SIX spot bitcoin and Ether exchange traded funds (ETFs) gained in their Hong Kong debut on Tuesday (Apr 30) with the three Bitcoin ETFs climbing more than 2 per cent by midday, reflecting Asian investor enthusiasm for cryptocurrency assets.

The debuts mark the first launch of spot cryptocurrency ETFs in Asia and come just three months after the US launched its first ETFs to track spot Bitcoin.

Spot Bitcoin ETFs launched by China AMC, Harvest and Bosera had gained roughly 2.6 per cent by the midday break. The three Ether ETFs managed by the asset managers were largely flat.

Bitcoin climbed about 1 per cent.

China AMC said its Bitcoin ETF launched with an initial size of HK$950 million (S$165 million), the biggest among the three issuers.

Cryptocurrency is banned in mainland China, but Hong Kong has been promoting itself as a global digital asset hub, as part of a drive to maintain its allure as a financial centre.

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Christina Choi, an executive director of the Securities and Futures Commission (SFC), hailed the product debut as a milestone in Hong Kong’s ETF market, but also flagged risks.

“Virtual assets are quite speculative and very volatile ... so I remind you that such assets are not suitable for all investors,” Choi told on Tuesday’s launch event.

The ETF launch also put Hong Kong in direct competition with the United States for crypto investors.

US spot Bitcoin ETFs have drawn roughly US$12 billion in net inflows, contributing to a surge in Bitcoin’s price earlier this year. But US regulators have not yet approved ETFs that track spot Ether prices.

“The inflow on the first day is far better than expected,” said Han Tongli, CEO of Harvest Global Investments, adding that Hong Kong should have greater potential than the US in developing the crypto assets as it can attract investors from both the west and east.

In the long term, crypto ETFs have the potential to be available to mainland Chinese investors if the products are proved to be risk-controllable, Han said.

Competition

Another difference with US crypto ETFs is that Hong Kong’s adopt the so-called “in-kind” transaction mechanism that allows investors to buy and sell ETF shares using the relevant crypto tokens instead of cash. Such an option should be appealing to investors as token owners “may consider the benefit of holding through the ETFs without the cost of first converting to fiat (currency)”, said Robert Zhan, risk consulting director at KPMG China.

Some analysts expect the majority of initial inflows will come from local retail investors given cost concerns.

The management fee of the Hong Kong crypto spot ETFs, ranging between 0.3 to 0.99 per cent, is much higher than the current US-listed ones, due to the limited number of regulated service providers under the city’s strict legal framework.

Currently, Hashkey and OSL are the only two approved trading platforms in Hong Kong.

“If Hong Kong SFC approves more participants or trading platforms in the long run, it will make the costs lower and more competitive,” said Alex Chiu, senior strategist of ETF Business at Value Partners.

Bitcoin has gained roughly 50 per cent this year and hit an all-time high of US$73,803 in March. It was trading at around US$63,000 on Tuesday. Ether has risen nearly 40 per cent year-to-date. REUTERS