Hong Kong’s Spot Bitcoin ETFs Set to Attract $1 Billion in Assets: Bloomberg Analysis

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Hong Kong emerges as a front-runner with its new spot Bitcoin and Ether Exchange Traded Funds (ETFs), poised to gather up to $1 billion in assets within the first two years, according to Bloomberg ETF analyst Eric Balchunas. However, competition with US counterparts, which amassed over $28 billion in the initial quarter, poses a significant challenge.

Mainland China investors probably won’t be eligible to buy Hong Kong-listed spot bitcoin and ether ETFs as they are barred from buying virtual assets. There are some other routes they could try but they less used channels and could be shut down, via note from @RebeccaSin_SK pic.twitter.com/OoHiZ6c9HJ

— Eric Balchunas (@EricBalchunas) April 17, 2024

Potential Regulatory Hurdles: Why Hong Kong’s ETFs May Trail US Peers

Despite the optimistic outlook, regulatory barriers, particularly concerning investors from Mainland China, cast a shadow over the forecast. Balchunas notes that Mainland China investors might be excluded from purchasing Hong Kong-listed spot Bitcoin and Ether ETFs due to restrictions on virtual asset acquisition.

Rebecca Sin of Bloomberg further elaborates on the challenges, highlighting the limited utilization of the $50,000 annual remittance quota for retail investors from Mainland China, primarily due to regulatory and practical complexities. Additionally, institutional investors face stringent conditions, with slim prospects of approval for the Qualified Domestic Institutional Investor (QDII) quota for virtual asset ETFs in the current regulatory landscape.

Nevertheless, the introduction of spot Bitcoin and Ether ETFs signifies a significant milestone for Hong Kong’s financial sector. Sin emphasizes the potential, stating that these ETFs could amass up to $1 billion in assets under management, contingent upon infrastructure enhancements and ecosystem expansion supporting digital assets.

Current Landscape and Fee Structure

Presently, the Asia-Pacific region hosts Bitcoin ETFs totaling $250 million across five funds in Hong Kong and Australia. CSOP’s Bitcoin Futures ETF (3066 HK) leads in Hong Kong, launched in late 2022 with $121 million in assets under management.

The management fees for the new ETFs are estimated to range between 1-2%. Comparatively, CSOP’s existing Bitcoin and Ether Futures ETFs levy a 2% management fee alongside an additional estimated 2% in other expenses. In contrast, Samsung’s Bitcoin Futures ETF offers a more competitive fee structure at 0.95%, a factor crucial for investor consideration.

Implications for Hong Kong’s ETF Market

Balchunas underscores the broader implications for Hong Kong’s position in the global ETF market, noting a projected $1 billion in assets within the initial two years. However, he cautions that infrastructure improvements are pivotal for achieving this target, affirming Hong Kong’s role as an ETF leader in the Asia region.

Hong Kong’s Ascent Amid Regulatory Challenges

Despite regulatory constraints in neighboring markets like Mainland China, Hong Kong emerges as a pivotal hub for cryptocurrency investments in Asia. With trading set to commence on April 30, all eyes are on Hong Kong as these ETFs debut.

At the time of writing, BTC is trading at $60,844.