A fresh batch of Bitcoin exchange-traded funds (ETFs) in Hong Kong has made a less impressive debut compared to their US counterparts. Initial data suggests that there was a lack of interest from investors, as inflows and assets under management in the first week were underwhelming.
During the first week after their launch on April 30, the three Hong Kong-listed spot Bitcoin ETFs managed to accumulate only $262 million in assets, with inflows of less than $14 million. This is significantly lower than the billions that flooded into US spot Bitcoin ETFs when they were launched in January.
In comparison, the two Ether ETFs, which were also a first-of-its-kind offering, achieved slightly better results with $54.2 million in assets under management and $9.3 million in inflows as of May 6. However, analysts had higher expectations for these groundbreaking crypto offerings.
Experts believe that the limited success of the Hong Kong ETFs can be attributed to structural limitations. Despite offering benefits such as multi-currency denominations and in-kind creation/redemption, the small and illiquid equities market in Hong Kong prevents its ETF industry from matching the inflows seen in the US. This is evident when comparing the total market cap of $4.5 trillion in Hong Kong to the $50 trillion across US exchanges. It is therefore unrealistic to expect Hong Kong to match the level of inflows seen in America.
Eric Balchunas, senior ETF analyst at Bloomberg Intelligence, commented, “That $310 million for the Hong Kong crypto ETF is relative to $50 billion in the US market.”
One major obstacle is that Mainland Chinese investors are currently excluded from participating in these ETFs, unless they hold Hong Kong residency. A study by OSL revealed that nearly 80% of Hong Kong investors who are interested in cryptocurrencies plan to invest. However, researchers at SoSoValue caution that the Hong Kong cryptocurrency ETF still has strict requirements for qualifying investors, and mainland investors are not allowed to participate in transactions. Although the market is hopeful for the trading of mainland funds through southbound Hong Kong Stock Connect, current regulations do not permit it, and it is expected to remain difficult to open for a long time.
The management fees for Hong Kong’s crypto ETFs range from 0.85% to 1.99% per annum, following an initial period of low cost. In contrast, the average management fee for US ETF issuers is 0.25%, making long-term holding more economical.
SoSoValue researchers also noted that institutional investors who are optimistic about the crypto market and have a long-term holding view would find it more cost-effective to invest in the US Bitcoin ETF.
Overall, the slow growth in the Mainland, particularly since 2022, has dampened economic activity and investor sentiment in Hong Kong. The relatively illiquid equities sector in the region is currently unable to support the same level of ETF demand as more developed US markets, at least for the time being.
