Hong Kong ether, Bitcoin ETFs ‘will be lucky to get $500m’

Three recently approved positions in Hong Kong for Bitcoin (BTC) and Ether (ETH) exchange-traded funds (ETFs) may not be as big a deal as some think, according to Bloomberg ETF analyst Eric Balchunas.

On April 15, Hong Kong's Securities and Futures Commission (SFC) granted conditional approvals to three offshore Chinese asset managers to begin placing Bitcoin and Ether ETFs. Asset managers cleared for approval include Harvest Fund Management, Bosera Asset Management and China Asset Management.

However, in an April 15 post for X, Balchunas shot down lofty predictions that ETFs could generate $25 billion in revenue and pointed to four main reasons why crypto investors are tempering their expectations for recently approved products.

“Don't expect a lot of flow – I've seen one crazy estimate of $25b. We think they will be lucky to get $500 million.

In explaining his forecast, Balchunas noted that Hong Kong's ETF market is “tiny” compared to countries such as the United States, where he said ETFs do not allow Chinese retail investors to publicly access the products.

Balchunas said these three futures ETF issuers were relatively small compared to “big fish” asset management giants like BlackRock — which currently has more than $9 trillion in assets under management.

“US spot bitcoin ETFs have more assets than the entire HK ETF market,” Balchunas wrote in a follow-up post on X .

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Balchunas also said that the capital environment of these funds is much more efficient than elsewhere, and fees can be kept at the 1-2% mark – a far cry from the “dirt cheap fees in the US Terrordome”.

“The ecosystem there is small. [liquidity] Efficient = these EFAs can see wide spreads and prepayment discounts,” Balchunas said.

“Takeaway: Other countries will increase [Bitcoin] ETFs are no doubt but nickel-and-dime compared to the mighty US market.

On the other hand, Jamie Coates, chief crypto analyst at Real Vision and former crypto analyst at Bloomberg Intelligence, said that despite recent reservations in Hong Kong's ETF market size, the products open up a “huge pool of capital.” For Chinese investors, Coates says, they are already familiar with government-imposed capital controls.

Notably, Hong Kong's FSC has approved the launch of Bitcoin and Ether ETFs using an in-kind model, which means new ETF shares can be issued using BTC and ETH.

The in-kind creation model is the opposite of the cash-in-kind redemption model, which allows issuers to create new ETF shares with cash only. US spot Bitcoin ETFs currently use a cash creation model, with the SEC fearing that cash creation could lead to money laundering and fraud-related issues.

The spot ETFs are slated to launch in two weeks.

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