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Bitcoin ETFs: China Crypto Ban Could Turn Hong Kong $25 Billion Dream Into $1 Billion Reality

Last Updated April 29, 2024 10:17 AM
Teuta Franjkovic
Last Updated April 29, 2024 10:17 AM
By Teuta Franjkovic
Verified by Peter Henn

Key Takeaways

  • Hong Kong is launching the first spot Bitcoin and Ether ETFs in Asia on April 30.
  • While Asia boasts the most crypto users globally, mainland China’s ban on digital assets is potentially limiting investor base.
  • Initial estimates projected inflows of over $25 billion, but analysts have since adjusted these expectations downward.

Three asset managers announced that Hong Kong-listed spot Bitcoin and Ethereum exchange-traded funds (ETFs) will start trading on April 30.

Initial predictions for inflows were $25 billion, but they been revised down to $1 billion by analysts, partially because of mainland China’s crypto ban. The success of Hong Kong’s ETFs depends on infrastructure improvements and competition from other Asian markets launching similar products.

Hong Kong Greenlights Bitcoin ETFs After US Boom

The Asian crypto community is highly active globally. However, the upcoming Hong Kong Bitcoin ETFs face a significant challenge due to mainland China’s strict ban on digital assets. This restricts participation from one of the region’s largest markets, potentially affecting the success and reach of these ETFs within the broader Asian market.

Be it as it may, the ETF approval means Hong Kong is Asia’s first financial hub to recognize cryptocurrency products as mainstream investment tools.

These products have also received official regulatory approval from Hong Kong’s Securities and Futures Commission.

Just three months ago, the US launched its first spot Bitcoin ETF, which attracted about $12 billion in net inflows and contributed to an earlier price surge in Bitcoin. Now, Hong Kong is following suit. The Hong Kong units of China Asset Management, Harvest Fund Management, and Bosera Asset Management, the latter in partnership with local cryptocurrency firm Hashkey, have announced their intention to launch similar products by April 30.

HK Bitcoin ETF Bonanza? Big User Base, But China Casts a Shadow

In a recent update , Bitcoin analyst Willy Woo, points out the significant market landscape in Asia, emphasizing a notable trend. He says the user count in Asia exceeds that of both the US and European markets combined.

This observation highlights the substantial influence of Asian investors in the cryptocurrency sphere, indicating a strong market presence. The Asian crypto community is among the most active globally, but the upcoming Hong Kong Bitcoin ETFs face a significant challenge due to the strict ban on digital assets in mainland China. This restriction prevents Chinese capital from entering the market. This, in turn, could significantly limit the potential investor base, keeping many wealthy Chinese investors from gaining exposure to this asset class.

Market analysts initially predicted a substantial $25 billion in inflows for Hong Kong’s spot Bitcoin ETFs. However, Bloomberg analyst Eric Balchunas has adjusted these expectations. He suggests that the figure is largely overstated and reducing the forecast to $1 billion. Despite this, Balchunas still considers the $1 billion estimate robust for the Hong Kong Bitcoin and Ethereum ETFs. He also said that reaching this revised target quickly would largely depend on improvements in infrastructure.

Asia has 40% of Crypto Users

According to a Huobi report , there are around 320 million cryptocurrency users globally, with over 40% residing in Asia. Notably, the growth of new crypto users plummeted from 194 million in 2021 to 25 million in 2022. The US, South Korea, and Russia recorded the highest number of visits to centralized exchanges (CEX), collectively accounting for over 22% of total traffic.

The US also dominates in decentralized finance (DeFi), receiving almost six times more traffic than second-placed Brazil. Interest in cryptocurrencies is notably high in regions such as South America, South Africa, and the Middle East. In Southeast Asia, there are 46 million crypto users, making it the second largest regional market after North America. In South America and Africa, meanwhile, cryptocurrencies are primarily used as a payment method and a store of value, with over a third of the population using stablecoins daily.

Will Hong Kong’s Bitcoin ETF Be a Blockbuster or a Bust? 

As Hong Kong prepares to launch its spot Bitcoin ETFs, other major Asian markets, such as South Korea and Japan, are also considering similar products. Coupled with restrictions on Chinese investments due to the ban on digital assets in mainland China, this might limit inflows into Hong Kong’s ETFs.

Given these factors, it will be intriguing to see the level of initial inflows that Hong Kong’s Bitcoin ETFs can attract. Additionally, other jurisdictions like Australia  are planning to introduce comparable products by the end of the year.

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