Gabor Gurbacs: What’s the Latest with the Bitcoin ETF?

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.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Anthony Pompliano?

  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.

• 0:13Anthony Pompliano?

  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.

• 0:42Anthony Pompliano?

  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.

• 1:10Anthony Pompliano?

  Before we get started, I wanted to tell you about our sponsor BlockEstate, 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.

• 1:30Anthony Pompliano?

  Alright guys, this is gonna be an awesome episode. I've got Gabor here from VanEck, and we've got a lot to cover. We're gonna touch on all things ETF, retail products, and then some cool stories from your background. So I appreciate you coming on. Thanks, Pomp, for having me. Fun to be here. Absolutely. Alright, so let's get started with, you know, 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.

• 1:55Speaker 01

  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 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 Socialist in the 40s, and then from the 70s to the 90s under communism. And both of these generations had issues with their properties. So their properties have been confiscated. And they would have been very glad if they had an asset, something like Bitcoin.

• 2:35Speaker 01

  So, you know, 90s kid, I studied in Hungary, lived a little bit in Germany and Italy, and then came to the US to finish up my high school in, of all places, Massachusetts, 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 on 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.

• 3:11Anthony Pompliano?

  That's amazing. Bitcoin class of 2012. I haven't heard that one yet, so we're gonna 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 were people actually transacting Bitcoin at the time?

• 3:35Speaker 01

  Yeah, that's actually a super interesting question. So I was at the Budapest Technical University, and one of my friends was telling about this thing called Bitcoin. And he was about to send something like $80 worth of money to a Romanian dude who 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.

• 4:13Speaker 01

  And so that was Bitcoin trading in 2012 and in the same year, two exchanges, Bitstamp and BTC, uh BTCE, have have been established and you know, since then, we have come far. We have over the counter trading, high frequency trading, futures contracts, ETFs. That's almost crazy to me.

• 4:32Anthony Pompliano?

  Whoa, hold on, but 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?

• 4:43Speaker 01

  Yeah, I mean, that's, uh, so there was, I was, it's a technical university and Hungary is just famous of producing some of the best mathematicians and and combinatorics and distributed systems and so they were studying, uh, he was studying distributed systems and and and one of the, so 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, but so the, uh, so we got interested in and sort of like resistance, uh, 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, you know, to shut down the internet.

• 5:24Speaker 01

  And we were thinking about in the context of like economics and money and and and found Bitcoin through through some of the subgroups at at the university who are who are studying really like practical systems that you know, are in place, not in, not in theory, but in practice and and and that's, he was like, you know, I need to buy this, but how do you buy this? And that's how he, he, you know, you just go into Reddit and sub blogs and then found this Romanian guy who's selling Bitcoin.

• 5:53Anthony Pompliano?

  That 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 a public key, mail, you know, in a physical format with the private key. I could put them together and now I've got access to to Bitcoin.

• 6:14Speaker 01

  Yeah, that's correct. And 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, but we never figured out whether he was at that place, but he delivered on. 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 a bit contraining in 2012.

• 6:42Anthony Pompliano?

  The crypto community really trusts each other.

• 6:44Speaker 01

  Yeah, I mean, I think the AMON KYC systems got a little bit better.

• 6:50Anthony Pompliano?

  Absolutely. All right. So, 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?

• 7:01Speaker 01

  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, Jan VanEck, who is the CEO of VanEck today. And the guy's 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

• 7:40Speaker 01

  at VanEck. So my, 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, mode, divide mode ETF, mirroring Warren Buffett's investment strategy. We built some EM local currency bonds and, and, you know, VanEck was specializing to, 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, clients. And I think Morgan Creek is occasionally our clients. And but the large shops are, the large shops are asking for the allocation

• 8:22Speaker 01

  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, and basically since then, I'm working on building the right market structure for exchange traded products and, and digital assets related vehicles.

• 8:51Anthony Pompliano?

  Amazing. So.

• 8:54Anthony Pompliano?

  Before we get into all the digital assets and it's kind of the exciting sexy stuff of today, Vannec'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 with kind of the founding of the company.

• 9:12Speaker 01

  So Vannec 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 Vannec, who is a visionary. And he has built a few things that are real firsts in the market. So in the 50s, Mr. Vannec, John Vannec, that has built the first international investors fund. So after World War II, Mr. Vannec 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 are like 50s, like the international

• 9:57Speaker 01

  stocks were like Bitcoin in the 50s. People, 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. Vannec, 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 PhD in economics of all things because as our CEO Jan Vannec would say, you know, that's the kind of thing that people have time for in the evening school and PhD in economics. And Mr. Vannec was a student of Ludwig von Mises, who was an Austrian economist and

• 10:40Speaker 01

  a part-time professor at NYU. And so Mr. Vannec caught the gold bug, liquidated, I think, something like 70 to 80% 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, in, in gold, right? And, and what is gold good for? And, and, and before the gold standard was done away, gold was fixed at, you know, thirty-five dollars per ounce. And so Mr. Vannick just created this fund and we, we know that gold sort of like picked up around twelve-hundred dollars an ounce today

• 11:24Speaker 01

  and, and became a, an eight-trillion-dollar market and, and is the top safe haven asset today. And then, um, kind of the story goes forward. Uh, Jan Vannick, our current CEO, took over. And in the two thousands, he launched, uh, one of the first of these things called the ETS. And, uh, you know, ETS became in the US, uh, around a four-trillion-dollar industry and, and provide, um, unprecedented liquidity and access to harder-to-access areas. And, uh, so Jan, uh, our CEO, has pioneered ETS and he built some of the largest, uh, gold equity ETS, GDX and GDXJ.

• 12:05Speaker 01

  Uh, and, uh, he also, uh, you know, hired a geologist, uh, hired folks from, you know, there's a bunch of international people from, uh, he also, uh, built, uh, some of the first EM equity funds, uh, and, and EM equity does really well at Vannick and built things like, uh, Moat. And Moat is our, you know, Warren Buffett-like, uh, investing structure, uh, and some of the large municipal bond funds and, and, and, and a few other products on the, on the countryside. So areas that are, that were at the mo, at the time harder to, to access. For, for instance, like the Russia, uh, Russia investing was really tough because of sanctions. And we built a fund, uh, our Saks, that provides access to Russia.

• 12:48Speaker 01

  And, uh, we built some of this, you know, smaller cap Indonesia, Vietnam and, and, and, and smaller country exposure funds that people have a hard time investing in, in a, in a way that would be liquid. And, uh, so, so, you know, fast forward in time, uh, about, I think around, we started conversations like two and a half, three years ago and, on, on the topic. We wanted to see what we can do in the digital assets. And then, and so it was, it was a natural for VanEck to kind of transition into it. And, and while, we were like, oh, okay, so our core competency now is ETFs. And, you know, around 35 billion if our 48 billion is in ETFs, we wanted to build a Bitcoin ETF.

• 13:31Speaker 01

  And then learn about this, like a whole slew of things that needs to, you know, 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.

• 13:43Anthony Pompliano?

  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 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?

• 14:00Speaker 01

  Yes. So first of all, we learned that similarly to gold, I mentioned valuation before, back in the, in the seventies, 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, right? And so we learned that we would need to put in place a benchmark that, that would, that would be sufficient for, for pricing Bitcoin for institutional investors. So through our German subsidiary, MVIS, which is a EU benchmark registered indexing entity,

• 14:40Speaker 01

  we launched regulated indices and iterated with the SEC, CFTC, EU regulators on, you know, is this good enough to price Bitcoin? And, and so we tracked the top 50 markets with our partner CryptoCompare, which is a UK shop, one of the probably best known shops for providing accurate data on crypto. And so Ambis teamed up with CryptoCompare and created these benchmarks. So that was, you know, pricing and valuation was one of the things. And then secondarily, we knew that, you know, derivatives markets are going to be built around physical things that are traded, or, you know, as physical as Bitcoin gets, but like, sure enough, futures were, futures contracts by CBOA and CME were at that time built.

• 15:24Speaker 01

  And, you know, we learned, our, our commodity traders at VanEck were instrumental in building some of the, the first gold and commodity contracts. So we learned, for instance, that Cash delivered contracts are actually, you know, the, an improved version of futures contracts. And a lot of people talk about physical, physically delivered Bitcoin futures, but a cash delivered futures. So in the seventies, there were physically delivered futures because if you hadn't, you know, a thousand barrels of oil, you actually had to go to the port and take your thousand barrels of oil. And then traders are like, well, you know, I don't know if I want to have a thousand barrels of oil delivered. So they created something called the cash delivered futures.

• 16:05Speaker 01

  So, and started rolling contracts and having these, this 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.

• 16:22Anthony Pompliano?

  Absolutely. No, 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?

• 16:34Speaker 01

  So liquidity is the single key word why ETFs are important. And so an ETF is basically a stock, stocks plus, a stock plus a mutual fund equals an ETF. So mutual fund is generally a vehicle that has, that trades and that can pool assets and provides, it's a pooled investment vehicle that investor, different, larger amounts of investors can, can put money into. And we have mutual funds on emerging markets, the S and P 500 and a bunch of other things. And mutual funds are sort of like word and invention or innovation in the seventies, that you can invest with other people, unlike what you do kind of on a private equity basis.

• 17:17Speaker 01

  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 ETF by definition is exchange traded funds. It trades on an exchange like a stock. You have every 15 seconds, you have a price stick 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.

• 18:00Speaker 01

  And the cool thing is, at the end of the day, you can always buy at 4:00 PM US time for US ETFs, 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 in 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 ETFs, say, an ETF issues 100,000 shares and what then happens is companies called authorized participants, like larger wirehouses, your Goldman's, JP Morgan's, large companies of the world,

• 18:43Speaker 01

  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 and P, let's just use the S and P 500 as an example. If you bought the S and P 500 stock by stock, that would be, 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.

• 19:24Speaker 01

  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 in a $30 million order and that may impact the price of something, let's say Bitcoin, fairly significantly. So ETFs by definition help with liquidity management and

• 20:05Speaker 01

  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 sure enough, ETFs did pick up.

• 20:30Anthony Pompliano?

  Absolutely. Well, so what are the downsides to an ETF, right? There's a bunch of pros, obviously, especially in crypto, but what are the downsides to actually having these products available to retail investors?

• 20:40Speaker 01

  I see very, like, compared to the current landscape, if we are talking about digital assets specifically, I don't see many downsides because ETFs add liquidity, they have kind of like EMLK VC requirements, generally their custodians insure the underlying asset. And again, it's the most trustless form of investing in the crypto space. Possibly, 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 sort of like

• 21:22Speaker 01

  acting on behalf of their customers and because it's kind of against the spirit of Bitcoin. And I think to 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 asset. And some people still prefer to hold their private keys and have different cold storage solutions or methods of storing their asset, and that's their preference. But 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

• 22:01Speaker 01

  be able to cold store her assets. And I wouldn't want my mom to walk around with a thumb 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.

• 22:18Speaker 01

  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, you know, that extra tax reporting component is just helpful.

• 22:36Anthony Pompliano?

  Absolutely. No, and it's so fascinating because, you know, 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?

• 22:59Speaker 01

  So first, we filed for, Vanek was first to file for a futures-based ETF. And you might ask why a 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, you know, 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 business, and we are going to see entrants coming in next few years, definitely, I would say. But no custodians existed. So we said, okay, since the, there

• 23:44Speaker 01

  are two, so futures, actually, first when we filed, the futures contract didn't exist. And so we filed for this futures ETF, hoping that there will be futures contracts, as we have seen from our commodities experience. 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.

• 24:22Speaker 01

  The contract in clearinghouses. And that way, no one has to worry about actually physically custoding Bitcoin while you are getting price exposure, either appreciation or depreciation. You're getting the exposure through an ETF. And then 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, our trend commodities trading team do the work for them.

• 24:51Anthony Pompliano?

  And what was the regulator's response to that first filing? Right? Excitement, fear, in between? Where did they really come out with that as you guys had conversations with them?

• 25:03Speaker 01

  So first, when we filed the ETF, the call that we got is, hey, guys, the Bitcoin futures market doesn't exist yet. So we got rejected on that. And then we're not the kind of people who give up. And we should kind of show that in the gold space as well. So surely enough, we sort of expected the CBO and CME contracts to come out at the year end 2017. They did come out. We refiled futures contracts and I existed. And we were like, oh, you know, we are 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 price Bitcoin.

• 25:46Speaker 01

  And we have solved the valuation problem long ago. So here, we can price it. There's futures contract pricing from CBO and CME. We have a secondary level pricing from MVIS through 50 platforms. We're also kind of working with some OTC guys on pricing. And then filed again for it. And then the response was that you guys should withdraw it because the futures market is not mature enough. There's only like $150 to $200 million of futures trading. That's small compared to other commodities. And while our experience was that it's not the case because there are other small, like freight futures, electricity futures, and more thinly traded futures that have ETFs on it.

• 26:31Speaker 01

  Said, fine, you know, we were just going to work through your questions. And then, so there was this ever-moving target. And 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 trade away spreads and you can, you know, sometimes Bitcoin trades at a better spread

• 27:10Speaker 01

  than the small country ETFs. It was like, okay, like the markets are ready. So that, you know, that's, so that line 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?

• 27:29Anthony Pompliano?

  What does that mean, right? So are the markets surveilled? Explain that.

• 27:33Speaker 01

  Yeah, so for instance, the US equity and futures markets 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 surveillance means that you are monitoring for wash trades and potentially illicit activities on your platform. And NASDAQ happens to have probably one of the most well-known solution called smarts and that that monitors the top manipulation patterns. And basically, it gives exchanges assurance that there's

• 28:17Speaker 01

  no illicit activity on their platforms and they can also report out to other larger exchanges or regulators that we have a clean, clean exchange. So actually, to my crypto friends, I already recommended to use smarts. The Vinklabaus 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.

• 29:00Speaker 01

  And I think we are actually decently close, like it's probably 70% there, which is...

• 29:05Anthony Pompliano?

  Do you think that it's important to have that, those protections there because the regulators need to see it and it needs to look similar? Or do you think that they actually do protect investors and there's some of this, you know, wash trading and manipulation, etc., that's happening? And so we need to kind of clean up, you know, that volume and the kind of the trading patterns, etc.?

• 29:26Speaker 01

  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 and they want to be. Now, 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 US and vested and well-developed capital markets. Because investment is kind of, funnily enough, about, it's about trust.

• 30:10Speaker 01

  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, exchanges just need to grow up and they're on a good path.

• 30:25Anthony Pompliano?

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• 31:05Anthony Pompliano?

  So how do you see ETFs and other kind of retail financial products evolving in the digital asset space over the next two years?

• 31:13Speaker 01

  So the, on the retail side, so right now, and Paul, you know it very well, like the digital asset space is primarily retail. So people estimate something like 90 to 95% of it is retail. And, you know, from conversations for the larger like OTC markets and exchanges that I had, it kind of confirmed that. So retail is kind of served already, if you will. So these, 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

• 31:58Speaker 01

  to give you just some examples to this. Crypto trading platforms, for instance, do not have best execution type of principles apply 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 US equity exchanges, and those things should be applied to crypto platforms. An ETF is required to have that type of protection. The whole, so AML and KYC, I would actually think that, say that the AML and KYC standards

• 32:35Speaker 01

  are 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, you know, that, the AML and KYC stuff is actually, you know, very Well, monitored. So it's all in pace. I'm hoping for ETFs.

• 33:16Speaker 01

  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.

• 33:39Anthony Pompliano?

  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 of exchange. One of the show's sponsors is a company called BlockEstate, right? And basically what they have is they've got a tokenized fund in the real estate space. And so it's backed by, you know, real world assets or equity. How do you think about retail products like ETFs, et cetera, moving away from cryptocurrencies, or at least, you know, 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?

• 34:20Speaker 01

  Yeah, so we're looking at all kinds of assets. We're launching a product. We're trying to launch a 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 have a real estate ETF that invests in REITs. And I think REITs are actually one of the main targets of these, you know, tokenized initiatives that are ongoing. So I welcome a conversation with your sponsor or really anyone in the space regarding REITs or anything.

• 35:04Speaker 01

  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, 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...

• 35:39Speaker 01

  The ETF thing is just the 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 be, that would provide easier access and easier regulated access to these tokens.

• 36:04Anthony Pompliano?

  Absolutely. Yeah, look, so you know, the Block State guys, blockastate.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?

• 36:45Speaker 01

  Yep. So I like the Bitwise guys and you know, Matt Hogan is friends with our company for a long time.

• 36:51Anthony Pompliano?

  He's like, he's like one of the ETF legends.

• 36:54Speaker 01

  Yeah, and love the guy, love the, love Hunter. And they've done a great job at their work. And I like the fund that they, the private fund that they have right now. I think it's a smart thing to do. And, and I hope that they get traction with the, the SEC on with their multi asset product. 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, your questions are still outstanding on, on, if you look at, you know, say the top 10, there's questions around

• 37:38Speaker 01

  dark tokens and some investors holding, you know, 50% of the supply in escrow, 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, too, VanXMVIS 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.

• 38:23Speaker 01

  So if 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 iterated. So basically, we have non-academic investable indices that are also tradable. For instance, that was super important for our country funds. Then, okay, the S and P 500 looks good, but how do you trade that? And fortunately, the S and 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. But multi-asset approach is just diversification.

• 39:07Speaker 01

  So far, it didn't work out in the past year for people because all coins are down in 2018. Like the DA 10 is, I'm keeping an eye on that, is down like 80%. Bitcoin held up like 60, went down 62%. And Jan and I, 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 again, I'm biased on this, but I'm a Bitcoin guy.

• 39:47Speaker 01

  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 Stellulumens. 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. But for every one winning position, there's 100 that competes.

• 40:22Anthony Pompliano?

  Absolutely. It is the ultimate protocol wars, right? To see who becomes king in each one of these applications. Okay, and so one other thing that recently got a bunch of attention is Gemini, so Winklevoss Twins. They launched a regulated stablecoin, right? So they were one of the first people who have essentially said, "Look, we're going to ensure that it's backed 1:1 by the US dollar. We're going to allow kind of external third parties to validate or audit that that is true. And then the US dollars sit in a FDIC insured State Street account, right? And so very similar to, I think, what you guys at VanEck are doing in terms of trying to legitimize or professionalize a lot of these, the products, the tokens, etc.

• 41:06Anthony Pompliano?

  How do you think that impacts just crypto in general? Big deal, not a big deal? How should people be thinking about that?

• 41:13Speaker 01

  Yeah, so 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 I would go back to my key word, what is the liquidity of this? And sure, like all the Winklevoss 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 how much control really the exchange has. Can they freeze account? Apparently, I think it's possible to freeze some of the assets in 48 hours turnaround or something. You know, that's not like Bitcoin.

• 41:57Speaker 01

  Bitcoin cannot be frozen. And that was one of the reasons we are looking at this, you know, trustless, decentralized, uncontrolled thing. And so that's that. But the other, 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 US dollars and money on ramps. So Tether is fast. People want to see their holdings in dollars. And people want to trade larger amounts of assets in Tether. Created that market. There are questions around the audits and I'm excited for those

• 42:41Speaker 01

  markets to get better and improve. And one thing that I'm most excited about, probably in the stablecoin space, and again, I would put Bitcoin in front of any other stablecoin, but as far as stablecoins go, I read some things and heard some things. Circle is working on a stablecoin concept and 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 and their

• 43:21Speaker 01

  acquisition, their OTC desk is excellent. So I'm looking forward to see some like competition in this 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 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 focused on a few things. And I think they do have the resources to build something interesting. So as far as stablecoins go, that's the one I'm monitoring.

• 43:56Anthony Pompliano?

  That's awesome. Yeah, look, I found Jeremy and the Circle guys to be great at execution as well and then super thoughtful about kind of where they deploy resources, etc. So that's another validation there. All right. So let's do this. Let's do some rapid fire questions and then we'll wrap it up with you asking me one question. First question, though, is what do you think is the most controversial thought that you have in crypto where the highest number of people would disagree with you?

• 44:23Speaker 01

  Oh, that's a

• 44:25Anthony Pompliano?

  What do you believe that everyone else is going to disagree with?

• 44:28Speaker 01

  That's kind of the zero to one Peter Thiel question is actually one of my favorite books. So Here it is, and Bitcoiners are probably gonna 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 VanEck as kind of Castle Black, holding the wall of institutional money. And I do think that, you know, the ETF, and ETF comes out, then Bitcoin is going to stick around for probably a century, if not longer.

• 45:09Speaker 01

  And the reason for that, and I don't need to talk too much about that, is 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 established products that are, you know, don't fit Bitcoin exactly into the existing capital markets, but Bitcoin is inherently compatible and make it work. And I think that's, you know, the one thing that most people would disagree with me is Bitcoin needs an ETF.

• 45:48Anthony Pompliano?

  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 basically, as long as the ETF matches one-to-one to up to 21 million Bitcoin, we're okay. But the second that we start having more claims than there are Bitcoin, we could run into some trouble. Is that fair?

• 46:10Speaker 01

  I completely agree with that. And in fact, we have, we're sort of, what we're trying to do is, 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 blockchain, in the Bitcoin blockchain, you can show 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 Bitcoins' standards in the space.

• 46:47Anthony Pompliano?

  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?

• 46:56Speaker 01

  I'm monitoring the OTC desks.

• 46:59Anthony Pompliano?

  Interesting.

• 47:00Speaker 01

  So it's probably the non-sexy answer again. And so the, so I'm looking at Circle, the RW's Cumberland and Genesis. These guys have been instrumental in, 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, the, the top, so actually, maybe let's just say the OTC firms. And I also think that NASDAQ surveillance system is going, is actually a bigger deal. And people don't talk about it enough. So NASDAQ smarts and the OTC desk, the three US OTC desks combined are the ones that I'm monitoring.

• 47:45Anthony Pompliano?

  Yeah, that's definitely not a, 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?

• 47:57Speaker 01

  I'm on the same page with Hester Purse on sort of like the retail and institutional investor standards. I think they're BS and it will change over time. Retail investors should be able to access private, private investments. And, you know, while, when I was in college, I didn't have, you know, the required amount of money to be an institutional investor. But I think it was fairly smart to be able to say, but I want to invest into something or not. I expect the, so the, the individual and retail and institutional investor standards to change over the next decade.

• 48:34Anthony Pompliano?

  Yeah, so you're talking about the accreditation standards, right? And the idea that you'll, 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, and, and do it through your own effort. And so because these laws literally say you have to be rich to, 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

• 49:19Anthony Pompliano?

  investing in those opportunities and it's pretty ridiculous.

• 49:22Speaker 01

  It is indeed, and I actually couldn't put it better. And I just, you know, it hit me in the face when I started working in the financial services industry that couldn't invest in private securities. And I was like, wow, that's crazy. You know, all the Silicon Valley VCs are making bank based on just very basic probabilistic bets and 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, next unicorn. Whereas small people who have, you know, a few $10,000 of assets that they can earn from something like their work, say that the average New York person or something cannot invest into the next Facebook.

• 50:05Speaker 01

  And I think, so some people again argue with me on this, but I think crypto actually opened up the door for private investing. And, you know, definitely like people, younger people start to have experience what it means to invest privately. Obviously, these crypto projects are, and often there's governance issues, there's a bunch of other things. But, you know, if you guys read the SEC's kind of newsletter, Chairman Clayton came up with, you know, his views on how we should revisit investing in private securities. And again, I credit that to crypto 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

• 50:50Speaker 01

  things.

• 50:51Anthony Pompliano?

  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?

• 51:13Speaker 01

  Okay, so since you're probably one of the most well-known guys in crypto, 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 Palms for a view.

• 51:39Anthony Pompliano?

  Oh man, this is, this is a, this is a good question. All right, so three things I'm excited about next three to five years. Uh, one, right now, my partners and I are absolutely on a, you know, a war path to getting institutions off of zero. Right? So right now, a lot of these institutional investors, we're talking, uh, 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, um, 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 the kind of a one size fits all for every portfolio, but we know zero is not the right number, right?

• 52:21Anthony Pompliano?

  And so, you know, 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, um, 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 going to be a really important trend. Um, two is, uh, the accreditation laws. I mean, I, I just, it's the one thing that irks me to death is that, you know, in a country where, um, we are supposed to be kind of the, you know, the, the lighthouse of freedom and prosperity, et cetera.

• 52:56Anthony Pompliano?

  Our laws don't reflect that, right? And, 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, no, 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. Um, so, so I think as that changes, uh, if, you know, uh, 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, for Americans. Uh, so I think that's important. And then the third thing i- is, uh, is outside the US, right?

• 53:41Anthony Pompliano?

  So I think that, um, you know, people in the Western world get very kind of ancillary thinking and, and they think that, you know, 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 seeing, you know, just the, the amount of, of intellectual talent and energy and capital and stuff that's being put forward into this industry, I think is, um, 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 U.S., I would almost question,

• 54:23Anthony Pompliano?

  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? Uh, 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, um, I think is going to be something that's really important to watch. And at some point in the future, may actually be a, a, 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?

• 54:58Speaker 01

  That does, that's actually the three areas that I mean, I also focusing on, but probably you put it much better than I could. And a lot like sometimes the allocation, the two things is the allocation question, I know I'd love to discuss at some point in more detail. Vanek has Jan, who is much smarter than I am, uh, and I wrote a piece, uh, 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. Totally on the same page on, um, on the accreditation, accreditation standards and kind of working on it. The, the international kind of realm and arbitrage, regulatory and capital arbitrage.

• 55:42Speaker 01

  And, um, I'm so fascinated by Asia and how much one can learn. Spent a lot of time in Europe and, and, and the U.S. at various places, but Asia is sort of a frontier that we shouldn't 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.

• 56:09Anthony Pompliano?

  Absolutely. No, man. Listen, you guys are doing some amazing work. I really appreciate your time and I think, you know, all of us here are cheering for you guys to kind of break through on a couple of the applications in the public markets and stuff. So, so good luck and thanks so much for coming on.

• 56:24Speaker 01

  Thank you, Pop. It was a pleasure.

• 56:27Anthony Pompliano?

  Thanks again to our sponsor Block Estate. To check out their tokenized real estate fund, you can check out www.blogestate.com. Hey, everyone. Pop 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.