Hong Kong Eyes Flexible Approach to Cryptocurrency ETFs as US Leads the Way

Hong Kong Eyes Flexible Approach to Cryptocurrency ETFs as US Leads the Way 

Hong Kong Considers a 'More Flexible' Approach to Regulating Cryptocurrency ETFs, While the US Races Ahead with Approvals

Hong Kong is gearing up to establish a more adaptable framework for cryptocurrency exchange-traded funds (ETFs), even as the US takes the lead in both approval speed and market size, experts say.

A significant distinction between Hong Kong's proposed rules for spot cryptocurrency ETFs and those approved in the US is the allowance of both cash and in-kind subscriptions in Hong Kong. This means participating dealers can directly use Bitcoin to subscribe to or redeem the ETF's shares, unlike in the US, where such transactions are limited to cash.

This divergence reflects variations in virtual asset regulatory frameworks, with the US Securities and Exchange Commission (SEC) showing reluctance to allow licensed dealers to handle bitcoin due to the unregulated nature of spot bitcoin trades in the US, according to Andrew Fei, a partner at King & Wood Mallesons in Hong Kong.

Regulators in Hong Kong recently announced plans to permit retail access to spot virtual asset ETFs and are open to applications from funds seeking to offer such products to the public.

After nine spot bitcoin ETFs in the US, backed by major firms like BlackRock and Fidelity, attracted nearly $2 billion in their first three days of trading, virtual asset industry players in Hong Kong are urging the government to expedite approval for the city's offerings.

Legislative Council member Johnny Ng Kit-Chong expressed the need for Hong Kong to swiftly secure a global position amid rapid developments and intense competition in the virtual asset sector, aiming to be a pioneer in implementing relevant policies and products in Asia.

While the US SEC has approved spot bitcoin ETFs, its chair Gary Gensler emphasized that the regulator did not endorse bitcoin, considering it primarily a speculative, volatile asset prone to illicit activities. Fei noted the SEC's skepticism about spot bitcoin transactions due to the largely unregulated nature of the market in the US.

However, since spot virtual asset transactions on licensed platforms are regulated in Hong Kong, the Securities and Futures Commission (SFC) appears more comfortable with virtual asset ETFs, added Fei.

The joint plan by the SFC and the Hong Kong Monetary Authority to authorize spot cryptocurrency ETFs has boosted industry optimism about Hong Kong potentially becoming a cryptocurrency hub.

Dmitry Lapidus, senior liquid analyst at US venture capital firm CoinFund, highlighted Hong Kong's regulatory adaptability, positioning it well in navigating the evolving digital assets landscape.

Experts note that while Hong Kong has a clear vision for regulating virtual assets, it faces strong competition from the US. The American cryptocurrency market, particularly when backed by financial heavyweights like BlackRock and Fidelity, is poised to be much larger, offering low fees and a familiar brand to retail investors."

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