Industry leaders see Hong Kong as the next Bitcoin ETF hub amid expectations of US approval.

Hong Kong, a financial powerhouse that turned cryptocurrency-friendly last year, could become one of the first Asian leaders to allow physical Bitcoin exchange-traded funds (ETFs). If the US approves such an ETFIndustry leaders think:

Yat Siu, chairman of web3 investor Animoca Brands, told The Block that the Hong Kong Securities and Futures Commission’s encouraging stance on digital assets sets the stage for a potential spot Bitcoin ETF.

“If you look at what the SFC said a month ago, it says they are open to expanding access to digital assets,” Siu said. “And frankly, I would say a Bitcoin spot ETF is relatively uncontroversial at the end of the day. “

The United States is getting closer to approving its first spot Bitcoin ETF, with several filings in line with SEC requirements. Creation and redemption mechanismS.

“I think (Hong Kong) will follow suit, especially since the United States has already done a lot of work,” Siu added. He pointed out that there are many public documents and applications for Hong Kong authorities to refer to.

Improved regulatory clarity

Unlike neighboring mainland China’s widespread crackdown on cryptocurrency trading and mining, Hong Kong has rolled out the welcome mat for cryptocurrency companies this year. Encouraging banks to cooperate with them.

In October 2022, Hong Kong authorities released a series of reports. policy statement We are talking about cryptocurrencies to strengthen our position as a global financial center. Last June, Hong Kong officially launched a cryptocurrency licensing regime for virtual asset trading platforms, allowing licensed exchanges to offer retail trading services.

Hong Kong SFC CEO Julia Leung said the regulator said in November: Spot Cryptocurrency ETF Evaluation We welcome “proposals using innovative technologies that increase efficiency and customer experience.” Hong Kong has currently listed several futures-based cryptocurrency ETFs, including the Samsung Bitcoin Futures Active ETF, CSOP Bitcoin Futures ETF, and CSOP Ether Futures ETF.

Glenn Woo, head of APAC sales at web3 infrastructure company Blockdaemon, expressed positive sentiments in an interview with The Block this month. Traditional asset managers still have some concerns, but “the spirit is definitely there,” he said.

“The appetite is there,” said Woo, who has more than 10 years of experience in Hong Kong’s traditional financial industry. “I don’t know whether it will be launched next year or the year after, but demand will grow after the US approves ETFs first.”

potential challenges

Demand for spot Bitcoin ETFs may be strong in Hong Kong, but Woo noted hesitancy from potential ETF issuers and emphasized the need for collaboration between traditional financial institutions and cryptocurrency-based companies.

“This will be a joint effort,” Woo said, adding that more partnerships are needed between traditional custodians and cryptocurrency custody and wallet service providers to ensure the success of spot Bitcoin ETFs in Hong Kong.

Liquidity is another issue, Woo noted. “How do you define the markets these asset managers can go to to raise liquidity? Will you only allow liquidity provision to virtual asset service providers in Hong Kong? Maybe it’s not enough. Are they going to open some US locations or other locations to bring in liquidity to support the launch of a spot ETF?” he asked.

Growing interest in Asia

As discussions surrounding Asian spot Bitcoin ETFs continue, cryptocurrency exchange WOO expects the industry’s focus to shift from the West to the East in the coming year.

“The last cycle saw significant participation from the West, such as Saylor putting BTC on Microstrategy’s balance sheet or PayPal pouring shitcoin into millions of retailers,” said Jack Tan, co-founder of WOO. “However, we believe the next cycle will be driven by the East, with a resurgence in retail participation led by key regions such as (South Korea), Hong Kong and Japan.”

Chengyi Ong, head of APAC policy at blockchain research firm Chainalytic, designates 2023 as the year of regional regulation and expects substantial implementation in 2024. “Over the next year, we expect this regulatory framework to be introduced and take shape in 2023,” Ong said in a statement shared with The Block.

“This applies not only to lighthouse jurisdictions such as Singapore or Hong Kong, but more broadly in the region,” Ong added. “For example, in Australia, a consultation paper on regulating digital asset platforms is underway. A virtual asset user protection law has also been passed in Korea. “By 2024, we will see these frameworks being implemented in practice, and it will take some time.”

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