US ETF Success Casts Shadow on Hong Kong’s Crypto Debut: Lower Liquidity, Higher Fees Expected

Bitcoin ETF

Hong Kong’s long-awaited approval for spot bitcoin and ether ETFs has generated excitement, but some analysts are urging caution regarding its potential impact. Bloomberg Senior ETF Analyst Eric Balchunas dampened expectations, suggesting the Hong Kong market’s size and regulations could limit its reach.

US ETF Success Sets a High Bar

The US market provides a stark comparison. Since launching in January, US spot bitcoin ETFs have collectively amassed over $200 billion in trading volume. Major financial institutions like BlackRock and Fidelity attracted a combined $30 billion in fresh capital with their offerings.

Balchunas downplayed the potential for similar success in Hong Kong. “Don’t expect a lot of flows,” he stated on Twitter, predicting a total of just $500 million in assets under management for both bitcoin and ether ETFs combined. He cited the “tiny” size of Hong Kong’s ETF market and the restriction on mainland Chinese investors as key factors.

US Approvals for Ethereum ETFs Remain Uncertain

While Hong Kong embraces spot ether ETFs, the US market awaits a decision from the Securities and Exchange Commission (SEC) by the end of May. Analyst optimism has waned, with some like James Seyffart of Bloomberg Intelligence predicting rejections.

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Balchunas emphasized that his outlook isn’t entirely bearish. “This is clearly positive for bitcoin as it opens up more avenues to invest,” he conceded. However, he stressed that the impact will likely be dwarfed by the US market.

Higher Fees and Lower Liquidity Expected

Compared to the “dirt cheap fees” in the US (like BlackRock’s 0.25% sponsor fee), Balchunas anticipates fees between $1 and $2% for Hong Kong ETFs. He also expects wider spreads and premium discounts due to a “less liquid/efficient” underlying ecosystem.

While the green light has been given, the launch date for these Hong Kong ETFs remains unclear. Investors will need to wait and see how these factors play out in reality, and whether the market can overcome the limitations Balchunas highlights.

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