Hong Kong Joins ETF Race, SEC Can’t Attract Crypto Talent

Hong Kong is the latest territory to consider approving exchange-traded funds that invest directly in digital assets. The move would be part of a broader strategy to create an Asia Pacific digital asset hub.

Hong Kong appears to be warming to the idea of allowing investors to access spot ETFs at the local level. Hong Kong’s Securities and Futures Commission Chief Executive Officer Julia Leung said to Bloomberg, “We welcome proposals using innovative technology that boosts efficiency and customer experience. We’re happy to give it a try as long as new risks are addressed. Our approach is consistent regardless of the asset.”

Like the U.S., Hong Kong has already listed several futures-based crypto ETFs. In Hong Kong, these consist of the Samsung Bitcoin Futures Active ETF, CSOP Bitcoin Futures ETF, and CSOP Ether Futures ETF. The Futures ETFs have attracted flows of about $65 million.

More broadly, the crypto industry sees ETFs as one of the keys to the mainstream adoption of digital assets as the funds are widely available to a variety of investors. A leading factor in Bitcoin’s strong performance in 2023 is the growing anticipation that large US financial institutions such as Fidelity and BlackRock will soon get the green light to start launching US-based Bitcoin spot ETFs.

In the US, it is the Gary Gensler-led Securities and Exchange Commission that will either approve or deny the latest collection of spot ETF applications.

SEC struggling to hire Crypto Experts

This week, a report by the agency’s inspector general suggested that the SEC is having difficulties hiring crypto experts. The report included a section on the SEC’s “management and performance challenges” in October.

The challenges include keeping up with developing technologies such as AI, and maintaining a skilled workforce. “The SEC also faces challenges in recruiting specialists in crypto assets, which Enforcement considers critical to strengthening its capabilities to investigate new and emerging issues in crypto-asset markets,” said the Inspector General.

If you’re unsure why the SEC is having difficulty attracting crypto experts, the report mentions "a small candidate pool of qualified experts, competition from the private sector, and candidates’ frequent conflicts with rules that prohibit the holding of cryptocurrencies."

The report makes it clear that this prohibition has been detrimental to recruiting, as candidates are often unwilling to divest their crypto assets to work for the SEC.

Understandably the SEC has complex ethics rules that prohibit employees who hold equity in a company from deciding on any applications that the company submits to the regulator.

The worry is, however, that if the SEC refuses to hire any candidates who passively hold Bitcoin or other digital assets, this would lead to a possible bias in favor of anti-crypto employees with no real-world experience in digital asset use.

In a hearing in front of the House Financial Services Committee earlier this year, Gensler confirmed that he holds no crypto assets, and that as per the SEC ethics rules, he expected that none of his team did either.

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