SFC Unlikely to Approve Crypto Futures, Issues Warning

The Hong Kong Securities and Futures Commission (SFC) on Wednesday issued a warning against the futures trading of digital assets.

“While virtual asset futures contracts may have different terms and features, they are typically instruments which allow investors to speculate on the prices of the underlying virtual assets at a future date,” the SFC stated. “These contracts are considered to be extremely risky as they are largely unregulated and highly leveraged.”

The financial watchdog is concerned about the volatile prices of the digital assets backing the futures contracts. Unlike traditional assets, the future valuation of digital assets is hard to predict.

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Moreover, the high leverage provided by the exchanges to traders also increases the investment risk associated with these contracts, according to the SFC.

Notably, Binance, one of the largest crypto exchanges in terms of trade volume, recently increased the leverage on BTC/USDT pair to 125x for futures contracts.

“The complexities and inherent risks of these products are likely to be difficult for the average investor to understand,” the agency stated.

No chance of licensing

The watchdog agency also detailed that any entity offering such services in its jurisdiction without specific licensing will be in violation with the Securities and Futures Ordinance or the Gambling Ordinance.

“Depending on how virtual asset futures contracts are structured, they may be considered as "futures contracts" under the SFO. Any person who operates a platform that offers or trades "futures contracts" is required to be licensed or authorized under the SFO unless an exemption applies,” the warning stated.

The agency also clarified that it has not licensed or authorized any entity to offer such futures contracts in Hong Kong.

“Given the current risks associated with these contracts and in order to protect the investing public, the SFC would be unlikely to grant a license or authorization to carry on a business in such contracts,” it added.

Meanwhile, today, the SFC published a new framework to regulate the crypto exchanges operating within its jurisdiction.