Author: Fu Ruhe, Odaily Star Daily
On April 30, the long-awaited Hong Kong spot cryptocurrency ETF officially debuted on the Hong Kong Stock Exchange, marking the first time that an Ethereum spot ETF has landed on a major exchange. Currently, the Hong Kong spot cryptocurrency ETF is mainly issued synchronously by three institutions: Huaxia Fund (Hong Kong), Bosera Fund (International), and Jia Shi International. They include Bosera HashKey Bitcoin ETF (03008), Bosera HashKey Ethereum ETF (03009), Huaxia Bitcoin ETF (03042), Huaxia Ethereum ETF (03046), Jia Shi Bitcoin Spot ETF (03439), and Jia Shi Ethereum Spot ETF (03179).
From April 30 to May 6, the Hong Kong spot cryptocurrency ETF has been online for just over a week. How has it performed? How does the Hong Kong spot cryptocurrency ETF differ from the earlier issued American spot Bitcoin ETF, and does it have unique competitiveness to attract capital inflows from the Asia-Pacific region and even globally?
To this end, Odaily Star Daily will review the development of the Hong Kong spot cryptocurrency ETF over the past week and make a comprehensive comparison with the American spot Bitcoin ETF.
Although the first-day performance was not satisfactory, the future is promising
In nominal time, the Hong Kong ETF has been active for a week, but in terms of actual trading days, excluding the May Day holiday and weekends, the Hong Kong ETF has been open for trading for a total of 4 days. During these four days, the initial fundraising scale of the Hong Kong spot cryptocurrency ETF was approximately 2 billion Hong Kong dollars, with a net asset value of 293 million US dollars, compared to the initial net assets of 113 million US dollars for the American spot Bitcoin ETF, it can be said to have an advantage.
However, at the end of the first day of trading, according to SoSoValue data, the total trading volume of the 6 initial Hong Kong spot cryptocurrency ETFs was approximately 87.58 million Hong Kong dollars (about 12.7 million US dollars), far lower than the trading volume of 4.66 billion US dollars for the American spot Bitcoin ETF on its first day.
With the fundraising scale of the Hong Kong spot cryptocurrency ETF leading the American spot Bitcoin ETF by more than twice, why is there such a large gap in actual trading volume on the first day?
There is a significant difference in market size between the two. Compared to the global financial center of the United States, Hong Kong has a relatively smaller market reach, especially since it is not yet open to ordinary investors in the mainland, leading to lower actual trading volume.
The acceptance of cryptocurrencies is relatively low in Hong Kong and even in Asia. Traditional financial practitioners (and institutions) in Hong Kong and Asia still have a certain gap in their understanding of cryptocurrencies compared to those in Europe and the United States.
The high fundraising scale in Hong Kong is attributed to its innovative "physical subscription and redemption" mechanism, which led to a high fundraising amount during the subscription period as many ETF investors used Bitcoin and Ethereum to purchase ETFs, resulting in a high fundraising amount.
In the following 3 trading days, the performance of the Hong Kong spot Bitcoin ETF and Ethereum ETF was relatively ordinary, as shown in the data below.
From the chart, it can be seen that the 6 ETFs in Hong Kong had relatively stable and positive trading volume and fund inflows in the first three days, but on May 6, the Bitcoin spot ETF experienced its first net outflow (75.36 BTC), worth approximately 4.75 million US dollars.
Although the Hong Kong spot cryptocurrency ETF did not meet expectations in terms of scale and trading volume, many well-known figures still have a positive outlook on the future of the Hong Kong ETF.
Eric Balchunas, a senior ETF analyst at Bloomberg, had previously predicted that the Hong Kong virtual asset ETF market would take two years to reach a level of 1 billion US dollars, but it reached 292 million US dollars on the first day, which means that the view of the Hong Kong virtual asset ETF market needs to be reassessed. He also stated that although it lags behind the United States in trading volume, in proportion, the 310 million US dollars of the Hong Kong ETF is equivalent to 50 billion US dollars in the US market. Therefore, the impact of the Hong Kong virtual asset ETF on its local market is as significant as that of the American spot Bitcoin ETF on its local market.
Weng Xiaoqi, Chief Operating Officer of HashKey Group and CEO of HashKey Exchange, stated that the custody assets of HashKey Exchange have increased from 2.2 billion yuan before the ETF was issued to 3.3 billion yuan, and he believes that a large amount of funds will continue to flow into the market in the future. Weng Xiaoqi also believes that ETFs can attract more traditional investors into the virtual asset market, and the overall scale can reach about 10 billion US dollars in a year, accounting for about 20% of the US market, indicating that there is still a long way to go before the virtual asset market becomes saturated.
Sui Chung, CEO of CF Benchmarks under Kraken's subsidiary, predicts that by the end of 2024, the asset management scale of the Hong Kong Bitcoin ETF will reach 1 billion US dollars.
In addition to the positive outlook expressed by many well-known figures on the future of the Hong Kong spot cryptocurrency ETF, Tiger Brokers (Hong Kong) has also officially launched virtual asset trading services, becoming one of the first technology brokers in Hong Kong to support a platform for trading and managing traditional securities as well as virtual assets. However, the virtual asset trading services provided by Tiger Brokers are currently only available to professional investors. In the future, under regulatory requirements, Tiger Brokers plans to extend virtual asset trading services to retail investors. Additionally, the company will consider adding virtual asset spot deposit services.
American spot Bitcoin ETF "VS" Hong Kong spot cryptocurrency ETF
Shortly after the launch of the Hong Kong spot cryptocurrency ETF, on May 3, according to Watcher.guru, two Hong Kong asset management companies had purchased a total of up to 112 million US dollars of the American spot Bitcoin ETF. The data shows that in addition to Yong Rong Asset Management purchasing 38 million US dollars' worth of the Bitwise IBIT ETF, another Ovata Capital Management purchased four American spot Bitcoin ETFs, with a total investment of over 74 million US dollars.
Why did Yong Rong and Ovata, two companies, choose to purchase the American spot Bitcoin ETF instead of the Hong Kong spot cryptocurrency ETF?
Based on the original text disclosed by Watcher.guru, the two companies did not adjust their timing of investment based on the progress of the Hong Kong ETF before its official issuance.
Assuming from the perspective of these two asset management companies, most asset management companies focus on the future development prospects of the assets they purchase, and they are likely to hold them for the long term, which requires consideration of related expenses. However, based on the basic information disclosed by the three Hong Kong issuers, Huaxia 1.99%, Jia Shi 1.00%, and Bosera 0.85%, the fees are higher compared to the general 0.25% fee of the American spot Bitcoin ETF, although the three issuers have reduced the fees to incentivize investment trading, the high fee setting will undoubtedly be a "roadblock" for many long-term investors from a long-term perspective.
Furthermore, from the perspective of market size and trading volume, the Hong Kong spot cryptocurrency ETF has only recently started, and its market size is relatively smaller compared to the American spot Bitcoin ETF, which has been active for nearly 4 months. A larger market size often brings better liquidity and trading experience.
Finally, from the perspective of fund custody, the custodian of the American spot Bitcoin ETF is Coinbase, while the custodians of the Hong Kong ETF are HashKey Capital and OSL Asset Management, and in terms of custody scale and past trust foundation, Coinbase is clearly superior.
So, does the Hong Kong spot ETF have no advantages? Not exactly. The current significant differences between the two are in three points:
· Hong Kong's pioneering "physical subscription mechanism": Compared to the American spot Bitcoin ETF, which can only be traded in cash, the physical subscription mechanism can provide investors with a more flexible trading method, boosting trading enthusiasm. Moreover, the physical subscription mechanism has a significant promoting effect on Web 3, as it can serve as a fund withdrawal channel for Web 3 investors, bridging the gap between traditional finance and Web3, which is conducive to the circulation of capital in the later stage.
· Regional Coverage: After all, there is a certain time difference and policy barrier between the trading time of the American spot Bitcoin ETF and Asian countries, which is not conducive to the corresponding work of Asian companies. However, the launch of the Hong Kong spot cryptocurrency ETF will prompt Asian companies to purchase the Hong Kong spot ETF under more favorable physical conditions.
· First Ethereum Spot ETF: The most special advantage is that Hong Kong is ahead of the United States in launching the Ethereum spot ETF. Assuming that the SEC does not approve the application for the spot Ethereum ETF this month, at least in this year, Hong Kong is the only region supporting the spot Ethereum ETF, which will be beneficial in attracting Ethereum-related investors and seizing the opportunity.
The channel is open, looking forward to potential expectations
In fact, on the day the Hong Kong spot cryptocurrency ETF was launched, due to the market downturn caused by the lower-than-expected performance and the outflow of the American spot Bitcoin ETF, the community's view of it was more negative than positive. However, after a few days of development, the Hong Kong spot cryptocurrency ETF still has a certain promoting effect on the cryptocurrency market.
From the innovative physical subscription mechanism mentioned above, which bridges the funding channels between traditional finance and Web3, to the coverage of the Asian trading range, all reflect the support of the Hong Kong region for the development of Web3. Secondly, compared to Western countries, it will take some time for Hong Kong and even Asia to fully accept cryptocurrencies. Finally, the potential expectations left by the Hong Kong spot cryptocurrency ETF, namely the opening of the trading channel in the mainland.
As Kaiko's latest report shows, the competition for cryptocurrency spot ETFs is heating up globally. In fact, compared to the United States, Hong Kong does not have a competitive edge in terms of product nature. ETFs are not meant to create a confrontational situation. The most important thing is that the issuance of ETFs will strengthen the existing liquidity of Web3 funds and direct traditional funds to Web3. Conversely, in a bearish market, ETFs also provide a high-quality channel for the "escape" of Web3 funds.
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