"The Hong Kong Securities and Futures Commission (SFC) has granted official approval for spot Ethereum and Bitcoin ETFs which is a huge diclstone for the fintech industry in the region.
Despite the euphoria surrounding this approval, Bloomberg Senior ETF analyst Eric Balchunas expressed a more cautious view on the potential cash inflows into this newly sanctioned met.
Balchunas asserts that Hong Kong ETFs are predicted to significantly lag behind their U.S. counterparts, which have amassed over $200 billion in Bitcoin ETFs trading volume since they began trading in January.
Hurdles For Hong Kong’s Bitcoin ETFs
While the green light has been given to the Bitcoin ETFs in Hong Kong, Balchunas went to social media to lower expectations.
As per Blachunas’ analysis, the Bitcoin ETFs have been approved for existence but are still waiting to go live. There are talks about a launch during the next week to avoid competing with the Dubai conference.
Balchunas also disregards overly optimistic forecasts, like $25 billion in inflows, by stating that the Hong Kong market would be lucky to draw in $500 million. He gave numerous reasons to back his cautious approach.
Firstly, Hong Kong’s ETF market is "quite small," valued at just $50 billion. Additionally, Chinese locals have restrictions when it comes to officially buying these Bitcoin ETFs, severely curbing potential demand.
Secondly, the three sanctioned issuers in Hong Kong (Bosera, China AMC, and Harvest) are relatively minor players, missing the clout of industry titans like BlackRock. As per Balchunas, this lack of significant players could impede the ETFs’ ability to lure significant investments.
Moreoever, Balchunas highlighted that the underlying structure in Hong Kong is recognized as less liquid and efficient compared to the U.S. market. Consequently, these ETFs are expected to face wider spreads and premium discounts, potentially deterring potential investors.
Lastly, the fees linked with the Hong Kong ETFs are estimated to vary between 1% and 2%, much higher than the low-cost fees observed in the U.S. market. Balchunas wrapped up by stating:
Just to be clear, all this is distinctly positive for bitcoin as it widens more ways to invest, I’m just sayying its child’s play vs U.S. 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 harshly contrasted the Hong Kong and U.S. markets and highlighted the significant difference in size and repercussion.
In a post on X, Seyffart pointed out that the assets held in U.S.-listed Bitcoin ETFs alone exceed the total assets of all Hong Kong-listed ETFs. The U.S. ETF market, valued at almost $9 trillion, far exceeds the valuation of the Hong Kong ETF market at $50 billion.
In addition, the Mainland China ETF market is around $325 billion, further underlining the immense difference in scope. Seyffart accentuated that while Hong Kong ETFs may have potential over the long term, they are improbable to match the scale of a launch on U.S. 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 U.S. exchanges.
The daily chart exhibits that BTC’s price has decreased over the past hours. Source: BTCUSD on TradingView.com
The biggest cryptocurrency in the market is trading at $63,500, seeing a slight decrease of over 1% in the past few hours. Earlier, it casually surged beyond the $67,000 mark, driven by the speculation surrounding the approval of ETFs in Hong Kong."
Featured image from Shutterstock, chart from TradingView.com
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