Hong Kong signals willingness to greenlight crypto spot ETFs

2023-12-22 12:01:08

Hong Kong’s securities regulator is exploring the possibility of approving crypto spot ETFs, signaling a potential shift in the regulatory landscape in the region.

The Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) have published a joint circular, noting a growing number of inquiries interested in launching spot crypto exchange-traded funds (ETFs).

While the SFC has granted permission for licensed crypto providers to offer cryptocurrency futures ETFs in Hong Kong, the regulator hasn’t made the same move for spot ones. However, this time, the SFC has stated that it is “prepared to accept applications for the authorization of other funds with exposure to cryptocurrencies,” including spot crypto ETFs.

“The SFC and the HKMA have reviewed their existing policy for intermediaries which wish to engage in virtual asset-related activities. The policy is updated in light of the latest market developments, where the SFC has authorized virtual asset futures ETFs and is prepared to accept applications for the authorization of other funds with exposure to virtual assets, including virtual asset spot exchange-traded funds.”

The Securities and Futures Commission

The SFC has approved in the updated guideline the facilitation of both in-kind and in-cash subion and redemption processes, emphasizing that management companies must transfer cryptocurrencies, whether held locally or overseas, to the custody accounts of SFC-authorized providers. To determine the valuation of spot ETFs, management companies are advised to adopt an indexing approach, relying on trade volume data sourced from major crypto trading platforms, without specifying them.

In early December, analysts at PitchBook revealed that more than 11% of global venture capital funding in the blockchain and crypto sector was directed towards enterprises based in Hong Kong and Singapore, signifying a substantial increase from the meager 2% allocation observed in 2021. As per PitchBook, the shift in cash flow was influenced by ious factors, notably the collapse of Sam Bankman-Fried’s FTX crypto exchange. The resulting ripple effect of bankruptcies compelled many crypto companies based in the U.S. to conduct strategic reassessments, the firm added.

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