HK Regulators Ban Retail Investor Trading of Spot Bitcoin (BTC) ETFs

It didn’t take long for regulatory chatter and activity to hit the crypto market news wires. Following last week’s news of an imminent executive order from the White House on crypto regulatory oversight, Hong Kong regulators have rolled out new crypto restrictions.

Global Regulatory Scrutiny Continues to Gain Momentum

Calls by the Bank of England, India Prime Minister Modi, and even the IMF for a global crypto regulatory framework have not fallen on deaf ears. At the end of last week, the Biden administration affirmed the imminent release of an Executive Action. The Executive Action will reportedly task agencies with the regulation of cryptos as a matter of national security. According to the report, the agencies will reportedly have to analyze digital assets and put together a framework covering, not only cryptos, but also NFTs. Agencies are also to work closely with regulators across the globe to form a global framework.

The latest news from Capitol Hill follows a US Congress sub-committee hearing that had been held in the week prior. The hearing had focused on cryptos and crypto mining in particular, targeting Proof-of-Work (BTC) protocols.

HK Regulators Clamp Down on Crypto Spot Trading to Protect Retail Investors

With the Chinese government already taking a strong position on cryptos and crypto mining, it was only a matter of time before Hong Kong followed suit.

On Friday, the Hong Kong Monetary Authority and the HK Securities and Futures Commission (SFC) issued a joint circular, implementing new virtual asset trading restrictions.

Key points from the join circular included:

  • Virtual Asset (VA) spot markets are largely unregulated at present, thus likely to lead to investor protection issues, including lack of pricing transparency and market manipulation.
  • Due to the light touch regulation of VA trading platforms, they may not be under the same regulations as platforms delivering services or products in traditional markets.
  • As retail investors are unlikely to understand these risks, the SFC/HKMA deems VA-related products to be complex products.
  • Intermediaries distributing VA-related products considered complex products should comply with SFC requirements. These requirements govern the sale of complex products, including ensuring suitability.
  • A number of overseas VA-related non-derivative products invested directly in virtual assets and can be subject to the noted risks. VA-related non-derivative products include VA-exchange traded funds (VA ETFs) and VA-exchange traded products (VA ETPs).

Restrictions to provide additional investor protection on the distribution of VA-related products include:

  • VA-related products considered complex products should only be offered to professional investors. For example, an overseas VA non-derivative ETF would be considered a complex product.
  • VA-related derivative products, by exception, can be offered to retail investors. For example, VA futures contracts traded on a specified exchange in a regulated futures market. These are not complex products. For such products, pricing and potential market manipulation may be of less of a concern.

The timing of the joint circular coincides with a greater push on the mainland for the adoption of the digital yuan CBDC.

Bitcoin (BTC) Price Action

At the time of writing, Bitcoin was down by 1.85% to $37,208. A bearish morning saw Bitcoin slide to a morning low $36,661 before returning to $37,000 levels. Through the US morning session, a move back through to $37,500 levels would bring $38,000 levels into play.

Barring a broad-based crypto rally, Sunday’s high $38,385 and resistance at $38,500 should cap the upside. With downside risks lingering, Bitcoin would need to steer clear of sub-$36,500 levels to avoid a sharper slide later in the day.

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