(Bloomberg) — A series of exchange-traded funds that invest directly in cryptocurrencies debuted in Hong Kong on Tuesday, ushering in potential competition for U.S. bitcoin products whose popularity has sparked a record rally for the digital asset. became.
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A partnership between Harvest Global Investments, the local arm of China Asset Management, Hashkey Capital and Vocera Asset Management (International), has listed Bitcoin and Ether ETFs respectively in the city. .
The level of capital demand will provide a clue as to whether Hong Kong's push for a highly regulated digital asset hub is gaining momentum. Officials hope the cryptocurrency pivot will help restore the city's reputation as a modern financial center, which has been tarnished by a crackdown on dissent.
The U.S. Spot Bitcoin ETF, run by issuers including BlackRock Inc. and Fidelity Investments, began operations in January and has $52 billion in assets to date in a historic development. Regarding Hong Kong, Rebecca Shin of Bloomberg Intelligence estimates that Hong Kong's Bitcoin and Ether funds could reach $1 billion in two years.
Harvest Global CEO Han Tongli said in an interview that such prospects are “too small.” Part of the reason, he said, is that Hong Kong's financial products and services are “accepted by both Western and Eastern investors,” while the U.S. primarily caters to the former. .
The six new ETFs had a combined initial trading volume of $11 million, according to data compiled by Bloomberg. This is a far cry from the $4.6 billion total that 10 spot Bitcoin products in the US recorded upon their debut.
The issuer expects combined first-day inflows to be around $300 million for the new Hong Kong spot crypto ETF, which tends to favor Bitcoin funds, according to BI's Shin. Possible sources include Chinese wealth parked in cities, as well as crypto exchanges and market makers operating in the Asia-Pacific region.
Cryptocurrency trading is banned in mainland China, the activity is underground, and the new fund is excluded from a program that gives Chinese investors access to some Hong Kong ETFs. One important question is whether the program can be expanded over time.
China Asset Management CEO Yimei Li said in an interview on Bloomberg TV that the launch of the ETF “opens the door for many renminbi holders” looking for alternative investments.
He added that he hoped there would be “new opportunities” for mainland Chinese investors to “participate in this process” in the future.
physical subscription
Hong Kong has adopted a physical ETF subscription and redemption mechanism, allowing the exchange of underlying assets into fund units and vice versa, whereas US Bitcoin funds have adopted a cash redemption model. There is.
Harvest Global's Han said the spot-trading approach makes Hong Kong products even more attractive, and is one reason why Hong Kong ETFs could end up with up to three times as much ingestion as U.S. funds. He said that it is.
Some warn that expected demand will need to be tailored to Hong Kong's small financial sector. The city has already authorized a crypto futures-based ETF, but its total assets of about $164 million are a fraction of the $2.3 billion of the ProShares Bitcoin Strategy ETF, a U.S. derivatives-based product. It's nothing more than that.
Hong Kong has lagged behind the US in launching spot crypto ETFs and may have a smaller market for passive funds, but the ease of access to local products remains attractive, especially during Asian trading hours. According to the head of Vocera Asset Management (International), Regarding the product, Ethan Lee said in an interview:
CEO Doris Lien said Vocera is looking to expand its team and digital asset product pipeline. “Hong Kong will occupy an important position in the global virtual asset space,” she added.
fierce rebound
Digital assets rebounded sharply from a severe crash in 2022, but the recovery has stalled recently. As of 11:40 a.m. in London on Tuesday, Bitcoin had reversed its earlier gains and was down 2% to $61,700. Ether fell 4%.
The market crash two years ago exposed risky practices and fraud, leading to a spate of bankruptcies and intense criticism that lingers on the industry. Last year, allegations of fraud at the JPEX virtual currency exchange caused an uproar in Hong Kong.
Christina Choi, executive director of investment products at the Securities and Futures Commission, spoke at the ETF's launch event and said the fact that the product will be operational means regulators are supporting crypto assets and encouraging crypto investments. He said that it does not mean that he will do anything.
“A day in the crypto world is like a year in the human world,” she said, referring to a Chinese meme about the sudden volatility that can hit digital assets.
Investors will likely scrutinize incoming data from issuers to understand the net inflows into Hong Kong cars. Comparable numbers for U.S. funds have sometimes caused fluctuations in cryptocurrency prices as demand rises and falls.
–With assistance from Sidhartha Shukla, Zheping Huang, and Kiuyan Wong.
(Updates trading volume in paragraph 6.)
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