Hong Kong's spot Bitcoin, Ether ETFs face slow start

The exchange-traded funds (ETFs) in Hong Kong experienced modest inflows of around $22.5 million in their debut week. Hong Kong's spot Bitcoin ETFs have fallen short compared to their U.S. counterparts during the first week of launch. 

Data from Farside Investors shows that three spot Bitcoin ETFs launched on April 30 in Hong Kong amassed a total of $262 million in assets under management (AUM), most of which was acquired before the listing. Their asset inflows reached under $14 million in the initial week, a stark contrast to the billions seen in U.S. spot Bitcoin ETFs in January.

Farside Investors noted, “In our view, the launch of the Bitcoin and Ethereum ETFs in Hong Kong, is a far less significant moment that the US ETFs," The world’s first spot Ether ETFs in Hong Kong also fell short, with a combined AUM of $54.2 million and total inflows of $9.3 million as of May 6.

Hong Kong crypto ETFs have only attracted a fraction of assets compared to their U.S. counterparts. (Source: Farside)

Hong Kong’s spot crypto ETFs offer notable advantages over U.S. ETFs, including being denominated in three fiat currencies and allowing in-kind transfers for buying and redeeming ETF units directly through Bitcoin or Ether.

Eric Balchunas, a senior Bloomberg ETF analyst, observed, "[A]s we advised, don’t expect big numbers in HK vs the US," but added that the Hong Kong ETFs at $310 million are equivalent to $50 billion in the U.S. market, emphasizing their significant presence in the local market.

The Hong Kong equities sector is comparatively small, with a market cap of $4.5 trillion compared to $50 trillion across all U.S. exchanges. Additionally, the sector suffers from lower liquidity due to the slowdown in Mainland China's economic growth since 2022.

A recent survey by crypto exchange OSL found that almost 80% of crypto-savvy investors in Hong Kong intend to invest in the new spot Bitcoin and Ether ETFs. However, these assets are inaccessible to Mainland Chinese investors unless they hold Hong Kong residency. SoSoValue researchers commented, "Mainland Chinese RMB investors are not allowed to purchase, and incremental funds may be limited, resulting in low transaction volume," and added:

"This Hong Kong cryptocurrency ETF still has strict restrictions on investor qualifications, and mainland investors cannot participate in transactions. Taking Futu Securities as an example, the account holder is required to be a non-resident of mainland China and the United States before trading can be conducted. The market expects mainland funds to be traded through southbound Hong Kong Stock Connect, which is currently not allowed and is expected to be difficult to open for a long time."

Additionally, SoSoValue researchers highlighted that after an initial period of discounted fees, Hong Kong crypto ETFs have annual management fees ranging from 0.85% to 1.99%, which is significantly higher than the average annual fees of 0.25% charged by U.S. issuers. SoSoValue noted that the fee difference means institutional investors who are optimistic about the crypto market and plan to hold long-term positions may find lower holding costs with the U.S. Bitcoin ETF.