In the realm of cryptocurrency, the potential approval of a spot Bitcoin ETF (Exchange-Traded Fund) has caused a significant price surge in top cryptocurrencies. Amidst this, Hong Kong’s financial regulators, the Securities and Futures Commission (SFC), have announced that they are ready to accept applications for spot crypto ETFs. Will this impact the crypto market?
Hong Kong welcomes Spot Crypto ETFs
However, this collaborative statement, issued on December 22, 2023, in conjunction with the Hong Kong Monetary Authority, marks a pivotal moment for the region’s crypto landscape. The SFC’s revised policy for the intermediaries engaged in virtual asset activities now includes provisions for the authority of various funds, notably VIrtual Asset Spot ETFs (VA Spot ETFs). Additionally, this development expands the scope to surround existing crypto futures ETFs as well.
Outlined in a circular on the same day, the SFC has declined the criteria for funds seeking authorization to “directly invest in identical spot virtual asset (VA) tokens available to the Hong Kong public on SFC-licensed Virtual Asset Trading platform (VATPs).
Crucially, the SFC highlighted that transactions conducted by these ETFs must take place through the SFC-licensed Crypto platform or authorized financial institutions. The regulator permits in-kind and in-cash subscriptions and redemption for the SFC-authorized spot Virtual Asset (VA) ETFs.
SFC guides on Virtual Asset Valuation
Addressing custody concerns, the SFC specified that the fund’s trustee or custodian must empower its crypto custody function exclusively to an SFC-licensed Virtual Assdet Trading Platform (VATP) or entities meeting the crypto custody standards set by the Hong Kong Monetary Authority.
For the spot Virtual Asset Valuation, the SFC highlighted that fund management companies should adopt an indexing approach based on VA trade volume across major VA trading platforms. However, funds planning to have crypto exposure exceeding 10% of their net asset value must undergo prior consultation with the SEC, as stated in the circular.
This move by Hong Kong stands in stark contrast to the widespread crackdown on cryptocurrency activities in mainland China. Throughout the year, Hong Kong has actively encouraged collaboration with crypto firms, signaling its commitment to becoming a global financial hub.
