Analysts believe Bitcoin exchange-traded funds (ETFs) could see a significant upswing following their launch in Hong Kong due to the adoption of in-kind creation models.
Bloomberg senior ETF analyst Eric Balchunas further pointed out that Hong Kong’s adoption of an in-kind creation model for spot Bitcoin ETFs could potentially boost the assets under management (AUM) and the trading volume for ETF products in the rapidly expanding region.
Balchunas’s position was informed by a research note by Bloomberg ETF analyst Rebecca Sin, which suggested that the in-kind model would present an “opportunity for the market.”
According to Sin:
“Hong Kong is aiming for in-kind creation of the ETF, unlike the US, where the transaction is cash only — in the US, it’s cash in, Bitcoin ETF out, while Hong Kong aims for Bitcoin in, ETF out. This could be an opportunity for the market.”
Earlier in the year, Hong Kong authorities signaled their readiness to accept applications for spot crypto ETFs, with plans to roll out these financial products by mid-year. Since then, multiple entities, including Harvest Hong Kong, have filed applications to launch a spot Bitcoin ETF.
In-kind vs. Cash creations
Hong Kong’s potential adoption of the in-kind model approach starkly contrasts the cash-creation model favored by US authorities for its spot Bitcoin ETFs.
With in-kind redemptions, ETF issuers can exchange the fund’s underlying assets, such as Bitcoin, with market makers instead of transacting in cash during share creation and redemption. This mechanism enables the ETF to issue creation units without immediately selling the securities for cash.
In contrast, the cash redemptions favored by the US SEC require fund managers to sell Bitcoin to provide cash to redeeming shareholders.
Notably, BlackRock, one of the Bitcoin ETF issuers, had warned that this method poses the challenge of maintaining share prices aligned with Bitcoin’s actual value.
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