What’s the difference between Bitcoin ETFs in Hong Kong and those leading in the US market, and might their arrival impact Bitcoin’s price positively?
April 15 saw announcements on social media from China Asset Management, Bosera Capital, and other firms, indicating they had received conditional approval to introduce Bitcoin (BTC) and Ethereum (ETH) spot exchange-traded funds (ETFs) in Hong Kong. The Securities and Futures Commission (SFC) has yet to publicly disclose the list of approved issuers.
This development follows closely spot BTC ETF approvals in the U.S. earlier this year.
In contrast to the United States, where the Securities and Exchange Commission (SEC) has reviewed Ethereum ETF proposals, setting a decision date for May 23rd. Yet, prior indications suggest possible obstacles may emerge due to delays in the review process.
Some major investors, including Harvest Global Investments and Bosera Asset Management (International), have been given the green light by Hong Kong’s Securities and Futures Commission. New entrants like ChinaAMC are also joining this list, intending to offer “virtual asset management services,” with OSL Digital Securities taking on the role of custodian for these transactions.
It’s anticipated that these ETFs will hit the market shortly, but exact release dates have yet to be disclosed.
An anticipated release is believed to significantly enhance the crypto market, with Asia being a key area for growth. Hong Kong is set to initiate an Ether Exchange-Traded Fund (ETF) as part of this development, which hasn’t occurred in the United States through the Securities and Exchange Commission (SEC) yet.
Even though crypto trading is prohibited in China’s mainland, there is an anticipated surge of interest from Chinese investors in these ETFs, estimated to reach approximately $25 billion.
Hong Kong’s initiatives to become a controlled cryptocurrency center, similar to Dubai and Singapore, may draw substantial financial inflows, surpassing the projected amounts.
In the United States, the launch of Bitcoin spot ETFs in January 2024 caused a significant surge in the market, driving Bitcoin prices up to over $73,000 by March. However, prices dipped to around $63,000 by April 16 due to market instability brought about by geopolitical tensions.
What is happening, and what could this mean for the crypto market?
HK vs. US spot BTC ETFs
In simpler terms, when it comes to trading spot Bitcoin ETFs, Hong Kong and the United States follow distinct regulations. Notably, in Hong Kong, investors can purchase and redeem ETF shares using Bitcoin directly, whereas in the U.S., such transactions are limited to dealing in cash only.
The financial markets in the U.S. are significantly larger than those in Hong Kong. To give some context, the value of the U.S. capital market was an impressive $51 trillion by the end of December 2023, while Hong Kong’s market was only $4.1 trillion as of September 2023.
A substantial variation in size affects the access to funds and the scope of potential investors in Hong Kong’s ETFs, making it harder for them to match the competition from the larger ETF market in the United States.
In the United States, the market for Exchange-Traded Funds (ETFs), including those based on Bitcoin, is firmly rooted, offering a wide selection of investment options spanning various asset classes. The US Bitcoin Spot ETF market boasts approximately $60 billion in assets under management.
Instead, Hong Kong’s ETF market holds significance in Asia and serves as a bridge for Chinese investment, yet its total value, roughly $49 billion in February 2024, is dwarfed by sectors such as the US Bitcoin ETF market.
Although Hong Kong permits crypto ETFs to be subscribed to and redeemed with in-kind assets, the significant disparity in market sizes lessens its influence.
In simpler terms, although Hong Kong ETFs have the possibility of finding a unique market segment, they encounter substantial hurdles in growing larger to rival their American counterparts.
Is this a bullish case for BTC?
A Hong Kong approval of Bitcoin and Ethereum spot ETFs might significantly influence Bitcoin’s price, notably during the lead-up to the upcoming halving event.
Institutional investors’ growing interest in regulated crypto ETFs could result in substantial new investments, boosting the crypto market. With more institutional funds entering the Bitcoin market, the upcoming halving event may amplify its price effect.
Michael van de Poppe, a well-known analyst, notes that several factors could influence Bitcoin’s price in the near future. These include the upcoming halving event, geopolitical conflicts in the Middle East, and the approval of spot Bitcoin ETFs in Hong Kong. Together, these elements add complexity to the situation.
The upcoming week is significant for Bitcoin as it’s the time of the halving event. However, there are other developments to watch out for:
— Michaël van de Poppe (@CryptoMichNL) April 14, 2024
Despite senior Bloomberg ETF analyst Eric Balchunas’ cautionary remarks on X, the anticipated growth of new ETFs in Hong Kong may not reach the projected $25 billion. In fact, Balchunas believes a more realistic figure would be around $500 million.
The most recent update on Hong Kong’s Bitcoin ETFs: They have been given the green light to exist but have not started trading yet. There are whispers that they might debut next week, supposedly to avoid clashing with a conference in Dubai. However, do not be swayed by rumors of $25 billion in inflows. Our prediction is more modest; we believe these ETFs will be fortunate to attract around $500 million. Here’s why:
1. Hong Kong’s Bitcoin ETFs have been authorized to come into existence but have not begun trading as of now.
2. Some sources claim they may launch next week, possibly to avoid competing with an event in Dubai.
3. Contrary to some speculation, the inflows are not expected to reach an astounding $25 billion.
4. Our forecast suggests that these ETFs will likely manage to secure approximately $500 million in investments.— Eric Balchunas (@EricBalchunas) April 15, 2024
Balchunas pointed out that the Hong Kong ETF market is relatively small and that Chinese locals, at least officially, are not allowed to invest in these funds. The three approved issuers are smaller players in the market, with no major companies like BlackRock involved yet.
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2024-04-16 15:13