- Hong Kong is launching Asia’s first inverse Bitcoin ETF, which will allow investors to profit from Bitcoin’s price decline.
- Inverse Bitcoin ETFs capitalize on market volatility and offer diversification benefits.
- Hong Kong’s crypto ETF market is becoming increasingly competitive, with issuers offering lower fees to attract investors.
Hong Kong is preparing to launch Asia’s first inverse Bitcoin (BTC) exchange-traded fund (ETF) , designed for investors looking to profit from declines in the cryptocurrency. CSOP Asset Management announced that the CSOP Bitcoin Futures Daily (-1x) Inverse Product will debut on the city’s stock exchange on Tuesday morning.
This ETF aims to capitalize on the increasing demand for making gains from the volatile cryptocurrency market. This comes after the initial release of spot crypto ETFs in Hong Kong in April, which was followed by a rocky second quarter in which Bitcoin lost over 12% of its value.
What Are Inverse Bitcoin ETFs?
An inverse ETF, also known as a short ETF or bear ETF, is a type of exchange-traded fund engineered to produce daily returns inversely correlated to the performance of its target index. It uses leverage tools like stock index futures and swap contracts. These funds can aim for inverse multiples, such as -1x, -2x, or -3x.
There are three different types of Bitcoin ETFs:
- Leveraged ETFs provide multiples of the daily performance of the benchmark they track. For instance, a 2x leveraged ETF aims to deliver twice the daily performance of its benchmark.
- Inverse ETFs, also known as “short” funds, are structured to yield the opposite of the daily performance of the benchmark they track.
- Leveraged inverse ETFs, often referred to as “ultra short” funds, seek to provide a multiple of the inverse of the benchmark’s daily performance.
Designed to capitalize on the decline of an underlying asset or index, short ETFs allow investors to “short” an asset. This involves borrowing the asset and selling it at its current market price, then planning to repurchase it later at a lower price. Short ETFs streamline this process, enabling investors to bet against an asset without having to directly participate in the borrowing and selling activities.
Consequently, an inverse Bitcoin ETF is specifically structured to benefit from a downturn in Bitcoin’s price.
Why is Hong Kong Launching Inverse Bitcoin ETFs?
On April 15th, the Hong Kong Securities and Futures Commission (SFC) conditionally approved the launch of Bitcoin and Ethereum spot ETFs by three asset managers, marking Asia’s first such ETFs. These ETFs began trading on the Hong Kong Stock Exchange on April 30th.
On its first day, the Bitcoin ETF attracted approximately $250 million in investments, while the Ethereum ETF drew around $43 million. Despite these initial inflows, the funds have since seen only modest increases, with the investment figures falling short of expectations, especially when compared to similar ETF launches in the US.
This underwhelming performance is one of the factors behind Hong Kong’s decision to introduce inverse ETFs. There are several reasons why investors might consider an inverse Bitcoin ETF. Primarily, such an ETF allows investors to profit from bearish market conditions by betting on declines in Bitcoin’s price. Additionally, an inverse ETF can serve as a hedge, helping investors offset potential losses in portfolios that are exposed to downturns in the cryptocurrency market.
Main Differences Between US and Hong Kong Crypto ETFs
Hong Kong is implementing an in-kind ETF subscription and redemption mechanism, enabling the exchange of underlying assets for fund units and vice versa, contrasting with the cash redemption model used by US Bitcoin funds. This approach has sparked intense competition among issuers, leading to significant fee reductions to attract investors.
For instance, after Harvest announced a six-month fee waiver for its ETF, Bosera responded by offering a four-month fee waiver on its own ETF. This competitive pricing puts additional pressure on ChinaAMC, which currently charges a management fee of 99 basis points.
According to Bloomberg, this dynamic mirrors the competitive environment among US spot Bitcoin ETFs, which have seen approximately $12.4 billion in inflows this year. Without the $17 billion of outflows from Grayscale Bitcoin Trust, this figure could have approached $30 billion.
Ding Chen, CEO of CSOP Asset Management, stated that the introduction of the first futures-based inverse bitcoin product in Hong Kong opens up opportunities for investors to profit from downward movements in Bitcoin. Highlighting Bitcoin’s instability, CSOP noted that it has been one of the most volatile major global assets over the past decade, with its volatility peaking at 38.3% in 2023, which is higher than both crude oil and the Nasdaq 100.
Bitcoin and Crypto ETFs in the US and Hong Kong:
| United States |
Hong Kong |
| Grayscale Bitcoin Trust |
Harvest Global Investments Ltd. |
| Bitwise Bitcoin ETF |
China Asset Management’s local unit |
| BlackRock’s iShares Bitcoin Trust |
HashKey Capital Ltd. and Bosera Asset Management (International) Co. |
| Valkyrie Bitcoin Fund |
– |
| ARK 21Shares Bitcoin ETF |
– |
| Invesco Galaxy Bitcoin ETF |
– |
| VanEck Bitcoin Trust |
– |
| WisdomTree Bitcoin Fund |
– |
| Fidelity Wise Origin Bitcoin Fund |
– |
| Franklin Bitcoin ETF |
– |
BITI, an example of the US-based inverse ETF, is created to deliver performance that is inversely correlated to the S&P CME Bitcoin Futures Index by utilizing Bitcoin futures contracts. Additionally, investors have the option to engage in a similar strategy through ProFunds, a mutual fund company affiliated with ProShares. This company also launched a short bitcoin strategy, ProFund (BITIX), concurrently with BITI.
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