Hong Kong Regulator Still Wary About Unregulated Bitcoin Futures

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The bitcoin buzz seems to be hitting all corners of the globe and now the focus seems to be shifting slightly to Hong Kong, China where the securities regulator recently published a bitcoin futures-centered circular that also spoke a lot about other cryptocurrency-related products. The Hong Kong-based Securities and Futures Commission (SFC) set out to remind operators of bitcoin futures exchanges and other cryptocurrency-related products that they had to work with the outlined legal and regulatory requirements.

“Bitcoin Futures have been or will soon be launched by certain well-established futures and commodities exchanges in the United States which are regulated by the U.S. Commodity Futures Trading Commission and authorized by the Securities and Futures Commission (“SFC”) to provide automated trading services,” regulator wrote. “Hong Kong investors may be able to trade in Bitcoin Futures through an intermediary which is a member of these exchanges. Any parties or intermediaries providing services related to Bitcoin Futures are required to “have an appropriate license with the SFC…irrespective of whether the party is located in Hong Kong, so long as its business activities target the Hong Kong public.”

This comes just a day after Chicago’s CBOE launched its futures trading contract – a move that is anticipated to turn the tide and lead bitcoin towards the long-awaited legitimization and mainstream acceptance. SFC also went further to classify any operation involving bitcoin futures contracts as a “Type 2” regulated activity as specified by the Securities and Futures Ordinance (SFO) laws. On the other hand, marketing bitcoin futures contracts is considered to be a “Type 1” regulated activity while the management of any investment fund that is associated with cryptocurrency is said to be a “Type 9” regulated activity.

To illustrate the seriousness of the announcement, SFC also shone light on a few cryptocurrency exchanges that they found to be unregulated – most of them are already operational and are already offering the Hong Kong public a number of investment products and cryptocurrency-related futures contracts. SFC did not also cautioned Hong Kong investors about some other exchanges that would be out the regulator’s body and therefore would not need any license to offer products to the investors. The cautionary message that was meant for the investors read:

“The SFC reminds investors that trading cryptocurrencies may expose them to risks including insufficient liquidity, high price volatility, and potential market manipulation… Investors may be exposed to substantial risks and significant financial losses in trading cryptocurrency futures contracts and other cryptocurrency-related investment products (e.g. options, swaps and contracts for differences), especially on unregulated exchanges.”

This is a clear node to CME Group’s much anticipated launch of bitcoin futures that is now only a week away.

Once upon a time, China was a global giant when it came to bitcoin trading – it accounted for nearly 90 percent of the world’s total bitcoin trading volume. However, after Beijing tightened regulatory and legislative controls, the bitcoin market withered away gradually. It all begun with China’s authorities cracking down on bitcoin mining activities that had been taking advantage of the cheap hardware and electric energy required to mine bitcoin. This was at about the same time that the price of bitcoin had begun to slowly shoot up. The big blow came in September this year when Chinese regulators issued orders that all the cryptocurrency exchanges be shut down and thus banned all the initial coin offerings. Many bitcoin exchanges have since set up camp in other countries while others have resorted to over-the-counter bitcoin trading where buyers and sellers connect through chat apps after being matched by the bitcoin exchanges.

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