Hong Kong sees the launch of Asia's first bitcoin and ether ETFs.

• Three Chinese firms, namely China Asset Management, Bosera Asset Management, and Harvest Global Investments, issued cryptocurrency ETFs on the Hong Kong exchange.
• Investors can indirectly track the price fluctuations of assets through crypto ETFs without physically owning the asset.
• The U.S. Securities and Exchange Commission has approved changes to allow the creation of bitcoin ETFs, but has not yet approved an ether ETF.

On Tuesday, Hong Kong launched six exchange traded funds (ETFs) that allow retail investors to trade bitcoin and ether at spot prices, making it the first in Asia to do so.

Three Chinese firms, namely China Asset Management, Bosera Asset Management, and Harvest Global Investments, issued cryptocurrency ETFs on the Hong Kong exchange.

Two weeks ago, the Securities and Futures Commission (SFC) in Hong Kong approved three ETF providers.

The three bitcoin ETFs by ChinaAMC, Bosera HashKey, and Harvest were trading above 3% higher in early trading. However, they subsequently gave up some gains to trade at about 1.5% higher. Meanwhile, the three ether ETFs were trading above 1% in the morning but fell into negative territory by the late afternoon.

At 3:50 a.m. ET, Bitcoin was trading at $63,218, while Ethereum was trading at $3,159, according to Coin Metrics data.

Ether ETFs have been approved in Hong Kong before the U.S. Securities and Exchange Commission has approved any.

Investors can indirectly track the price fluctuations of assets through crypto ETFs without physically owning the asset.

The move is seen as positive for Hong Kong markets.

Nexo co-founder Antoni Trenchev stated on CNBC on Tuesday that there is a larger game being played with the launch of new ETFs in Hong Kong, which puts the city ahead of Singapore and Dubai in their efforts to become regulated hubs for digital assets.

"First mover advantage is everything in this game."

In the next two years, Japan, Singapore, and South Korea may follow suit and approve similar products, as stated by Trenchev.

The Chinese asset managers introduced their ETFs at the Hong Kong Stock Exchange on Tuesday morning, emphasizing that this move will enable institutional and retail investors to trade crypto assets in a regulated market and create a diverse product portfolio for the broader exchange.

Harvest Global Investments CEO Tongli Han stated on CNBC that the market potential in China is twice the size of that in the U.S.

Quick launch, slow demand?

What is the expected rate of growth in demand for these products in the region?

Crypto futures ETFs have been trading on the HKEX since late 2022, while spot crypto ETFs have only received regulatory approval for virtual asset management services.

Since the launch of VA Futures ETFs in late 2022, there has been an increase in investor interest in virtual asset ETFs, as stated by the exchange on Tuesday.

During the first quarter of 2024, the combined average daily turnover for the three VA Futures ETFs listed on HKEX reached HK$51.3 million, an increase of 57.7% from the previous year's HK$8.9 million.

In the first quarter, HK$529 million in net inflows were recorded for futures ETFs.

Han from Harvest Global anticipates slow growth in crypto assets under management in Hong Kong initially due to many investors' preference for observing from the sidelines. However, he predicts that demand will increase over time.

The small size of Hong Kong's ETF market may take years to catch up to the $12.4 billion net inflows of their U.S. counterparts, according to Nexo's Trenchev.

What kind of regulation would HashKey like to see on the back of scandals involving FTX and Binance, as asked by CNBC?

Heddy Tsang, executive director of HashKey Exchange, stated to CNBC that they demonstrated how crypto can be regulated in a reasonable, user-friendly, and industry-friendly manner after setting the example. However, they expressed their desire for the pace to pick up a bit.

— CNBC's Emily Chan and Yolande Chee contributed to this report.