Hong Kong launched a cryptocurrency spot ETF at the end of April this year, and its asset size has only reached US$300 million so far. The total assets of the Bitcoin spot ETF are only US$270 million, and the total assets of the Ethereum spot ETF are only US$39.08 million. Compared with the US's 55.1 billion and 7.28 billion, the gap is quite large. The two combined are less than 0.5% of the United States.

SoSoValue's data shows that the net subscription and net redemption of Hong Kong Bitcoin and Ethereum spot ETFs have been zero for many days. Although SoSoValue officials later stated that Hong Kong crypto ETFs support cash and physical subscriptions, since ETF shares purchased through physical BTC or ETH physical subscriptions do not generate cash inflows of the asset, they cannot be simply included in the daily net inflow statistics, but it still cannot change the sluggish trading situation in the Hong Kong market.

Regarding this situation, Gary Tiu, executive director and head of regulatory affairs of OSL, a licensed cryptocurrency exchange in Hong Kong, pointed out that Hong Kong cryptocurrency ETFs face systemic obstacles, namely the overall lack of incentives for ETFs in the market. He explained: In Hong Kong, especially in traditional funds and structured products, there are usually a lot of intermediaries between issuers and end investors - brokers, banks, private banks, retail banks, etc., and those intermediaries make a lot of money by distributing financial products.

However, since ETFs allow anyone to trade directly in the market, the commissions these stockbrokers receive for selling crypto ETFs are only about 1% to 2% of the commissions they receive for selling structured products, so there is little incentive and motivation for them to offer such products to their clients. Therefore, Hong Kong’s incentive system is one of the reasons why ETFs have had difficulty developing as financial instruments.

In addition, the structure of Hong Kong's capital market does not help the growth of cryptocurrency ETFs, and there is a lack of traders and brokers for Hong Kong cryptocurrency ETFs. Currently, market participants in Hong Kong are mainly divided into three categories: Western institutions, mainland institutions, and Hong Kong institutions. Brokers and traders in the mainland, they are not allowed, or they choose not to deal with the product; for Western financial institutions, they have no need to trade these products because they can get more fees and incentives, and have easier access to US ETFs; that is, compared with the two major players, the remaining participants from Hong Kong are very small in size, which is the main limiting factor for the growth of Hong Kong cryptocurrency ETFs.

On the other hand, Tiu also emphasized that Hong Kong regulators and financial institutions as a whole still have an inherent negative bias towards cryptocurrencies such as Bitcoin and Ethereum, and believe that crypto ETFs, a unique risk category, require extra caution. In addition, southbound funds are not only unlikely to be approved by the Chinese government, but may also become a channel for mainlanders who own Bitcoin to deposit it into ETFs in order to cash it out, which can easily cause negative effects in a subtle way.

It is worth mentioning that in this environment, Hong Kong will strengthen its digital asset regulation in the next 18 months. By establishing a comprehensive regulatory framework, the city aims to attract global fintech talents, promote innovation and ensure the security and integrity of digital asset transactions.

Members of the Legislative Council of the Hong Kong Special Administrative Region stressed that this initiative is crucial to Hong Kong's technology industry in the next five to ten years. Sandbox testing has already begun, and the government plans to strengthen the supervision and enforcement of laws related to digital asset financial products within one to one and a half years. In the next stage, it will encourage project parties to explore more innovative financial products in Hong Kong.

In general, if Hong Kong's cryptocurrency ETF wants to continue to improve its market position in the future, it may still require a lot of effort. Hong Kong's dream of becoming a Web3 center still needs to be observed.