Hong Kong crypto market has encountered a significant challenge. According to Gary Tiu, Executive Director and Head of Regulatory Affairs at OSL, a leading crypto exchange in the region, the structure of Hong Kong’s equity markets is stifling the growth of cryptocurrency exchange-traded funds (ETFs). This systemic obstacle, along with an inherent bias against bitcoin and ether, is hindering the advancement of crypto ETFs in the region.
Tiu’s remarks, delivered during a panel discussion at the Foresight 2024 conference, shed light on the structural inefficiencies that have led to a 25% decline in the expected growth of Hong Kong’s crypto ETFs.
Systemic Obstacles in Hong Kong’s Market
Hong Kong crypto ETFs face systemic market obstacles due to the complex structure of the region’s equity markets. According to Tiu, one of the primary reasons for this challenge is the significant layer of intermediaries—brokers, banks, and financial institutions—that exist between issuers and end investors.
“In Hong Kong, especially when it comes to funds and structured products, there is a very rich layer of intermediaries—brokers, banks, private banks, retail banks, etc.,” Tiu explained. “These intermediaries make a lot of money from distributing financial products.”
Tiu pointed out that this intermediary-heavy structure has led the Hong Kong market to favor unlisted products, which generate higher commissions for brokers compared to ETFs. Unlike structured products that offer around 1% to 2% in commission, ETFs provide very little incentive for equity brokers, with commissions only a few basis points. As a result, ETFs struggle to gain traction as a financial instrument in Hong Kong.
Bias Against Bitcoin and Ether
Beyond structural challenges, there is also a noticeable bias against cryptocurrencies such as bitcoin and ether in Hong Kong. Tiu highlighted this bias as another significant barrier to the growth of crypto ETFs in the region. “I think there is still a bit of a bias in the eyes of the regulators and also in the eyes of the financial institutions, that somehow bitcoin ETF is just this unique class of risk that you need to be extra cautious about,” Tiu noted.
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This skepticism towards crypto assets among regulators and financial institutions exacerbates the systemic challenges already present in the market. The cautious stance on bitcoin and ether ETFs, despite growing global interest in these assets, reflects a broader hesitance within the Hong Kong financial sector to fully embrace cryptocurrencies.
Challenges with Market Participants
Chen Zhao, the Digital Assets Director at Fosun Wealth, further elaborated on the challenges faced by Hong Kong crypto ETFs, pointing out the lack of a diverse group of market participants. According to Zhao, there are three major categories of market participants in Hong Kong: western institutions, China-based institutions, and Hong Kong-based institutions. However, a significant portion of these participants either choose not to engage with crypto ETFs or are restricted from doing so.
“Chinese brokers and dealers, they’re not allowed or they choose not to deal with the product,” Zhao explained. “And for the western financial institutions, they don’t have the necessity of dealing the products because they acquire more fees and incentives and have easier access to the U.S. ETFs.”
Zhao emphasized that the remaining market participants from Hong Kong are relatively small compared to the two major groups, which acts as a major constraint on the growth of Hong Kong crypto ETFs. This limited participation further compounds the difficulties faced by these financial instruments in gaining wider acceptance and market share.
End Note: Hong Kong Crypto Market Challenges
The systemic obstacles facing Hong Kong crypto ETFs are rooted in the region’s complex market structure and a prevailing bias against cryptocurrencies like bitcoin and ether. As highlighted by Gary Tiu and Chen Zhao, these challenges have significantly hindered the growth and adoption of crypto ETFs in Hong Kong.
While the global interest in cryptocurrency ETFs continues to rise, the Hong Kong market’s reluctance to fully embrace these financial instruments may delay its progress in becoming a leading hub for digital assets. Addressing these systemic issues and overcoming the bias against crypto assets will be crucial for the future development of Hong Kong’s cryptocurrency market.
Despite the current challenges, the insights provided by industry leaders like Tiu and Zhao offer a roadmap for overcoming these obstacles and fostering a more supportive environment for the growth of crypto ETFs in Hong Kong. Keep following TheBITJournal for latest crypto updates and more on Hong Kong crypto market.
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