Bitcoin ETFs in Hong Kong could surge demand to $25 Billion

In a significant development for the cryptocurrency market, Hong Kong is on the verge of approving a spot Bitcoin exchange-traded fund (ETF), marking a milestone in the convergence of traditional finance and digital assets.

Hong Kong’s Matrixport, a provider of cryptocurrency services in Singapore, indicated that Hong Kong authorities’ prospective approval of Bitcoin Spot ETF may potentially release around 25 billion US dollars worth of surged Chinese investor demand.

This capital influx is expected through the Southbound Stock Connect Program, which acts as a channel for outbound investments from China. Matrixport expressed in a report Friday,

“A likely approval of Hong Kong-listed Bitcoin Spot ETFs could attract several billion dollars of capital as mainland investors take advantage of the Southbound Connect program, which facilitates up to 500 billion RMB [HK$540 billion and $70 billion] per year in transactions.”

Matrixport suggests potential HK Bitcoin ETFs could unlock up to HK$200 Billion or US$25 billion based on available capacity. Through the Stock Connect, mainland Chinese investors can purchase Chinese stocks valued at HK$540 billion annually.

According to data source 360MarketIQ, the flows during the last three years have been HK$450 billion, HK$400 billion, HK$320 billion, and HK$100 to HK$200 billion ($15 billion to $25 billion), less than the limit.

Hence, if the approval occurs without any restrictions, there is potentially HK$100 billion to HK$200 billion in quota left for bitcoin ETF investment flows. HK$200 is the equivalent of $25 billion,” Matrixport explained.

RMB Depreciation Drives Demand for Diversification

However, there are still uncertainties over whether the upcoming spot ETFs will be accessible to mainland Chinese investors. Recent market trends show that China is looking for alternative means of diversification, as shown by a Shanghai gold price surge. This interest arises amidst a weakening Chinese yuan.

Moreover, the Chinese yuan, the renminbi (RMB), has gradually depreciated against the US dollar. Its depreciation amounts to about 2 % of its value amidst economic slowdowns and declining trade surpluses.

Matrixport stated, mentioning the Chinese central bank’s resumed gold investments, “China’s RMB is at a 17-year low vs. the USD. Indeed, there is a demand for diversification.” In December, HKEX reported Stock Connect expansion to include Hong Kong-listed ETFs in July 2022.

Consequently, this move has brought mainland Chinese and Hong Kong financial markets closer together. By mid-2023, six ETFs were included in the program. Cross-border investment opportunities started attracting more investors as the average daily turnover increased by HK$2.9 billion by September.

Hong Kong will soon green-light the Bitcoin Spot ETF, which signals a major change in the capital market. Digital assets may soon become more common investments for traditional investors. The approval indicates possible shifts concerning how investors see and incorporate cryptocurrencies into their strategies.

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