Hong Kong will allow retail access to exchange-traded funds (ETFs) that invest directly into cryptocurrencies, as the city steps up efforts to expand its nascent virtual-asset industry and become a major crypto hub. The Securities and Futures Commission (SFC) is prepared to authorise funds with direct exposure to virtual assets, including spot virtual asset ETFs, according to a circular jointly issued on Friday by the securities regulator and the Hong Kong Monetary Authority, the city’s de facto central bank. Spot cryptocurrency ETFs enable investors to gain exposure to virtual assets without directly buying any crypto tokens. These funds are considered by the crypto industry as important vehicles for virtual assets to become more attractive to mainstream investors. Hong Kong previously only allowed retail participation in cryptocurrency futures ETFs, which hold virtual-asset futures contracts, instead of direct investments in crypto tokens at their spot prices. Hong Kong’s latest initiative shows the determination of policymakers to rebuild investors’ confidence in virtual assets, following a number of large financial scandals involving cryptocurrencies – including the recent cases of Hounax and JPEX in the city, as well as the spectacular collapse of crypto exchange FTX in November last year. “This move puts Hong Kong in a leading position in the global crypto landscape,” said Neil Tan, managing partner at local fintech consulting firm Tsunami Advisors and chairman of the FinTech Association of Hong Kong. “By introducing a regulated and accessible investment vehicle like a spot bitcoin ETF, Hong Kong can attract both institutional and retail investors seeking exposure to cryptocurrencies.” Tan also described spot crypto ETFs as “essentially a Web3 asset in a Web2 wrapper”, which allows traditional investors to gain access and exposure to the crypto market. One of the “key advantages” of spot crypto ETFs is that these offer regulators a pre-existing standard to work with, as they adhere to crucial factors including legal, regulatory and compliance, according to Tan. He indicated that this ensures a “familiar” approval process for regulators and a well-known investment environment for investors. Hong Kong to review laws, regulators’ powers after crypto scandals: John Lee After announcing in October last year the city’s goal to become a global virtual-asset hub, Hong Kong authorities have put in place a new regulatory regime for centralised exchanges, which allows licensed platforms to accept retail investors. Only two companies have so far received licences, as nine other firms await approval of their applications. Only eight markets around the world have allowed the operation of spot crypto ETFs, according to market analytics firm CoinGecko. These include Canada, Germany, Switzerland, and tax havens such as the Cayman Islands in the Caribbean and Jersey near the coast of northwestern France. In a highly anticipated regulatory development, the US Securities and Exchange Commission is expected to decide by January 10 on the spot bitcoin ETF application submitted by Ark Investment Management and Swiss cryptocurrency asset manager 21Shares. Bitcoin prices have gained more than 40 per cent over the past six months on the back of spot crypto ETF applications filed by major traditional financial institutions, including BlackRock, Fidelity and Invesco.
Hong Kong prepares for retail access to spot cryptocurrency exchange-traded funds, boosting city’s virtual-asset hub ambitions
