Hong Kong, aiming to rebuild its reputation as a fintech hub and level the playing field with Singapore, may allow retail investors to trade in cryptocurrencies and crypto exchange-traded funds. The government has issued a policy statement on virtual assets which is in contrast to mainland China’s regressive rules on crypto.

Key Takeaways

  • Hong Kong’s Securities and Futures Commission has issued a circular setting out requirements for entities considering a public offering of an exchange-traded fund (ETF).
  • The regulator will initially allow trade linked to Bitcoin and Ether.
  • There is a concern among crypto experts that Chinese influence may cause this decision to be rescinded at any time. 

Financial Regulators Allowing Limited Futures Trading

Hong Kong’s Securities and Futures Commission (SFC) issued a circular on Oct. 31 setting out requirements for entities considering a public offering of an exchange-traded fund (ETF). It said that in addition to previous regulatory compliance requirements for unit trusts and mutual funds, management companies in Hong Kong would be required to have a good track record of regulatory compliance and three years of experience managing ETFs. 

The regulator hinted it would follow in the Chicago Mercantile Exchange’s footsteps by initially allowing only ETFs linked to Bitcoin and Ether futures to be listed. It will also hold a public consultation on how to give retail investors access to digital assets.

Move Receives Mixed Reactions

One of Asia’s leading stock exchange groups, HKEX, welcomed the move by tweeting that it would support the growth of Hong Kong as Asia’s premier ETF marketplace. The founder of crypto exchange FTX, Sam Bankman-Fried who moved out of Hong Kong to the Bahamas in 2021, said that the city could emerge as a Web3, blockchain, and cryptocurrency hub.

Although some have welcomed the move, others are concerned that it might not be implemented. Former BitMEX CEO Arthur Hayes recently wrote an essay on Hong Kong’s crypto move, saying that China might rescind positive crypto policies.

The Bottom Line

Many crypto-related companies, such as cryptocurrency exchange FTX, left Hong Kong as a result of China’s crackdown on crypto. The latest policy aims to go in a different direction than China and open its doors to crypto firms. The bill to create statutory licensing requirements for virtual asset providers will go through Hong Kong’s legislature and is expected to take effect in March next year.

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