Hong Kong’s financial regulator is poised to greenlight in-kind creations and redemptions for spot Bitcoin ETFs. This move could open doors for a substantial influx of investors from China into the cryptocurrency market. Several companies have sought approval to launch spot Bitcoin ETFs on the Hong Kong Stock Exchange.
The Hong Kong Securities and Futures Commission (SFC) is expected to authorize in-kind creations and redemptions for spot Bitcoin ETFs in the second quarter of this year, as per a Bloomberg Intelligence report. In January, Harvest Global, a Chinese asset manager, applied for a spot Bitcoin ETF, with Venture Smart Financial Holdings planning to follow suit after the SFC’s announcement in December indicating readiness to consider such products.
Although no spot ETFs have been approved yet, Bloomberg Intelligence ETF analyst Rebecca Sin believes it’s just a matter of time. Additionally, the SFC is likely to permit in-kind redemptions, a significant departure from the cash-only redemption model used by U.S. spot-based products.
Looks like Hong Kong is going to allow in-kind creations and redemptions for spot bitcoin ETFs in 2Q (unlike US which is cash creations only), which could help spark aum and volume in the fast-growing region via new note today from @Rebeccasin_SK https://t.co/IxcdWEFDvC pic.twitter.com/sDsS4nbzGi
— Eric Balchunas (@EricBalchunas) March 26, 2024
In-kind redemptions are preferred by ETFs as they don’t require selling the underlying asset, making them more cost-effective, tax-efficient, and liquid. Conversely, cash redemptions entail exchanging ETF shares solely for cash, resulting in higher tax and trading costs.
If Hong Kong indeed approves in-kind redemptions for spot Bitcoin ETFs, it would be a significant development, according to Noelle Acheson, author of the “Crypto is Macro Now” newsletter. She notes that the Asian crypto market surpasses the U.S. in volume, suggesting either a lack of “new money” or deeper familiarity with crypto assets in the region. ETFs listed in Hong Kong could channel a considerable amount of funds into approved portfolio allocations.
