As ether ETFs in US take off, Hong Kong may look to staking
The trading volume of US exchange-traded funds (ETFs) that invest directly in ether have dwarfed those traded in Hong Kong in their debut, but the Asian financial hub could boost its appeal by allowing staking, experts say.
Nine spot ether ETFs launched in the US on Tuesday, with more than US$1.07 billion changing hands within the first day of trading. Three ether ETFs in Hong Kong, in comparison, saw just HK$20 million traded on their April debut.
The city's three ether ETFs - operated by Chinese fund houses ChinaAMC, Harvest International, and Bosera Asset Management, which is teaming with crypto firm HashKey Capital - recorded HK$4.85 million in trading volume on Wednesday.
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Many attributed the meagre turnover to the fact that Hong Kong has a significantly smaller ETF market. The city had temporarily obtained a lead at the time by approving ETFs that directly track ether, the world's second-largest cryptocurrency token behind bitcoin, as the US repeatedly delayed a decision on whether it would allow such products.
That advantage is now seen to be slipping away, adding to the challenges that Hong Kong faces in its effort to become a virtual asset hub.
"With the approval of Ethereum spot ETF trading in the US, Hong Kong's previous advantages in the Ethereum ETF market no longer exist," said Jason Jiang, a senior researcher at OKG Research, a unit under Hong Kong-listed blockchain firm OKG Technology Holdings.
Hong Kong's cryptocurrency ETFs are also not competitive in terms of management fees, with all three ether ETFs in the city charging between 0.3 per cent and 0.99 per cent, higher than most in the US, where fees are typically lower than 0.25 per cent, Jiang noted.
Hong Kong's virtual asset industry has recently been urging the city's securities regulator to allow staking for the ether ETFs, the mechanism on the Ethereum blockchain through which investors lock up tokens on the network for the purpose of validating transactions and earn passive yields.
The Securities and Futures Commission (SFC) has discussed with local firms about allowing the process, which could be a response to pressure from progress in the US, according to Jiang. The SFC has not reached a decision on the matter.
As cryptocurrency ETF issuers in the US had previously scrapped the feature to placate the Securities and Exchange Commission (SEC), allowing staking could help Hong Kong attract investors.
"If Hong Kong can be the first to allow issuers to stake [on] Ethereum, even as the SEC approves the launch of spot ether ETFs, Hong Kong's spot ether ETF products can still maintain a relative advantage in the short term," Jiang said.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.
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