Hong Kong's financial regulator, the Securities and Futures Commission (SFC), is gearing up to permit the creation and redemption of spot Bitcoin ETFs using assets instead of cash in the upcoming months, as per Bloomberg's latest report.

In recent developments, Harvest Global, a Chinese asset management company, has applied for a spot Bitcoin ETF in Hong Kong. Additionally, Venture Smart Financial Holdings has expressed its plans to follow suit after the SFC signaled its openness to reviewing such financial products in December.

Although no spot ETFs have received approval yet, Bloomberg Intelligence's ETF analyst, Rebecca Sin, believes it's only a matter of time. Sin highlights that the SFC's decision to allow in-kind redemptions sets it apart from the US, where cash-only redemptions are the norm for spot-based products.

Bloomberg's ETF specialist, Eric Balchunas, anticipates that Hong Kong's move towards in-kind creation and buybacks for spot BTC ETFs in the second quarter, unlike the US's cash-only approach, will boost trading activity and assets managed in the rapidly expanding market. Balchunas suggests this shift could be a catalyst for further growth.

In-kind redemptions are favored by ETFs as they eliminate the need to sell the underlying asset, offering cost, tax, and liquidity benefits for both investors and issuers. On the contrary, cash redemptions restrict ETF shares to being exchanged solely for cash, resulting in higher taxes and trading expenses.

What is the Hong Kong Securities and Futures Commission (SFC)

The Hong Kong Securities and Futures Commission (SFC) is an independent statutory body responsible for regulating Hong Kong's securities and futures markets. Established in 1989, the SFC administers laws to maintain fairness, efficiency, and transparency in these markets, protect investors, and reduce financial risks.

It operates independently from the Hong Kong government, funded by licensing fees and transaction levies. The SFC oversees various operational units such as corporate finance, policy, enforcement, and licensing, ensuring compliance with market regulations, licensing market participants, managing market operators, and authorizing investment products. The commission plays a crucial role in maintaining order, protecting investors, and promoting market integrity in Hong Kong's financial landscape.