Jeremy Blatch

Wednesday, 5 June 2024, 13:09

Hong Kong launched spot bitcoin and ether ETFs on 30 April, becoming the first Asian financial hub to do so. This is in contrast to China’s ban on cryptocurrency trading. The approved ETFs include offerings from China Asset Management (ChinaAMC), Harvest Global Investment, and Bosera Asset Management (in partnership with Hashkey). These ETFs will provide both retail and institutional investors with a regulated way to gain exposure to bitcoin and ether. ETF providers like ChinaAMC, Harvest Global, and Bosera have strong links to mainland China because they are Chinese firms with Hong Kong offices. This may signal some level of tolerance from China.

Construction of the spot bitcoin and ether ETF in Hong Kong

1. In-kind creation model:

ETF shares can be created and redeemed directly using cryptocurrencies, providing more flexibility compared to the US spot Bitcoin ETF.

It caters to both crypto and traditional investors.

2. Ether ETF Approval:

Hong Kong is also approving spot Ether alongside Bitcoin ETFs.

This is significant because Ether has faced more regulatory hurdles in the US compared to Bitcoin.

3. Lower Fees:

The Hong Kong spot Bitcoin and Ether ETF will have fees lower than 0.4%.

This is lower than the 1.5-4% fees charged by exchanges like Coinbase.

4. Exclusion of Mainland Chinese Investors

Mainland Chinese investors are excluded from directly investing due to China’s ban on Cryptocurrency trading.

This may limit assets under management compared to US Bitcoin ETFs.

Potential brokers offering the new spot bitcoin and ether ETF in Hong Kong

HSBC (Hong Kong and Shanghai Banking Corporation); Standard Chartered; DBS Bank (Hong Kong) Limited; Fidelity Investments Hong Kong Limited; Robinhood Financial LLC; Charles Schwab (Hong Kong) Limited.

The general process is as follows:

Open a brokerage account with one of the above brokers that provides access to the Hong Kong Stock Exchange.

Fund your account with Hong Kong dollars or US dollars, currency you can hold the ETF on.

Place a buy order for the ETF ticker.

The new Hong Kong bitcoin and ether ETFs provide direct exposure to the price of Bitcoin and Ether without magnifying gains or losses. Leveraged ETFs are very risky and not suitable for most investors, but are seeing huge inflows as bitcoin hits new highs in the US. The Hong Kong spot crypto ETF aims to provide a regulated way for mainstream investors to gain exposure without using leverage, allowing investors to participate in their price movements without the risks associated with leveraged products.

The author (jb@ehh.gi) is a member of the Society of Trustees and Estate Practitioners and an investment counsellor. The comments and observations by the author are a reflection of his opinion and do not constitute an offer to buy and hold securities, nor does he receive any remuneration of any kind from names referred to.

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