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Bitcoin Hong Kong ETFs May Open To Mainland Money as Kraken’s CF Benchmark Predicts $1B AUM by 2024 End

Last Updated May 6, 2024 3:13 PM
Giuseppe Ciccomascolo
Last Updated May 6, 2024 3:13 PM

Key Takeaways

  • There’s potential for Hong Kong’s Bitcoin ETFs to attract significant capital from mainland China.
  • Factors like the strong initial performance of existing Bitcoin ETFs in Hong Kong could drive this.
  • Kraken’s CF Benchmarks believes Hong Kong ETFs may reach $1 billion of assets under management in 2024.

The recent launch of Bitcoin exchange-traded funds (ETFs) in Hong Kong has ignited speculation about their potential accessibility to mainland Chinese investors. Industry leaders believe integrating these ETFs into Stock Connect systems could unlock a surge of capital from China, potentially revolutionizing the landscape of digital asset investment.

The strong initial performance of the ChinaAMC Bitcoin ETF and the vast pool of wealth-seeking alternative investment avenues in mainland China fuel this prospect. ETFs in Hong Kong may reach $1 billion in assets under management, attracting increasing numbers of investors.

Richard Byworth, Managing Partner at SyzCapital, has sparked speculation  surrounding the accessibility of Bitcoin ETFs to investors from mainland China.

Byworth’s comments have drawn attention to ongoing discussions regarding the potential integration of these ETFs into the Stock Connect system. This integration could potentially unleash a torrent of capital from the mainland into these digital asset funds.

Byworth remarked: “I just got back from Hong Kong. There is talk that the ETF could be added to stock connect. The implications for this are absolutely enormous (basically means mainland money can buy it).”

His statement comes in the wake of a conversation initiated by Samson Mow . He pointed out the strong initial performance of the ChinaAMC Bitcoin ETF. The latter amassed $121 million on its debut trading day.

Mow’s optimism about the future of Bitcoin ETFs in Hong Kong was evident in his comment: “I think you guys should be a little more bullish.”

Offering further insight into the discourse, Brian HoonJong Paik, Co-founder & COO at SmashFi, delved  into the financial and socio-economic factors that could fuel interest among mainland Chinese investors in Hong Kong’s Bitcoin ETFs.

Paik underscored the considerable wealth in Chinese real estate, with an estimated 100 million vacant homes. He underscored the urgent need for alternative investment avenues to foster socio-economic stability. “It’s only a matter of time. The CCP recognizes the necessity for alternative assets to address social unrest,” Paik emphasized .

Examples Of Cross-Border Trading

Numerous established financial mechanisms have already fostered a robust flow of mainland capital into Hong Kong’s markets.

The Shanghai-Hong Kong Stock Connect  and the Shenzhen-Hong Kong Stock Connect stand out as prime examples. They enable investors to trade stocks across borders, albeit within regulated daily transaction quotas.

Moreover, the Qualified Domestic Institutional Investor (QDII)  scheme empowers Chinese institutional investors to engage in overseas markets, including Hong Kong. Additionally, Chinese residents can leverage brokerage firms operating legally in both territories to navigate the intricate regulatory landscape governing foreign investments.

A pivotal framework, the Mutual Recognition of Funds (MRF)  between Hong Kong and Mainland China, expedites the distribution of eligible mutual funds in each other’s markets through a streamlined approval process. Paik asserts that excluding Bitcoin ETFs from these arrangements could spark significant discontent and potentially disrupt the investment landscape in both regions.

These mechanisms position the Hong Kong stock market as one of the most accessible foreign markets for Chinese investors. And it fosters financial integration between the Mainland and Hong Kong. Excluding only Bitcoin ETFs could trigger substantial repercussions among institutional and retail investors in China and Hong Kong.

In mid-April, Singapore-based Matrixport forecasted that the approval and subsequent inclusion of Hong Kong-listed Bitcoin Spot ETFs into the Southbound Stock Connect could attract $25 billion in capital. This program facilitates transactions of up to 500 billion RMB ($70 billion) annually.

Bitcoin ETFs To Reach $1B AUM This Year

CF Benchmarks, a division of crypto exchange Kraken, emerged as a pivotal player benefiting from the surge in spot-Bitcoin ETFs. This financial instrument debuted in the US in January and recently launched in Hong Kong.

CF revealed  that it furnishes reference data for approximately $24 billion worth of cryptocurrency ETFs, predominantly Bitcoin funds such as BlackRock’s US-based $15.9 billion vehicle. The company grants licenses for its benchmarks to these funds, earning fees that typically escalate alongside the assets under management.

Kraken’s division actively collaborates with the newly launched Bitcoin ETFs in Hong Kong. Sui Chung, Chief Executive Officer of CF Benchmarks, envisions the next expansion of crypto ETFs into South Korea and Israel.

“South Korea is a market where ETFs have become the preferred vehicle for long-term savings,” Chung noted in an interview . “It’s also a market where digital assets have witnessed significant adoption.”

While the company initially anticipated $5 billion in assets this year for US spot-Bitcoin ETFs utilizing its indexes, the amount has exceeded fourfold. Chung foresees as much as $1 billion in funds under management for the Hong Kong products by the conclusion of 2024.

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