20 January 2025
Open a Cryptocurrency Hedge Fund in Hong Kong
Read about the rules for opening a cryptocurrency hedge fund in Hong Kong, the licensing involved and how ICOs can be treated as securities there.
Hong Kong stands out as one of the leading countries for opening a cryptocurrency hedge fund. Investors interested in starting a hedge fund in Hong Kong should know that, at the moment, there is no stand-alone statute for crypto funds, but SFC licensing conditions for managers of virtual asset funds do apply and licenses may be needed when opening this type of investment fund.
Most of the investments in cryptocurrencies are performed through initial coin offerings (ICOs), which, under the view point of the financial legislation, may be considered securities. If so, special licenses should be obtained from the Securities and Futures Commission of Hong Kong (SFC).
Regulations for ICOs in Hong Kong
In the latest statement of the Secretary for Financial Services and Treasury, it was announced that ICOs in Hong Kong can be seen as securities, as long as they fall under the scope of the Securities and Futures Ordinance. In this case, all the investors interested in opening a hedge fund startup in Hong Kong should obtain a Type 9 license (Asset Management). SFC is the institution which can decide if the fund’s portfolio falls under this category.
If the ICOs in Hong Kong will not be considered securities, and instead, they will be seen as virtual commodities, trading platforms dealing in them must still be licensed by the SFC under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (since 1 June 2023).
ICOs as securities in Hong Kong
Numerous aspects will determine whether ICOs – and the tokens they generate – are considered securities. In this sense, the below mentioned aspects will be analyzed:
• the characteristics of the digital token;
• the underlying platform;
• the fund’s business model;
• the funding purpose.
Besides these characteristics, the initial offerings may qualify as securities if they are regarded as:
• shares;
• debentures;
• interests in collective investment schemes.
When registering an investment fund in this country, the investors should choose between an open-ended hedge fund or a closed-ended structure, each of them being suitable for specific types of portfolios.
In Hong Kong, businessmen may choose from the following types of hedge funds:
• single hedge funds;
• funds of hedge funds;
• capital guaranteed hedge funds.
The requirements on how to start a fund under one of the above mentioned vehicles impose different types of capital thresholds and investors interested in this matter may contact our team of affiliates in Hong Kong for professional assistance.