Analysis: Why is there a huge mismatch between the initial scale and trading volume of Hong Kong crypto ETFs?
By Tom Analysis, SoSoValue Researcher The Hong Kong Securities and Futures Commission officially announced the list of approved virtual asset spot ETFs, including the Bitcoin spot ETF and Ethereum spot ETF under ChinaAMC (Hong Kong), Harvest International and Bosera Asset Management. These six spot ETF products opened for subscription from April 25th to 26th and were listed on the Hong Kong Stock Exchange on April 30th. Through the subscription, the six Hong Kong spot ETFs obtained a decent initial scale. According to SoSoValue data, the total net value of the three Bitcoin ETFs is $248 million, and the total net value of the three Ethereum ETFs is $45 million, with a total net value of nearly $300 million; while the first-day total net value of the US Bitcoin spot ETF products, excluding Grayscale (GBTC), was only $130 million. However, in terms of first-day trading volume, Hong Kong’s cryptocurrency ETFs are far smaller than their counterparts in the United States. According to SoSoValue data, the first-day trading volume of the six Hong Kong cryptocurrency ETFs on April 30th was only $12.7 million, much lower than the $4.66 billion trading volume of US ETFs on the first day. We observed a significant mismatch between the initial scale and first-day trading volume of Hong Kong cryptocurrency ETFs. How large can Hong Kong cryptocurrency spot ETFs grow, what impact can they have on the cryptocurrency market, and how should investors seize related investment opportunities? We will analyze this through the supply and demand relationship of Hong Kong ETFs. Figure 1: Overview of Hong Kong Cryptocurrency Spot ETF Data (Source: SoSoValue) Demand Side: Restriction on Mainland Chinese Investors May Limit Incremental Funds, Leading to Lower Trading Volume This time, Hong Kong cryptocurrency ETFs still have strict restrictions on investor qualifications, and mainland Chinese investors cannot participate in trading. Taking Futu Securities as an example, it requires the account holder to be a non-mainland Chinese & non-US resident to conduct transactions. It is currently not allowed for mainland funds to trade through the Southbound Stock Connect, and it is expected to be difficult to connect for a considerable period of time. In terms of fees, Hong Kong cryptocurrency ETFs are not advantageous compared to US ETFs and may not be attractive to institutions hoping to hold for the long term. According to SoSoValue data, among the 11 US Bitcoin spot ETFs, except for Grayscale and Hashdex, the largest ones like IBIT and CBOE have management fees of around 0.25%, while the comprehensive fees of the three Bitcoin ETFs in Hong Kong are relatively high, with ChinaAMC at 1.99%, Harvest at 1.00%, and the lowest Bosera at 0.85%. Even with a short-term reduction in management fees, there is still no fee advantage. With fee differences, for institutional investors optimistic about the cryptocurrency market and hoping to hold for the long term, the holding cost of US Bitcoin ETFs is lower. Looking ahead, the funds on the demand side may mainly come from two sources: 1) Hong Kong retail investors. For retail investors with Hong Kong ID cards, the threshold for purchasing Hong Kong cryptocurrency ETFs is lower. For example, to purchase US Bitcoin spot ETFs, one needs to have a Professional Investor (PI) qualification, and applying for a PI qualification requires proof of a $8 million HKD investment portfolio or $40 million HKD total assets. This time, Hong Kong Bitcoin spot ETFs allow retail investors to trade, and the trading hours also better suit the Asian time zone, which is an important increment. 2) Traditional investors interested in Ethereum. Hong Kong Ethereum spot ETF is the first global launch, so for investors who have substantial difficulties in holding assets but are optimistic about the future of Ethereum, they may bring incremental funds to Ethereum ETFs. Figure 2: Fee Situation of US Bitcoin Spot ETFs (Source: SoSoValue) Figure 3: Fee Situation of Hong Kong Cryptocurrency Spot ETFs (Source: SoSoValue) Supply Side: In-Kind Redemption/Subscription Increases ETF Share Supply, Boosting Initial Scale The biggest difference between Hong Kong cryptocurrency spot ETFs and US Bitcoin spot ETFs: in addition to cash redemption/subscription, in-kind redemption/subscription is added. This directly determines that in terms of ETF share level, Hong Kong cryptocurrency ETFs may have more supply. In-kind redemption/subscription refers to when investors subscribe (create) or redeem ETF shares, they can use cryptocurrencies (Bitcoin or Ethereum) for exchange instead of cash. When subscribing, investors provide a certain amount of cryptocurrency to the ETF in exchange for ETF shares; when redeeming, investors return ETF shares in exchange for the corresponding cryptocurrency. With reference to the comparison of the cryptocurrency purchase process in Figure 2, it can be seen that in-kind subscription brings two major differences compared to cash subscription: 1. Holders can directly subscribe with coins: For some large holders, such as miners, it is easy to convert their coins into ETF shares, and ETF shares can be sold for cash directly on the Hong Kong Stock Exchange or can be held outside, providing very flexible processing methods. 2. For the cryptocurrency market, in-kind subscription does not bring incremental funds into the market but only moves cryptocurrencies between different accounts. Cash subscription, on the other hand, will bring actual buy orders to on-chain cryptocurrency assets. Therefore, the subscribers of Hong Kong cryptocurrency ETF shares include both traditional cash subscribers and large holders. Although each company has not yet disclosed the specific proportions of in-kind and cash subscription, according to OSL’s public communication, the proportion of the first batch of in-kind subscription ETF shares may exceed 50%, which also explains why the initial fundraising scale of Hong Kong cryptocurrency ETFs can reach nearly $300 million, and the contribution of in-kind subscription cannot be ignored. However, on another level, these in-kind subscribed ETF shares may be converted into sell orders in subsequent secondary market transactions. Figure 4: Comparison of In-Kind and Cash Subscription Process for Hong Kong Cryptocurrency Spot ETFs Comprehensive Supply and Demand, Pay Attention to the Discount/Premium Rate to Seize Investment Opportunities From the comprehensive analysis of the supply and demand ends above, different from US Bitcoin spot ETFs, we can track the daily net inflow of funds of ETFs (Total Net Inflow, see https://sosovalue.xyz/assets/us-btc-spot for details) to intuitively judge the impact of incremental funds brought by Bitcoin ETFs on on-chain cryptocurrency asset prices. The supply and demand of Hong Kong cryptocurrency spot ETFs are more complex, and the data disclosed by various fund companies cannot clearly distinguish between in-kind and cash subscription/redemption quantities. In this context, we believe that the discount/premium rate in the open market (Hong Kong Stock Exchange trading) may be a better observation indicator. As we analyzed above, in-market trading on the Hong Kong Stock Exchange reflects the strength of both supply and demand. If an ETF produces a discount, it indicates that sellers have stronger selling intentions, supply exceeds demand, and market makers have incentives to buy ETF shares at a discount on the Hong Kong Stock Exchange and then redeem shares from the ETF issuer outside the market to make a profit, causing the overall net assets of the ETF to shrink, funds flow out, and have a negative impact on the overall cryptocurrency market. The entire process can be simply summarized as: ETF discount → stronger selling pressure → possible redemption → negative impact on the cryptocurrency market. Conversely, assuming the ETF is trading at a premium → stronger buying pressure → possible subscription → positive impact on the cryptocurrency market. According to SoSo Value data, as of the closing on April 30th, except for Harvest Bitcoin spot ETF (3439.HK) and Harvest Ethereum spot ETF (3179.HK), which had negative premiums of -0.18% and -0.19% respectively, other products had positive premiums, and during intraday trading, the highest positive premium reached 0.33%, with restrained selling and relatively strong buying pressure on the first day. Considering the influence of market makers on the first day of listing, this discount/premium data can be continuously observed. If a positive premium can be maintained continuously, it is expected to continue to attract investors to subscribe, especially holders of cryptocurrency, and the scale ofHong Kong cryptocurrency spot ETFs may exceed the estimated value of $500 million; whereas if it turns into a negative premium, attention should be paid to arbitrage trading to redeem ETF shares, with the ETF issuer selling cryptocurrencies, driving the cryptocurrency market downward. Figure 5: Supply and Demand Impact Mechanism of Hong Kong Cryptocurrency Spot ETFs (Source: SoSo Value) Hong Kong cryptocurrency ETFs also have significant value for investors: they have added a pathway for the conversion and circulation of cryptocurrency assets into tradable financial assets. Although the rapid approval of Hong Kong cryptocurrency spot ETFs may have a smaller short-term impact on the cryptocurrency market than US spot ETFs, in the medium and long term, the in-kind redemption/subscription mechanism of Hong Kong cryptocurrency ETFs also provides a pathway for converting cryptocurrency assets into traditional financial assets. Through in-kind subscription, cryptocurrency can be converted into ETF shares, and because ETF shares have fair values and liquidity priced by traditional financial markets, holding cryptocurrency ETFs can be used as proof of assets in traditional financial markets, allowing various leverage operations, such as collateral lending and structured products. The pathway between cryptocurrency assets and traditional finance has been further opened up, and the value of cryptocurrency assets can be more fully reflected and realized. From a more macro and long-term perspective, the approval of Bitcoin and Ethereum spot ETFs in Hong Kong is an important development for the global cryptocurrency market. This policy will have a long-term impact on the financial landscape of the Chinese-speaking region and is also an important step for the further legalization of cryptocurrency in the global financial system. Follow us Wu Blockchain is free today. But if you enjoyed this post, you can tell Wu Blockchain that their writing is valuable by pledging a future subscription. You won't be charged unless they enable payments. |
Older messages
Comparison between Farcaster and friend tech: The Competition between Financial Socialization and Social Financial…
Monday, June 3, 2024
Author: defioasis This article was written on May 13, and some data may have changed. SocialFi, an emerging trend that combines social relationships and financial tokenization, evolves at the
How Long Will the Bitcoin Bull Market Last? The Impact of the Federal Reserve, Nasdaq, and ETFs
Monday, June 3, 2024
The most crucial aspect of the cryptocurrency industry is the cycle. In this issue, we discuss the macro trends and their impact on cryptocurrencies with Jiang Jinze, Chairman of MuseLabs and former
WuBlockchain Weekly: MtGOX Executes Large-Scale Transfers, ETH ETF May Launch by End of June, Babylon Secures $70 …
Monday, June 3, 2024
1. Mt. Gox Cold Wallet Begins Large-Scale Transfers link On May 28 at 9:41 UTC+8, Mt. Gox's cold wallet initiated a transfer of Bitcoin, including 47.229k BTC to the new address 1HeHLv…vHoV68,
Weekly Project Updates: ZK Trademark Dispute, Taiko Mainnet Launch, Friend Tech Considering Migration from Base, e…
Monday, June 3, 2024
1. Matter Labs: No New Trademark Applications for ZK link Matter Labs expressed their gratitude to Vitalik Buterin, NEAR founder Illia Polosukhin, Hasu, and others for their suggestions on ensuring
Asia's weekly TOP10 crypto news (May 27 to Jun 2)
Monday, June 3, 2024
1. Hong Kong Regulatory News This Week 1.1 Exclusive: Hong Kong Requires License Applicants to Sign Pledge Excluding Mainland Users, Leading to Mass Withdrawal of Applications link Hong Kong has
You Might Also Like
Bitcoin pullback could be set up for $370k bull run price target
Friday, February 28, 2025
Bitcoin's 27% slide raises prospects for rebound, aligns with historical cycle patterns. ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏
WuBlockchain Weekly: SEC Terminates Lawsuits Against Multiple Crypto Companies, Bitcoin Drops Below $80,000, OKX S…
Friday, February 28, 2025
On Friday, OKX market data revealed that BTC fell below $80000, reaching a low of $78258, with the current price at $80514, reflecting a 24-hour decline of 7.22%. ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏
FBI confirms North Korea-backed Lazarus hackers stole $1.5 billion from Bybit
Thursday, February 27, 2025
FBI tracks Ethereum laundering spree by North Korean hackers amid rising threat of cyber warfare in the crypto world. ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏
Interview with MicroStrategy Founder Michael Saylor: The Company Holding the Most Bitcoin in the World
Thursday, February 27, 2025
In this interview, Colin from WuBlockchain had an in-depth discussion with MicroStrategy founder Michael Saylor about the company's ongoing Bitcoin acquisition strategy, the growing adoption of
Abu Dhabi Invests $436.9M In Bitcoin ETF
Thursday, February 27, 2025
February 17th, 2025 Sign Up Your Weekly Update On All Things Crypto TL;DR Abu Dhabi Invests $436.9M In Bitcoin ETF Changpeng Zhao Sparks Meme Coin Rumours Coinbase Finally Lists POPCAT & PENGU
📈 BTC’s realised price (average acquisition price) reached an all-time high of $43,000; State of Wisconsin Invest…
Thursday, February 27, 2025
BTC's realised price reached an all-time high of $43000; Abu Dhabi's Mubadala Investment disclosed its BTC ETF holdings; South Korea to allow universities and charities to sell crypto donations
HashKey Exchange's Interpretation of the Hong Kong SFC Virtual Asset Roadmap
Thursday, February 27, 2025
We are pleased to see the Hong Kong government release the forward-looking and pragmatic “ASPI-Re” roadmap for advancing the virtual asset industry. ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏
Argentina’s stock market plummets amid President Javier Milei’s LIBRA memecoin scandal
Thursday, February 27, 2025
Argentina's economic landscape shaken as Milei's LIBRA endorsement turns into multi-billion dollar fiasco. ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏
Heated AMA Debate: 0G Team Responds to Allegations of CFX Soft Rug, Overvaluation, and Token Commitment Concerns
Thursday, February 27, 2025
This AMA primarily focused on the relationship between Conflux and 0G Labs, discussing 0G Labs' high valuation, fundraising structure, technical direction, and community concerns over transparency.
Pectra: Ethereum’s Next Major Upgrade
Thursday, February 27, 2025
Breaking down key changes included in Ethereum's Pectra hard-fork ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏