As Spot Bitcoin and Ethereum ETFs Get Go-Ahead in Hong Kong: What’s Next?

Spot Bitcoin and Ethereum exchange-traded funds (ETFs) finally got the nod from the Hong Kong Securities and Futures Commission (SFC). Despite the landmark development, Bloomberg ETF strategist Eric Balchunas doesn’t think the coming ETF offerings are more hypes than opportunities.

“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 commented on the recent approval.

The main reason behind his estimates is that Hong Kong’s ETF market is small and restricted. The total market size is only $50 billion, he noted.

More Crypto ETFs Hitting the Market Globally

Matrixport said in a report published on Friday that the approval of Hong Kong-listed spot Bitcoin ETFs could attract $25 billion to the market as Chinese mainland investors may get access to these ETFs through the Southbound Connect program.

However, Balchunas asserted that Chinese investors are officially excluded as the current ban on Bitcoin won’t let them access Hong Kong spot Bitcoin ETFs.

“If Chinese investors start buying and the govt doesn’t crack down that could change things but as far as we know the govt ban on bitcoin will incl the ETFs and they DEF won’t be on the southbound connect program,” he added.

While the analyst agrees that cryptocurrency-related investments in Hong Kong are a positive step forward, he still believes that they are still nascent when compared to the much larger ETF market in the US. He said that the approved issuers in Hong Kong are not major players like BlackRock.

Apart from that, Balchunas also pointed out potential drawbacks of the ETFs. According to him, lower liquidity and efficiency could lead to wider bid-ask spreads and higher premiums. Another aspect is the fees, which might range between 1-2%, making them higher than “dirt cheap” fees in the US.

Despite low expectations in the short and medium term, Balchunas said over the time, things may change. If the ETFs attract more investors and trading activity, the market for buying and selling these ETFs will become more liquid.

In addition, presently, the approved issuers are smaller players. But in the long run, established financial giants might enter the market and that’s when the fee structure might be more competitive.

Hong Kong officially greenlighted 4 entities applying for approval of Bitcoin and Ethereum spot ETFs, including China Asset Management, Bosera Capital, HashKey Capital and Harvest Global Investments. This follows news last week that Hong Kong would likely approve both Bitcoin and Ethereum ETFs as early as Monday.

Following the positive developments, Bitcoin and Ethereum prices are showing strong recovery after a weekend plunge. BTC surged past $66,000 after the news of approval broke out. At press time, it’s trading below $63,000, down 3.7% in the last 24 hours, per CoinGecko.

Spot Ethereum ETFs Not Looking Good

Meanwhile, the U.S. Securities and Exchange Commission (SEC) is close to making a final decision for spot Ethereum ETFs next month. Unlike past optimism for Bitcoin products, analysts including Eric Balchunas are pessimistic about upcoming Ethereum funds.

In an interview with CNBC, VanEck CEO Jan van Eck said he was not bullish on the potential of spot Ethereum ETFs in May due to the lack of comment on the applications and documents.

According to him, the SEC was in touch weekly for the spot Bitcoin ETF case. But now, the response has slowed down, causing the likelihood of approval to decrease.

Similarly, CoinShares CEO Jean-Marie Mognetti told CNBC that he is pessimistic about his chances of receiving approval from the SEC. Mognetti even said he did not expect to be approved this year.

Balchunas initially predicted that the approval odds in May would be 70%. However, his latest estimates have been decreased to 35%.

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