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Hong Kong’s SFC considers spot crypto ETFs in pursuit of a global DeFi hub

Hong Kong

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TL;DR

  • Crypto traders and market analysts have marked Hong Kong as the next global crypto hub following United State’s DeFi market shutdown.
  • The city is weighing retail-investor access to such spot ETFs providing regulatory concerns are met, SFCs CEO Julia Leung said; “We welcome proposals using innovative technology that boosts efficiency and customer experience.”
  • Hong Kong regulators have maintained a progressive stance on cryptocurrencies throughout the year, although their stance on retail exposure to digital assets has evolved.

The Securities and Futures Commission (SFC) of Hong Kong, known for its stringent regulations and oversight of traditional financial markets, is now dipping its toes into the intriguing and rapidly evolving spot crypto ETFs trend. 

According to a report by Bloomberg, Hong Kong is considering whether to allow exchange-traded funds to invest directly in crypto. This comes as regulators work to establish an Asia-Pacific digital-asset centre while dealing with the aftermath from the JPEX crisis.

Hong Kong jumps on the spot crypto ETFs bandwagon

Recently, the demand for spot crypto ETFs has increased significantly, with even industry titans such as BlackRock investing. Additionally, the first Bitcoin ETF to set shop in the United States is imminent and will probably happen within the next two months.

Julia Leung, chief executive officer of the Securities and Futures Commission of Hong Kong, stated that the commission is contemplating retail investor participation in spot crypto ETFs, pending regulatory approvals. She further stated:

We welcome proposals using innovative technology that boosts efficiency and customer experience […] We’re happy to give it a try as long as new risks are addressed. Our approach is consistent regardless of the asset.

Julia Leung

ETFs are regarded by the crypto industry as a means to mainstream digital assets due to the fact that the funds are accessible to a wide range of investors. Bitcoin has increased by 110% so far this year, in part, due to anticipations that BlackRock Inc. will shortly obtain authorization to launch the first spot ETFs for the token in the United States.

As of the moment of writing, the live price of Bitcoin on Binance is $35,074.01 per unit (BTC/USD), with a market capitalization of 685.13 billion USD. The 24-hour trading volume is 10.24 billion US dollars, and the coin has gained 0.96 percent over the past twenty-four hours.

Hong Kong’s crypto regulatory framework

The SFC implemented stricter regulations in January by limiting access to crypto spot ETFs from retail investors to professional investors who hold portfolios worth a minimum of 8 million HKD ($1 million). 

Subsequently, in October, the SFC amended its regulatory manual to enable spot-crypto and ETF investing by a wider spectrum of investors, provided they satisfy two criteria: pass a knowledge examination and possess a net worth that is not below the threshold for professional investors.

The policy is updated in light of the latest market developments and enquiries from the industry seeking to further expand retail access through intermediaries and to allow investors to directly deposit and withdraw virtual assets to/from intermediaries with appropriate safeguards.

SFC

In June, Hong Kong implemented a specialised regulatory framework pertaining to virtual assets, an initiative underway to restore the city’s standing as a leading financial centre. 

The purpose of these regulations is to incentivize businesses while simultaneously placing investor protection first, a critical aspect highlighted by a recent purported fraud involving HK$1.6 billion ($204 million) at the unauthorised JPEX crypto exchange located in the city.

In light of this circumstance, Leung emphasised the critical necessity for a robust and comprehensive regulatory framework. Efforts have been made by the Securities and Futures Commission to enhance the level of transparency pertaining to the processing of licence applications for virtual asset exchanges.

As the crypto ecosystem evolves step-by-step to the point where we’re comfortable, then we’re happy to open up more access to the wider investing public.

Julia Leung

The Hong Kong Monetary Authority, the central bank of the city, is currently investigating the feasibility of providing institutions with guidance on how to administer digital asset custodial services. The provision of these services is widely regarded as an essential element in fostering the development of an ecosystem for digital assets.

The future of crypto ETFs in Hong Kong

While futures-based crypto exchange-traded funds (ETFs) are allowed in both the United States and Hong Kong, acceptance has been slow in comparison to the larger fund sector. 

ETFs with a combined asset value of around $65 million are now listed in Hong Kong, including Samsung Bitcoin Futures Active, CSOP Bitcoin Futures, and CSOP Ether Futures.

Individual investors can trade popular cryptocurrencies such as Bitcoin and Ether on licenced crypto exchanges in accordance with the SFC’s digital-asset laws. At the moment, BC Technology Group Ltd.’s OSL and HashKey Exchange are the only crypto trading platforms in Hong Kong. 

Furthermore, legal restrictions governing stablecoins, which are digital tokens meant to keep a consistent value, are expected to be implemented between 2023 and 2024.

Following the 2022 digital-asset meltdown and Sam Bankman-Fried’s conviction for the multibillion-dollar FTX fraud, which harmed crypto’s reputation, it is unclear how popular spot ETFs will perform in the market.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decision.

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Florence Muchai

Florence is a crypto enthusiast and writer who loves to travel. As a digital nomad, she explores the transformative power of blockchain technology. Her writing reflects the limitless possibilities for humanity to connect and grow.

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