The cryptocurrency exchange-traded fund (ETF) landscape is taking shape in Asia, with Australia and Hong Kong leading the charge. Both regions recently witnessed the launch of their first crypto ETFs, sparking a potential two-horse race to capture market share in the lucrative Asian market.
Australia’s First-Mover Advantage
Australia boasts a unique advantage with Monochrome Asset Management’s Bitcoin ETF, the first in the world to directly hold Bitcoin on the Cboe exchange (launched June 4th). VanEck followed suit on June 20th with a sub-fund of its US-based Bitcoin ETF listed on the Australian Securities Exchange (ASX). Several other Australian firms are also in the application pipeline.
While initial offerings cater to local markets, the real prize lies in capturing broader Asian investor interest. Australian providers like Monochrome are eyeing countries where local institutions alone might not justify dedicated ETF launches. Hong Kong, on the other hand, has its sights set on the massive mainland China market via the Hong Kong-China Stock Connect program.
Being first to market grants these providers a crucial head start. Singapore is currently out of the running, while regulatory hurdles in Japan and South Korea may limit their offerings to domestic investors. This early mover advantage translates to potential dominance in the immediate future.
Local Growth vs. Global Ambitions
The short-term goals for both markets differ. Australia’s priority is attracting local assets, a process likely slower than the US experience, which saw a staggering $4.6 billion traded on the first day of Bitcoin ETFs and current AUM (Assets Under Management) approaching $30 billion.
Hong Kong’s initial performance hasn’t lived up to pre-launch hype, potentially due to a less established ETF investor base compared to the US. While the overall Asian ETF market has seen steady growth, local investor preference for ETFs still lags behind the US. This is reflected in the combined AUM of all ETFs in leading Asian markets, which represents a mere 4% of their total market cap.
The market structures in Hong Kong and Australia also reveal distinct approaches. Hong Kong, a global financial hub, caters to institutional investors with fewer regulated exchanges and innovators. Interestingly, while the US saw regulators reluctantly responding to high demand, Hong Kong’s regulator actively pushed for crypto ETFs. This proactive approach is evident in their rapid-fire release of consultation papers and focus on positioning Web3 and crypto as key economic drivers.
One potential game-changer is the Hong Kong-China Stock Connect, which allows mainland Chinese investors to invest in Hong Kong-listed products. If reports of initial discussions to include crypto ETFs hold true, it could unlock a massive influx of capital and attract more providers to the Hong Kong market. While the timeframe for this inclusion remains uncertain, the prospect holds significant weight.
Australia: A Mix of Retail and Innovation
Australia’s market size is less than half that of Hong Kong’s, but it boasts a higher general appetite for ETFs and a diverse landscape of crypto exchanges, retail investors, and institutional players. Additionally, Australian regulators have taken a more reactive approach, focusing on consumer protection measures and responding to industry trends.
For Aussie ETFs, the short-term goal is to capture domestic professional and institutional investors. Monochrome, the first directly held spot Bitcoin ETF, aims to leverage its position as a locally listed instrument under ASIC’s regulations. This allows them to potentially serve as a master fund for feeder funds in other Asian countries, creating an “ETF as a service” model.
Regardless of which region ultimately takes the lead, the emergence of crypto ETFs in Asia is an exciting development. It will foster innovation and differentiation in the market, providing valuable lessons as the crypto ETF ecosystem continues to mature.