Hong Kong crypto poised for a significant shift as the city’s regulatory bodies, the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA), open the doors for spot crypto exchange-traded funds (ETFs).
This move, announced on December 22, marks a crucial development in the integration of cryptocurrencies into mainstream finance and came in the midst of negotiations over BlackRock’s Bitcoin spot ETF filing.
Major Announcement for Hong Kong Crypto
The SFC and HKMA’s collaborative announcement underlines a proactive approach to adapting to the rapidly evolving world of virtual assets.
They have indicated their readiness to consider applications for the authorization of Virtual Asset Spot exchange-traded funds (VA Spot ETFs).
This development is in addition to the existing framework for crypto futures ETFs, showcasing Hong Kong’s increasing openness to cryptocurrency investments.
A Dual Approach: Criteria for Spot Crypto ETFs
The regulatory bodies have laid out specific criteria for funds directly investing in identical spot Virtual Asset (VA) tokens.
These investments must be available to the Hong Kong public on SFC-licensed Virtual Asset Trading Platforms (VATPs).
The SFC has emphasized that cryptocurrency transactions executed by these ETFs must be conducted through SFC-licensed crypto platforms or authorized financial institutions, ensuring a regulated and secure environment for investors.
The SFC has clarified that both in-kind and in-cash subscriptions and redemptions are permissible for these ETFs, this dual approach caters to different investment strategies and preferences, offering flexibility and accessibility to a broader range of investors.
Contrast to Mainland China’s Stance: Custody and Valuation Standards
In terms of custody, the fund’s trustee or custodian must delegate its crypto custody function only to an SFC-licensed VATP or entities meeting the HKMA’s crypto custody standards.
For valuation, management companies are advised to adopt an indexing approach based on VA trade volume across major VA trading platforms.
Funds planning crypto exposure beyond 10% of their net asset value are required to consult with the SFC beforehand.
This progressive stance by Hong Kong significantly contrasts with mainland China’s crackdown on cryptocurrency activities.
Hong Kong has been actively encouraging collaboration between crypto firms and banks, aiming to enhance its status as a global financial hub.
The Bigger Picture: A Global ETF Race
As Hong Kong steps up its game, the U.S. also seems to be inching closer to approving a spot Bitcoin ETF.
Bloomberg analysts predict that the U.S. Securities and Exchange Commission (SEC) may greenlight such ETFs by early 2024, despite various last-minute amendments by applicants.
This race to ETF approval underscores the growing acceptance and institutionalization of cryptocurrencies in global financial markets.
Hong Kong Looks to Become Crypto Innovators
Hong Kong’s move to welcome spot crypto ETFs is a testament to its adaptive regulatory environment and its commitment to being at the forefront of financial innovation.
As regulatory bodies like the SFC and HKMA continue to evolve their policies to accommodate new financial technologies, Hong Kong solidifies its position as a leading global financial centre that is open to the burgeoning world of cryptocurrencies.