Bittime – Bloomberg senior ETF analyst Eric Balchunas says crypto investors should temper their expectations for a wave of newly approved Bitcoin and Ether spot ETFs in Hong Kong.
Three newly approved Bitcoin and Ether spot exchange-traded funds (ETFs) in Hong Kong may not be as big as many expect, according to Bloomberg senior ETF analyst Eric Balchunas.
Hong Kong Approves Bitcoin and Ether Spot ETFs
On April 15, the Hong Kong Securities and Futures Commission (SFC) issued conditional approval to three Chinese offshore asset managers to begin issuing spot Bitcoin and Ether ETFs. Asset managers that received the approval include Harvest Fund Management, Bosera Asset Management, and China Asset Management.
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However, in an April 15 post on the [social media platform], Balchunas pushed back against lofty predictions that the ETF could generate $25 billion in inflows and cited four key reasons why crypto investors should temper their expectations for the newly approved product.
"Don't expect much inflow — I saw one estimate of $25 billion, which is crazy. We think they'll be lucky if they can get $500 million."
Why Should Expectations Be Lowered?
To support his predictions, Balchunas explained that Hong Kong's ETF market is "very small" when compared to countries like the United States, adding that these ETFs do not allow Chinese retail investors with legal access to the product.
Balchunas noted that these three potential ETF issuers are small compared to asset management giants like BlackRock — which currently has more than $9 trillion in assets under management.
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"US spot Bitcoin ETFs have more assets than the entire HK ETF market," Balchunas wrote in a follow-up post on the [social media platform].
Additionally, Balchunas said that the capital environment for these funds is much less efficient than elsewhere, and fees will likely be set at around 1-2% — a far cry from the “very cheap fees in the US.”
"The underlying ecosystem is less efficient [in terms of liquidity] = these ETFs will likely experience wide spreads and premium discounts."
Conclusion: US Market Still the Strongest
"Conclusion: While other countries are adding [Bitcoin] ETFs, it is undoubtedly having a positive impact, but it's like pocket change compared to the mighty US market."
On the other hand, chief crypto analyst at Real Vision and former crypto analyst at Bloomberg Intelligence, Jamie Coutts, said that despite the latest estimates regarding the size of the Hong Kong ETF market, the product will open up a “huge source of capital” for Chinese investors, which according to Coutts had become adept at circumventing government-imposed capital controls.
Unique In-Kind Formation Model
Notably, the Hong Kong SFC approved spot Bitcoin and Ether ETFs to launch using an in-kind model, meaning new ETF units can be issued directly using BTC and ETH.
The in-kind formation model differs from the cash-based redemption model, which allows the issuer to create new ETF units with cash only. US spot Bitcoin ETFs currently use a cash-based redemption model, with the SEC concerned that the model could lead to money laundering and fraud-related issues.
The spot ETF launch is expected to take place in about two weeks.
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Also read:
Hong Kong Now Allows Bitcoin and Ethereum Purchases via Securities Accounts
Bitcoin Shoots to $66,000: Hong Kong Approves Bitcoin Spot ETF
Hong Kong's First Bitcoin and Ethereum spot ETF Approved: Can it Attract Billions of Chinese?
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