Matrixport, a Singapore-based crypto services provider, forecasts substantial inflows of up to $25 billion into potential Hong Kong-listed spot BTC ETFs, driven by mainland Chinese investors leveraging the Southbound Stock Connect program.

Market Potential:
With Hong Kong poised to greenlight spot bitcoin exchange-traded funds (ETFs), Matrixport highlights the city's pivotal role as a financial hub and gateway for Chinese outbound investments, anticipating significant capital influxes from mainland investors.

Southbound Connect Impact:
Matrixport's analysis underscores the transformative potential of the Southbound Stock Connect program, which facilitates access to Hong Kong-listed shares for qualified mainland Chinese investors, potentially unlocking billions in untapped investment capacity.

Key Insights:
Matrixport's estimates are based on the assumption that the average unused annual quota of the Southbound Connect program over the past three years could flow into spot ETFs, offering insights into the potential magnitude of investment flows into the Hong Kong Bitcoin ETF market.

In-depth Analysis:
Examining data from the past three years, Matrixport delves into the historical utilization of the Stock Connect program, revealing significant unutilized quota potentially available for Bitcoin ETF investment flows, contingent on regulatory approval without restrictions.

Market Dynamics: Uncertain Accessibility for Mainland Chinese Investors

As the launch of spot ETFs in Hong Kong looms, it remains ambiguous whether mainland Chinese investors will have access to these investment vehicles. However, indications suggest mainland China's interest in diversifying into alternative assets, exemplified by a recent uptick in gold prices in Shanghai.

Renminbi Fluctuations and Demand for Diversification

The controlled Chinese renminbi (RMB) has experienced a decline of nearly 2% against the U.S. dollar, marking a two-year downward trend amid economic deceleration and a shrinking trade surplus. Matrixport underscores this trend, highlighting a growing demand for diversification, particularly evident through the Chinese central bank's ongoing gold acquisitions.

Interest from Mainland Funds and Regulatory Landscape

Nick Ruck, COO of ContentFi Labs, reveals mainland-based funds' eagerness to issue ETFs via their Hong Kong subsidiaries. This move, if approved, could potentially broaden qualified mainland investors' access to bitcoin, signaling a shift towards embracing alternative assets.

Application Surge and Industry Players

Leading Chinese fund managers, including Bosera Asset Management's Hong Kong arm, Harvest Global Investments, and GF Holdings-owned Value Partners, have submitted ETF applications in Hong Kong, reflecting a burgeoning interest in tapping into the city's financial market.

Expanding Market Infrastructure

The Stock Connect program, which expanded to encompass Hong Kong-listed ETFs in July 2022, has witnessed steady growth. By mid-2023, the program boasted six Hong Kong-listed ETFs, with daily turnovers averaging HK$2.9 billion by September, according to a report by Hong Kong Exchanges and Clearing Limited (HKEX).

Global Precedent and Impact on Bitcoin Prices

The recent approval of nearly a dozen spot ETFs in the U.S. has catalyzed substantial investor inflows, amounting to $12 billion, propelling bitcoin to new record highs exceeding $73,000. This precedent underscores the potential transformative effect of ETF approvals on cryptocurrency markets worldwide.