Hong Kong’s Surging Virtual Asset ETF Trading Faces Challenges Despite Approval

• Hong Kong ETFs face challenges in matching the scale and dominance of US counterparts.
• Analysts project moderate inflows for Hong Kong’s ETFs, cautioning against unrealistic expectations.
• Hong Kong’s spot ETFs for virtual assets surged on May 3, led by Bitcoin ETFs with HK$43.41 million in trading volume.

The Hong Kong market reported an increase in trading volumes for spot ETFs associated with virtual assets on May 3. The overall trading volume came to HK$48.91 million, with Ethereum ETFs coming in second at HK$5.5 million and Bitcoin ETFs dominating at HK$43.41 million. On May 2, for instance, trading volume for US Bitcoin spot ETFs reached an astounding $1.72 billion, indicating a notable divergence in market activity.

As of the close on May 3, the total trading volume of six Hong Kong spot ETFs for virtual assets was HK$48.91 million, approximately US$6.26 million. Among them, the trading volume of the Bitcoin ETF was HK$43.41 million, and that of the Ethereum ETF was HK$5.5 million. In…

— Wu Blockchain (@WuBlockchain) May 3, 2024

The approval of spot Ethereum and Bitcoin ETFs by the Hong Kong Securities and Futures Commission (SFC) has generated enthusiasm, but analysts are cautious about the possible inflows. Eric Balchunas, a senior ETF analyst at Bloomberg, projects moderate inflows of about $500 million, but he believes the Hong Kong market may struggle to reach the size of its US rivals.

We just put out note with final data (which doesn't come in as fast as US). In short, HK saw $292m in assets on Day One (we predicted $1b in two years so way ahead of schedule but corrections can derail trajectories as we seeing in US). Ether ETFs grabbed 15% of pie and size… https://t.co/RT8SvMvEuA

— Eric Balchunas (@EricBalchunas) May 2, 2024

Balchunas attributes this conservative estimate to several factors. Firstly, Hong Kong’s ETF market, valued at $50 billion, is relatively small compared to the US market. Moreover, restrictions on Chinese locals purchasing these ETFs limit potential demand. Additionally, the absence of major players like BlackRock in Hong Kong’s ETF landscape may hinder significant investments.

In addition, the Hong Kong market’s underlying ecosystem is thought to be less efficient and accessible than the US market, which causes premium discounts and larger spreads for exchange-traded funds. Additionally, investors used to lower-cost choices in the US may be put off by the relatively higher fees (1% to 2%) attached to Hong Kong ETFs, as noted by Balchunas.

Despite the anticipation surrounding the approval of ETFs in Hong Kong, Bitcoin is trading at $59,112.26 , experiencing a growth of 0.73% in the last 24 hours. While Hong Kong ETFs may hold potential in the long run, they are unlikely to match the scale and dominance of their US counterparts upon launch.

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