Hong Kong’s New Bitcoin, Ethereum ETFs Will Be ‘Lucky’ To Attract $500 Million Inflows, Expert Says

Hong Kong regulators on Monday greenlighted the launch of spot Bitcoin and Ethereum exchange-traded funds (ETFs), demonstrating the growing institutionalization of cryptocurrencies.

However, Bloomberg’s senior ETF analyst Eric Balchunas has thrown cold water on the excitement surrounding the new spot crypto products after suggesting they are not as big of a deal as some crypto enthusiasts may think.

Hong Kong ETFs Will Be “Nickel-Dime” Compared To US Versions

The Hong Kong Securities and Futures Commission (SFC) gave conditional approval to spot Bitcoin and ether ETF applications on April 15. The three asset managers greenlighted to introduce the crypto ETFs include Harvest Fund Management, Bosera Asset Management, and China Asset Management. 

In a Monday post on X, Bloomberg’s Eric Balchunas noted that Hong Kong’s securities regulator approved the crypto ETFs to exist but have yet to launch. Reports suggest the spot Bitcoin ETFs may start trading in late April. 

Balchunas then dismissed lofty forecasts, claiming the ETFs could attract as much as $25 billion in cumulative assets under management while highlighting key reasons why he believes the recently approved HK crypto ETFs will be fortunate to get even $500 million inflows.

First, he pointed out that Hong Kong’s ETF market is “tiny,” valued at only $50 billion—quite small compared to other nations like the United States. Moreover, Chinese investors cannot access these ETF products, which considerably limits potential demand.

Balchunas also noted that the three approved issuers are tiny fish compared to financial titans like BlackRock. The lack of big players could hinder the ETFs from attracting substantial investments.

Balchunas further pointed out that Hong Kong’s underlying ecosystem is less liquid and efficient than the US market. As a result, these crypto ETFs “will likely see wide spreads and prem discounts,” the ETF expert said.

Finally, Balchunas noted that the Hong Kong ETFs would have their fees set at around 1-2% — which is too high compared to the “dirt cheap fees in the US “Terrordome”.

“Takeaway: Other countries adding [Bitcoin] ETFs is no doubt additive but it’s nickel-dime compared to the mighty US market,” Balchunas continued. “Just to be clear, all this is clearly positive for Bitcoin as it opens up more avenues to invest, I’m just saying it’s child’s play vs the 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.”

Hong Kong ETFs Will Not Be As Impactful As US ETFs

Eric Balchunas’ colleague, James Seyffart, also delved into the stark differences between the Hong Kong ETFs and their US counterparts.

Seyffart observed in an earlier post that the assets held in US-listed Bitcoin ETFs alone transcend the cumulative assets of all Hong Kong-listed exchange-traded funds. Overall, the $50 billion Hong Kong ETF market pales in comparison to the $9 trillion US ETF market.

Additionally, the mainland China ETF market is approximately $325 billion, further underscoring the huge disparity in scale. He acknowledged that the Hong Kong crypto ETFs may eventually have potential. However, they are unlikely to achieve the scale of the US-based ETFs.

“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,” Seyffart summarized.