The Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) have announced that they are open to receiving requests for authorization of crypto spot ETFs in Hong Kong.
In a joint circular published on the SFC’s official website, the two regulatory bodies stated that they have received an increasing number of requests from intermediaries regarding investment products with exposure to virtual assets. They also mentioned that these intermediaries are interested in providing virtual asset trading services to their clients.
The Circular’s Details
The circular, titled “Joint Circular on the activities of intermediaries related to virtual assets,” reveals that the SFC has already authorized crypto futures ETFs for retail clients. Now, they are willing to accept authorization requests for other funds with exposure to virtual assets, specifically spot VA ETFs.
Unlike futures-based ETFs, spot ETFs must be collateralized with the underlying asset, meaning that crypto spot ETFs would be directly backed by the cryptocurrency they aim to replicate.
Potential Impact on the Hong Kong Market
Although no requests for crypto spot ETFs have been made yet in Hong Kong, this circular may encourage such requests. With the existence of crypto futures ETFs in Hong Kong and its status as an international financial hub, it is important for the city to keep up with global trends and attract institutional clients and wealthy individuals.
The Chinese market is one of the largest in the world when it comes to cryptocurrencies’ potential. While crypto trading is officially banned in China, Chinese investors could take advantage of spot ETFs to indirectly invest in cryptocurrencies using regulated financial products.
The Chinese Ban and Opening Up to Crypto
China implemented a total ban on crypto trading for its citizens in 2021. However, many Chinese individuals have found ways to bypass this ban by using foreign exchanges. In contrast, Hong Kong has been trying to open up to the crypto market in a manner that aligns with Chinese laws and policies.
Crypto spot ETFs could play a significant role in this opening up process, allowing Chinese investors to participate in the crypto market without directly buying cryptocurrencies.
Potential Impact on Prices
It is still too early to predict the number and timing of crypto spot ETF launches in Hong Kong. However, based on the US market, it typically takes several months for an ETF request to receive approval and gain acceptance from investors.
Therefore, any potential Chinese spot crypto ETFs would likely not influence cryptocurrency prices during the next bull run. Instead, they could have an impact in subsequent market cycles.
China’s Participation in an Epochal Evolution
This move by Hong Kong demonstrates China’s decision to no longer exclude itself from the crypto market’s evolution. By embracing regulated financial products like spot ETFs, China aims to participate in this epochal shift while respecting its laws and policies.
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