Bitcoin ETFs Are Live In Hong Kong, Open Interest Has Cooled Down From Recent Overheated Levels

On April 15, Hong Kong took a significant step towards becoming a crypto hub after approving the first spot Bitcoin and Ethereum exchange-traded funds (ETFs). However, an ETF analyst, Eric Balchunas, is pouring cold water on the excitement palpable across the crypto scene. 

Spot Bitcoin ETF Is Live In Hong Kong

Taking to X, Balchunas is warning investors to be especially cautious about expecting a major influx of capital, especially into the spot Bitcoin ETF, as was first witnessed in the United States early this year. 
In the analyst’s preview, spot ETFs in Hong Kong, while welcomed, might not be a game-changer some anticipate. Among the leading reasons these products will not significantly impact the market is the relatively small size of the Hong Kong ETF market, estimated to be around $50 billion. Though Chinese mainland investors have more capital, they are officially restricted from participating.


Additionally, Balchunas has identified possible liquidity concerns and the inefficiency of the city-state’s rails. Accordingly, the underlying infrastructural hitch might see these products launch with wider bid-ask spreads, unlike those in the United States. 
Based on this, and considering the relatively high liquidity and involvement of Wall Street heavyweights like BlackRock and Fidelity, spot ETF issuers in the United States will have an edge.

BTC Price Remains Under Pressure, China Restricts Participation

So far, multiple applicants, including China Asset Management and Harvest Global Investments, have received approval from the Hong Kong Securities and Futures Commission (SFC) to launch spot Bitcoin and Ethereum ETFs. These products will likely begin trading in roughly a week.


Bitcoin price trending upward on the daily chart | Source: BTCUSDT on Binance, TradingView



Before then, BTC prices remained under pressure, as seen in the daily price action chart. The coin is down roughly 12% from all-time highs. Even so, buyers are in control and dominate from the top-down preview.

According to Coinlore, BTC is up approximately 120% year-to-date, and analysts expect more gains in the weeks after the Halving.

The approval, which came earlier than expected, is when the city-state is actively positioning itself as a leader in crypto, contrasting with mainland China’s stricter stance. In the mainland, crypto trading, staking, and mining remain banned. However, the government supports emerging technologies, including blockchain and artificial intelligence (AI). 


In the past, President Xi Jinping said blockchain was a “critical breakthrough” and advocated for its development. Pilot programs on applications in digital evidence storage and smart courts have been launched. At the same time, China is backing the development of the Blockchain Service Network (BSN) to promote secure and controlled adoption. 

Bitcoin Open Interest Has Cooled Down From Recent Overheated Levels

As explained by an analyst in a CryptoQuant Quicktake post, the Bitcoin Open Interest has registered a retrace recently. The “Open Interest” here refers to a measure of the total amount of BTC-related derivative contracts currently open on all exchanges.


When the value of this metric rises, it means that the investors are opening new positions on the derivative market right now. Generally, the total leverage in the market goes up when new contracts crop up, so an increase in the Open Interest could lead to higher volatility for the asset.


On the other hand, a decline in the indicator implies the derivative users are either closing up their positions of their own volition or getting forcibly liquidated by their platform. Either way, the market could act in a more stable manner after such a decrease, due to the lower leverage.

Now, here is a chart that shows the trend in the Bitcoin Open Interest since the start of the year:

The value of the metric appears to have taken a significant hit recently | Source: CryptoQuant

As displayed in the above graph, the Bitcoin Open Interest had risen alongside the price as the rally fueled by the spot exchange-traded funds (ETFs) had occurred.
In this surge, the indicator had achieved a new all-time high above $18 billion as the cryptocurrency’s value itself had marched to a new record. Historically, though, extreme levels of Open Interest have been a sign of the market being overheated, so the asset was in a delicate situation at these ATH levels.



What followed the heated market was a notable drawdown in the coin’s value, alongside which the Open Interest had also seen a significant cool off. Since then, as BTC has ranged, so has the metric.

The indicator has been jumping back and forth between overheating and cooling down, and with the recent drawdown in the price, its value dropped to a low under $14 billion.
Generally, when the Open Interest is overheated, the asset could become more probable to see volatility. This sharp price action that may emerge could, in theory, take the coin in either direction, but the recent trend has been that the Open Interest has only cooled off with a decline in the price.


The indicator dropping back to lower levels, however, has been conductive for price increases. In the latest drawdown, the Open Interest briefly hit the lowest levels since the start of March.

What has followed this derivative market cooldown has been the rebound in the cryptocurrency’s price. If Open Interest now doesn’t overheat again, the chances of this rebound lasting could be optimistic.

BTC Price

Bitcoin has been making recovery from its plunge during the weekend as its price has climbed back up to $66,300 so far.

Looks like BTC has been going up over the past 24 hours | Source: BTCUSD on TradingView