Blockstream CEO Adam Back Reveals What Makes Hong Kong ETFs Special

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As a researcher with a background in the cryptocurrency industry and experience in observing regulatory developments, I find Adam Back’s recent statement on Hong Kong’s Bitcoin and Ethereum ETFs intriguing. The in-kind redemption model, which allows investors to redeem their ETF shares for either Bitcoin or cash, is a significant departure from the cash-only transactions prevalent in US ETFs.

As a crypto investor, I’ve been following the developments in the world of Bitcoin and Ethereum Exchange-Traded Funds (ETFs) closely. Recently, Blockstream CEO Adam Back drew my attention to some intriguing differences between the newly launched Hong Kong spot Bitcoin and Ethereum ETFs and their US counterparts. He explained this on his preferred platform.

Hong Kong Embraces In-Kind Model

After several weeks of eager anticipation, Bitcoin and Ethereum exchange-traded funds (ETFs) based in Hong Kong became available to the public today, signifying a significant milestone for the cryptocurrency market.

As a researcher examining the innovative features of Bitcoin Exchange-Traded Funds (ETFs), I’ve noticed that Blockstream CEO’s perspective sheds light on an intriguing aspect: the in-kind redemption model these funds employ. This is a significant deviation from the common cash-only transactions prevalent in the US ETF market, making Bitcoin ETFs a captivating area of study.

As a researcher studying the financial landscape of Hong Kong, I’ve noticed an intriguing trend towards in-kind creations. This distinct approach has the potential to broaden investment strategies and could draw in a more cryptocurrency-centric investor community.

As an analyst, I’d put it this way: With this ETF, investors have the flexibility to redeem their shares in Bitcoin or cash. In contrast, the US “cash-create” model only permits redemption in cash. This BTC-backed ETF truly embodies the essence of a Bitcoin exchange-traded fund, offering an additional market and timezone that brings us closer to the 24/7 Bitcoin spot market, as Back explains.

In about 3 hours, Hong Kong’s Bitcoin ETFs will commence trading. By making direct deposits of Bitcoin for entry and withdrawal, investors can avoid capital gains tax triggered artificially. This market provides an opportunity to access another timezone and exchange, bringing us closer to the continuous 24/7 spot market. Let’s observe the inflows and note that there isn’t a GBTC equivalent or bankruptcy selling in Hong Kong markets.
— Adam Back (@adam3us) April 29, 2024

When it comes to Bitcoin ETFs that have been given the green light by the United States Securities and Exchange Commission (SEC), the regulatory body has imposed a requirement: issuers must employ a cash-purchase method for their products instead of the in-kind creation approach. Consequently, firms such as BlackRock and WisdomTree were compelled to revise their applications accordingly, abandoning the previously planned in-kind creations for a future implementation.

Several hopefuls seeking approval for a Bitcoin ETF in the United States initially advocated for an in-kind redemption model. However, they had to reconsider this approach. At that point, this method was part of their plan to position themselves favorably with the SEC, which granted approval earlier this year.

The Spot ETF Market Debut Performance

The transition of Hong Kong towards in-kind creations is projected to enhance Asset Under Management (AUM) figures significantly, while also boosting liquidity and trading activity.

On their initial trading day with just a few hours left, Hong Kong’s Bitcoin and Ethereum ETFs have accumulated a trading volume of $12 million. This is a significant decrease, equating to 383 times less than the volume recorded during the first day of trading for similar U.S. ETFs.

On the inaugural day of trading in the US market, an impressive $4.6 billion worth of transactions were made. It’s anticipated that trading activity will escalate as more people adopt this new opportunity, with estimates suggesting that a greater number of Chinese investors will join the fray.

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2024-04-30 18:00