According to Eric Balchunas, a senior ETF analyst at Bloomberg, the recent approval of three Bitcoin and Ether exchange-traded funds (ETFs) in Hong Kong might not be as significant as some people assume.
Three Chinese offshore asset managers, namely Harvest Fund Management, Bosera Asset Management, and China Asset Management, received conditional green lights from the Hong Kong Securities and Futures Commission (SFC) on April 15 to initiate the sale of Bitcoin and Ether spot Exchange-Traded Funds (ETFs).
Despite a prediction in an April 15 post on X that crypto ETFs could draw in $25 billion, Balchunas expressed caution in a subsequent post, citing four key factors that may curb inflows into these newly approved investment vehicles.
“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.”
Balchunas explained why he believed the Hong Kong ETF market was small by comparing its size to larger markets such as the US. He also noted that Chinese retail investors are unable to directly invest in these ETFs due to restricted access.
Balchunas pointed out that the three potential ETF creators were much smaller in comparison to “giant” asset management companies like BlackRock, which manages over $9 trillion in assets.
In a recent update, Balchunas noted that the value of U.S. bitcoin exchange-traded funds (ETFs) surpasses the total assets held by all Hong Kong ETFs.
Furthermore, Balchunas mentioned that the investment landscape for these funds is less productive compared to other places, implying higher fees. He estimated these fees could be approximately 1-2%, which is significantly more than the “extremely affordable fees” in the US market.
In simpler terms, Balchunas explained that the market where those ETFs operate may not be very good at handling buy and sell orders quickly or at fair prices, leading to larger price differences between the ETF’s net asset value and its trading price.
“Key Point: Other countries introducing Bitcoin ETFs may be beneficial, but they pale in comparison to the vast US market.”
In contrast, Jamie Coutts, Real Vision’s chief crypto analyst and previous crypto analyst at Bloomberg Intelligence, expressed that although there have been concerns regarding the size of the Hong Kong ETF market, these products would provide Chinese investors with a vast opportunity to access a significant amount of capital. According to Coutts, Chinese investors are experienced in bypassing government-imposed restrictions.
Significantly, the Hong Kong Financial Security Commission gave its approval for Bitcoin and Ethereum spot ETFs to be introduced via the in-kind method. This means that new ETF shares will be issued without the need for cash transactions, instead using Bitcoins and Ethereums directly.
The in-kind formation method differs from the cash-for-redemption method, under which issuers can generate new ETF shares solely by providing cash. At present, US Bitcoin ETFs operate using the cash-for-redemption approach, with regulators expressing concerns over potential money laundering and fraud risks associated with this method.
The spot ETFs are slated for launch in roughly two weeks’ time.
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2024-04-16 04:09