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The launch of crypto exchange-traded funds (ETFs) in Asia was met with high expectations, but you might consider their performance to be underwhelming.
These funds, designed to track the performance of digital currencies such as Bitcoin (BTC) and Ethereum (ETH), have failed to capture notable investor interest.
At a blockchain conference in Taiwan last month, Desmond Yong, the legal and compliance director at blockchain technology company Chainup, surveyed around 100 attendees. However, not a single participant admitted to purchasing crypto ETFs.
“It’s quite clear that ETFs are targeted at a very certain niche crowd,” Yong, who previously worked at the Monetary Authority of Singapore, said in a recent interview.
“I think the industry overhyped it.”
The State of Crypto ETFs in Asia in 2024
In late April, six crypto ETFs received the regulatory nod in Hong Kong, marking the first time such funds were available in Asia following their U.S. approval earlier this year. However, by the end of August, all six ETFs had recorded negative returns.
Moreover, the Bitcoin and Ether ETFs launched by Bosera HashKey, ChinaAMC, and Harvest have all recorded losses. As of the end of August, these ETFs posted returns ranging from -5% to as low as -20%.
“Following the launch of those ETFs, demand has remained timid,” said Yves Longchamp, head of research at Swiss trading service AMINA Bank.
Longchamp attributes this sluggish demand to declining cryptocurrency prices, which likely discouraged investors from placing buy orders.
Volatility and Regulatory Uncertainty Drive Investors Away
The disappointing performance of crypto ETFs in Asia can be attributed to several factors. Stephanie Leung, chief investment officer at fund management platform StashAway, said the primary factor impacting these funds is concerns about the high volatility of cryptocurrencies.
“Investor appetite for the new ETFs appears more muted,” Leung noted, explaining that artificial intelligence stocks, rather than digital assets, have continued to capture the attention of investors.
Uncertainty over U.S. regulatory policies has further negatively impacted crypto investments. With the U.S. Federal Reserve signaling possible interest rate cuts after a period of monetary tightening to control inflation, there are mixed predictions about how this will affect the crypto market.
While some analysts argue that lower interest rates could drive investors toward riskier assets like Bitcoin and Ethereum, others caution that this could signal broader economic challenges, such as a potential recession.
“Bitcoin traders might benefit from a rate cut, but there is also a risk that this could signal the possibility of a recession,” wrote Rania Gule, a senior market analyst at broker XS.com, in a report published in August.
In an August report, the research unit of Southeast Asia’s largest bank by assets, DBS Group Holdings, said crypto markets are volatile and “increasingly focused on the U.S. elections for cues toward greater acceptability.”
The report noted that Bitcoin fell from a high of $71,000 in early June to $55,000 in July before rebounding toward $68,000 in mid-July and dropping again to $54,000 amid “a wave of global risk-aversion in financial markets.”
Crypto ETFs Could Finally Gain Traction in Asia
Nevertheless, some believe that crypto ETFs could eventually gain traction in Asia despite these headwinds. Vivien Wong, a partner at HashKey Capital, said that the recent high interest rate environment may have made cryptocurrencies less attractive.
However, she claimed that the upcoming U.S. presidential election could provide a boost for digital assets. Wong noted that both leading candidates have hinted at a more friendly stance toward the industry, with Trump even promising to make America the “crypto capital of the planet.”
She also hinted that HashKey is in talks with regulators about new ETF offerings and is exploring the possibility of launching funds linked to other cryptocurrencies. “HashKey Capital is looking forward to attracting investors from other regions,” she added.
Bitcoin ETFs in U.S. See Longest Outflow Streak
It is worth noting that crypto ETFs have also faced challenging times in the U.S. as of late. For one, Bitcoin ETFs have experienced their longest streak of daily net outflows since their introduction earlier this year.
Bitcoin ETFs have failed lol https://t.co/Ik4tpF2xdx pic.twitter.com/Y5HFSFl2Mq
— Eric Balchunas (@EricBalchunas) September 8, 2024
According to data from Bloomberg, investors withdrew nearly $1.2 billion from 12 Bitcoin ETFs over the eight days leading up to September 6, as concerns about economic growth weighed on stocks and commodities.
Likewise, Ethereum spot ETFs have seen consistent outflows since their launch. As of September 6, 2024, the cumulative total net outflow stands at $568.30 million, with the daily net outflow on the same day reaching $5.98 million.
While there have been occasional inflows, such as $5.84 million on August 28, the trend has predominantly been negative.
Overall, total net assets for Ethereum ETFs remain over $6 billion.
The Bottom Line
Many investors consider “time in the market” to be an underrated tool for growing wealth, and maybe it is simply too soon to call verdicts on crypto ETFs. But where we stand today, crypto ETFs in Asia have seen underwhelming results, with investor interest remaining low.
Six ETFs introduced in Hong Kong in April posted negative returns by the end of August, with losses ranging between 5% and 20%.
Analysts point to the decline in crypto prices and heightened volatility as key reasons for the lack of demand. Uncertainty surrounding U.S. regulatory policies and the upcoming presidential election has deteriorated the situation. Let’s see what the future brings.
