Ether and Bitcoin ETFs in Hong Kong unlikely to raise more than $500m

Three recently approved exchange-traded funds (ETFs) for Bitcoin (BTC) and Ether (ETH) in Hong Kong may not be as significant as some believe, according to Eric Balchunas, a senior ETF analyst at Bloomberg. On April 15, the Hong Kong Securities and Futures Commission (SFC) granted conditional approvals to three offshore Chinese asset managers – Harvest Fund Management, Bosera Asset Management, and China Asset Management – to issue spot Bitcoin and Ether ETFs. However, Balchunas dismissed optimistic predictions that these ETFs could attract $25 billion in inflows and provided four reasons why investors should moderate their expectations. Balchunas highlighted that the Hong Kong ETF market is small compared to the US, and Chinese retail investors do not have direct access to these products. He also noted that the three asset managers approved are relatively small compared to industry giants like BlackRock. Balchunas added that the capital environment for these funds is less efficient and fees are expected to be around 1-2%, which is higher than in the US. He concluded that while the addition of Bitcoin ETFs in other countries is positive, it pales in comparison to the US market. On the other hand, Jamie Coutts, chief crypto analyst at Real Vision and former crypto analyst at Bloomberg Intelligence, stated that despite concerns about the size of the Hong Kong ETF market, these products would attract a significant amount of capital from Chinese investors who are adept at circumventing government-imposed capital controls. The Hong Kong FSC approved the spot Bitcoin and Ether ETFs to be launched using an in-kind model, allowing new ETF shares to be created directly using BTC and ETH. This differs from the cash-create redemption model used by US spot Bitcoin ETFs, which the SEC fears could lead to money laundering and fraud. The spot ETFs are expected to launch in approximately two weeks.