Hong Kong cryptocurrency ETF assets only 300 million Hong Kong dollars, facing structural obstacles

Hong Kong launched a cryptocurrency spot ETF at the end of April, with assets under management currently only reaching $300 million. Gary Tiu from Hong Kong cryptocurrency exchange OSL stated that the structure of the Hong Kong capital market does not support the growth of cryptocurrency ETFs, and there is still "inherent bias" in the region towards Bitcoin and Ether.

Hong Kong Crypto ETF Faces Structural Obstacles

According to a report by The Block, Gary Tiu, Executive Director and Head of Regulatory Affairs at OSL, a Hong Kong cryptocurrency exchange, mentioned during a panel discussion at the Foresight 2024 conference on Sunday that Hong Kong's cryptocurrency spot exchange-traded funds (ETFs) are facing systemic obstacles due to a lack of overall market incentives towards ETFs.

Tiu explained that because ETFs allow anyone to trade directly in the market, there is little incentive provided to stockbrokers. However, in traditional funds and structured products, there are typically many intermediaries between the issuer and the ultimate investor, including brokers, private banks, retail banks, etc., who earn a lot of money by distributing financial products. ETF commissions are only 1% to 2% of their sales.

Furthermore, there are still biases from regulatory agencies and financial institutions viewing Bitcoin ETFs as a unique risk category that requires extra caution.

Chen Zhao, Director of Digital Assets at Fosun Wealth, also noted that Hong Kong's cryptocurrency ETFs lack traders and brokers. He explained that market participants in Hong Kong are mainly divided into three categories: Western institutions, Chinese institutions, and Hong Kong institutions. Chinese brokers and traders are not allowed or choose not to engage with these products, while for Western financial institutions, they do not need to trade these products as they can earn more fees and incentives and have easier access to U.S. ETFs.

Compared to the two main participants, the remaining participants from Hong Kong are "very small," which is a major limiting factor in the growth of Hong Kong's cryptocurrency ETFs.

Hong Kong Crypto ETF Less Than 0.5% of the U.S.

According to data from SoSoValue, the total assets of Hong Kong Bitcoin spot ETFs are only $270 million, and Ethereum spot ETF assets are only $39.08 million, which is far from the scale of $55.1 billion and $7.28 billion in the United States, adding up to only 0.48% of the U.S. market.

Prior to this, Bloomberg analyst Eric Balchunas estimated that the issuance of Hong Kong crypto ETFs would only reach $500 million, and Southbound funds are not likely to be approved by the Chinese government and might even become a channel for Chinese individuals holding Bitcoin to cash out through ETFs, which would have a negative impact.

Will Hong Kong Bitcoin ETF become a dumping ground? Bloomberg analyst estimates issuance of only five billion yuan, and Chinese retail investors unable to participate