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”.

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Why smart money is pushing the big idea of ‘purpose-bound money’: Opinion

Why smart money is pushing the big idea of ‘purpose-bound money’: Opinion

Recently proposed by Singapore in collaboration with fintech heavy hitters, PBM can be a powerful tool for promoting accountability and efficiency, writes Anndy Lian. But it’s not without risks.

The rise of digital assets has transformed how we handle financial transactions and engage with the global economy. From central bank digital currencies to stablecoins and tokenized bank liabilities, these digital representations of value offer the promise of faster, more inclusive, and more valuable transactions. However, to fully realize their benefits, we need to go beyond the capabilities of existing electronic payment systems.

One of the key advantages of digital money is its programmability, which allows for automated transactions, predefined conditions and streamlined financial processes. But there is an ongoing debate about how programmability affects money as a medium of exchange — a topic that is now resurfacing with the recent white paper on “purpose-bound money” published by the Monetary Authority of Singapore in collaboration with the International Monetary Fund, Amazon, DBS Bank, JPMorgan’s Onyx, Bank of Korea and others. Striking a balance is crucial to ensure programmability doesn’t compromise the fungibility and liquidity of digital money.

What is ‘purpose-bound money’?

Purpose-bound money, or PBM for short, introduces a unique concept that enables money to be directed toward specific purposes without directly programming the money itself. It achieves this through a standardized protocol that works with different ledger technologies and forms of money. Utilizing a wrapper implemented as smart contract code, it defines conditions for usage while preserving the underlying digital money’s integrity. This design allows for the deployment of digital money for various purposes without compromising its inherent properties.

It combines programmable payment and programmable money, providing a versatile framework for different use cases. Programmable payment executes payments based on predefined conditions, while programmable money embeds rules within the store of value itself. PBM strikes a delicate balance between the two, enabling directed usage without fragmenting liquidity or compromising money’s fungibility. It fosters interoperability within the financial infrastructure through a standardized protocol for interacting with different forms of digital money.

There are two main components: the wrapper implemented as smart contract code and the underlying digital money serving as collateral. The creator defines the logic, mints tokens and distributes them. The holders can redeem non-expired tokens, while redeemers receive the underlying digital money when tokens are transferred. The lifecycle includes stages such as issuance, distribution, transfer, redemption and expiration. Tokens are created and distributed based on programmed rules, and when conditions are fulfilled, they can be redeemed, transferring the underlying digital money to the recipient. Expired tokens can be destroyed or paused indefinitely.

Introducing new payment instruments brings changes in user experiences, requiring adjustment and familiarization. Different users may perceive these changes differently, with some embracing them positively and others finding them disruptive. To address this challenge, it’s crucial to consider the digital readiness of stakeholders when designing the PBM scheme. The user experience should be intuitive and accessible, especially for vulnerable populations. A simplified user experience can initially abstract away the complexities of managing keys to access digital money or PBMs. On top of that, it can be designed to be compatible with existing payment systems, reducing barriers in fiat settlement and merchant acceptance.

Given the reliance on smart contract code, establishing a robust governance framework becomes crucial to ensuring code safety during the software deployment process. Trusted entities can be engaged to verify the logic, assess vulnerabilities, and provide standardized oracle data. Independent audits are highly recommended to proactively mitigate potential security risks, such as malicious code. In distributed ledger-based networks, trusted third-party organizations can function as “oracles,” offering reliable external data inputs.

Potential use cases

PBM has a number of uses in different fields, delivering innovative solutions to problems and enhancing the efficiency of digital transactions.

In the realm of pre-paid packages, PBM can enable businesses to collect upfront fees before providing goods or services. By incorporating payment conditions, companies can ensure that a vendor has fulfilled its obligations before accessing the pre-committed funds. For online commerce, it offers a reliable alternative for secure online shopping. It reassures both merchants and consumers that funds will only be transferred once service obligations are met. This mitigates the risks associated with non-delivery or non-payment, fostering trust and facilitating smooth transactions.

In contractual agreements, it can be further utilized to establish payment structures based on terms outlined in property sale agreements. Funds can be released at different stages of property development or sales processes upon achieving specific milestones. This ensures controlled payments linked to the completion of significant stages.

PBM holds significant promise in areas like trade finance and commercial leases. Instead of traditional security deposits, PBM can be used to ensure full deposit recovery at the end of a lease. In case of disputes, it can be put on hold until resolution, offering a fair and transparent mechanism for conflict resolution. In trade finance, PBM can serve as a powerful tool for automating payments upon the fulfillment of service obligations, functioning as transferable negotiable instruments, streamlining trade processes, reducing paperwork, and enhancing overall efficiency.

Purpose-bound money can also contribute to donations by bringing greater transparency and accountability to the process. By ensuring that funds reach the intended beneficiaries and are used as intended, PBMs inspire confidence in donors and promote philanthropic activities. Moreover, by embedding policy requirements, automated compliance checks for cross-border payments become possible. This reduces costs, increases efficiency, and promotes regulatory and policy interoperability, ultimately facilitating smoother and more streamlined cross-border transactions.

PBM introduces a programmable approach to digital transactions, providing versatile solutions across various sectors. Its applications encompass all kinds of pre-paid packages, online commerce, contractual agreements, donations, and cross-border payments. Through these applications, PBM enhances efficiency, transparency and trust within the digital asset ecosystem.

As the digital money space continues to grow and evolve, the area is ripe for future research and development. Account abstraction and utilizing smart contract wallets or similar mechanisms can significantly improve user experience and security. Implementing features like account recovery, transaction limits and account freezing can also simplify user interactions without requiring an understanding of the underlying technology.

Additionally, research can explore the use of PBMs with offline payment options, without the need for a smartphone, ensuring financial inclusion and participation without the need for network connectivity. Implementing a name-addressing service can also enhance the user experience by providing a meaningful identifier mapping to a wallet address, ensuring transfers reach the intended recipients without relying solely on bank account numbers.

Risks and disadvantages

The nature of such money offers a system that promotes accountability and safeguards against fund misuse. However, it’s important to recognize that this approach also has implications for the flexibility of funds. While it ensures that funds are allocated for their intended purposes, it can limit the ability of individuals and businesses to reallocate or redirect funds when circumstances change or unexpected needs arise. The strict structure may pose challenges for managing the flow of funds and potentially affecting financial flexibility.

Implementing such systems is a complex endeavor that requires substantial technological infrastructure and integration. Organizations must establish robust systems to effectively track and manage funds according to their designated purposes. This implementation process demands expertise in financial management, technology integration, and compliance, making it resource-intensive. Smaller businesses or non-profit organizations with limited resources may face difficulties in adopting and managing it due to these technical complexities.

Proper management and oversight are essential for maintaining trust and transparency. Failure to execute with care could result in mismanagement, which undermines the integrity of the system and erodes stakeholder trust. To prevent such issues, organizations implementing should establish strong governance mechanisms, implement rigorous monitoring and reporting systems, and ensure responsible fund allocation.

PMB relies heavily on technology infrastructure, including digital platforms and payment systems, to facilitate transactions and track funds. While technological advancements have made digital transactions more accessible, they also introduce a level of dependency and risks. Organizations relying on it must ensure the availability, reliability and security of the underlying technology. Disruptions, technical glitches or cyber-attacks can impede access to PBM funds, leading to delays or difficulties in utilizing the allocated funds effectively.

Operating within existing legal and regulatory frameworks governing financial transactions, PBM must comply with regulations such as anti-money laundering (AML) and know-your-customer (KYC) requirements. Navigating these regulatory landscapes, particularly in cross-border transactions, can be complex. Organizations implementing that must ensure adherence to guidelines and fulfill reporting obligations. Staying updated with evolving regulations and maintaining compliance may require significant resources and effort.

To assess the suitability of adoption, organizations and individuals should carefully evaluate their specific needs, circumstances, and risk tolerance. Adequate planning, implementation, and ongoing monitoring are essential to address these challenges and maximize the benefits that purpose-bound money can offer.

Closing thoughts

This “new money” introduces a new paradigm for programmability within the digital asset ecosystem. By leveraging a wrapper that defines usage conditions and existing digital money, it enables directed usage without compromising the fungibility or medium of exchange function. This framework provides a standardized protocol for interacting with different forms of digital money, fostering interoperability within the financial infrastructure.

Policymakers should carefully consider the implementation of PBM-based solutions, addressing factors such as the authority responsible for issuing and distributing digital currencies and the establishment of clear usage conditions. Prioritizing user readiness, especially among vulnerable populations, is crucial to providing a simplified and intuitive user experience. Ensuring compatibility with existing payment systems, addressing concerns, and managing disruptions are vital for a smooth transition to PBM.

Deploying requires robust governance mechanisms and security measures. Independent audits, engagement with trusted entities, and standardized oracle data play a crucial role in ensuring code safety and mitigating security risks. Ongoing research and development are necessary to refine the user experience, explore new use cases, and unlock the full potential of fostering economic value and financial inclusion.

 

 

 

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”.

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Thanks for the mention at World Smart City Expo 2019

Thanks for the mention at World Smart City Expo 2019

World Smart City Expo is the largest Smart City related exhibition in Asia hosted by Republic of Korea’s Ministry of Science and ICT, Ministry of Land, Infrastructure and Transport, LH, K Water and Kintex.

Anndy Lian, Author of Blockchain Revolution 2030 and an Advisor for intergovernmental organisation is the moderator of the session who started by sharing how smart cities are redefined with the injection of new technology: ”When I first heard about Smart cities from United Nations more than a decade ago, I thought we would have never made it so far. Right now, with the inputs from new technologies such as blockchain, it makes a lot more sense. Country leaders that I am giving advise too are also seeing it from a different perspective right now. They are all willing to look beyond their comfort zone using new technologies, and when we talked about smart cities, most people spoke about energy, sustainability, infrastructure – How about playing smarter and using games as part of the whole adoption structure?”

Martin gave his new insights on how gamification and blockchain can create better adoption after the smart cities are built: ”Gaimin.io is structured to do this. Within smart cities, there are smart homes, and in the homes, you can see a lot of devices connecting. Gaimin’s software can use the data, bridge the connectivity, perhaps using games to allow users of smart cities to earn smart tokens to pay off some of their bills. We foresee that smart city users need time to adapt to the new environment and get used to the new technology, Gaimin incentive structure and its “fun” nature will entice more people to adopt faster and give them a better experience.”

“Ea3w.com is the leading Chinese media company for online procurement service and consumer electronics buying guide; they provided their her opinions on smart electronics. We have been looking forward to seeing how smart electronics can show off their full potential in smart cities of the future. At the same time, I also agree with Anndy that smart cities need more attenton and additional funds. STO exchanges like SingDax and Coinbase will help in some extent to build the smart cities faster.” – Jenny Zheng, Partner of Ea3w.com (Formerly owned by Columbia Broadcasting System – CBS) mentioned during her speech.

The expo has more than 21,000 attendees from 200 cities in 60 countries worldwide; some attendees include Minister of Korea, esteem foreign VIPs like government officials Taiwan, Europe, America, and South Africa amongst others.

 

Read full text at:

https://www.newson6.com/story/41041824/gaimins-gamification-in-the-context-of-smart-cities

or

Gaimin’s Gamification in the context of smart cities

 

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”.

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