Is a Chinese Shock Wave Coming to Bitcoin Spot ETFs? Bloomberg Analyst Explained

Hong Kong's financial regulator, the Hong Kong Securities and Futures Commission (SFC), is preparing to allow in-kind creation and redemptions for spot Bitcoin ETFs in the second quarter of this year, Bloomberg reports.

Earlier this year, Chinese asset manager Harvest Global filed for a spot Bitcoin ETF in Hong Kong. Another firm, Venture Smart Financial Holdings, also announced its intention to submit an application after the SFC expressed readiness to consider such products in December.

While no spot ETFs have been approved yet, Bloomberg Intelligence ETF analyst Rebecca Sin suggests it's probably just a matter of time. Sin also notes that the SFC will allow in-kind refunds, which is a different approach than cash-only refunds for spot-based products in the US.

“It looks like Hong Kong will allow in-kind creation and buybacks for spot BTC ETFs in the second quarter (unlike the US, which is cash-only creation), which will increase the volume and assets under management in the fast-growing region,” said Bloomberg ETF expert Eric Balchunas. “It may help trigger it,” he commented.

In-kind redemptions are more commonly used by ETFs because the underlying asset does not have to be sold. This method is preferred by investors and issuers due to its cost, tax and liquidity advantages. In contrast, cash redemptions mean ETF shares can only be exchanged for cash, leading to higher taxes and trading costs.

*This is not investment advice.