Bitrabo Editorial
As excitement grows over the launch of spot Ethereum and Bitcoin ETFs in the U.S., Hong Kong is making strides to create its own market for these digital investment products. However, the performance of these ETFs in Hong Kong has not matched U.S. success, prompting inquiries about the reasons behind this gap.
Challenges Faced by Hong Kong’s Bitcoin ETFs Following Initial Success
On April 30, Hong Kong unveiled six virtual asset spot ETFs, which garnered considerable attention with $248 million in combined issuance—outpacing the U.S. Bitcoin ETFs’ launch total of approximately $125 million in January.
Despite this encouraging start, the trajectory of the market has not been promising. A recent report by OKG researcher Jason Jiang indicated that by mid-May, the total assets under management (AUM) for these Hong Kong ETFs were around HKD 2 billion (about USD 264 million).
This level is significant for Hong Kong but falls short compared to the U.S. market, where spot Bitcoin ETFs boast roughly $51.4 billion in AUM just nine months after their introduction.
Furthermore, trading activity has declined. Initial trading volume for Hong Kong’s virtual asset spot ETFs exceeded HKD 520 million, but daily trading volumes have decreased, dipping below HKD 40 million on multiple occasions.
Additionally, the three Bitcoin ETFs have seen net outflows for four consecutive days, a trend mirrored by the Ethereum spot ETF.
Jiang believes that one advantage Hong Kong’s Bitcoin ETFs offer is the possibility of physical redemption, which could attract local crypto investors and miners. However, data shows that miners are hesitant and prefer to observe market conditions before committing.
This cautious stance is evident in the decrease of miner wallet balances, reaching a six-month low. On top of this, Hong Kong’s fee structures may be discouraging miners from investing in the ETF market.
The Ethereum ETF Lacks Appeal Due to Absence of Staking
According to Jiang’s findings, the Ethereum spot ETF has also struggled, capturing only 15.11% of market share with AUM around HKD 327 million, indicating a lack of interest from investors.
Recent updates, like the Cancun upgrade, have not resulted in increased on-chain activity, and the absence of staking support for the ETF has further lessened its attractiveness to potential investors.
Without staking benefits, existing Ethereum holders may hesitate to invest, as they would miss out on potential staking rewards by choosing the ETF route.
Jiang notes that several factors could influence Hong Kong’s virtual asset ETF landscape moving forward. Approval of an Ethereum spot ETF utilizing the proof-of-stake (PoS) mechanism could pave the way for other prominent public chain tokens like Solana to be part of the market.
Moreover, Jiang argues that digital asset spot ETFs serve as a pathway, transforming niche digital currencies into more recognized securities. This evolution could enable financial institutions to create derivative products, including leverage and wealth management solutions, that were previously unfeasible with just physical Bitcoin assets.
As of now, Bitcoin is trading at $63,100, marking a slight decline of 0.3% over the last 24 hours.
Featured image from DALL-E, chart from TradingView.com