Spot Crypto ETFs Now a Consideration Outside of the US Too

Hong Kong, renowned for its position as a global financial hub, is contemplating the introduction of exchange-traded funds (ETFs) directly investing in cryptocurrencies.

This initiative is part of Hong Kong’s broader efforts to establish itself as a prominent digital asset hub in the Asia-Pacific region while addressing the repercussions of the JPEX scandal.

Race to Launch Crypto Spot ETFs

Securities and Futures Commission (SFC) CEO Julia Leung revealed that the city is evaluating the possibility of allowing retail investors access to spot ETFs linked to cryptocurrencies, provided regulatory concerns are adequately addressed.

“We welcome proposals using innovative technology that boosts efficiency and customer experience,” Leung stated.

Julia Leung also emphasized the need for a strong regulatory framework, referring to the JPEX incident as a reminder. The SFC has since increased transparency in virtual asset exchange license applications, but Leung did not comment on the ongoing police investigation involving JPEX.

Under Hong Kong’s SFC digital-asset regulations, retail investors can trade major cryptocurrencies like Bitcoin and Ether on licensed exchanges, currently available through BC Technology Group Ltd.’s OSL and HashKey Exchange. Mandatory rules for stablecoins are anticipated to be in place by 2023-2024.

Hong Kong and the U.S. allow futures-based crypto ETFs, but their adoption has been limited compared to the overall fund industry. Hong Kong has listed ETFs like Samsung Bitcoin Futures Active, CSOP Bitcoin Futures, and CSOP Ether Futures, with combined assets totaling around $65 million.

Hong Kong’s Asia-Pacific Digital-Asset Hub Ambitions

To strengthen its position as a digital asset hub, Hong Kong implemented a dedicated virtual-asset regulatory framework in June. These regulations aim to attract companies while prioritizing investor protection, which is crucial following the recent HK$1.6 billion ($204 million) fraud at the unlicensed JPEX crypto exchange.

Hong Kong authorities are also actively exploring tokenization, representing real-world assets digitally through blockchain technology. The dedication to fostering tokenized products for retail investors is evident through recent actions such as the sale of digital green bonds and the issuance of updated regulatory guidance by the SFC.

Significant progress has been made, including removing restrictions on security token offerings and the potential introduction of guidelines for banks by the Hong Kong Monetary Authority to provide digital-asset custodial services, signifying a positive trajectory in the industry.

Citigroup Inc. predicts a $5 trillion market for tokenized private-sector securities and funds by 2030. This includes corporate debt, real estate, and private equity. Jurisdictions like Hong Kong, Singapore, Dubai, and the European Union are vying to be digital asset hubs, while the United States is taking a stricter regulatory approach.