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Hong Kong’s Plan to Greenlight Spot Crypto ETFs: Smart Move or Foolish Gamble?

Hong Kong’s Plan to Greenlight Spot Crypto ETFs: Smart Move or Foolish Gamble?

Crypto ETFs are exchange-traded funds that track the performance of one or more cryptocurrencies, such as Bitcoin and Ether. Crypto ETFs allow investors to gain exposure to the crypto market without having to buy, store, or manage the underlying assets themselves. Crypto ETFs can also offer more liquidity, transparency, and diversification than direct crypto investments.

There is a lot of hype about crypto ETFs in the West, especially in the US, where many fund managers have been applying for the approval of the Securities and Exchange Commission (SEC) to launch spot crypto ETFs, which would hold the actual cryptocurrencies in custody. However, the SEC has been reluctant to approve these ETFs, citing concerns over market manipulation, investor protection, and regulatory compliance. So far, the SEC has only approved crypto ETFs that invest in Bitcoin futures contracts, which are derivatives that track the price of Bitcoin but do not involve the physical delivery of the asset.

The approval of spot crypto ETFs in the US would be a major milestone for the crypto industry, as it would open the door for more mainstream adoption and institutional participation. It would also create more competition and innovation in the crypto space, as well as more regulatory clarity and oversight. Many crypto enthusiasts and investors are eagerly awaiting the SEC’s decision, which could have a significant impact on the crypto market sentiment and price movements.

Hong Kong, one of the world’s top financial hubs, is thinking about allowing spot crypto ETFs, which would make it the first major place in Asia to do so, and possibly make it a regional center for digital asset activities. According to a recent report by Bloomberg, the Hong Kong Securities and Futures Commission (SFC) is in talks with potential issuers of crypto ETFs and is considering whether to grant them licenses under its existing framework.

What are spot crypto ETFs and why do they matter?

An ETF is a kind of fund that follows the performance of an asset or a group of assets, and can be traded on a stock exchange like a normal stock. A spot crypto ETF is an ETF that directly invests in cryptocurrencies, such as Bitcoin or Ether, and shows their spot prices, which are the current market prices of the tokens. A spot crypto ETF would let investors get exposure to the crypto market without having to buy, store, or manage the tokens themselves, which can be hard, expensive, and risky. A spot crypto ETF would also give more liquidity, transparency, and diversification than buying individual tokens, and would be under the regulatory control and investor protection of the stock exchange and the securities regulator.

Spot crypto ETFs are seen as a way of making cryptocurrencies more popular and accessible to a bigger range of investors, especially institutional and retail investors who may be hesitant or unable to invest in the crypto market directly. Spot crypto ETFs could also increase the demand and adoption of cryptocurrencies, and improve their legitimacy and credibility as an alternative asset class. Moreover, spot crypto ETFs could improve the innovation and competitiveness of the financial sector, and attract more talent and capital to the crypto ecosystem.

Challenges and risks of spot crypto ETFs

However, spot crypto ETFs also have challenges and risks, as the crypto market is still mostly unregulated, unpredictable, and vulnerable to various threats. Some of the main challenges and risks are:

Regulatory uncertainty: The crypto market is subject to different and often conflicting regulations across different places, and some countries have banned or limited the use of cryptocurrencies altogether. This creates legal and compliance challenges for spot crypto ETFs, as they may have to deal with multiple and changing regulatory regimes, and face possible sanctions or restrictions from some authorities. Moreover, the crypto market is constantly changing and innovating, and new kinds of tokens and platforms emerge often, which may pose new regulatory issues and challenges that are not yet covered or solved by the existing frameworks.

Market volatility: The crypto market is very volatile, as the prices of cryptocurrencies can change a lot and unexpectedly due to various factors, such as supply and demand, market mood, news and events, technical issues, and speculation. This makes the crypto market very risky and speculative, and exposes spot crypto ETFs to big price changes and potential losses. For example, Bitcoin, the biggest and most famous cryptocurrency, reached a record high of over $67,567 in November 2021, but recently it went below $20,000 in early 2023, losing more than half of its value. Such extreme volatility can hurt the confidence and trust of investors, and stop them from investing in spot crypto ETFs.

Security and operational risks: The crypto market is also exposed to various security and operational risks, such as hacking, fraud, theft, cyberattacks, human mistakes, technical problems, and system failures. These risks can affect the integrity and functionality of the crypto platforms, wallets, and transactions, and result in the loss or theft of cryptocurrencies or user data. For instance, in 2023, the JPEX crypto exchange in Hong Kong was allegedly involved in a HK$1.6 billion ($204 million) fraud that affected more than 2,600 investors, who lost their money and personal information. Such incidents can harm the reputation and credibility of the crypto market, and expose spot crypto ETFs to legal and financial responsibilities.

Hong Kong’s position on spot crypto ETFs

Hong Kong is currently one of the few places in the world that allows futures-based crypto ETFs, which are ETFs that invest in contracts that bet on the future prices of cryptocurrencies, rather than the tokens themselves. However, the demand and performance of these ETFs have been low, as they are more complex and costly than spot crypto ETFs, and may not show the actual prices of the tokens. As of November 2023, there are only three futures-based crypto ETFs listed on the Hong Kong Stock Exchange (HKEX), with a combined market value of about $65 million.

In contrast, Hong Kong does not allow spot crypto ETFs, as the Securities and Futures Commission (SFC), the city’s securities regulator, has not authorized any such products for public offering. However, this may change soon, as the SFC’s new chief executive officer, Julia Leung, said in an interview with Bloomberg on November 5, 2023, that the SFC is considering allowing spot crypto ETFs, as long as they meet the regulatory requirements and address the new risks. Leung said that the SFC is open to proposals that use innovative technology to boost efficiency and customer experience, and that the SFC is happy to give it a try as long as the risks are managed.

Leung’s statement shows that Hong Kong is taking a more active and progressive approach to the crypto market, and is trying to create an ecosystem for digital assets that can attract more investors and businesses. This is consistent with Hong Kong’s recent efforts to establish a complete and strong regulatory framework for virtual assets, which covers crypto exchanges, stablecoins, and tokenization. The SFC launched the framework in June 2023, with the goal of improving the transparency, accountability, and security of the crypto market, while promoting its innovation and development.

Two sides of the coin

As a practitioner who has been following the crypto market for several years, I have a mixed and complex view on Hong Kong’s plans to greenlight spot crypto ETFs. On one hand, I think that this is a smart and forward-looking move that could make Hong Kong a leading and competitive digital asset center in Asia, and maybe the world. Spot crypto ETFs bring benefits and opportunities for the financial sector, the crypto ecosystem, and the investors, as they could provide more access, convenience, diversity, and innovation to the crypto market, and enhance its growth and adoption. I also think that Hong Kong has the potential and the ability to become a successful and reputable spot crypto ETF market, as it has a strong and mature financial infrastructure, a sophisticated and experienced regulatory system, and a lively and dynamic crypto community.

On the other hand, this is a risky and difficult move that could expose Hong Kong to a lot of uncertainties and threats, as the crypto market is still mostly unregulated, unstable, and insecure. Spot crypto ETFs present challenges and risks for regulators, issuers, and investors, as they could face legal and compliance difficulties, market volatility and losses, and security and operational breaches. Hong Kong has to be careful and sensible in its authorization and supervision of spot crypto ETFs, as it has to balance the interests and expectations of different stakeholders, and ensure the protection and education of the investors, especially the retail investors who may not be fully aware or informed of the risks and complexities of the crypto market.

Many of my friends think that Hong Kong’s plans to greenlight spot crypto ETFs are a double-edged sword that could bring both rewards and risks, and that Hong Kong has to consider the advantages and disadvantages carefully and responsibly, and adopt a balanced and adaptive approach that can foster the innovation and development of the crypto market, while reducing its challenges and risks.

But in my personal opinion, Hong Kong’s potential approval of spot crypto ETFs is a good decision, as it would benefit both the investors and the industry in the long run. The advantages outweigh the disadvantages, as the risks and challenges can be mitigated by proper regulation, education, and innovation.

The next steps in policy and industry practice should focus on creating a robust and adaptive regulatory framework for spot crypto ETFs in Hong Kong. It’s essential to strike a balance between fostering innovation and safeguarding investors, particularly the retail sector. This regulatory framework should address challenges related to regulatory uncertainty, market volatility, and security risks, promoting transparency and accountability. It should provide comprehensive investor education to ensure a better-informed market. In light of the Western enthusiasm for crypto ETFs, Hong Kong’s success in this endeavor could set a benchmark for other Asian countries, facilitating broader adoption and promoting responsible growth in the crypto space.

Hong Kong has the potential to become a leader and a model in the crypto space, as it has a strong and mature financial system, a supportive and proactive government, and a vibrant and diverse crypto community. Hong Kong’s move could also influence and inspire other Asian countries and regions to follow suit and embrace the crypto revolution.

 

 

Source: https://www.blockhead.co/2023/11/14/hong-kongs-plan-to-greenlight-spot-crypto-etfs-smart-move-or-foolish-gamble-gs-plans-to-greenlight-spot-crypto-etfs-a-smart-move-or-a-foolish-gamble/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
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Biden’s plan to close crypto tax loss harvesting loophole is a step in the right direction

Biden’s plan to close crypto tax loss harvesting loophole is a step in the right direction

President Joe Biden’s proposed budget plan has caused a stir in the crypto community due to its intention to terminate tax loss harvesting on crypto transactions. The reactions from the community have been mixed, with some perceiving this as an infringement on the freedom of crypto traders while others view it as a necessary step in regulating the industry and curbing tax evasion.

Tax loss harvesting is a technique used to minimize an individual’s tax liability by deliberately selling an investment at a loss to offset present and/or future capital gains. It reduces the amount of tax one pays for selling profitable investments. Although tax loss harvesting is usually carried out manually towards the end of the year, a systematic approach that identifies these opportunities automatically and acts on them throughout the year can be more effective, even for fixed income or income-generating securities. This approach allows individuals to decrease their tax liability by deducting the losses from their taxable income. However, this strategy has come under fire for being a loophole that enables affluent investors to evade taxes. The termination of tax loss harvesting on crypto transactions is estimated to raise up to $24 billion and reduce the deficit by $3 trillion.

Advocates of this proposition contend that it is an imperative measure to promote fairness and equity among taxpayers by ensuring that everyone contributes their fair share. They argue that the current tax system is biased towards the wealthy, who are able to exploit various tax loopholes and deductions to lower their tax bills. This ultimately results in middle-class and low-income earners being unfairly burdened with a disproportionate share of taxes. This imbalance creates an unjust and unequal tax system.

On the other hand, critics of the Biden budget plan assert that ending tax loss harvesting on crypto transactions is ill-advised as it could discourage innovation and investment in the cryptocurrency industry. They posit that this move could prompt some investors to relocate their assets offshore or to other countries with more lenient tax policies, leading to an exodus of talent and capital from the United States. Moreover, they contend that this change could disproportionately affect small and medium-sized enterprises that depend on cryptocurrency investment and trading for their expansion and growth.

The strategy of tax loss harvesting is commonly utilized by investors in the United States as a means of reducing capital gains taxes on their cryptocurrency investments. However, this approach is not extensively used in other countries due to differences in tax policies specific to cryptocurrency investments. For instance, in Canada, cryptocurrency investments are regarded as commodities and are thus subject to capital gains taxes. Meanwhile, in Australia, profits from cryptocurrency investments are also subject to capital gains taxes, with cryptocurrency considered property for tax purposes.

In the United Kingdom, gains from cryptocurrency investments are taxable under capital gains tax, but it is not possible to use losses to offset other gains. On the other hand, in Germany, cryptocurrency investments held for over a year are exempted from capital gains taxes, but those held for less than a year are taxed at the investor’s personal income tax rate. While other countries like Japan and South Korea have also established tax policies specific to cryptocurrency investments, these policies can differ significantly and may be subject to revision over time.Closing the crypto tax loss harvesting loophole could be viewed as a step in the right direction towards regulating the cryptocurrency industry and ensuring tax fairness. However, it is important to weigh the potential consequences of this policy change.

To summarize, I believe that closing the cryptocurrency tax loss harvesting loophole as proposed in President Biden’s budget plan is not a good policy. It could have negative impacts on small investors, innovation, and the market as a whole, while also not generating significant revenue for the government. Rather than this approach, I suggest exploring alternative policies that promote growth and innovation in the cryptocurrency industry while still ensuring that the government can collect revenue.

By Anndy Lian.

The author is an intergovernmental blockchain expert

Source: https://www.financialexpress.com/blockchain/bidens-plan-to-close-crypto-tax-loss-harvesting-loophole-is-a-step-in-the-right-direction/3013562/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j

India’s Digital Rupee Plan Draws Mixed Response from Investors

India’s Digital Rupee Plan Draws Mixed Response from Investors

India has joined a growing group of countries introducing central bank digital currencies (CBDCs).

In the Union Budget 2022-2023, the Finance Minister has announced that the country will have its digital rupee backed by the blockchain and it will begin a phased rollout of the currency this financial year.

Blockchain Assets Review spoke to industry insiders and here is what they had to say about the digital rupee and it drew a mixed response.

While industry insiders see a lot of potential in the concept, some are still doubtful of the timely implementation of such a digital currency.

Aliasgar Merchant, a developer relations engineer at blockchain firm Tendermint, said, “The introduction of ‘Digital Rupee’ or CBDC is definitely a positive move” however, it also raises “some concerns and questions.”

Merchant noted that given the Reserve Bank of India’s (RBI) past record on technological implementation, the timely rollout of CBDC is a “matter of concern.”

Furthermore, he said that the RBI’s centralized hold over the currency defies the purpose and applications of a decentralized currency.

Another negative impact, Merchant said, is that “we do not know what kind of data the banks will gather from the people who use them, whether there would be a limit to how much one person can withdraw or deposit if there will be different transaction limit for individuals and businesses.”

“In addition, if a fraud is uncovered after the launch of CBDC, any wrongdoings will be attributed to the RBI,” he said, adding that having such a centralized authority is always risky.

Jay Hao, chief executive of global exchange OKX, appreciated that India is joining a growing list of countries in introducing CBDCs. However, he said that the country is slightly lagging behind in the digital currency race mainly due to the regulatory hurdles and reluctance in accepting the growing popularity of digital assets around the world.

“I hope the announcement made by Finance Minister regarding CBDC is implemented without any further delay as it will give a much-needed push to the blockchain industry in India,” Hao added.

Anndy Lian, chairman of BigONE Exchange, said, “The digital rupee is not an easy task for India. India is a big economy and may need to exercise more control over its currency before adopting it to its fullest scale.”

Potential security issues can be a problem at the start and experts should look deeper into the direct and indirect costs potentially linked to the implementation, he added.

While the announcement has made experts raise questions, many still trust the future of CBDCs in the country.

Charles Tan, head of marketing at Coinstore, said: “The digital rupee launch by RBI is a very interesting development as it makes the RBI’s stance on digital assets crystal clear,” he said.

India is moving from an unregulated space to a government-monitored crypto market, which will benefit all the stakeholders of the industry, he said.

Shivam Thakral, CEO of BuyUcoin, a homegrown cryptocurrency exchange said, “RBI has always been ambitious with its CBDC launch. The launch of CBDC by RBI will catalyze the growth of blockchain infrastructure in India and will encourage more entrepreneurs to join the blockchain revolution.”

Interestingly, Thakral noted if RBI allows the trading of CBDC on private exchanges, it will add a new dimension to public-private partnership in the country’s fintech space.

“The launch of RBI’s CBDC will prove to be a momentous occasion for the digital asset industry as it will create a government-approved market for the launch of new/existing digital assets,” he added.

Nischal Shetty, founder and chief executive of crypto exchange, WazirX, is bullish and called the news a ‘phenomenal’ one and said that the country is on the path to legitimizing the crypto sector.

“India launching a blockchain-powered Digital Rupee is phenomenal news. This move will pave the way for crypto adoption and put India in the front seat of innovation,” he told Blockchain Asset Review.

Sumit Gupta, co-founder & chief executive of crypto exchange, CoinDCX, said: “Introduction of CBDC sends a clear signal of India being a digital-first, efficiency-driven, and transparency-led system. CBDC with the backbone of blockchain will help us hold a powerful position in the global economy.

“We welcome the move and congratulate the govt for this visionary move,” he added.

Pratik Gauri, founder and chief executive of the blockchain firm 5ire noted that digital currency will open up great opportunities for innovation and foreign investment.

Raj Kapoor, founder of India Blockchain Alliance and chief growth officer at Chainsense Ltd, said: “The introduction of a digital currency in the next financial year using blockchain and other supporting technology validates not just the technology but also the intent to give a big shot in the arm for the digital economy. Digital currency will also lead to a more efficient and cheaper currency management system.”

In the budget announcement, Finance Minister Nirmala Sitharaman said that the introduction of a central bank digital currency will give “a boost, a big boost to the digital economy,”

“Digital currency will also lead to a more efficient and cheaper currency management system,” she said.

Countries all over the world are increasingly introducing digital currencies. Jamaica has also recently announced that it will roll out its national digital token in the first quarter of the year to reduce transaction costs and offer financial services to citizens who do not otherwise use banks.

Eastern Caribbean nations including Grenada, Saint Lucia, Antigua, and others launched a digital currency in 2021 called DCash while Japan, China, and the United States are also reportedly exploring the possibility of launching CBDCs.

 

Original source: https://blockchainassetreview.com/indias-digital-rupee-plan-draws-mixed-response-from-investors/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j