As Hong Kong is on the cusp of approving a spot Exchange-Traded Fund (ETF) tied to Bitcoin, the citizens are hoping to position the city as a hub for digital asset-related financial products in the Asia-Pacific region. Approval of Hong Kong bitcoin spot ETFs will likely cause a significant shift in the bitcoin market.
Matrixport, a Singapore-based provider of digital asset services, forecasts that the impending approval could unleash a staggering $25 billion in demand from Chinese investors through the Soundbound Stock Connect program. This program facilitates transactions of up to 500 billion RMB (equivalent to around HK$540 billion or US$70 billion) annually.
Southbound Stock Connect program
The impending approval of Bitcoin Spot ETFs comes in the wake of a December 2023 report from Hong Kong Exchanges and Clearing Limited (HKEX) announcing the expansion of the Southbound Stock Connect program to include Hong Kong-listed ETFs.
The move was aimed at bolstering cross-border investment opportunities. Since its inception, the program has witnessed significant traction, with six ETFs joining the fray by mid-2023 and recording an average daily turnover of HK$2.9 billion by September.
Hong Kong Bitcoin Spot ETFs: Untapped Allotted Quota
The anticipated approval of Hong Kong-listed Bitcoin Spot ETFs is expected to catalyze a torrent of capital inflows as mainland investors leverage the Southbound Connect program.
The program has historically facilitated significant investment activity, with flows in the past three years hovering around HK$450 billion, HK$400 billion, and HK$320 billion. This indicates a substantial portion of the allotted quota, i.e., HK$100 to HK$200 billion ($15 billion to $25 billion), is untapped.
Matrixport notes that if the approval proceeds smoothly, there could be a potential influx of funds, translating to a formidable HK$200 billion or around US$25 billion in investment capacity.
Growing Appetite for Diversification
It is important to note that recent trends, such as the surge in Shanghai’s gold prices and the Chinese yuan’s persistent depreciation against the US dollar, suggest a growing appetite among Chinese investors for diversifying their portfolios beyond traditional assets.
Interestingly, the Chinese yuan has witnessed a steady erosion of value, losing nearly 2% against the US dollar amid economic headwinds and a diminishing trade surplus. Matrixport underscores this trend, highlighting the Chinese Central Bank’s renewed interest in gold investments as evidence of a burgeoning demand for diversification avenues. It stated:
“China’s RMB is at a 17-year low vs. the USD. Indeed, there is a demand for diversification.”
However, the extent to which mainland Chinese investors will be able to participate in these upcoming spot ETFs remains uncertain.
The Approval of Spot ETFs in Hong Kong
Notably, on January 10, the United States Securities and Exchange Commission (SEC) gave the green light to ten spot ETFs. Since securing approval, these ETFs have captured the attention of investors globally, drawing in a substantial sum of $12 billion in investor funds.
As of now, several Chinese fund managers have submitted their applications to the Securities Regulatory Commission of Hong Kong (SFC). This includes Harvest Global Investments, the Hong Kong arm of top Chinese fund manager Bosera Asset Management and Value Partners, owned by Chinese brokerage GF Holdings.
Meanwhile, a report by local media states that the first batch of spot ETFs will receive approval by April 15. The approval of spot Bitcoin ETFs in Hong Kong holds particular significance given the region’s stature as a global financial hub and its pivotal role as a gateway for outbound Chinese investments.
