The release of Hong Kong's Web 3.0 vision has drawn significant attention from both traditional financial institutions and Web3 companies. With the recent finalization of regulatory guidelines by the Securities and Futures Commission (SFC) on virtual asset trading, one area stands out as particularly promising: virtual asset indices.
According to the new rules, virtual assets available for retail trading must be included in at least two accepted indices issued by two different index providers. This positions indices as crucial gatekeepers for retail-accessible digital assets.
To ensure integrity and prevent conflicts of interest, the SFC has specified that:
- Indices issued by virtual asset issuers or exchanges themselves are not acceptable.
- At least one of the indices must comply with the Financial Benchmark Principles and be issued by a firm with experience launching indices in traditional securities markets.
These rules effectively grant established traditional financial institutions a significant regulatory advantage. This analysis explores which existing indices and cryptocurrencies are positioned to meet these new standards and examines the industrialization of the index economy.
Which Cryptocurrencies Are Included in Hong Kong's Recognized Indices?
Based on current market analysis, six major institutions are recognized providers of virtual asset indices: Galaxy, 21Shares, CF Benchmarks, Bitwise, WisdomTree, and Wilshire.
Among these, three are identified as likely meeting the SFC's stringent criteria due to their established presence in traditional finance:
- Galaxy Digital, which collaborates with Bloomberg on its index offerings.
- CF Benchmarks, whose indices are widely used by the CME and Nasdaq.
- Wilshire, a veteran index provider that partners with the Financial Times to publish digital asset indices.
A consolidation of the cryptocurrencies tracked by these qualified providers reveals a shortlist of 13 digital assets that could become eligible for retail trading: Bitcoin (BTC), Ethereum (ETH), Cardano (ADA), Solana (SOL), Polygon (MATIC), Polkadot (DOT), Litecoin (LTC), Avalanche (AVAX), Uniswap (UNI), Chainlink (LINK), Aave (AAVE), Bitcoin Cash (BCH), and Curve DAO Token (CRV).
It is crucial to note that inclusion on this list does not guarantee SFC approval. The final decision for any asset to be available to retail investors hinges on a three-part process: a thorough exchange due diligence review, classification as a "large-cap virtual asset," and written approval from the SFC. Assets like SOL and BCH, for instance, might face greater regulatory scrutiny based on their current operational status.
The Industrialization of the Index Economy
The development of a robust virtual asset index business represents a new frontier for the Web3 industry. Historically, this sector has struggled because index services thrive in mature, regulated markets with deep liquidity and numerous institutional asset managers—conditions that have been largely absent in crypto's early years.
Hong Kong's push for compliance is now creating the necessary soil for this business to grow. Let's evaluate its feasibility.
Business Model Analysis for Index Providers
Surviving index providers in the crypto space have typically adopted one of two models:
- Issuing Investment Products: Many firms use their proprietary indices as the basis for launching investable products like exchange-traded funds (ETFs) or exchange-traded products (ETPs). Examples include Galaxy's Crypto Index Funds and 21Shares' extensive suite of ETPs.
- Integrating with Media and Data: Other providers, like Wilshire with the Financial Times, integrate their indices into financial news platforms to offer market insights to readers, generating brand authority and licensing revenue.
To understand the potential profitability, we can look to traditional finance. S&P Global, for example, derives approximately 11% of its total revenue from its index business (S&P Dow Jones Indices). This revenue streams from three primary sources:
- Asset-linked fees: Royalties from funds that track the index.
- Subscription fees: Fees charged to institutions for data and benchmarking services.
- Sales royalties: Licensing fees for the use of the index.
This business is characterized by high profitability. Over the past decade, S&P's index division has maintained an average gross margin of around 83% and an operating profit margin near 65%. This high profitability is largely due to the scalable nature of the business; once an index is created, the cost of adding more users is minimal, leading to significant economies of scale.
Furthermore, the business has seen substantial growth. S&P's index revenue grew from $490 million in 2013 to $1.34 billion in 2022, fueled by the massive expansion of the global ETF and index fund market.
However, it is also a niche market. The entire global financial benchmark industry is estimated to be worth less than $10 billion. Even for a leader like S&P, index revenue is a secondary concern compared to its market intelligence and ratings divisions.
Future Outlook for Crypto Index Businesses
The maturation of traditional indices provides a roadmap. indices like the Dow Jones (created in 1884) initially served only as informational benchmarks with unclear monetization paths. Their business models solidified only decades later with two key developments:
- The advent of index-tracking ETFs and mutual funds in the 1970s, which turned indices into investable products.
- SEC regulations in the 1990s requiring funds to compare their performance to a securities market index, making subscriptions to index data a necessity for asset managers.
The virtual asset index market currently lacks these drivers. Institutional adoption is still growing, and index-based products beyond simple BTC and ETH ETFs are scarce.
Therefore, the future of virtual asset indices in Hong Kong will likely have three key characteristics:
- Long-Term Horizon: Profitability may take 3-5 years. The key catalysts will be the liberalization of the derivatives market (where indices could serve as settlement prices, generating royalties) and a rise in professional asset managers creating more index-linked products.
- Ancillary, Not Core, Business: As in traditional finance, index provision will likely be a valuable adjunct to a larger business, such as data analytics, ratings, or custody services, rather than a standalone venture.
- Domain of Traditional Finance: The SFC's资质 (qualification) requirements and the critical importance of brand trust and credibility strongly favor established traditional financial institutions over Web3 startups.
Ultimately, the index business is a "long-term game." While early profitability is challenging, the first movers who build reputable, compliant indices stand to gain enormous scale advantages and high-profit margins as the market matures. 👉 Explore more strategies for navigating regulated crypto markets
Frequently Asked Questions
What is the main purpose of Hong Kong's new rules on virtual asset indices?
The primary goal is to protect retail investors. By requiring that a cryptocurrency be listed on two independent, reputable indices before it can be sold to the public, the SFC is adding a layer of third-party validation and reducing the risk of investors being exposed to unreliable or manipulated assets.
Which cryptocurrencies are most likely to be approved for retail trading first?
Based on current analysis, Bitcoin (BTC) and Ethereum (ETH) are the strongest candidates due to their high market capitalization, widespread adoption, and inclusion in all major institutional indices. They are considered "large-cap virtual assets" most likely to pass exchange due diligence and receive SFC approval.
Can a crypto exchange create its own index to list tokens?
No. The SFC rules explicitly prohibit indices issued by virtual asset exchanges or the issuers of the tokens themselves. This prevents clear conflicts of interest and ensures that the indices maintaining the gatekeeping role are independent and objective.
How do index providers make money in the crypto space?
Their revenue models are evolving. Current methods include licensing their indices to funds for creating ETFs/ETPs (generating asset-linked fees), selling premium data and analytics subscriptions to institutions, and partnering with media outlets for branding and content licensing.
Why are traditional financial firms favored over crypto-native companies in this business?
The SFC requires providers to have experience in traditional markets and comply with the Financial Benchmark Principles. Furthermore, trust, brand recognition, and a long-term reputation for reliability are paramount for an index to be credible. Established traditional firms inherently possess these qualities more than most startups.
Will this make Hong Kong a more competitive crypto hub?
Yes, by creating a clear, regulated framework for retail participation, Hong Kong is enhancing its appeal. Defining clear rules for indices provides certainty for institutions, attracts asset managers looking to create new products, and builds a safer environment for investor participation, which is crucial for sustainable growth.