Hong Kong Set to Embrace Spot Crypto ETFs as Hedge Funds Prepare for Launch

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Illustration of Hong Kong skyline with symbols of cryptocurrency, representing the city's readiness to embrace spot crypto ETFs.
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With Hong Kong on the verge of approving spot crypto ETFs, almost a dozen hedge funds are queuing up to submit applications for the new financial product.

HashKey Group COO Sheds Light on ETF Developments

In an interview with Chinese news outlet Caixin, HashKey Group COO Livio Weng revealed that approximately a dozen hedge funds are preparing to submit applications for the launch of spot crypto exchange-traded funds (ETFs) in Hong Kong as the city is poised to become the first market in Asia allowing the listing of these financial products.

Uncertainty in Approval Timeline

While the timeline for Hong Kong regulators to approve the applications remains uncertain, Weng mentioned that up to eight of the hedge funds are already in the “actual advancement stage,” although specific details were not provided.

Hong Kong’s Regulatory Framework for Crypto ETFs

This development follows a joint circular issued by the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) in December 2023, in which the regulators acknowledged the growing interest in launching spot crypto ETFs. The SFC emphasized its readiness to accept applications for the authorization of funds with exposure to cryptocurrencies, including spot crypto ETFs.

Existing Futures Crypto ETFs in Hong Kong

It’s worth noting that Hong Kong has already granted permission for futures crypto ETFs in the region, including Samsung Bitcoin Futures Active ETF, CSOP Bitcoin Futures ETF, and CSOP Ether Futures ETF. These ETFs are available to Hong Kong investors with portfolios exceeding $2 million through UBS’ local branch.

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Hong Kong’s Cautious Approach Towards Crypto Market

While financial regulators in Hong Kong express their willingness to consider the approval of spot crypto ETFs, their overall stance on the broader crypto market appears to be cautious. In late December 2023, the Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA) issued a joint statement outlining their decision to permit retail investors to purchase stablecoins.

Stringent Regulations for Stablecoin Issuers

Despite this move, the regulators emphasized that stablecoin issuers would have to obtain a special HKMA license before offering their services in the region. The licensing requirements include comprehensive measures such as full backing of all stablecoins in circulation with reserves matching the face value, proper segregation and custody of reserve assets, transparent disclosure practices, and regular reporting.

The Requirement of Physical Presence for Stablecoin Issuers

Moreover, stablecoin issuers seeking approval will need to establish a physical presence in Hong Kong by opening an office. This office should include a CEO, a senior management team, and key personnel to ensure compliance with regulatory standards and effective oversight.

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