Review of the recent performance of Hong Kong virtual asset ETFs: Banks have not yet distributed, multiple processes need to be refined

Author: Weilin, PANews

Since the listing of 6 virtual asset ETFs in Hong Kong on April 30, it has been a month and a half, and the market is still in a period of adjustment. On one hand, traditional banks have yet to distribute these virtual asset ETFs; on the other hand, some brokerages are actively promoting their layout. For example, Victory Securities' VictoryX trading app has now opened USDT and USDC deposit and withdrawal functions to professional investors.

In terms of market trading volume performance, data from SoSo Value shows that during this period, the average daily trading volume of Hong Kong's BTC spot ETF was $4.3215 million, reaching a historical high of $11.4984 million on June 11; the average daily trading volume of Hong Kong's ETH spot ETF was $1.4354 million, with the peak occurring on May 27 at $4.4042 million.

Industry experts analyze that the trading volume and scale trends of Hong Kong's virtual asset ETFs are inverted, with interested parties "catching up" due to the early arrival of ETF approvals, and different institutions are adjusting and clearing bottlenecks. It may take two months to reach a key node for volume growth.

How have the 6 virtual asset ETFs performed in one and a half months since listing?

According to public data, the issuance scale of Hong Kong's 3 Bitcoin spot ETFs on the first day, April 30, reached $248 million (with the Ethereum spot ETF at $45 million), far exceeding the first-day issuance scale of about $125 million for the U.S. Bitcoin spot ETF on January 10 (excluding Grayscale), indicating high market expectations for the subsequent performance of Hong Kong's crypto ETFs.

From the initial trading volume perspective, the market's criticism of these 6 Hong Kong crypto ETFs focuses on their relatively "lackluster" performance compared to U.S. crypto ETFs: on the first day of listing, the total trading volume of the 6 crypto ETFs in Hong Kong was HKD 87.58 million (approximately $11.2 million), of which the three Bitcoin ETFs had a trading volume of HKD 67.5 million, which was less than 1% of the total trading volume of the U.S. Bitcoin spot ETF (USD 4.6 billion) on its first day.

According to SoSo Value data, as of June 13, the total amount of Bitcoin held by Hong Kong ETFs was 4,070 BTC, with a total net asset of $275 million. In terms of the Ethereum spot ETF, the total amount of ETH held by Hong Kong ETFs was 14,030 ETH.

Looking at the situation over the past month, the total daily trading volume of Hong Kong's BTC spot ETF reached $11.4984 million on June 11, hitting a historical high, but quickly fell back in the following two days. Since its listing, the average daily trading volume has been $4.3215 million. During this period, the average daily trading volume of the U.S. Bitcoin ETF was $1.965 billion. Data: SoSo Value, CoinGecko

The highest daily trading volume of Hong Kong's ETH spot ETF occurred on May 27, at $4.4042 million. Since its listing, the average daily trading volume has been $1.4354 million. Data: SoSo Value, CoinGecko

Traditional banks have yet to distribute; two months later may be a key point for volume growth

However, despite the fact that Hong Kong's virtual asset spot ETFs have been listed for over a month, no banks have yet launched them. Chris Barford, head of financial services consulting data and analysis at EY Hong Kong, stated to the Hong Kong Economic Journal that traditional banks are cautious about participating in the distribution of products due to concerns over anti-money laundering and Know Your Customer (KYC) regulatory risks.

Some issuers admit that banks and brokerages are subject to different regulatory bodies, and the distribution by banks still requires permission from the relevant regulatory authorities, which may take time for internal assessments. Barford explained that talent shortage is a major challenge, as the global market faces a talent shortage issue, requiring individuals who are more familiar with decentralized ledgers and the virtual asset world, combined with financial services and regulatory knowledge. To implement technical solutions while achieving the risk control levels of traditional banks or financial institutions, these products must be more readily accepted.

At the same time, some traditional financial institutions, such as certain Hong Kong brokerages, are laying out services for trading virtual assets like Bitcoin.

For example, brokerages such as Victory Securities, Tiger Brokers, and Interactive Brokers in Hong Kong have launched corresponding services, allowing investors to trade virtual assets like Bitcoin through brokerage apps. According to reports from China Securities, some brokerages indicated that income related to virtual assets could account for about a quarter of the company's revenue. According to PANews, although many brokerages support the purchase of these ETF products, some larger brokerages, also due to regulatory considerations, do not actively recommend virtual asset ETFs to clients.

On May 6 of this year, Tiger Brokers (Hong Kong) announced the official launch of virtual asset trading services, supporting Bitcoin, Ethereum, and 18 other cryptocurrencies, becoming one of the first online brokerages in Hong Kong to support both securities and virtual asset trading on a single platform. On June 17, Tiger Brokers (Hong Kong) announced that it had received approval from the Hong Kong Securities and Futures Commission to upgrade its license, officially expanding the service to retail investors in Hong Kong. Currently, retail investors across Hong Kong can invest through Tiger Brokers' flagship platform, Tiger Trade, at reasonable costs, enabling one-stop trading of Bitcoin, Ethereum, as well as stocks, options, futures, U.S. Treasury bonds, funds, and various global assets, achieving seamless allocation and management of virtual assets and traditional financial assets.

In addition, on November 24 last year, Victory Securities in Hong Kong announced that it became the first licensed corporation in Hong Kong approved by the Securities and Futures Commission to provide virtual asset trading and consulting services to retail investors. Similarly, on November 24 last year, Interactive Brokers also obtained permission for virtual asset trading for retail clients in Hong Kong, allowing trading of Bitcoin and Ethereum.

Investors wishing to trade Bitcoin and other virtual assets on brokerage apps need to open a virtual asset account. Brokerages have set a relatively low entry threshold for trading virtual assets, starting from $100.

Jupiter Zheng, a partner at Hashkey Capital's secondary fund, recently wrote that the trading volume of Hong Kong's virtual asset ETFs is inversely correlated with their scale trends. This actually reflects a kind of "structural" undercurrent—interested parties are refining processes and clearing bottlenecks. Especially regarding physical creation and redemption, it requires coordination between different institutions such as process facilitators (PD), brokerages, custodians/exchanges, and market makers to clear bottlenecks. Two months later may be a key node for volume growth.

Moreover, the key driving force for the future scale of Hong Kong's virtual asset ETFs comes from institutional investors. An EY survey found that many institutional investors expect to increase their allocation to virtual assets in the next 2 to 3 years. If they manage assets exceeding $500 billion, most will invest about 1% of their assets in some form of cryptocurrency, and many family offices are also involved in cryptocurrencies. Large investors believe that virtual assets may outperform the market in terms of returns in the near future, but the value is volatile; if they can manage this risk, virtual assets become an attractive asset class.

Looking ahead, although the current performance of Hong Kong's virtual asset ETFs still needs improvement, the market potential for Hong Kong's virtual asset ETFs remains promising as more brokerages provide related services, the possibility of bank distribution increases, and institutional investors' interest in virtual assets grows.