Expert Analysis: Why Ethereum And Bitcoin ETFs Struggle To Gain Traction In Hong Kong

As enthusiasm surrounding the introduction of spot Ethereum and Bitcoin ETFs in the United States continues to grow, Hong Kong has embarked on its journey to establish a spot ETF market for these digital assets.  However, the performance of these exchange-traded funds in Hong Kong has not matched the success seen in the US, raising questions about the underlying factors influencing this discrepancy.

Hong Kong’s Bitcoin ETFs Struggle Despite Strong Initial Launch

Hong Kong launched six virtual asset spot ETFs on April 30, initially attracting significant interest with a combined issuance scale of $248 million—surpassing the approximately $125 million raised by the US Bitcoin ETFs at their launch in January. 

Yet, despite this promising start, the subsequent market performance has been less than optimistic. According to a recent analysis by Jason Jiang, researcher at OKG, as of mid-May, the total assets under management (AUM) for Hong Kong’s six ETFs reached approximately HKD 2 billion (around USD 264 million). 

While this notably impacts Hong Kong’s local financial market, it pales compared to the US market, where spot Bitcoin ETFs have approximately $51.4 billion in assets under management 9 months after their launch.

Market activity has also shown signs of decline. The total trading volume for Hong Kong’s virtual asset spot ETFs exceeded HKD 520 million in the initial weeks. Still, daily trading volumes have fluctuated downward, falling below HKD 40 million on several occasions. 

Furthermore, the three spot Bitcoin ETFs experienced net outflows for four consecutive days, while the Ethereum spot ETF faced similar challenges.

Jiang contends that one of the main advantages of Hong Kong’s Bitcoin ETFs is their provision for physical redemption. This feature theoretically appeals to native crypto investors and Bitcoin miners. However, on-chain data suggests that miners are currently hesitant to engage, opting to monitor the market instead. 

This cautious approach is reflected in the decline of miner wallet balances, which have hit a six-month low. Compounding these issues, Hong Kong faces challenges regarding fee structures, which may deter miners from investing in the Bitcoin ETFs market.

Lack Of Staking Support Hinders Ethereum ETF Appeal 

According to Jiang’s analysis, the Ethereum spot ETF has also underperformed. With only 15.11% of the market share and an AUM of around HKD327 million, the Ethereum ETF has struggled to attract investor interest. 

Recent developments, such as the Cancun upgrade, have not produced the anticipated surge in on-chain activity, and the lack of staking support for the ETF has further diminished its appeal to potential investors. 

Without the ability to stake, the reporter notes that existing Ethereum holders may be reluctant to participate, as they would forfeit staking income by subscribing to the ETF.

According to the researcher, several factors could shape the future of Hong Kong’s virtual asset ETF market. Approving an Ethereum spot ETF based on the proof-of-stake (PoS) mechanism opens the door for other mainstream public chain tokens, such as Solana, to enter the market.

In addition, Jiang asserts that digital asset spot ETFs act as a bridge, transforming niche digital assets into more mainstream securities. This shift could enable financial institutions to develop derivative products, such as leverage and wealth management tools, previously unattainable with physical Bitcoin assets alone. 

At the time of writing, BTC is trading at $63,100, down 0.3% over the past 24 hours.

Featured image from DALL-E, chart from TradingView.com