Hong Kong recently made headlines as regulators approved spot Bitcoin and Ethereum exchange-traded fund applications from China Asset Management, Harvest Global Investments, and Bosera Asset Management in partnership with HashKey Capital. This move was seen as a major milestone for Hong Kong, as the city aims to establish itself as a central hub for digital assets. However, Bloomberg ETF analyst Eric Balchunas has raised concerns about the potential performance of the local ETF market compared to the United States.
Balchunas predicts that the Hong Kong Bitcoin and Ether ETF market may only generate $500 million in inflows, significantly lower than the over $15 billion from BlackRock’s spot Bitcoin ETF product alone in the US. This disparity in numbers can be attributed to several factors, including the absence of major players in the Hong Kong ETF market and the possibility of high fees charged by local issuers. Balchunas highlighted that fees between one to two percent in Hong Kong may not be competitive enough, especially when US ETF providers offer 0.25% or lower.
The presence of big players like BlackRock and Fidelity in the US ETF market has contributed to its growth and success. These financial giants manage trillions of dollars in assets and offer competitive fees to investors. In contrast, the potential local issuers in Hong Kong may struggle to attract investors if their fees are deemed too high. Balchunas also pointed out that mainland Chinese investors could significantly impact the growth of the Hong Kong spot Bitcoin ETF market if given access to the product.
While Hong Kong may not see the same level of inflows as the United States in the spot Bitcoin and Ethereum ETF market, there are still opportunities for growth. Being one of the first jurisdictions with an approved spot Ethereum ETF, Hong Kong has a unique advantage over the US. However, the US Securities and Exchange Commission’s reluctance to approve a similar product tracking the price of Ether poses a challenge for companies like BlackRock, Grayscale, and Fidelity.
The future of the spot Bitcoin and Ethereum ETF market in Hong Kong remains uncertain. The success of these products will depend on various factors, including the involvement of big players, the competitiveness of fees, and potential access for mainland Chinese investors. While Hong Kong may face challenges in competing with the US market, there are opportunities for growth and innovation in the evolving landscape of digital assets and ETFs.
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