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Hong Kong may see spot Bitcoin and Ethereum exchange-traded funds (ETFs) debut following regulatory approval as early as next week. However, analysts caution that the immediate impact of these ETFs might be limited due to market size, investor restrictions, and less competitive structures compared to the US market.
According to Bloomberg ETF analyst Eric Balchunas, while the approval is a positive step for crypto adoption, the launch’s impact will likely be minor compared to the US market.
Matrixport recently suggested that the potential approval of Hong Kong-listed spot Bitcoin ETFs could generate up to $25 billion in demand from mainland China. This projection is based on the possibility of Chinese investors gaining access through the Southbound Stock Connect program.
However, a reality check suggests a less rosy outlook. Balchunas believes this estimate to be overly optimistic, considering the nascent state of Hong Kong’s ETF market, which currently holds only $50 billion in assets.
“We think they’ll be lucky to get $500m,” estimated Balchunas. “[Hong Kong’s ETF market] is tiny, only $50b, and Chinese locals cannot buy these, at least officially.”
Limited investment pools and small issuers are among the key limiting factors. According to Balchunas, Chinese investors are restricted from accessing those ETFs due to the government crackdown on Bitcoin, and they are “definitely on the Southbound Connect program.”
In addition, the companies that will first launch the ETFs are not major players like BlackRock, which might attract fewer investors. Current ETF providers include HashKey Capital, Bosera Capital, Harvest Global, and China Asset Management.
Other factors, such as liquidity and fee structures, are also expected to influence ETFs’ success. Balchunas noted that the trading infrastructure might lead to wider bid-ask spreads and prices that could exceed Bitcoin’s actual value.
Additionally, the analyst noted that management fees are anticipated to range from 1-2%, considerably higher than the “dirt cheap fees” in the US market.
However, he believes things could improve in the future. Despite those challenges, these ETFs are still positive for Bitcoin in the long run. They will ultimately promote Bitcoin adoption by providing additional investment channels.
Just to be clear, all this is clearly positive for bitcoin as it opens up more avenues to invest, I'm just sayying its child's play vs US. Also long-term some of this could go away: more liq, tighter spreads, lower fees and bigger issuers involved. But short/medium term we have…
— Eric Balchunas (@EricBalchunas) April 15, 2024
Sharing Balchunas’ view, ETF analyst James Seyffart highlighted the disparity between mainland China’s $325 billion ETF market and the US’s $9 trillion market, suggesting that while Hong Kong’s Bitcoin ETFs have growth potential, they face a steep climb to match the US market’s scale.
Yes, also @EthereanMaximus: There are more assets in US Listed #Bitcoin ETFs than there are assets in EVERY single ETF listed in Hong Kong. Yes it could be a big deal down the line. But its a whole different animal.
The US ETF Market is almost $9 Trillion in assets — that's…
— James Seyffart (@JSeyff) April 12, 2024
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