Recent comments by Richard Byworth, Managing Partner at SyzCapital, have fueled speculation that Bitcoin ETFs listed in Hong Kong might soon become accessible to mainland Chinese investors. Byworth’s statements on social media platform X have triggered discussions regarding the potential integration of these ETFs into the Stock Connect system, potentially ushering in a substantial influx of capital from mainland China into digital asset funds.
There is a rumor that investors in mainland China cannot invest in #Bitcoin ETFs listed on the Hong Kong Stock Exchange. I don’t believe this is true, and here’s why:
1. Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect: These are cross-border trading links…
— Brian HoonJong Paik (@brianhoonjong) April 15, 2024
Could Bitcoin ETFs in Hong Kong Soon Welcome Mainland Chinese Investors?
Mow’s optimistic sentiment, “I think you guys should be a little more bullish,” underscores the growing confidence in the potential of Bitcoin ETFs in Hong Kong. Adding depth to the discourse, Brian HoonJong Paik, Co-founder & COO at SmashFi, shared insights into the financial and socio-economic factors that could drive mainland Chinese interest in Hong Kong’s Bitcoin ETFs.
I just got back from Hong Kong. There is talk that the ETF could be added to stock connect. The implications for this are absolutely enormous (basically means mainland money can buy it)
— Richard Byworth ∞/21M (@RichardByworth) May 1, 2024
Paik pointed to the vast amount of Chinese wealth tied up in real estate, with an estimated 100 million vacant homes, highlighting the urgent need for alternative investment avenues to stabilize the socio-economic landscape. “It’s just a matter of time. The CCP needs an alternative asset to mitigate social unrest,” Paik emphasized.
Addressing the misconception that mainland Chinese investors are currently barred from investing in ETFs available on the Hong Kong Stock Exchange, Paik explained the existing financial arrangements that facilitate a robust flow of mainland capital into Hong Kong’s markets.
Key examples include the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect, which allow cross-border stock trading within regulated daily transaction quotas. Additionally, the Qualified Domestic Institutional Investor (QDII) scheme enables Chinese institutional investors to engage in overseas markets, including those in Hong Kong. Chinese residents also have access to brokerage firms operating legally in both territories, navigating regulatory complexities governing foreign investments.
The Mutual Recognition of Funds (MRF) framework between Hong Kong and Mainland China further streamlines the distribution of eligible mutual funds in each other’s markets. Paik warned that excluding Bitcoin ETFs from these arrangements could lead to significant discontent and disrupt the investment landscape in both regions.
“These mechanisms position the Hong Kong stock market as one of the most accessible foreign markets for Chinese investors, fostering financial integration between the mainland and Hong Kong. Excluding Bitcoin ETFs could provoke significant repercussions among institutional and retail investors in both China and Hong Kong,” Paik cautioned.
Notably, Singapore-based Matrixport estimated in mid-April that the approval and subsequent inclusion of Hong Kong-listed Bitcoin Spot ETFs into the Southbound Stock Connect could attract $25 billion in capital. This program facilitates transactions of up to 500 billion RMB ($70 billion) annually.
