Forget Blockchain Hype: Hong Kong Has Only Approved Few Crypto Funds Since 2018

It has been a year since the launch of Hong Kong’s licensing scheme, which allows fund managers to invest in cryptocurrencies, yet very few among them have been approved. 

A Reuters report on Nov 5 stated that the licenses, which were among the first of their kind worldwide, were introduced by Hong Kong’s Securities and Futures Commission (SFC) late last year. 

These licenses give crypto fund managers and other related intermediaries the permission to sell products to investors. However, only one approved application could be identified, although it is challenging to identify other applications that have been approved as per Reuters.

Diginex, a Hong Kong-based blockchain and fintech development company that operates a cryptocurrency “fund of funds,” reportedly won the approval for a license in June. 

The company’s CEO, Richard Byworth, stated then: 

We believe it is vital to be regulated to build trust with our clients but also with the industry “.

Many of the participants said that the rigid nature of the licensing “had forced some funds to domicile in offshore jurisdictions.”

Meanwhile, others strongly believe that aside from the regulatory requirements, the time required for the funds to develop systems for audit, custody, and cybersecurity is also a contributing factor. 

More to that, the high rate of fluctuations, especially the “crypto winter,” which occurred last year, was one of the factors that scared applicants away.

Regarding this, Jehan Chu, a partner at the blockchain investment firm Kinetic Capital explained that “the volatility and poor returns in 2018 scared large institutions away from allocating to crypto funds, causing those who survived to shelve their licensing plans.”

“As institutional investors step into the market, crypto funds will dust off their licensing applications and take a fully regulated approach,” Chu reportedly said.

The latest news from Hong Kong catches the eye given that China’s President, Xi Jinping, recently endorsed the application of blockchain for government processes. That endorsement, though, as reported by several local media agencies, does not apply to cryptocurrencies.