Chinese investors likely barred from new Hong Kong bitcoin ETFs

Mainland Chinese investors are unlikely to gain approval to purchase the newly launched spot bitcoin ETFs listed in Hong Kong, according to Bloomberg Intelligence analysts.

The move is expected due to China’s stringent regulatory stance on cryptocurrencies. Despite the positive impact on the industry, the limited market size in Hong Kong might curb the ETFs’ overall influence, with expected inflows of around $1 billion over the first two years.

China, which banned the trading and mining of cryptocurrencies in 2021, remains one of the world’s most restrictive countries regarding digital assets. The approval of these ETFs, announced by issuers including ChinaAMC, Harvest Global, and Bosera International rather than the Securities and Futures Commission (SFC) of Hong Kong, has opened possibilities for new investments in bitcoin. However, the silence from Hong Kong’s securities regulator has raised questions.

The anticipation surrounding the ETFs was heightened by speculations from industry players like Matrixport, which suggested demand from Chinese investors could reach $25 billion. However, a recent report by Wu Blockchain indicated that “southbound funds”—investments from mainland China—would be restricted from accessing these ETFs.

The Hong Kong stock exchange, HKEX, has not commented on these developments. When it comes to U.S. spot bitcoin ETFs, they’ve seen hefty inflows ever since they hit the scene, showcasing a considerable difference in scale and potential impact compared to the Hong Kong ETF markets. According to Bloomberg’s ETF analyst, Eric Balchunas, it’s unlikely that the Hong Kong ETF market will draw in more than $1 billion in total, a far cry from the inflows seen in the U.S. market.

In comparison, the U.S. spot bitcoin ETFs have been drawing in substantial inflows ever since they kicked off, which shows a noticeable gap in scale and influence between the U.S. and Hong Kong ETF markets. As per insights from Bloomberg ETF analyst Eric Balchunas, the Hong Kong ETF market isn’t anticipated to surpass a total of $1 billion in inflows, a figure considerably lower compared to the inflows seen in the U.S. market.

The primary beneficiaries of the Hong Kong ETFs may be institutional investors seeking extended trading hours and regulated avenues for crypto trading. However, according to recent SEC filings, institutional investment in these ETFs remains minimal, suggesting that the new offerings might not fulfill the high expectations set by market enthusiasts.