Hong Kong to allow retail access to spot crypto ETFs

abdelaziz Fathi

Hong Kong is considering the introduction of exchange-traded funds (ETFs) that invest directly in cryptocurrencies. Julia Leung, the Chief Executive Officer of the Securities and Futures Commission (SFC), cited the city’s openness to such financial products, provided they meet regulatory requirements.

The move is part of Hong Kong’s broader strategy to boost its status as a leading Asia-Pacific digital asset hub while managing the repercussions of the JPEX scandal, which has drawn attention to the need for stringent investor protections.

Crypto-based ETFs, seen as a bridge to mainstream financial markets for digital assets, could attract a more diverse investor base. The global crypto community has been buoyed by Bitcoin’s remarkable 110% surge this year, partly driven by expectations that giants like BlackRock Inc. might soon secure the green light to launch the first U.S. spot ETFs for the cryptocurrency.

Currently, Hong Kong, much like the U.S., permits futures-based crypto ETFs. However, the reception of these products has been subsided, with the combined assets of the city’s three listed crypto ETFs standing at about $65 million. The appetite for spot crypto ETFs remains uncertain though, especially in the wake of 2022’s crypto market downturn and the tarnished industry reputation due to the FTX fraud involving Sam Bankman-Fried.

June saw Hong Kong craft a specialized virtual-asset regulatory framework, aiming to attract businesses while placing a premium on investor protection. This initiative has been welcomed after the recent JPEX scandal involving an alleged HK$1.6 billion ($204 million) fraud.

Hong Kong’s SFC is also exploring the potential of tokenization—the representation of real-world assets on the blockchain. The city issued its first digital green bonds earlier this year, and regulatory guidance has been updated to facilitate tokenized offerings to retail investors.

As the crypto environment matures, Hong Kong is gradually expanding retail investor access to major coins through licensed exchanges. Further, a recent SFC circular removed restrictions on security token offerings to professional investors, paving the way for traditional securities to be tokenized.

The Hong Kong Monetary Authority is also delving into guidelines for banks on digital-asset custody, a critical component of the digital-asset ecosystem. Citigroup Inc. projects that by 2030, tokenized private-sector securities and funds could amount to as much as $5 trillion, encompassing a wide array of assets.

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