Hong Kong needs to speed up approval of spot cryptocurrency exchange-traded funds after

Hong Kong should soon follow the United States‘ lead in authorising spot cryptocurrency exchange-traded funds (ETFs), bolstering the city’s ambition to become a major virtual-asset hub in Asia, according to industry insiders.

While the city’s Securities and Futures Commission (SFC) in December said it was prepared to authorise retail access to spot virtual asset ETFs, the actual launch of such products has already fallen behind the US, according to Wang Yi, the head of quantitative investment at CSOP Asset Management, which currently runs two cryptocurrency futures ETFs.

US-listed spot bitcoin ETFs saw US$4.6 billion worth of shares trade hands on Thursday, according to a Reuters report that cited LSEG data, as investors jumped into the landmark products approved by the US securities regulator on Wednesday.

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Eleven spot bitcoin ETFs – including BlackRock’s iShares Bitcoin Trust, Grayscale Bitcoin Trust and ARK 21Shares Bitcoin ETF, among others – began trading on Thursday, following the US Securities and Exchange Commission’s landmark approval that is expected to help bring the cryptocurrency industry closer to the more regulated world of traditional finance.

Blackrock representatives ring the opening bell with guests at the Nasdaq MarketSite in New York on January 11, 2024, as spot bitcoin exchange-traded funds began trading. Photo: Bloomberg alt=Blackrock representatives ring the opening bell with guests at the Nasdaq MarketSite in New York on January 11, 2024, as spot bitcoin exchange-traded funds began trading. Photo: Bloomberg>

The successful US launch of spot bitcoin ETFs is expected to help move Hong Kong regulators closer to authorising similar cryptocurrency funds to operate in the city.

Spot cryptocurrency ETFs enable investors to gain exposure to virtual assets without directly buying any crypto tokens.

These funds “give the crypto industry more legitimacy and also opens up more collaboration opportunities with mainstream finance”, said RJ Ke, a researcher with ethereum scaling start-up Taiko. “Hong Kong is likely to accelerate bitcoin ETF applications in the coming months.”

Around 10 fund management firms are preparing to launch spot virtual asset-backed ETFs in Hong Kong, according to Chinese media Caixin’s interview on Wednesday of Livio Weng, chief operating officer at crypto trading app operator HashKey Group. Weng said that up to eight companies were at an “advanced stage” to launch.

Bitcoin jumped about 3.4 per cent to US$47,500, following the spot crypto ETF approvals in the US. That was nearly three times the level that the original cryptocurrency reached in November 2022, when failed crypto exchange FTX filed for bankruptcy to send bitcoin’s price below US$17,000.

Hong Kong needs to launch spot virtual asset ETFs as soon as possible to “ensure that the city remains competitive in the global cryptocurrency market and strengthen its position as a global financial centre”, said Mao Shixing, also known as “Discus Fish”, who is the co-founder and chief executive of digital asset custody solutions provider Cobo.

Mao said the US approvals could impact other jurisdictions because “the SEC is one of the most influential and reputable financial regulators in the world”, adding that the agency’s initiatives “often serve as important references for financial regulators in other countries and regions”.

“However, each country and region has its own independent stance and regulatory objectives,” he said.

Echoing the Cobo head’s view, Donald Day, chief operating officer at digital asset platform VDX, said the SEC’s decision would make its peers “seriously consider whether similar ETFs would be permissible and desirable”.

Day pointed out that the SFC’s statement in December about being prepared to authorise such funds has “in principle opened a pathway for issuers to launch spot crypto ETFs in Hong Kong”.

With the US, there are now nine markets around the world that have allowed the operation of spot crypto ETFs. The other markets include Canada, Germany, Switzerland, and tax havens such as the Cayman Islands in the Caribbean and Jersey near the coast of northwestern France, according to market analytics firm CoinGecko.

Mainland China, however, is unlikely to follow suit.

In December, China’s Ministry of Industry and Information Technology said it will draft a national Web3 development plan to suit the country’s needs. But the announcement did not mention cryptocurrencies even though Beijing maintains its support for Hong Kong’s ambition to become a major virtual-asset hub.

The Chinese government banned banks from handling bitcoin in 2013 and forced cryptocurrency exchanges to move offshore in 2017. In 2021, the country’s regulators reiterated the state’s prohibition on all financial institutions from engaging in crypto-related activities.

China’s state media recently emphasised the risks involved in spot cryptocurrency ETFs.

The US approval of spot bitcoin ETFs “would make the cryptocurrency market even more frantic, providing fertile ground for illegal transactions such as money laundering”, according to a report by the International Financial News, a newspaper under the People’s Daily, which cited Shanghai Jiao Tong University assistant professor Li Nan.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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