Hong Kong prohibits crypto ETFs to professional investors

Crypto assets should now have garnered mainstream adoption. As the ecosystem went mainstream, regulators began to eye the network. Simultaneously, Hong Kong Monetary Authority argued cryptocurrency spot exchange-traded products pose considerable risks and have justified their moves as protecting retail investors. Besides the Securities and Futures Commission (SFC) and the Hong Kong primary data. According to both of the authorities, the main motive is to protect the investors due to risk associated with investing in volatile markets.

Pricing transparency and market manipulation

Joint circular released by the The Securities and Futures Commission and the Hong Kong Monetary Authority, contains not an entirely novel view. Notably, restrictions placed on cryptocurrency intermediaries selling complex products to retail investors are new. Hence, crypto spot based ETFs have been targeted at professional investors only.

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However, it is notable that restrictions are not targeted for the distribution of future-based financial instruments.

Under the Hong Kong Securities and Futures rules, professional investors are defined as having a cryptocurrency portfolio of no less than 8 million Hong Kong Dollar. Notably, the figure is worth about $1 million.

Indeed, the rules clearly read that in the case of virtual asset futures contracts traded on a specified exchange which is a regulated futures market. Trading is governed by conventional rules. Hence, pricing transparency and market manipulation are less of a concern.

Spot ETFs require a knowledge test

Hong Kong has set out guidelines on crypto spot based ETFs. However, to invest in such assets investors will have to pass a knowledge test. Later the intermediaries will decide whether to accept or block an investor’s trade after determining whether the investors are aware of how the spot ETF product works.

Cryptocurrency ETFs are trending now

Crypto ETFs are typically instruments that track the price of cryptocurrencies. These products allow an investor to diversify their portfolio while forgoing the need to hold any individual assets. Several nations like Canada, Brazil, European nations, and Dubai have already approved and established such financial instruments.

Notably, the United States financial regulators have also shown green signal to establish crypto-based ETFs last year. However, the regulatory authority only allows the launch of a future-based product. The investors in the nation are asking for spot based products which are yet to receive approval from the US Securities and Exchange Commission.