HONG KONG – Six spot bitcoin and ether exchange-traded funds will begin trading on the Hong Kong Stock Exchange on Tuesday, as the international financial hub takes steps to enhance its digital-asset ecosystem.

The debut of Hong Kong spot cryptocurrency ETFs marks a significant milestone in cementing its status as a global digital asset hub. Hong Kong is the first Asian market to offer such products, following the US Securities and Exchange Commission’s green light for 11 spot bitcoin ETFs in January.

The fundraising amount for Hong Kong’s inaugural crypto ETFs on its first trading day is expected to surpass the $10.45 million raised in January by spot bitcoin ETFs in the United States, said Zhu Haokang, head of digital assets at China Asset Management (Hong Kong) Ltd, one of the ETF issuers.

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Zhu said, “The US’ largest asset management company has seen the country’s spot bitcoin ETF scale grow to over $17.2 billion by last week in just three months. … we are full of confidence in (Hong Kong’s) cryptocurrency ETFs.”

These innovative ETFs not only provide a convenient entry point for investors but also underscore our commitment to driving innovation in the virtual asset ecosystem.

Deng Chao, CEO, HashKey Capital

Hong Kong’s first crypto ETFs allow in-kind creations and redemptions, enabling investors to buy and sell shares using bitcoin or ether, instead of relying solely on dollar-based transactions, making them the first of their kind globally.

Deng Chao, CEO of Hong Kong-headquartered virtual asset trader HashKey Capital, said, “These innovative ETFs not only provide a convenient entry point for investors but also underscore our commitment to driving innovation in the virtual asset ecosystem.”

Xu Yang, partner of Tiger Brokers, said, “The introduction of the first-ever in-kind subscription mechanism, not only offers greater flexibility to investors, but also serves as a demonstration of Hong Kong’s efforts in building an open, transparent and innovative virtual assets market ecosystem.”

Both retail and institutional investors are allowed to trade on the newly launched ETFs. Kavi Harilela, business director of FGA Trust, a Kong Kong-based digital trust company, said, “The biggest concern remains in liquidity. Referring to the previously listed bitcoin ETFs in the US, it can be observed that the trading volume of such ETFs is typically low.”

“Additionally, counterparty risk is involved as investors rely on the issuer’s ability to accurately track the underlying assets. Regulatory changes also pose a risk factor,” Harilela added.

The move came as Hong Kong’s Securities and Futures Commission gave the nod earlier in April to the city’s first batch of spot bitcoin and ether ETFs listing, offered by three Chinese asset management firms, including Bosera Asset Management (International) Co, and Harvest Global Investments, with the latter partnering with HashKey Capital.

Each firm has introduced one bitcoin spot and one ethereum spot ETF. Bitcoin and ether, the world’s two largest cryptocurrency tokens by market capitalization, are based on blockchain technology, with bitcoin used for online payment transactions and ether powering the ethereum platform, enabling smart contract functionality.

According to statements on the Hong Kong Stock Exchange Ltd’s website, all assets invested in the approved ETFs will be allocated to bitcoin or ether. The funds will not engage in financial derivatives or participate in securities lending, repurchase agreements, or reverse repurchase transactions for any purpose.

The ETFs will not employ any form of leverage and may retain a small amount of cash to cover fees and expenses, or to facilitate redemptions, the statements said.

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Chinese mainland investors do not have access to these virtual-asset spot ETFs yet. However, mainland residents holding Hong Kong identity cards can engage in ETF transactions, subject to compliance with regulations.

In addition to approving spot ETFs, Hong Kong financial regulators are developing a regulatory framework for stablecoins, a type of cryptocurrency that maintains a 1-to-1 peg with fiat currency and is typically backed by reserves of cash and bonds.

Contact the writer at tianyuanzhang@chinadailyhk.com