HONG KONG, CHINA Photo by Anthony Kwan
Hong Kong’s financial regulator has set guidelines for approving spot bitcoin ETFs, embracing both "in-kind" and "cash creates" models. This move broadens the range of investment options in the cryptocurrency market and positions Hong Kong’s spot bitcoin ETF as a more bullish initiative than its US equivalent.
In contrast, the U.S. has passed its final deadline for spot bitcoin ETF issuers to submit their final amendments.
U.S. Spot Bitcoin ETF Developments
The U.S. spot bitcoin ETF is witnessing significant developments. Bitwise, a prominent player in the cryptocurrency investment space, has moved forward by disclosing a $200 million seed investment in its spot bitcoin ETF filing.
This revelation stands in sharp contrast to BlackRock's $10 million initial investment in a similar fund.
This development is particularly significant as it reflects robust confidence in the potential of spot bitcoin ETF approval. The size of Bitwise's seed investment could signal a strong belief in the viability and future growth of these financial instruments. Such substantial initial investments are likely to attract more attention and potentially accelerate the approval process for these ETFs in the U.S.
Understanding The ETF Models: In-Kind And Cash
The Hong Kong Securities and Futures Commission has green-lighted both "in-kind" and "cash creates" models for bitcoin exchange-traded funds. This decision marks a significant divergence from the U.S.’s cash-based approach and sets the stage for a potentially transformative era in bitcoin investment.
The in-kind ETF model typically allows investors to exchange their existing bitcoin holdings for ETF shares. In this context, it means that investors can 'redeem' their ETF shares for bitcoin, making the process a two-way street – from bitcoin to ETF shares and vice versa.
This model appeals to current bitcoin holders looking to diversify portfolios without transitioning to fiat currency. In contrast, the cash ETF model involves buying and selling ETF shares using traditional fiat currencies, like the Hong Kong Dollar or U.S. Dollar. This model is more familiar to traditional investors and is more accessible for those not currently holding bitcoin.
Hong Kong's decision to approve both ETF models is important. It opens up more investment avenues, likely drawing in more institutional and retail investors. This move is expected to enhance bitcoin market liquidity and stability, reflecting a broader acceptance and regulation of cryptocurrencies globally.
Impact On Bitcoin's Supply-Demand Dynamics
In-kind ETFs, could influence bitcoin's availability on exchanges. With the ability to redeem ETF shares for actual bitcoin, there is likely be a decrease in bitcoin available on exchanges. This, coupled with the bitcoin halving event — where bitcoin creation rate halves approximately every four years — will significantly affect bitcoin's supply and demand.
Bitcoin's fixed supply, capped at 21 million, plays a crucial role in its market value. As the availability of new bitcoin decreases, especially with events like halving, the scarcity can drive up the price if demand remains constant or increases. This scarcity, intensified by options like in-kind ETFs reducing bitcoin availability on exchanges, highlights the importance of supply and demand in bitcoin's pricing dynamics.
HONG KONG, CHINA Photo by Anthony Kwan
The Global Context
Hong Kong's stance could substantially influence global crypto trends. Examining these ETFs in the context of global financial rules and cryptocurrency's role in portfolios gives a complete view.
Hong Kong's decision to allow both in-kind and cash create models for bitcoin ETFs represents a significant step as a large volume in the crypto market comes from Asia. This move not only diversifies investment options but also signals a growing acceptance and regulation of digital currencies globally.
As the world closely watches the US and Hong Kong's next steps, the potential for a super cycle, propelled by a mix of halving events, institutional adoption, and global economic factors, looms large. Whether this will translate into a sustained bull run remains a topic of keen interest and speculation. However, what's clear is that Hong Kong's move marks a new chapter in the ever-evolving bitcoin narrative.
