Positive Regulation Hasn’t Yielded Positive Outcomes for Hong Kong’s Crypto Funds

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Hong Kong announced a progressive policy implementation last year that would allow fund managers to invest in crypto assets. This hasn’t produced expected results as only one fund has been confirmed to have cleared the regulatory hurdles set by the Securities and Futures Commission (SFC). According to Reuters, several funds in the region have even shifted their domicile offshore to avoid strict regulation, November 5, 2019.

Institutional Woes and Regulation

In late 2018, Hong Kong’s SFC introduced a licensing scheme for crypto-assets and other similar investable products. Under the scheme, an investment manager would have to set up a traditional hedge fund structure and apply for a license. This was expected to be a huge boon for crypto investing in the region.

Sadly, this narrative has not played out. While many have applied, there is only one confirmed fund operating in the industry: Diginex.

Sources with knowledge regarding the state of the domestic regulation believe larger investment managers have shied away from the asset class, while smaller investors are either awaiting response or never got around to applying in the first place.

Gaven Cheong, a partner at Simmons & Simmoms Hong Kong office, offered his comments on why this scenario has played out.

Last year, there was a lot of excitement but since then we haven’t seen much activity. Not many new managers in this area have the background, experience, or support to mount such an undertaking.

Reasonable Regulation and Knowledge Building

The main thing hindering crypto, in the eyes of institutions, is the lack of clarity. But even when there is clarity, as in the case of Hong Kong, traction just doesn’t seem to pick up.

In countries like Malta and Japan that have very reasonable policies around crypto, domestic players are thriving and setting up new ventures at an exponential rate.

There is a clear difference between regulation and reasonable regulation, and this is becoming increasingly evident.

Adding further friction to the industry, many fund managers from the world of equities and bonds come into crypto thinking they can dominate the market with their strong backgrounds. This hardly ever plays out and leads to catastrophic losses as investment managers fail to acknowledge the dramatic difference in market dynamics.

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