Hong Kong launches Bitcoin and Ether ETFs, analyst weighs in

In a move aimed at revitalizing its financial sector, Hong Kong introduced six spot Bitcoin and Ether exchange-traded funds (ETFs) on the Hong Kong Stock Exchange on Monday.  

The ETFs listed are Bosera HashKey Bitcoin ETF (3008.HK), Bosera HashKey Ether ETF (3009.HK), ChinaAMC Bitcoin ETF (3042.HK), ChinaAMC Ether ETF (3046.HK), Harvest Bitcoin Spot ETF (3439.HK), and Harvest Ether Spot ETF (3179.HK).  

Reinventing Hong Kong’s financial sector

Andrew Sullivan, Founder of Asian Market Sense, told AIBC News that he sees this as part of Hong Kong’s attempt to reinvent itself, stating, “[Hong Kong] is trying in the broadest terms to reinvent itself and it sees crypto as an option.” However, Sullivan also expressed concerns about the impact of China’s national security law, noting, “I think the recently introduced national security law will restrict its growth as a crypto hub as people will worry about China’s control over the information.”  

Initial trading volumes disappoint, concerns raised over possible Chinese influence

The initial trading volumes of these ETFs were underwhelming, with just $11.2 million (€10.4 million) in combined trading volume on the first day. Sullivan attributed this to limited liquidity.  

“Why trade the ETF in [Hong Kong] with limited liquidity when you could trade it in the US? The only reason is that you can trade Asian time zone but if you can’t get the liquidity, there is little point,” Sullivan said.  

“Limited liquidity usually means the prices that you achieve are not as good and as these are effectively cheap tracker funds, they are less sensitive to the price of the underlying asset; so, you might as well trade overnight in the US and modern platform allow you to trade by leaving your trade at a limit price,” he added.  

Moreover, Sullivan highlighted concerns about restrictions on mainland Chinese investors impacting the performance and liquidity of these ETFs. He emphasised apprehensions regarding Chinese access to trading data and the potential for asset freeze or seizure under the national security law.   

“People are increasingly concerned about Chinese access to the data about their trading and the potential for China to freeze or seize assets in Hong Kong,” Sullivan said.  

Hong Kong’s crypto ETFs future

Hong Kong’s entry into crypto ETFs signals its ambition to compete with the US in the global digital currency race. Sullivan stressed in his blog the importance of monitoring demand for these ETFs in Asia.  

“Worth watching over the coming months to see whether there is demand for these to be traded in Asia or whether the US ETFs will continue to be the focus of most trades,” Sullivan wrote.   

As the crypto landscape evolves, observers are keen to see whether Hong Kong can establish a significant presence in the digital currency market.