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Hong Kong Embraces Spot Crypto ETFs: A Growing Crypto Hub

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Hong Kong’s Securities and Futures Commission (SFC) recently declared its readiness to accept applications for spot crypto exchange-traded funds (ETFs). In collaboration with the Hong Kong Monetary Authority, the SFC revealed that it had reviewed its policies for intermediaries engaged in virtual asset-related activities.

According to a circular issued on 22 December 2023, the SFC outlined criteria for funds, including Virtual Asset Spot exchange-traded funds (VA Spot ETFs), to directly invest in identical spot Virtual Asset (VA) tokens available to the Hong Kong public on SFC-licensed Virtual Asset Trading Platforms (VATPs). The SFC emphasised that cryptocurrency transactions conducted by these ETFs must take place through SFC-licensed crypto platforms or authorised financial institutions.

Furthermore, the circular specified that custody functions for crypto assets should only be delegated to an SFC-licensed VATP or entities meeting the crypto custody standards set by the Hong Kong Monetary Authority. The valuation of spot virtual assets should follow an indexing approach based on VA trade volume across major VA trading platforms.

Spot Virtual Asset (VA) ETFs planning to have crypto exposure exceeding 10% of their net asset value must undergo prior consultation with the SFC. The regulatory framework aims to ensure transparency, security, and compliance in the evolving crypto landscape.

Hong Kong’s Positive Stance on Cryptocurrencies

In contrast to the stringent measures in mainland China, Hong Kong has been receptive to crypto firms, actively encouraging collaboration with banks. In 2022, the city issued policy statements on cryptocurrencies to enhance its status as a global financial hub. Additionally, Hong Kong initiated its crypto licensing system for virtual asset trading platforms, allowing licensed exchanges to provide retail trading services.

Value Partners HK and VSFG Collaborate for Spot Bitcoin ETF Debut

Value Partners Hong Kong and Venture Smart Financial Holdings (VSFG) have signed a memorandum of understanding to collaborate on investment solutions connecting virtual assets with traditional investment vehicles. The companies aim to launch a spot bitcoin exchange-traded fund (ETF) in Hong Kong, structured to track spot prices and offering increased flexibility, transparency, and liquidity for both retail and institutional investors.

This partnership leverages Value Partners’ 30 years of asset management experience and VSFG’s position as Hong Kong’s first Securities and Futures Commission-approved virtual asset manager. The collaboration aims to meet the growing demand for virtual asset investment solutions in Hong Kong, contributing to the city’s success as an international virtual asset centre.

VSFG’s Plan for Spot Bitcoin ETF in Q1 2024

Venture Smart Financial Holdings plans to apply for regulatory approval from Hong Kong’s Securities and Futures Commission to launch a spot bitcoin ETF in the first quarter of 2024. Brian Chan, VSFG’s Group Head of Investment and Product, expressed confidence in the market’s potential and set a goal of achieving $500 million in assets under management by the end of the year.

Spot crypto ETFs have gained attention globally, with the US seeing the launch of such funds. VSFG aims to capitalise on this trend, offering investors in Hong Kong exposure to the world’s largest digital asset through the efficiency of the ETF vehicle.

Hong Kong’s Financial Services Company Aims for Spot Crypto ETF

Hong Kong-based financial services company Venture Smart Financial Holdings aims to start an exchange-traded fund investing directly in Bitcoin in the first quarter of 2024. Brian Chan, the company’s Group Head of Investment and Product, emphasised the huge potential of the market and set a goal of reaching $500 million in assets under management by the end of the year.

Spot crypto ETFs have garnered significant interest, especially after the launch of similar funds in the US. Hong Kong allows future-based crypto ETFs, and the move toward spot crypto ETFs aligns with the city’s digital asset pivot. The Securities and Futures Commission issued guidelines for spot crypto found approvals, signalling Hong Kong’s openness to further developments in the digital asset space.

Hong Kong Exchanges and Clearing Limited (HKEX) Welcomes Crypto Asset ETFs

Hong Kong Exchanges and Clearing Limited (HKEX) welcomed Asia’s first crypto asset exchange-traded funds (ETFs) in 2022. The CSOP Bitcoin Futures ETF and CSOP Ether Futures ETF, managed by CSOP Asset Management Limited, track standardised, cash-settled Bitcoin and Ether futures contracts traded on the Chicago Mercantile Exchange.

Wilfred Yiu, HKEX’s Chief Operating Officer and Co-Head of Markets, highlighted the significance of these ETFs in expanding Hong Kong’s diverse exchange-traded product ecosystem. The city has witnessed the listing of various themed ETFs, reflecting the market’s appetite for digital assets and innovative financial products.

Hong Kong’s Ambition to Become a Crypto Hub

Despite challenges in recent years, Hong Kong aims to regain its status as a global crypto hub. The city’s regulators, during Hong Kong FinTech Week, expressed ambitions to facilitate retail investors’ participation on licensed platforms and explore virtual asset futures exchange-traded funds (ETFs).

The Virtual Asset Service Provider (VASP) licensing regime, set to take effect in March 2023, establishes a high standard for crypto exchanges operating in the city. Christopher Hui, Hong Kong’s Secretary for Financial Services and the Treasury, emphasised the importance of comprehensive regulation, investor protection, and financial stability to foster responsible growth in the crypto sector.

Hui addressed concerns about the departure of major crypto players from Hong Kong, attributing the focus on creating regulations that ensure a level playing field and prevent fraud. He reiterated Hong Kong’s commitment to becoming a global crypto hub, emphasising its unique advantages and alignment with global discussions on virtual assets among central bankers and securities regulators.

Hong Kong’s journey towards becoming a global crypto hub reaches a defining moment with the impending launch of spot Bitcoin ETFs. The city’s steadfast regulatory approach, collaborative partnerships, and forward-looking initiatives underscore its commitment to fostering a vibrant crypto ecosystem. As spot Bitcoin ETFs take centre stage in Q1 2024, Hong Kong is poised to shape the future of cryptocurrency investments and solidify its standing as a beacon of innovation in the global financial landscape.

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