As a researcher with experience in the cryptocurrency and financial markets, I find the underperformance of Hong Kong spot Bitcoin and Ethereum exchange-traded funds (ETFs) during their first week of launch to be a less significant development than the U.S. counterparts’ launches. The reason is that the Hong Kong equities sector is much smaller in size and liquidity compared to the United States.
In their inaugural week, Hong Kong’s Bitcoin ETFs have fallen short of their American counterparts in terms of performance.
Based on information gathered by Farside Investors, the three Bitcoin (BTC) ETFs debuting in the East Asian city on April 30 have amassed a combined total of $262 million in assets. A significant portion of this sum was subscribed to prior to the listing. Contrastingly, these ETFs saw minimal asset inflows of approximately $14 million during their initial week of operation, significantly less than the massive inflows experienced by U.S.-based Bitcoin ETFs back in January.
From our perspective, the debut of Bitcoin and Ethereum ETFs in Hong Kong holds less weight compared to their US counterparts, according to Farside Investors. Additionally, the world’s first Hong Kong spot Ether (ETH) ETFs did not leave a lasting impression, with a modest accumulated assets under management (AUM) of $54.2 million and total inflows amounting to $9.3 million up until May 6.
As a crypto investor, I’ve noticed that Hong Kong’s spot crypto ETFs offer some compelling advantages over their U.S. counterparts. For one, these ETFs are denominated in three different fiat currencies, providing more flexibility for investors. Additionally, they feature in-kind transfers, which means I can buy and redeem ETF units directly using Bitcoin or Ether instead of having to convert my cryptocurrencies into cash first. This streamlined process makes investing in these ETFs a more seamless experience for me.
In his Bloomberg post, senior ETF analyst Eric Balchunas cautioned against anticipating large figures for Hong Kong (HK) ETFs compared to the United States (US). However, he pointed out that the size of HK ETFs at $310 million is equivalent to a substantial $50 billion in the US market. Consequently, HK ETFs carry significant weight within their respective markets.
The Hong Kong stock market is relatively modest in size, with a combined value of $4.5 trillion versus the immense $50 trillion market capitalization of equities listed on all U.S. exchanges. Additionally, the Hong Kong stock market experiences less liquidity due to China’s slower economic expansion starting from 2022.
In a recent investigation conducted by crypto exchange OSL, it was revealed that approximately 80% of knowledgeable Bitcoin and Ethereum investors residing in Hong Kong intend to invest in the newly proposed spot Bitcoin and Ether Exchange-Traded Funds (ETFs). However, it is important to note that these assets are not yet accessible to Mainland Chinese investors, even those with RMB currency. SoSoValue researchers expressed their concern, stating, “Mainland Chinese investors holding RMB are currently prohibited from purchasing, and any additional funds might be restricted, leading to a potential low trading 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. 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.”
As a research analyst at SoSoValue, I’ve observed that following an introductory fee phase, management fees for Hong Kong crypto Exchange-Traded Funds (ETFs) span between 0.85% and 1.99% per annum. In contrast, U.S. Bitcoin ETF issuers charge an average annual management fee of only 0.25%. Given this fee disparity, institutional investors, who are bullish on the crypto market and intend to maintain their positions for extended periods, will incur lower holding costs by opting for the U.S. Bitcoin ETF.
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2024-05-06 20:21