Thursday, May 23, 2024

Hong Kong Tests Crypto Hub Ambitions with ETF Launch.

In an attempt to gauge its progress toward becoming a center for digital assets, Hong Kong is about to launch a number of bitcoin exchange-traded funds, following the US’s lead.

The last stages of getting ready for the spot-Bitcoin and Ether ETFs to start trading by the end of April involve some of the best asset managers in China. The debuts are likely to draw comparisons to a number of US Bitcoin funds that were established three months ago and gained enormous traction on Wall Street, amassing $56 billion in assets to date.

Over the past year, Hong Kong has been competing with other cities, such as Singapore and Dubai, to establish a strictly controlled hub for the virtual asset sector. This is a strategy to reestablish the city’s standing as a cutting-edge financial hub after a crackdown on dissent diminished its appeal.

The degree of interest in the impending ETFs will reveal information about Hong Kong’s development. One possible source of demand is the wealth parked in the city by the Chinese, as well as market makers and cryptocurrency exchanges operating in the Asia-Pacific area. According to Rebecca Sin, an analyst with Bloomberg Intelligence ETFs, the funds might accumulate $1 billion in assets under management in a two-year period.

US Shadow

According to Roger Li, co-founder of One Satoshi, a network of outlets in Hong Kong that provides over-the-counter cash and cryptocurrency conversions, “Hong Kong doesn’t have the ‘BlackRock’ effect to call on.” He went on, “We need to adjust expectations for ETF demand to reflect the smaller size of the city’s financial sector.”

In January, the US Securities and Exchange Commission reluctantly permitted ETFs to invest directly in Bitcoin, the biggest digital asset. After a market meltdown in 2022, along with high-profile thefts and bankruptcies, the regulator is wary of cryptocurrencies, so approving ETFs for Ether, which ranks second, will be difficult.

On the other hand, issuers claim that Hong Kong has approved spot-Bitcoin and Ether funds first. HashKey Capital and Bosera have stated that the Hong Kong spot-ETFs will feature an in-kind subscription and redemption method, which is another distinction. This makes it possible to exchange ETF units for the underlying assets and vice versa, while US funds use a cash redemption methodology.

Arbitrage Opportunities

According to Evgeny Gaevoy, co-founder of cryptocurrency liquidity provider Wintermute Trading Ltd., the in-kind strategy “is particularly appealing to crypto natives, market makers, and digital-asset exchanges” since it offers more efficiency and arbitrage opportunities.

A HashKey representative said on Wednesday that trading for the Bosera-HashKey Capital spot products will start on April 30.

Three crypto-future-based exchange-traded funds (ETFs) have been floated in Hong Kong: Samsung Bitcoin Futures, CSOP Ether Futures, and CSOP Bitcoin Futures. With a total asset value of roughly $175 million, they are far smaller than US products like the $2.5 billion ProShares Bitcoin Strategy ETF, which is based on derivatives.

In addition to approving spot ETFs, regulators are reviewing roughly twenty proposals in an effort to increase the number of authorized digital asset exchanges in Hong Kong from the existing two. Additionally, the city is developing a framework for stablecoins, a class of cryptocurrency that is backed by cash and bond reserves and is pegged 1-1 to fiat money.

Rally Tailwind

It’s unclear if Hong Kong will be able to develop into a center for cryptocurrency. The four-fold increase in Bitcoin since the beginning of the year, which culminated in a record high of $73,798 last month due to inflows into US Bitcoin products, may have provided a tailwind for the ETF launches.

Marco Lim, the managing director of the cryptocurrency hedge fund MaiCapital, is located in the city and stated, “I am getting a lot of inquiries from Bitcoin holders” regarding Hong Kong ETFs. Some were caught off guard by how quickly the products were approved, he continued.

Amidst a sluggish real estate market and a mixed outlook for stocks, digital assets are nevertheless in high demand in China. However, the mainland ban on cryptocurrency trading has driven activity underground, and the next fund launches are probably not going to fall under the ambit of a program that allows Chinese investors to purchase some Hong Kong ETFs.

According to BI’s Sin, “virtual-asset ETF infrastructure will take time to develop.” “More players will be able to participate as the ETF ecosystem grows, which will lead to more flows, better prices, tighter spreads, more liquidity, and lower fees.”

with help from Zheping Huang, Kiuyan Wong, Sidhartha Shukla, and Charlotte Yang.

Cryptured Team
Cryptured Team
The writers team at Cryptured.com is composed of passionate and experienced journalists who cover the latest developments in the crypto and blockchain space. They aim to provide accurate, unbiased and easy-to-understand news and information for their readers, as well as insights and analysis from industry experts. The writers team is always on the lookout for new and exciting stories that can help the general public learn more about the potential and challenges of these technologies.
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