Future Prospects for Hong Kong's Spot Cryptocurrency ETFs

Hong Kong’s spot cryptocurrency exchange-traded funds (ETFs) are expected to have a much brighter future in 2025, according to OSL’s Managing Director, Ryan Miller.

In April 2024, Hong Kong saw the debut of six spot Bitcoin and Ether ETFs, following the successful launch of U.S. Bitcoin ETFs. Hong Kong is the first and remains the only region in Asia to list spot crypto ETFs. However, some have evaluated these ETFs as underwhelming. The spot Bitcoin ETFs had amassed 4,560 BTC (approximately $444.6 million) as of December 11, while the region’s Ether funds held 16,280 ETH (about $59.6 million).

Compared to their Hong Kong counterparts, U.S. spot crypto ETFs experienced record-setting volume and inflows. This increase was further heightened by pro-crypto Donald Trump being reelected as U.S. President. U.S. spot Bitcoin funds amassed a cumulative net inflow of over $34.06 billion as of early December, while spot Ether ETFs saw over $1.78 billion.

Gary Tiu, executive director of OSL, stated at the Foresight 2024 conference that Hong Kong crypto ETFs face systemic market obstacles due to the rich layer of intermediaries, like brokers and banks, involved in dealing with funds and structured products. Chen Zhao, digital assets director of Fosun Wealth, mentioned the lack of dealers and brokers in Hong Kong who are willing to engage with such crypto ETFs.

Miller explained that the performance of a product should not be judged by a single figure or factor, highlighting that in terms of the ratio to respective equity markets, the U.S. and Hong Kong crypto ETFs have performed similarly. Spot crypto ETFs in the U.S. are valued at around $5.47 billion, which is 0.019% of the combined NYSE and Nasdaq market capitalization, while Hong Kong's spot crypto ETF market size is about $351.24 million, representing 0.023% of the Hang Seng Index's market cap of $1.52 trillion.

Miller expressed hopes for “substantial growth” in trade volumes and inflows from Hong Kong ETFs in the upcoming year due to positive sentiments globally and locally. OSL claims to be Hong Kong’s largest custodian of local spot crypto ETFs, holding over 70% market share.

Miller stated, “The new U.S. administration's favorable stance toward the crypto industry, combined with interest rate cuts, has positively impacted global sentiment and cryptocurrency prices.” On December 6, Hong Kong spot crypto ETFs recorded a total trading volume of over $58 million, its highest to date. Although it has fluctuated, the average trade volume has increased since Trump’s reelection.

He explained that the Hong Kong government is continuing its crypto-friendly regulatory efforts, introducing initiatives such as waiving taxes on investment gains from cryptocurrencies for hedge funds and private equity firms.

“With ongoing regulatory support and growing investor interest, Hong Kong's crypto ETFs are well-positioned to thrive in the evolving global crypto landscape,” Miller concluded.