Hong Kong to Approve Bitcoin ETF, Opening Doors for Chinese Investors

Hong Kong, a key global financial hub and a conduit for Chinese outbound investments, is poised to greenlight a spot bitcoin exchange-traded fund (ETF) linked to bitcoin (BTC).

The proposed investment vehicle could unleash up to $25 billion in demand from Chinese investors through the Southbound Stock Connect program, as indicated by Singapore-based crypto services provider Matrixport. The Southbound Stock Connect enables eligible mainland Chinese investors to access listed shares in Hong Kong.

Unlocking Investment Potential

Matrixport forecasts that the approval of Hong Kong-listed Bitcoin Spot ETFs could attract substantial capital influx from mainland investors utilising the Southbound Connect program. This initiative facilitates transactions worth up to 500 billion RMB annually.

"Based on the (potential) available capacity, this might result in up to 200 billion Hong Kong dollars of available capacity for those HK Bitcoin ETFs—or US$25 billion," Matrixport stated.

The estimate is grounded on the assumption that the average unused annual Southbound connect quota over the past three years would be directed towards the spot ETFs.

Interest Amid Diversification

Despite uncertainties regarding accessibility for mainland Chinese investors, there appears to be interest in diversifying into alternative assets, illustrated by the recent upsurge in gold prices in Shanghai.

The controlled Chinese renminbi (or yuan) has depreciated by nearly 2% against the U.S. dollar, extending a two-year decline amid an economic slowdown and diminishing trade surplus.

"China’s RMB is at a 17-year low vs. the USD. Indeed, there is a demand for diversification," noted Matrixport, highlighting the Chinese central bank's ongoing gold acquisitions.

Mainland funds are reportedly keen on launching ETFs in Hong Kong, aiming to provide qualified mainland investors with enhanced access to bitcoin.

Application by Major Players

Leading Chinese fund manager Bosera Asset Management's Hong Kong branch, along with Harvest Global Investments and Value Partners owned by Chinese brokerage GF Holdings, have submitted ETF applications in Hong Kong.

In December, a report from Hong Kong Exchanges and Clearing Limited (HKEX) revealed the expansion of the Stock Connect program to include Hong Kong-listed ETFs in July 2022. By mid-2023, the program had incorporated six Hong Kong-listed ETFs, with their average daily turnover reaching HK$2.9 billion by September.

The U.S. approved nearly a dozen spot ETFs four months ago, amassing $12 billion in investor funds since then, propelling bitcoin to new record highs above $73,000.