Hong Kong Approves First Spot Bitcoin and Ethereum ETFs

• In contrast to the cash-create redemption approach, issuers can use other assets. 
• After the SFC’s clearance, HKEX will need about two weeks to complete listing processes.

At least three Hong Kong-based issuers have received green lights from the region’s authorities to launch spot exchange-traded funds (ETFs) trading Bitcoin (BTC) and Ethereum (ETH). Reuters said that on April 15, the first spot Bitcoin and Ethereum ETFs were provisionally authorized by the Hong Kong Securities and Futures Commission (SFC).

The spot Bitcoin and Ether ETFs will shortly be launched by at least three offshore Chinese asset managers. These include the Hong Kong operations of Harvest Fund Management, Bosera Asset Management, and China Asset Management (ChinaAMC).

In a joint venture with HashKey Capital of Hong Kong, Bosera will introduce its spot crypto ETFs. As a sub-custodian, OSL Digital Securities, a Hong Kong-based digital asset platform, will be responsible for ChinaAMC and Harvest.

Contrast to Cash-create Redemption Approach

After an ETF application meets most of the criteria, the Hong Kong securities regulation releases a conditional authorization letter. This letter is subject to a number of circumstances, such as the applicant paying the fee, providing the necessary documents, and the listing permission on the Hong Kong Stock Exchange (HKEX).

Moreover, the spot Bitcoin and Ether ETFs are set to begin as in-kind ETFs, which means that new ETF shares may be issued using BTC and ETH. This is reportedly authorized by the Hong Kong regulator.

In contrast to the cash-create redemption approach, which restricts issuers to using cash alone to create new ETF shares, the in-kind creation model permits issuers to use other assets. In the US, local securities authorities have chosen the cash-create model as the redemption option for spot Bitcoin ETFs. Reportedly, after the SFC’s clearance, HKEX will need about two weeks to complete listing processes and other necessary preparations.

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