Six virtual asset spot ETFs were listed on the Hong Kong Stock Exchange today, and the market performance was overwhelming.
By market close, the total volume of the first batch of Bitcoin and Ethereum spot ETFs launched in Hong Kong was only HK$87.58 million (US$11 million), with some ETFs trading below their opening prices. Ta.
This performance is in sharp contrast to that of US Bitcoin ETFs, with first-day trading volume reaching US$4.6 billion across 11 spot Bitcoin ETFs, approximately 383 times the Hong Kong debut.
Although the market had expected a subdued debut, the actual launch of Hong Kong's crypto ETF product has highlighted the challenges the region faces in establishing itself as Asia's crypto hub. Nevertheless, there are still potential opportunities, especially if mainland Chinese investors are allowed to invest in these ETFs.
Hong Kong Bitcoin and Ethereum ETFs make disappointing debut
Last week, the Hong Kong Securities and Futures Commission (SFC) announced the listing of Bitcoin and Ethereum spot ETFs by three fund companies: China Asset Management (Hong Kong) Limited, Vocera Asset Management, and Harvest Global Investment. Published.
Despite being hailed as a historic event by media platforms, Hong Kong's approval of BTC and ETH spot ETFs failed to have a significant impact on the market. After this news, both Bitcoin and Ethereum prices remained volatile or slightly depressed.
The initial issue price of Harvest and China Asset Management's products is US$1 (HK$7.827) per share, while the initial issue price of Vocera's Bitcoin ETF and Ethereum ETF is 1/10000 and 1/10000 of the tracking Bitcoin and Ethereum. Approximately matches /1000. Index as of April 26, 2024, respectively. This means that holding 10,000 shares is equivalent to approximately 1 Bitcoin, and holding 1,000 shares is equivalent to approximately 1 Ethereum.
The largest China Asset Management Bitcoin ETF opened at HK$8.07 and closed at just HK$7.95. Most EFTs traded lower than their opening prices on the day.
Hong Kong capital market size and performance pose challenges for crypto ETFs
Hong Kong's limited liquidity scale poses a major challenge for BTC and ETH spot ETFs.
According to Eric Balchunas, senior ETF analyst at Bloomberg, the total ETF market in Hong Kong is approximately US$52 billion, and combined with restrictions on institutional investors' money management and liquidity issues, even if all crypto asset spot ETFs in Hong Kong Even if it raises 500 million USD, it means that. , it is considered exceptional.
However, the actual performance is insufficient. On the first day of trading, the ETF's trading volume was less than HK$100 million, with capital inflows of just HK$529 million (US$67.6 million).
In contrast, the US Spot Bitcoin ETF has amassed more than US$52 billion in assets under management in less than four months.
Hong Kong's overall capital market pool and performance has declined. In 2023, there were 73 IPOs on the Hong Kong Stock Exchange, down 19% year-on-year, with total IPO proceeds reaching HK$46.295 billion, down 56% year-on-year.
This decline in fundraising size has caused Hong Kong to drop out of the world's top five IPO markets. Additionally, of the 73 newly listed stocks, 36 stocks fell on the first day, resulting in a break-even rate of 51%.
Given this background, the overwhelming performance of Hong Kong's crypto spot ETFs may not be surprising.
Challenges of capital inflow from the mainland
A crucial question looming over Hong Kong’s crypto spot ETFs is whether mainland Chinese investors will be allowed to participate. The inflow of mainland capital into Hong Kong is seen as critical to the success of these ETFs.
Currently, investors from mainland China and Hong Kong can access each other's markets through schemes such as Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect.
However, a major hurdle arises because the underlying assets of Hong Kong's crypto spot ETFs, Bitcoin and Ethereum, are strictly prohibited on the mainland. As a result, attempts by mainland investors to buy these ETFs in Hong Kong are currently being rejected.
In December 2023, a joint letter from the Hong Kong Securities and Futures Commission and the Hong Kong Monetary Authority announced that both existing crypto futures ETFs and potential crypto spot ETFs could be created in mainland China and other countries where crypto-related products circulate. It stipulated that the products could not be sold to individual investors in the region. Sale is prohibited.
However, there are exceptions. Mainland individuals holding Hong Kong identity documents, whether or not they are permanent residents, can engage in trading in these ETFs. This will pave the way for mainland financial institutions and individuals with dual ID to participate in Hong Kong's crypto spot ETF trading. However, it remains unclear whether a gray area exists in this process.
Indicating that mainland investors may participate, two cryptocurrency spot ETFs offered by China Asset Management include counters for the Chinese yuan alongside the Hong Kong dollar and US dollar. is.
Hong Kong’s crypto spot ETF holds expectations for growth
Despite early setbacks, there remains optimism about the future of Hong Kong's crypto spot ETFs. The success of other ETFs in Hong Kong has helped, including the SPDR Gold Trust ETF, which boasts USD 69.8 billion in assets under management, and a Chainalysis report showing off-exchange cryptocurrency trading volume in Hong Kong is USD 64 billion. ing. Market from June 2022 to June 2023.
OSLETF project manager Wayne Huang predicts that Hong Kong's crypto spot ETF could attract at least US$1 billion, while VDX's Paolo says this number could jump to US$10 billion. I think it's sexual.
A Hong Kong crypto exchange executive said that although it does not match the size and influence of the United States, Hong Kong still has an advantage compared to similar products in Europe, Canada, Switzerland and other countries. Moreover, Hong Kong's strategic location serves as a gateway for the development of Southeast Asia, Taiwan, and the Middle East.
Once compliance issues surrounding crypto assets become clearer, traditional financial funds are expected to flow into these ETFs. Hong Kong's strict compliance measures also ensure a safer trading environment for institutions.
According to Hong Kong Securities and Futures Commission regulations, virtual currency exchanges must insure all assets stored, segregate user assets into hot and cold wallets, and implement robust compensation mechanisms against losses. is needed.
User assets must be segregated into hot and cold wallets, with 98% placed in cold wallets and only 2% placed in hot wallets. More than 50% compensation is provided in case of losses due to cold wallets and full compensation is provided in case of losses due to hot wallets.
