The virtual banks of Hong Kong, despite representing only a small part of the market, are determinedly exploring the potential of web3, facing regulatory challenges to expand their digital presence.

Let’s see all the details below. 

Opportunities in web3: the virtual banks of Hong Kong show digital ambitions

As anticipated, the virtual banks in Hong Kong are facing a crucial moment, with a currently limited market share, representing only 0.3% of the total assets of retail banks. 

However, the rapidly evolving context of web3 offers new opportunities for these financial institutions.

The legislator of Hong Kong, Johnny Ng Kit-chong, a well-known supporter of cryptocurrencies, believes that virtual banks can play a more significant role in serving businesses related to Web3.

According to Ng, the government of Hong Kong has already made significant progress in the field of virtual banks and in updating financial services. 

Ng sees the next two years as a critical period to strengthen the city’s contribution to the development of Web 3.0, one of the most promising emerging technologies.

One of the main difficulties that virtual banks in Hong Kong face is the complexity in opening accounts for companies operating in the cryptocurrency, non-fungible token (NFT), and blockchain sectors. 

A recent survey, reported by the South China Morning Post (SCMP), revealed that 40% of the companies interviewed consider this process “extremely complicated”. In particular, citing as main obstacles the localization and the “onerous standards”.

These difficulties have led some companies to move to more welcoming regions, risking to slow down digital innovation in Hong Kong.

Progress among the difficulties

Despite the challenges, Ng remains optimistic about the potential of virtual banks, emphasizing the importance of a clear government plan for the development of Web3. 

Mox Bank, owned by Standard Chartered, has already taken a step forward by launching a exchange-traded fund (ETF) of cryptocurrencies. Thus becoming the first virtual bank in Hong Kong to facilitate spot ETF transactions on Bitcoin and Ether.

Barbaros Uygun, CEO of Mox Bank, has announced the bank’s intention to further expand into emerging sectors, offering new digital investment opportunities to its clients.

In a context of growing interest in cryptocurrencies, Ng recently announced the intention to collaborate with various stakeholders to evaluate the inclusion of Bitcoin in the financial reserves of Hong Kong. 

Defining Bitcoin as “digital gold”, Ng highlighted its potential in protecting the economy from inflation, thanks to the growing recognition of the value of this asset on a global level. 

This move could represent a significant step towards the integration of cryptocurrencies into Hong Kong’s economy, provided that the right regulatory conditions are established.

ETF on Ether in Hong Kong 

August 5, 2024 marked a historic moment for Hong Kong’s cryptocurrency-linked ETFs, with a daily trading volume reaching approximately 44.56 million dollars. 

That is, the highest ever recorded since these financial products were launched. 

The spot ETFs on Bitcoin (BTC) and Ethereum (ETH) were introduced on April 30, 2024, as part of a complex regulatory framework developed to ensure investor protection and maintain market integrity. 

The Securities and Futures Commission (SFC) has authorized companies such as China Asset Management and HashKey Capital to manage these ETFs. Thus offering a regulated and secure option for investors interested in gaining exposure to digital assets.

The record trading volumes reflect the growing confidence of investors in spot ETFs on BTC and ETH and in the cryptocurrency market in general.

Currently, the spot ETF on BTC in Hong Kong manages 248.71 million dollars, while the spot ETF on ETH controls 37.48 million dollars of assets. 

We remind you that these ETFs use a in-kind creation model, which allows converting BTC and ETH into ETF shares, simplifying access to investments and improving liquidity.

The combination of a creation model in nature, which favors liquidity, and a rigorous regulatory framework, offers a guarantee of compliance for both retail and institutional investors. 

This approach places Hong Kong ETFs in a favorable position for future success, with the potential to become a benchmark for the regulation of crypto ETFs globally.