Struggling Hong Kong Bitcoin and Ether ETFs

Hong Kong’s recently launched Bitcoin exchange-traded funds (ETFs) are not performing as well as their U.S. counterparts. Data from Farside Investors shows that the three spot Bitcoin ETFs launched in the East Asian city attracted $262 million in assets under management (AUM), with most of the investment made prior to the listing. In the first week of launch, the ETFs only saw inflows of less than $14 million, significantly lower than the billions that flowed into U.S. Bitcoin ETFs in January. Farside Investors commented that the launch of the ETFs in Hong Kong is not as significant as in the U.S.

The first-ever spot Ether ETFs in the world, also launched in Hong Kong, did not impress either. These ETFs have accumulated $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 improvements compared to their U.S. counterparts as they are denominated in fiat currencies and allow for the direct purchase and redemption of ETF units using Bitcoin or Ether.

Senior Bloomberg ETF analyst Eric Balchunas noted that the Hong Kong ETFs have not attracted as much attention as those in the U.S., but they are already significant for the local market. The Hong Kong equities sector is relatively small with a total market cap of $4.5 trillion, compared to $50 trillion worth of listed equities across U.S. exchanges. The sector is also more illiquid due to slower economic growth in Mainland China since 2022.

A recent study by crypto exchange OSL found that nearly 80% of crypto-savvy investors in Hong Kong plan to invest in the new spot Bitcoin and Ether ETFs. These assets are currently not accessible to Mainland Chinese investors unless they also possess Hong Kong residency. Mainland Chinese investors face restrictions in purchasing these ETFs, resulting in low transaction volume.

Researchers at SoSoValue commented on the strict restrictions on investor qualifications for the Hong Kong cryptocurrency ETFs. Mainland investors cannot participate in transactions unless they meet specific requirements. The market anticipates that mainland funds will be traded through southbound Hong Kong Stock Connect, which is currently not allowed and expected to remain difficult to access for a while.

SoSoValue researchers also highlighted the difference in management fees between Hong Kong and the U.S. While the average annual management fees charged by U.S. issuers are 0.25%, Hong Kong crypto ETFs have management fees ranging from 0.85% to 1.99% annually. This fee difference makes the U.S. Bitcoin ETFs more cost-effective for institutional investors who are optimistic about the crypto market and want to hold it for a long time, according to SoSoValue.