After their much-anticipated launch on April 30, Hong Kong’s Bitcoin ETFs faced their first setback with the China Asset Management Bitcoin ETF experiencing its first cumulative daily outflow on Monday. The outflow amounted to $4.9 million according to Farside data, while other Hong Kong-based products remained stagnant.
Despite garnering $262 million in assets under management (AUM) within their first week, the Bitcoin and Ethereum ETFs in Hong Kong saw a meager inflow of less than $14 million during their initial launch week. This performance stands in stark contrast to the billions of dollars that flowed into U.S. spot Bitcoin ETFs earlier in the year.
Senior Bloomberg ETF analyst Eric Balchunas cautioned investors not to expect substantial numbers in Hong Kong compared to the U.S. market. Balchunas pointed out that the $310 million AUM of the Hong Kong ETFs is proportionate to $50 billion in the U.S. market, making them significant players in the local market despite their smaller scale.
Challenges in the Hong Kong Equities Sector
The Hong Kong equities sector, with a total market cap of $4.5 trillion, faces liquidity challenges due to slower economic growth in mainland China since 2022. This, coupled with the restrictions on mainland Chinese investors accessing the ETFs unless they have Hong Kong residency, could contribute to lower transaction volumes for the ETFs compared to the United States.
A recent study by crypto exchange OSL revealed that nearly 80% of crypto-savvy investors in Hong Kong plan to invest in the new spot Bitcoin and Ethereum ETFs. Despite this interest, the inaccessibility of these assets to mainland Chinese investors poses a significant barrier to widespread adoption and trading volume in the Hong Kong market.
While Hong Kong’s Bitcoin ETFs initially showed promise with a substantial AUM, their performance in terms of inflows leaves much to be desired. The challenges posed by the relatively small equities sector in Hong Kong, coupled with restrictions on mainland Chinese investors, hinder the growth and liquidity of these ETFs. Only time will tell whether these setbacks are temporary or indicative of larger systemic issues within the Hong Kong cryptocurrency market.