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Chinese Investors Prepare to Diversify as Hong Kong Braces for Bitcoin ETF

Spot Bitcoin ETFs in Hong Kong: A potential gateway for Chinese investors

As Hong Kong regulators reportedly move closer to approving spot Bitcoin ETFs, analysts are weighing in on the potential impact of these investment vehicles. While the news has largely flown under the radar in the crypto community, some experts believe that these ETFs could be a "big deal," particularly for Chinese investors seeking alternative assets.

Key takeaways:

  • Hong Kong's potential approval of spot Bitcoin ETFs could be a game-changer.
  • Chinese investors may flock to Bitcoin as an alternative asset amid domestic market concerns.

Noelle Acheson, macro analyst and author of the "Crypto Is Macro Now" newsletter, believes that the approval of spot Bitcoin ETFs in Hong Kong could have significant implications.

 She explained in an email:

"It's not just for the access to hedge funds and family offices based in the region; it's also because of the access it gives to mainland investors,"

Chinese investors' quest for alternative assets amid domestic market concerns

Given the well-documented troubles in China's housing market, construction sector, and equities, Chinese investors are increasingly looking for alternative assets to store their wealth. This sentiment has already been evident in the heightened demand for a China-listed gold ETF, which saw its premium soar to 30% earlier this week as investors piled into the asset.

Acheson suggests that a similar trend could emerge with Bitcoin, stating that there could be "a significant flow of funds into BTC." She notes that the investment case for the largest cryptocurrency will become even more compelling if concerns about further devaluation of the yuan intensify. 

Acheson added:

"Chinese authorities most likely realize that a significant portion of their citizens will be diversifying into hard assets whether approved or not, and would probably prefer that they be in assets not related to the U.S. economy," 

Markus Thielen, founder of Singapore-based analytics firm 10x Research, drew parallels to the 2013 bull market, when Bitcoin's popularity exploded in China, driving the price from $10 in January to over $1,000 before the rally ended with a government ban on financial institutions trading the asset in December. Thielen suggests that the approval of ETFs could raise the probability of a similar Chinese retail buying frenzy, noting that: 

"70% of Chinese own property and as the market has recently repriced lower together with the stock market, there are not many alternatives. Bitcoin is one."

Expectations and comparisons to U.S. Bitcoin ETFs

While the approval of spot Bitcoin ETFs in Hong Kong could be a positive catalyst for the cryptocurrency, Vetle Lunde, senior analyst at K33 Research, cautions against expecting inflows on the same scale as those seen by U.S. spot funds. Lunde points out that the two futures-based Bitcoin ETFs currently listed in Hong Kong have seen "solid" growth this year, more than doubling their assets in BTC terms. However, their combined size is no more than 2,000 BTC, representing just 2% of the U.S.-listed futures ETFs.

Lunde stated:

"The small size of HK futures ETFs compared to the U.S. is, in our opinion, a signal to the market that HK ETFs should see less exuberant flows than those witnessed in the U.S.," 

Despite this, the potential approval of spot Bitcoin ETFs in Hong Kong remains a significant development, as it could provide a new avenue for Chinese investors to gain exposure to the cryptocurrency and diversify their portfolios.