Gary Tiu, executive director and head of regulatory affairs at Hong Kong-based crypto spot exchange OSL, said in a panel discussion at the Foresight 2024 conference on Sunday that crypto spot exchange-listed funds (ETFs) in Hong Kong face systemic hurdles due to a lack of incentives for ETFs in the market overall.
“So in Hong Kong, especially for funds and structured products, there is usually a very rich layer of intermediaries between the issuer and the end investor: brokers, banks, private banks, retail banks,” Tiu said. “These intermediaries are making a lot of money by distributing financial products.”
Thiew said this has led to Hong Kong markets preferring unlisted products, while ETFs allow anyone to execute trades in the market. As such, ETFs offer little incentive for brokers to charge a few basis points of commission, which is about 1% to 2% of the commission earned from selling structured products. Thiew said.
“So I think Hong Kong’s incentive system is one of the reasons why ETFs have had a hard time growing as a financial product,” said the OSL director.
Moreover, Thieu said Hong Kong still has a negative bias towards Bitcoin, Ether and cryptocurrencies.
“I think there’s still a bit of a bias in the eyes of regulators and financial institutions that Bitcoin ETFs are a unique type of risk that they need to be particularly careful about,” Tiu said.
Chen Zhao, digital assets director at Fosun Wealth, added that Hong Kong crypto ETFs also lack dealers and brokers. There are three main categories of market participants in Hong Kong: Western institutions, China-based institutions, and Hong Kong-based institutions.
“Chinese brokers and dealers either cannot or choose not to trade commodities,” Zhao said. “And for Western financial institutions, they don’t need to trade commodities because they get more commissions and incentives and have easier access to U.S. ETFs.”
According to Zhao, the remaining Hong Kong participants are “very small” in size compared to the two major groups of participants, which poses a significant constraint on the growth of Hong Kong crypto ETFs.
According to data According to SoSoValue, the Hong Kong spot bitcoin and ether ETF has a total net asset value of about $310 million since April 30, with a daily trading volume of about $2.8 million. However, unlike the US crypto ETF, the Hong Kong spot crypto fund allows investors to purchase the ETF through spot subscriptions of physical BTC, which are not considered cash inflows, SoSoValue said.
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