How do Hong Kong’s spot Bitcoin ETFs compare to their dominant U.S. counterparts, and could their introduction influence Bitcoin’s price upward?
On Apr. 15, China Asset Management, Bosera Capital, and other firms announced on social media that they received conditional approval to launch spot Bitcoin (BTC) and Ethereum (ETH) exchange-traded funds (ETFs) in Hong Kong. The Securities and Futures Commission (SFC) has not yet confirmed the list of approved issuers.
This development follows closely spot BTC ETF approvals in the U.S. earlier this year.
This contrasts with the situation in the U.S., where the Securities and Exchange Commission (SEC) has received applications for spot Ethereum ETFs, with a response deadline set for May 23. However, delays have already been issued, hinting at potential roadblocks ahead.
Among the key players receiving approval from Hong Kong’s Securities and Futures Commission (SFC) are Harvest Global Investments and Bosera Asset Management (International) Co., alongside newcomers like ChinaAMC, which has also announced plans to provide “virtual asset management services” with OSL Digital Securities serving as the custodian.
These ETFs are expected to be available soon, although the specific launch dates have not yet been announced.
The upcoming launch is seen as a major boost for the crypto market, particularly in Asia. Hong Kong is poised to be one of the first regions to host an Ether ETF, a move not yet mirrored by the U.S. SEC.
Despite the fact that crypto trading remains banned in mainland China, it is expected that these ETFs could potentially unleash a wave of demand from Chinese investors, reaching $25 billion.
Hong Kong’s efforts to establish itself as a regulated crypto hub, comparable to Dubai and Singapore, could attract large investment flows, potentially exceeding expectations.
In the U.S., the introduction of spot BTC ETFs in January 2024 led to a substantial market rally, with Bitcoin prices soaring above $73,000 in March before settling at $63,000 levels as of Apr. 16, following market uncertainty amid geopolitical tensions.
What is happening, and what could this mean for the crypto market?
HK vs. US spot BTC ETFs
Hong Kong and the U.S. have different rules for spot cryptocurrency ETFs. One major difference is that Hong Kong allows ETF shares to be bought and redeemed with Bitcoin itself, while the U.S. restricts these transactions to cash only.
Another notable difference is the size of their financial markets. As of December 2023, the U.S. capital market is valued at a massive $51 trillion, far outstripping Hong Kong’s market, which stands at $4.1 trillion as of September 2023.
This significant difference in size impacts the availability of capital and the size of the investor base, which poses challenges for Hong Kong’s ETFs in competing with those in the U.S.
In the U.S., the market for ETFs, including those for Bitcoin, is well-established, with a diverse range of products across different asset classes. The U.S. spot Bitcoin ETF market alone has accumulated about $60 billion in assets under management.
In contrast, Hong Kong’s ETF market is an important player within Asia and acts as a gateway to Chinese capital, but it is much smaller overall. With the entire Hong Kong ETF market valued at about $49 billion as of February 2024, it is small even when compared to the U.S. Bitcoin ETF sector alone.
Despite Hong Kong’s innovative approach allowing in-kind subscriptions and redemptions for crypto ETFs, the massive difference in market size limits its impact.
While Hong Kong-based ETFs have the potential to carve out a niche, they face significant challenges in scaling up to match their U.S. counterparts.
Is this a bullish case for BTC?
The approval of Bitcoin and Ethereum spot ETFs in Hong Kong could largely impact Bitcoin’s price, particularly in anticipation of the upcoming halving event.
These ETFs could draw in fresh funds to the crypto market, especially since institutional investors are keenly interested in regulated investment options. As institutional money flows in, it might increase the demand for Bitcoin, potentially making the halving event have a bigger impact on its price.
Renowned analyst Michaël van de Poppe points out the convergence of multiple factors impacting Bitcoin’s price in the coming days. Alongside the halving event, geopolitical tensions in the Middle East and the approval of spot ETFs in Hong Kong add layers of complexity to the situation.
However, senior Bloomberg ETF analyst Eric Balchunas commented on X, tempering expectations about the potential success of new ETFs in Hong Kong. He said, “I saw one estimate of $25b that’s insane. We think they’ll be lucky to get $500m.”
Balchunas pointed out that the Hong Kong ETF market is relatively small and that Chinese locals, at least officially, are not allowed to invest in these funds. The three approved issuers are smaller players in the market, with no major companies like BlackRock involved yet.