Hong Kong-Listed Bitcoin ETFs Could Unlock Upto $25B in Demand, Crypto Firm Says

In simple terms, Hong Kong, known for being a major financial hub and facilitator of Chinese investments abroad, intends to allow the launch of a Bitcoin exchange-traded fund (ETF) that directly tracks the price of Bitcoin.

Matrixport, a cryptocurrency service company based in Singapore, estimates that the Southbound Stock Connect program could bring about $25 billion in demand from Chinese investors for eligible Hong Kong-listed shares (as per the information provided). This scheme enables qualified Chinese investors to invest in these securities.

“Matrixport predicts that the potential approval of Bitcoin Spot ETFs listed in Hong Kong could draw in numerous billions of dollars from mainland investors through the Southbound Connect program. This program enables up to 500 billion RMB (approximately HK$540 billion or $70 billion) worth of transactions annually.”

According to the estimated capacity, there could be approximately HKD 200 billion (equivalent to US$25 billion) worth of potential space for Bitcoin ETFs in Hong Kong, as mentioned by Matrixport.

The estimate is made under the optimistic assumption that the excess Southbound connect quota, which averaged unused over the past 3 years, will be put towards buying Spot ETFs.

Mainland Chinese investors can purchase around HK$540 billion in Chinese stocks each year through the Stock Connect program. Nevertheless, the past three years have seen investments of HK$450 billion, HK$400 billion, and HK$320 billion respectively, which is below the annual limit by HK$100-HK$200 billion or approximately $15-$25 billion, based on data from 360MarketIQ.

If approved without restrictions, there could be between HK$100 billion and HK$200 billion available for investment in bitcoin ETFs – translating to approximately $25 billion with HK$200 being the equivalent value.

At present, it’s undecided if Chinese mainland investors will be able to purchase the new spot ETFs. However, there are indications that China is exploring options to invest in diverse asset classes, such as the rising gold prices in Shanghai suggest.

The Chinese currency, renminbi or yuan, has dropped by almost 2% in value against the US dollar. This marks an extension of its two-year losing streak, driven largely by a decelerating economy and reduced trade surplus.

“China’s RMB is at a 17-year low vs. the USD. Indeed, there is a demand for diversification,” Matrixport said, noting the Chinese central bank’s continued gold purchases.

Nick Rut, COO of ContentFi Labs, said mainland funds are interested in issuing ETFs in Hong Kong.

Funds situated on the mainland have been making applications to launch bitcoin ETFs via their Hong Kong branches. Should these applications be granted, it would provide more opportunities for eligible mainland investors to invest in bitcoin. (Rut’s statement, paraphrased)

Based on Nikkei Asia’s report, Harvest Global Investments, the Hong Kong branch of top Chinese fund manager Bosera Asset Management, and Value Partners, a brokerage firm owned by GF Holdings, have submitted applications to launch Exchange-Traded Funds (ETFs) in Hong Kong.

In December 2022, Hong Kong Exchanges and Clearing Limited (HKEX) released a report announcing the expansion of the Stock Connect program in July of the same year to include Hong Kong-listed Exchange-Traded Funds (ETFs). By mid-2023, there were six such ETFs enrolled in the program, and their daily trading volume had reached an average of HK$2.9 billion by September.

Four months ago, the U.S. gave approval for about a dozen Bitcoin spot ETFs. Since then, over $12 billion has been poured into these funds by investors, resulting in new record-breaking Bitcoin prices surpassing $73,000.