Crypto derivatives a missing piece in Hong Kong's virtual-asset push, Deribit says

Deribit, the world's largest cryptocurrency derivatives exchange, aims to expand in Hong Kong, a sign of momentum as the market regulator looks to make the city a hub for virtual assets.

The Dubai-based company was drawn to Hong Kong because of its position as an international financial hub and its vibrant community of family offices and asset managers, which are increasingly interested in cryptocurrencies, said Jean-David Pequignot, the firm's chief commercial officer, who is based in the city.

"Hong Kong is this central financial hub in the world and a big one in Asia," he said. "If regulators can solve the derivatives piece, it is a place where we love to be."

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On Wednesday, the Securities and Futures Commission (SFC) unveiled a new road map of initiatives for the virtual-asset ecosystem. The plan includes studying the introduction of virtual asset derivative products for professional investors, or those with portfolios of at least HK$8 million (US$1 million).

Jean-David Pequignot, chief commercial officer of Deribit. Photo: Handout alt=Jean-David Pequignot, chief commercial officer of Deribit. Photo: Handout>

Crypto derivatives trading was the missing piece of what Hong Kong regulators currently allow, which was predominantly focused on licensing, Pequignot said.

"Derivatives can be speculative instruments for people who want to take leveraged bets into a market," he said. "They can be risky, but they are also very powerful instruments for hedging and risk management."

The risk-management element could help investors navigate fluctuations in the volatile crypto market, Pequignot said.

Deribit, licensed in Dubai, provides a trading platform for bitcoin and ether options. This derivative instrument gives traders the right to buy or sell an asset at a predetermined price at a specific time without immediate commitment to buy or sell the underlying asset.

"Asia is a big market for derivatives, with sophisticated investors who are highly speculative in nature," Pequignot said. "We want to be in Asia. We just need to find the right place and time to engage with regulators and get a regulatory framework to work with."

Singapore, another major Asian financial hub, has yet to establish regulations for crypto derivative trading.