Microbit CIO Says Regulation Has Primed Hong Kong Crypto Market for Institutional Money

Investors in the Asian city region currently need to access crypto markets through a licensed virtual asset trading platform (VATP). They still hesitate to give their money to just any VATP because of past financial scandals in the crypto industry, according to Kenny Khuong, Chief Investment Officer of MicroBit Capital Management.

“There are some good ones, and some bad ones,” Khuong said, commenting on the growing popularity of crypto trading offerings and the prevalence of exchanges and dealers which have taken some customers for an unpleasant ride.

Scandals of the past

Crypto criminal Sam Bankman Fried famously shifted his FTX business from Hong Kong to the Bahamas and ended up with a US prison sentence and massive customer claims to settle. The city has been wary of its image due to incidents such as FTX and the JPEX cryptocurrency fraud scandal.

Hong Kong is therefore seeking to play a leadership role in cultivating new, licensed solutions for institutional investors and to protect the public. 

ETF popularity

The city’s fund managers, bankers and wealth managers can now invest in an increasing number of crypto exchange-traded funds (ETFs), which are growing in popularity thanks to the reassurance of firmer regulatory frameworks. That made it a prime moment for MicroBit to launch two ETF solutions for Bitcoin (BTC) and Ether (ETH) respectively in late August.

“Investors have been hearing about the all-time highs in Bitcoin and Ether and want to have some exposure to these crypto assets,” Khuong said, in an interview with Sandmark at the firm’s offices in Hong Kong’s Central district. “The regulations were ready and the market was ready.” 

Institutional investors

MicroBit’s two ETFs combined have attracted more than US$200 million since inception on 21 Aug, with more than 90% of assets under management from institutional investors, including HNWIs, according to Khuong. Part of the attraction was the competitive 0.5% management fee attached to the product.

Khuong doesn’t see the proportion of inflows swinging towards retail any time soon. “The ratio of institutional to retail investors will remain relatively high,” he said.

These ETFs are part of the MicroBit Funds Series (Hong Kong) ETF OFC and are designed to closely track the CME CF Bitcoin Reference Rate – Asia Pacific Variant and the CME CF Ether-Dollar Reference Rate – Asia Pacific Variant, respectively. Unlike futures-based products, these spot ETFs directly hold the underlying assets, according to a company statement. 

Ether staking

The Ether product includes staking of up to 30% of the token held in the portfolio – a process that will reward the fund with additional units from the Ethereum network. This will be conducted through SFC-licensed VATPs that are authorized to perform staking activities directly or via affiliates and third-party staking providers. 

The MicroBit ETFs depend on Hash Blockchain Limited, a licensed VATP, and HashKey Custody Services Limited for the custody of assets.

Potential expansion

MicroBit is currently marketing its ETFs only in Hong Kong, but would not rule out partnering with other investment managers to sell the product across Asia.

Khuong comes from a TradFi background and initially worked as a sell-side equities analyst, crunching numbers. He used tolisten to CEOs and CFOs talk up their stock based on fundamental factors such as corporate strategy, cashflow, profitability and earnings per share. He then worked in private equity overseeing deals and longer-term investments in companies including web3 projects, preparing him for his current role focusing on digital assets.

“Crypto right now is an alternative asset class, but it’s becoming more mainstream,” he said.

Investment strategy

Khuong’s investment strategy applies some of his traditional thinking about how to value assets with a more crypto-sensitive angle. He spends about 50% of his time studying and thinking about the market to form the best thesis on which to make sound judgments.

“Macroeconomic factors affect all financial markets, from equities to currencies and interest rates. In addition, I look at both utility value to determine fundamental reasons for a coin’s price to increase and investment value – the value attached by those who are simply seeking a store of value.”

Khuong regards both coins in his ETFs as having increasing utility value:

“Bitcoin is a technology serving a purpose from which we can derive fundamental factors to study its utility, most notably as a method of payment. Meanwhile, Ether’s story is more about the technology platform and the potential for tokenization of other assets in the Ethereum ecosystem.”

In each case, the clearer the regulation, the clearer the utility case to invest will be, he said.

Outlook for BTC, ETH

Khuong sees utility value progressing at a gradual pace through the rest of 2025, while investment value is more volatile. The crypto market still has a lot of individuals trading on unregulated exchanges who can make substantial purchases or sales that make the market unpredictable. The influx of institutional asset managers and mainstreaming of the asset class will likely reduce that volatility, he said.

Khuong remains cautious of storytellers and technical analysts suggesting the price of crypto will rocket in the coming months. “I still need some fundamentals, not only sentiment. Not just that ‘it will go to the moon’,” he said.

Bridging TradFi with Virtual Assets

MicroBit Capital Management was founded two years ago and seeks to bridge TradFi with virtual assets, a common claim in the crypto sector these days. MicroBit is also evaluating other investment activities dedicated to private investors only and which are not being marketed publicly.