Hong Kong: Disappointing start for Bitcoin & Ethereum ETFs?

The announced Bitcoin and Ethereum spot ETFs have been open for trading on the Hong Kong Stock Exchange (HKEX) since 03:30 Central European Time (09:30 local time) tonight. The launch - in the truest sense of the word - was heralded in a festive ceremony. The issuers of the ETFs were also represented: China Asset Management Company, Harvest Global Investment and the Hashkey Exchange, which is launching the investment products together with Bosera Asset Management.

Before the start of trading, Tongli Han, CEO of Harvest Global Investment, gave an assessment of the initial demand for the products.

BlackRock is better known in the Western market. But we are better known in the local market, in Asia, in China and also in the Oriental countries. I think we need some time to tap into the huge potential because many investors are still taking a wait-and-see approach. I expect a slow start for the initial growth in the investment volume of the products. Over time, however, we will demonstrate the special features and strengths of our products and the huge demand will unfold.
Tongli_Han

One of the strengths of Hong Kong spot ETFs is that they rely on the in-kind method, which allows investors to exchange their Bitcoin or Ethereum directly for ETF shares and vice versa. This is intended to enable better arbitrage trading. This exchange method also does not incur any taxes. Only the in-cash method is permitted in the USA. This means that investors would have to sell their Bitcoin in order to switch to an ETF. This is also problematic if investors want to switch from one Bitcoin ETF to another.

The first day of trading in Hong Kong has been over since 10 a.m. German time and the first data has already been published. Despite the great interest and high expectations in advance, the total trading volume of the six Hong Kong Bitcoin and Ethereum spot ETFs only reached around USD 12 million at the end of the market.

This makes the trading launch of Hong Kong Bitcoin and Ethereum ETFs a drop in the bucket in terms of trading volume compared to that in the US on January 11 this year.

The first trading day of the US Bitcoin ETFs saw an impressive $4.6 billion in trading volume, which is 383 times the volume in Hong Kong.
_{Colin Wu, analyst and journalist}

But in terms of inflows, the data is not bad at all. China Asset Management has collected 121 million US dollars with the Bitcoin spot ETF alone and is thus already in the top fifth of the best ETFs on the Hong Kong market. According to Bloomberg ETF analyst Eric Balchunas, the fact that the ETFs have more assets than trading volume is due to the fact that asset managers in Hong Kong are probably already collecting capital before the official launch.

His Bloomberg colleague James Seyffart concludes that the ETF launch was very successful for the smaller market of the Chinese administrative region.

The reason for the current weaker price is probably also the declining demand for Bitcoin spot ETFs in the US.

After analyzing the initial figures and data, it can be stated that around 80% of the trading volume was accounted for by BTC. The Hong Kong dollar-denominated Bitcoin ETFs together accounted for just under HKD 68 million, the equivalent of around USD 8.7 million in trading volume. In addition, however, the volumes of the new Hong Kong ETFs traded in US dollars or Chinese renminbi were significantly lower.

As far as the assets already reported by asset manager China Asset Management are concerned, the difference between the largest and second-largest cryptocurrency is even clearer. While the Bitcoin ETF has around 121 million US dollars in assets, the Ethereum spot ETF from China Asset Management only accounts for 20 million US dollars. Accordingly, Bitcoin accounts for around 86 percent here.

Data on the actual inflows into all six investment products is likely to be a while in coming.

After the somewhat muted launch of Bitcoin and Ethereum spot ETFs in Hong Kong, the focus is now on the future strategies and adjustments that may be necessary to increase interest and, ergo, investment. Will those responsible take steps to raise awareness of the new products among potential investors? Education by the issuers and corresponding advertising spots were also a tried and tested means in the USA.

In addition, the further development of the regulatory framework in Hong Kong and other Asian markets could play a key role. Positive changes could help attract more international investors to increase liquidity and trading volumes. A relaxation of regulation for trading Bitcoin and Co. for mainland Chinese could enable large capital flows from the Middle Kingdom. Hong Kong issuers still have a long way to go to even come close to the success of the US Bitcoin spot ETFs.