"Don't Get Too Excited About Hong Kong ETFs": Bloomberg Analyst

Spot bitcoin ETFs have been approved for the Hong Kong market, but a prominent ETF analyst has cautioned the crypto community not to expect too much from them at this point.

Eric Balchunas, a Bloomberg ETF analyst who provided detailed commentary for the US bitcoin ETFs, has suggested a number of reasons why the Hong Kong ETFs are not likely to have a significant impact on the market.

Launch Next Week

The expectation is currently that the Hong Kong ETFs will launch next week. Unlike the US bitcoin ETFs, though, it's unlikely that this will result in a flood of new money entering the underlying bitcoin market. Balchunas gives four reasons:

1) The Hong Kong ETF market is tiny compared to the US, at around $50 billion. Moreover, "Chinese locals cannot buy these, at least officially". The vast amount of Chinese money that is looking for a home in assets outside of the country may have to wait.

2) No major issuers have been approved, only smaller providers who are unlikely to attract as much liquidity as some of the larger institutions. There is (as yet) no BlackRock-style corporation who will be able to drive interest.

3) The underlying market infrastructure is not as robust in Hong Kong, meaning larger spreads and less efficient order execution for participants.

4) Fees will probably be 1-2%, which is nowhere near as competitive as the US offerings.

Against that, ETH ETFs have been approved as well as BTC spot ETFs, and they will be in-kind creations, which is more efficient than the cash creation required by the SEC.

Overall, Balchunas expects the new BTC and ETH ETFs to take in $500 million: A fraction of the huge amount the US ETFs have attracted.

Cooldown Time

Another factor that might limit initial inflows is bitcoin establishing an intermediate top in the cycle, and entering a period of consolidation. This is entirely normal just before the Halving, but means flows might be muted for a while.

US ETFs have seen reduced activity recently. Grayscale's outflows have finally reduced, but so have inflows to the new ETFs.

Ultimately, the Hong Kong ETFs are good news. They are another step along the way to global bitcoin adoption. Their effect is just expected to be incremental, rather than game-changing in its own right.