The Hong Kong Securities and Futures Commission (SFC) has granted official approval for spot Ethereum and Bitcoin ETFs, signifying a major milestone for the crypto market in the region.
However, while the approval brings excitement, Bloomberg Senior ETF analyst Eric Balchunas offered a more cautious analysis of the potential inflows into the newly approved market.
Balchunas claims that Hong Kong ETFs are expected to lag significantly behind their US counterparts, which have amassed more than $200 billion in Bitcoin ETFs trading volume since trading began in January.
Obstacles For Hong Kong’s Bitcoin ETFs
While approving the Bitcoin ETFs in Hong Kong is undoubtedly a positive development, Balchunas took to social media to temper expectations.
According to Blachunas’ analysis, the Bitcoin ETFs have been approved to exist but have yet to launch. Rumors suggest a launch in the following week to avoid competition with the Dubai conference.
Balchunas also dismissed optimistic estimates, such as $25 billion in inflows, stating that the Hong Kong market would be fortunate to attract $500 million. He provided several reasons to support his cautious stance.
Firstly, Hong Kong’s ETF market is “relatively small,” valued at only $50 billion. Additionally, Chinese locals face restrictions in officially purchasing these Bitcoin ETFs, significantly limiting potential demand.
Secondly, the three approved issuers in Hong Kong (Bosera, China AMC, and Harvest) are relatively small players, lacking the influence of industry giants like BlackRock. According to Balchunas, this absence of major players could hinder the ETFs’ ability to attract significant investments.
Furthermore, Balchunas pointed out that the underlying ecosystem in Hong Kong is considered less liquid and efficient compared to the US market. As a result, these ETFs are likely to experience wider spreads and premium discounts, which may deter potential investors.
Lastly, the fees associated with the Hong Kong ETFs are estimated to range between 1% and 2%, significantly higher than the low-cost fees observed in the US market. Balchunas concluded by stating:
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 more moderate expectations. That’s all.
Limited Impact
Balchunas’ colleague at Bloomberg, James Seyffart, also starkly compared the Hong Kong and US markets and highlighted the vast disparity in size and impact.
In a post on X, Seyffart pointed out that the assets held in US-listed Bitcoin ETFs alone exceed the total assets of all Hong Kong-listed ETFs. The US ETF market, valued at nearly $9 trillion, far exceeds the $50 billion valuation of the Hong Kong ETF market.
In addition, the Mainland China ETF market is approximately $325 billion, further highlighting the immense difference in scale. Seyffart emphasized that while Hong Kong ETFs may have potential in the long run, they are unlikely to match the scale of a launch on US exchanges. Seyffart then concluded:
This is not to diminish the potential of these ETFs or the idea that they could potentially become the Asian hub for exposure to digital assets on TradFi rails. But they’re unlikely to be anywhere near as impactful as a launch on US exchanges.
The largest cryptocurrency in the market is trading at $63,500, experiencing a slight decline of over 1% in the past few hours. Earlier, it briefly surged beyond the $67,000 mark, driven by anticipation surrounding the approval of ETFs in Hong Kong.
Featured image from Shutterstock, chart from TradingView.com
