On April 15, the Securities and Futures Commission (SFC) of Hong Kong granted conditional approvals to three Chinese offshore asset managers—Harvest Fund Management, Bosera Asset Management, and China Asset Management—for issuing spot Bitcoin and Ether ETFs.
Despite this development, Eric Balchunas, a senior ETF analyst at Bloomberg, expressed skepticism about the significant impact of these ETFs.
Balchunas challenged optimistic inflow estimates of $25 billion for these ETFs on social media, calling such expectations “insane” and predicting a more modest outcome. “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,” he remarked. He highlighted the relatively small size of the Hong Kong ETF market compared to that of the United States and pointed out that the approved ETFs do not permit Chinese retail investors to officially access these products, further limiting their potential.
The analyst also compared the new ETF issuers to larger asset management firms like BlackRock, which manages over $9 trillion.
He noted, “U.S. spot bitcoin ETFs have more assets than the entire HK ETF market,” underscoring the disparity in market size and influence.
Additionally, Balchunas commented on the inefficiencies and high costs likely to affect the new ETFs, with expected fees ranging between 1-2%.
He cited these as factors that would contribute to wider spreads and potential discounts on the ETFs, unlike the lower-cost models seen in the U.S. market.
“The underlying ecosystem there is less [liquidity] efficient = these ETFs will likely see wide spreads and prem discounts,” he explained.
Despite Balchunas’ reservations, Jamie Coutts, chief crypto analyst at Real Vision and former Bloomberg Intelligence analyst, provided a contrasting perspective.
Coutts suggested that the introduction of these ETFs could tap into a “massive pool of capital” for Chinese investors, known for their adeptness at navigating government-imposed capital controls.
The structure of these ETFs also stands out, as they are set to utilize an in-kind creation model.
This allows new ETF shares to be directly issued using Bitcoin and Ether, contrasting with the cash-create redemption model prevalent in U.S. spot Bitcoin ETFs, which has raised concerns over potential money laundering and fraud.
The launch of these spot Bitcoin and Ether ETFs is expected in about two weeks, marking a significant, albeit cautiously viewed, expansion in the financial product offerings available in Hong Kong’s crypto market.
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