The security regulator of Hong Kong has recently approved the first-ever Bitcoin and Ethereum ETFs. As mentioned in a recent report that in-kind creation model for Bitcoin and Ethereum ETFs rather than cash-based model in the USA.
Conditional Approval of Crypto Spot ETFs
Hong Kong is the first country to approve spot ETFs for Bitcoin and Ethereum for three native issuers. On this account, the Securities and Futures Commission (SFC) granted a conditional approval for these funds.
The SFC approved at least three different Bitcoin and Ethereum-based spot ETFs issued by local financial firms as per a Reuters report on 15th April.
As per the article, more funds issued and managed by Chinese asset management firms namely Harvest Fund Management, China Asset Management, and Bosera Asset Management are soon to follow suit. Bosera is working on a spot ETF in association with Hong Kong-based HashKey Capital.
OSL Digital Securities is a certified digital asset firm based out of Hong Kong that will offer sub-custodial services for ChinaAMC and Harvest. Hong Kong regulators have issued a conditional approval for the issuance of the ETFs.
These conditions include fee payments, Hong Kong Stock Exchange (HKEX) listing, and document filing. Regulators of the region have noted that these Bitcoin and Ethereum ETFs will be launched as in-kind ETFs.
Institutional Investors Can Invest in Bitcoin and Ethereum via Local Spot ETFs
The financial firms in Hong Kong will now be able to seek exposure in Bitcoin and Ethereum by investing in locally issued spot ETFs. The in-kind infrastructure is the exact opposite of cash-creation redemption model that limits users to create new shares with cash payments only.
However, the spot Bitcoin ETFs is managed using cash-create model in the USA on account of the local security regulators requirements for shares redemption.
Meanwhile, in-kind method enables the investors to approach the spot ETFs in an innovative method. Patrick Pan, CEO of OSL board chairperson noted that the model will enhance the market liquidity by letting direct exchange of assets for ETF shares.
It will reduce reliance on cash settlements and facilitate unrestricted trade inflows.
He further noticed that this principle is necessary to ensure that market balance is consistent with practices in digital and traditionally backed ETFs.
Pan further stated that the in principle approval denotes that the firms have completed the basic vetting process and are set to bring it closer to a public launch. However, it is still too soon to expect when the spot Bitcoin ETF will be available for trading in Hong Kong.
Crypto ETFs Will Boost Crypto Institutional Inflows
The executive further noted that for the time being the launch date is not finalized. However, all the relevant stakeholders are diligently working to expedite the launch.
The initiation of these ETFs is expected to boost the inflows into digital assets within the Hong Kong markets. Market participants are expectant that SFC is set to approve the first batch of spot Bitcoin ETFs on 15th April.
As per local media reports, HKEX requires only 2 weeks to finalize the listing process and make other arrangements after acquiring an approval from SFC.
Another report published in Cointelegraph reported that investors hailing from Mainland China will not be able to invest in Bitcoin and Ethereum ETFs launched from Hong Kong. The ban is on account of the law that technically bars citizens from making crypto transactions.
The analysis published by Bloomberg data analyst Jack Wang noted that Hong Kong approved the spot Bitcoin and Ethereum ETFs. Following these approvals, three major financial firms of Hong Kong have accelerated the process for publishing a Bitcoin and Ethereum spot ETF through subsidiaries by 30th April.
These ETF issuers have harbored close ties with mainland China but the local investors may not be able to invest in these investment vehicles. Wang noted that the State Council of China issued a statement in September 2021 that bar investors from creating accounts, sending funds, or offer clearing services for any crypto-related transactions.
