OSL Executive: Crypto ETFs have challenge to overcome in Hong Kong
At the Foresight 2024 Hong Kong Summit on Aug. 11, Gary Tiu, director and head of regulatory affairs for OSL, a crypto market custodian, exchange and prime brokerage, outlined in a panel discussion that the crypto exchange-traded fund (ETF) market in the Chinese autonomous territory is challenged insofar as it lacks market incentives.
The intermediary problem
Tiu’s company hosted the event, alongside Foresight News and crypto publication The Block, who reported on Tiu’s comments. The OSL executive said that when it comes to funds and structured products in Hong Kong, there’s a “very rich layer of intermediaries— brokers, banks, private banks, retail banks, etc.” involved. Tiu explained that they make a lot of money from the distribution of such products, resulting in unlisted products being marketed far more effectively by comparison with listed products.
It’s against that backdrop of misaligned incentives that Tiu identifies challenges for crypto ETFs on the public markets in Hong Kong. He stated:
“So I think the incentive system in Hong Kong is one of the reasons why ETFs do have a bit of a hard time growing as a financial instrument.”
In the case of ETFs, the OSL executive explained that equity brokers take just a few basis points in commission, only about 1-2% of what they make on the sale of structured products.
Bias against Bitcoin and Ether
Tiu is also of the belief that cryptocurrencies like Bitcoin and Ether have a reputational problem among Hong Kong’s investment community, stating:
“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.”
Chen Zhao, who heads up the digital assets section of Hong Kong-based independent financial advisory firm Fosun Wealth, chimed in with his own concerns. According to Zhao, the crypto ETF products currently marketed in Hong Kong are lacking in terms of the depth of dealers and brokers offering the products. Zhao explained that there are three main types of market participant active on the Hong Kong markets, namely western institutions, Hong Kong-based institutions and their counterparts from mainland China.
Zhao stated:
“Chinese brokers and dealers, they’re not allowed or they choose not to deal with the product, 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.”
While progress is far more modest by comparison with the U.S. market, the Hong Kong crypto ETF market continues to develop, with spot Bitcoin and Ethereum ETFs setting a record trading volume last week. In the same week, Mox Bank, a subsidiary of British banking multinational Standard Chartered, launched trading services relative to spot Bitcoin and Ethereum ETF products in Hong Kong.
Last month, OSL CEO Patrick Pan, anticipated that an Ethereum ETF product that incorporated staking would launch in Hong Kong within six months. Many commentators have suggested that institutional interest in Ethereum ETFs will begin in earnest once a yield-producing staking product hits the market.
