Representations of cryptocurrency Bitcoin are placed on a PC motherboard in this illustration taken June 16, 2023.
Dado Ruvic | Reuters
Hong Kong on Tuesday launched six spot bitcoin and ether exchange traded funds — becoming the first in Asia to offer retail investors the ability to trade the cryptocurrencies at spot prices.
The cryptocurrency ETFs were issued by three Chinese firms — China Asset Management, Bosera Asset Management, and Harvest Global Investments — on the Hong Kong exchange.
Hong Kong’s Securities and Futures Commission (SFC) approved the three ETF providers two weeks ago.
Spot bitcoin ETFs by ChinaAMC, Bosera HashKey and Harvest were above 3% higher in early trading, but subsequently gave up some gains to trade by about 1.5% higher. The three ether ETFs were trading above 1% in the morning, but fell into negative territory by the late afternoon.
Bitcoin was trading at $63,218 at 3:50 a.m. ET, while ether was trading at $3,159, according to Coin Metrics data.
Hong Kong is one of the first places in the world to approve an ether ETF. In January, the U.S. Securities and Exchange Commission approved changes to allow the creation of bitcoin ETFs in the U.S., but has yet to approve an ether ETF.
Crypto ETFs allow investors to gain exposure to the price movement of the underlying assets without having to own the asset directly.
The move is seen as positive for Hong Kong markets.
“There’s a bigger game at play here: The launch of these new ETFs puts Hong Kong one step ahead of Singapore and Dubai who are also trying to establish themselves as regulated hubs for digital assets,” Antoni Trenchev, co-founder of crypto exchange Nexo told CNBC on Tuesday.
“First mover advantage is everything in this game.”
Trenchev said Japan, Singapore, and South Korea could be next to approve similar products in the next two years.
Executives of the Chinese asset managers ushered in the debut of their ETFs at the Stock Exchange of Hong Kong Tuesday morning, highlighting that the move will allow institutional and retail investors to enter a regulated market to trade crypto assets and create a diverse product base for the broader exchange.
“The market potential is double the size of that of our U.S. counterparts,” Tongli Han, chief executive officer of Harvest Global Investments told CNBC.
Quick launch, slow demand?
HKEX said the combined average daily turnover for the three VA Futures ETFs listed on the exchange reached 51.3 million Hong Kong dollars ($6.6 million) during the first quarter of 2024, up from HK$8.9 million a year earlier.
Additionally, the futures ETFs saw net inflows of HK$529 million in the first quarter.
Han from Harvest Global said he expects slow growth in crypto assets under management initially in Hong Kong as many investors prefer watching from the sidelines at first. But over time, he said he expects demand will pick up.
Nexo’s Trenchev noted that the relatively small size of Hong Kong’s ETF market could mean it would be years before it matched “the $12.4 billion of net inflows their U.S. peers.”
CNBC asked HashKey what kind of regulation they would like to see on the back of scandals involving FTX and Binance.
“We set the example and then we showed how crypto can be regulated reasonably, and in a very user-friendly or industry-friendly manner. Of course, we would like the pace going a little bit faster,” said Heddy Tsang, executive director of HashKey Exchange told CNBC.
— CNBC’s Emily Chan and Yolande Chee contributed to this report.