On April 15, the Hong Kong Securities and Futures Commission (SFC) conditionally approved three offshore Chinese asset managers to launch spot Bitcoin and Ether ETFs: Harvest Fund Management, Bosera Asset Management, and China Asset Management.
Bloomberg's ETF analyst, Eric Balchunas, advises crypto investors to temper their expectations regarding the recent approval of three spot Bitcoin and Ether exchange-traded funds (ETFs) in Hong Kong. Balchunas suggests that these approvals might not be as significant as some perceive them to be.
$25 Billion is Too Much
In an April 15 post on X, Balchunas dismissed optimistic forecasts suggesting that the ETFs could attract $25 billion in inflows, asserting, "Don't expect a lot of flows — I saw one estimate of $25b that's insane. We think they'll be lucky to get $500m."
Balchunas outlined four primary reasons why crypto investors should moderate their expectations for recently approved products. Firstly, he highlighted the relatively diminutive size of the Hong Kong ETF market compared to larger economies like the United States. Additionally, he noted that these ETFs don’t grant Chinese retail investors official access to the products.
Balchunas underscored the comparatively modest stature of the three prospective ETF issuers relative to asset management giants like BlackRock, which currently boasts more than $9 trillion in assets under management. "U.S. spot bitcoin ETFs have more assets than the entire HK ETF market," he emphasized in a follow-up post on X.
Moreover, Balchunas remarked that the capital environment for these funds was less efficient than elsewhere, and fees would likely be set around the 1-2% mark, significantly higher than the "dirt cheap fees" prevalent in the U.S.
"The underlying ecosystem there is less [liquidity] efficient = these ETFs will likely see wide spreads and prem discounts," Balchunas noted, emphasizing the potential challenges.
In summary, Balchunas emphasized, "Other countries adding [Bitcoin] ETFs is no doubt additive but it's nickel-dime compared to the mighty US market."
Read More: Hong Kong Greenlights Initial Batch of Spot Bitcoin and Ether ETFs, Aims to Establish Crypto Hub
Optimist Take from Former Bloomberg Analyst
Contrastingly, Jamie Coutts, the chief crypto analyst at Real Vision and former crypto analyst at Bloomberg Intelligence, expressed optimism about the products, stating that they would open up a "massive pool of capital" for Chinese investors adept at circumventing government-imposed capital controls.
Significantly, 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 issued directly using BTC and ETH. This stands in contrast to the cash-create redemption model employed by U.S. spot Bitcoin ETFs, with the SEC citing concerns about money laundering and fraud-related issues. The spot ETFs are scheduled to launch in approximately two weeks.
Conclusion
While the conditional approval of spot Bitcoin and Ether ETFs by the Hong Kong Securities and Futures Commission represents a significant development, Bloomberg's ETF analyst, Eric Balchunas, cautions against overly optimistic expectations. Balchunas predicts limited inflows for these ETFs, suggesting a cap of around $500 million due to various factors such as the comparatively small size of the Hong Kong ETF market, restrictions on Chinese retail investors, and less efficient capital environments.
On the other hand, Jamie Coutts, a former Bloomberg analyst and current chief crypto analyst at Real Vision, offers a more optimistic outlook, seeing these ETFs as opening up a substantial pool of capital for Chinese investors. Moreover, the approval of an in-kind creation model for these ETFs by the Hong Kong FSC provides an alternative approach to launch, potentially mitigating concerns related to money laundering and fraud.
Ultimately, the success and impact of these spot Bitcoin and Ether ETFs in Hong Kong will unfold over time, with the market closely watching their launch and subsequent performance.
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