On April 30, 2024, Hong Kong launched its first spot Bitcoin ETFs, along with Ethereum (ETH) ETFs, with the news bringing much excitement to Bitcoin pundits. A couple weeks later, the Hong Kong ETFs seem to be struggling a bit, but there is some good reason for that.
We’re going to take a look at what has happened with Hong Kong’s first crypto ETFs, before speculating on what countries may follow suit.
Hong Kong’s Spot Bitcoin ETFs Not For Mainlanders
Perhaps the biggest hindrance to the success of Hong Kong’s Bitcoin ETFs is the fact that no one on mainland China can buy them. Before this was confirmed by the Hong Kong Stock Exchange, analysts expected that the ETFs could bring $25 billion in new interest to the Bitcoin market.
However, with Chinese authorities wary that ETFs can offer a way to bypass strict international capital controls, the mainland is blocked from participating in these new markets.
China has long been obsessed with capital controls. Allowing a trader to purchase shares of a Bitcoin ETF in Chinese Yuan using a local brokerage account, and then sell it for crypto, would create a very effective means of bypassing those capital controls.
Outflows Outpacing Inflows
Since they began trading at the end of April, the spot Bitcoin and Ethereum ETFs have mostly seen positive net inflows, with some outflows for some but not all. However, on Monday, May 13, both crypto ETFs saw their previous two weeks of inflows be erased, with $39 million in outflows occurring.
Those who were likely speculating on the ability for residents of mainland China to purchase these ETFs have probably decided to cut bait, and it’s possible that they may not come back until there is a better catalyst for investing in the Hong Kong ETFs.
The Hong Kong ETF providers still hold about $180 million in crypto assets as they started with a seed that is certainly higher than the outflows thus far. For comparison though, the US ETF providers approved by the SEC hold over $50 billion in crypto assets, helping to frame the difference in demand between the two locations.
What Countries Could Be Next?
It’s likely that other Asian countries will follow Hong Kong in approving spot Bitcoin ETFs, as there are higher-than-average crypto adoption rates in countries like South Korea, Japan and Singapore.
Before those countries though, it’s likely that the United Kingdom will approve their first crypto ETN listings at the end of May. ETNs, or Exchange-Traded Notes, are like ETFs in that they provide investors a way to buy Bitcoin exposure without having to buy it directly or hold it themselves.
The UK Financial Conduct Authority (FCA) is expected to approve the first ETNs on May 28, with the London Stock Exchange saying it will only consider physically backed Bitcoin and Ether ETNs with its assets “wholly or principally held in cold storage.” This is a fairly significant shift in policy for the FCA, as in January 2021 they had banned the sale, marketing and distribution of crypto ETNs to retail consumers.
The caveat to the current ETN approvals is that they will only be available to purchase by “professional investors”. This distinction is somewhat significant because it means that most UK residents won’t actually be able to purchase the ETNs themselves and will instead have to use some sort of broker in order to make their trades. What this will mean for ETN inflows when they’re approved will be interesting to watch.
Closing Thoughts
The floodgates for crypto ETFs seem to be open now that the US, the country with the largest stock exchanges, has approved them. Other countries like Hong Kong and the UK are already following their lead, while other Asian countries could follow suit as well.
No nation will want to be left behind if Bitcoin turns out to be as strong a store of value as its pundits hope, and BTC’s price action will be incredibly interesting to watch as more and more institutional ways to buy exposure to it come to market.
