HSBC Hong Kong offers Bitcoin, Ethereum futures ETFs

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HSBC Hong Kong now offers Bitcoin and Ethereum futures exchange-traded funds to its customer base, increasing access to digital currency derivatives in the region.

On Monday, the bank listed the ETFs on its “Easy Invest” mobile app. The offerings include CSOP Bitcoin Futures ETF, Samsung Bitcoin Futures Active ETF and CSOP Ethereum Futures ETF. These ETFs enable investors to bet on Bitcoin and Ethereum futures via derivative contracts in commodity exchanges.

CSOP Asset Management manages the CSOP Bitcoin Futures ETF and CSOP Ethereum Futures ETF. These two ETFs were listed on the Hong Kong Stock Exchange in December 2022. According to the asset manager, both were Asia’s first derivative products that track digital asset futures.

The two ETFs invest in futures contracts traded on the Chicago Mercantile Exchange (CME). CSOP claimed that it made them an “easy transparent way” for traders to track the performance of Bitcoin and Ethereum in the crypto market.

Meanwhile, Samsung Asset Management manages the Samsung Bitcoin Futures Active ETF. The asset management firm launched the ETF in January this year. Like CSOP’s ETFs, Samsung’s Bitcoin futures ETF also invests in CME contracts.

Besides offering digital currency derivatives, HSBC Hong Kong has also introduced the Virtual Asset Investor Education Center. This program aims to protect customers from crypto-related risks. This education center is available on the Easy Invest app, mobile banking app and internet banking.

Sei Labs co-founder Jeff Feng said HSBC Hong Kong, one of the largest banks in the region, saw an opportunity to lead in this sector. Feng also said there is a rising demand for this investment product in Hong Kong.

According to Feng, the bank’s action will prevent customers from seeking access to digital currency ETFs on unregulated exchanges. Feng pointed out that Hong Kong authorities had only recently shown openness to the nascent sector, with intensive monitoring of centralized exchanges.

“If all of the centralized exchanges are getting this much regulatory scrutiny, it wouldn’t be too wise to go out and try to launch another,” Feng said. “It’s much safer to do what’s already been proven. There’s a clear playbook.”

Feng explained that ETFs are “palatable” options for retail traders than other derivatives because they are simple and convenient. Unlike options, investors do not have to understand concepts like gamma and strike prices to trade ETFs. Feng predicted that the digital currency ETF trading volumes in Hong Kong would continue to increase in the future.

Gemini CEO Tyler Winklevoss applauded the recent development in Hong Kong. He said the special administrative region had overtaken the U.S. regarding these crypto-derivative products.

Futures ETFs tied to digital assets are not new products in the U.S. Maryland-based ETF issuer ProShares launched its Bitcoin futures ETF on the New York Stock Exchange back in 2021. However, U.S. authorities have not approved spot Bitcoin ETF.

Hong Kong’s new rulebook for retail crypto trading

The city now allows retail traders to buy and sell select tokens in regulated exchanges. Before, Hong Kong only allowed institutional investors to participate in crypto trading. The move is expected to increase crypto trading activity.

TRON founder Justin Sun said the greenlight for retail crypto traders in Hong Kong was a “very big step for crypto in China.” Sun explained that Chinese citizens could trade crypto in Hong Kong as long as they were residents of the region.

According to Sun, Hong Kong’s new regulation accommodates the growing demands for crypto in mainland China. The Xi Jinping administration banned virtual currency trading and mining in 2021. Analysts say Hong Kong may become a “sandbox” for implementing solid regulations on the nascent crypto market.

Related to the new law, Hong Kong has made it imperative that crypto exchanges register with the Securities and Futures Commission (SFC) before offering their services to clients in the city. These crypto companies will receive sanctions if they fail to comply with the new regulation. In the past, registration with the SFC was voluntary.

Each crypto exchange must keep at least 5,000,000 Hong Kong dollars (around $640,00) in capital. Authorities require all registered exchanges to submit monthly data on their liquid capital, bank loans, credit facilities, advances and profit-loss analysis.

Under the new system, operators must perform thorough checks before approving clients. These companies must set an exposure limit for their retail customers. Crypto exchanges can only serve highly liquid digital assets issued to retail clients for at least one year.

All digital assets will undergo due diligence before being listed on crypto exchanges. Independent assessors will perform smart contract audits on these tokens before listing. Hong Kong bans exchanges from incentivizing retail customers with gifts, including airdrops.

The SFC enables crypto platforms to separate customers and own assets via an escrow arrangement. Each platform’s compensation mechanism should cover all of its client’s virtual assets, according to the new rule.

Hong Kong’s new regulation also covers marketing campaigns by crypto platforms. Unlicensed platforms cannot promote their services to Hong Kong investors. Social media influencers may also encounter legal repercussions for helping unlicensed platforms promote their investment products to traders.

Before rolling out the new regulation on June 1, Hong Kong authorities worked with the crypto communities to draft the guidelines. Analysts explain that it is the financial authorities’ effort to develop the region into a global crypto hub.

Authorities push traditional banks to support crypto

Earlier this month, the Financial Times reported that the Hong Kong Monetary Authority (HKMA) demanded some of the region’s largest banks — HSBC Hong Kong, Bank of China and Standard Chartered — to take crypto exchanges as clients.

The HKMA wrote a letter to the three banks in April, saying due diligence on these customers should not cause an “undue burden.” Sources said there was resistance from senior executives at these traditional banks.

They are wary of servicing crypto customers, especially after the failures of various crypto projects last year. Analysts also explain that banks are reluctant to provide banking services to crypto entities for fear of legal issues in fraud.

According to analysts, financial authorities in Hong Kong have made attempts to convince these conventional banks to accept crypto companies. The HKMA issued a circular to provide guidance for banks in servicing corporate customers, including crypto entities.

The HKMA did not confirm the Financial Times’ report but said that it regularly holds discussions with stakeholders. A representative from HSBC Hong Kong said the bank had “active dialogues” with the crypto community regarding various topics, including account opening. Standard Chartered said it holds “regular dialogue” with authorities on numerous subjects, while the Bank of China denied a request for comment.


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