Asia’s first spot bitcoin and ether ETFs gain in Hong Kong debut

Written by Summer Zhen

HONG KONG (Reuters) – Six spot bitcoin and ether exchange-traded funds (ETFs) posted gains in their Hong Kong debuts on Tuesday; Three Bitcoin ETFs were up more than 3% in early trading, reflecting Asian investors’ enthusiasm for cryptocurrencies.

The launches mark the first launch of spot cryptocurrency ETFs in Asia and come just three months after the US launched its first ETFs to track spot bitcoin.

Spot Bitcoin ETFs launched by China AMC, Harvest and Bosera were up around 2.5% as of 02:21 GMT. All three Ethereum ETFs managed by asset managers rose.

Bitcoin is up about 1%.

Cryptocurrency is banned in mainland China, but Hong Kong is promoting itself as a global digital asset hub as part of an effort to maintain its appeal as a financial hub.

Christina Choi, director general of the Securities and Futures Commission (SFC), hailed the product’s debut as a milestone in the Hong Kong ETF market, but also noted risks.

“Virtual assets are highly speculative and very volatile… so I would like to remind you that these types of assets are not suitable for all investors,” Choi said at the launch event on Tuesday.

The ETF launch also puts Hong Kong in direct competition with the US for crypto investors.

U.S. spot bitcoin ETFs attracted net inflows of nearly $12 billion, contributing to a surge in the price of bitcoin earlier this year. But US regulators have yet to approve ETFs that track spot ether prices.

COMPETITION

Another difference is that Hong Kong’s crypto ETFs adopt the “in-kind” transaction mechanism, which allows investors to buy and sell ETF shares using their respective crypto tokens instead of cash.

Such an option should be attractive to investors because token holders “may consider the benefit of holding ETFs without the cost of converting to fiat (currency) first,” said Robert Zhan, director of risk consultancy KPMG China.

Transactions in Hong Kong’s crypto ETFs will be closely watched for signs that crypto flows may be shifting from the US to Asia

Some analysts expect the majority of the initial investment to come from local retail investors, given cost concerns.

The management fee for Hong Kong crypto spot ETFs, which ranges from 0.3% to 0.99%, is much higher than existing U.S.-listed ETFs due to the limited number of regulated service providers under the city’s strict regulatory framework.

Currently Hashkey and OSL are the two approved trading platforms in Hong Kong.

“If the Hong Kong SFC approves more participants or trading platforms in the long term, this will make costs lower and more competitive,” said Alex Chiu, senior strategist at ETF Business at Value Partners.

The story continues

Bitcoin has gained nearly 50% this year, reaching an all-time high of $73,803 in March. It was trading around $62,944 on Tuesday. Ether is up almost 40% since the beginning of the year.

(Reporting by Summer Zhen and Sam Shen; Editing by Edwina Gibbs and Lincoln Feast.)