Dec 27, 2023

More than seven major traditional finance players, including BlackRock (BLK) and VanEck, are in talks with the U.S. Securities and Exchange Commission (SEC) for spot bitcoin ETFs.

Video transcript

The state of crypto is presented by Tron connecting the world to the power of Cryptocurrency. 2023 was the year of ETF S and now the industry is waiting to see if the NCC will approve a spot Bitcoin ETF in the new year. Joining us to reflect on ETF progress. This year is ETF Think Tank research director Cynthia Murphy Cynthia. It's wonderful to see you. Hey Jan, pleasure to be here. Thanks for having me. Of course, I hope you're having a happy holidays. Yes, this is my favorite time of the year. So I'm I'm super excited. Me too. I think, I think there are some asset managers who who might be sitting on the edge of their seat at this at this time. So talk to us about what you're expecting to see in January. There are 13 spot Bitcoin ETF applications pending something we might see a bulk approval next month. What are your thoughts? Yeah, it's, it's fascinating how we've been waiting for this moment for more than 10 years. Uh You know, the the race to the spot Bitcoin ETF has been a very, very slow walk up to now and after this year, the amount of attention we pay to this, the amount of movement in the filings, the amount of traction this story has gotten all of a sudden, we can't wait for this to be over in a way and the expectation is early January should bring a resolution here in truth. We never know what regulators are going to do. The SC could still come up on January and say actually, no, not yet. We're not ready. Which, but I think that would be the big surprise. I mean, most people now expect that by the end of January, we should have uh spot Bitcoin ETF S in the market uh based on the pace and the amount of regulatory paperwork and conversations and, and what issuers have been saying? So we are expecting the soap opera to come to a resolution in January and then begins the next phase, which is will the ETS revolutionize the phase, will, you know, adoption grow exponentially, will let it impact the price of Bitcoin, all of these things? We'll see what happens next Cynthia if they're all approved at the same time, do you think that one might be more successful than another? And if so which do you think is going to come out as the winner here? Yeah, this would be a really interesting experiment because we have never had multiple ETF S in one specific acid or segment come out at the same time. So the ETF, space is notorious for what we call that first move or advantage. The first ETF that comes and captures that new idea tends to lead that segment even though other ones may follow in the footsteps. So in this case, we may have 13 leaders right out of day one. So it's going to be an interesting experiment in the power of marketing, the power of distribution, you know, which of these firms have the strongest distribution networks. I mean, the assumptions here are that bigger may do better, you know, uh versus smaller providers. But we don't know that for a fact, uh people may have brand preferences. Uh And then you have the G BT C. Uh the gray scale products is that once that product converts as sui it converts, I mean, that that fund comes to market with $20 billion lead in terms of asset gathering. So, you know, some people may prefer that some people may prefer firms that have deep expertise in the space. So then we're talking about, you know, smaller providers like hashtags or brand names that they know fidelity or blackrock. So it'll be a really, really interesting experiment on uh how this unveils. We've never seen this before. My guess is we're going to be bombarded with uh communication from all these providers. So we'll see if we uh if we don't get sick of the story before we even we see the, the traction, you know, gain pace. Well, I got to ask you, you just brought up marketing and you may not have an answer for this, but I was recently traveling home to visit family and I saw a ton of GB DG BT C ads in the airport. I haven't seen that kind of marketing from any other of the asset managers in this race. Uh Why do you think that is, do you think that's giving them an advantage or do you think people are seeing it and they're not really caring? Well, in truth, uh, the regulators are super tight on rules about what you can say before filings are approved. So in theory, the providers that don't have a product in the market yet, they can't really be talking about it until it's approved. G BT C is a private trust that's already in the market. So they're the only ones really that can get out there and talk about the product. So the other providers are like a bit at a disadvantage. What will be interesting to see? And it's a piece of research I'm working on right now actually. Is that all of these Bitcoin ETF s would be structured at grant or trust under the 1933 Act, which is, you know, like, uh, deep in the woods, weeds thing to say that basically they're really strict advertising rules for them. And so it could be the case that they can't advertise as much as we think they may because F Ira has really strict rules when it comes to grant or trust advertising. So we're still trying to unravel what that looks like. It could actually be, they could be kind of tight lipped about it. Uh or it could be that the rules adapt because crypto is new. Uh this whole space is new so it could be that the role the rules conform to, to the new realities that we're facing in the A TF space Cynthia. When you're done that research, I'd love to have you back on the show to discuss the advertising around these products. I think that it is fascinating. Uh So stay tuned, stay tuned for that. We'll have that conversation later in 2024. But I got to ask you earlier this month, we learned through memos that firms like Blackrock and Fidelity have met with the SEC about redemption processes for spot Bitcoin ETF S. Uh There are three separate models. What's the issue at hand here? Maybe just unpack for us what these conversations mean and, and their significance. Yeah, it it goes back to the whole concept of the chain of custody of Bitcoin. The SEC is not comfortable with transacting in Bitcoin and crypto. It's all new plumbing. It's an infrastructure that has to be built from scratch and that has been part of like the big sticky point for regulators is that whole chain of custody. I think the point we're at right now, from what the issuers have been saying is, you know, the way traditional ETF S are created and redeemed when shares that are created to be put into the market to be traded, it's called an in kind transaction. So if you're having like a portfolio of S and P 500 stocks, you're gonna have, you know, the the market is going to get the 500 stocks in the correct rings and exchange that for shares of the ETF in this crypto space. Uh The regulators are not comfortable with the concept of Bitcoin for shares. So they're trying to figure out other ways to do this, the creating and redeeming of the supply of shares and they're talking about doing that through cash. So the whole thing becomes a cash transaction and you're introducing new players to this whole plumbing like market makers who can deal with Bitcoin because you got to remember market makers who are in, you know, transacting in the creation and redemption of shares. They're, they're registered broker dealers. So under rules they can't transact to non securities. So they to introduce new players, they're probably going to be offshore players trying to figure out how to get from Bitcoin to shares and the middle component there is going to be a cash transaction. Now this is all like, you know, complicated plumbing that is being created for this space. If you are an investor, I think what's really important here to remember is that what this means is that you could actually have a less tax efficient product. Uh You could actually have a little bit of slippage between that the moment that Bitcoin is bought and sold, you can have some slippage in that transaction. So it could be a little bit, you know, drag in the performance. So these little things could make it for a noisier experience than your traditional ETF wrapper. But these are the ways that issue are trying to figure out a way to get the sec comfortable with this. We're going to go for this and from the filings, I've read, you know, there's language there that once this all works, we may move to in kind and just get the cash component out over time. But it's really just about getting the SEC comfortable with taking that first step, get these products on the market. And let's see how this unfolds Cynthia. I gotta ask you, what are the chances that we don't get an approval uh early next year? And I ask this because a lot of people are looking at these SEC meetings and they're saying this is a good sign. The SEC is working with asset managers, they're figuring things out. But what if, what if the SEC comes back from all these meetings and said, hey, we tried, but we're still just not comfortable with this product. Uh You mean other than the picket lines in front of Gary Gin's house. I'm not sure what else we're going to see. But I mean, it would be, I think the biggest surprise of the year everyone you talk to. I mean, you know, folks who keep tallies on this stuff, you know, 90% and above chances that it will be approved. I mean, it gets to a point where there's been so much work by so many big players and for so many years, and I think that gray scale lawsuit win earlier, earlier this year kind of paved the pace for, you know, you're running out of excuses not to allow this to happen. So I, I have to, there's always a chance with regulators, there's always a chance we never know what they're going to do. But it would definitely be the biggest surprise of the year because I don't think there's anybody right now that expects it won't happen. I'm not ready to have the biggest surprise of the year happen in January. I'm looking forward to an uneventful January. So all fingers crossed Cynthia. It's always a pleasure chatting to you and I look forward to talking to you again once that research is done. Thank you very much and happy holidays. You too. That was ETF Think Tank research director Cynthia Murphy.

Learn more about Consensus 2024, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to to register and buy your pass now.