Hong Kong Contemplates Staking for Ether ETFs, Departing from US Position
The Hong Kong Securities and Futures Commission (SFC) is reportedly considering the inclusion of an Ether (ETH) staking option for spot ETH exchange-traded fund (ETF) issuers. Bloomberg reports that the financial regulator is currently evaluating whether ETH ETF issuers should be allowed to stake Ether in order to generate passive income. Earlier this year, Hong Kong approved a Bitcoin ETF, following the United States’ approval of 10 spot ETFs by more than three months.
The SFC is specifically focused on whether to permit staking of Ether through licensed platforms. This topic has been recently discussed with the country’s crypto ETF issuers following several proposals. However, the regulator is still in the discussion phase and has not set a definitive timeline for a decision or implementation.
Unlike Bitcoin, Ethereum operates on a proof-of-stake consensus protocol, which allows users to stake their assets on the network. This contributes to network security and provides a return, currently around 3%. If approved, staking the Ether held in Hong Kong spot Ethereum ETFs could offer investors passive income in addition to potential capital gains. This move could potentially support the city’s ambitions to become a global crypto hub. However, it is uncertain whether allowing staking will significantly boost the currently low demand for ETFs in the region.
This proposal comes at a time when the demand for ETFs in Hong Kong has been notably weak. The city launched Asia’s first spot Bitcoin and Ethereum ETFs on April 30, managed by entities like China Asset Management (ChinaAMC), Harvest Global, and Bosera/HashKey. However, these new ETFs have seen minimal capital inflows compared to their U.S. counterparts, which experienced $154 million in inflows into Bitcoin ETFs on a single day.
The SFC’s initiative contrasts with the stance of the U.S. Securities and Exchange Commission (SEC), which considers staking services an investment contract and a potential violation of securities laws. The SEC’s strict position has led major financial institutions in the U.S. to exclude staking from their spot ETH ETF offerings. For example, Fidelity removed staking options in its latest regulatory filings. Over the past year, the SEC has actively taken legal actions against major crypto firms for their staking products, alleging violations of federal securities laws.
Due to this regulatory uncertainty, several Ethereum ETF applicants have excluded staking from their fund plans. This has led some market participants to argue that these funds might be less attractive to investors without staking. Notably, the SEC is expected to announce its decision on the pending Ethereum ETF applications today, May 23. Market sentiment has turned positive as the odds of approval have increased to 75%, according to Bloomberg analyst Eric Balchunas.
Hong Kong emerged as a growing hub for crypto service providers in 2024 due to several pro-crypto regulations. It became the first country to approve a spot ETH ETF ahead of the United States. However, the response since its launch last month has been lackluster. Allowing staking could potentially attract a new stream of investment into the country’s ETFs, boosting their appeal and supporting Hong Kong’s goal of becoming a global crypto hub.
