The Asia-Pacific market is heating up for Bitcoin and Ethereum ETFs.
Two Bitcoin (BTC) exchange-traded funds (ETFs) launched in Australia in June, hot on the heels of six Bitcoin and Ethereum (ETH) ETFs launched in Hong Kong in late April. The crypto ETF market is starting to take shape, and as things stand, it looks like a two-horse race between Australia and Hong Kong as the race for market share heats up.
When it launched on Cboe on June 4, Monochrome Asset Management became the first and only Australian ETF to hold Bitcoin directly. VanEick is the second, launching the product as a US version of the sub-fund on the Australian Securities Exchange (ASX) on June 20. Several other organizations have applications in the pipeline.
All these ETFs are offered on international exchanges with fair access, depending on the platform you use. But the real prize is the Asian market.
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ETF providers in both regions have long-term expansion plans. At least one Australian supplier, Monochrome, is eyeing the wider Asian market – perhaps countries where local institutions do not incur the costs of launching and maintaining a stand-alone product. For Hong Kong, the ultimate goal is to tap the huge Mainland Chinese market.
As the first to market, these vendors have a head start, and will likely have the market to themselves in the near future. Singapore is ruling itself out of the picture for now. There is a chance that regulators in Japan and South Korea could approve crypto ETFs, but strict capital controls in Korea mean that their horizons stop at their own borders.
Act locally, think globally
So what does this possibly two horse race look like? The latest goal for players in both markets is to accumulate assets locally. It will obviously take longer than their US counterparts, which saw $4.6 billion in trading on their first day on January 11 and now reach nearly $30 billion in assets under management (AUM).
Cash flows in Hong Kong are not related to pre-startup hype, but the hype may be more responsible than the products. While the overall ETF market in Asia has shown a CAGR of 20% over the past 10 years, investor choice here is still not as strong as the U.S. The combined AUM of all ETFs in the seven leading APAC markets accounts for only 4%. % of their total market value. In the US, ETF AUM accounts for 16% of the total market.
ETF selection is strongest in Japan and Australia, with AUM accounting for 9% and 7% of local market capitalization, respectively. In Hong Kong, ETF AUM accounts for only 1% of market value. However, the CEO of London-based CF Benchmarks, a benchmark for crypto ETFs, predicts that crypto ETFs in Hong Kong will reach $1 billion in AUM by the end of 2024.
Systematic differences
Crypto ETFs have different structures, especially in the Hong Kong and Australian markets. Hong Kong is a global financial center, with activity centered around institutional investors. There are few regulated exchanges and issuers. While in the US we've seen a reluctant regulator driving crypto ETF demand, in Hong Kong it's actually the regulator pushing ETFs forward.
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It's not every day you see regulators chasing fund managers for applications. Hong Kong has decided to make Web3 and crypto a big focus point on how to position the economy for the future. There is so much going on in events and newsletters that people are publishing faster than they can digest.
While the regulator doesn't allow mainlanders to buy Hong Kong ETFs, the long play is that they can buy through the Hong Kong China Stock Exchange. This is a bridge for mainstream investors to invest in Hong Kong listed investment products and vice versa. Today, that includes traditional securities and ETFs. If reports of initial discussions to include crypto ETFs turn out to be true, things could get very interesting. This may take a few months or a few years. Nobody knows. But here's the idea.
If it happens, or looks likely, that could bring many more suppliers to the Hong Kong market. Right now, there are still a few applicants awaiting approval, and many more providers are watching and waiting to see if demand grows. If the stock correlation doesn't happen, this is probably a three- or four-player market. If this happens, we will start to see more applicants competing for the world's largest small market.
ETF as a service?
In Australia, the domestic market is less than half that of Hong Kong. However, there is more appetite for ETFs in general and there are good crypto exchanges, retail and institutional investors and innovations such as gaming companies and fintech platforms.
Regulators in Australia have not taken an active role in pushing ETFs forward. They have even taken some crypto companies to court in some cases. But at the same time, they put in place safeguards that protect consumers and help clarify how regulated businesses should think about infrastructure. Their approach is more proactive – they are responding to demand and industry trends.
For AussieFS, the immediate goal is to capture as much Aussie professional and institutional flow as possible. But if Monochrome's strategy plays out as the only directly held Bitcoin ETF, it will take advantage of its position among other local feeder Bitcoin ETFs as an Australian-listed instrument that is well-suited to ASIC's retail crypto asset licensing rules for feeder funds to use as a master fund. In other countries in the region. Think of an ETF as a service.
That will probably require some additional approval in each jurisdiction where you plan to launch, but approval from the Australian regulator will provide greater comfort.
For Hong Kong, there is a sense that the Stock Connect deal is do or die. But even without that, it's a big enough independent market to support crypto ETFs. The Australian market is smaller, but probably still viable.
Regardless, this is a very exciting and positive development that brings innovation and diversity to the market, and offers all kinds of lessons as the market grows.
Abel Sue is the Managing Director of APAC Sales at BitGo. His responsibilities include sales, partnerships and strategy for the APAC region. Prior to joining Bitcoin, he worked in wealth management and most recently as a private banker at Bank of Singapore, working with family offices, UHNWIs (ultra-high-net-worth investors) and institutional investors. After completing his MSc at Imperial College London, he began his career at Rothschild in London.
This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.
