On The Brink with Castle Island - Will Peck (WisdomTree) on Crypto Asset Management (EP.280)

Episode Date: January 24, 2022

Will Peck, the head of digital asset at WisdomTree joins the show. In this episode we discuss: Will's path to WisdomTree and how the firm began researching digital assets How WisdomTree is approaching exchange traded products in the public blockchain ecosystem Views on the Bitcoin futures ETF products vs. the proposed spot products Views on the various Bitcoin ETF proposals and the prospects of an SEC approval in 2022 Views on tokenization of investment products How 'legacy' asset management firms will face increased competition from digital asset early adopters To learn more about WisdomTree visit their website. Sponsor notes: Compass Mining is the world's first and largest online marketplace for bitcoin mining hardware, hosting, and ASIC reselling. Start mining your own bitcoin by visiting compassmining.io

Today on the podcast, I sat down with Will Peck, the head of digital assets at Wisdom Tree. I've known Will for a few years now and I was excited to finally have them on the podcast. Wisdom Tree, as you'll hear, is working on a number of exciting things in the digital asset space and it's one of the firms that has a Bitcoin ETF application on file. I enjoyed chatting with Will about this ETF question, the future of asset management in the world of crypto, and a lot more. So without further ado, here's my conversation with Will Peck. Brought down by Bad Mortgage Investments, Lehman, which has

25,000 employees will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more into Britain's ailing economy with a new round of Concentive Easing. You print a couple trillion dollars, and all of a sudden, people start to worry.

So out of this worry, we have something called the Bitcoin. Bitcoin. Will, thanks so much for joining us today on the show. Excited to chat with you. Thanks a lot for having me, Matt. So why don't we just tee it up and maybe give us a little bit about your introduction, your role over at Wisdom Tree, and how you got started on this digital assets journey? Yeah, absolutely.

So I am head of digital assets at Wisdom Tree. I've been with a firm now for a little over seven years and actually have a background prior to that in investment banking for financials with a partner of yours at the time. So, you know, previously at Wisdom Tree, I was in kind of more of a generic corporate strategy role, which for us has increasingly been around digital assets these past two years. That's amazing. So I guess digital assets is a broad and encompassing term.

When you guys think about digital assets, what type of assets we're talking about? In a broad and encompassing way. You know, I think for us it spans crypto, obviously. So trying to give exposure for our clients and investors to this new asset class, trying to bridge the divide between kind of traditional finance and kind of this new crypto, you asset class that's popping up, of course, more than popping up. So that's a big element of it, but also being, I'd say, forward thinking about the implications of crypto for capital markets and fund management broadly. So this is things like tokenization, kind of stable coins ties into

it a whole host of things that have shown a new way that we can really design financial systems, which we think has really important implications for our business. That's exciting. I definitely want to get into some of those product ideas. Maybe before we do, talk a little bit about just Wisdom Tree, the company, how the firm got started, how crypto got on the radar for the company. Yeah, absolutely. So Wisdom Tree is the world's largest independent ETF sponsor. So we have about 80 billion in Ascent Center Management today, roughly two-thirds here in the U.S. and another one-third in Europe. So we've actually got a pretty interesting story as a company. We are a founder-led company, still the same CEO and founder as it was when it started a guy,

John Osteinberg, started as a financial media company. So doing, kind of competing with like Thompson Reuters, you know, an individual investor magazine, trying to bring high-quality research to the masses. In about 2004, John O did a story on ETFs, the Q's, QQQQQQ. And very novel at the time, there was very little assets in this. new structure, but he saw how it was a step function better than mutual funds, that the ETF is actually a better technology than mutual funds, and over the past 15 years, that's really been borne out. So, you know, ETS, I think today globally have something like 10 trillion in assets,

take the lion's share of the flows into registered funds globally, and I've really become the primary way that, you know, a lot of investors invest in the market. And the reason for that, liquidity, transparency, tax efficiency. It's just an all-around better structure. So he saw that and then transition wisdom tree from what at the time was the financial media company where he kind of saw the writing on the wall to a index developer and ETF sponsor, which became wisdom tree. So we've grown and changed a lot since 2006. And in the past couple of years have been making a bigger, bigger push into crypto and digital assets as part of this. That's exciting. So I guess the obvious question would be to just hop right into the Bitcoin ETF, but I'm going to hold.

off on that a little bit because I do want to get your thoughts on that. But maybe just broadly speaking, when you think about what Wisdom Tree does, kind of bringing the traditional business model to bear, where are some of those intersection points when you look at the public blockchain assets maybe as a first jumping off point? Yeah. So, you know, I think, and hopefully this answer to question. So we're actually, we're something like the third largest gold asset manager in the world today out of our European business. So we bought a business there called ETF Securities, which which some of your listeners might be familiar with back in 2017. So we managed about $16 billion in gold assets, literally gold bars and a vault today.

And at the time, one of the questions was, you know, seemed a little far out in 2017, but what's this Bitcoin thing? Is it going to be a competitor gold? And that just led to us needing to understand it better. And I think the more you, I always start whenever I explain Bitcoin to a new, somebody who's uninformed is analogizing it to gold, right? It's kind of the easiest thing that people can get their heads around right. If you're talking about an ETF and providing exposure to gold and a vault,

it's not so different than an ETF providing exposure to Bitcoin, the keys of which are kind of held in cold storage. So that's kind of the best analogy that I've had for, which I think, you know, it resonates with a lot of people. But as we got more and more into it, we saw, you know, there certainly could be a role for Bitcoin as a competitor or a gold-like asset for people. And we didn't want to let somebody. else cannibalize that business from us if that ended up being how it took off over time.

So it really made the push back in 2017 to get to understand the asset class better and start to, so in Europe, we've got actually ETPs tied to Bitcoin where the regulators actually allow it and expanding from there. So I did notice that the Wisdom Tree enhanced commodity strategy fund, as well as the Wisdom Tree managed future strategy fund, they both have some exposure to Bitcoin Future. So maybe talk a little bit about why that is how that actually works at a operational level. Yeah, I mean, it starts where we're being open-minded to Bitcoin as an asset class, right? I think it can help investors achieve their goals.

So you look at something like enhanced commodity strategy fund. I mean, really, people are investing in commodities like for hard asset reasons for having a market, you know, supply demand dynamic that when dollars kind of the cost of dollar or the price of dollars goes down, you'd expect these assets to go up, right? So that's the same logic. We think Bitcoin really holds well there. So it's funny, I've actually done a couple interviews and people have kind of mocked Bitcoin being included in commodity funds.

And to me, it makes total sense. If you're looking at something that's a deflationary asset that should in theory rise, if there's more and more dollars being printed or kind of overall inflation, kind of at least in the long run, Bitcoin makes a lot of sense in that. So, you know, GCC's been a fund that's been around for a while. we added a 3 to 5% exposure to Bitcoin futures. So GCC, like a lot of commodity funds, invests through futures, and actually took that allocation from gold.

So, you know, whereas before there might have been 20% of the fund in gold, now there's 17% with 3% in Bitcoin, and that way it can kind of change over time. But to me, it makes the most sense in the world for commodity strategies like GCC or a managed futures fund to be investing in Bitcoin like you would, any other kind of hard asset like commodity like product. And is that decision to be in the Bitcoin futures? Is that because those funds need to be investing in futures-based products?

Or if there was the opportunity to hold spot, would that actually be something that you guys would be interested in? That's a really good question. These funds are specifically futures-based funds. So we don't hold like physical gold in them. We actually hold gold futures, same thing with oil and, you know, all other commodities. With regard to general kind of usage of futures versus spot, now obviously kind of the big question or big story in ETF land over the past six months was, the first approval of the BITO futures-based ETF.

We've actually been one of the few sponsors that was pretty clear from the start that we weren't going to pursue a futures-based strategy and hold out for spot. It's just clearly, I think, a better user experience, customer experience for holding. You're already starting to see that with some of the position limits that futures products had. We can kind of talk more about that, how the contango can lead to kind of tracking there, you'd think, from a part of pure spot performance. So for us, we were comfortable with futures in the context of kind of a futures-based strategy, like managed futures or an enhanced commodity fund. If somebody came to me and said, I want to build the best Bitcoin ETF from scratch,

I would not start with futures. Yeah, so I totally agree with that. And I want to go maybe a level deeper on that because I think people would be interested to just understand some of these nuances. So you brought up the position limits as a reason why that product is an inferior product to spot. But maybe talk a little bit about exactly what that means

and the kind of implications on just running one of those funds that has the Bitcoin futures. Yeah, so futures, the futures market in general, right, especially for something like this, they're cash-settled futures. So what you have is synthetic ownership where you're getting synthetic exposure to the asset, where you're agreeing and you're all kind of counterparty members or your futures merchant is on the CME, that you will get the cash value of the performance of that futures contract at a certain point of time.

It's all kind of done through the CME futures exchange. CME places position limits on certain months of the futures contract. So somebody can only own so much of like the February futures, and then they need to roll out further into the March futures. So you'll end up with a product that becomes very big. And this actually happened kind of very fascinatingly with the USO oil ETF during the crisis last year where oil was tanking, right? And a bunch of speculators wanted to get in and get price exposure to oil because they thought, hey, it's going to go up from here. Oil is not going to be negative. I mean, little on like $5 forever, right?

And so they wanted to get exposure to it. But you can't like, there's no warehouse of like, or this is no ETF that's providing exposure, like a warehouse of like oil barrels, right? That's just too expensive. It doesn't make sense. So what USO did was buy oil's future contract, oil's futures contract, excuse me. But it got so big that it owned too much of a like the front month futures contract. So it needs to go further and further out on the curve, which kind of led to further and further tracking error from kind of what you think of as being like oil performance. And then not only that, it needed to go into other types of futures.

So whereas you thought you were getting exposure like crude oil, you were actually in contracts for like Brent and like natural gas and other stuff, which were getting further and further out on the curve. So there were massive kind of differences with like what you'd think to be spot oil performance. Now, that was like an extreme time in the market where obviously oil was negative. But you can start to see how those issues if a Bitcoin futures ETF got too big might kind of. of lead to issues where somebody might need to go further and further out on the curve instead of just buying the front month contract. So like today, that would be February or March. They're out into June of this year.

And they're getting kind of hit on that in their performance. And they're getting hit with the roll costs too, right? So they're getting hit with the, yeah. And so it gets expensive. I mean, do you have a guess on how expensive that would be on an annualized basis? I mean, people are saying looking at it 15 to 18 percent, I think on an annual. basis based on like 2020 performance. I need to look, you know, I checked recently and I think BITO in the past, you know, three-ish four-ish months that it's been lives has been trailing spot by like

4%. So, you know, it'll vary. Like contango gets better, it gets worse. These position limits can exacerbate it if you're going further and further out on the curve. So it'll vary, but that's probably about a proxy for what you can expect. So I guess the, like the obvious next question here is why would people buy this? And the answer to that is because they want Bitcoin exposure and there's not much else that they can buy on like a retail brokerage. And so there's a bid here for this product despite the fact that it's very much not investor friendly, which kind of leads to the role of the SEC in terms of investor protections. And so I'd be curious of your point of view on what is holding back the SEC from actually approving that spot product.

If you look at some of the denials that they've given to the Bitwise product and the Winkle lost product in the past. Yeah, I mean, well, the WinkleVos product was a while ago, and it's funny how what's changed and what stayed the same, I think, at the denial letters. So we were recently, Western Free's application, really, and this is an important point. It's actually not our application. It's CBOE's application or an exchange, exchanges application on behalf or kind of for an issuer's product.

And really, the reason for that kind of ETF inside baseball is if ETFs don't meet generic listing standards, they need to go through something called like, a 19 before process where an exchange says, oh, this is why this kind of new ETF, like for a long time, all active ETFs needed to go through this 19B4 process, where they say, hey, this is kind of this new structure, this is why we think the rule needs to change

or get an exemption, and that's that 19B4 process. So really what us and a lot of the other issuers that have kind of been out there are going through that 19B4 process right now. So from the start, the SEC has said, that they're concerned for a couple of things. One of which, and probably less complicated to solve for is around custody, where there were questions around like, all right, so what's actually,

who are the custodians holding the bitcoins? What does that process look like? Are they regulated? And that's obviously developed a lot over time, right? Where a lot of the custodians today are using like New York trust company charters to be a qualified custodian. U.S. Bank, who we're actually working with, is a bank that under their OCC regulator is providing Bitcoin custody services. So that's kind of developed a lot and I think has improved a lot in

recent years. The kind of main issue that I think the SEC is still pointing out is they're concerned that it could lead to kind of fraudulent activity or market manipulation, really because spot Bitcoin markets are not kind of, quote, regulated markets in the same sense that like New York Stock Exchange or NASDAQ or the CMU futures market is. And they don't have surveillance sharing agreements with kind of like a Coinbase, finance, a crack in, all of those firms where crypto asset, Bitcoin liquidity happens globally. And that's been a tougher concern, I think, for the industry to kind of address the SEC's desires. There's been some interesting stuff recently I think you'd say we're like grayscale,

kind of implying like a lawsuit under IEPA or a law firm is, which is certainly a bold and kind of aggressive strategy, I'd say, for it. You know, I think from our perspective is we're, you know, I think the SEC has a lot of people doing a lot of great work. We're really trying to work with them and advocate for it. I think to your question, they've acknowledged in some of their public communications to the past, has been around this kind of investor protection issue where, you know, The futures product is one thing because it's more of a quantifiable issue and you know what you're buying.

There's, you know, the OTC traded trust that people are buying in their brokerage accounts where somebody just goes into e-trading types in Bitcoin or crypto and they're buying something, the price of which they have no idea how it connects to net asset value. I mean, there are people who bought OTC traded trusts who might be through a huge crypto bull market in the red because they bought it a huge premium and those things that drop to a discount. which raises kind of real investor protection concerns. So that's a long answer to what I think is a simple question, that the SEC has kind of had these concerns around manipulation and custody, but hopefully some of these investor protection issues and we're able to kind of make the case over time for why these products should be proved. Well, I think it's a great answer.

And obviously it's a really nuanced analysis here that needs to take place on this. And if you read the denials and then you read the kind of historical, Hester Purse's rebuttal to the denials. I think you see both sides of this. I definitely recommend anyone who really wants to go deep on this topic. I think the things to read would be the bitwise denial, read the dissent from Hester Purse, and then probably read a bunch of these applications. One of the things I'd be curious to get your point of view on is Fidelity had a meeting. It's on the books in terms of that meeting and the materials that were presented for their Bitcoin ETF spot proposal. And they made the case that if you look at the futures market, that actually drives

the spot market and not vice versa. So the exercise should really be to look at the CME futures product as being kind of quantifying that threshold that the SEC needs to approve. So do you buy that argument? Do you think that, you know, there's a world where this ETF gets approved based on that argument? Yeah, well, I mean, like a gold ETF was not originally approved, right? And the way they kind of got around the surveillance sharing question was by pointing to a gold futures market and saying this is what kind of surveillance sharing agreement for kind of gold, you know, the futures market, very similar was the point behind it. So, you know, I think that's certainly academic research that we've looked at. There's been papers that have pointed out that kind of, I think lead lag

indication is the term that the futures market ends up leading the spot market. And I think that's, you know, like for our application, for example, we're actually using the same CF benchmarks benchmark that the CME futures is based off of. So CME futures, right, cash-settled futures. So there's no like physical Bitcoin traveling. It's based on a price, which is calculated based on some underlying exchanges, the same methodology, the same benchmark of which we're pricing our ETF at. So, you know, that's the case that we're trying to make around it. And I think over time, that'll help win out. But it, you know, it's, I think it's going to be a continued advocacy from the industry as to why we think this meets the SEC's concerns and in an

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Start mining your own Bitcoin by visiting compassmining.io today. To me, it seems like maybe it's in the realm of a political decision at this point. But I guess just switching gears off of the Bitcoin ETF, how soon after the Bitcoin ETF do you think we get other types of public blockchain ETFs? I mean, is this, hey, we get Ethereum right after? How does that look? I think Ethereum. So we've got an Ethereum ETF filing.

I think that would be obviously the next. one you turn to after it. We're one of the few that has a spot Ethereum filing, which will go through the same process. Now, right now, the liquidity on like Ethereum futures are not nearly what they are for Bitcoin futures. So at least, you know, the CME futures regularly, blah, blah, blah. So it probably will take some time in that market will need to kind of grow in advance given that's been the path for approval through the SEC, or we think the likely path for approval through the SEC on for Bitcoin. I think other public blockchain-based assets, will take some more time. I would be surprised. Like we have, like I said, we manage roughly,

you know, 20 billion dollars in Europe today. We have crypto basket prod ETPs listed on like Germany and Switzerland in Europe where they're allowed by the regulators there. I think that will be sometime before that's the case in the U.S. just given the kind of the hurdles that need to be met. Like I don't, I think getting beyond Ethereum is going to take some time. Yeah, I think, I I think it'll be fascinating to see Ethereum and beyond because if you think about how the markets work for those types of assets, I mean, Bitcoin doesn't have big decentralized exchange activity. But if you just look at the USDC versus Ethereum pair on decentralized exchanges, it's actually pretty big. And so I think that will be a complicating analysis there. Yeah, well, and then really if the industry is ultimately able to make the case that, you know, the CME Bitcoin futures constitute the sufficient.

a market of sufficient size for purposes of surveillance sharing. And you think Ether can ultimately get there too. It'll just take some more time. Although, you know, maybe it'll take even longer because of all the other exchange activity that's happening around the world in different venues for Heath. But that would need to be the hurdle for each subsequent crypto asset that wanted to get an ETF listed in the U.S. So that requires, you know, see a meet to list it, kind of liquidity to go there, enough liquidity to happen, that it's sufficient size if this is the standard. Or there will be some kind of change in regulation, not from like a regulator's perspective, but more of like Congress does something to kind of set some sort of new standards around this or define the asset class in a new

way, which I think will probably take some time. You might know better than me. I think one reason to be optimistic here just around the market structure is around some of the things you were saying. So the custodial options are getting a lot better. You're seeing Bank of New York Mellon move into custody. You're also seeing CBOE acquiring AirSX. They're moving into the space aggressively. Coinbase just acquired Fairax. So there's NFTX, of course, acquired Ledger X. And so there's a lot of activity around that venue level

where I think we'll be looking at a much more institutional market for Bitcoin and Ethereum in the next two, three years. Yeah, and I think that's something we're very encouraged by. And I think we really do believe that we will get there and that it'll be a great product for investors when we do. I mean, you referenced the Fidelity presentation. I mean, Fidelity referred to the performance of physical backed ETPs in other markets, one of which is wisdom trees, you know, physical Bitcoin,

ETP in Europe. It trades very closely to the underlying net asset value, does not deviate from spot materially. And it performs exactly as you would expect it to, which is what you want to see. So I think over time, you know, we're optimistic that argument will win out and we'll be able to kind of as an industry make it happen. So we're not kind of overly pessimistic on it. it may just continue to take some time. That makes sense. I want to switch gears a little bit and talk about some of the partnership work you've been doing with Ritholt and Coin Metrics are on the index side.

So maybe talk a little bit about some of that work. Yeah. So with, you know, Ritholtz is a friend of the firm, Ritolt's wealth management. It's an RAA based in New York City with, you know, a large social media and media presence, frankly. I mean, their CEO, downtown Josh Brown is on CNBC every day. And, you know, we've got a, through our CIO, a great relationship with their director of research, a guy named Michael Badnick. And we've been, obviously, you know, we've built up a team at Wisdom Tree over the past two years really building up expertise to start looking at stuff like this, kind of created our own crypto indexing business where we have the capabilities to be able to do that.

We're talking with Red Holtz and they said, hey, we're actually looking to do the same thing. You know, we like our clients are coming to us asking about getting exposure to kind of not just Bitcoin Neath, but kind of a broad kind of index of the crypto ecosystem. And how can we help do that? So over a very short period of time, actually, we collaborated with them to create an index, which we're making available to their clients and soon to be for other clients through a kind of on ramp, which is a startup in which we're invested in Gemini partnership such that. an RAA, like they can open a separately managed account for equities, opens a separately managed account for, to invest in crypto assets. So they can fund, do the trading through on-ramp, custody on Gemini, and get exposure to a managed index of crypto assets, which we think is a great solution for FAs, you know, especially people who frankly have a lot of their assets held

away and may have no idea that they're, like, if they're not offering a crypto solution, someone's just going to buy it on their own in a totally unrisk managed way. And, you know, who knows what they're going to do, lose the keys, whatever. And you're allowing them to do it here in a way that tracks an index, which you think is a very exciting new product. It's fascinating when you think about just the financial advisor community and just think about all the assets that their customers have that are being held away. You know, think about you call up your financial advisor and you want access to asset, you know,

number three, seven, and eight on coin market cap. Go up on a Coinbase account. I can't help you. It's just a, it seems like a huge opportunity. It's actually amazing that think of the growth in crypto and that none of it was like, essentially none of it was from U.S. financial advisors. It's remarkable, given that such a large pool of assets and that it's become, you know, at time, $3 trillion in total market cap, right?

None of it, like almost zero from financial advisors. And you're right, because people are doing held-away assets, they're managing it on their own, they're not kind of taking it into account as kind of an overall financial picture. So clearly there's a need for financial advisors to be more and more, at least conversant, right? Like especially if you're trying to, it's always a big problem for financial advisors is getting to that next generation of a family, right? So you've got a matriarch, patriarch, patriarch, eventually they pass away, and you're trying to build up a relationship with, you know, the, millennial, whatever generation below that, if you're not speaking crypto today, it'd be hard to kind of win that business. And so you're seeing RAAs and other financial advisors trying to adapt to that

over time. We think the next few years, you know, powered in part by firms like on ramp in what we're doing with Riddholz and them is going to be a big part of that. It seems like it will be. I think it's just fascinating when you think about what you're talking about, this intergenerational wealth transfer. And just think about how asleep at the switch a lot of these big wirehouse RIAs actually are, or wirehouse financial advisors really are. You know, I did this small experiment a couple months ago where I asked a few people to contact their financial advisor with a couple basic questions around Bitcoin. And, you know, the responses were really scary, coming back with articles about tether, coming back with articles about ransomware, but not a

holistic, here's how you should think about crypto assets. So I think that the education hurdle here is also something that's pretty significant. I know you guys have been active on that front. Yeah, I mean, like I said at the start, that's one of the things. I mean, one of the major themes for wisdom tree digital assets in 2022 is to help be that bridge for kind of traditional clients, kind of helping them understand kind of this new ecosystem that sure some of it is like, you know, a fraud and some of it's not great, but a lot of it is like very good and important.

And this is I can talk about and learn about them. You don't need to become like a huge kind of crypto advocate, but at least be open-minded about what is going on and because your clients certainly are going to be. So that's certainly something we want to help do. And, you know, I think it's improving rapidly. I mean, you now talk to some people at like I'll speak to kind of a product person at the wires. And they're very sophisticated on this. And I think it's just got to kind of continue to go out through their organization and it all

improve over time. How do you see the broader asset management landscape? Obviously, you guys have moved early. They've been crypto-native firms that have pushed product, you know, even earlier. Do you think that the quote-unquote legacy players will stay on the sidelines much longer here as it relates to introducing, you know, mutual funds and ETFs that hold exposure to these public blockchains? Yeah, you know, I think, I think it'll, they'll still be conservative and take a while.

I mean, asset management is interesting in that, I mean, it's dominated by, a few very large players right now who just happen to be the firms that have really embraced passive, right? Index-based options. It's the time of the year where, you know, Black Rock, Larry Fink's letter comes out. Everyone kind of talks about Black Rocks intentionally now, right? And Vanguard is not that far behind. Like, I'm not expecting a Vanguard Bitcoin ETF anytime soon. It's interesting that, you know, Fidelity, who's been very aggressive in the space, didn't actually put their name on their filing at first. I think, you know, maybe for some concerns around press or whatever.

So I think it'll continue to take some time. You're starting to see some people, like I think BlackRock allocated like 0.1% of a global allocation strategy. Like it was actually 0.1%. It was crazy how small it was into Bitcoin futures. But I think it'll still take some time. And I think there's an opportunity for firms like us who are, you know, maybe coming from that traditional universe, but being willing to be more nimble to, to embrace.

race that. Do you see a world where some of these crypto-native players start to make a push into equities at a much more aggressive pace and actually start to grab share from these incumbents? It would surprise me to see, like, it's not that appealing right now, right? Like, beta in the U.S., like you want to buy an S&P 500, you're competing over like a basis point. It's like a big deal when somebody moves from three basis points to like two or like four to three, right? Like SPY has lost share in the S&P 500 category because it's at nine basis points and Vanguard and Ishares are fighting it out over like three and four or five basis points. If I'm gray scale, I don't know that that's that appealing to kind of compete in beta.

Maybe there's some other innovative ways that you could do it. But I think maybe part of holistic solutions over time, you could look to do something like that. but it's not exactly like a fun, easy business to be like hanging out in in 2022, because it is so competitive for kind of low-cost beta products. Now, it's a bit different if you've got some sort of edge or specialization, like, you know, Arc, for example, had a great year last year, it takes a ton of money, but even they've had a tough run of it recently on performance, at least. So, you know, some of the ETF analysts like to talk about,

You better be like cheap or different or like have a really good sales force, which is very expensive to build. And so maybe some people will try and be different, but I think it would be, I think it's a hard kind of industry just to kind of step into if you're a crypto native firm. Maybe the easier play would be to move more aggressively into actively managed alts and start to get, start to launch these funds around staking and yield and defy and factor funds in that category. And that's maybe the better point is like if you're, if you're an. active manager, I mean, where is there more alpha today than in crypto? I mean, I see the performance reports in some of these hedge, like, they're delivering like, you know, sick, like risk-adjusted returns by doing different things in the cryptosphere. And it's also that time of the year where hedge funds get hammered because none of them can kind of beat their benchmarks. And as an overall

asset class, it's very hard to be a traditional hedge fund. And some of these crypto funds are just performing remarkably well. I think because, you know, alpha is where there's, there's less liquidity and in newer spaces. So I think that's a good point that it would probably more likely to be playing and kind of maybe like a kind of go anywhere total return fund can incorporate things that aren't crypto if there's good opportunities out there. But it would certainly have a crypto event just given where you can earn alpha today, I think. It definitely strikes me that there's an opportunity to put a packaging or a layer on top

of a bunch of things that exist today. I mean, you have different flavors of crypto venture capital, some are more token focus, some more equity focused. You have crypto hedge funds. Some of them look like venture funds. Some of them are running traditional strategies. And then you have all these just esoteric trades that pop up in the crypto space from time to time, not to mention some of the longer tail stuff. You know, people are starting entire funds around gaming and things like that. And there's really no one who's thrown a wrapper, kind of a blackstone for crypto on top of that. I wonder if we'll see that in the coming years. Yeah, I mean, maybe that's a little bit like DCG in some sense that they've

got, I mean, they do it kind of like a, well, it'd be the right term for it, a little bit like a merchant bank in terms of, you know, they're not necessarily managing money for outside places. But so you're starting, you know, I guess that would be the best example, but you're right. There is no like blackstone for crypto, at least not to my knowledge. So switching gears here, the tokenization side, talk a little bit about what you guys have underway there and be curious how you think about sort of the process efficiencies that you're envisioning in the future as a result of some of those initiatives? Yeah, it's a great question.

So we've currently got a filing in publicly available. You can read it on Edgar for what's called the WISN Tree Digital Short-Term Treasury Fund. It's a mutual fund, the shares of which, in addition to being held, you know, the records of ownership held off-chain with our transfer agent, a group called succurrency. The shares can also be recorded on-chain in Ethereum or Stellar Wallets and also future blockchains that kind of meet some criteria that we lay out in the future public blockchains, which I think is a key point that we lay out in the filing. And the reason for this is, you know, I think we're seeing incredible efficiencies and improved user experience,

or at least improved potential user experience from tokenized product. Really, like, stable coins are the biggest and best answer to that, right? I mean, the growth of stable coins, I was just looking at it today over the past two years, has been completely remarkable. And you're starting to see use cases for beyond just moving money from one exchange to another, right? Where, you know, I was listening to your guy's most recent podcast about tethered adoption in Turkey and how the ability to take control, self-custody of assets, essentially export kind of property rights into Turkey, has had this amazing improvement. So there's certainly elements of that that we think are going to imply to tokenize securities broadly. I mean, it is pretty

remarkable if you're coming up to this fresh that you can see an asset that trades 24-7 near-insent settlement globally, right? And like even today, like SPY, the largest ETF in the world, does not trade globally. Like you're talking about like very cumbersome cross-listing processes into like other markets. And with tokenized funds, especially when you can embed compliance into them for our kind of, you know, regulated securities like this, actually have the potential whether to do cross-border trading, travel better, be used for other use cases beyond just investments. I mean, you can never, like, if you own an ETF in like your Schwab account, you're talking about seven days before you can like convert that money to buy a cup of coffee,

right, or buy a house is maybe a better example. Whereas with crypto, it's all one tech stack, right? It's all literally one tech stack. Your banking is the same as your payments is the same as you're investing. And that just has, I think, remarkable implications for our business. and other businesses like us. And we at least want to recognize that and skate to where the puck is heading and not pretend it doesn't exist.

So this is just the kind of the first iteration of that. I'd expect, you know, us and we'll be having more announcements around this in the coming weeks. But this will be a really aggressive kind of growth strategy for Wisdom Tree is to try and be a leader here in what we think is a new way that you can kind of organize regulated financial services. It's really exciting. Yeah, the 24-7-365, it's fascinating when you really think about these blockchain-based assets. You're talking about someone that's something that's available to everyone on earth no matter where they are anytime they want. And the ability to transfer it to somebody

else, right? Like, God help you if you want to move like your securities from Schwab to E-Trade. Like, it's not going to, you're talking about donating, donating mutual funds to like a charity is like a crazy difficult process where you're like sending in letters and it's like this manual thing. And like the ability to do that like that with blockchain-based assets is very, it's very compelling. And we think it's going to add a lot of value over time. And really save a lot of costs for consumers. So I think this is just the start. You know, a lot of people say, oh, what like Treasury is, I think it's part of an ongoing evolution that we're excited to be a part of. I had a conversation with Bruce Fenton years ago when I was still at Fidelity around ACATS and just

how complicated it is to move a security from one institution to another. It's mind-boggling. And there's a lot of capital tied up and just the operational complexity there. Yeah. And that it's kind of a, like how many times am I transferring securities? But, you know, another example, I mean, savings accounts in the U.S., right? Like you're earning still like a basis point, a couple of basis points, even though the rates are rising. I mean, but now you're able to invest in like, you know, short-term treasuries or other kind of mutual fund-based assets. We're getting much better yield on it. And you're actually be able to start using those kind of as a more core component of your financial life

is very, I think a very consumer-friendly improvement that has not really been possible in the same way before that now is possible with, you know, public blockchings. That's exciting. So, Will, where can we send people to learn more about Wisdom Tree and what do you guys have coming up next in the next few months? Yeah, you can go to Wisdomtree.com. is one place to go. You can follow me. I'm at WB. Peck. More information to come there. You know, in the coming months, like I said, we've got a few filings in motion. We'll be having more announcements kind of coming around that, including exciting new ways, I think, to access

some of the products that we have. So we're going to keep kind of blogging about that on our website and putting out more kind of in the media broadly. Awesome. Well, it's exciting to see you guys being so active and aggressive in the space. so excited to monitor how that goes. So thanks so much for joining us today on podcast. Well, yeah, thanks all for having me, Matt.