Hong Kong vs. US: Which Crypto ETF Market Offers Better Diversification?

The ETF fever is yet to subside as crypto enthusiasts eagerly await the launch of spot exchange-traded funds tied to Bitcoin in Hong Kong tomorrow. While the definition may be the same, ETF conduct between the two countries differs in several aspects. 

ETF Redemption: In-kind crypto ETFs in Hong Kong vs. U.S cash-create ETFs in the U.S.

The most defining difference between crypto ETFs in Hong Kong and the U.S. is how the assets are redeemed. Hong Kong’s redemption is in-kind, while the U.S. is cash-created.

Hong Kong’s approach will require ETF intermediaries looking to provide new ETF shares to do so using actual cryptocurrencies like Bitcoin. In contrast, in the US, intermediaries can create ETF shares without dealing with cryptocurrencies, thus the name ‘cash-created.’

“I think the reason why Hong Kong did in-kind is because ultimately we’re trying to differentiate ourselves from the United States,” commented Bloomberg’s ETF analyst Rebecca Sin in a Bloomberg webinar.

Hong Kong’s spot Ether ETF 

Hong Kong will also be listing its first Ethereum ETF ahead of the US. The state of Ether ETFs in the US is in limbo, as investors wait a decision by the securities regulators in May.

Hong Kong however, is not the first to issue an Ethereum ETF. Canadians approved theirs in April 2021, making the country the first to list a regulated crypto product. As of press time there are 5 Ethereum ETFs in Canada.

Crypto ETFs Debut

Tomorrow, April 30th, three Chinese firms will launch crypto ETFs through their Hong Kong subsidiaries on the Hong Kong Stock Exchange (HKSE). The three include Bosera Asset Management, Harvest Global Investments, and China Asset Management. 

Hong Kong first moved into regulated digital assets in late 2022 after CSOP Asset Management introduced CSOP Bitcoin Futures ETF and the CSOP Ether Futures ETF. In January, Samsung Asset Management launched another future-based Bitcoin ETF amid growing investor and institutional interest.

The move is another milestone for regulated crypto investments; the US debuted spot ETFs in January 2024. 

Crypto ETFs listed on HKEX, image source: Exchange Traded Products

The list is anticipated to grow tomorrow.

Despite the new ETFs being initiated by Chinese firms, mainland Chinese investors will not be able to participate. Mainland China has prohibited its citizens from engaging in any crypto related activities, including ETFs. This law dulls optimism on mainland China’s stance on crypto ETFs.

Statististics

According to data compiled by ETFGI, assets invested in ETFs in the US hit a record $8.87 trillion in Q1 2024. March inflows reached a record $103.17 billion, bringing the total to $232.18 billion.

The three listed crypto ETF providers on HKEX have an approximate 1.3 billion Hong Kong dollars ($170 million) in assets under management. In total, the HKEX ETF market is worth 8.6 billion HKD ($1 billion). Clearly, the Hong Kong crypto ETF market is considerably smaller. Summed up, the Hong Kong ETFs market is 0.6% that of the U.S.

Summarily, the Hong Kong ETF is overshadowed by that of the US, however it shows more promise in listing a more diverse range of crypto ETF products