Hong Kong’s Bitcoin ETF Debut Sparks Concerns as Analyst Anticipates Constrained Inflows, Capped at $500 Million
Hong Kong has granted conditional approvals to asset managers to launch spot exchange-traded funds (ETFs) for Bitcoin and Ether, according to the firms. This development has sparked a debate among analysts about the potential inflow volume of these ETFs and whether they could surpass the volume of US ETFs. However, a prominent analyst from Bloomberg predicts that the volume of these Hong Kong ETFs will not exceed $500 million.
Eric Balchunas, Bloomberg’s ETF strategist, has shared a conservative viewpoint on the expected inflows into Bitcoin ETFs in Hong Kong. Contrary to the high expectations of $25 billion, Balchunas estimates that the potential inflows might only reach around $500 million.
Balchunas explained that the Hong Kong ETF market is relatively small, with about $50 billion in assets, and there may be restrictions that limit access for local Chinese investors. Additionally, the key issuers of these ETFs, such as Bosera, China AMC, and Harvest, are not as big as major industry players like BlackRock.
Challenges such as inadequate liquidity and efficiency in the ETF ecosystem could lead to premium discounts, and the anticipated fee structure, ranging from 1-2%, is significantly higher than the more competitive fees seen in the US market.
Balchunas highlighted the benefits of introducing Bitcoin ETFs in various countries, acknowledging their role in expanding investment options for Bitcoin. However, he pointed out that their impact in Hong Kong is relatively lower compared to the vast US market.
Hong Kong is competing with Singapore and Dubai to establish itself as a center for digital assets, following the introduction of a specific regulatory framework last year.
The Securities and Futures Commission (SFC) explained that it issues conditional authorization letters to ETF applications if they generally meet its criteria, albeit with certain stipulations. After receiving the conditional approval, applicants must seek listing approval from Hong Kong Exchanges and Clearing Ltd., as stated by the SFC.
OSL Digital Securities Ltd. announced that it will serve as the custodian for Bitcoin and Ether products from both the China Asset Management unit and Harvest.
Since the US approved spot Bitcoin ETFs, Balchunas has taken a straightforward approach, which contrasts with the typically enthusiastic bullish predictions common within the community. He provided a reality check to Bitcoin’s “hodler class” when ARKB saw substantial outflows that exceeded those of Grayscale’s GBTC in early April. At that time, the observed price volatility was more likely due to long-term holders liquidating their positions, rather than the ETF outflows.
HashKey Capital and Bosera have noted that the new Hong Kong spot ETFs will feature an in-kind subscription and redemption mechanism, where ETF units are directly exchanged for the underlying assets and vice versa. This method differs from the cash redemption model used by US funds.
The demand for Hong Kong’s ETFs remains uncertain. The city currently has three futures-based crypto ETFs with combined assets of about $170 million, significantly less than their US counterparts.