Undervalued Hong Kong Crypto ETFs: The Appearance and Undercurrent Behind the Data

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Original author: Jupiter Zheng, Partner, HashKey Capital Secondary Fund

On May 24, the U.S. Securities and Exchange Commission (SEC) officially approved eight Ethereum spot ETFs in Form 19b-4.

This means that the regulators stance has shifted from tough to soft. The US Ethereum spot ETF seems to be just one step away from final launch. Market sentiment has also been ignited recently, and the secondary market is even more booming.

At the same time, in sharp contrast, Hong Kongs crypto asset ETF, which had launched six new ETFs covering Bitcoin and Ethereum as early as April 30, has been rather lonely in the past month, and was even criticized for its disappointing market data performance.

The market always likes to overestimate the short-term effects of new things and underestimate their long-term impact. This article aims to clarify how Hong Kongs crypto ETFs have performed in the past month, what are the incentives behind them, what variables the market has ignored, and what path it may take next?

Downturn and variables in the data

On April 30, six virtual asset spot ETFs, including Bosera HashKey Bitcoin ETF (3008.HK), Bosera HashKey Ethereum ETF (3009.HK), Hua Xia Bitcoin ETF (3042.HK), Hua Xia Ethereum ETF (3046.HK), Harvest Bitcoin Spot ETF (3439.HK) and Harvest Ethereum Spot ETF (3179.HK), were officially listed on the Hong Kong Stock Exchange and opened for trading.

Judging from the opening data, the issuance scale of the three Bitcoin spot ETFs on the first day on April 30 reached US$248 million (US$45 million for Ethereum spot ETF), which is actually far more than the initial issuance scale of the US Bitcoin spot ETF of about US$125 million on January 10 (excluding Grayscale) , which also shows that the market has high expectations for the subsequent performance of Hong Kong crypto ETFs.

The markets criticism of these six Hong Kong crypto ETFs is mainly focused on their low trading volume relative to US crypto ETFs: on the first day of listing, the total trading volume of Hong Kongs six crypto ETFs was HK$87.58 million (about US$11.2 million), of which the trading volume of the three Bitcoin ETFs was HK$67.5 million, less than 1% of the total trading volume of the US Bitcoin spot ETF on the first day (US$4.6 billion).

The trading volume then continued to decline, even falling below US$1 million on May 23.

However, it is worth noting that the trading volume of Hong Kong crypto ETFs has shown a clear inverted trend with the scale of asset management: as of May 23, 2024, the total asset management scale of 6 Hong Kong virtual asset spot ETFs exceeded US$300 million, of which the Bitcoin spot ETF held a total of 3,660 BTC and a total net asset of US$254 million; the Ethereum spot ETF held a total of 13,380 ETH and a total net asset of US$50.83 million, both of which increased slightly compared to the first day.

Undervalued Hong Kong Crypto ETFs: The Appearance and Undercurrent Behind the Data

Although in terms of absolute size, the scale of US$250 million is still far less than the US Bitcoin spot ETF of about US$57.3 billion, this actually ignores the objective difference in pool size between the Hong Kong ETF market and the US ETF market – the total volume of the Hong Kong ETF market is only US$50 billion, while the US ETF market is as large as US$8.5 trillion, a difference of about 170 times.

Therefore, in terms of relative proportion, the US$250 million Bitcoin spot ETF accounts for 0.5% of the Hong Kong ETF market, while the US$57.3 billion accounts for 0.67% of the US ETF market. In fact, there is not an order of magnitude difference between the two . At the same time, this is the performance of less than a month after its launch, which also indirectly shows that the Hong Kong crypto ETF has an equally huge impact on Hong Kongs local financial market.

If we look closely at the changes in the internal data of Hong Kong crypto ETFs in the past month, China Asset Management, Harvest Asset Management, and Bosera HashKey also show a trend of some rising and some falling:

The BTC and ETH holdings of Hua Xia and Harvest have both declined significantly, while Bose HashKey has maintained a good momentum, with total asset management exceeding US$100 million, accounting for more than 33% of the total, and an increase of US$30 million from the first day. Currently, Bose HashKey ranks first in ETH holdings, and second only to Hua Xia in BTC, and the gap has rapidly narrowed from the initial thousands to less than 500.

Undervalued Hong Kong Crypto ETFs: The Appearance and Undercurrent Behind the Data

The sweet trouble behind the unexpected approval

Data doesn’t lie. Behind the inverted trend of Hong Kong’s crypto ETF trading volume and scale, there is actually a “structural” undercurrent—the various stakeholders are refining processes and unblocking bottlenecks.

If we look back at the pace of Hong Kong regulators approving and launching six crypto ETFs at once, we will find that the most important market feedback is reasonable, but unexpected:

  • It makes sense that since the Hong Kong government took great strides to embrace virtual assets and Web3 in 2022, a series of related policies and regulatory frameworks have been steadily advancing, including the highly anticipated crypto asset ETF, so all stakeholders have already begun intensive preparations;

  • What was unexpected was that most parties had judged that the ETF would be approved in the third quarter or the second half of the year, so they had been gradually refining operational processes, technical integration and other issues. However, the Hong Kong government unexpectedly accelerated the process in April, and the approval progress far exceeded market expectations, forcing all parties to focus on material submission and other work first , and the original deployment plan was no longer suitable.

In short, this has led to all stakeholders putting the application work in advance, while issues in operations, channels, products and other dimensions that were originally prepared to be polished have not yet been fully resolved, and can only be made up after the ETF goes online , resulting in some obvious sweet troubles.

Here we have to mention the physical subscription and redemption model (i.e., holding currency subscription and redemption) pioneered by Hong Kong cryptocurrency ETF, which allows investors to directly use Bitcoin and Ethereum to subscribe for ETF shares – investors can directly hold BTC and ETH to subscribe for ETF shares, and support cash redemption. At the same time, cash subscription for ETF shares also supports BTC and ETH redemption. Take 3008.HK and 3009.HK issued by Boshi HashKey as an example, each share of 3008 corresponds to 1/10000 of BTC, and each share of 3009 corresponds to 1/1000 of ETH.

Participating brokers: China Merchants Securities International, Mirae Asset Securities, Victory Securities, Aide Securities

Market Makers: Eclipse Options (HK) Limited, Jane Street Asia Trading Limited, Optiver Trading Hong Kong Limited, Vivienne Court Trading Pty. Ltd.

The advantage of this innovative mechanism is that it helps investors achieve two-way circulation of virtual assets and traditional assets, but it also involves multiple stakeholders:

  • Participating Dealers (PDs) are institutions selected by ETF issuers (Bosera HashKey, China Asset Management, and Harvest) to take responsibility for adding new ETF units in the primary market. Currently, they include Shengli Securities, China Merchants Securities International, Shengli Securities, and Huaying Securities;

  • Brokerage firms are the main channel for investors to conduct ETF secondary market transactions. Investors can buy and sell ETF shares through brokerage accounts just like stock trading.

  • The custodian is responsible for keeping the crypto assets corresponding to the ETF and ensuring the security of the assets;

  • Market makers provide ETF market making services and are responsible for buying and selling ETF shares in the secondary market to ensure market liquidity;

Therefore, it is necessary for different institutions such as participating dealers (PD), securities firms, custodians/exchanges, and market makers to work together to clear the bottlenecks in the entire trading chain.

Undervalued Hong Kong Crypto ETFs: The Appearance and Undercurrent Behind the Data

That is to say, the docking efficiency of each link has become a major problem that all parties need to work out after the ETF is launched. Take the above-mentioned Bose HashKey Crypto ETF’s coin subscription as an example:

1. Investors need to open an account with PD first ;

2. Then submit the ETF share creation instruction within the specified time;

3. Then send coins to PD, and the coins will be managed by HashKey management service;

4. The Hong Kong Central Computing Institute then creates ETF shares and sends them to the PD , which then gives them to the brokerage firm through the PD ;

5. In the future, ordinary investors will need to trade in brokerage firms ;

This involves the connection of investor KYC information during the PD/broker account opening process, the creation of shares in the primary market through subscription, the connection between PD and custodian, the connection between PD and broker, etc. This is also the main bottleneck at present, so a lot of funds, especially funds in the primary market, are still on the sidelines, which can easily lead to a negative feedback vicious cycle, that is, sluggish trading volume → slow entry of arbitrage institutions → continued sluggish trading volume.

However, everything is slowly being resolved, and the changing trend of asset management scale in the past month is a clear example.

Crypto ETF may still take 2 months to ferment

Therefore, from this perspective, the actual performance of the Hong Kong crypto ETF still needs time to ferment. If estimated based on the current actual situation, it is expected to take at least 1-2 months to polish and straighten out the relevant operational processes, channels, technical docking and other details.

So let’s take a look ahead and see what changes the Hong Kong crypto ETF market might see in two months.

First of all, as operational processes, technical connections, etc. are optimized, and more and more PDs, securities firms and other roles enter the market, their original customer base will naturally become the seed pool for incremental users, achieving a leap in the volume of covered users and accessible funds, which will undoubtedly greatly expand the future imagination of Hong Kongs crypto ETFs.

At the same time, two months later, traditional financial institutions that are now on the sidelines and need more time to evaluate can also launch more derivative products such as leverage, lending, and asset management based on ETF products, thereby realizing financial innovations that were previously difficult to implement directly using physical Bitcoin assets, and meeting the needs of various investors to deploy encrypted assets.

The two can also promote each other and form a positive feedback path – the access of more PDs, securities firms and more users will further promote more financial innovations in crypto ETFs, and various structured products and derivatives based on spot ETFs will also bring more possibilities to the Hong Kong market, achieving a virtuous circle.

At the same time, there is a new biggest variable that deserves special attention – for institutions, the Hong Kong Ethereum spot ETF has become a time window to get ahead of the US ETF.

The reason is that although the US SEC has approved 8 19 b-4 forms for Ethereum spot ETFs, it is still in the waiting stage for the shoe to finally drop, and the market generally expects that it will take at least 1-2 months before it is officially launched.

During this window period, those who are interested in the Ethereum spot ETF, especially institutional funds that want to ambush in advance the subsequent incremental capital inflow and large-scale rise in ETH, can use the Hong Kong ETF, a safe, compliant and cheap channel, to get a head start compared to other players and be the first to lay out this almost obvious Alpha opportunity.


In Waiting for Godot, Godot symbolizes hope and a better future. For todays Hong Kong crypto ETF, the current Godot is the optimization of the entire transaction process between different institutions.

Behind the inverted trend of trading volume and scale, various stakeholders are refining processes and clearing bottlenecks. Two months later may be the critical point for Hong Kong ETFs to increase in volume and truly open.

This article is sourced from the internet: Undervalued Hong Kong Crypto ETFs: The Appearance and Undercurrent Behind the Data

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