Hong Kong’s Cryptocurrency ETF Challenges

Hong Kong’s cryptocurrency spot exchange-traded funds (ETFs) face significant obstacles due to the lack of market incentives, as highlighted by OSL’s Executive Director Gary Tiu during the Foresight 2024 conference.

Intermediary Influence

Tiu explained that there exists a substantial layer of intermediaries in the regional market—brokers, banks, and private banks—who earn considerable profits from distributing financial products. This has led to a market preference for unlisted products. In contrast, ETFs enable direct trade execution but offer minimal commissions for brokers, roughly 1% to 2%, compared to structured products.

Regulatory Bias

He noted a prevailing negative bias against cryptocurrencies like bitcoin and ether among regulators and financial institutions in Hong Kong. Tiu mentioned that there is a perception that bitcoin ETFs carry unique risks that warrant extra caution.

Market Participation

Chen Zhao, the digital assets director of Fosun Wealth, pointed out that Hong Kong crypto ETFs are also hindered by a limited number of dealers and brokers. The market consists mainly of three participant categories: western institutions, China-based institutions, and those based in Hong Kong. Zhao noted that many Chinese brokers opt not to engage with these products, while western institutions prefer U.S. ETFs due to higher fees and easier access.

Market Growth Constraints

The size of local participants in Hong Kong is minor compared to their western and Chinese counterparts, which presents a barrier to the growth of crypto ETFs in the region.

Current Status

As per SoSoValue, since April 30, Hong Kong’s spot bitcoin and ether ETFs have achieved a net asset value of approximately $310 million, with a daily trading volume of around $2.8 million. Unlike their U.S. counterparts, Hong Kong’s spot crypto funds allow investors to purchase ETFs through in-kind subscriptions of physical BTC, which do not count as cash inflows.

Disclaimer: Foresight Ventures is a majority investor of The Block. Foresight 2024 was hosted by Foresight Ventures, Foresight News, and The Block, and sponsored by OSL.