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Highlights
- Hong Kong spot ETF adopts In-kind creates
- This makes it unique from US versions
- Trading volume on day-1 is below par
Blockstream CEO Adam Back recently took to X to highlight a reason why the newly launched Hong Kong spot Bitcoin and Ethereum ETFs are different from their US counterparts.
Hong Kong Embraces In-Kind Model
After several weeks of anticipation, Hong Kong’s spot Bitcoin and Ethereum ETFs went alive today, marking a pivotal move for the cryptocurrency market.
The Blockstream CEO highlighted the in-kind redemption model that these ETFs have as one of the factors that makes them special. It marks a major departure from the prevalent cash-only transactions seen in the United States ETF market.
Hong Kong’s inclination toward in-kind creations offers a unique approach, potentially diversifying investment strategies, and is likely to attract a more crypto-focused investor base.
This model allows investors to redeem their ETFs in either Bitcoin or cash, unlike the US “cash-create” model which is limited to just cash. It reflects the true form of a BTC-backed ETF and according to Back, this is “another timezone and market to get a bit closer to 24×7 spot market.”
Hong Kong #bitcoin ETFs market open in 3hours. in kind entry and exit (deposit Bitcoin) so no artificial capital gains tax hit. Another timezone and market to get a bit closer to 24×7 spot market. Let's see how the inflows go. No $GBTC analog, no bankruptcy selling in HKG.
— Adam Back (@adam3us) April 29, 2024
Recall that in the case of the United States-approved spot Bitcoin ETFs, the Securities and Exchange Commission (SEC) mandated that issuers adopt a cash-create approach for their respective products. This forced investment management firms like BlackRock and WisdomTree to amend their filings to include the cash-only approach, ditching the in-kind creations for a later date.
It is worth noting that many of the applicants for spot Bitcoin ETF in the U.S. were keen on integrating an in-kind redemption model for their ETFs. However, they were required to change their stance on the matter. At the time, it was a strategy for the applicants to align themselves in preparation and anticipation of the SEC approval which later came earlier this year.
The Spot ETF Market Debut Performance
Hong Kong’s shift towards this in-kind creation is expected to bolster Asset Under Management (AUM) numbers, and increase liquidity as well as trading volumes.
For its debut trading day with few hours to end, the Hong Kong spot Bitcoin and Ethereum ETFs have recorded $12 million in trading volume, 383 times less than what the U.S. saw on Day 1.
In the case of the U.S. market, a staggering $4.6 billion in trading volumes was recorded on the very first day. It is expected that the trading volume will improve as adoption grows, with expectations that more Chinese investors will enter the market.
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