Hong Kong’s debut of exchange-traded funds (ETFs) directly investing in cryptocurrencies has faced a lackluster reception, dimming hopes for the city’s ambitions to become a leading digital asset hub. The initial excitement surrounding these funds has dwindled, posing a challenge for Hong Kong’s strategic pivot towards embracing the burgeoning crypto market.
The six Bitcoin and Ether ETFs launched in Hong Kong have experienced a significant decline in total assets, dropping by approximately US$25 million from their initial US$293 million valuation within just two weeks, according to data from Bloomberg. This contrasts sharply with the US market, where similar ETFs from industry giants like BlackRock and Fidelity Investments saw an unprecedented success following their January debut. The US spot Bitcoin ETFs have garnered US$12.1 billion in net inflows and hold nearly US$55 billion in assets, though they too have seen a cooling in demand recently.
Despite the tepid start, a final judgment on Hong Kong’s ETF products is premature. The city’s financial sector is considerably smaller compared to that of the United States, and officials are optimistic that these ETFs will eventually stimulate trading volumes and attract market makers, thereby expanding Hong Kong’s network of licensed digital-asset exchanges.
Hong Kong is competing with global financial hubs such as Singapore and Dubai to establish itself as a major player in the crypto market. This move is part of a broader strategy to rejuvenate its image as a modern financial center after political turmoil eroded its appeal. Interestingly, this pivot towards cryptocurrencies appears to have tacit support from Beijing, despite the ban on crypto trading in mainland China.
The lukewarm reception of Hong Kong’s ETFs can be attributed to several factors. “Firstly, they got beaten to the punch by the US,” said Le Shi, head of trading at market-making and algorithmic trading firm Auros. “Secondly, there’s ongoing uncertainty about China’s intentions with regard to crypto, which is causing potential investors to tread carefully, or avoid the jurisdiction altogether.”
The ETFs were launched by Harvest Global Investments, the local unit of China Asset Management, and a partnership between HashKey Capital and Bosera Asset Management (International) on April 30. However, these funds are currently outside the scope of a program that allows mainland Chinese investors to access some Hong Kong ETFs, and it remains uncertain if this will change in the future.
Rebecca Sin, an ETF analyst at Bloomberg Intelligence, highlighted some positives from the launches, noting that total assets already exceed US$250 million. She anticipates that more issuers will “join the race” as the ecosystem develops, projecting that the portfolios could amass US$1 billion over the next two years.
The enthusiasm generated by the launch of US Bitcoin funds had previously propelled the largest digital asset to a record high of US$73,798 in March. However, the token has since retreated by about US$8,000. According to Sin, ETF inflows could see a resurgence if the crypto bull run that began in 2023 regains momentum.
As Hong Kong navigates its path in the competitive and volatile crypto market, the performance of these ETFs will be closely watched, both as a barometer of investor confidence and as a measure of the city’s potential to solidify its position as a global crypto hub.