On February 23rd, the Securities and Futures Commission (SFC) of Hong Kong released a proposal that would allow retail investors to trade crypto assets. But only those that are classified as “large-cap” and included in at least two approved indices, as per a blog post by Kaiko.
The SFC’s definition of “large-cap” remains unclear, but the proposal narrows down the universe of potential tokens that could be available for trading. Some of the indices hold relatively illiquid altcoins, which may not meet the liquidity criteria for large-cap assets.
Crypto Tokens That May Be Included In The New Criteria
According to the SFC, compliant exchanges may include tokens like Bitcoin, Ethereum, Litecoin, Bitcoin Cash, Polkadot, Solana, Cardano, Avalanche, Polygon, and Chainlink for retail investors to purchase.
These tokens have been identified in at least two of the top five crypto indices, and they have seen renewed flows from Asia, resulting in open interest for all three rising by about 15% in the last week.
While market cap alone is insufficient to measure the value of tokens, liquidity is an essential factor that should be considered. Liquidity is one of the criteria for index construction in traditional finance, and it should be no different in crypto.
The inclusion of tokens like Bitcoin Cash, Polkadot, and Litecoin has raised concerns about their liquidity, which may not meet the criteria for large-cap assets.
The fact that Bitcoin Cash is included in three of the top five crypto indices is a cause for concern, and a more robust approach to index construction is needed that accounts for liquidity alongside market cap.
Like, For OKB, the exchange token for OKX was recently included in the top 10 tokens on CoinGecko and other ranking sites due to an update of their circulating supply figure.
It increased its market cap by over $9bn, moving it inside the top 10. However, using liquidity metrics alongside market cap would rule OKB out of consideration.
Although short-term market movements are being driven by US investors, the news coming out of Hong Kong bodes well for the long-term prospects of crypto. However, some tokens that fall under the SFC’s new rules may not be of the highest quality in terms of both fundamentals and liquidity.
It is important for the SFC to take liquidity into account when implementing these rules, as some tokens with strong fundamentals and liquidity may be excluded simply because they are not part of the designated indices.
Tokens that meet the new regulatory criteria are likely to see increased investment and a boost in investor sentiment. Additionally, Asia may emerge as a promising hub for the next wave of crypto investment.
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