The first batch of Bitcoin and Ethereum spot ETFs in Hong Kong approved! Understand the differences between Hong Kong and US spot ETFs in one article

According to the Zhitong Finance and Economics APP, on April 24th, the official website of the Securities and Futures Commission of Hong Kong revealed that Huaxia Fund (Hong Kong), CSOP International, and BOCI Securities Limited announced that the first batch of Hong Kong Bitcoin spot ETF and Ethereum spot ETF products applied for by the three fund subsidiaries have all been approved by the Securities and Futures Commission of Hong Kong and are scheduled to be listed at the end of the month. All of these ETF products are denominated in both Hong Kong dollars and US dollars, with the two ETF products issued by Huaxia Fund also having Renminbi counters, and all ETFs track the CME CF Bitcoin Index.

Currently, Hong Kong already has Bitcoin and Ethereum futures ETFs, with fund managers mainly purchasing futures listed on the CME to track Bitcoin performance. In order to invest in futures, Bitcoin futures ETFs must maintain margin requirements and face costs higher than traditional stock ETFs due to the cost of maintaining positions and the cost of rolling positions caused by shortfalls in open interest.

Moreover, futures performance may not fully replicate the performance of physical Bitcoin, leading to discrepancies with investor expectations. Although Bitcoin spot ETFs theoretically can fully replicate the volatility of Bitcoin, Hong Kong Bitcoin spot ETFs can only hold assets from local virtual asset trading platforms, which may face liquidity risks and trading limit risks, and cost advantages may not be significant.

For example, Bitcoin has risen by about 24% in the past 3 months. The BlackRock Bitcoin spot ETF IBIT has risen by 23.86% in the past 3 months, while the two Bitcoin futures ETFs in Hong Kong have risen by 19.75% and 20.39% during the same period.

According to information from various issuers, CSOP and Huaxia have annual expense ratios of 1% and 1.99%, which are not significantly advantageous compared to Samsung Asset Management's 0.95% and Southern Eastern's 2%. BOCI HashKey's annual expense ratio of 0.85% is lower than its peers. Compared to the 11 Bitcoin spot ETFs approved in the United States earlier this year, except for ETFs issued by Grayscale and Hashdex, the rest have expense ratios ranging from 0.2% to 0.49%, lower than Hong Kong Bitcoin ETFs.

In addition, unlike existing Bitcoin spot ETFs in the United States, Hong Kong not only plans to launch Ethereum spot ETFs, but will also allow investors to subscribe and redeem through cash or physical assets. This means that there is a new funding channel in the virtual asset industry, and the physical subscription and redemption mechanism brings more requirements to licensed virtual asset exchanges in Hong Kong. Approved virtual asset spot ETFs must be traded on licensed virtual asset exchanges in Hong Kong. Currently, Hong Kong has two licensed exchanges, OSL Exchange and HashKey ExchangeHowever, in response to the depth of the Hong Kong market and virtual asset platforms, it is expected that the launch of spot Bitcoin in Hong Kong may not attract as much capital inflow as when it was introduced in the United States.

Zhu Haokang, Head of Digital Asset Management and Family Wealth Management at Huaxia Fund (Hong Kong), stated that the issuance of Asian Bitcoin and Ethereum spot ETFs provides retail and institutional investors with a safe, efficient, and convenient tool for allocating encrypted assets.

Han Tongli, CEO and Chief Investment Officer of Jia Shi International, pointed out that the approval of Bitcoin and Ethereum spot ETFs reflects Hong Kong's institutional advantages as an international financial center, demonstrating its forward-looking approach in financial technology innovation. Through this product expansion, Jia Shi International will further lower the barriers for investors to enter the digital asset market, effectively address regulatory and custody challenges, promote the circulation, popularization, and investment security of encrypted assets. These measures are expected to improve the financial ecosystem, enhance its transparency and efficiency, thereby boosting investor confidence