Hong Kong Regulator Ready to Consider Spot Crypto ETFs
The Securities and Futures Commission (SFC) in Hong Kong has announced that it is prepared to review applications for spot crypto exchange-traded funds (ETFs). This comes as the SFC and the Hong Kong Monetary Authority (HKMA) jointly address the growing interest in launching spot crypto ETFs. Previously, only licensed crypto providers were allowed to offer cryptocurrency futures ETFs in Hong Kong.
Updated Regulatory Approach
Hong Kong’s regulatory approach has evolved, moving away from the “professional-investors-only” framework established in 2018. In October, the SFC updated its rules to expand investor participation in spot crypto and ETF investing. The SFC has now outlined criteria for funds to directly invest in spot virtual asset (VA) tokens available to the public on SFC-licensed platforms. Cryptocurrency transactions conducted by these ETFs must occur through licensed crypto platforms or authorized financial institutions.
Valuation and Guidelines
To determine the valuation of spot ETFs, management companies are advised to use an indexing approach based on trade volume data from major crypto trading platforms. Funds planning to have crypto exposure exceeding 10% of their net asset value must consult with the SFC beforehand. Management companies are also required to transfer cryptocurrencies to custody accounts held by authorized providers.
Hong Kong Emerges as Crypto Hub
In contrast to China’s crackdown on cryptocurrency activities, Hong Kong has embraced crypto firms and encouraged collaboration with banks. The city has become a significant player in the blockchain and crypto sectors, attracting over 11% of global venture capital funding. This increase is attributed to various factors, including challenges faced by U.S.-based crypto companies and policy statements issued by Hong Kong to strengthen its position as a global financial hub.
Hot Take: Hong Kong Paves the Way for Spot Crypto ETFs
Hong Kong’s readiness to consider spot crypto exchange-traded funds signals a positive regulatory shift in the region. By allowing applications for spot ETFs, the Securities and Futures Commission is expanding investor opportunities and embracing the growing interest in cryptocurrency investments. This move aligns with Hong Kong’s emergence as a crypto hub, attracting significant venture capital funding in the industry. As other jurisdictions, such as the U.S., explore the possibility of approving spot bitcoin ETFs, Hong Kong’s proactive stance positions it as a leading player in the global crypto market.
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