Hong Kong is preparing to approve Bitcoin and Cryptocurrency ETFs!

• Hong Kong is beginning preparations to open the way for spot crypto ETFs; the financial regulator announced today that it is ready to accept such applications.
• In contrast to China’s broader intervention in cryptocurrency trading and mining, Hong Kong has welcomed crypto companies this year.
• Hong Kong currently lists several futures crypto ETFs – Samsung Bitcoin Futures Active ETF, CSOP Bitcoin Futures ETF, and CSOP Ether Futures ETF.

Hong Kong Securities and Futures Commission (SFC) has released a notice for cryptocurrency ETFs: Here are the details!

Hong Kong to Take a Positive Approach to Crypto ETFs

Hong Kong is beginning preparations to open the way for spot crypto ETFs; the financial regulator announced today that it is ready to accept such applications. In a joint statement released today, the Securities and Futures Commission (SFC) and the de facto central bank in the city, the Hong Kong Monetary Authority, said they are reviewing their existing policies for intermediaries wishing to engage in activities related to virtual assets.

The SFC stated that, in addition to existing crypto futures ETFs, it is ready to accept applications for authorization of other funds, including “virtual asset spot exchange-traded funds (VA spot ETFs).” In a separate statement released today, the SFC specifies the requirements for funds to “directly invest in the same spot VA tokens traded on SFC-licensed virtual asset trading platforms (VATP) that are accessible to the Hong Kong public.”

Unlike the broader intervention by mainland China in cryptocurrency trading and mining, Hong Kong has rolled out the welcome mat for crypto companies this year, even encouraging banks to work with them. Jason Chan, a partner at Howse Williams, a Hong Kong-based law firm, stated, “They are very open to the crypto industry and may have the first crypto spot ETF approved by a sophisticated financial market.”

In October 2022, Hong Kong officials made a series of policy statements related to cryptocurrencies to strengthen their position as a global financial center. In June, Hong Kong officially launched the cryptocurrency licensing regime for virtual asset trading platforms and allowed licensed exchanges to provide retail trading services.

Julia Leung, CEO of the Securities and Futures Commission of Hong Kong, announced in November that they were evaluating spot crypto ETFs when she welcomed suggestions that “utilize innovative technology to enhance efficiency and customer experience.” Hong Kong currently lists several futures crypto ETFs – Samsung Bitcoin Futures Active ETF, CSOP Bitcoin Futures ETF, and CSOP Ether Futures ETF.

Stringent requirements

The SFC stated that crypto transactions by such ETFs must be conducted through SFC-licensed crypto platforms or authorized financial institutions. The regulator said, “Authorized redemption in both substance as a valuable matter and in cash is permitted for SFC-authorized spot VA ETFs.”

Regarding custody, the SFC stated that the manager or depositary of such ETFs must only delegate the crypto custody function to SFC-licensed VATPs or those meeting the crypto custody standards published by the HKMA.

On the valuation of spot virtual assets, the regulator specified that the management company of the fund must adopt an indexing approach based on the VA trading volume on the main virtual asset trading platforms. The regulator notes that prior consultation with the SFC is required for funds with a crypto exposure of more than 10% of net asset value.