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Hong Kong Likely To Allow In-Kind Creations for Spot Bitcoin ETFs: Bloomberg
Allowing in-kind creations and redemptions for spot bitcoin ETFs in Hong Kong could bring a significant amount of money into the space from Chinese investors.
Updated Mar 26, 2024, 4:27 p.m. Published Mar 26, 2024, 4:25 p.m.
- Hong Kong's financial regulator is likely to approve in-kind creations and redemptions for spot bitcoin ETFs.
- This could potentially pave way for a massive investor base across China to enter the crypto market.
- Several firms have applied to launch a spot bitcoin ETF on the Hong Kong Stock Exchange.
Hong Kong’s financial regulator, the Hong Kong Securities and Futures Commission (SFC), is likely to allow in-kind creations and redemptions for spot bitcoin ETFs in the second quarter of this year, according to a report from Bloomberg Intelligence.
In January, Chinese asset manager Harvest Global applied for a spot bitcoin ETF and another firm, Venture Smart Financial Holdings, also said it would submit a filing after the SFC said in December that it was ready to consider such products.
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Though no spot ETF has yet been approved, it seems likely that it's just a matter of time, according to Bloomberg Intelligence ETF analyst Rebecca Sin.
In addition to those approvals, Sin reports that the SFC will also allow in-kind redemptions, an important distinction from the cash-only redemptions for the 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 the more frequently used method by ETFs as the underlying asset doesn’t actually have to be sold. It's therefore preferred by investors and issuers for cost, tax and liquidity reasons.
Cash redemptions, on the other hand, mean ETF shares can be exchanged only for cash, which generally means costlier tax and trading considerations.
If Hong Kong indeed approved in-kind redemptions for spot bitcoin ETFs, it would be "huge," said Noelle Acheson, author of the “Crypto is Macro Now” newsletter.
“The Asian crypto market is much larger than the U.S. crypto market in terms of volume,” she said. “This could either suggest that there's less 'new money' to come into the ecosystem or it could suggest that there is deeper familiarity with crypto assets in the region, and listed ETFs in Hong Kong could channel a significant amount of money into 'approved' portfolio allocation.”
“Even a tiny percentage of Chinese investors finding a legal way [to invest in bitcoin] would be significant,” Acheson said.
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