Hong Kong Ethereum ETFs: 3 Weeks of Neutral Flows Hints at ETH’s Long-Term Prospects

• Hong Kong’s ETH ETFs have been mostly neutral since May 21, 2024.
• Anticipation of the U.S. spot ETH ETF launch may be influencing trading activity.
• Hong Kong ETH ETF issuers and asset managers are working to permit staking.

The slow rollout of spot Ethereum (ETH) exchange-traded funds (ETFs) in the U.S. may be influencing ETF trading sentiment in Hong Kong.

Seemingly, Hong Kong ETH ETF flow data suggests investors are looking to HODL and push for staking, hinting at a deep interest in Ethereum’s long-term value.

Hong Kong HODLing ETH ETFs?

In the lead-up to the U.S. Securities and Exchange Commission’s (SEC’s) decision to approve the first round of spot ETH ETF applications on May 23, Hong Kong’s spot ETH ETFs experienced a huge surge in trading volumes. But flows remained rather muted according to data from SoSoValue .

In the two weeks after, flows remained mostly natural, with two days of inflow recorded at the end of May. Trading volumes have remained relatively high considering the neutral streak. At present, Hong Kong asset managers are working to have ETH staking also permitted within their ETFs.

There are centralization concerns with ETH ETF staking, as now larger centralized institutions would be responsible for huge staking pools. Conversely, having significant sums of ETH tokens not being staked also poses a risk to the network’s security.

Staking is off the cards for U.S. spot ETH ETF applications. So, it could be interesting to see how staking within ETH ETFs would perform in a smaller market like Hong Kong, and how this may affect the Ethereum ecosystem overall.

The push for staking in spot ETH ETFs is significant as this would lock ETH tokens in place whilst still providing regular rewards to investors. Arguably, this would be a major consideration of investors looking for a long-term investment, which ETFs are perfectly suited for already.

Flows Neutral, Volumes Up

In the week beginning May 13, 2024, Hong Kong’s ETH funds were seeing mostly neutral flows and particularly low trading volumes .

As excitement mounted the SEC’s decision deadline of May 24, 2024, it appeared as though Hong Kong investors were confident of their U.S. counterparts’ approval.

At the beginning of the week, trading volumes jumped from $243,720 to $3.37 million in 48 hours, with the total net assets growing by some $10 million since May 13, 2024. If anything, they have marginally overtaken Hong Kong’s Bitcoin (BTC) ETFs in trading volumes over the past two days.

After a somewhat stunted beginning, Hong Kong’s ETH ETFs are beginning to show signs of promise.

ETH ETF Volumes Jump

The price of ETH was rallying as the decision to approve U.S. spot ETH ETFs drew near. Hong Kong’s ETF investors seemed to be in on the action too.

As per data  from Farside Investors play, with a six-day streak of zero flows across their ETH ETFs between May 14 to May 21, albeit with a total of $200,000 in ETH outflows on May 17.

After Hong Kong’s spot ETH ETFs recorded a six-day streak of zero flows, data  from SoSoValue shows the funds are began to experience higher trading volumes and increased net inflows.

A May 22, 2024 article  from South China Morning Post (SCMP), noted that ChinaAMC’s ETH fund has recorded net inflows of over $600,000. It also notes that Harvest Global, as well as Bosera and HashKey Capital ETH ETFs also relished in these gains.

Prior BTC Outflows

All six of Hong Kong’s crypto exchange-traded funds (ETFs) posted a single-day loss in the tens of millions on May 13, bringing total net flows into the red for the first time since launching.

Hong Kong’s crypto ETFs had a rather dismal beginning to May according to data  from Farside.

The streak of ETH outflows or neutral flows started on May 7th, and had mostly subsided by May 10. But, BTC outflows began to pick up for all three issuers, and on Monday 13, 2024, all six crypto ETFs posted outflows.

Following BTC’s brief tumble below $61,000 on May 10, Hong Kong’s crypto ETFs opened to a sell-off totaling a record $39.3 million. Outflows from BTC ETFs made up the vast majority – $32.7 million – of these exits.

China AMC is currently the loss leader. It recorded $15.5 million in BTC funds exits on May 13, bringing its total outflows to $16.8 million. This resulted in Hong Kong ETF’s total flows going into the negative.

Do BTC Outflows Matter?

Just as we’ve seen with U.S. BTC ETFs, notably Grayscale, significant outflows may just be part-and-parcel of crypto ETF trading. Bitcoin is a relatively volatile asset when compared with traditional stocks and assets. As such, would it be incorrect to assume that ETF flows will also track alongside that volatility?

If you were to compare  the performance of the largest ETF in the world with over $500 billion in AUM, the SPDR S&P 500 ETF Trust (SPY) next to the biggest BTC ETF, Grayscale’s GBTC, it doesn’t track in typical fashion.

If anything, the performance of GBTC and other  U.S. BTC ETFs follow the price of BTC  more so than any other factor. It’s also worth noting that GBTC has been leading in outflows, shedding billions from its fund since the beginning.

With more time, it will be easier to understand the relationship between the price of BTC and ETF flows. For now, it is reasonable to expect flow data to reflect BTC’s price, which isn’t a cause for concern unless significant outflows persist.

Hong Kong’s 3-Day ETH Outflows

As per data from Farside Investors , on May 10, 2024, Hong Kong’s spot ETH ETFs saw a 3-day streak of modest outflows.

Farside data  shows that Bosera, AMC, and Harvest witnessed small but consistent outflows since May 7, 2024. However, that is with the exception of Bosera, which registered its first ETH outflows on May 8. AMC posted two consecutive net outflows with one neutral day and Harvest ledwith three.

This totaled a net of around $5 million exiting Hong Kong’s three spot ETH ETFs over that period. But, with talks of these funds opening up to mainland China, optimism is mounting around their future performance.

Harvest Eyes China Expansion

The CEO of Harvest, Han Tongli, discussed  the possibility of integrating these ETFs into the ETF Connect scheme, stating:

“We don’t rule out applying for our ETFs to be included in the Connect program as long as everything goes smoothly in the next two years.”

It’s part of a larger initiative that began back in 2014, Stock Connect, which bridges Hong Kong and mainland China exchanges.

According to Tongli, the approval of crypto ETFs’ inclusion in the program would depend on favorable market conditions. As Tongli mentions, this could take at least two years two achieve.

Hong Kong ETFs Record First Outflows

After launching to a mixed reception, Hong Kong’s crypto exchange-traded funds (ETFs)  recorded their first day of outflows. According to data from CoinGlass , Hong Kong’s spot Bitcoin (BTC) ETFs saw outflows of approximately $4.5 million (75.67 BTC) on May 6th, 2024.

However, this modest outflow came from only one of the three BTC ETFs, ChinaAMC. The following day, these outflows were offset by the Bosera & Hashkey BTC ETF, which saw just over $6.5 million (100.92 BTC) of inflows.

As per data from SosoValue , the spot Ethereum (ETH) ETFs appear to be experiencing modest trading volumes. On May 7th, 2024, ChinaAMC also saw its first negative outflows from its ETH ETF, with some $3.5 million (1,100 ETH). Harvest also saw $1.4 million (439.87 ETH) leave its fund.

The Bosera & Hashkey fund is proving to be more attractive as of May 7th, 2024, it gained $6.8 million (999.81 ETH).

Why This is Ok

Hong Kong’s spot crypto ETFs can hardly compare with their behemoth counterparts in the U.S., it’s unreasonable to have such high expectations or even compare.

However, if you want to make a direct comparison, the largest U.S. spot BTC ETF, Grayscale’s GBTC, recently ended a 78-day outflow streak which saw it lose an average of $218 every day following its launch.

What is evident, is that there is plenty of appetite from Hong Kong investors, and perhaps the East Asian region overall. Furthermore, restrictions on mainland China investors could soon be lifted, which could effectively catapult these funds into a competitive position globally.

Hong Kong Bitcoin and Ethereum ETFs Draw $13 Million After Launch

The Hong Kong units of mainland Chinese asset management funds, China Asset Management, Harvest Global Investments, and Bosera Management, have launched spot BTC and ETH exchange-traded funds on the Hong Kong Stock Exchange (HKEX).

Though the funds haven’t drawn in billions as seen in the U.S., their launch is a significant moment in crypto history that shouldn’t be overlooked.

The first day of trading saw a mixed response. The total turnover across all six ETFs, which includes trading in U.S. dollars, Hong Kong dollars, and the renminbi, stood at just under $13 million.

As per the South China Morning Post , the three BTC ETFs closed between 1.5% and 1.8% higher, whereas ETH ETFs shed 0.5% and 0.8%.

Local media had predicted  the HKEX’s crypto ETFs to draw volumes exceeding $100 million, with other analysts pointing out that they could draw $1 billion over the next two-year period. Naturally, the tepid launch is incomparable to the U.S. launch. When the 11 Bitcoin ETFs hit U.S. markets on January 11, 2024, they saw over $4.5 billion traded on their first day.

A Moment in Crypto History

Hong Kong is the first in Asia to issue spot BTC and ETH ETFs, while the U.S. continues to waste time debating whether or not ETH is a security. This places Hong Kong in a uniquely influential position.

Additionally, the Hong Kong crypto ETFs have favorable fee structures and offer a “world-first” in-kind redemption model, which is a more tax-efficient process that minimizes transaction costs on top of arbitrage opportunities. These are qualities lacking in their U.S. counterparts.

These qualities could set the standards for other jurisdictions that are mulling the launch of spot crypto ETFs, especially ETH-based ones.

Tempering Expectations

Hong Kong investment firms are incomparable to their far bigger, renowned, and wealthier U.S. counterparts. Funds such as BlackRock and Grayscale are household names in the U.S. and globally, and command billions upon billions of assets under management (AUM).

Some excited – albeit sometimes naive – crypto community were certain that the launch of spot BTC and ETH ETFs would trigger another bull-run moment. However, it seems as though they’re slightly disappointed in the results.

This is extremely bullish for crypto in the long run, even though Hong Kong inflows didn’t touch the $4.5 billion seen on the first day of U.S. spot BTC ETF trading in January.

Most importantly, it’s a sign that crypto continues to find legitimacy on the global market, especially with Hong Kong being a global financial hub. As crypto ETF fever reaches as far as Australia, we could see a number of institutional-grade crypto products launching on major markets throughout the year.

About the Author

Eddie Mitchell

Eddie has been writing news and content primarily for crypto news and industry players over the past seven years. With an eye for the bigger picture, Eddie prefers to investigate the broader implications of a story, as well as explore the weird and wonderful world of crypto. He believes blockchain has already changed the world, but observes the space overall with a skeptical and adoring eye.

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