Hong Kong ETF issuers are anticipating approximately $300 million in first-day inflows for six new spot-crypto ETFs, with a preference for Bitcoin funds. This move marks potential competition for popular Bitcoin products in the United States. Harvest Global Investments Ltd., the local unit of China Asset Management, along with a partnership between HashKey Capital Ltd. and Bosera Asset Management (International) Co., listed Bitcoin and Ether ETFs in the city on Tuesday.
In the US, spot Bitcoin ETFs from issuers like BlackRock Inc. and Fidelity Investments were launched in January and have accumulated a historic $52 billion in assets so far. Bloomberg Intelligence estimates that Bitcoin and Ether funds in Hong Kong could amass around $1 billion over the next two years. However, the CEO of Harvest Global, Han Tongli, believes this estimate is too conservative.
Han argues that financial products and services in Hong Kong are accepted by investors in both the West and the East, whereas the US primarily caters to the former. As a result, issuers are expecting approximately $300 million in combined first-day inflows for the six new Hong Kong spot-crypto ETFs, with a preference for Bitcoin funds. Potential sources for these inflows include Chinese wealth parked in the city, as well as active crypto exchanges and market makers in the Asia Pacific region.
While crypto trading is banned in mainland China, the new funds fall outside the scope of the program that grants Chinese investors access to some Hong Kong ETFs, which raises the question of whether the program could be expanded in the future. Hong Kong sets itself apart with its adoption of an in-kind ETF subscription and redemption mechanism, allowing for the exchange of underlying assets for fund units and vice versa. This differs from the cash redemption model used by US Bitcoin funds.
Han believes this in-kind approach enhances the appeal of Hong Kong’s products and could result in the eventual uptake of the ETFs being three times larger than that of the US funds. However, some caution that expected demand must be adjusted considering Hong Kong’s smaller financial sector. While the city already permits crypto-futures-based ETFs, their total assets of around $164 million are a fraction of the $2.3 billion held by the ProShares Bitcoin Strategy ETF, a derivatives-based product in the US.
Despite potential challenges, Hong Kong’s local products are appealing due to easy access, particularly during Asian trading hours. Bosera Asset Management (International)’s Head of Products, Ethan Li, expressed confidence in the appeal of the Hong Kong ETFs and mentioned the company’s plans to expand its team and digital-asset product pipeline. Bitcoin’s price currently sits at around $63,540, approximately $10,000 below its record high in March.