Reviewing the performance of Hong Kong's crypto ETFs one week after their launch, why did two local asset management firms purchase the US version of the ETF?
What are the differences between the Hong Kong spot cryptocurrency ETF and the US spot Bitcoin ETF issued earlier this year? Does it have unique competitiveness to attract capital inflow from the Asia-Pacific region and even globally?Author: Fu Ruhe, Odaily Planet Daily
On April 30, the highly anticipated Hong Kong spot cryptocurrency ETF officially launched on the Hong Kong Stock Exchange, marking the first time an Ethereum spot ETF has landed on a major exchange. Currently, the Hong Kong spot cryptocurrency ETF is primarily issued simultaneously by three companies: Huaxia Fund (Hong Kong), Bosera Fund (International), and Harvest Global Investments. These include Bosera HashKey Bitcoin ETF (03008), Bosera HashKey Ethereum ETF (03009), Huaxia Bitcoin ETF (03042), Huaxia Ethereum ETF (03046), Harvest Bitcoin Spot ETF (03439), and Harvest Ethereum Spot ETF (03179).
From April 30 to May 6, just one week after the launch of the Hong Kong spot cryptocurrency ETF, how has it performed? How does the Hong Kong spot cryptocurrency ETF differ from the U.S. spot Bitcoin ETF issued earlier this year, and does it possess unique competitiveness to attract capital inflows from the Asia-Pacific region and even globally?
To this end, Odaily Planet Daily will review the development of the Hong Kong spot cryptocurrency ETF over the week and provide a comprehensive comparison with the U.S. spot Bitcoin ETF.
First Day Performance Disappointing, but Future Looks Promising
In nominal terms, the Hong Kong ETF has been active for a week, but in terms of actual trading days, excluding the May Day holiday and weekends, the total trading days for the Hong Kong ETF amount to 4 days. During these four days, the fundraising scale of the Hong Kong spot cryptocurrency ETF on its first day was approximately HKD 2 billion, which translates to a net asset value of USD 293 million. Compared to the U.S. spot Bitcoin ETF's first-day net assets of USD 113 million, this is a significant advantage.
However, with the end of the first day's trading, according to SoSoValue data, the total trading volume of the six Hong Kong spot cryptocurrency ETFs launched was about HKD 87.58 million (approximately USD 12.7 million), far below the U.S. spot Bitcoin ETF's first-day trading volume of USD 4.66 billion.
Why did the Hong Kong spot cryptocurrency ETF, despite leading the U.S. spot Bitcoin ETF in fundraising scale by more than two times, have such a large gap in actual trading volume on the first day?
The market size difference is significant; compared to the U.S. global financial center, Hong Kong's reach is relatively limited, especially since it is not yet open to ordinary investors from the mainland, resulting in lower actual trading volume.
The acceptance level of cryptocurrencies is relatively low; traditional financial practitioners (and institutions) in Hong Kong and Asia have a different understanding of cryptocurrencies compared to their counterparts in Europe and the U.S.
The high fundraising scale in Hong Kong is attributed to its innovative "physical subscription and redemption" mechanism, which allowed many ETF investors to purchase ETFs in the form of Bitcoin and Ethereum during the subscription period, leading to a higher fundraising amount.
In the following three trading days, the performance of the Hong Kong spot Bitcoin ETF and Ethereum ETF was also relatively ordinary, as shown in the chart below.
From the chart, it can be seen that the six ETFs in Hong Kong had relatively stable trading volumes and positive capital inflows in the first three days, but on May 6, the Bitcoin spot ETF experienced its first net outflow (75.36 BTC), valued at approximately USD 4.75 million.
Although the Hong Kong spot cryptocurrency ETF did not meet expectations in terms of scale and trading volume, many well-known figures remain optimistic about the future of the Hong Kong ETF.
Bloomberg ETF Senior Analyst Eric Balchunas previously predicted that it would take two years for the Hong Kong virtual asset ETF market to reach the USD 1 billion level, but it reached USD 292 million on the first day, indicating a need to reassess the outlook for the Hong Kong virtual asset ETF market. He also stated that while the trading volume is not as high as in the U.S., proportionally, the USD 310 million Hong Kong ETF is equivalent to USD 50 billion in the U.S. market. Therefore, the impact of the Hong Kong virtual asset ETF on its local market is already as significant as that of the U.S. spot Bitcoin ETF on its local market.
HashKey Group COO and HashKey Exchange CEO Ong Siu Kee stated that the assets under custody at HashKey Exchange have increased from HKD 2.2 billion before the ETF launch to HKD 3.3 billion, believing that a significant amount of funds will continue to flow into the market in the future. Ong also believes that the ETF can attract more traditional investors into the virtual asset market, with the overall scale potentially reaching 20% of the U.S. market, or around USD 10 billion, asserting that the virtual asset market is still far from saturation.
Sui Chung, CEO of CF Benchmarks under cryptocurrency exchange Kraken, expects that by the end of 2024, the asset management scale of the Hong Kong Bitcoin ETF will reach USD 1 billion.
In addition to the positive views expressed by various well-known figures regarding the future of the Hong Kong spot cryptocurrency ETF, Tiger Brokers (Hong Kong) has also officially launched virtual asset trading services, becoming one of the first technology brokers in Hong Kong to support trading and management of traditional securities as well as virtual assets on a single platform. However, currently, Tiger's virtual asset trading services are only available to professional investors. In the future, subject to regulatory requirements, Tiger Brokers plans to extend virtual asset trading services to retail investors. Additionally, the company will also consider adding virtual asset spot deposit services.
U.S. Spot Bitcoin ETF "VS" Hong Kong Spot Cryptocurrency ETF
Shortly after the launch of the Hong Kong spot cryptocurrency ETF, on May 3, according to Watcher.guru, two Hong Kong asset management companies purchased up to USD 112 million of U.S. spot Bitcoin ETFs. Data shows that besides Yong Rong Asset Management purchasing USD 38 million of BlackRock's IBIT ETF, another company, Ovata Capital Management, invested over USD 74 million in four U.S. spot Bitcoin ETFs.
Why did Yong Rong and Ovata choose to purchase U.S. spot Bitcoin ETFs instead of opting for the closer Hong Kong options?
According to the original report from Watcher.guru, the relevant data comes from before the official issuance of the Hong Kong spot cryptocurrency ETF, and the two companies did not adjust their timing based on the progress of the Hong Kong ETF.
Assuming we look at it from the perspective of these two asset management companies, most asset management firms focus on the future development prospects of the assets they purchase, likely intending for long-term holdings, which necessitates consideration of related expenses. However, from the basic information disclosed by the three Hong Kong issuers, Huaxia has a fee rate of 1.99%, Harvest has 1.00%, and Bosera has 0.85%, which are relatively high compared to the common 0.25% fee rate of U.S. spot Bitcoin ETFs. Although the three issuers are currently reducing fees to incentivize trading, from a long-term perspective, high fee structures are bound to be a "roadblock" for many long-term investors.
Secondly, from the perspective of market size and trading volume, the Hong Kong spot cryptocurrency ETF has just recently launched, and its market size is relatively small compared to the U.S. spot Bitcoin ETF, which has been developing for nearly four months. Larger markets often provide better liquidity and trading experiences.
Finally, from the perspective of custodians, the custodian for the U.S. spot Bitcoin ETF is Coinbase, while the custodians for the Hong Kong ETF are HashKey Capital and OSL Asset Management. In terms of custodial scale and past trust foundations, Coinbase clearly has the advantage.
Does the Hong Kong spot ETF have no advantages? Not necessarily; the current significant differences between the two lie in three points:
· Hong Kong's Innovative "Physical Subscription Mechanism": Unlike the U.S. spot Bitcoin ETF, which can only use cash transactions, the physical subscription mechanism provides investors with a more flexible trading method, enhancing trading enthusiasm. Additionally, this mechanism greatly promotes Web 3, serving as a funding exit channel for Web 3 investors, bridging traditional finance and Web 3, which is beneficial for the subsequent capital circulation.
· Regional Coverage: The trading hours of the U.S. spot Bitcoin ETF have certain time differences and policy barriers with Asian countries, which is not conducive for Asian companies to carry out corresponding work. However, the launch of the Hong Kong spot cryptocurrency ETF, under better physical conditions, will encourage relevant Asian companies to purchase the Hong Kong spot ETF.
· First to Launch Ethereum Spot ETF: One of the most notable advantages is that Hong Kong is the first to launch the Ethereum spot ETF. If the U.S. SEC does not approve the application for a spot Ethereum ETF this month, then at least for this year, Hong Kong will be the only region supporting a spot Ethereum ETF, which will help attract Ethereum-related investors and seize the opportunity.
The Door is Open, Anticipating Potential Expectations
In fact, on the day the Hong Kong spot cryptocurrency ETF went live, due to unmet expectations and outflows from the U.S. Bitcoin spot ETF leading to a market downturn, the community's views were more negative than positive. However, after a few days of development, the Hong Kong spot cryptocurrency ETF has indeed played a certain role in promoting the cryptocurrency market.
From the aforementioned innovative physical subscription mechanism bridging traditional finance and Web 3, to the trading range covering Asia, it reflects Hong Kong's support for the development of Web 3. Additionally, compared to Western countries, Hong Kong and Asia need some time to settle in terms of cryptocurrency acceptance. Finally, the potential expectation left by the Hong Kong spot cryptocurrency ETF is the opening of trading channels for the mainland.
As noted in the latest report from Kaiko, globally, the competition for cryptocurrency spot ETFs is heating up. In essence, Hong Kong does not possess competitive advantages over the U.S. in terms of product offerings; ETFs are not meant to create a confrontational situation. The most important aspect is that the issuance of ETFs can enhance the existing liquidity of Web 3 and direct traditional funds towards Web 3. Conversely, during market downturns, ETFs also provide a quality channel for the "escape" of Web 3 funds.
