Hong Kong Mulls Spot Bitcoin ETF In A Move That Could Force The US SEC’s Hand

Hong Kong is reportedly contemplating a foray into spot crypto exchange-traded funds (ETFs), triggering waves of excitement for enthusiasts, with the Securities and Futures Commission (SFC) weighing its options.

SFC head Julia Leung revealed in an interview with Bloomberg that the regulator is considering allowing retail investors to interact with spot ETFs but will adopt a “slow-and-steady approach” for the safety of investors.

“We welcome proposals using innovative technology that boosts efficiency and customer experience,” said Leung. “We’re happy to give it a try as long as new risks are addressed. Our approach is consistent regardless of the asset.”

Concerning crypto ETFs, Hong Kong has largely mirrored the efforts of the US, approving a futures Bitcoin ETF shortly after the US Securities and Exchange Commission (SEC) gave the green light in October 2021. Plans to transform the region to a Web3 hub could see Hong Kong race ahead of the US in approving spot-based crypto ETFs, merely months after allowing retail investors to dabble in virtual currencies.

In October, Hong Kong’s SFC updated its rulebook to allow intermediaries to offer residents broader virtual currency services “in light of the latest market developments” with certain restrictions.

While the US securities regulator dithers over spot ETFs, pundits have described Hong Kong’s push as one that could force the SEC’s hand to give its approval. The prospects of capital and talent outflows outside the US to Hong Kong and other jurisdictions have been mooted as potential incentives for the SEC to give its approval.

“It’s a cursory tale to the SEC that if they continue to stifle capital market innovation in the United States, other countries are going to fill the void,” wrote Coin Bureau on X. 

Valkyrie Investments’ Chief Investment Officer (CIO) is already predicting that the SEC could give the regulatory greenlight for a spot Bitcoin ETF before the end of November. According to McClurg’s hypothesis, an approval in November sets the stage for a full product launch as early as February 2024. 

Two sides of a coin

Over the last 12 months, the SEC has turned down a handful of spot ETF applications from leading firms over concerns about the safety of the investment product. For the SEC, the volatility, security risks, and tracking errors associated with the asset class have dampened its enthusiasm to issue an approval.

On the other side of the divide are enthusiasts pining for a regulatory nod, given the convenience and liquidity to be gleaned as traditional investors wade into the Bitcoin markets. Traders are mulling the prospects of a strong price rally in the weeks following an approval, with investment research outfit Bernstein predicting a BTC price of $150,000 by 2025.

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