“We welcome proposals using innovative technology that boosts efficiency and customer experience.” –  Securities and Futures Commission Chief Executive Officer Julia Leung

Hong Kong is exploring the possibility of allowing exchange-traded funds (ETFs) that directly invest in cryptocurrencies as part of its efforts to establish itself as a digital-asset hub in the Asia-Pacific region. The Securities and Futures Commission (SFC) Chief Executive Officer, Julia Leung, expressed the city’s openness to retail investor access to such spot ETFs, provided regulatory concerns are addressed. This move aligns with Hong Kong’s aim to embrace innovative technology to enhance efficiency and customer experience while mitigating new risks.

The crypto sector views ETFs as a means to bring digital assets into the mainstream, with Bitcoin’s substantial 110% surge this year driven, in part, by expectations of approval for the first US spot ETFs. Currently, Hong Kong and the US permit futures-based crypto ETFs, but their adoption has been relatively modest compared to the overall size of the fund industry in both regions. (Bloomberg)

The adoption of spot funds is uncertain, given the challenges faced by the crypto market in 2022 and the legal issues surrounding certain crypto exchanges. Despite these challenges, Hong Kong has taken steps to establish a robust virtual-asset regulatory framework, aiming to attract companies while prioritizing investor protection, especially following a recent significant fraud case involving an unlicensed crypto exchange.

Under the SFC’s digital-asset regime, retail investors can trade major cryptocurrencies on licensed exchanges, and the authorities are also considering tokenization of real-world assets. This development comes alongside the release of a roadmap for issuing tokenized funds and bonds to retail investors. The city’s central bank, the Hong Kong Monetary Authority, is also exploring guidance for banks offering digital-asset custodial services, which is crucial for the growth of the digital-asset ecosystem.

As Hong Kong, along with other jurisdictions, competes to establish itself as a digital-asset hub, the landscape of the cryptocurrency market continues to evolve. By 2030, it is estimated that there could be as much as $5 trillion worth of tokenized private-sector securities and funds, encompassing a wide range of assets. Hong Kong’s endeavors align with its goal to remain a prominent financial center in this evolving digital landscape.

Related Story:  Hong Kong’s Crypto Renaissance Spurs The $100M ProDigital Fund

Photo by Daniam Chou on Unsplash