ETF Edge - The Role of Regulators; Crypto & SPACs

Episode Date: April 19, 2021

CNBC's Bob Pisani had a special conversation with Dave Nadig, chief investment officer and director of research at ETF Trends and ETF Database, about Bitcoin, SPACs and trends for the rest of 2021. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

The ETF 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, ETFs, you are in the right place. Every week, we're bringing you interviews and market analysis, breaking down what it all means for investors. I'm your host, Bob Pisani. Today we'll be continuing the conversation about bonds, Bitcoin, and more with Dave Nodick from ETF trends. Dave, thanks for staying around with us. I want to move on and talk a little bit about all the developments in crypto, Bitcoin in the last week or so, and, of course, the Coinbase direct listing.

But I want to start with a regulatory question here. Ira Ironhorn came out with a letter just a few days ago saying that regulators essentially had been asleep at the switch, implying that there was a lot of crazy shenanigans going on recently with the Reddit crowd, even perhaps Bitcoin. We've got a new regulator, Gary Gensler, who was an old regulator. He was the head of the CFTC, but he's coming in its new head of the SEC. Is there anything to this letter that's out there? Is there any, I don't know, truth behind it, but is there any point to this letter that makes sense to you? Yeah, I think it's fair any time we see the kind of sort of frost and frivolity we've seen in the markets lately to ask what the role of the regulators is.

You know, I think that there were a lot of eyebrows raised, particularly around the launch. of Buzz and Dave Portnoy coming out with that video from the index provider. I think that raised a lot of eyebrows about what is and is not okay to talk about when you are involved with, in some sense, a security, which is trading on an exchange. There are rules about that FINRA exists. It does seem like we're in a very uneven playing field right now, largely based on speculation, right? I mean, I've talked to a number of issuers who really at this point are sort of a little beside

themselves, right? One compliance department is saying you can't, you know, talk about any of our stuff on Twitter ever, and you've got other compliance departments effectively saying, yeah, do whatever you want, nobody's ever going to sue us. So we are in this little bit of limbo around communication. I think it's worth, you know, getting those things buttoned up. Those really aren't SEC concerns, though. So I think people often look to the wrong regulators about these things. The SEC's job is to keep markets functioning efficiently, and I think Gensler's going to do a great job there. Yeah, but this is part of a, I mean, regulators are raising issues. Look what happened with the SEC and SPACs last week. I mean, come on, these guys have been coming on making statements, forward-looking statements, some of which are certainly very questionable. And the SEC is trying to imply you've got to tighten the ship up there. That makes a lot of sense to me. I could not understand this loophole where they can suddenly, just because they're a SPAC, come on and talk about their forward-looking earnings and expectations, when they couldn't do that with an IPO.

I mean, the regulators, you know, are making, at least in the SPAC comment from the SEC, that made a lot of sense to me, no? Yeah, they're pulling some of these things back in, for sure. I think, you know, a lot of the communication stuff around SPACs, I think those legitimately are confusing to folks, right? I mean, the current SPAC infrastructure didn't exist 10 years ago. It's a new form of this vehicle. People aren't all that used to it.

We're learning as we go, and that this is hitting in the midst of what feel like, very frothy market. means that we're going to have excesses. The question is, are these just the regular old kind of excesses we get all the time? I mean, you know, Gensler, not Gensler, the Einhorn letter talks about, you know, this restaurant in New Jersey that's actually a pink sheet listed shell company that's trading at $100 million. That sounds like a topy statement, except that I can find you a taco truck from five years ago where we had the same problem, right?

I mean, this is always an issue. We just only read the headlines about it when the markets are feeling over the market. valued and that's the current narrative of the day. So, you know, these kinds of one-off outliers are actually really common. It's just a question of how often we see, or how, how high we see them on the page of the newspaper, as it were. Yeah. Let me ask you about the Coinbase direct listing. Two things impressed me. Number one is the number of companies who essentially said immediately will be buying it and putting in our, our ETF, the IPO ETF, of course, block the transformational data, E-T-F, BLO-K there.

And then Kathy Woods essentially added it to a couple of her funds immediately. That gives you a nice little move to the upside. So number of funds immediately announcing they're putting it in, impress me. Number two was the steadiness of trading, other than the first day where we had a big opening and then a close not far from the lows, which is a little disappointing if you bought it in the middle of the day. Since then, Coinbase has been remarkably flat, I would say. It's been trading around the 330 area. Given what it is, you'd think like it'd be a little more volatile.

But ever since the end of that first day, it's sort of like settled down. It's somewhere, you know, just north or south of $330. Well, you've got to remember that this is catnip for crypto traders, right? If you've made a bunch of money on the crypto side of the balance sheet, coin list, you're going to put some of your money inside coin. If you were a hoddler, as it were, you know, hold on for dear life. This is an equity that you're going to be interested in, the way you might have been interested in, say, Tesla or micro strategy because of their crypto angle. This isn't crypto angle.

This is crypto all the way through. So what you're seeing here is a movement of capital in from a group that, frankly, has been pretty darn good at hanging on for dear life. Like they have, you know, diamond eyes, diamond hands and memes galore. So it wouldn't surprise me if the initial allocation here out of coin, that a lot of it got bought up by folks that are really not price sensitive. They're not waiting for $3.50 to sell on a quick trade. These are folks making a long-term allocation. We can argue about the price all we want.

But, Bob, to your point, this thing's been range-bound from 320 to $3.40 effectively since it's traded. It's hardly trading like a wild IPO stock, like say Bitcoin hits trade over the last couple days. Right. That impresses me. Like I said, I would have thought it would have been a lot more volatile. In terms of value, I think you're right. It's amazing what this is going to do here. And even with the lower price, I mean, some people are talking about $100 billion market cap.

It's probably around $70 billion right now. But that's still, that's the market cap of ICE. It owns the New York Stock Exchange. That's rather remarkable. It's going to attract vast new assets, right? Are we anticipating that a lot more ETFs will be created around this, that there will be a lot more new ETFs. IPOs and direct listings and SPAC kind of vehicles at this point? Yeah, well, I certainly think that we'll see a lot of SPAC and IPO action around the

crypto space. This is not going to be the last crypto IPO we're talking about. We're going to see another dozen of these just in the next year or two. And that will definitely fuel some frenzy around people putting products together. But there's only room for so many in niches like this. Even if you think about something like, you know, the narrower sectors of just sector funds, It's not like we have 400 consumer discretionary funds, right? We have a handful. I think we've got funds like Block out there already.

We have, you know, Vanek just launched DAP, you know, their digital ecosystem fund. We've got a variety of funds with different approaches to the crypto space. I think we're probably good for now. I don't think we're going to see another dozen of those things launch until we get an actual cryptocurrency ETF trading here in the U.S. Yeah, how long? So here you go again. How long will that be?

We've got one in Canada already. We've got Ethereum ETFs being filed in Canada already. There is, that 45-day period, the SEC has acknowledged the Vanek ETF. I presume there's probably 15 or 20 days left where they have to either accept it, reject it, or kick it down the road. What's your thoughts on what's going to happen right now? I fully suspect a kicking down the road, right? We don't actually have ahead of the division of investment management at the SEC right now.

So they're a little short staff. We've got Gensler basically just getting his desk organized. I think it's a little silly to think that we're going to get like a May 15th approval all of a sudden because that's the end of that 45-day window. The SEC is very good at delay. And all of these, quote-unquote, deadlines that they have are at their whim to change. So I don't think there's any risk that we're going to have this happen very quickly. I think something in the fall, I've been putting out August as a date, just because that's roughly six months from when Canada approved it.

I think that's a reasonable guess, the sort of tail end of this year. I would expect to see some notice from the SEC first, where they sort of give everybody a little bit of a chance to refile based on whatever concerns they may have. That's exactly what they did with the non-transparent active ETFs a year ago. I expect the same thing to happen here. And then it'll be a horse race to see who manages to get through the paperwork and get through the exchange fastest. I'm more excited, and I want to get your thoughts on this, not so much about Bitcoin or even crypto, but about DeFi, decentralized finance. Do you think that that has the same potential? And I'm talking about the great thing about blockchain is it helps answer the question, how do I know I own anything?

So in decentralized finance, you could have a blockchain set up to know that you bought real estate, to know that you bought 100 shares of IBM, to know that you transferred money to, to, to, England to your friend. It solves the question and cuts out, or at least largely cuts out, an intermediary. Do you think that's going to be the real growth area at this point, rather than Bitcoin or crypto? I think it's beyond a growth area. I think it's the way finance is going to work by the time I retire. The question is how quickly we get there. The core modalities of decentralized finance, smart contracts, you know, swap pools for liquidity, things like that. Those are just fantastic financial innovations. Regulation has not, and hasn't even begun to catch up. So the idea, it's going to take a significant amount of time.

You could, of course, replace the entire trading and settlement infrastructure of stocks with a fairly elegant and straightforward DFI alternative and remove enormous inefficiencies from the system. However, it would require rewriting the entirety of how we trade securities in this country. So we're going to get there in baby steps. If you could flip a switch and sort of gut and replace the entire infrastructure, you could, and I think it's where we're headed. It's just going to take a long time. I mean, think about how long it took us just to get off of trading in teenies, right, and getting the decimals. It takes a long time to change how markets work.

Or T plus three. Now we're T plus two, and everybody's acting like we can't even consider doing that. Going to T plus one would be revolutionary, let alone go. going to T plus, you know, one millisecond, which would what it would be in a blockchain. Dave, always great to chat with you. Thank you very much for sticking around and giving us your thoughts on crypto and other issues. Dave Nodick, of course, the CIO and Director of Research at ETF Trends. Everybody, thanks for joining us.

That's this week's ETF Edge. And remember, you can see all of our shows, etfedge.cmbc.com. Thanks for joining us. Invesco QQQ believes new innovations create new opportunities. Here's the greater possibilities together. Learn more at investco.com slash QQ, Invesco Distributors, Inc.