BITCOIN (BTC) cryptocurrency; coin bitcoin on the background of the flag of Hong Kong

Key Takeaways:

Moderate Expectations: Eric Balchunas, Bloomberg’s senior ETF analyst, urges caution among investors, dismissing claims that the new Hong Kong-based spot Bitcoin and Ether ETFs could attract $25 billion in inflows, proposing a more realistic figure of $500 million.
Market Size and Access: The Hong Kong ETF market is smaller and offers limited access to Chinese retail investors, which could impact the success of these newly approved funds managed by smaller entities compared to global giants like BlackRock.
Operational Challenges: The ETFs will face higher fees (1-2%) and potential liquidity issues, with wider spreads and premium discounts expected due to the inefficient ecosystem.

In a recent update, Bloomberg’s senior ETF analyst Eric Balchunas has cautioned crypto investors to moderate their expectations regarding the newly approved spot Bitcoin and Ether ETFs in Hong Kong.

On April 15, the Hong Kong Securities and Futures Commission (SFC) granted conditional approvals to three offshore Chinese asset managers, namely Harvest Fund Management, Bosera Asset Management, and China Asset Management, to launch these ETFs.

Hong Kong regulators approve launch of spot bitcoin and ether ETFs https://t.co/z1wAYJXzLT
— CNBC (@CNBC) April 15, 2024

Despite some optimistic projections, Balchunas was skeptical, particularly in response to claims that these funds could attract $25 billion in inflows.

He dismissed such figures as overly ambitious, suggesting a more realistic expectation would be closer to $500 million.

Latest on HK spot Bitcoin ETFs: They have been approved to exist but not launch (yet). Rumor has it launching next wk so to not compete w Dubai conf. 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. Here's why:
1. HK…
— Eric Balchunas (@EricBalchunas) April 15, 2024

According to Balchunas, the size of the Hong Kong ETF market does not compare favorably with larger markets like the United States, and the newly approved ETFs are restricted from offering official access to Chinese retail investors.

Additionally, he emphasized that these three asset managers are relatively small when compared to giants in the field, like BlackRock, which manages over $9 trillion.

He further explained that the ecosystem surrounding these Hong Kong ETFs is less efficient in terms of liquidity, which could lead to wider spreads and premiums discounts.

Moreover, the fees for these ETFs are expected to be in the 1-2% range, significantly higher than those in the U.S.

HK ETFs are 0.18% of total #crypto AUM. With #Bitcoin ETF approval likely going to massive Chinese AMs, Harvest Fund and China Southern Fund. Some are arguing that its only Insto's and HNWs that can access these ETFs. Well, last time I checked, thats one massive pool of capital!… pic.twitter.com/oxDTjjWzyX
— Jamie Coutts CMT (@Jamie1Coutts) April 15, 2024

Despite these challenges, Jamie Coutts, chief crypto analyst at Real Vision and former Bloomberg Intelligence crypto analyst, highlighted the potential for these products to tap into a substantial pool of capital among Chinese investors, who are adept at navigating government-imposed capital controls.

The ETFs, which will be launched in about two weeks, will utilize an in-kind creation model.

JUST IN: 🇭🇰 Hong Kong approves spot #Bitcoin & #EthereumETF application.

🧐ETF flows are driving #crypto pic.twitter.com/vDTtatM7jW
— Poloniex Exchange (@Poloniex) April 15, 2024

This model differs from the cash-create redemption model used by U.S. spot Bitcoin ETFs, which the SEC has critiqued due to concerns over potential money laundering and fraud.