Hong Kong’s Bitcoin ETF Launch Raises Questions As Analyst Predicts Limited Inflows, Capped At $500 Million

Hong Kong has granted conditional approvals to asset managers to initiate spot Bitcoin and Ether exchange-traded funds, announced the firms. Following the approval, several analysts are debating the potential inflow volume of the ETF and whether it might surpass US ETF volume. However, a prominent Bloomberg analyst predicts that the ETF volume will not exceed $500 million.

Not Much Inflow In HK

Eric Balchunas, Bloomberg’s ETF strategist, shared a conservative viewpoint on the expected inflows into Bitcoin ETFs in Hong Kong. Opposite to the high expectations of $25 billion, Balchunas estimates the potential inflows might only reach around $500 million.

He explained that the Hong Kong ETF market is relatively small in size, holding about $50 billion in assets, and restrictions might limit access for local Chinese investors. Additionally, the key issuers of these ETFs—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 U.S. 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 when compared to the vast U.S. 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.

Listing Approval Pending

The SFC explained that it issues a conditional authorization letter to an ETF application if it generally meets its criteria, albeit with certain stipulations. Following this, an applicant must seek listing approval from Hong Kong Exchanges and Clearing Ltd., the SFC further noted.

OSL Digital Securities Ltd. announced in a statement that it will serve as the custodian for Bitcoin and Ether products from both the China Asset Management unit and Harvest.

Since the U.S. approved spot Bitcoin ETFs, Balchunas has adopted a straightforward approach, which stands in contrast to the typically enthusiastic bullish predictions common within the community. He offered 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 to 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 U.S. funds.

The demand for Hong Kong’s ETFs remains uncertain. The city has three futures-based crypto ETFs with combined assets of about $170 million, significantly less than their U.S. counterparts.