Hong Kong spot bitcoin ETFs could go live as soon as this month: OSL

Hong Kong asset managers, including units of China Asset Management (ChinaAMC) and Harvest Global, may soon launch their spot bitcoin exchange-traded funds as early as later this month, OSL confirmed with The Block today.

“Reports suggest a spot BTC -4.94% ETF may start in late April, with a spot ETH -4.92% ETF following shortly after,” said Patrick Pan, chairman of the board and CEO of OSL. “All parties are working expeditiously to complete the process. However, exact dates remain unconfirmed at this time.”

“We view the recent approval in principle positively as it moves the industry closer to launching spot crypto ETFs,” Pan added.

Pan today told Foresight News, a Chinese-language crypto news outlet, that the spot bitcoin ETFs may become available for investors as early as late April.

Pan’s comments come after the Hong Kong Securities and Futures Commission on Monday gave in-principle approval to several asset managers, including those managed by ChinaAMC, Harvest, Bosera and HashKey, to offer spot bitcoin ETFs and spot ether ETFs. OSL will act as a sub-custodian and infrastructure service provider for the ETFs issued by ChinaAMC and Harvest.

ChinaAMC expects strong demand

Katie He, head of product and strategy of ChinaAMC (HK), told The Block today that the demand for their upcoming spot crypto ETFs may be “substantial” as only professional investors in Hong Kong could have access to U.S.-listed spot ETFs. 

He said that Hong Kong-based investors will have three options to gain exposure to cryptocurrency when spot crypto ETFs go live. 

“They can access spot bitcoin on the SFC-licensed VATPs, or they can get access through futures-based bitcoin or ether ETFs which may raise efficiency concerns due to high rolling costs associated with futures contracts,” He continued. “Meanwhile, only professional investors in Hong Kong could have access to US-listed spot ETFs, so the introduction of spot products in Hong Kong really provides the investment opportunity to a wider audience.”

Bloomberg Senior ETF Analyst Eric Balchunas, however, threw a bit of cold water on the excitement. "Don't expect a lot of flows ... we think they'll be lucky to get $500 million," he wrote on X on Monday, adding that the Hong Kong ETF market is “tiny” and “Chinese locals cannot buy these, at least officially.”

Some in the crypto industry have said that the upcoming Hong Kong spot crypto ETFs may attract substantial investor interest from the Chinese mainland through the Southbound Stock Connect program. However, this argument may be weak as the Stock Connect program currently does not allow mainland investors to invest in crypto futures ETFs in Hong Kong — let alone spot crypto counterparts.

Gary Tiu, executive director and head of regulatory affairs of OSL, told The Block on Monday that crypto ETFs have not been included in the eligible securities list of the Stock Connect program yet, “but I think the possibility or at least the potential for such inclusion is something that the market certainly likes.”

In-kind feature

What sets the upcoming Hong Kong spot crypto products apart from their U.S. counterparts is their in-kind feature, according to He. “The in-kind dealing provides convenience to switch spot Bitcoin to a fully regulated spot Bitcoin ETF managed by a professional fund manager and regulated custodians, providing ease of trading as well as reducing the various risks such as hacking and fraud encountered by investors when investing directly in Bitcoin.”

He explained that the demand for a Hong Kong spot bitcoin and ether ETF would “depend on factors such as the level of interest in cryptocurrencies within the Hong Kong market, investor decision for diversified investment options, and macro environment.”

Tiu of OSL said that the in-kind feature is significant as it hasn’t been done in other markets, “certainly not in the retail fund space.”

“What it means is if you have an investor who has long BTC. But they don't want to exit the BTC position. But they want to swap it for another type of instrument — for example, for an ETF instrument or for an interest in the fund that tracks the performance of BTC — this now gives them the channel to do so,” Tiu added.