Hong Kong Considers Allowing Spot Crypto ETFs Amid Efforts To Foster Digital-Asset Hub

As part of its push to establish an Asia-Pacific digital asset hub, Hong Kong is contemplating the approval of exchange-traded funds (ETFs) that directly invest in cryptocurrencies. This move comes amid the ongoing investigation into the JPEX scandal.

The city is considering granting retail investors access to these spot ETFs, provided all regulatory concerns are addressed, reported Bloomberg. This was stated by Securities and Futures Commission (SFC) CEO Julia Leung.

Leung pointed out that the SFC is open to proposals using innovative technology that enhances efficiency and customer experience. She stated that they are willing to test the waters as long as new risks are managed effectively.

The cryptocurrency sector views ETFs as a means to mainstream digital assets, as they are readily accessible to a wide range of investors. Bitcoin BTC/USD has seen a 110% surge this year, partially due to expectations that companies like BlackRock Inc. will soon receive permission to launch the first U.S. spot ETFs for the token.

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While futures-based crypto ETFs are permitted in both Hong Kong and the U.S., uptake has been moderate compared to the size of the fund industry. The Asian city currently lists the Samsung Bitcoin Futures Active, CSOP Bitcoin Futures, and CSOP Ether ETH/USD Futures ETFs with combined assets of roughly $65 million.

The popularity of spot funds, however, remains uncertain following the 2022 digital-asset downturn and the FTX fraud conviction of Sam Bankman-Fried, which tarnished crypto’s reputation.

Hong Kong introduced a dedicated virtual-asset regulatory framework in June, aiming to attract companies while also focusing on investor protection, underscored by the recent alleged HK$1.6 billion ($204 million) fraud at the unlicensed JPEX crypto exchange.

Leung emphasized the need for a robust, comprehensive regulatory framework in the wake of the JPEX incident. The SFC has reportedly increased transparency over applications for virtual asset exchange licenses.

The introduction of mandatory rules for stablecoins and the exploration of tokenization are among the future steps. Leung expressed optimism for further public access as the crypto ecosystem evolves.

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