The Pomp Podcast - Gabor Gurbacs: What’s the Latest with the Bitcoin ETF?

Episode Date: September 17, 2018

Gabor Gubacs is Director of Digital Asset Strategy at VanEck where he focuses on the Bitcoin ETF.  In this conversation, Anthony Pompliano and Gabor discuss the ridiculous accreditation laws, Bitcoin and traditional ETFs, why regulators are currently concerned about crypto, and Gabor's prediction for the growth of retail crypto projects.

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to Off The Chain, simply the best podcast in crypto. Let's kick this thing off. Gabor Grabach is Director of Digital Asset Strategy at VanEck, where he previously worked as an analyst on ETFs. Gabor is one of the masterminds behind the $50 billion asset managers move into digital assets. In this conversation, we talk about the ridiculous accreditation laws, what an ETF is, why regulators are currently concerned, and how retail crypto projects will evolve over time. This conversation is packed with tons of knowledge and insights. Once you learn something, I hope you'll share it with your friends. Anthony Pompliano is a partner

at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only. Before we get started, I wanted to tell you about our sponsor, Block Estate, a security token project in the $200 trillion industry of real estate. They've partnered with Polymath and Coinlist Comply API to create one of the first tokenized real estate funds and they have a unique buyback and burn model to learn more

visit blockestate.com all right guys this is gonna be an awesome episode i've got gabor here from vanek and we've got a lot to cover we're going to touch on all things etf retail products and then some cool stories from your background so i appreciate you coming on thanks bob for having me fun to be here absolutely all right so let's let's get started with uh you know uh born outside the US, right? And so let's walk through kind of how your background, how you get to the US and we'll go from there. Yes, absolutely. So I was born in Hungary, which is Central Europe in 1990. And that is the time when communism fell in Eastern Europe. And my parents were also in Hungary. And my probably the interesting Bitcoin and digital assets related part of the story is that two

generations of my parents suffered under various dictatorships, first the National Socialists in the 40s, and then from the 70s to the 90s under communism. And both of these generations had issues with their property, so their properties have been confiscated, and they would have been very glad if they had an asset, something like Bitcoin. So, you know, 90s kid, I studied in Hungary, lived a little bit in Germany and Italy, and then came to the U.S. to finish up my high school in, of all places, Massachusetts at Deerfield Academy, and then went to Williams College. At Williams College, I triple majored in mathematics, sociology, and German. I was Bitcoin class of 2012, and I was class of 2014 otherwise in math. And so I did a lot of work

on distributed systems and discrete mathematics and graph theory, and that's how I found Bitcoin. That's amazing. Bitcoin class of 2012. I haven't heard that one yet, so we're going to have to steal that one. So let's talk about, your family grows up in Hungary, right? You obviously have that experience. And before we were talking about Bitcoin transactions early on in Central Europe, didn't exactly involve Coinbase or any of these other exchanges. How are people actually transacting Bitcoin at the time? Yeah, that's actually a super interesting question. So I was I was at the Budapest Technical University and one of my friends was telling me about this thing called Bitcoin

and he was about to send something like $80 worth of money to a Romanian dude who he has never met on Western Union and the plan was that he sends this $80 to this guy who he has no idea about and he's going to get an email with his public key and a few days later in a physical letter he would get his private key and then he would have access to this imaginary thing on what's called the blockchain or really Bitcoin. And so that was Bitcoin trading in 2012. And in the same year, two exchanges, Bitstamp and BTCE have been established. And since then, we have come far. We have over-the-counter

trading, high-frequency trading, futures contracts, ETFs. That's almost crazy to me. Well, hold on, but it's even crazier what you just described, right? So 2012, first of all, why is your friend in Hungary sending money to somebody in Romania that they don't know? Yeah, I mean, that's, so there was obviously, it's a technical university and Hungary is just famous of producing some of the best mathematicians and combinatorics and distributed systems. And so they were studying, he was studying distributed systems. And one of the things that we have done together is looking at how difficult it would be to destroy the Internet. You know, things that Eastern European guys are thinking about in, like, Budapest, Hungary. So we got interested in sort of, like, resistance, systems that are resistant to stress.

And we found that it takes about like 81% of, you need to destroy 81% of the computers on the internet in order to shut down the internet. And we were thinking about in the context of like economics and money and found Bitcoin through some of the subgroups at the university who were studying really like practical systems that are in place, not in theory, but in practice. And he was like, you know, I need to buy this, but how do you buy this? And that's how he, you know, you just go into Reddit and saw blogs and then found this Romanian guy who's selling Bitcoin. That is absolutely amazing. And so what people were doing is they were sending one of the keys via email. And then they were literally sending the private key via snail mail, literally a physical letter with the private key in it. And so me as the recipient, I would receive the email with the public key, mail, you know, in a physical format with the private key.

I can put them together. Now I've got access to the Bitcoin. Yeah, that's correct. And that was, you know, from purchase to settlement, it was probably around five, seven days and geographical distance was probably around 400, 500 miles. If the guy was really in the place where he stated he was, we never figured out whether he was at that place, but he delivered on the obligation. The crazier thing was that you literally had to put up the check on Western Union to a person before any of these things would happen. But yeah, that was Bitcoin trading in 2012. Could the crypto community really trust each other?

Yeah, I mean, I think the AML and KYC systems got a little bit better since then. Absolutely. All right, so how do you go from living in Hungary, sending $80 to random Romanians to working at VanEck? What's kind of the path there? Yep, so I graduated from Williams College, and my degree was in mathematics, and I reached out to a bunch of people in our alumni network.

I'm sort of known to be a power networker, and I really take networking seriously. So I reached out to a bunch of folks. One of our board members introduced me to Jan VanEck, who is the CEO of VanEck today. And the guy is a visionary, and he runs a private company with roughly $50 billion in assets. And from moment one, I knew that that's where I want to work. So I joined the ETF team at VanEck. So my responsibilities were a few fold. One of them was building new ETFs for the firm.

So we built some, you know, country funds, green bond funds, a mode, a divide mode ETF mirroring Warren Buffett's investment strategy. We built some EM local currency bonds and, you know, VanEck was specializing in providing access to harder to access areas. So my job was to kind of do the non-sexy work in the background and we also have like large clients and I think Morgan Creek is occasionally our clients but the large shops are asking for the allocation recommendation, why should you own gold, why should you own emerging markets? And so those were the questions that I've been fielding. And because of my background in mathematics and the pickup in crypto about two years ago, I kind of one and a half, two years ago, I refocused completely on crypto. And basically since then, I'm working on building the right market structure for exchange traded products and digital assets related vehicles. Amazing.

So before we get into all the digital assets and kind of the exciting, sexy stuff of today, VanEck's got a really interesting background, right, the company itself. Let's walk through, you know, how did the company get started and, you know, what were some of those early products like and then eventually into the gold market. But let's really start at kind of the founding of the company. So VanEck was built in 1955. That's not yesterday. So it's one of the older private asset manager companies.

And it was established by John VanEck, who is a visionary, and he has built a few things that are real firsts in the market. So in the 50s, Mr. VanEck, John VanEck, that is, built the first international investors fund. So after World War II, Mr. VanEck was thinking about ways in which the post-war reconstruction could be accessed and how an investor from the United States would benefit from that growth that would inevitably take place. And so he built the first international fund, and people were like, 50s, like the international stocks were like Bitcoin in the 50s. People were like, why would you invest in these things? And in the next years to come, international investing picked up. And so that was the first fund. And then in the late 60s, Mr. VanEck, I think he at that point of time, he had a few kids and he was employed kind of full time and decided to do a Ph.D. in economics of all things, because as our CEO Jan VanEck would say, you know, that's the kind of thing that people have time for in the evening school and Ph.D. in economics. And Mr. VanEck was a student of Ludwig von Mises, who was an Austrian economist and a part-time professor at NYU. And so Mr. VanEck caught the gold bug, liquidated, I think, something like 70 to 80 percent of his holdings. And in 1968, he created the first gold equity fund in the United States.

And, you know, back then, again, like people ask the same questions as 13 years before. Why the hell would you invest in gold, right? And what is gold good for? And before the gold standard was done away, gold was fixed at nearly $35 per ounce. And so Mr. Van Eyck just created this fund. and we know that gold sort of like picked up around $1,200 an ounce today and became an $8 trillion market and is the top safe haven asset today. And then kind of the story goes forward.

Jan Vanek, our current CEO, took over. And in the 2000s, he launched one of the first of these things called the ETS. And ETS became in the U.S. around a $4 trillion industry and provide unprecedented liquidity and access to harder-to-access areas. And so Jan, our CEO, has pioneered ETFs, and he built some of the largest gold equity ETFs, GDX and GDXJ. And he also hired a geologist, hired folks from, there's a bunch of international people from that.

He also built some of the first EM equity funds, And EM Equity does really well at VanEck and built things like Moat, and Moat is our Warren Buffett-like investing structure, and some of the large municipal bond funds and a few other products on the countryside, so areas that were at the time harder to access. For instance, Russia investing was really tough because of sanctions, and we built a fund, RSEX, that provides access to Russia. And we built some of the smaller cap, Indonesia, Vietnam, and smaller country exposure funds that people have a hard time investing in in a way that would be liquid. And so, you know, fast forward in time about, I think, around, we started conversations like two and a half, three years ago on the topic. We wanted to see what we can do on the digital assets. And so it was a natural for VanEck to kind of transition into it. And we were like, oh, okay, so our core competency now is ETS.

And, you know, around $35 billion, if our $48 billion is an ETF, we're going to build a Bitcoin ETF. And then learn about this, like a whole slew of things that needs to be put in place, like valuation, custody, and all these market structure questions that we were not aware of at the moment, at that moment, at that time. Absolutely. So let's talk about, you know, what is the parallels that you guys, who are one of the pioneers in kind of gold and gold ETFs, et cetera, see with the digital asset space, right? So are there any things that you've learned from kind of being at the forefront of the gold industry that you're using today or maybe even things that you're avoiding? Yes. So first of all, we learned that similarly to gold, I mentioned valuation before back in the in the 70s. People were in the same same places with Bitcoin. Gold markets were fragmented and no one really understood like what is the price of Bitcoin. And so we learned that we would need to put in place a benchmark that would be sufficient for pricing Bitcoin for institutional investors.

So through our German subsidiary MVIS, which is a EU benchmark registered indexing entity, we launched regulated indices and iterated with the SEC, CFTC, EU regulators on, you know, is this good enough to price Bitcoin? And so we tracked the top 50 markets with our partner, Crypto Compare, which is a UK shop, one of the probably best-known shops for providing accurate data on crypto. And so Ambus teamed up with Crypto Compare and created these benchmarks. So pricing and valuation was one of the things. And then secondarily, we knew that derivatives markets

are going to be built around physical things that are traded, as physical as Bitcoin gets. But, like, sure enough, futures contracts by CBOA and CME were at that time built. And, you know, our commodity traders at VanEck were instrumental in building some of the first gold and commodity contracts. So we learned, for instance, that cash-delivered contracts are actually, you know, an improved version of futures contracts. And a lot of people talk about physically delivered Bitcoin futures, but cash-delivered futures. So in the 70s, there were physically delivered futures because if you had 1,000 barrels of oil, you actually had to go to the port and take your 1,000 barrels of oil. And then traders are like, well, I don't know if I want to have 1,000 barrels of oil delivered.

So they created something called a cash-delivered future and started rolling contracts and having these type of obligations that are never delivered. So we immediately understood the cash delivered futures, like as they exist today, are actually an improvement and they are useful. So those are one of the things that two of the things actually that we learned. Absolutely. So, so fascinating. So let's go into what an ETF is like ETF 101. Right. So I know nothing about ETFs. Pitch me on what is an ETF and why are they important? So liquidity is the single keyword why ETFs are important.

And so an ETF is basically a stock plus a mutual fund equals an ETF. So a mutual fund is generally a vehicle that has, that trades and that can pool assets and provides, it's a pooled investment vehicle that investors, different, larger amounts of investors can put money into. And we have mutual funds on emerging markets, the S&P 500, and a bunch of other things. and mutual funds are sort of like word and invention or innovation in the 70s that you can invest with other people unlike what you do kind of on a private equity basis you go yourself and not with others and the the tough part of that was that mutual funds are non-transparent

so that you don't know the exact amount of holdings during the day and often during the month so you just don't know what the mutual fund manager holds and you put your trust into the manager that they do the right thing. ETFs adds the aspect of a stock to the mutual fund. So ETFs, by definition, is exchange-traded funds. It trades on an exchange like a stock. You have every 15 seconds, you have a price tick on where it is. And at the end of the day, you also have the holdings published.

The issuers need to publish their holdings on a daily basis. And the cool thing is, at the end of the day, you can always buy at 4 p.m. U.S. time for U.S. ETFs at an ETF at NAV. And NAV is a net asset value. So at the end of every day, you know the exact value of the fund holdings, and you can transact on that. And the reason why, so why is this? So this is what an ETF is, and how do they work?

Well, ETFs are securities that issue shares. So an ETF issues 100,000 shares, And what then happens is companies called authorized participants, like larger wirehouses, Goldman's, J.P. Morgan's, large companies of the world, buy the underlying of stocks of an exchange-traded fund and exchange it for the share of an ETF. So why is that important? For instance, for the S&P, let's just use the S&P 500 as an example. If you bought the S&P 500 stock by stock, it would be really hard to do if you wanted to replicate that performance. Now, if a large company does the work for you and buys the underlying assets and you can just exchange it to the share of the ETF, that makes the purchasing process more efficient, cheaper, and these companies hold large inventories of the underlying assets.

So that means that they will add liquidity whenever you would like to issue or redeem shares of a fund. So basically, you get an extra set of liquidity from authorized participants who are incentivized to buy and sell securities. And liquidity is the single most important keyword in investing, especially in the crypto markets where if you put a $30 million order in, that may impact the price of something, let's say Bitcoin, fairly significantly. So ETFs, by definition, help with liquidity management. And, yeah, so they're just, and there's, what I call them, ETFs are sort of like the trust-minimized version of stock investing because all these parties that are, like the APs, are competing with each other. They don't need to trust each other.

The investor doesn't need to trust the fund manager, like the hedge fund manager or mutual fund manager. and and and sure enough etf did pick up absolutely well so what are the downsides to an etf right there's a bunch of pros obviously especially in crypto but but what are the downsides to actually having these products available to retail investors i i see very like compared to the current landscape if you're talking about uh digital assets specifically i don't see many downsides because ETFs add liquidity they have kind of like AML KYC requirements generally their custodians ensures the underlying asset and uh and and again it's the most trustless form of

investing in the uh in the crypto space the possibly the you know when I when I have conversations with some of the top sort of like bitcoin older bitcoin guys they don't like the idea of some asset manager accumulating large amounts of bitcoin and uh sort of sort of like acting on behalf of their uh customers and because it's kind of against the spirit of bitcoin and you know i think i think myself often that isn't it crazy that we're launching an etf on bitcoin where when bitcoin is this sort of like decentralized retail oriented uh asset and and you know some people still prefer to hold their uh private keys and and and have different cold storage solutions or methods of storing their asset then that's their preference

but other other folks like say my i don't know my mom for instance my mom is not very good and despite the fact that she's from eastern europe she's not very good at cryptography and she wouldn't be able to cold store her assets and i wouldn't want my mom to walk around with a with a time drive of like a million dollars that wouldn't be safe so an etf just kind of adds this component of security, professional asset management around it. And probably weirdly enough, and you guys, if you trade crypto, you know this, you get tax reporting and other reporting on your assets, which is incredibly hard. All the crypto trading is jurisdiction dependent today. So that extra tax reporting component is just helpful. Absolutely. No, it's so fascinating because

with these ETF products, you get more liquidity, you get more security, right? There's some sophistication some validation etc that come with these products so as you guys saw okay digital assets are becoming an asset class that we want to participate in we've got all this institutional knowledge and experience from decades of working in other assets you know gold etc what was the first thing you guys filed so uh first uh we filed for uh vanek was first to file for a futures based ETF. And you might ask why futures-based ETF. And so the reason for that is every month, two months, we see a major hack of some sort somewhere around the world. And today there are no custodians in the digital asset space that are full-fledged institutional custodians

that could hold exchange-traded fund assets. At least no one really puts their balance sheets behind digital asset activity in a meaningful way. I do think this is a lucrative of business and we were going to see entrance coming in next few years, definitely, I would say. But no custodians existed. So we said, okay, since there are two futures, actually, first one we filed, the futures contract didn't exist. And so we filed for this futures ETF, hoping that there would be futures contracts, as we have seen from our commodities experience. And And that way, what happens in futures land is that, you know, at that point of time, my thinking was that if you don't own Bitcoin directly, the best way to own Bitcoin for institutions is not owning Bitcoin. So buy the futures, post the margin that you're using with a futures commodity merchants and futures commodity merchants are basically are buying and selling the the the contract in clearing houses.

And, you know, that way no one has to worry about actually physically custodying Bitcoin while you are getting price exposure, either appreciation or depreciation. You're getting the exposure through an ETF. And then, you know, only institutions could trade futures. So it's like, well, we want to make it available a bit more broadly. And let's just package it and have our futures trend commodities trading team do the work for them. and what was the regulator's response to that first filing right with excitement fear in between where did they really come out with that as you guys had conversations with them so uh first when we uh filed the etf and the call that we got is that hey guys the the bitcoin futures market

doesn't exist yet so uh we got rejected uh on that and then i mean we're not the kind of people who give up like and we kind of show that in the gold space as well so um surely enough we sort of expected the the the cbo and the cme contracts to come out at year end uh 2017 they did come out we refiled futures contracts and i existed and and we're like oh you know we're ready and at the same time like we sort of iterated our indices that we built with them says we have the largest data set in the world today to to price bitcoin and we have sold a valuation problem long ago so here we can price it there's futures contract pricing from cbo and cme we have you know a secondary level pricing from mvis to 50 platforms you're also kind of working with some otc guys on

on pricing and um and then uh filed again uh for it and then the response was that you guys should withdraw it because the the futures uh market is not mature enough there's only like 150 to 200 million dollars of futures trading that's small compared to other commodities and while our experience was that that's not the case because there are other small like freight futures electricity futures and more thinly traded futures that are that have etfs on it said fine you know we we're just going to work through your uh questions and then so there was this ever-moving target and so so that the futures effort we just kind of had it in file we had to withdraw it again for reasons that we wrote a letter if you guys are interested in reading and the audience should

actually read this on like why the futures market is ready for an etf and we discussed like why valuation is there there is enough volume there's arbitrage between futures and spot markets trading is efficient otc guys are amazing are able to uh trade away spreads and you can you know sometimes bitcoin trades at a better spread than the the small uh country etfs was like okay like the markets are ready um so so that you know that's so that line is is kind of ongoing and we're working with regulators and then they you know some of the things that are now focusing on is surveillance and are the markets surveilled uh what what does that mean right so so are the markets surveilled explain that yeah so uh for instance the u.s equity and futures markets uh

participants are generally part of something called the this inter surveillance group it's a group of exchanges the larger guys are part of it and what they do is they provide trade data to parent exchanges and on a request to the cftc for instance so this uh surveillance means that you are monitoring for wash trades and potential illicit activities on your platform. And NASDAQ happens to have probably one of the most well-known solution called SMARTS, and that monitors the top manipulation patterns. And basically, it gives exchanges assurance that there's no illicit activity on their platforms, and they can also report out to other larger exchanges or regulators that we have a clean exchange. So actually, to my crypto friends,

I already recommended to use smarts. The Winklevoss Brothers and Gemini use smarts, and some of the other exchanges are looking at it. And why is that important? Well, you know, for instance, we don't want something like Silk Road money hitting an ETF, and exchanges need to put in place best practices through these surveillance kind of, these are just sophisticated programs that monitor trading patterns that we use otherwise in the equity and futures market and the goal is to make the crypto market look exactly the same and and i think we are actually decently close like it's probably 70 there which is do you do you think that it's important to have that uh those protections there because uh the regulators need to see it and it needs to look

similar or do you think that uh they actually do protect investors and there's some of this you know, wash trading and manipulation, et cetera, that's happening. And so we need to kind of clean up, you know, that volume and kind of the trading patterns, et cetera. Well, I mean, first, yes, it is important to, the markets need to grow up. We need grown up markets for ETFs to come in. And it is important to protect. The large exchanges of the world are incredibly lucrative businesses, and it's in their best interest to be clean. At least like 95% of them should be clean uh and and they want to be now uh it's not it's not just a regulatory cliche in my opinion because at the end of the day again you want the same protections from from like that you

experience in the u.s and and western and well-developed capital markets because investment is uh kind of funnily enough about it's about trust so you shouldn't experience someone running away with your money or you know someone some exchange trading their books against you so that they can pay their employees or something like you know those things that exchanges just need to grow up and they're on a good path before we move on i wanted to tell you about our sponsor block estate a new security token project in the 200 trillion dollar real estate market they've partnered with polymath and coinless comply api to create one of the world's first tokenized real estate funds tokenization is the process of creating a digital token that

represents ownership and a real-world asset. You've heard me say it before, but a clear use case for this is real estate. Block Estate aims to bring increased liquidity to this massive market. We're really, really thankful to the Block Estate team for their support, so we'd appreciate if you checked out their website at blockestate.com to learn more. If you're intrigued by what they're doing, feel free to reach out to them or give them a tweet on Twitter. Thanks so much. So how do you see ETFs and other kind of retail financial products evolving in the digital asset space over say the next two years so um the um on the retail side so right now and and and you probably know it very well like uh the uh digital asset space is primarily retail so people

estimate something like 90 to 95 percent of it is retail and uh you know from from conversations for the larger like otc markets and exchanges that i had it kind of confirmed that uh so retail is kind of served already, if you will. So the exchanges and platforms just need to get better with their practices. With respect to products, I'm really hoping that ETFs can come in place because what's available right now

doesn't offer the full protection of what ETFs do. And I'm going to give you just some examples to this. Crypto trading platforms, for instance, do not have the best execution type of principles applied to their books. So, like, you know, high-frequency market makers are scalping retail investors on those platforms every second. There's kind of, like, best bid and offer principles on U.S. equity exchanges, and those things should be applied to crypto platforms. And ETF is required to have that type of protection.

So, AML and KYC, I would actually say that the AML and KYC standards of most established exchanges are amazing. it's actually harder to open up, sorry, let me just phrase it this way. It is easier to open up a German bank account. And I did this a year ago when I was at Envis building indices in Frankfurt. It's easier to open up a German bank account than getting a level, a tier three verification from a crypto exchange. I'm not kidding. Like you take a passport photo with your face and a timestamp in it banks never ask for that kind of stuff so uh you know that you know the eml and cave ic stuff is actually you know very well monitored so it's it's all in place i'm hoping for etfs uh and i'm also hoping that some of the larger players who have regulatory

requirements and they have skin in the game also come to the market because right now crypto companies just kind of enjoy their monopoly in the space. And for that reason, they might not give the best pricing and customer protection type of things to their customers. Absolutely. And it sounds like today, as you guys think of digital assets, really what you're focused on cryptocurrencies, Bitcoin specifically, right? And so there are highly liquid assets that operate as a store of value medium exchange. One of the show sponsors is a company called Block Estate, right? And basically what they have is they've got a tokenized fund in the real estate space. And so it's backed by real world assets or equity. How do you think about retail products

like ETFs, et cetera, moving away from cryptocurrencies, or at least in an additive way, looking at these equity-backed tokens or security tokens? Do you think that's something that's likely to happen? We're far away from it. Where does that kind of fit in the vision of at least what you guys are looking at yeah so we're looking at all kinds of assets we are you know there's we're looking we're launching a product we're trying to launch product around bitcoin now but i could see in the future how we would as the market develops look at and evaluate other sort of like security tokens you mentioned the real estate space it's actually super interesting to me we we have a real estate etf that invest in reits and and i think you know reits are actually

one of the main targets of these tokenized initiatives that are ongoing. So I welcome a conversation with your sponsor or really anyone in the space regarding REITs or anything. We've been obviously pitched around gold because we're kind of the gold experts in the space. But I would see in the future, 10 years down the line, I would see how ETFs would contain securitized tokens. because why not? The big question there is how liquid are these things and how is it trading? That's going to be the single most important question anywhere.

And I think one needs to list these tokens at regulated platforms in order to kind of get more widespread adoption. And I would also like, the ETF thing is just kind of the easy way of going about investing so you don't have to worry about tax and all kinds of rebalancing and activities that most of us don't have time for.

But I would love to see more developments and just like user interfaces and apps that would provide easier access and easier regulated access to these tokens. Absolutely. Yeah, look, so, you know, the Block Estate guys, blockestate.com, I want to make sure that they get some airtime there.

But how do you think about other ETF type applications? So think of Bitwise, right? So we built a large cap index product with Bitwise. And another thing that they're doing on their own is they've launched a crypto index ETF, right? So whereas a lot of people have gone after Bitcoin specific ETFs, they've said, look, why don't we apply for an actual kind of top 10 crypto type index in an ETF structure? How do you think about Bitcoin only or kind of a single asset ETF versus these index approaches? is yep so i i like the bitwise guys and you know matt hogan is his friend for our company for a long time he's like the he's like one of the etf legends yeah and love the guy love the uh love

hunter and they've done a great job uh at at their work and you know like the fund that they the private fund that they have uh right now i think it's a smart thing to do and and i hope that they get traction with the the sec on on with their multi-asset product uh I would think, just kind of, you know, going rationally about it, that a single asset Bitcoin type of ETF would be approved before a multi-asset would be. That is the sort of, you know, Bitcoin is more established, has more history. Some of the tokens, supplies and centralization questions are still outstanding on, if you look at, you know, say the top 10. And there's questions around dark tokens and some investors holding, you know, 50 percent of the supply in escrow or something like that. And so, you know, that's just something to think about.

And regulators, I think, are looking at that, too. But just to kind of support the Bitwise approach to VanEck's MVIS actually was the first one who launched a multi-asset index. And I spent six months in Frankfurt with our about 20 people analytics team to do that. And so I do believe in the power of diversification. And regardless of who the issuer would be, I'm really hoping that a multi-asset product comes to market. The key there is to make sure that the tokens are clean and they're liquid. So just on the indexing stuff, and obviously I'm biased on this. I love what MVIS and CryptoCompare does.

There's 20 people in Frankfurt, 15 in London. It's rated some. Basically, we have non-academic investable indices that are also tradable. For instance, that was super important for our country funds. Okay, the S&P 500 looks good, but how do you trade that? And fortunately, the S&P 500 is liquid, but maybe Vietnam and the top digital asset 10 is not liquid. So if you guys want to check out that, the indices, I'm happy to give more color around that.

But multi-asset approach is just diversification. So far, it didn't work out in the past year for people because, you know, all coins are down. And in 2018, like the DA10 is, I'm keeping an eye on that, is down like 80%. Bitcoin held up like 60, went down 62%. And Jan and I were just, our CEO and I were talking about this. we wrote a little piece for our investors on Bitcoin, and we said that we expected that Bitcoin wouldn't lose 80% or 90% of its value.

And so far, it's holding up, and fingers crossed. And other digital assets did not hold up as well as Bitcoin did. And, you know, again, I'm biased on this, but I'm a Bitcoin guy, so I think there's a case for trust-minimized money. and the other tokens are all dependent on their applications. So I think there's going to be a winner in the payment space, whether it's Ripple or Stellar Lumens,

there's going to be a winner in sort of asset issuance and Ethereum EOS type of space. We don't know who that is yet. And so it's interesting to monitor those before for every one winning position, there's 100 that competes. absolutely it is the it's the ultimate protocol wars right to see kind of who becomes king in each one of these uh these applications um okay and so one other thing that recently got a bunch

of attention is uh gemini so link of lost twins uh they launched a regulated stable coin right so they were one of the first people who have essentially said look we're going to uh ensure that uh it's backed one-to-one by the u.s dollar we're going to allow kind of external third parties to uh validate or audit that that is true and then uh the u.s dollars sit in uh a fdic insured state street account right and so very similar to i think what you guys at van eck are doing in terms of trying to legitimize or professionalize a lot of these um the products that the uh the tokens etc how do you think that impacts just crypto in general big deal not a big deal but how should people be thinking about that yeah so um getting sort of like regulatory approval

on pretty much anything is a big deal and getting regulatory support and regulators understand more about the space. So that's a good thing, I would say. And it would go back to my keyword, what is the liquidity of this? And sure, like all the... VincoBus Brothers did a great job in general

getting this approval and trying to get this product to market. And I think people look at it favorably and I do too. I'm interested in the liquidity profile and, you know, how much control really the exchange has. You know, can they freeze a can? Apparently, like, I think it's possible to freeze some of the assets

in 48 hours turnaround or something. You know, that's not like Bitcoin. Bitcoin cannot be frozen. And that was one of the reasons we were looking at this, you know, trustless, decentralized, uncontrolled thing. And so that, you know, that's that. But on the stablecoin front, we've seen from the success of Tether, as in people have a varying opinion on Tether. I think they have done a great job on solving the problems of U.S. dollars and money on RAM.

So, you know, Tether is fast. People want to see their holdings in dollars, and people want to trade large amounts of assets, and Tether created that market. there are questions around the audits and, you know, I'm excited for, you know, those markets to get better and improve. And one, one thing that I'm most excited about probably in the stable coin space, I'm, again, I would put Bitcoin in front of any other stable coin, but as far as stable coins go, I, you know, I read some things and, and heard some things that Circle is working on, on, on a stable coin concept. And the, I think the institutions that the Circle folks are working with are just kind of worth monitoring, and it's worth monitoring new entrants, and

so far, like, the execution that the Circle team has done on pretty much anything that they have was excellent, and, you know, kind of liked how they cleaned up Polo in their acquisition, their OTC desk was excellent, so I'm looking forward to see some, like, competition in the space and what the Circle guys are coming up with, because I would think that you know sometimes the Winklevoss brothers tend to do everything like a lot of things and and they have and you know again they may have conflicts of interest or they may not have full resources to support everything but the Circle guys kind of focus on a few things and I think they do have the resources to build something interesting so I as far as stable coins go that's

that's the one I'm monitoring. That's awesome yeah look I found Jeremy and the Circle guys to it to be great at execution as well and then super thoughtful about kind of where they deploy resources etc so that's uh that's another validation there um all right so let's do this let's do some rapid fire questions and then we'll wrap it up with uh with you asking me one question um first question though is what do you think is the most uh comfort controversial thought that you have in crypto where the highest number of people would disagree with you oh that's uh what do you what do you believe that everyone else is going to disagree with that's kind of the you know zero to one Peter Thiel question is actually one of my favorite books. So here it is. And

Bitcoiners are probably going to dislike me a little bit for this. The higher controversial thought is that Bitcoin needs an ETF. We are, you know, just to go with my Game of Thrones references, a lot of people are looking at Van, I guess, kind of Castle Black holding the wall of institutional money uh and and and i do think that you know the etf and etf comes out then bitcoin is going to stick around for uh probably a century if if not longer and the reason for that and i don't need to talk too much about that is uh so if wall street companies support digital assets in a meaningful way, then you now have Wall Street and crypto kind of going against government. And right now, Wall Street is in the middle. So I would actually encourage crypto

companies. And that's what we see to kind of partner up, establish products that don't fit Bitcoin exactly into the existing capital markets. But Bitcoin is inherently compatible and make it work. And I think that's the one thing that most people would disagree with me is Bitcoin needs an ETF. But do you agree that that's only correct as long as the ETF doesn't create more liquidity or more kind of claims on the 21 million Bitcoin? Right. So so basically, as long as the ETF matches one to one to up to 21 million Bitcoin, we're OK. But the second that we start having more claims than there are Bitcoin, we could run into some trouble. Is that fair? I completely agree with that and in fact uh we have uh we're sort of what we're trying to do is uh and i can't talk

much about our security and custody solutions but we want so by definition an etf has to show its nav so every day the block and in the bitcoin blockchain you can show uh the wallet sizes and the etf can show nav so you can show one-to-one correspondence between a wallet size and an nav And we are committed to doing that. We are committed to basically keep up Bitcoin's standards in the space. That's awesome. All right. So other than VanEck, you cannot answer VanEck. What do you think is the most important company in crypto right now? I'm monitoring the OTC desks. Interesting.

So it's probably the non-sexy answer again. And so I'm looking at Circle, DRWs, Cumberland, and Genesis. These guys have been instrumental in bringing crypto to the institutional space, and they are instrumental for exchange-traded products and increased liquidity in the space. So I would say the top, so actually maybe let's just say the OTC firms, And I also think that your NASDAQ surveillance system is actually a bigger deal and people don't talk about it enough. So NASDAQ smarts and the OTC desk, the three U.S. OTC desks combined are the ones that I'm monitoring. Yeah, it's definitely not a popular answer, but I think a really smart one.

All right. So let's say you have a magic wand and you can wave that magic wand and change one regulation or law. What would it be? I'm on the same page with Hester Peirce on sort of like the retail and institutional investor standards. I think they're BS and will change over time. Retail investors should be able to access private investments. And when I was in college, I didn't have the required amount of money to be an institutional investor, but I think it was fairly smart to be able to say whether I want to invest into something or not. I expect the individual and retail and institutional investor standards to change over the next decade.

Yeah, so you're talking about the accreditation standards, right? And the idea that you'll appreciate this because I've gone as far as to say that actually the accreditation standards are, as they currently stand, are violating the American dream, right? And so if you think about yourself moving to the United States, the American dream is that no matter where you come from, what language you speak, what your background is, who your parents are, or where you end up in the US, you should be able to build a life of wealth, right? And do it through your own effort. And so because these laws literally say you have to be rich in order to invest in some of the best investment opportunities, the rich can only get richer, right? And we're boxing out or precluding an entire demographic of people based on wealth from investing in those opportunities. And it's pretty ridiculous. It is indeed.

And I actually couldn't put it better. and it just hit me in the face when I started working in the financial services industry that can invest in private securities and I was like, wow, that's crazy. All the Silicon Valley VCs are making bank based on just very basic probabilistic bets and I don't want to put them down

but there's not much thinking on many of those investments. You just spread it out and look for the next 1,000, the next unicorn whereas small people who have you know a few ten thousand dollars of assets that they kind of earn from something like their work say that the average new york person or something cannot invest into the next facebook and i think uh so i some people again argue with me on this but i think crypto actually opened up the door for private investing and uh you know definitely like people younger people start to have experience what it means to to invest privately and obviously these crypto

projects are and often there's governance issues there's a bunch of other things but you know i if you guys read uh the the sec's kind of newsletter uh chairman clayton uh came up with you know his his views on how we should revisit investing in private securities and again i i credit that to crypto and and and not just our work but the crypto community's work of showing how important it is and how much interest there is in investing in private things. Yeah. I mean, look, to me, the most ridiculous part about it is we're using wealth as a signal for intelligence, and we should probably just move to a system where we actually use intelligence as a signal for intelligence, right? And so move to some sort of knowledge-based test or knowledge-based

system rather than a wealth-based system. But that's neither here nor there. We can go for hours on that one. All right. So what one question do you have for me? Okay. So since you're probably one of the most well-known guys in the crypto investing space, and you're doing a lot for us, I'm wondering, what are the three things that you are looking forward to in the next three to five years in crypto? And what should we be all monitoring? So, you know, three things according to Palm's worldview. Oh, man, this is a good question. All right. So three things I'm excited about next three to five years. One, right now, my partners and I are absolutely on a war path to getting institutions off of zero, right? So right now, a lot of these institutional investors, we're talking family offices, endowments, pensions, foundations, sovereign wealth, et cetera, have zero exposure, right? And the idea that you can have zero exposure to the best performing

asset class over the last five years. And it's just pretty insane, right? And so we don't think that they should go and put 500 basis points, right? We don't think that we actually even know what the right number is. There's not kind of a one size fits all for every portfolio, but we know zero is not the right number, right? And so we're on this war path to get every institution in the world off of zero and get exposure to the asset class. So I think watching that happen is really important. We've got a couple off of zero, and I think that we'll continue to do that. And there's a bunch of other people working to do it as well. But as more and more institutions move off zero, I think it's gonna be a really important trend. Two is the accreditation laws. I mean, I just,

it's the one thing that irks me to death is that, you know, in a country where we are supposed to be kind of the, you know, the lighthouse of freedom and prosperity, etc. Our laws don't reflect that, right. And so it'd be one thing if, you know, kind of in practice, it was hard to implement or something like that. It's just, you know, the law is written in a way that prevents anyone from having the opportunity, right? And I just, I think that goes against everything that we stand for, and it's got to change. So I think as that changes, if, you know, Chairman Clayton said it in a very interesting way, he said, look, I'd love to give more people access to these private market opportunities, while keeping the same amount of investor protections, right? So

it's not giving up protections, it's just giving more access with the same protection. And so if they're able to figure out a way to do that, I think that'll be a huge inflection point, not only for crypto, but just private investing in general, and also wealth creation for Americans. So I think it's important. And then the third thing is outside the US, right? So I think that people in the Western world get very kind of ancillary thinking, and they think that we are the say-all be-all around the world. And in some markets we are, and other markets we're not. And I think crypto is one of the first times where we're seeing an industry being created on a global scale from day one, right? So, you know, a lot of people in the United States who had never traveled

to, you know, say Asia, for example, and seen, you know, just the amount of intellectual talent and energy and capital and stuff that's being put forward into this industry, I think is, you know, they just don't have that perspective and they're missing out on how important it is there, right? And so if you kind of extrapolate that back to the US, I would almost question, do we actually have enough intellectual capital being put towards this? Do we have enough, you know, kind of traditional capital being put towards this. And if we don't, do we fall behind? Is that good? Is that bad? Right. And so kind of this idea of a geographic arbitrage around talent, capital, attention, regulatory issues, et cetera, I think is going to be something that's

really important to watch. And at some point in the future may actually be a negative for the United States. I don't think the U.S. is used to being in that position. And if we get in that position how do we respond that's actually the three areas i mean i'm also focusing on probably you put it much better than i could and a lot like sometimes the allocation the two things is the allocation question and you know i'd love to discuss at some point in more detail vanek has jan who is much smarter than i am and i wrote a piece on what should be the candidate what's the right level of adding digital assets to a portfolio and by the way we lived through the same thing with gold and commodities so it's an interesting evolution uh totally on the same page on um

on the accreditation accreditation standards and kind of working on it uh the the international kind of realm and and arbitrage regulatory and capital arbitrage and um i'm so fascinated by asia and uh how much one can learn uh spend a lot of time in europe and and and the u.s of various places but uh asia is sort of a frontier that we shouldn't uh underestimate singapore japan china uh right now i think probably japan and singapore and vietnam are something worth watching china is a harder act to crack but uh definitely interesting absolutely no man listen you guys are doing some some amazing work i really appreciate your time and i think you know all of us here are cheering for you guys to uh kind of break through on a couple of the applications in

the public markets and stuff. So, uh, so good luck and, and, uh, thanks so much for coming on. Thank you, Pom. So it was a pleasure. Thanks again to our sponsor Block Estate. To check out their tokenized real estate fund, you can check out www.blockestate.com. Hey everyone, Pom here. If you liked this episode of Off The Chain and want to help us take crypto to the top of the Apple, Spotify, and other podcast charts, please do us a favor and rate, review, and subscribe. To review, simply go to the off the chain homepage scroll down until you see the five blank stars taking 15 seconds to fill those stars in and leave a quick review goes a long way in helping us

take the entire crypto ecosystem to the top of the charts i appreciate you listening and see you next time on off the chain