May 30, 2024
Bloomberg Analyst: Hong Kong Crypto ETFs May Only Achieve $500 Million in Inflows
Bitcoin ETF

Bloomberg Analyst: Hong Kong Crypto ETFs May Only Achieve $500 Million in Inflows

The Hong Kong SFC has conditionally approved three spot Bitcoin and Ether ETFs, granting offshore Chinese asset managers the green light to launch the products.

While the approval has been seen as a positive step for the crypto industry in the region, some experts have expressed tempered expectations regarding the impact and potential inflows from the newly approved ETFs.

Hong Kong Approves New ETFs

On April 15, the SFC granted conditional approvals to three asset managers — Harvest Fund Management, Bosera Asset Management, and China Asset Management — to begin issuing spot Bitcoin and Ether ETFs.

The ETFs are expected to be launched in roughly two weeks.

Despite the approvals, senior Bloomberg ETF analyst Eric Balchunas warned against expecting significant inflows.

Source: Eric Balchunas

In an April 15 post on X, Balchunas stated that lofty predictions of $25 billion in inflows were unrealistic, and instead estimated that the ETFs would be fortunate to see around $500 million.

Balchunas provided several reasons for his tempered expectations, noting that the Hong Kong ETF market is “tiny” compared to markets such as the United States.

He also mentioned that the ETFs would not allow Chinese retail investors official access, and the issuers are relatively small compared to major asset management firms like BlackRock.

Market Concerns and Challenges

Balchunas also pointed out potential challenges for the newly approved ETFs. He emphasized that the capital environment in Hong Kong was less efficient than in other markets, resulting in higher fees for the ETFs.

He added that the funds would likely encounter wide spreads and premium discounts due to a less liquid underlying ecosystem.

“Takeaway: Other countries adding [Bitcoin] ETFs is no doubt additive but it’s nickel-dime compared to the mighty US market,” Balchunas concluded.

Source: Elja

Counterpoint: Potential for a “Massive Pool of Capital”

On the other hand, Jamie Coutts, chief crypto analyst at Real Vision and former crypto analyst at Bloomberg Intelligence, offered a more optimistic outlook.

He suggested that while the Hong Kong ETF market may be smaller, the approval of spot Bitcoin and Ether ETFs could open up a “massive pool of capital” for Chinese investors.

Coutts pointed out that Chinese investors are already adept at navigating government-imposed capital controls, implying that they could quickly embrace the new ETF offerings.

In-Kind Model and Launch Details

The approved spot Bitcoin and Ether ETFs will utilize an in-kind model, allowing new ETF shares to be issued directly using BTC and ETH.

This model contrasts with the cash-create redemption model used in U.S. spot Bitcoin ETFs, which has been a point of concern for the SEC due to potential money laundering and fraud risks.

As the launch date for the new ETFs approaches, the crypto industry will closely monitor their performance and impact on the Hong Kong market.

Image: Wallpaper Flare

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