• Thu. Jun 20th, 2024

Hong Kong Spot Bitcoin And Ether ETFs Struggle To Gain Traction

Hong Kong Spot Bitcoin And Ether ETFs Struggle To Gain Traction

The exchange-traded funds (ETFs) only managed to attract nearly $22.5 million in inflows in their first week of launch. Such developments are considered bullish especially after the recent Bitcoin halving event not having a positive impact on the market so far.

Interestingly, Hong King’s spot Bitcoin exchange-traded funds (ETFs) are far underperforming their United States counterparts in the first week of launch. Based on extensive data compiled by Farside Investors, the three spot Bitcoin (BTC) ETFs that launched on April 30 in the East Asian city managed to attract up to $262 million in assets under management (AUM), most of which was subscribed to before the listing.

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In the meantime, their asset inflows amounted to less than $14 million in the first week of launch, far below the billions that flowed into United States spot Bitcoin ETFs in January. Nonetheless, the market is growing rapidly as more users turn to crypto due to its decentralized nature.

Farside Investors commented:

“In our view, the launch of the Bitcoin and Ethereum ETFs in Hong Kong is a far less significant moment than the US ETFs.”

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

In the meantime, Hong Kong spot Ether (ETH) ETFs, the first of their kind in the entire world, also did not impress, with up to $54.2 million in AUM and $9.3 million in total inflows as of May 6.

The Hong Kong spot crypto ETFs were seen as considerable improvements to their U.S. counterparts. They are denominated in three fiat currencies and feature in-kind transfers so that investors can purchase and redeem ETF units directly through Ether or Bitcoin.

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While commenting on the results, senior Bloomberg ETF analyst Eric Balchunas wrote:

“As we advised, don’t expect big numbers in HK vs the US. But. The HK ETFs at $310m is equal to $50b in the US market. So in that regard, these ETFs are already as big to their local market as US ones are to its market.”

Related:Hong Kong Receives First Spot Bitcoin ETF Application

The Hong Kong Equities Industry

The Hong Kong equities sector is relatively small, with a total market cap of $4.5 trillion compared to $50 trillion worth of the listed equities across all the United States exchanges. Notably, the Hong Kong equities sector is also far more illiquid because of slower economic growth in mainland China since 2022.

In a recent study, the OSL crypto exchange found that almost 80% of crypto-savvy investors in Hong Kong plan to invest in the new spot Bitcoin and Ether ETFs. These assets, nonetheless, are now inaccessible to mainland Chinese investors unless they have Hong Kong residency.

Researchers at SoSoValue commented:

“Mainland Chinese RMB investors are not allowed to purchase, and incremental funds may be limited, resulting in low transaction volume. 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.”

In that context, the market now expects that mainland funds will be traded via southbound Hong Kong Stock Connect, which is now not allowed and is expected to be challenging to open for a long time.

SoSoValue researchers also noted that after an initial teaser fee period, the management fees of Hong Kong crypto ETFs range from 0.85% to 1.99% yearly, which is quite above the 0.25% average annual management fees charged by United States issuers.

Additionally, SoSoValue added

“Due to the fee difference, for institutional investors who are optimistic about the crypto market and want to hold it for a long time, the holding cost of the U.S. Bitcoin ETF is lower.”

With these developments, the rate of crypto adoption is expected to increase considerably. Analysts believe that if China accepts Bitcoin ETFs, the crypto space will enjoy increased fund inflows resulting in increased prices.

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Kevin Moore - E-Crypto News Editor

Kevin Moore - E-Crypto News Editor

Kevin Moore is the main author and editor for E-Crypto News.

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