Hong Kong spot bitcoin and ether ETFs see dismal trading volume

Hong Kong’s spot Bitcoin exchange-traded funds (ETFs) trail their U.S. counterparts in terms of performance during the opening week.

Farside Investors data shows that the three spots Bitcoin ETFs launched on April 30 in the East Asian city have accumulated $262 million in assets under management (AUM), with most of that coming from pre-listing subscriptions.

However, these ETFs attracted under $14 million in new capital during their first week, significantly lower than the billions that U.S. spot Bitcoin ETFs attracted in January.

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

On the other hand, Hong Kong’s spot Ether ETFs—the first of their kind globally—also fell short of expectations, reaching a total of $54.2 million in assets under management and $9.3 million in new capital by May 6.

Hong Kong spot crypto ETFs offer notable upgrades over their U.S. counterparts. They operate in three different fiat currencies and allow in-kind transfers, enabling investors to purchase or redeem ETF shares directly using Bitcoin or Ether.

“As we advised, don’t expect big numbers in HK vs the US,” wrote senior Bloomberg ETF analyst Eric Balchunas regarding the results. “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 mkt as US ones are to its,” he added.

The total market capitalization of the Hong Kong equities sector is comparatively small at $4.5 trillion, while all U.S. exchanges combined hold equities worth $50 trillion.

Since 2022, the deceleration of economic growth in mainland China has made the Hong Kong equities market much less liquid.

A recent report by the crypto exchange OSL shows that close to 80% of crypto-savvy investors in Hong Kong plan to invest in the new spot Bitcoin and Ether ETFs.

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At present, mainland Chinese investors can’t access these assets unless they hold Hong Kong residency.

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

SoSoValue researchers found that after an initial period with reduced fees, Hong Kong crypto ETFs charge annual management costs ranging from 0.85% to 1.99%, which is significantly higher than the 0.25% average annual fees set by U.S. issuers.

“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,” SoSoValue said.