Matrixport, a Singapore-based crypto firm, predicts that the introduction of spot bitcoin exchange-traded funds (ETFs) in Hong Kong could attract up to $25 billion in investment from mainland Chinese investors through the Southbound Stock Connect program. This move is anticipated as Hong Kong, a major financial hub, gears up to potentially approve its first spot bitcoin ETF, opening up new avenues for Chinese investment in cryptocurrency.
Unlocking Investment with Southbound Stock Connect
The Southbound Stock Connect program, which facilitates cross-border investments by allowing mainland Chinese investors to access shares listed in Hong Kong, could serve as a key channel for these significant inflows into Hong Kong-listed bitcoin ETFs. Matrixport’s analysis suggests that the program’s yearly transaction cap of approximately $70 billion could lead to substantial investment in these ETFs, assuming no restrictions are placed on their eligibility within the program.
Estimating the Investment Potential
Matrixport bases its $25 billion estimate on the potential unused annual capacity of the Southbound Connect quota, considering historical data over the past three years. With average unused quotas ranging from $15 billion to $25 billion, there’s a considerable opportunity for bitcoin ETF investments if they become eligible under the program.
The growing interest in diversifying investments, especially in light of the Chinese renminbi’s decline and the central bank’s gold purchases, underscores the potential demand for bitcoin ETFs among mainland Chinese investors. Additionally, several mainland-based funds have already begun applying to issue spot bitcoin ETFs through their Hong Kong subsidiaries, indicating a keen interest in tapping into the cryptocurrency market.
Expansion of the Stock Connect Program
The Stock Connect program’s expansion in July 2022 to include Hong Kong-listed ETFs, along with the subsequent growth in their average daily turnover, showcases the program’s potential to facilitate significant investments in new financial products, including bitcoin ETFs. With the U.S. experiencing substantial inflows into bitcoin spot ETFs since their approval, the potential for Hong Kong’s ETFs to attract significant investment is evident.
As the cryptocurrency landscape continues to evolve, the potential approval of spot bitcoin ETFs in Hong Kong represents a significant milestone for investment and access to digital assets for Chinese investors, further integrating traditional financial markets with the burgeoning world of crypto.
