Why Hong Kong’s Bitcoin and Ethereum ETFs Are Struggling

As the excitement around the launch of spot Ethereum and Bitcoin ETFs in the United States continues to escalate, Hong Kong has begun its endeavor to create a spot ETF market for these cryptocurrencies. Nevertheless, the performance of these exchange-traded funds in Hong Kong has not lived up to the success seen in the U.S., prompting inquiries into the factors that may be contributing to this difference.

Hong Kong’s Bitcoin ETFs Face Challenges Despite Encouraging Start

On April 30, Hong Kong debuted six virtual asset spot ETFs, which garnered significant attention with a total issuance volume of $248 million—outpacing the roughly $125 million raised by U.S. Bitcoin ETFs at their January launch.

However, despite this promising launch, their subsequent market performance has not been very encouraging. A recent study by Jason Jiang, a researcher at OKG, indicates that by mid-May, the total assets under management (AUM) for the six ETFs in Hong Kong reached around HKD 2 billion (approximately USD 264 million).

While this situation significantly impacts Hong Kong’s local financial landscape, it remains minimal when compared to the U.S. market, which boasts about $51.4 billion in assets under management for spot Bitcoin ETFs just 9 months after their introduction.

Market activity also exhibits signs of downturn. The total trading volume for Hong Kong’s virtual asset spot ETFs originally surpassed HKD 520 million in the first few weeks. However, daily trading volumes have experienced a decline, dropping below HKD 40 million on various occasions.

Moreover, the three spot Bitcoin ETFs have seen net outflows for four consecutive days, with the Ethereum spot ETF encountering similar issues.

Jiang argues that one of the primary benefits of Hong Kong’s Bitcoin ETFs is the option for physical redemption. This characteristic theoretically attracts local crypto investors and Bitcoin miners. However, data from on-chain sources indicates that miners are currently cautious about participating, choosing instead to observe the market.

This careful stance is mirrored in the decreasing balances in miner wallets, which have reached a six-month low. To make matters worse, Hong Kong is grappling with issues related to fee structures, which may discourage miners from entering the Bitcoin ETF space.

Absence Of Staking Support Affects Ethereum ETF Attraction

According to Jiang’s findings, the Ethereum spot ETF has also underperformed. It holds only 15.11% of the market share and an AUM of about HKD 327 million, struggling to draw in investor interest.

Recent updates, including the Cancun upgrade, have not led to the boost in on-chain activity that was expected, and the lack of staking functionality for the ETF has further reduced its attractiveness to potential investors.

Without the option to stake, the reporter points out that current Ethereum holders might be unwilling to invest, as they would lose out on staking income by opting into the ETF.

Several elements could influence the future of Hong Kong’s virtual asset ETF sector, according to the researcher. Approving an Ethereum spot ETF based on the proof-of-stake (PoS) system could pave the way for other popular public chain tokens, like Solana, to enter the market.

Additionally, Jiang claims that digital asset spot ETFs serve as a conduit, transitioning niche digital assets into broader securities. This evolution could enable financial firms to create derivative products, such as leveraged and wealth-management offerings, which have been elusive with physical Bitcoin assets alone.