Hong Kong-Listed Bitcoin ETFs Could Attract $25 Billion from Mainland Chinese Investors, Says Crypto Firm

Mainland Chinese investors are poised to inject a potential $25 billion into Hong Kong-listed spot bitcoin exchange-traded funds (ETFs) through the Southbound Stock Connect program, as reported by Matrixport. This move comes as mainland Chinese funds have been actively seeking to issue spot ETFs through their Hong Kong subsidiaries.

Hong Kong, known as one of the world’s premier financial hubs and a key gateway for outbound Chinese investments, is on the verge of approving a spot bitcoin exchange-traded fund linked to bitcoin (BTC). The approval of this investment vehicle could unlock a significant demand of up to $25 billion from Chinese investors through the Southbound Stock Connect program, according to Matrixport, a Singapore-based crypto services provider.

The Southbound Stock Connect program enables qualified mainland Chinese investors to access eligible shares listed in Hong Kong. Matrixport stated in a report on Friday that the likely approval of Hong Kong-listed Bitcoin Spot ETFs could attract several billion dollars of capital as mainland investors leverage the Southbound Connect program, which facilitates transactions worth up to 500 billion RMB (equivalent to HK$540 billion or $70 billion) annually.

Matrixport further elaborated that based on the potential available capacity, there could be up to 200 billion Hong Kong dollars of available capacity for the HK Bitcoin ETFs, translating to approximately US$25 billion. This estimation is based on the assumption that the average amount of the unused annual Southbound connect quota over the past three years would be directed towards the spot ETFs.

The Stock Connect program allows mainland Chinese investors to invest in HK$540 billion worth of Chinese stocks each year. However, the actual flows in the past three years have fallen short of this limit, ranging from HK$320 billion to HK$450 billion, leaving a gap of HK$100 to HK$200 billion ($15 billion to $25 billion), according to data from 360MarketIQ.

It remains uncertain whether the impending spot ETFs will be accessible to mainland Chinese investors. Nevertheless, mainland China has shown interest in diversifying into alternative assets, as evidenced by the recent surge in gold prices in Shanghai. The Chinese renminbi (yuan) has experienced a decline of nearly 2% against the U.S. dollar, reflecting a two-year losing streak due to economic challenges and a shrinking trade surplus.

Nick Ruck, COO of ContentFi Labs, highlighted that mainland funds are keen on issuing ETFs in Hong Kong. Several prominent Chinese financial institutions, including Bosera Asset Management’s Hong Kong arm, Harvest Global Investments, and Value Partners owned by Chinese brokerage GF Holdings, have already applied for ETFs in Hong Kong.

In December, a report by Hong Kong Exchanges and Clearing Limited (HKEX) revealed that the Stock Connect program was expanded to include Hong Kong-listed ETFs in July 2022. By mid-2023, the program encompassed six Hong Kong-listed ETFs, with an average daily turnover reaching HK$2.9 billion by September.

The United States recently approved nearly a dozen spot ETFs, which have attracted $12 billion in investor funds, propelling bitcoin to new record highs above $73,000. This development underscores the growing interest and potential for significant investment in the cryptocurrency market, particularly through ETFs.