Hong Kong announced the launch of its first exchange-traded funds (ETFs) that will track the performance of Bitcoin and Ethereum. However, these products are unlikely to be available to investors from mainland China due to strict regulation. According to a prominent Bloomberg analyst, Hong Kong ETFs will only attract $1 billion in AUM in the initial years.
HK Spot ETFs Might Flash Low Metrics
Investors from mainland China probably won’t be able to invest in the new spot bitcoin ETFs listed in Hong Kong, according to Bloomberg Intelligence analysts. This news dampens the initial excitement around these funds. This isn’t particularly surprising, considering China’s strict rules on cryptocurrencies. After all, the country banned both trading and mining of these digital tokens back in 2021.
Hong Kong regulators reportedly gave the green light for these ETFs this past Monday, paving the way for fresh investments into bitcoin. The ETFs are being offered by issuers such as ChinaAMC, Harvest Global, and Bosera International. Interestingly, this approval was confirmed by the issuers themselves rather than the Securities and Futures Commission (SFC), the main securities regulator in Hong Kong, which hasn’t commented on the matter.
In a recent thread, Eric Balchunas and Rebecca Sin, analysts at Bloomberg, revised their projections for the potential size of the assets under management (AUM) for these Bitcoin and Ethereum ETFs in Hong Kong, bringing it down from an initial $25 billion to just $1 billion for the first two years. They suggest that the restriction on investors from mainland China from buying these ETFs, due to the existing bans on virtual asset investments, is a key reason for this significant adjustment in expectations.
$1 Billion AUM Remains Healthy
Although the projection has been lowered, Balchunas still views the $1 billion estimate for the Hong Kong Bitcoin and Ethereum ETFs as robust. He pointed out, however, that this figure is considerably lower than the initially speculated $25 billion. Additionally, he mentioned that reaching this new target depends greatly on improvements in infrastructure.
Balchunas further observed that while investors from mainland China encounter restrictions, alternative investment options are there. These alternatives, though less common, may be subject to regulatory scrutiny.
Bitcoin enthusiasts have viewed the approval of Hong Kong ETFs as a potential major driver for rising prices. Recently, Matrixport suggested that these funds might attract up to $25 billion from Chinese investors. Although spot bitcoin ETFs in the U.S. have experienced remarkable inflows shortly after their launch, the smaller scale of Hong Kong’s ETF market means that this new product, while beneficial for the market, is unlikely to have a massive impact.
Hong Kong ETFs may benefit institutional investors limited to ETFs for crypto trading by offering extended hours alongside the U.S. market. However, institutional participation in bitcoin ETFs is still low, with SEC filings showing minimal investment from fund managers.
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