ETF Edge - The Future of “Spot-Bitcoin” Post-Approval 1/8/24

Episode Date: January 8, 2024

It's been a decade in the quest for a spot bitcoin ETF. There are 13 applicants for bitcoin funds and first in line is Cathie Wood from Ark Invest. Bob Pisani sat down with Cathie, her ETF partner Ophelia Snyder, founder of 21shares. Plus Jan Van Eck, CEO of VanEck, who also has an application in…and Doug Yones, head of exchange traded products at NYSE. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The EETF Edge podcast is sponsored by InvescoQQQ, Supporting the Innovators Changing the World, Investco Distributors, Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest insights on all things, exchange-traded funds, you are in the right place. Every week we're bringing you interviews and market analysis and breaking down what it means for investors. I'm your host, Bob Pesani. The SEC is on the verge of approving a spot Bitcoin ETF. Likely this week, there are 13 applicants for Bitcoin ETFs, first in line. Kathy Wood from Mark Invest. Here's my conversation with her, along with Aphelia Snyder, founder of 21

shares, a partner with Kathy Wood launching ETF products, plus Jan Vaneck, CEO of Vaneck, who also has an application for a spot Bitcoin ETF in as well. And Doug Jonas, he's the head of exchange traded products at the New York Stock Exchange. Kathy, I was joking with this about you earlier. It was the Vinklevoss twins who first filed for the first Bitcoin ETF back in 2013. I think it was 2017 it took for the SEC to reject that and all the other ones. So do you believe your application is going to be improved? Why do you think so? And what kind of negotiations or discussions have you had about the SEC with the SEC about this? Yes. Well, that's the important word, discussions, mostly questions and answers, which was unlike previous filings. So they started asking

questions, I think, of many of us, and we provided answers. It became a process. It became a process. The question is very detailed, very technical, which told us they were getting ready. Now, can we be 100% sure there will be approval this week? No, you never say 100%, but we're feeling really good about it. Jan, you've got an application as well. Kathy says she's been talking with the SEC. It seems like something's happening. What's your sense here?

I would just say in general what I read publicly is that people go through this process of the SEC commenting on prospectus. This is true for all ETSs, and that's what's happening now. So all the prep work that needs to happen is happening. But the fact that they're commenting, or at least asking questions, that's the right thing to be doing. Not just commenting. Commenting on the specific prospectus, which is the disclosure document, which every public security has to have. But my point is, if they had some grand scheme to challenge this again and some new novel legal theory, they wouldn't be going through all this. It's a positive sign, isn't it? There's always someone higher on the org chart, Bob. So you never know when lightning my strike. But you, you know,

Yes. All right. Doug, you're here because you're the industry guy. You represent the New York Stock Exchange. You're in charge of ETFs here at the NYSC. A spot Bitcoin ETF is a brand new product. There's been reports. The exchanges have been in discussion with the SEC about mechanics of how this product might trade. What can you tell us about that and when it might trade? Yeah. I mean, look, as mentioned, we have been working on a potential spot Bitcoin ETF for the better part of 10 years. This week is an exciting time. I think a lot of people are sort of gearing up and trying to read the tea leaves. At the end of the day, we won't speak for our regulator. The SEC has a series of approvals they need to make in order to make a SPAC Bitcoin ETF a reality. That being said, when we start to think about the tea leaves, right, what are we reading about? We're seeing a lot of communication both directions from issuers on the different filings. And we're seeing a lot of gearing up, right? We're starting to see the lead market makers being chosen. We're seeing the filings happen with respect to expense ratios.

So I think across the industry, we're seeing all the signs of a potential approval. And look, that's what we do here at the New York Stock Exchange. It is about innovation. It's what we've always done. And so we're really excited to be a part of this. So I don't want to get too wonky on this, but there's two components of this because it's a little more complicated. There's what's called a 19B4 filing. This is a form used by the exchanges to tell the SEC about a proposed rule change because we have a new product here, right?

That's right. So that's what you need to do. There's two pieces here. Right, then there's the S-1, which you all know about. That's the individual product registration. That's right. Explain this to us and what has to be approved first or what's the process. Yeah, I wouldn't look at it as a first second piece, but there's two components.

One component is we want the ETF itself to become approved, and that's your S-1 filing. That'll make the product itself viable and approved by the SEC. The other side is, look, this is an ETF that's innovative and unique. It's never traded here at the New York Stock Exchange, which means we do not yet have a series of listing rules to trade it, that's your 19B4 filing. So we're filing a set of rules that say for spot Bitcoin ETFs, here's how to trade. Now, we already have rules for futures-based Bitcoin ETFs. As you know, we have Bid-O. That's been trading over two years. There's $1.7 billion in BidO, but this would be spot Bitcoin, which is a little different. And all the exchanges are engaging

to this. You, NASDAQ, and CBO, we're all engaging in the SEC. Yeah, it's the entire industry that's working on this right now. Ophelia, 21 shares. You're partnering with Kathy for for the Bitcoin application. A lot of the old school wirehouses and wealth management platforms have not been allowing access to these Bitcoin products. I believe UBS, for example, is not allowing their advisors to buy spot Bitcoin ETFs.

Is a spot Bitcoin ETF more likely to broaden the institutional participation? That seems to be the game, but I'm not sure that's going to happen necessarily. Your thoughts? The short answer is yes. These are rappers people understand. They're used to them.

they fit within their existing infrastructure. And I think that's a really important piece. I think futures product, well, they certainly have a place in the market, have typically been viewed as more complex in some respects. And so I think there's been a little bit more hesitancy there. These are a bit more plain vanilla, or at least just as plain vanilla as they can get while still being in crypto. And I think that makes this a little bit easier. I think it also removes, you know, assuming these things do move forward and get approved,

it removes some of the regulatory uncertainty around these products. At the end of the day, you know, the role of advisors is to manage their clients' money and provide them with access to high-quality product. And I think, you know, taking some of that regulatory uncertainty out of the mix can certainly improve accessibility. Yeah. And you and Kathy are also launching recently a suite of Bitcoin and Ethereum futures ETFs as well, right? Yes, that's correct. All right. Kathy, let's go ahead. Do you want to say something?

No, we think there's actually certainly room for both. And I think that might be where this ends up. I think we're going to end up seeing both types of products with different use cases for different user bases. And I think that's a big part of at least our ethos has always been to meet customers where they're at in their crypto journey. So having that combination of both futures and spot product really puts us in a position to do that. And do you think there's a customer for each one? Is there one reason someone might want a futures? And, John, jump in any one of you, but I'll ask you, Ophelia, why a customer want a futures product versus a spot product necessarily?

There's a variety of different reasons why that might be the case. I think spot products have a tendency to be a little simpler and have a more broad-based appeal. And that goes to your first question around why we think this is really a broadening moment in terms of access. But, you know, futures products also certainly have a role in. And you see that in other commodity markets as well, especially around, you know, having significant liquidity, potentially more sophisticated strategies that are interested in using futures. Kathy, so let's assume the SEC approves the application this week or whatever. What kind of impact would a Bitcoin ETF have on Bitcoin? I mean, we all saw this big run-up.

The minute BlackRock announced they were interested, it was $30,000, and then it went, now it's over $40,000. It can't help but think this is logically in anticipation of a spot Bitcoin ETF. So is this a sell-on-the-news event or not? I think a lot of people have been saying that it probably will be a sell-on-the-news event. But so many people are saying that now that I'm beginning to have doubts. We are seeing an anticipatory move. But, you know, the move of institutions into this new asset class, and that is what we are talking about here.

a new asset class, which with another diversifier institutions can increase their returns per unit of risk because of the low correlations, I think that's going to be very appealing. And if institutions with trillions of dollars under management just put 0.2 or 0.5% in, that could really move the needle. So we think the move has been anticipatory. and it makes sense. It makes sense. There's a scarcity value now evolving. It's becoming a scarce asset at 19.5 million Bitcoin outstanding. It can only go to 21. And 15 million of those 19.5 million are in what we would call strong hands. They haven't moved their Bitcoin in the last 155 days.

You know, Jan, you're an old hand at this. There's a thing we call the S&P inclusion effect. When a stock is announced going into the S&P, it runs up, going up to that. This happened with Uber just a little while ago, and it happened in a very big way with Elon Musk and with Tesla. And you can't help to think there is such a thing as an inclusion effect. If all of a sudden there's a lot of people are anticipated buying a product, whether it's going into the S&P or whether it's becoming a Bitcoin ETF product, the product runs up. What happened was perfectly rational. So just riff on what Kathy was saying.

Yeah, no. I mean, listen, I think Kathy's right that there is a short-term positioning in front of this approval. But what people are missing is just take a step back. And you're in a great setup, I think, for investors who are going along Bitcoin. Number one, the Fed has stopped raising interest rates. So as a store of value, it and gold should benefit from that general positioning. And then for Bitcoin itself, the happening, which is happening in April, has always, technically been a positive for Bitcoin. So I think this is a big price impact event, but I also think there's the other trends that are happening to that are positive for Bitcoin. So I remember

when Bitcoin futures were launched in October of 2021, they made quite a splash right at the time. The volumes were huge. Remember BITO, we had them on. There was huge volume at that time. I mean, that was a real liquidity event. I think that was a real, you know, Doug way in on this. So what kind of reception you think the spot Bitcoin ETF is going to be different? You bring up the futures Bitcoin ETFs. I mean, they were the first time that investors had access via the ETF lens, right? And an ETF we can all access here at the New York Stock Exchange to our brokerage accounts. Ultimately, that's what we're looking at when we think about ETFs. You know, ETFs provide democratized access to all these different investment vehicles, investment styles, and they do it

all with ease. You know, what we're talking about today is the potential to, now bring spot Bitcoin accessibility to individual investors, institutional investors, investors who may not feel comfortable investing outside of an exchange through a wallet or some other feature. And so the idea that you have a regulated investment vehicle like we have in the futures-based Bitcoin ETS becomes exciting. And it's why we're gearing up here at the New York Stock Exchange to be ready to trade all the different vehicles that may come to market here in the next week.

I think the day one, to answer your question, Bob, will be a big thing. I think also it's going to be a process. The whole book will not be written on day one because there are a lot of investors that have been contacting us. Just how do we think about allocating to Bitcoin? And we're talking about financial advisors, fiduciaries, institutions that just to Doug's point did not want the Bitcoin

Futures, ETF. They really wanted a spot Bitcoin product. And so there are a lot of conversations that are going to happen. So I think it's going to take a while. Yeah. Kathy, you recently sold some Coinbase stock. I mean, we usually consider Coinbase a proxy for Bitcoin. What's your thoughts on Bitcoin now?

And we've sort of just ignored the larger philosophical issues about for the broader investing community, whether this really is an asset class at all. And does it satisfy, does it have a significant use case, for example, something you would think of as a normal asset. Look, my starting point, Bob, just about in there is... We're talking to a big bull here, okay, in Yon-Vunach, everyone. There's some... Look, we've been doing gold since 1968.

Some investors just don't care about store or value investing. But if you do, my point is that Bitcoin is a complement to gold. And there have been other compliments to gold, silver, platinum, palladium over the decades. So this is just a compliment. So start there and thinking about where to put it in your portfolio. Kathy, Ophelia, go ahead, either one of you. I'm going to weigh in on that. Use cases, it's broadening out.

Yeah, I'll give props to 21 shares. where they have launched 40 different products, actually now 45 with the new funds here in the U.S. And are enjoying economies of scale that we think this spot Bitcoin ETF is only going to increase. And so this is going to enable us to serve institutions. And we do think that institutions are. missing this asset class. It's been evolving for the past 10 years, 10 plus years, and they've had a lot of time to study it. We've certainly put research out there, 21 shares has, all of us have. And I do believe, and stay tuned for our big ideas, but this idea that it is a new asset

class will come clearly through, as you see the correlation, a correlation of business. Bitcoin two other asset classes out there. Sorry, Celia. Go ahead. Ophelia, you want to weigh in? Ultimately, this is a new form of technology, right? Not just a new asset class.

So you can't really split those two pieces apart. And I think that's important here because I think, yes, over time, you'll start to see things like Bitcoin act more like that store of value. But right now, actually, at a technology level, it's still roundbreaking. And, you know, there's a lot of discussions around what blockchain's in terms of their relationship with AI, what blockchains mean in terms of their relationship with global payments networks and monetary policy. This is still all quite groundbreaking.

And if you look at, you know, where we are in terms of the adoption cycle, you can think of crypto and blockchain being roughly in the mid to late 90s in terms of where the internet was at the time. So there's still quite a ways to go in terms of how this actually will interact both with the world at large and sort of our economic systems as well as, quite frankly, how it will end up interacting with your portfolio. And so while, yes, it has certain characteristics of the store value at this stage, it's also very much part of a new wave of disruptive technology. And that really can't be underestimated. You know, go ahead. I was just going to leverage off that

and basically say that if you think about the internet early 1990s, what happened? It did not, the developers did not build in anything to enable financial services because they never thought it would be possible. This is simply completing that. And we think that the efficiencies coming out of building that layer into the internet are going to be profound. Yeah. You and I have had this discussion a long time. I am not convinced this is a completely new asset class in the way we traditionally think of asset classes, stocks, bonds, cash, commodities, real estate. But I am convinced Bitcoin as an ETF structure is a far safer way for people to own it than the current structure exists.

We have all sorts of disasters, people forgetting their passwords, stuff getting stolen. So I am convinced Bitcoin is a safer way to own it, despite my concerns about whether it's a real asset class. And I remember what happened with gold. Now, gold has been money for thousands of years, and it has satisfied use. cases, clearly. In fact, it's used in jewelry. It's used for industrial purposes. Gold has clear use cases historically. And I saw what it did, the gold ETF did. You were involved in that. 2004 that happened. I was very involved trading it. We covered it the day it's happened down here.

And I remember how important it was because people, gold used to be like old guys in their basement holding gold coins. And all of a sudden, you didn't need to have that problem. You had a custodian And in London, that had a gold, I saw the vaults in London. It is eye-popping. I saw the gold vaults. And you're like, wow, there's guards everywhere. They don't resolve where it is. It's safe.

You can trade it on an intraday basis. And you don't have to worry. Somebody breaks into your basement. So this is why I think it works well for a Bitcoin ETF. I remember what happened to gold. I'm reminiscing with Jan here. It was like $400 in 2004. It went to $1,000 in a few years.

Yeah. Listen, I think it's very exciting for Bitcoin, this development. Gold, just to put in memory, when we launched our first gold mining ETF in 1968, it was illegal to own gold. Then in the 70s, they liberated the price. The only way you could buy gold is through futures contracts. Everyone in the Series 3. And then absolutely, the ETF, the bullion ETF was a breakthrough in accessibility and cost for investors. That's one thing, too.

The spreads, we were expecting, if there's anything like we see in. Europe will be much tighter than you can necessarily get on a crypto exchange. So I think that's, it's really exciting. And Doug, of course, you pay for this. I'm talking about custodians. It's very important to have a custodian and not, you know, you're putting gold in your basement or eat or Bitcoin. That's exactly right. And you're talking about here. And you pay for that, though. You do. But what you were talking about here is taking Bitcoin and putting it into a regulated investment vehicle, right? And so there's a certain amount of investors that are looking for an an ETF that's traded specifically on in exchange.

It gives you access, it gives you a vehicle you're comfortable with, maybe it meets the mandates or rules of an institution. At the end of the day, though, it also brings other investors that have new and innovative ideas back into the marketplace. And we saw that, as Jan mentioned, with gold, all these combination, complex vehicles, people trading gold in different ways. We're already starting to see it in the filings with new and unique, interesting filings coming along, taking pieces of Bitcoin, taking pieces of some of these ETFs.

So the future is exciting. I can smell the press releases coming in the next few months from the New York Stock Exchange. While I have you here, one of the developments that appears to have helped spot Bitcoin ETFs is the development of these surveillance sharing agreements proposed by the exchanges. Doug, briefly, without getting too wonky on us, explain how these agreements work. And this was a big point about selling this, how they can detect or address fraud and manipulation. Yeah, it was a big point. This was the thing Gary Gensler really had a problem with.

That's right. When ETFs listed the New York Stock Exchange and their underlying holdings trade elsewhere, the exchanges will set up these surveillance sharing agreements where regulatory departments will share data and will exchange data. But what does that mean? It sounds very fancy, but what actually happens? Imagine you have an international ETF that's holding, it's listed and traded here at the New York Stock Exchange, but it's holding securities that are listed on the London stock market, the LSC.

It allows the London stock market these agreements to share their data with our reg department to look for any fraudulent activity, any manipulation of share prices, and it sort of opens up the pathway for regulators to speak with one another. Now, in this case, there was a lot of conversation about these surveillance sharing agreements along the way. At the end of the day, that's sort of fallen out of the spotlight, I think, and most of us have been focused more on the actual underlying trading of Bitcoin, how it's working at the CME and some of the other things.

futures markets. Okay. Given, Kathy and Jan, I'm going to ask you, and I don't feel you can weigh in, given how many applicants there are, 13 of them out there, there's a lot of interest in the fee structure here. And some appear to be waiving fees for some time periods. Kathy, I'll start with you, maybe on, I don't know if you published your fee structure yet, but if you can explain sort of what you're going to be charging here for Bitcoin

ETS? Sure. the fee structure, and I'll preface it by saying, we are not looking to maximize profitability with the spot ETF. We will do that more so with our actively managed ETFs, but we really believe this is an important moment to help with the democratization of Bitcoin, access, giving more people access. So that's our primary motive to charge 25 basis points. And for the first billion dollars, or for six months, free access. Now, this changed, right? It was, did I, I saw it was published was 80 basis points. You refiled with now 25 base points. Is that right? Yes. So originally,

we were just putting in there a marker. We didn't know. know how the industry was going to fall out. But as we were evolving our thinking, we were saying, wait a minute, this is a special moment to make a statement that this is a public good, effectively, the equivalent of a financial superhighway, a global monetary system, a technology, as Ophelia was saying. And we just wanted to make sure that one of the things we communicated is we wanted to We want you to feel like you can access this. So free for the first six months or $1 billion in AUM.

So if I'm just a retail investor, I put $10,000 in your Bitcoin ETF. There's no fee for the first six months. Is that right? Or until AUM hits a billion dollars, whichever happens first. Okay, fine. Jan, have you filed the fees? Yeah, all the fees came out pretty much this morning, Bob, because they're all getting ready to basically list on Thursday.

And so that's not been filtered out through all the news. I don't want to talk about the specifics of ours. What I will say, though, I agree with Kathy that, you know, really we're standing on the shoulders of giants. And there are a lot of developers that have worked for free to build the Bitcoin network and continue to add, you know, to make changes to that network. And that we wanted to pay respect to those developers. So we're giving part of our profits that we're making off of this ETF. But you did publish your numbers this morning, right? We did. Yeah. Yeah, it's out there.

And you don't want to tell us what it is? No, you know, Doug's compliance people are making me really nervous. Oh, brother, for crying out. But you think it will start trading on Thursday? Vanek products are competitively priced and very well built. You're reading like an advertisement. So you believe it's going to start trading Thursday. Yeah.

Okay. Kathy and Jan, there are a lot of reports out there that some applicants of the 13 have lined up substantial investors. You want to give us any ideas? Any investors lined up? Anybody want to say anything? Some people have been public about it. The seed capital was disclosed in a lot of the S-1s that were filed this morning.

And, you know, I don't want to talk about our product too much, but we have very good seed capital coming into this. Kathy? Ophelia, anything? Yeah, I don't think seed capital will be an issue, Bob. And I agree with what Jan said. at the beginning where, you know, for a lot of our clients, they have to now do a little more due diligence

as these ETFs come out and they see the S-1s and so forth. So we think it's going to be, there'll be a nice push early on and then a good, nice institutional build. Well, you can't go out saying, one of the things that is gonna end up being incredibly important in the coming weeks and months as people start to actually do diligence on these products and try to begin adding them to portfolios and hopefully live up

to these expectations around AUM. It's going to end up coming down to how well alter these products, how well structured are these products. Can they actually hold up to this? We've been running products like these for about five years. They are a little different in a bunch of different ways. safety, security, operational infrastructure, it just fundamentally looks different. And I think one of the things that's going to be very interesting over the coming weeks and months is how that ends up

translating with these audiences and with investors as they begin to actually come into the space for the first time and really understand the full range of that complexity. Well, there's certainly a lot of product out there, 13 of them. Is it your opinion, the consensus is they'll approve all of them at once? Is that a fair? Well, we have precedent. That's what happened with a thing. Ethereum futures, ETFs. They were all approved to launch on the same day. And I think the SEC at a high level, policy-wise, doesn't want to advantage any particular ETF issuers. So I think this is a fair way of dealing with that. I don't think this is going to be a winner-take-all market, by the way. I think market share will be distributed. There'll be a lot of winners.

And that's fine. That's great. Well, it's going to be an interesting week, folks. You've heard the anticipation is building. It looks like something's going to happen. 13 of them will be here, of course, reporting on all of that. Now it's time to round out the conversation with some analysis and perspective to help you better understand ATF. This is the market's 102 portion of the podcast. Jan Vaneck, CEO of Vaneck joins me now. Man, I've known for 20 years.

We first met, I mean, when you were running Vanek, Vanek is a famous commodity shop. And my gosh, we've talked for 20 years. And now you're about to launch this gigantic spot Bitcoin ETF. But I don't want to focus on that. We spent 25 minutes doing that on the show. You're a good market watcher. We had this enormous run up in the stock market in November and December. Seems to be a little bit of sell on the news since we started the year.

What do you think is going on here? Listen, I think there's, in general, you want to be invested. And unless the Fed's raising rates, Fed's not raising rates anymore. So you want to be invested. But there are a couple of risks, I think, to watch out for, Bob. Number one is just the bond market. and is the market concerned about high debt ratio in the United States that we have in the big fiscal deficits? I think if they work out a fiscal deal, it's probably not a 2024 concern for the markets, but you never know, right?

CDS credit default rates, the risk on U.S. government debt last year spiked as high almost as it was the highest high since the financial crisis. So it's something that I look at. So that's number one risk. Number two, is earnings going to come through the way it is? We'll start seeing that in the next couple of weeks. So, you know, those are the biggest risks that I see in the market right now. And how about artificial intelligence, which was the big broad topic, investor topic, last year? Are we going to see any broadening out of this story? And how much real productivity gains are we going to see?

I mean, I know this was an issue. The Internet did help people's productivity on research and things like that. That was the last great technological. It seems logical that AI would be a productivity leap. It seems logical, and yet we don't know for sure. From what I hear in my industry, absolutely AI is being deployed, like with large financial services firms to cut the costs of processing a lot of paperwork, right? Everything is going from a PDF into an AI reader.

So that will, you know, for a small shop like Van Act, that's not a big thing. So definitely we'll see efficiency gains. But one of the interesting questions that came up recently is, Does that necessarily help all technology companies? It may hurt some, right? Because if these AI tools can write code cheaper, right, than you're paying some software company, then some of these vertical SaaS companies

and other companies may be at risk for their pricing. So I think it can cut both ways. One of the things, you can't see it, folks, because we're not doing a video, but Jan sends out a tie every year. This is one of VanX traditions. And this year the theme is AI. And it doesn't say AI on the tie, it's green tie, but it's got sort of robotic-looking character on it.

I'm wondering, did you run this through Chat GPT? Did they do this? Or what happened to get this? The scary thing is, I mean, obviously AI, I think, obviously, was the boost right when Chat-GBT came out to these huge, magnificent 7 that carried the market away last year. So we tried using an AI tool to generate an AI-themed tie, and they came up with some really ugly designs. So I can tell you that designers are not going out of business. You know, we have vineyard vines to produce these ties. So that's not going away anytime soon.

That's a great story. How about gold? You're again with commodities. You're traditionally a commodity shop. You know, you've broadened out. Gold had an amazing run. We had 2,000. And I remember we were talking at the ETF show when the Bitcoin spot, excuse me, the gold Bitcoin ETF came out in 2004.

It was $400. And within, you know, three years, It was a thousand. Some of this may have been China demand. It was big at China at the time. But, you know, I can't help but think, you know, just like it, I think a gold ETF helped gold prices. It'll probably be the same for Bitcoin.

But tell me what we think about gold in general. I mean, listen, ultimately gold is a store of values driven by interest rates in the Fed. And if the interest rates are falling, gold likes that. It trades almost directly off of interest rates. But, you know, I like to oversimplify the world, Bob. And the theme that I would point to, I think, that's filtering through the Commodias world, is India. So last year, the buyers of gold were foreign central banks, including India. But I think India as a growth engine, its demand for iron ore, coal, and maybe copper, going forward,

just at the margin, but for commodity markets, it only takes demand at the margin, could start being a narrative that helps the overall commodities complex. Because with China, you know, on its back, they're looking for a narrative. People don't know this, but India is a fairly commodity poor country. I mean, it's an enormous oil importer, an enormous importer of other base metals. Of coal, just to run their electricity grid. And they have so much infrastructure building to go. The government has wisely pivoted towards many more productivity-enhancing policies, and that's one of them.

Just staying on gold, why are central banks become such big buyers? And they're looking to diversify their assets? Because we seized Russians' reserves after the Ukraine invasion. So they were like, I don't want to be beholden to the United States taking, you know, my foreign treasury reserves. So every central bank stopped buying treasuries for the most part. You think that was the triggering event. Oh, 100%. They're not just trying to diversify their assets away from it.

No, no, no, no. That's why this whole brick story, you know, I think it's sort of overblown sometimes in terms of its geopolitical concerns. But absolutely central banks were the underpinners of the gold market last year. there was money out of gold, for the most part, gold bullion ETFs. There was no demand in the United States for gold. And how much did we seize? I mean, do we, the gold's held in vaults around the world, right? Correct.

Russia has gold in these vaults around the world. A lot of them hold it themselves, and they have their own vaults. So they used to actually rely, and I'm not the expert on this, on other countries like the UK, to restore their gold. but a lot of those countries repatriated that gold into vaults in their own territory. Right here, the Federal Reserve, right down the street, I've seen the gold vaults. It's held for countries. Yep. You know, I've seen it.

But less now today than two years ago. I see. Now, the, so other commodities, base metals, coal, what kind of movement do you see there as well? You see India is sucking up a lot of this. I think they're starting to become the marginal bid, and that's, been great for last year coal and oil iron ore did great. You know, over the last two years, I think the big question is the energy market. And there's this tug of war between OPEC and non-OPEC.

And we'll just have to see because you have 13 million barrels a day coming out of the United States is a huge stabilizer. There's no way oil prices would be where they are today if it weren't for that. Yeah. And finally, just on China, we have had this huge debate in the last few years about the investability of China. And the primary problem is Xi Jinping. We all thought Ji Jinping, the current head of China, was going to be sort of like Deng Xiaoping in the 70s, that it was going to be

you know, benign central authoritarian ownership but capitalists light. And instead of Xi Jinping as Deng Xiaoping, we got Ji Jinping as Mao Tsiung, meaning kill the capitalist essentially. And I think that's freaked a lot of people out. And a lot of them were 10 years ago, we were all trying to figure out, okay, if China's 9% of, you know, global stock market equity, we need to own indexes that are 9%. That debate has shifted now. There are people who argue, and we're seeing now ex-China ETFs, ex-China emerging market, to specifically satisfy that kind of demand. You have to study

your ETFs. Like if there's one, you could have a whole show on this, because what's in those ETFs really matters. You know when China got added to the, you know, the emerging markets indices or really got its weight in the top, right at the top. So it was maxing out. There's a great chart on this. They were maxing out their explosion to China right as that market was peaking. So you really have to look at what's in the ETS. And I think that's why actually active management is great for emerging markets. China today, though, does offer a lot of value to contrarian, you know, high yields, dividend yields on their stocks, low valuations. Right. That's what I was getting at.

The value people lower. If you're a rational investor, you do not want to be underweight China right now. Yeah. Because the value guys, they always should say, we don't care about the political stuff. If it's below 14 times forward earnings, we're in. If it's not, we're not. So you take out the politics from it. Yeah, and the Xi Jinping, you know, Biden meeting at the end of last year was positive.

Yeah. All right. Thank you, Jan. Appreciate it, as always. That does it for the sweet CPF. Edge, the podcast. Thanks for listening. join us again next week for ETFedge.cmbc.com and my thanks to Yon Vonne.

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