Hong Kong’s Securities and Futures Commission (SFC) is getting ready to allow retail investors to purchase some virtual assets, but which ones will make the cut? SFC has proposed that only “large-cap virtual assets that are included in at least two approved indices” will be eligible.
Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), Bitcoin Cash (BCH), Polkadot (DOT), Solana (SOL), Cardano (ADA), Avalanche (AVAX), Polygon (MATIC), and Chainlink (LINK) are all potential candidates. But what about liquidity?
Kaiko’s analysis suggests that the liquidity of some of the tokens being considered is poor, for example, the liquidity of Bitcoin Cash, Litecoin, and Polkadot. Therefore, despite being included in several of crypto’s largest indices, these tokens might not make the cut.
In December, Kaiko ranked tokens by liquidity, with XLM finishing last, UNI 22nd, and ETC not liquid enough to be included. So, although Bitcoin Cash, Polkadot, and Litecoin look set to be included, there are concerns that they might not be liquid enough for retail investors.
SFC’s proposed guidance means that more speculative tokens are likely to be excluded. However, the inclusion of these tokens in the indices means that they could see renewed flows from Asia, as seen in the case of Bitcoin Cash, Litecoin, and Polkadot.
There is cause for caution, as liquidity is essential in measuring the value of tokens. The market cap alone is insufficient, and liquidity should be incorporated as a criterion for index construction.
Tokens like XRP, MATIC, and LINK are set to miss out as they are not included in at least two indices. DOGE has better liquidity than BCH, and there is a potentially controversial take that the leading meme token deserves more consideration for the SFC than Bitcoin Cash due to its vastly superior liquidity.
