The recent approval of spot Bitcoin and Ethereum exchange-traded fund applications in Hong Kong by regulators has prompted discussions about the potential growth of the local ETF market. Bloomberg ETF analyst Eric Balchunas has expressed skepticism about the market’s performance, citing the absence of major players and the possibility of high fees as significant obstacles. Balchunas predicts that the Hong Kong Bitcoin and Ether ETF market may only see around $500 million in inflows, a far cry from the over $15 billion generated by BlackRock’s spot Bitcoin ETF in the United States.
One of the key challenges facing the Hong Kong ETF market, according to Balchunas, is the lack of major players in the region. Compared to financial giants like BlackRock and Fidelity in the United States, potential local issuers in Hong Kong are relatively small. This disparity in size could hinder the market’s growth potential and limit the competitiveness of ETF products offered in the region.
Balchunas also highlighted the issue of high fees as a potential barrier to the success of Bitcoin and Ethereum ETF products in Hong Kong. Speculations suggest that local issuers may charge fees ranging from one to two percent, which is significantly higher than the fees offered by US ETF providers (0.25% and lower). This could deter investors from choosing Hong Kong-based ETFs over more cost-effective options available in the market.
Despite the challenges outlined by Balchunas, there is optimism about the potential growth of the Hong Kong ETF market if bigger players enter the scene and mainland Chinese investors are granted access to the products. With mainland China being a significant market for digital assets, allowing investors from the region to participate in Hong Kong-based ETFs could significantly boost market demand and liquidity.
While the US currently leads in terms of spot Bitcoin ETF market size, Hong Kong may have a competitive edge due to its approval of a spot Ethereum ETF. Being one of the first jurisdictions to approve such a product, Hong Kong could attract investors looking for exposure to Ether, the second-largest cryptocurrency by market capitalization. This advantage, coupled with the potential entry of larger players into the market, could position Hong Kong as a key player in the digital asset ETF space.
In contrast to Hong Kong’s progress with spot Ethereum ETF approvals, the US Securities and Exchange Commission (SEC) has shown reluctance to approve similar products in the country. Despite several applications from major players like BlackRock and Fidelity, the SEC has delayed its decision on Ether ETF filings. Analysts remain divided on whether the US will see a spot Ethereum ETF approval in 2024, adding further uncertainty to the market.
The Hong Kong Bitcoin and Ethereum ETF market faces several challenges, including the lack of major players, high fees, and regulatory uncertainties. While there are opportunities for growth, such as access for mainland Chinese investors and the approval of a spot Ethereum ETF, overcoming these obstacles will be crucial for the market’s long-term success. By addressing these issues and attracting larger players, Hong Kong could establish itself as a competitive player in the global digital asset ETF landscape.