Bitcoin ETF Debuts in Hong Kong After Lengthy Approval Period
Hong Kong’s ETF launches after several months, albeit with underwhelming sales. Nevertheless, optimism remains high among issuers who expect large growth potential.
Hong Kong’s long-awaited in-kind Bitcoin ETF has finally gone live on markets, netting inflows of approximately $8.5 million on the first day.
Hong Kong has been a topic of interest in the Bitcoin community for months now, due to the government’s stated intention to join the growing list of markets offering a spot Bitcoin ETF. The possibility of a new ETF in the region has been particularly interesting for several reasons, even beyond the fact that every new location legalizing the ETF is good news. Not only is the Hong Kong ETF an in-kind model with a different creation method than its American counterparts, allowing it to serve as a sort of practical experiment, but it has also seen attention from a variety of high-profile financial institutions in Mainland China. A Hong Kong ETF would therefore be a viable pathway for attracting vast sums of mainland dollars into the Bitcoin industry, despite previous crackdowns.
Additionally, the halving has certainly caused a general freezing effect in Bitcoin-related markets in the United States and other countries. American ETFs have seen general outflows since the halving, with even sales leader BlackRock seeing net losses over the last several days. As some Bitcoiners have been preparing for what they see as an impending bear market, the Hong Kong ETF has been cited as a source of encouragement that Bitcoin’s price will stabilize. Even though Bitcoin has always come out ahead after post-halving doldrums or other price fluctuations, good news for its price in the short term is never a bad thing.
As the scheduled approval date approached in late April, local regulators began making increasingly positive signals for their stance on the ETF, for example when they recommended a laissez-faire model of “self-regulatory institutions” on April 22nd. Despite fears of possible draconian influence from local regulators, financial authorities seemed to grasp the importance of a light touch with the fledgling industry. Still, despite these statements, there were still several caveats. For example, although big-money Chinese investment firms were encouraged to participate in the ETF market through Hong Kong-based subsidiaries, private citizens from the mainland were evidently banned from investing themselves.
On April 30th, the ETF approval had officially taken place, and trading began on a series of new products, particularly from China Asset Management, Harvest Global Investments, and Bosera International & Hashkey. Eric Balchunas and James Seffyart, Bloomberg ETF analysts, quickly noted that these firms set their fees far lower than initially anticipated, in an apparent “good sign." With local media reporting on the night of the 29th that these issuers expected first-day sales in the range of $100 million and the city set to host a major Bitcoin conference several days later, Hong Kong’s potential for a world-class ETF offering seemed ready to blast off.
However, by the time the dust settled on the first trading day, initial sales volumes proved to disappoint these substantial ambitions. A “soft” debut saw the combined income for both the Bitcoin and Ethereum ETFs only reach $6.3 million in the first 12 hours, with Bitcoin’s total by the end of the day reaching $8.5 million, compared to Ethereum only making $2.5 million. The clear discrepancy between the issuers’ high expectations and a comparatively dismal performance caused a small crisis in confidence for Bitcoin as a whole, causing its price to plummet dramatically after a brief spike in early hours.
Still, although sales of this volume are far from the runaway success that issuers anticipated, there are plenty of upsides to see from the whole event. CNBC reported a surprisingly optimistic atmosphere from commentators more familiar with the scene, citing statements from the main issuers that they expect growing demand. Hong Kong’s Futures ETF has been sowing seeds of interest in Bitcoin derivatives for more than a year, and these products also had a slow start with a dramatic rise in volume. HKEX, a local exchange, reported that its futures inflows went from 8.3 million Hong Kong dollars to HK$51.3 million ($6.5 million USD) in a 12-month period, and the overall market was ten times larger than HKEX’s individual volume. If the spot ETF follows a similar “sleeper hit” pattern of growth, it will grow truly substantial in a matter of months.
Additionally, it is important to assess the relative influence of Hong Kong’s derivatives market compared to the United States. As Bloomberg’s Balchunas put it in a tweet, “you have to understand that it [Hong Kong’s market] is 1/168th the size of the US’.” He added that this sense of scale is very important to assessing the success of these products, as China Asset Management’s Bitcoin ETF “is already among the top 20% biggest in that market after one day." Firms like it and the other issuers are in a much smaller pond than the American ETFs, but the Hong Kong ETF is already doing a sort of future proofing: it beat potential Asian hubs like Singapore and Dubai to the punch. Hong Kong’s sales today may seem tiny compared to the US, but they're coming from a smaller place and ultimately have more room to grow, especially from international sources.
Above all, Hong Kong’s acceptance of a spot Bitcoin ETF shows that there is still international interest in the ETF trend. Even though the halving has quieted sales on existing products, there are still a number of countries that see a real future for Bitcoin derivatives. The Australian Securities Exchange, for example, is expected to approve spot ETFs for Australia by the end of the year, and several firms have already submitted proposals to become its issuers. The trade volumes of individual ETF products may have hit a lull, but it’s clear that the products themselves are a worldwide phenomenon.
In other words, the Hong Kong Spot Bitcoin ETF is a good thing for Bitcoin, despite its inability to immediately fulfill grandiose expectations. The market for Bitcoin derivatives is in a post-halving rut, and a market as small as Hong Kong was not going to interrupt this global trend in a single day. Bitcoin, however, is not going anywhere. The community has endured many serious crashes in price over the years, and the backlash we’re seeing right now is hardly a blip on that scale. Doldrums never last forever, and the Hong Kong Bitcoin ETF will be posed to aid global Bitcoinization when the bull market picks back up.
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