Analysts anticipate significant growth for Bitcoin exchange-traded funds (ETFs) in Hong Kong, driven by the adoption of the in-kind creation model, which gives them a notable advantage over their US counterparts.

Eric Balchunas, a senior ETF analyst at Bloomberg, highlights Hong Kong’s adoption of the in-kind creation model as a potential catalyst for boosting assets under management (AUM) and trading volume for ETF products in the region. This view is supported by research from Bloomberg ETF analyst Rebecca Sin, who sees the in-kind model as an “opportunity for the market.”

Sin elaborates on the difference between the US and Hong Kong approaches, noting that while the US relies on cash transactions for Bitcoin ETF creation (cash in, Bitcoin ETF out), Hong Kong aims for Bitcoin-based creation (Bitcoin in, ETF out), presenting a unique opportunity for the market.

Earlier this year, Hong Kong authorities signaled their readiness to accept applications for spot crypto ETFs, with plans to introduce these financial products by mid-year. Several entities, including Harvest Hong Kong, have since filed applications to launch spot Bitcoin ETFs.

The in-kind creation model favored by Hong Kong contrasts sharply with the cash-creation model favored by US authorities. With in-kind redemptions, ETF issuers can exchange the fund’s underlying assets, such as Bitcoin, with market makers instead of transacting in cash during share creation and redemption. This mechanism allows ETFs to issue creation units without immediately selling the securities for cash.

In contrast, the cash redemptions required by the US SEC mandate fund managers to sell Bitcoin to provide cash for redeeming shareholders. Notably, BlackRock, one of the Bitcoin ETF issuers, has raised concerns about this method, citing challenges in maintaining share prices aligned with Bitcoin’s actual value.

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South American gold and precious metals producer Nilam Resources (NILA) is venturing into the world of cryptocurrency by announcing its intention to acquire 100% of the common stock of a special purpose entity holding 24,800 Bitcoin (BTC). This move comes as the exploration-stage mining company signed a letter of intent with Xyberdata Ltd.

The special purpose entity, to be named MindWave, will be established for this purpose. Nilam Resources plans to issue a newly authorized Preferred Class of Series C Stock in exchange for the Bitcoins, which will be offered at a discounted rate compared to current market prices.

With full control over MindWave’s capital stock, Nilam Resources aims to use the 24,800 Bitcoins, along with other assets, as collateral to raise capital for investment in high-yield generating projects.

Under the agreement, shareholders of MindWave will exchange their equity interest for the newly issued Preferred Shares of Class C stock authorized and issued by NILA.

The newly created Class C Preferred Stock is expected to offer conversion rights upon listing on NASDAQ, another national exchange, or other defined liquidity events. These shares will be issued pro rata to the shareholders and will be considered ‘restricted securities’ as per Rule 144 under the Securities Act of 1933.

Pranjali More, CEO of Nilam Resources, affirmed that the company and its team have been diligently working over the past few months to complete all agreements and due diligence required to advance towards a legally binding Letter of Intent.

Following this acquisition, Nilam Resources’ assets will surpass one billion dollars.

In a press release, the company emphasized that this move aligns with its vision, mission, and core values, aiming for an inclusive and sustainable financial future while driving positive change in the digital economy.

Pranjali More, COO of Nilam Resources, highlighted the company’s commitment to transparency, innovation, and sustainability, prioritizing clear communication and investing in projects with enduring social and environmental impact.

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Worldcoin, the project known for its “proof of personhood” concept where individuals receive cryptocurrency tokens after having their irises scanned to verify their humanity, has faced a setback in Europe. A regulator in Portugal has directed the project to halt its biometric data collection efforts.

According to a report from Reuters, the Portugal data regulator, CNPD, has instructed Worldcoin to suspend its collection of personal data for 90 days. This directive follows a similar ban imposed on the project in Spain last month. The CNPD cited a high risk to citizens’ data protection rights as the rationale for urgent intervention to prevent potential harm. The report notes that over 300,000 individuals in Portugal have provided their biometric data to Worldcoin.

In response to the regulatory action, Tools for Humanity, the lead software contributor to the Worldcoin project, emphasized that the initiative adheres to all relevant laws and regulations governing the collection and transfer of biometric data. Jannick Preiwisch, the data protection officer at Worldcoin Foundation, reiterated the project’s commitment to complying with data protection authorities and expressed willingness to address any reported concerns, including those related to underage sign-ups in Portugal.

In an attempt to address privacy concerns and enhance user control over personal data, Worldcoin recently introduced “Personal Custody,” a new process that eliminates the storage and encryption of individuals’ biometric data. Previously, users had the option to allow Worldcoin to store their data. Tiago Sada, an executive at Tools for Humanity, highlighted that the updated approach grants users greater autonomy over their data, offering reassurance by reducing the need to place trust in external entities.

Worldcoin’s unique model rewards individuals with cryptocurrency tokens, known as WLD tokens, upon undergoing iris scanning to establish a World ID. According to the project’s website, Worldcoin has garnered participation from over 4.5 million individuals across 120 countries.

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The Technology Working Group of the UK Treasury, the economic and finance ministry of the government, has recently released a comprehensive report delving into the potential use cases of fund tokenization.

The report primarily investigates the utilization of tokens as collateral for money market funds and examines the role of tokenized funds within the on-chain investment market. It outlines how the UK funds industry can leverage the potential of tokenization to enhance asset management operations and proposes a foundational tokenization model for firms operating within the UK.

Moreover, the report elucidates various use cases demonstrating how this model could improve business operations, including optimizing money market fund collateral management. This marks the second report from the Technology Working Group, established in April 2023 under the Asset Management Taskforce. The forthcoming third report is slated to focus on the impact of artificial intelligence on the industry.

This recent publication builds upon the findings of the Technology Working Group’s inaugural report released in November 2023. The latest report expands on the potential use cases of fund tokenization identified in the initial publication.

Tokenization, as defined in the report, involves issuing units recorded on a distributed ledger, contrasting with units recorded on traditional record-keeping systems. The transition of existing operational infrastructure supporting investment funds onto a distributed ledger is posited to drive efficiency and transparency within the sector while enhancing its competitive edge.

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According to analysts at Bernstein, BlackRock’s upcoming tokenized fund launch is poised to bring significant legitimacy to public smart contract chains, particularly Ethereum. The announcement of BlackRock’s BUIDL tokenized private equity fund earlier this month marks a significant move into digital assets by the world’s largest asset manager, following the launch of a spot bitcoin ETF.

The analysts at Bernstein suggest that BlackRock’s decision to utilize the public Ethereum blockchain instead of private chains, such as JPMorgan’s Onyx, expands interoperability and programmability within the space. This move is seen as a departure from the perception of public chains solely as “retail casinos.”

The analysts further elaborate that tokenized fund redemption could be facilitated on-chain with the integration of stablecoins like USDC. Additionally, the introduction of new asset classes such as bonds, equities, and foreign exchange stablecoins could lead to increased interoperability between asset classes on-chain, allowing for further programmability based on deal contract conditions. This development is seen as a significant step in utilizing blockchain technology for institutional utility rather than just retail speculation.

BlackRock’s tokenized fund, named the BlackRock USD Institutional Digital Liquidity Fund (BUIDL), was revealed in a U.S. Securities and Exchange Commission filing. The fund will invest in U.S. Treasury bills, repurchase agreements, and cash, although a specific launch date was not provided. Securitize will act as the tokenization platform, with ecosystem partners such as Anchorage, Coinbase, BitGo, Fireblocks, and BNY Mellon facilitating custody, settlement, and interoperability with traditional markets.

Bernstein’s analysts argue that BlackRock’s collaboration with partners from both traditional and crypto worlds will encourage more traditional institutional customers to adopt on-chain funds, resulting in reduced friction. This move is expected to provide institutional holders with benefits such as 24/7 instant settlement, increased transparency, improved capital efficiency, and reduced operating costs.

Furthermore, Bernstein suggests that tokenized funds could become a new growth category for asset managers, evolving from simple investment via ETFs to building on-chain products as a commercial revenue and cost-saving opportunity.

The analysts conclude that tokenization represents the next evolution of financial markets, akin to the ETF wave of the last two decades. They have also raised their year-end bitcoin price target to $90,000, anticipating a “mild” halving impact on miners.

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