Adam Back, CEO of Blockstream, recently detailed the unique characteristics of Hong Kong's newly launched Bitcoin and Ethereum ETFs on X, emphasizing their in-kind redemption model, which sets them apart from their U.S. counterparts.

The Significance of In-Kind Redemption

After several weeks of anticipation, Hong Kong's spot Bitcoin and Ethereum ETFs went online today, signaling a watershed moment for the cryptocurrency sector, as per Coingape.

According to the Blockstream CEO, one of the distinguishing features of these ETFs is their in-kind redemption approach. This approach represents a significant divergence from the typical cash-only transactions witnessed in the US ETF market.

Hong Kong's preference for in-kind developments provides a distinct approach, potentially diversifying investment techniques, and is likely to attract a more crypto-focused investor base.

This approach allows investors to redeem their ETFs in Bitcoin or cash, unlike the US "cash-create" model, which only accepts cash. Back describes the true form of a BTC-backed ETF as "another timezone and market to get a bit closer to the 24×7 spot market."

Remember that the Securities and Exchange Commission (SEC) requires US-approved spot Bitcoin ETF issuers to use a cash-create method for their products. This compelled investment management businesses such as BlackRock and WisdomTree to revise their filings to reflect the cash-only approach, leaving in-kind creations for a later date.

It is worth mentioning that many of the candidates for spot Bitcoin ETFs in the United States were interested in incorporating an in-kind redemption approach for their funds. However, they were forced to reconsider their position on the subject. At the time, it was a plan for the applicants to coordinate themselves in preparation for SEC approval, which occurred earlier this year.

Comparative Analysis: Hong Kong vs. U.S. ETF Models

Hong Kong's transition towards in-kind creation is expected to boost Asset Under Management (AUM) levels while increasing liquidity and trading volumes.

With only a few hours left on its inaugural trading day, the Hong Kong spot Bitcoin and Ethereum ETFs had a trading volume of $12 million, 383 times lower than what the US experienced on Day 1.

In the US market, trading volumes totaled $4.6 billion on the first day. Trading volume is projected to increase as acceptance develops, with more Chinese investors entering the market.

Photo: Microsoft Bing