Hong Kong Will Soon Approve ‘In-Kind’ Bitcoin Spot ETFs – Here’s What That Means
Hong Kong is getting ready to follow the United States’ lead in approving Bitcoin spot ETFs for public trading, analysts at Bloomberg Intelligence suggest.
The region’s regulators may go a step further than their Western counterparts, however, by permitting those funds to use an “in-kind” redemption model.
The redemption model refers to the internal plumbing of how a Bitcoin ETF’s shares track the price of spot-traded BTC. All Bitcoin spot ETFs must hold enough BTC to back all shares issued by the fund, and market makers must be able to redeem those shares for their equivalent BTC value.
This can be accomplished in two ways. One is an ‘in-kind’ redemption model, where market makers can adjust the supply of ETF shares on the market, send them back to the ETF issuer, and receive BTC in return. By contrast, an ‘in-cash’ model creates a lengthier process in which market makers instead receive cash equal to the amount of Bitcoin represented by their shares.
According to analyst Rebecca Sin, the unique ‘in-kind’ characteristic could be a big opportunity for Hong Kong’s market.
“In the US it’s cash in, Bitcoin ETF out, while Hong Kong aims for Bitcoin in, Bitcoin ETF Out,” she explained.
Looks like Hong Kong is going to allow in-kind creations and redemptions for spot bitcoin ETFs in 2Q (unlike US which is cash creations only), which could help spark aum and volume in the fast-growing region via new note today from @Rebeccasin_SK https://t.co/IxcdWEFDvC pic.twitter.com/sDsS4nbzGi
— Eric Balchunas (@EricBalchunas) March 26, 2024
Before receiving approval in January, Bitcoin ETF sponsors were at odds with the Securities and Exchange Commission (SEC) in a fight to allow in-kind redemptions for their ETFs.
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