(Kitco News) – Inflows into the spot Bitcoin (BTC) exchange-traded funds listed on the U.S. market were instrumental in helping to drive Bitcoin’s price to a new record high on March 14, and the subsequent decline in daily flows coincided with the sideways price action BTC has seen over the past four weeks.
But things could soon pick up again as Bloomberg reports that Hong Kong could approve ETFs that invest directly in both Bitcoin and Ethereum (ETH) as soon as Monday, according to people familiar with the matter who wished to remain anonymous.
Notably, an international arm of Chinese asset manager Harvest Fund Management Co. is among the firms positioned to launch a Bitcoin ETF; meanwhile, Bosera Asset Management (International) Co. partnered with HashKey Capital to launch both types of spot-crypto ETFs.
Both firms plan to launch the ETFs at the end of the month, pending approval from the Securities and Futures Commission (SFC) and after finalizing listing details with Hong Kong Exchanges & Clearing Ltd., the sources said. Approval could come as soon as Monday, they added, noting that the timeline isn’t fixed and remains subject to last-minute changes.
Harvest and China Asset Management were granted clearance by the SFC to provide virtual-asset-related fund management services on April 9.
These developments come as Hong Kong is competing with Singapore and Dubai to establish itself as a hub for digital asset firms. The region introduced its regulatory framework for virtual-asset service providers in June and has made notable efforts to get the retail public engaged in various facets of the cryptocurrency ecosystem.
Three futures-based crypto ETFs – CSOP Bitcoin Futures, CSOP Ether Futures, and Samsung Bitcoin Futures – are already listed on the Hong Kong market and currently have combined assets of approximately $170 million.
According to a Friday report from Singapore-based crypto services provider Matrixport, the launch of spot BTC ETFs in Hong Kong could unlock up to $25 billion in demand from Chinese investors via the Southbound Stock Connect program, which allows qualified mainland Chinese investors to access eligible shares listed in Hong Kong.
“A likely approval of Hong Kong-listed Bitcoin Spot ETFs could attract several billion dollars of capital as mainland investors take advantage of the Southbound Connect program, which facilitates up to 500 billion RMB (HK$540 billion and $70 billion] per year in transactions," Matrixport said. “Based on the (potential) available capacity, this might result in up to 200 billion Hong Kong dollars of available capacity for those HK Bitcoin ETFs—or US$25 billion.”
The estimate provided is based on the assumption that the average amount of the unused annual Southbound connect quota over the past three years would be channeled into the spot ETFs, Matrixport noted.
Data provided by 360MarketIQ shows that over the past three years, flows in the Stock Connect program have been HK$450 billion, HK$400 billion, and HK$320 billion, while the program allows mainland Chinese investors to purchase up to HK$540 billion worth of Chinese stocks annually.
"Hence there is potentially HK$100 billion to HK$200 billion in quota left for Bitcoin ETF investment flows – if the approval occurs without any restrictions,” Matrixport said. “HK$200 is the equivalent of $25 billion.”
While it's unclear whether Chinese investors will be able to invest in the funds, mainland China has shown interest in diversifying into alternative assets amid economic uncertainty, a struggling real estate market, and a 2% decline in the value of the yuan against the U.S. dollar.
"China’s RMB is at a 17-year low vs. the USD,” Matrixport said. “Indeed, there is a demand for diversification," citing the ongoing gold purchases by the Chinese central bank.
The crypto community has responded to these developments with jubilation as they see this as the impetus for the next wave of inflows into Bitcoin, which could boost its price to a new all-time high.
As an example of the demand that has already been seen, roughly one-fifth of BlackRock’s ETF net inflows during Q1 went into the firm’s iShares Bitcoin Trust (IBIT).
BlackRock recorded inflows of $67 billion across its 400-plus ETF offerings in the first three months of 2024, according to a Friday earnings call, and IBIT accounted for approximately $13.9 billion, or 21%, of that.
Inflows into IBIT have continued in April, and at the time of writing, the fund holds 266,103 Bitcoin worth approximately $18.75 billion, according to data provided by Amberdata.
IBIT, managing nearly $19 billion in assets, is “the fastest-growing ETF in history,” BlackRock CEO Larry Fink said during the earnings call.
Notably, IBIT, along with Fidelity’s FBTC, have recorded net inflows on every trading day since launching on Jan. 11, which is an unprecedented streak for new ETFs.
62 Days and counting. Closing in on $JETS, which brings back some vivid memories. What a run that thing had during the lockdown ironically. Via @thetrinianalyst pic.twitter.com/5MFkP4fZuw
— Eric Balchunas (@EricBalchunas) April 11, 2024
