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Hong Kong Introduces Bitcoin and Ethereum Funds Despite Restrictions: What to Expect

Mainland Chinese Investors Will Likely Miss Out On Hong Kong ETFs; Bloomberg Analyst Predicts Only $1 Billion AUM

Hong Kong has made headlines by announcing the launch of its first exchange-traded funds (ETFs), which track the performance of Bitcoin and Ethereum. However, these products are expected to be inaccessible to investors from mainland China due to stringent regulations, which dampens the initial excitement surrounding these funds. This restriction aligns with China’s historically strict stance on cryptocurrencies, which banned trading and mining activities back in 2021.

Regulators in Hong Kong reportedly approved these ETFs, marking a significant development for bitcoin investments in the region. Issuers such as ChinaAMC, Harvest Global, and Bosera International are offering these ETFs, although the Securities and Futures Commission (SFC), Hong Kong’s main securities regulator, has not officially commented on the matter.

Analysts at Bloomberg, Eric Balchunas, and Rebecca Sin, have revised their projections for the assets under management (AUM) of these ETFs, lowering it from an initial estimate of $25 billion to $1 billion for the first two years. The restriction on mainland Chinese investors, due to existing bans on virtual asset investments, plays a significant role in this adjustment, according to the analysts.

Hong Kong Introduces Bitcoin and Ethereum Funds Despite Restrictions

Hong Kong Introduces Bitcoin and Ethereum Funds Despite Restrictions (Credits: CNBC)

Despite the lowered projection, Balchunas still considers the $1 billion estimate for the Hong Kong Bitcoin and Ethereum ETFs to be robust. However, he acknowledges that reaching this target depends heavily on infrastructural improvements. Additionally, he notes that while mainland Chinese investors face restrictions, there are alternative investment options subject to regulatory scrutiny.

Enthusiasts have seen the approval of Hong Kong ETFs as a potential catalyst for rising bitcoin prices. However, the impact might not be as significant due to the smaller scale of Hong Kong’s ETF market compared to the U.S. market. While spot bitcoin ETFs in the U.S. have experienced notable inflows post-launch, the Hong Kong ETFs are unlikely to have a massive impact but could still benefit institutional investors with extended trading hours.

Institutional participation in bitcoin ETFs remains low, as evidenced by minimal investment from fund managers, according to SEC filings. Despite this, the launch of Hong Kong ETFs represents a step forward for bitcoin investments in the region, albeit with limitations due to regulatory constraints on mainland Chinese investors.

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