An increasing number of Hong Kong-based cryptocurrency traders are reportedly turning to U.S.-based bitcoin futures. The shift away from domestic markets has been spurred by a perception that the American futures markets receive greater regulatory oversight than Hong Kong’s unregulated cryptocurrency exchanges.
Demand for Exposure to U.S. Bitcoin Futures Markets Surges Among Hong Kong Traders
The chairman of the Hong Kong Stockbrokers Association, Gary Cheung, told South China Morning Post that local futures brokers have reported an increase in trading activity on the American futures markets.
Mr. Cheung described the types of cryptocurrency typical traders seeking to access bitcoin futures markets, stating “There are two types of Hong Kong investors who like to trade US bitcoin futures. There are bitcoin miners and other investors who trade bitcoin and want to use the futures products to hedge. The others are normal futures investors who purely want to take profit created by speculative futures trading.”
Gary Leung, the chief executive officer of TD Ameritrade, also attested to the high demand for exposure to U.S-based bitcoin futures markets among Hong Kong-based customers, stating “We have received a lot of inquiries about bitcoin futures since we started operating in Hong Kong last October when the prices were surging.”
Lack of Regulatory Oversight Deters Investors From Local Exchanges
Due to bitcoin’s juridical status comprising that of a commodity, cryptocurrency exchanges are not regulated by the Hong Kong Monetary Authority – prompting many traders to explore international platforms that are seen to offer greater regulatory oversight than local exchanges.
Benny Mau of China Securities International Finance Holdings outlined the concerns held by many Hong Kong-based traders, stating “Bitcoin and other digital currencies are basically not regulated in Hong Kong because they are traded like commodities. If the digital currency platforms have a problem or are hacked, the investors may suffer losses because the regulators might not do anything for them. This has discouraged many Hong Kong investors from trading digital currencies in Hong Kong.”
“Instead, they’re trading them on the US exchanges, which are regulated. The futures prices may go up and down substantially but investors do not need to think about the counterparty risk or worry about the platforms having a problem. This is why bitcoin futures in the US are more attractive to Hong Kong investors, Mr. Mau added.”
Shifting Market Conditions
Jasper Lo Cho-yan, a senior vice-president at Haitong International, has suggested that shifting market conditions may also be contributing to the perceived migration of Hong Kong traders away from local cryptocurrency exchanges.
“When bitcoin futures were launched last December, the bitcoin price was rising and everyone was optimistic. Now the price has tumbled and speculators may be finding it harder to make money. In addition, many governments are increasing regulation of bitcoin and other digital currencies. This has raised questions about the outlook for the futures products,” Jasper Lo Cho-yan said.
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