According to a report from Bloomberg Intelligence, Hong Kong's financial regulator, the Hong Kong Securities and Futures Commission (SFC), is expected to allow the in-kind creation and redemption of spot Bitcoin ETFs in the second quarter of this year.
In January, Chinese asset manager Harvest Global applied for a spot Bitcoin ETF and another company, Venture Smart Financial Holdings, also said it would file, after the SFC said in December it was willing to consider such products .
While no spot ETF has been approved yet, it seems likely that it is only a matter of time, according to Rebecca Sin, ETF analyst at Bloomberg Intelligence.
Sin reports that in addition to these approvals, the SFC will also allow in-kind redemptions, an important distinction from cash-only redemptions for US cash products.
In-kind redemptions are the most common method used by ETFs because the underlying asset does not have to actually be sold. Therefore, it is preferred by investors and issuers for cost, tax and liquidity reasons.
Cash redemptions, on the other hand, mean that ETF shares can only be exchanged for cash, which generally involves more costly tax and trading considerations.
If Hong Kong were to actually authorize in-kind redemptions for spot Bitcoin ETFs, it would be “huge,” said Noelle Acheson, author of the “Crypto is Macro Now” newsletter.
“The Asian crypto market is much larger in volume than the US crypto market,” she said. “This could either indicate that there is less 'new money' flowing into the ecosystem, or it could indicate that there is a deeper familiarity with crypto assets in the region and Hong Kong-listed ETFs are seeing a significant amount of money flowing into 'approved' funds “Portfolio allocation.”
“Even a tiny percentage of Chinese investors find a legal route [to invest in bitcoin] would be significant,” Acheson said.
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