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Huobi Tech To Launch A Cryptocurrency-Tracking ETF In Hong Kong
Fund manager Huobi Tech is preparing for ETFs that track cryptocurrency assets such as bitcoin.
Anuj J.
11:35 29th Mar, 2022
Adoption

Huobi Tech is seeking to expand its exchange-traded fund (ETF) business in Hong Kong with a financial product that tracks cryptocurrencies for retail investors, taking a cue from the city’s recent guidelines for the sale of virtual assets.

The Hong Kong-listed company has submitted a plan to the Securities and Futures Commission (SFC), structuring the financial product so that it is accessible to retail investors with less than HK$8 million (US$1 million) in assets, according to people familiar with the matter.

Having “all the trading and redemption done directly in Hong Kong … would give better protection to investors, as the fund will be regulated under Hong Kong law,” said Huobi Tech’s senior vice-president Romeo Wang, without commenting on Huobi’s application. “We will keep close and positive communications with regulators including the SFC” to “obtain the proper licences and approvals.”

Huobi’s ETF plan is the latest bet by cryptocurrency advocates on what they hope will be the eventual consent by Hong Kong’s financial regulators for retail investors to dabble in so-called virtual assets, even if it is through tracking funds. The stakes are rising, as an amendment bill wends its way through the legislature to ban retailers from directly trading bitcoin and other digital currencies.

In their Joint Circular on Intermediaries’ Virtual Asset-related Activities released in January, the SFC and the Hong Kong Monetary Authority (HKMA) stated, for the first time, limited exceptions for retailers to take part in virtual assets.

The SFC relaxed its “professionals only” rule for ETFs that are already transacted on regulated exchanges in 13 “designated jurisdictions” such as the UK, US and Germany. The SFC made the exception because the financial products “give rise to less investor protection issues which commonly exist in the cryptocurrency spot markets, such as pricing transparency and potential market manipulation,” a spokesman said in response to a query by South China Morning Post.

The SFC has already approved four managers to offer cryptocurrency funds to professional investors, each with at least HK$8 million in assets to qualify. Huobi Tech offers several such funds. The other managers approved for such products are Axion Global Asset Management, Venture Smart Asia and Fore Elite Capital Management.

“As more capital is allocated to virtual assets, fund managers in Hong Kong are trying to see what opportunities there are to offer products to investors,” said Chris Pigott, the head of Asia ETF services in Hong Kong at Brown Brothers Harriman, a US custodian. “More innovative products in the form of ETFs is a natural next step” for Hong Kong, he said.

There is demand for bitcoin-tracking ETFs in Asia due to the dearth of such funds that give retail investors a chance to bet on cryptocurrencies, said Melody He, the deputy chief executive of CSOP Asset Management, which last month kicked off Hong Kong’s first metaverse fund.

Several ETFs that track the futures contracts of virtual assets are listed in North America today for retail investors, such as the ProShares ETF on the CME that tracks bitcoin futures, launched in October 2021.

Total assets under ETFs in Asia-Pacific stood at US$1.06 trillion, according to data cited by a recent PWC’s ETF report. Total assets of cryptocurrencies stood at about US$2.2 trillion.

In their joint circular, the SFC and HKMA classified financial products related to virtual assets as “complex” and “non-complex,” stipulating that complex products can only be offered to professionals.

Any exemption “is likely to apply to a small number of products, since many of them are [still] traded on unregulated exchanges,” said Paul Moloney, a partner at the law firm Mayer Brown in Hong Kong. Without “SFC authorisation, it could not be offered to retail investors in Hong Kong,” he said.

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