Hong Kong’s Spot Bitcoin and Ether ETFs Face Uphill Battle for Momentum

Bitcoin exchange-traded funds (ETFs) recently launched in Hong Kong haven’t managed to match up to their U.S. counterparts in their first week. According to data from Farside Investors, the three Bitcoin ETFs that debuted on April 30th gathered a total of $262 million in assets under management (AUM). Most of this was already in place before launch, and only around $14 million in new investments came in during the first week, a far cry from the billions that flowed into U.S. Bitcoin ETFs when they launched in January.

Farside Investors noted that these Hong Kong-based Bitcoin and Ethereum ETFs haven’t had the same level of impact as their U.S. counterparts. The first Hong Kong spot Ether ETFs worldwide also didn’t create much buzz, managing to collect $54.2 million in AUM and $9.3 million in inflows by May 6th.

Even so, these Hong Kong crypto ETFs represent a significant step forward since they’re set up in three different fiat currencies and offer in-kind transfers. This allows investors to buy and redeem ETF units directly through Bitcoin or Ether. Eric Balchunas, a senior ETF analyst at Bloomberg, observed that while the $310 million AUM may not seem impressive, it’s comparable to $50 billion in the U.S. market when adjusted for size.

Hong Kong’s stock market is small compared to the U.S., valued at $4.5 trillion versus $50 trillion, and is further constrained by slower economic growth in mainland China since 2022.

A study by crypto exchange OSL showed that almost 80% of Hong Kong-based crypto enthusiasts plan to invest in these new ETFs. However, strict rules mean that mainland Chinese investors cannot participate unless they also have Hong Kong residency. Researchers at SoSoValue commented that this limits transaction volume, as investors in mainland China are barred from purchasing these funds, which require account holders to be non-residents of mainland China and the U.S.

SoSoValue also noted that once the initial teaser fees expire, annual management fees for Hong Kong crypto ETFs range from 0.85% to 1.99%, much higher than the 0.25% average charged in the U.S. This fee difference makes U.S. Bitcoin ETFs a more affordable option for institutional investors looking for a long-term crypto investment.