Author: CHI ANH, RYAN YOON, YOON LEE Compiled by: Tiger Research

Key Points

Building Asian Benchmarks: Hong Kong The exchange’s virtual asset index series introduces standardized Bitcoin and Ethereum pricing, thereby addressing regional price differences and increasing investment transparency in Asia-Pacific markets.

Dual tools, flexible and stable: The HKEX index series includes real-time reference indexes for making immediate trading decisions, and daily indexes for continuous settlement of financial contracts. Reference interest rates to meet various transaction and investment needs.

A step towards institutional integration: By complying with EU standards and providing reliable data, HKEX’s index aims to attract institutional investors and support structured crypto Product growth and driving the integration of cryptocurrencies into mainstream finance.

1. Introduction

Source: HKEX Twitter

On October 28, the Hong Kong Exchange (HKEX) virtual asset index series was officially launched, and Hong Kong took a decisive step towards establishing its leading position in the cryptocurrency market. , establishing a reliable benchmark for Bitcoin and Ethereum prices in the region.

So far, cryptocurrency indices have been developed primarily by private companies. The lack of institutional-grade benchmarks results in price differences between trading platforms, creates uncertainty and risk for investors, and hinders seamless integration between cryptocurrency markets and traditional finance.

In traditional finance, indices are crucial for price discovery, risk management and performance evaluation. The HKEX Virtual Asset Index Series aims to bring these advantages to the cryptocurrency space by providing real-time, volume-weighted reference prices. This effort aims to increase trust, transparency and consistency between traditional and cryptocurrency markets.

This report explores the methodology of HKEX’s index series, its potential to build market trust and its impact on trading and investment strategies in Asia’s dynamic cryptocurrency landscape .

2. Hong Kong Exchange Virtual Asset Index Series

The HKEX Virtual Asset Index Series was launched on November 15, 2024, introducing two important tools: the reference index and the reference interest rate for Bitcoin and Ethereum, providing standardized pricing consistent with the Asian time zone.< /p>2.1. Reference Index

Source: Hong Kong Exchange< /p>

The cryptocurrency market has been plagued by price differences between exchanges. To solve this problem, HKEX developed a volume-weighted average index with Bitcoin and Ethereum as the initial assets.

This approach reduces distortion caused by low or irregular trading by assigning weights based on trading volume. By prioritizing higher-volume trades, the index more accurately represents the index. The collective consensus of market participants

Volume-weighted methods are particularly effective at mitigating market manipulation. In markets with widely varying liquidity among exchanges, a simple average can be easily affected by low-volume trading. By assigning greater weight to trades, the volume-weighted average significantly reduces the risk of manipulation.

While this approach is particularly important for altcoins with higher price volatility, HKEX strategically chose to focus on Bitcoin and Ethereum first. These assets have smaller price differences, providing a platform for establishing credibility and ensuring Smooth adoption of indices provides a stable foundation

This approach is expected to expand to the altcoin market in the future. By first validating the approach with Bitcoin and Ethereum, HKEX is creating a scalable framework that can be extended to more volatile assets, Thus improving reliability and market inclusiveness

2.2 Reference Rates

Source. : Hong Kong Exchange

The reference rate is a daily price index designed to facilitate the standardized settlement of financial products such as derivatives and futures.

The reference rate is used daily on Calculated once at 4:00pm Hong Kong time - calculated based on a one-hour data window between 3:00pm and 4:00pm.During the window, HKEX Reference Index values ​​are recorded and averaged every five minutes, ensuring a fair and representative market price and minimizing differences between exchanges.

The reference rate is compliant with the EU Benchmark Regulation (BMR), ensuring robust governance, transparency and data accuracy. Enhances trust and reliability in the cryptocurrency market by addressing challenges such as price manipulation and benchmark inconsistencies. The benchmark supports the development of advanced financial instruments such as futures and ETFs, promoting institutional adoption of digital assets.

As cryptocurrencies become increasingly integrated with traditional finance, HKEX’s reference exchange rate will play a key role in decision-making and market stability. This move further solidifies Hong Kong’s global leadership in the digital asset ecosystem.

3. The strategic impact of the index series on the cryptocurrency market 3.1 The impact of the Hong Kong Stock Exchange Index on the cryptocurrency ecosystem

The Hong Kong Stock Exchange Virtual Asset Index Series is for cryptocurrencies Markets bring greater transparency, standardization and reliability. By providing real-time volume-weighted pricing for Bitcoin and Ethereum, the index solves the long-standing problem of price differences between exchanges. These indices are an important tool in instilling confidence among investors, especially institutions that have been reluctant to dabble in cryptocurrencies due to concerns about fragmented and unreliable pricing data.

Transparent indices like the HKEX can stabilize market volatility by providing a consistent reference point. This facilitates risk assessment and supports more informed investment decisions, creating a more structured environment for market participants. As regulatory transparency increases in Hong Kong and the region, HKEX indices could become a key enabler in the development of structured financial products that rely on stable, reference pricing.

3.2 Crypto Index Promotes Financial Product Innovation

With their role in providing pricing consistency, indices such as the HKEX Virtual Asset Index Series pave the way for various financial products. Leveled the road. ETFs, equity-linked securities (ELS) and deposit-linked securities (DLS) tailored to regional investors are just some of the instruments that could be developed based on this index. Additionally, the addition of derivatives such as futures and options expands opportunities for hedging, speculative trading, and risk management.

These innovations mark an important step in the integration of the cryptocurrency market with the traditional financial system. As indices develop, they may also support DeFi protocols, enabling tokenized loans, yield instruments and other complex products that rely on accurate, real-time price references.

3.3 Lessons from Traditional Finance

Traditional financial markets have long relied on the S&P 500 Index and the Dow Jones Index, etc. Benchmarks to provide consistency and credibility for pricing, performance tracking and portfolio management. Commodity markets also use indexes to stabilize the prices of commodities such as crude oil and gold. Cryptocurrency indices can adopt this proven model to provide institutional investors with a trustworthy framework for asset allocation, performance measurement and portfolio rebalancing.

In addition to traditional applications, benchmark indices can support algorithmic trading and other advanced strategies that rely on accurate real-time data. By combining traditional financial principles with innovations in blockchain technology, indices such as the HKEX Virtual Asset Index Series have the potential to redefine the integration of digital assets into the broader financial ecosystem.

4. Conclusion and future prospects

The Hong Kong Exchange Virtual Asset Index Series is a landmark initiative in Hong Kong’s efforts to position itself as a digital financial center. By introducing standardized benchmarks for Bitcoin and Ethereum, HKEX is laying the foundation for a more transparent, stable and investor-friendly cryptocurrency market in Asia. The series addresses the need for unified pricing of cryptocurrencies while also laying the foundation for potential expansion into structured products and risk management tools similar to traditional finance.

The HKEX Index Series could encourage other Asian markets to adopt similar standards, potentially creating a more unified, regulated framework for cryptocurrencies across the region . This standardization can attract more institutional investors and promote market liquidity and stability. For stakeholders and investors, the Index Series provides an opportunity to participate in a more transparent and structured crypto environment, consistent with traditional financial principles and advancing the maturity of the crypto ecosystem.

In summary, the HKEX Index Series represents an important step in integrating cryptocurrencies into the financial system. It has the potential to reshape the cryptocurrency investment landscape by providing valuable insights and tools to retail and institutional players. The adoption of a reliable benchmark could mark a pivotal moment for the cryptocurrency market, establishing a new standard for transparency, security and growth in Asia’s growing cryptocurrency economy.