Hong Kong Allows Spot ETFs in Pursuit of Asia Hub

Key Points:

• The regulation under which Hong Kong allows spot ETFs to invest in cryptocurrencies is currently being considered.
• The move is seen as a way to make digital assets more mainstream, but its popularity is uncertain due to the recent digital asset downturn and the FTX fraud case.
• Hong Kong is also exploring other ways to promote digital asset development, such as tokenization and custodial services, in competition with other jurisdictions like Singapore, Dubai, and the European Union.

The regulation under which Hong Kong allows spot ETFs to invest in cryptocurrencies is currently being considered, in its efforts to become a digital asset hub in the Asia-Pacific region.

Hong Kong Allows Spot ETFs, Paving the Way for More Mainstream Digital Asset Adoption

The city wants to address the aftermath of the JPEX scandal and attract retail investors to spot ETFs, subject to regulatory requirements. This move is seen as a way to make digital assets more mainstream. The anticipation of approval for US spot ETFs for Bitcoin has contributed to the surge in Bitcoin’s value this year.

Currently, Hong Kong and the US permit futures-based crypto ETFs, but their adoption has been modest. Hong Kong lists ETFs like Samsung Bitcoin Futures Active, CSOP Bitcoin Futures, and CSOP Ether Futures, with a combined asset value of about $65 million. The popularity of spot funds is uncertain due to the 2022 digital asset downturn and the negative impact of the FTX fraud case on the crypto industry’s reputation.

Hong Kong Allows Spot ETFs to Invest in Cryptocurrencies, Bolstering its Digital Asset Hub Ambitions

Hong Kong introduced virtual asset regulations in June to attract companies and prioritize investor protection. The SFC has increased transparency in the application process for virtual asset exchange licenses. Under the SFC’s regulations, retail investors can trade major cryptocurrencies on licensed exchanges. Mandatory rules for stablecoins are expected to be implemented by 2023-2024.

Officials are also exploring tokenization as a key use of blockchain technology. The SFC has provided guidance for issuing tokenized funds and bonds to retail investors. Hong Kong competes with other jurisdictions like Singapore, Dubai, and the European Union to establish itself as a digital asset hub.

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