Hong Kong's Crypto ETFs Struggle to Gain Traction, Falling Short of $1 Billion Target

As of September 9, 2024, Hong Kong's ETFs have only managed to gather $291 million in assets. That's far below expectations. David Lawant, the head of research at FalconX, remains hopeful about the future of crypto ETFs in the region.

Right now, these funds hold only a small fraction of the nearly $57 billion managed by similar funds in the U.S. Some days, the six funds focused on spot Bitcoin and Ether see no net inflows at all.

Looking at other Asian markets, it seems unlikely that they will approve their own Bitcoin ETFs anytime soon. Lawant explains, “It’s common for ETF flows to slow after a strong launch, then build steadily over time.” He believes that reaching $1 billion in assets for Hong Kong ETFs by the end of the year is still possible, though he thinks it might be more realistic by late 2025.

He emphasizes the Asian market's size and importance in the overall crypto ecosystem, suggesting that growth is certainly within reach.

FalconX has executed over $1 trillion in trades in digital assets since 2018. As a prime brokerage, they support Bitcoin ETF sponsors in the U.S. by enhancing market-making and liquidity. However, the lack of regulatory clarity remains a significant hurdle. There are days when no money flows in or out of any of the ETFs.

Despite this sluggishness, Lawant is not too worried. He reiterates that it's normal for ETF flows to slow down after a launch, especially during quiet market periods, which we've seen lately.

Regulatory uncertainty is a big challenge. Patrick Pan, CEO of OSL, a regulated digital assets platform in Hong Kong, pointed out that getting approvals—especially for Ethereum staking—could boost the ETF market. OSL, along with ChinaAMC and Harvest Global, helped launch Hong Kong's first spot crypto ETFs.

Pan admitted that the initial reception was disappointing but expressed hope that new products like staking could drive growth. He mentioned that various funds and exchanges are negotiating with the Securities and Futures Commission. However, several barriers still exist.

One major issue is the limited access to mainland Chinese capital. That’s not likely to change soon, given China’s strict stance on crypto investments. Additionally, many Hong Kong investors can access U.S. markets directly, which makes local ETFs less appealing.

While the infrastructure for ETFs took time to develop, more institutions are starting to offer access to customers. In early August, Mox, a digital bank backed by Standard Chartered, announced plans to add crypto ETFs to its app, with hopes of including direct crypto investments as well.