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Hong Kong Mulls Permitting Ethereum Staking for ETF Issuers

May 23, 2024

Just a month back, Hong Kong’s Securities and Futures Commission [SFC] green-flagged spot Bitcoin and Ethereum exchange-traded funds [ETFs]. The approval was followed by the launch of six funds, making Hong Kong the first in Asia to cater to retail demand via ETFs. Three Chinese firms - China Asset Management, Bosera Asset Management, and Harvest Global Investments - launched the funds on the Hong Kong exchange.

Now, in what is the latest development, Hong Kong regulators are looking to allow Ether staking for ETF issuers. After receiving proposals on its table, the SFC has reportedly discussed staking via licensed platforms with ETF issuers. That being said, there is no clear timeline for a decision at the moment.

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Serra Wei, the CEO of Aegis Custody, highlighted that the discussions between Hong Kong ETF issuers and regulators on staking have been “healthy.” Wei affirmed that staking would “fit” within the local regulatory regime, and added,

“It would be a milestone for Hong Kong to add staking into spot-ETH ETFs.”

The spot ETF launch in Hong Kong has not lived up to expectations so far. Over the past day, only one out of the six funds registered flow deviations - that too in negative - while the remaining five remained static at 0.

US Begs to Differ

In today’s market, the staking aspect has been quite a critical point of contention. In the US, several firms refiled their applications to the Securities and Exchange Commission [SEC] earlier this week. All prominent names, including BlackRock, removed the provisions for staking Ether, which was ultimately being viewed as a roadblock from the regulatory point of view. For example, BlackRocks’s amended filing read,

“Neither the Trust, nor the Sponsor, nor the Ether Custodian... nor any other person associated with the Trust will, directly or indirectly, engage in action where any portion of the Trust’s ETH becomes subject to the Ethereum proof-of-stake validation or is used to earn additional ETH or generate income or other earnings.”

While others like Grayscale, and Bitwise followed the same path, other spot issuers like CoinShares and Valkyrie have reportedly decided not to apply for spot Ether ETFs because they do not see value for investors without it, especially in a crowded market alongside other issuers.

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