TechFlow News, April 26 — Jason Jiang, researcher at OKG Research, said in a recent interview with the South China Morning Post that Hong Kong's allowance of in-kind creation and redemption for spot virtual asset ETFs not only enhances the flexibility and inclusiveness of ETF products but also creates arbitrage opportunities, making them attractive to both traditional financial investors and the crypto investment community. However, enabling in-kind creation and redemption significantly increases product risk, as it involves on-chain processes such as the exchange, custody, and conversion of spot Bitcoin and Ether, whose operational complexity multiplies associated risks.
Hong Kong’s decision to permit in-kind creation and redemption is due in part to its relatively robust virtual asset (VA) regulatory framework, which anticipates potential risks in this process. Additionally, Hong Kong has made rapid progress in RegTech in recent years, equipping it with sufficient technological capabilities and confidence to manage risks arising from ETF operations.
