Hong Kong shows openness to approve crypto spot ETFs
Hong Kong’s regulatory environment for cryptocurrencies may be undergoing a significant change as the Securities and Futures Commission (SFC) explores the possibility of approving crypto spot ETFs. In a joint circular, the SFC and the Hong Kong Monetary Authority (HKMA) acknowledged the increasing interest in launching spot crypto exchange-traded funds.
While the SFC has already granted permission for licensed crypto providers to offer cryptocurrency futures ETFs in Hong Kong, the same approval has not been extended to spot ETFs. However, the SFC has now expressed its willingness to consider applications for the authorization of other funds with exposure to cryptocurrencies, including spot crypto ETFs.
In an updated guideline, the SFC has approved the facilitation of both in-kind and in-cash subscription and redemption processes for spot ETFs. It specifically emphasizes that management companies must transfer cryptocurrencies held locally or overseas to the custody accounts of SFC-authorized providers. To determine the valuation of spot ETFs, management companies are advised to use an indexing approach, relying on trade volume data from major crypto trading platforms, although specific platforms are not mentioned.
In early December, PitchBook analysts reported that over 11% of global venture capital funding in the blockchain and crypto sector was directed towards enterprises based in Hong Kong and Singapore. This marks a significant increase from the mere 2% allocation observed in 2021. PitchBook attributes this shift in cash flow to various factors, including the collapse of Sam Bankman-Fried’s FTX crypto exchange. The resulting bankruptcies had a ripple effect, leading many US-based crypto companies to reassess their strategies.
In conclusion, Hong Kong’s securities regulator is considering the approval of crypto spot ETFs, potentially changing the regulatory landscape in the region. The SFC and HKMA have published a joint circular acknowledging the interest in launching these ETFs. While the SFC has previously allowed cryptocurrency futures ETFs, spot ETFs have not received the same approval. However, the SFC has now expressed its willingness to consider applications for other funds with exposure to cryptocurrencies. The updated guideline allows for in-kind and in-cash subscription and redemption processes for spot ETFs, with management companies advised to adopt an indexing approach to determine valuation. PitchBook’s analysis shows a significant increase in venture capital funding for blockchain and crypto companies in Hong Kong and Singapore, driven by factors such as the collapse of FTX and resulting bankruptcies in the US.
