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HSBC leads charge as Hong Kong opens to crypto trading


Believe it or not, Hong Kong is increasingly where it’s at for cryptocurrency trading. With US regulators now giving crypto exchanges like Coinbase a tough time, Hong Kong’s largest bank, HSBC has said it will now let its customers trade Bitcoin and Ethereum ETFs listed on the Hong Kong Stock Exchange.

HSBC currently has three cryptocurrency ETFs on its investment platform in Hong Kong, according to local reports: CSOP Bitcoin Futures, CSOP Ether Futures and Samsung Bitcoin Futures Active.

Crypto ETFs do not represent direct access to cryptocurrency markets: frequently ETFs will use the listed futures market as their underlying investment. But the funds will provide as close as possible exposure to the price dynamics of those main cryptocurrency markets.

Take for example the two ETFs mentioned that are managed by CSOP Asset Management: both track the standard, cash-settled Bitcoin and Ethereum futures contracts that trade on the Chicago Mercantile Exchange.

Hong Kong is keen to beef up its crypto sector

Word on the street in Hong Kong is that the city and its regulators are keen to pick up any crypto business they can, and make money from a potentially more hostile environment for cryptocurrency in the US. The city’s financial regulator is understood to have been applying pressure on fund managers and banks to make crypto assets more available to local investors.

This is obviously in direct contrast to the situation in mainland China, the People’s Republic, where there is still an outright ban on buying or sending crypto assets, and a very restrictive regime around NFTs as well. The People’s Bank of China has argued that the ban is in place to curtail financial crime and prevent economic instability. However, according to the World Economic Forum, crypto was obviously also being used to facilitate capital flight from the country.

Are cryptocurrencies regulated investments in Hong Kong?

Interestingly, there is currently no specific legislation governing the actual promotion of crypto assets in Hong Kong. The regime governing the offering and marketing of financial products in Hong Kong only becomes relevant if a crypto asset qualifies as a security. Hong Kong’s Securities and Futures Commission previously warned in 2019 it would not provide a license to persons who intended to promote actual crypto futures in the city.

While HSBC has not itself signalled how widely the ETFs might be made available, it is possible that these will only be on the menu for qualified intermediaries rather than retail investors for the time being. The construction of an ETF which uses underlying futures contracts may also take it a further step away from direct crypto markets, in the eyes of regulators.

However, with the financial authorities themselves already encouraging banks to get more involved in the digital marketplace, we would expect further clarification on digital assets regulation in Hong Kong in the near future, as currently it still looks a little murky.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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