Hong Kong’s recently approved spot Bitcoin and Ethereum exchange-traded funds (ETFs) may not attract significant inflows as initially expected, according to senior Bloomberg ETF analyst Eric Balchunas. On April 15, the Hong Kong Securities and Futures Commission (SFC) granted conditional approvals to Harvest Fund Management, Bosera Asset Management, and China Asset Management to begin issuing spot Bitcoin and Ethereum ETFs.
However, Balchunas tempered expectations by noting the Hong Kong ETF market is relatively small compared to markets like the United States, and these ETFs don’t provide official access to Chinese retail investors. He predicted these funds would be fortunate to attract $500 million in inflows, contrary to estimates of $25 billion.
Balchunas highlighted that these ETF issuers are small compared to major asset management firms such as BlackRock, which manages over $9 trillion in assets. He also pointed out that the capital environment for these funds is less efficient, leading to higher fees around 1-2%, in contrast to the lower fees in the U.S. market.
Additionally, the ETFs may experience wide spreads and premium discounts due to a less efficient underlying ecosystem. Balchunas concluded that while other countries adding Bitcoin ETFs is beneficial, the impact is minor compared to the U.S. market.
In contrast, Jamie Coutts, chief crypto analyst at Real Vision and former Bloomberg Intelligence analyst, believes these products could open up a “massive pool of capital” for Chinese investors already adept at navigating capital controls.
The Hong Kong FSC approved the spot ETFs to use an in-kind creation model, which allows new ETF shares to be issued directly using BTC and ETH. This differs from the cash-create redemption model used in U.S. spot Bitcoin ETFs, which allows issuers to create new shares using cash. The spot ETFs in Hong Kong are expected to launch in about two weeks.