Apr 15, 2024 - Economy

Hong Kong greenlights bitcoin and ether spot ETFs

Illustration of the Hong Kong flag as a loading screen

Illustration: Sarah Grillo/Axios

Hong Kong-based asset managers got the nod from regulators Monday to launch spot bitcoin and ether ETFs, cracking open a market that now lists only futures-based crypto products.

Why it matters: Exchange-traded investment products stand to usher in a new crop of bitcoin and ether investors, and have helped push bitcoin prices higher since launching in the U.S. in January.

  • Bitcoin (BTC) has risen 38% since U.S. funds launched (though other variables are in play), but both it and ether (ETH) gave back early morning gains Monday following the Hong Kong news.

The big picture: The global industry of crypto exchange-traded funds (ETF) reached $85 billion as of March end, according to Deborah Fuhr, founder of research firm ETFGI.

  • Though just a fraction of the overall $12.7 trillion ETF pie, a couple of the brand new spot bitcoin ETFs in the U.S. ranked alongside big, broad market funds in net inflows in March, helping drive the overall market to new highs, Fuhr noted
  • Case in point: The iShares Bitcoin Trust (IBIT) had net new assets of $6.2 billion in March alone, ranking 3rd in net inflows behind just the SPDR S&P 500 ETF (SPY) and the Vanguard S&P 500 ETF (VOO).

How much Hong Kong's new products stand to add to the global crypto ETF market is being met with varying estimates.

  • U.S. long BTC ETFs make up 0.68% of the overall U.S. ETF market, or $60.6 billion, and just 0.3% of the Hong Kong market now, or $138 million, according to Elisabeth Kashner, director of ETF research at FactSet.
  • If the Hong Kong BTC ETF market were to match the U.S. market for BTC ETFs in proportion, that would translate to $311 million, Kashner said.

Yes, but: It's hard to know if it's reasonable to extrapolate patterns from the U.S. to estimate Hong Kong's adoption, she added.

The other side: Singapore-based digital assets platform Matrixport said there's $25 billion in untapped demand, if mainland China investors who qualify for Hong Kong-listed shares (via what is called the Southbound Stock Connect program) are included.

  • Reality check: Bloomberg Intelligence analyst Eric Balchunas said that estimate was "insane."

The bottom line: Between Hong Kong's greenlight for BTC and ETH ETFs and the London Stock Exchange opening up for those applications come May, all eyes will be on the SEC when ETH application decisions are due.

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