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Hong Kong Crypto ETFs Suffer $39 million Outflows: Why This Matters

Last Updated 2 days ago
Eddie Mitchell
Last Updated 2 days ago
Key Takeaways
  • Hong Kong’s Bitcoin and Ethereum ETFs have recorded their largest single-day outflows of almost $40 million.
  • BTC outflows made up a vast majority, totaling over $30 million.
  • ETH outflows remain persistent, but minor compared to BTC.

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

Should we expect volatility inflow data from crypto ETFs just as we do with crypto markets in general?

BTC Outflows Soar

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

Flow table showing Hong Kong crypto ETF inflows and outflows.
A streak of outflows has struck Hong Kong’s crypto ETF market.
(Credit: Farside Investors)

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

Following BTC’s brief tumble below $61,000 on Friday, 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 Monday, bringing its total outflows to $16.8 million. This has thrown Hong Kong ETF’s total flows into the negative, after ending last week with over.

Does it 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.

SPY ETF and GBTC ETF performance comparison.
(Source: ETF.com)

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.

BTC price chart.
(Source: CoinGecko)

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 have seen a 3-day streak of modest outflows.

Farside data  shows that Bosera, AMC, and Harvest have seen small but consistent outflows since May 7, 2024, with the exception of Bosera, which registered its first ETH outflows on Thursday. AMC has posted two consecutive net outflows with one neutral day and Harvest leads with three.

This has totaled a net of around $5 million exiting Hong Kong’s three spot ETH ETFs over the last three days. 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, has just 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 has seen 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, this 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.

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