WEBVTT - Inside the Multi-Year Quest to Create a Bitcoin ETF 0:00:08.760 --> 0:00:12.440 Hello, and welcome to another edition of the Odd Lots Podcast. 0:00:12.520 --> 0:00:17.280 I'm Tracy Allaway and I'm Joe Wisenthal. So Joe. They 0:00:17.320 --> 0:00:20.560 say the best way to learn about something is to 0:00:20.760 --> 0:00:23.680 actually do it right, or the best way to understand 0:00:23.760 --> 0:00:26.239 something is to try to do it yourself. I have 0:00:26.320 --> 0:00:29.120 heard people say that, and I think that it's definitely true. 0:00:29.160 --> 0:00:32.640 In my experience. You only get so much from reading 0:00:32.640 --> 0:00:35.920 about something or talking about something, and then you try 0:00:35.960 --> 0:00:38.000 to do it and you learn a ton. Well why 0:00:38.120 --> 0:00:40.480 why do you bring this up? Well? Sometimes I think 0:00:40.560 --> 0:00:44.320 in finance and markets, we talk about complicated or sort 0:00:44.360 --> 0:00:47.360 of abstract topics and the best way for people to 0:00:47.440 --> 0:00:50.120 learn about them would be if we went out and 0:00:50.200 --> 0:00:53.440 tried our hands at them ourselves. But given its finance 0:00:53.440 --> 0:00:57.720 and markets, that's difficult and or in some cases illegal. 0:00:58.760 --> 0:01:01.320 So you're saying, we're not going to do an episode 0:01:01.320 --> 0:01:04.280 where we go out and launch a trading operation or 0:01:04.319 --> 0:01:06.560 anything like that. No, we're not. But we're gonna do 0:01:06.880 --> 0:01:08.880 the next best thing, which is we're going to have 0:01:09.000 --> 0:01:12.440 a guest come on and talk about his specific experience 0:01:12.880 --> 0:01:17.399 trying to set up a bitcoin exchange traded fund. I 0:01:17.400 --> 0:01:19.840 am very excited about this. Of course, this was a 0:01:19.920 --> 0:01:24.280 huge topic late last year, so many different companies rushing 0:01:24.840 --> 0:01:28.360 to try to be the first with a e t 0:01:28.520 --> 0:01:32.720 F that gave people direct exposure to bitcoin. It was 0:01:32.760 --> 0:01:35.640 fascinating to watch. It still hasn't happened yet, but that 0:01:35.760 --> 0:01:38.959 exact process, I agree. I think it is still shrouded 0:01:38.959 --> 0:01:41.600 in mystery for most people, how you go about it 0:01:41.880 --> 0:01:44.240 and what it actually takes to get there. So the 0:01:44.280 --> 0:01:46.680 great thing about this conversation, in my opinion, it's not 0:01:46.720 --> 0:01:50.800 necessarily the emphasis on bitcoin. It's the emphasis on the 0:01:50.840 --> 0:01:53.480 e t F structure and how you would apply that 0:01:53.560 --> 0:01:56.680 to a new type of asset. And I should also say, 0:01:56.800 --> 0:02:00.600 as a bonus, we have an extra guest on our 0:02:00.680 --> 0:02:04.440 thoughts today. That is Rachel Evans. She is our e 0:02:04.560 --> 0:02:07.800 t F guru for Bloomberg News. She covers all sorts 0:02:07.840 --> 0:02:09.480 of e t F. She's going to be in on 0:02:09.520 --> 0:02:12.440 the conversation and to begin with before we bring on 0:02:12.440 --> 0:02:15.320 our main guest, she's going to help us lay out 0:02:15.840 --> 0:02:17.839 well the lay of the land really when it comes 0:02:17.880 --> 0:02:26.320 to E t S. So Rachel, let's start with you. 0:02:26.440 --> 0:02:28.600 Thank you so much for coming on. Thank you guys 0:02:28.600 --> 0:02:31.480 for having me. So I guess the first question to 0:02:31.520 --> 0:02:35.200 you is we talk about building a Bitcoin e t F. 0:02:35.240 --> 0:02:38.799 It's been a multi year attempt. Why has it been 0:02:38.840 --> 0:02:41.120 so difficult? So with bitcoin e t F, I mean, 0:02:41.120 --> 0:02:43.720 it basically takes us back to what it takes to 0:02:43.800 --> 0:02:47.240 create a successful exchange trade of fund. First, of of course, 0:02:47.280 --> 0:02:49.800 you need to have a great idea. Now with Bitcoin, 0:02:49.919 --> 0:02:52.160 people feel like they have a great idea. But the 0:02:52.200 --> 0:02:54.600 next step in that process is trying to get approval 0:02:54.680 --> 0:02:57.400 from the Securities and Exchange Commission, the regulator for e 0:02:57.480 --> 0:02:59.720 t f s to actually be able to launch that. 0:03:00.000 --> 0:03:03.240 And now the sec has really been dragging its feet 0:03:03.240 --> 0:03:05.760 a list a bit on this for for market participants anyway, 0:03:05.919 --> 0:03:09.040 because they have some serious concerns about how Bitcoin would 0:03:09.040 --> 0:03:11.960 operate within an exchange trade of fund. Now what this 0:03:12.040 --> 0:03:14.360 kind of comes down to, it in essence, is really 0:03:14.440 --> 0:03:17.480 kind of the back office operations of an exchange trade 0:03:17.480 --> 0:03:20.280 of fund um. To make an e t F actually work, 0:03:20.440 --> 0:03:23.280 there are three key aspects that you need to have 0:03:23.360 --> 0:03:26.320 in place. The first is kind of the fairly sort 0:03:26.360 --> 0:03:29.760 of vanilla back office type arrangements. This is kind of 0:03:29.800 --> 0:03:33.280 the custodian the board that kind of monitors um. You 0:03:33.320 --> 0:03:35.680 know how the manager is actually doing and make sure 0:03:35.680 --> 0:03:37.880 that the e t F is on target. And that's 0:03:37.920 --> 0:03:40.520 something that I think on the custody side they've kind 0:03:40.520 --> 0:03:43.200 of had concerns about, but that the second and the 0:03:43.280 --> 0:03:45.760 third kind of pillars are really kind of where the 0:03:46.040 --> 0:03:49.640 sec has actually had issues. That's kind of on the 0:03:49.720 --> 0:03:53.680 authorized participant side of things, which sounds a lot like jargon, 0:03:53.840 --> 0:03:56.760 right and and it is, but basically, the authorized participant 0:03:56.880 --> 0:03:58.520 is the gatekeeper for e t F, so they are 0:03:58.560 --> 0:04:01.440 pretty much the most import autant person when it comes 0:04:01.600 --> 0:04:04.560 to making an exchange trade of fund work. What they 0:04:04.600 --> 0:04:06.520 do is that when you decide to buy an e 0:04:06.600 --> 0:04:09.120 t F, you give your cash to your broker via 0:04:09.520 --> 0:04:12.320 any of the many online platforms that you have. That 0:04:12.480 --> 0:04:14.840 cash then wends its way through to the hands of 0:04:14.840 --> 0:04:17.599 an authorized participant, who is the one that actually goes 0:04:17.640 --> 0:04:19.919 out and buys the stock or the bonds or the 0:04:19.960 --> 0:04:23.200 commodity that then gets put into the fund, and the 0:04:23.200 --> 0:04:26.120 fund manager will then manage the same process happens on 0:04:26.160 --> 0:04:28.200 the way out that the fund is going to give 0:04:28.200 --> 0:04:30.400 you your money back. The security is goes to the 0:04:30.560 --> 0:04:33.400 authorized participant, who then sells those securities in the market. 0:04:33.400 --> 0:04:35.800 And gives you your money back. So basically they are 0:04:35.880 --> 0:04:38.599 the middleman, and the SEC is a little bit concerned 0:04:38.600 --> 0:04:42.120 about how that might work with bitcoin. There's then of 0:04:42.200 --> 0:04:44.400 the third pillar, and this is really related to the 0:04:44.440 --> 0:04:46.200 fact that e t f s are something that you 0:04:46.240 --> 0:04:48.880 can invest in for the long term or you can trade. 0:04:49.200 --> 0:04:51.680 So the third pillar for for ecfs is the market 0:04:51.720 --> 0:04:54.040 makers who are really dealing with e t f s 0:04:54.200 --> 0:04:57.320 on the secondary market. So the thing that's really important 0:04:57.360 --> 0:05:00.360 for these guys is that they do something called arbit Now. 0:05:00.440 --> 0:05:03.040 Arbitrage is very important to to e t f s 0:05:03.200 --> 0:05:05.120 because it makes sure that the price of the e 0:05:05.240 --> 0:05:09.239 t F doesn't diverge too significantly from the actual value 0:05:09.240 --> 0:05:11.320 of the e t F. Now, the way that the 0:05:11.360 --> 0:05:14.040 market makers go about doing this is that if they 0:05:14.080 --> 0:05:15.960 see that the shares of the e t F A 0:05:16.040 --> 0:05:20.480 are trading more than the underlying securities, and what they 0:05:20.560 --> 0:05:22.839 might do is they will go into the market, buy 0:05:22.960 --> 0:05:25.080 up for all the underlying securities, take them to that 0:05:25.120 --> 0:05:27.760 authorized participant, get some shares for the e t F 0:05:27.800 --> 0:05:30.360 and then sell them at that higher price. They've basically 0:05:30.360 --> 0:05:32.560 been able to buy something cheap and sell it high 0:05:32.560 --> 0:05:34.839 and lock in that profit. Now that is not only 0:05:34.880 --> 0:05:37.480 great for them because they take that margin, it's also 0:05:37.560 --> 0:05:39.719 really good for investors because it makes sure that the 0:05:39.760 --> 0:05:41.960 price of the e t F doesn't diverge too far 0:05:42.080 --> 0:05:45.080 from the actual value of the securities. Tracy, I just 0:05:45.200 --> 0:05:48.600 learned a lot from that answer about e t f s, 0:05:49.960 --> 0:05:52.160 all kinds of stuff I didn't already know about how 0:05:52.200 --> 0:05:55.080 they work. Well, I mean, I think we have the 0:05:55.200 --> 0:05:58.360 essential building blox for the next leg of our conversation, 0:05:58.560 --> 0:06:02.920 which is our main beust. Greg King, the CEO of 0:06:03.120 --> 0:06:07.800 rex Shares and someone who has actually attempted to begin 0:06:08.440 --> 0:06:11.599 a bitcoin based e t F. So Greg, thank you 0:06:11.680 --> 0:06:15.440 for coming on all thoughts, Hey, Tracy, Joe, Rachel, good 0:06:15.440 --> 0:06:19.120 to be here. So Greg, Before we get into the 0:06:19.400 --> 0:06:23.679 specifics of the bitcoin et F endeavor and your journey 0:06:23.680 --> 0:06:25.480 to get there, why don't you tell us a little 0:06:25.480 --> 0:06:28.839 bit who you are? What's your background? What is rex Shares? 0:06:28.880 --> 0:06:30.760 I mean, I think, uh, there are a lot of 0:06:30.880 --> 0:06:33.320 some well known brands in the e t F space, 0:06:33.920 --> 0:06:35.760 But what is your firm and how did you get there? 0:06:36.720 --> 0:06:39.599 There are there are so many new entrants in the space, 0:06:39.760 --> 0:06:42.640 right I I started back when there were I don't know, 0:06:42.720 --> 0:06:46.040 just a handful of et F companies. But my journey 0:06:46.040 --> 0:06:48.840 into e F started when I was at Barkley's so 0:06:48.920 --> 0:06:52.520 early two thousand's, and Barkley's was already with with I Shares, 0:06:53.000 --> 0:06:56.279 the sort of eight pound gorilla in the space, and 0:06:57.040 --> 0:07:02.320 was developing all kinds of new asset classes, mainly commodities, 0:07:02.360 --> 0:07:04.440 and so I was on a project with them to 0:07:04.520 --> 0:07:07.240 develop some of the first commodity exchange traded products. That's 0:07:07.240 --> 0:07:09.760 how I got in, and like a lot of things 0:07:09.760 --> 0:07:13.360 in life, is sort of just happened unintentional. And then 0:07:13.440 --> 0:07:15.000 I got to know a little bit about the et 0:07:15.080 --> 0:07:17.680 F space and was fascinated and start to dig and 0:07:17.720 --> 0:07:19.560 do a little more and work on more projects with 0:07:19.600 --> 0:07:22.480 Barclay's and kind of one thing led to another. It's 0:07:22.480 --> 0:07:25.560 been fourteen years or so, and during that time I 0:07:25.560 --> 0:07:29.160 worked for a bank, Swiss Bank Credit Space, developing some products. 0:07:29.480 --> 0:07:32.480 Previously founded and sold a company called Velocity Shares, which 0:07:32.480 --> 0:07:35.520 we sold to Janice Capital, and so rex Shares is 0:07:35.560 --> 0:07:40.400 my next company. We wanted to focus on democratizing access, 0:07:40.960 --> 0:07:44.960 right I. I sort of believe that investors um the 0:07:45.000 --> 0:07:47.920 e t F is a great tool for democratizing access 0:07:47.960 --> 0:07:51.440 to new asset classes or new investment strategies. You know, 0:07:51.440 --> 0:07:53.520 as we're going to talk about there's there's lumps along 0:07:53.560 --> 0:07:56.560 the way, but that's what REX is all about. You 0:07:56.600 --> 0:08:01.520 mentioned democratizing access to assets. I wonder how that applies 0:08:01.560 --> 0:08:04.640 to bitcoin specifically, because of course, one of the selling 0:08:04.680 --> 0:08:07.880 points of bitcoin is, you know, it's this decentralized currency 0:08:07.880 --> 0:08:11.000 and anyone can buy it. So walk us through how 0:08:11.040 --> 0:08:13.560 exactly you came up with the idea to apply the 0:08:13.600 --> 0:08:16.920 E t F structure to bitcoin. So I remember I 0:08:16.960 --> 0:08:20.760 was on a business trip in Washington, d C. Actually, 0:08:21.240 --> 0:08:23.760 and I came across I don't know if the I 0:08:23.800 --> 0:08:26.000 was at a conference and the session was that very 0:08:26.080 --> 0:08:28.000 entertaining or something, and I was flipping through the news 0:08:28.080 --> 0:08:30.360 and I read an article on bitcoin. It was sort 0:08:30.360 --> 0:08:33.120 of late two thousand thirteen. Bitcoin was having a big 0:08:33.160 --> 0:08:36.199 run up, and I remember I think I had heard 0:08:36.200 --> 0:08:38.120 of it before, but hadn't really paid that much attention. 0:08:38.360 --> 0:08:41.320 You know, price action tends to tend to focus the mind. 0:08:41.480 --> 0:08:44.320 We saw last year as we saw last year in spades. 0:08:45.160 --> 0:08:48.480 So within the span of of a couple hours, I 0:08:48.520 --> 0:08:52.520 decided to open an account with coin base and buy 0:08:52.520 --> 0:08:55.719 some bitcoin, and so I personally got involved in bitcoin then, 0:08:56.120 --> 0:08:59.120 and it wasn't on my radar for purposes of product development. 0:08:59.120 --> 0:09:01.240 It just was it just seemed like, you know, those 0:09:01.240 --> 0:09:04.200 worlds were too far apart. But shortly thereafter, or some 0:09:04.280 --> 0:09:07.559 time around then, of course, the Winklevoss filed for an 0:09:07.559 --> 0:09:10.280 e t F and uh, you know, if you were 0:09:10.280 --> 0:09:11.880 in the E t F world, you saw that and 0:09:11.920 --> 0:09:15.559 it was like, wow, okay, here we go. But knowing 0:09:15.600 --> 0:09:18.360 something about how these things get done, I thought, well, 0:09:18.400 --> 0:09:20.640 that's you know, that's gonna have a lot of hurdles 0:09:20.640 --> 0:09:23.720 to overcome, and you know, just watched from a distance. 0:09:23.880 --> 0:09:26.640 But for me, that the turning point was in two 0:09:26.679 --> 0:09:30.280 thousand fifteen when the CFTC you know ruling. I think 0:09:30.320 --> 0:09:32.840 that it was a it was some sort of enforcement 0:09:32.880 --> 0:09:36.720 action against one of the early exchanges that in the 0:09:36.720 --> 0:09:40.240 course of making that ruling, the CFTC basically said, hey, 0:09:40.280 --> 0:09:44.079 bitcoin is a commodity and therefore, you know, we're its regulator. 0:09:44.320 --> 0:09:46.840 And that's when the light bulb went off for me 0:09:47.360 --> 0:09:49.880 that I saw a route to an e t F 0:09:50.040 --> 0:09:55.560 that perhaps didn't necessarily involve bitcoin itself, but futures contracts, 0:09:55.559 --> 0:09:58.360 something that was regulated by the CFTC, and of course 0:10:00.000 --> 0:10:02.760 there were no bitcoin futures, but now we actually have them, 0:10:02.760 --> 0:10:06.320 and last year we did see the launch of two 0:10:06.360 --> 0:10:09.160 bitcoin futures that are currently trading. Yeah. Yeah, it took 0:10:09.200 --> 0:10:12.520 a while for that to develop, but for for us, 0:10:12.559 --> 0:10:14.880 that was the kind of the first glimmer of Okay, 0:10:14.920 --> 0:10:17.760 I see, I see a path here. Because physical bitcoins 0:10:17.760 --> 0:10:20.440 are just so intangible, it seemed like it would take 0:10:20.480 --> 0:10:22.920 a while for everyone to get comfortable. I want to 0:10:22.960 --> 0:10:26.320 ask before we talk too much about the specific process 0:10:26.400 --> 0:10:29.000 of getting the bitcoin e t F off the ground, 0:10:29.240 --> 0:10:31.880 I want to ask about the business of running a 0:10:32.080 --> 0:10:35.360 niche e t F company in this world where we 0:10:35.400 --> 0:10:38.960 have these huge eight pound gorillas like I shares and 0:10:39.000 --> 0:10:43.319 so there are obviously some strategies that are well known 0:10:43.440 --> 0:10:46.800 and well trodden, whether it's just sort of indexing strategies 0:10:46.840 --> 0:10:50.959 against the SMP five hundred, or emerging market strategies or 0:10:51.040 --> 0:10:56.880 country specific strategies or factor strategies buying low volatility stocks 0:10:57.480 --> 0:11:01.280 in a basket. In the world of sort of very small, 0:11:01.400 --> 0:11:05.000 sort of startup E t F companies, what is the 0:11:05.040 --> 0:11:08.520 goal is it to find something that becomes the next 0:11:08.960 --> 0:11:11.160 mega E t F? Like, how do you think about 0:11:11.200 --> 0:11:13.480 these sort of upsides and downsides of the business and 0:11:13.520 --> 0:11:17.280 the general opportunities. I could answer that question for a while, 0:11:17.440 --> 0:11:20.240 but you know, I think actually the bigger companies are 0:11:20.280 --> 0:11:22.200 the ones these days that really need to look for 0:11:22.200 --> 0:11:25.000 the mega hits to move the needle. Uh. The smaller 0:11:25.000 --> 0:11:29.240 companies can actually survive with with much smaller niche products 0:11:29.280 --> 0:11:31.559 and so um. But it is it is more difficult 0:11:31.559 --> 0:11:34.280 there are so many players out there. UM. The way 0:11:34.400 --> 0:11:36.920 we look at it is we have to believe in 0:11:37.000 --> 0:11:40.080 something and and believe that it's going to add value 0:11:40.280 --> 0:11:43.800 to the market. Just generally, that's something that investors want, 0:11:44.240 --> 0:11:46.960 something that hasn't been done before, hasn't been done in 0:11:47.000 --> 0:11:49.080 a way that we think we can do it, and 0:11:49.480 --> 0:11:52.360 uh and and where there's a demand. Right. So, but 0:11:52.600 --> 0:11:55.280 if you don't, if you don't have that drive to 0:11:55.280 --> 0:11:59.439 to kind of discover these opportunities and really work towards them, 0:11:59.480 --> 0:12:03.000 then it's a difficult place. So when did you decide 0:12:03.080 --> 0:12:06.239 that that your idea for investing in bitcoin um individually 0:12:06.240 --> 0:12:09.080 could actually be transferred into something that would work as 0:12:09.080 --> 0:12:11.720 an exchange trade of funds for a variety of investors. 0:12:12.520 --> 0:12:16.120 So in two thousand and fifteen, when the CFTC came 0:12:16.120 --> 0:12:18.880 on the scene. We started to say, all right, well, 0:12:18.920 --> 0:12:21.480 you know, how far are we away from a futures contract. 0:12:21.600 --> 0:12:24.680 We visited a number of the futures exchanges and and 0:12:24.720 --> 0:12:27.520 really started to understand you know, who's out there, who's 0:12:27.520 --> 0:12:31.400 working on this. Uh. Index providers are also important, um. 0:12:31.520 --> 0:12:34.880 The exchanges in for example, the CME was developing an 0:12:34.880 --> 0:12:39.520 index which at the time you know, was not publicly announced. UM. 0:12:39.559 --> 0:12:42.199 So we just tried to learn the ecosystem. We also 0:12:42.280 --> 0:12:45.600 decided to approach the SEC and speak to them about 0:12:45.679 --> 0:12:49.240 this off the record, and even though futures didn't exist, 0:12:50.080 --> 0:12:53.800 we generally got favorable kind of remarks from them. They 0:12:53.840 --> 0:12:56.880 they thought, okay, well this would sort of help address 0:12:56.920 --> 0:12:59.920 some of the concerns that we have regarding physical bitcoin. 0:13:01.080 --> 0:13:04.240 So when you embarked on that process, you know Rachel 0:13:04.280 --> 0:13:09.040 mentioned earlier these three necessary ingredients for the et F structure, 0:13:09.360 --> 0:13:13.640 the custodian, the authorized participants, and the market makers. When 0:13:13.720 --> 0:13:16.200 you were in the early stages of your idea, did 0:13:16.240 --> 0:13:19.960 you go out and talk to potential custodians or aps 0:13:20.040 --> 0:13:23.439 or market makers. We did. We talked to a few 0:13:23.440 --> 0:13:27.400 of the market makers and they were active in in 0:13:27.520 --> 0:13:30.600 physical trading of bitcoin already. So there's a few firms 0:13:30.640 --> 0:13:32.599 that have been that that sort of do E t 0:13:32.720 --> 0:13:36.600 F market making that were early in cryptocurrency trading. Um, 0:13:36.640 --> 0:13:38.320 so we knew that there would be support from at 0:13:38.400 --> 0:13:40.480 least a few market makers, which is which is critical. 0:13:40.559 --> 0:13:43.600 As Rachel pointed out, without that, you know, you don't 0:13:43.600 --> 0:13:47.720 really get too far. The custody piece though, skipping back 0:13:47.800 --> 0:13:52.280 up to her first sort of back office category, um, 0:13:52.360 --> 0:13:54.720 that is the part that that kind of really gets 0:13:54.720 --> 0:13:58.640 cleaned up with the futures contract. Right, everyone can custody, uh, 0:13:58.679 --> 0:14:01.560 you know, a CRME or c a listed future, but 0:14:02.200 --> 0:14:06.880 customing these you know ones and zeros, you know, a 0:14:06.920 --> 0:14:10.319 little bit trickier. Yeah, it was just gonna ask exactly that, 0:14:10.440 --> 0:14:15.079 because without the futures you could theoretically have an E 0:14:15.200 --> 0:14:19.360 t F that held the private keys of bitcoins. Right, 0:14:19.360 --> 0:14:22.000 but this just sort of makes it much easier, so 0:14:22.000 --> 0:14:24.440 you don't have to worry about getting hacked or all 0:14:24.440 --> 0:14:27.480 those other things. Yeah, yeah, that's right, and this is 0:14:27.560 --> 0:14:30.040 you know a couple of years ago. So really I 0:14:30.040 --> 0:14:33.600 think even the custody of the physical bitcoin, and when 0:14:33.600 --> 0:14:36.720 I say physical bitcoin, I you know, it's how physical 0:14:36.840 --> 0:14:40.080 is it really? But the private keys, even the technology 0:14:40.120 --> 0:14:42.040 there was not where it is today. I think that's 0:14:42.040 --> 0:14:45.520 come a long ways as well. But thinking through the 0:14:45.560 --> 0:14:49.680 ecosystem that Rachel explained, we just thought that a derivatives 0:14:49.680 --> 0:14:52.360 contract would be would be the way to do this. 0:14:52.440 --> 0:14:54.520 If you look at other e t F s right say, 0:14:54.560 --> 0:14:57.840 for example, we we already had bitcoins of commodity, and 0:14:57.920 --> 0:14:59.880 if you look at gold, the way that the et 0:15:00.040 --> 0:15:01.880 ups have been done is to hold the physical gold. 0:15:02.120 --> 0:15:04.800 That's great, and everybody's comfortable with that process. That works well. 0:15:04.880 --> 0:15:07.360 If you look at oil, however, the e t F 0:15:07.800 --> 0:15:10.840 don't hold physical oil. They just roll oil futures contracts. 0:15:10.840 --> 0:15:14.040 Same for natural gas, etcetera. So with commodities you really 0:15:14.040 --> 0:15:16.040 have to look at the characteristics of the underlying and 0:15:16.040 --> 0:15:18.720 in some cases it's just more pragmatic to hold the 0:15:18.760 --> 0:15:21.560 futures contract as a proxy for the underlying. So we 0:15:21.640 --> 0:15:24.760 thought that this cleaned up several of those issues really 0:15:25.000 --> 0:15:30.000 pretty nicely. So Greg, I gotta ask you said, you 0:15:30.000 --> 0:15:33.240 went to the sec uh, you got an initially what 0:15:33.360 --> 0:15:37.560 seemed to be a favorable response. Um, what happened after that? 0:15:38.040 --> 0:15:39.720 After that we sort of had to hurry up and 0:15:39.720 --> 0:15:44.560 wait because the futures didn't exist, So we uh focused 0:15:44.600 --> 0:15:47.560 on a few other things and and kept trying to 0:15:47.720 --> 0:15:50.960 encourage the futures ecosystem, for lack of a better term, 0:15:51.040 --> 0:15:55.240 to populate with contracts. So being helpful, we did speak 0:15:55.280 --> 0:15:58.400 to a number of exchanges and helped however we could, 0:15:58.680 --> 0:16:00.480 but it took a while, you know, they was the 0:16:00.520 --> 0:16:03.800 bulk of last year, and then as we know, in 0:16:03.800 --> 0:16:07.800 in December we had a couple of contracts that finally launched. 0:16:07.960 --> 0:16:09.800 Of course, by that time there were a lot of 0:16:09.800 --> 0:16:13.240 people interested because I think the buzz preceded the you know, 0:16:13.280 --> 0:16:16.080 the actual launch. Yeah, tell us a little bit about 0:16:16.200 --> 0:16:19.120 last year, because obviously the second half, or really the 0:16:19.160 --> 0:16:22.520 fourth quarter of seventeen, it was just an absolute frenzy 0:16:22.600 --> 0:16:27.960 for bitcoin and other cryptocurrencies, and there were numerous applications 0:16:28.120 --> 0:16:32.520 for bitcoin e t f s. Everybody wants one. I 0:16:32.560 --> 0:16:35.920 think everybody knows how big the SPDR Gold Fund is 0:16:36.000 --> 0:16:39.360 become truly democratized the way people could invest in gold. 0:16:39.400 --> 0:16:41.200 Now it's one of the biggest e t f s 0:16:41.280 --> 0:16:44.280 in the world. Talk us to us about that sort 0:16:44.320 --> 0:16:46.680 of frenzy and competition and what really happened over the 0:16:46.760 --> 0:16:50.120 last few months. Yeah, it was. It was a really 0:16:50.160 --> 0:16:54.840 interesting time and and obviously speaking from a product development perspective, 0:16:54.840 --> 0:16:57.400 it was interesting and but also at the same time, 0:16:57.440 --> 0:16:59.640 the price was just really cranking and it was on 0:16:59.680 --> 0:17:02.240 TV all day. You know, we just it was. It 0:17:02.320 --> 0:17:05.360 was surreal in the sense that you know, in learning more, 0:17:05.359 --> 0:17:07.159 if you if you go back a year trying to 0:17:07.160 --> 0:17:09.919 find articles or trying to find clips or or different 0:17:09.960 --> 0:17:13.439 research on bitcoin, it was sparse, and then by the 0:17:13.560 --> 0:17:16.200 end of the year it was just everywhere and every 0:17:16.240 --> 0:17:19.159 everybody had an opinion on it. But I think what 0:17:19.240 --> 0:17:24.199 happened is there was a press release, I think that 0:17:24.240 --> 0:17:27.720 one of the exchanges was going to launch, and you know, 0:17:27.800 --> 0:17:31.439 we had not filed anything publicly because, as I mentioned there, 0:17:31.560 --> 0:17:33.320 there's sort of no point to do that quite yet 0:17:33.320 --> 0:17:37.239 if the futures don't exist. Um, and so we we 0:17:37.240 --> 0:17:39.840 had just sort of been waiting. We'd had our discussions 0:17:39.840 --> 0:17:43.119 of the SEC but people started to file, so you know, 0:17:43.200 --> 0:17:47.520 we thought, well, we the environment might be changing quickly, 0:17:47.640 --> 0:17:50.040 so let's go ahead and file as well. Um. And 0:17:50.280 --> 0:17:51.919 you know, we weren't. We weren't the first and we 0:17:51.920 --> 0:17:54.080 weren't the last. And there were a lot of filings 0:17:54.080 --> 0:17:58.480 that came through, but ultimately the sec UH decided on 0:17:58.520 --> 0:18:01.200 a couple of different occasions to really asked people to 0:18:01.240 --> 0:18:04.240 take a step back, and I think they, you know, 0:18:04.280 --> 0:18:07.199 they were clearly getting bombarded and just wanted to to 0:18:07.280 --> 0:18:10.239 basically slow things down. I think to put that all 0:18:10.320 --> 0:18:13.399 in context, when we actually had the most kind of 0:18:13.680 --> 0:18:16.040 e t F filings out there, it was more than 0:18:16.080 --> 0:18:17.920 I think it was seventeen or even more than that. 0:18:18.119 --> 0:18:21.080 So the SEC was really kind of being bombarded by 0:18:21.080 --> 0:18:24.280 all these filings that all wanted a bitcoin ETFC the 0:18:24.320 --> 0:18:27.680 physical as physical as you can get. All the futures. 0:18:28.800 --> 0:18:34.480 Is the expectation that in worthy SEC to give a 0:18:34.520 --> 0:18:37.040 green light at some point that all of them would 0:18:37.080 --> 0:18:39.600 get approved, or that some of them would be approved, 0:18:39.800 --> 0:18:42.159 or do people think maybe one or two would be 0:18:42.200 --> 0:18:44.960 approved and those would be the big winners? Like how 0:18:45.000 --> 0:18:48.000 do how does the SEC think about these situations where 0:18:48.040 --> 0:18:51.320 lots of entities are competing for the exact same roughly 0:18:51.359 --> 0:18:54.399 the same thing. Yeah, that's a great question. So and 0:18:54.400 --> 0:18:57.480 there's a lot of nuance here because there are different 0:18:57.520 --> 0:19:01.879 divisions of the sec um. There is the CFTC, which 0:19:02.320 --> 0:19:07.959 is totally separate regulator um, and there's some I guess 0:19:08.280 --> 0:19:11.080 diversion of opinion in terms of where those boundaries end. 0:19:11.520 --> 0:19:15.560 But specifically with respect to ETFs, you basically have two kinds. Right. 0:19:15.840 --> 0:19:18.080 Your typical ETF is is what we call a forty 0:19:18.119 --> 0:19:20.840 Act fund. Right, it's an investment company. It's basically a 0:19:20.920 --> 0:19:25.120 mutual fund that has applied for certain exemptions that allow 0:19:25.200 --> 0:19:27.720 it to trade like a stock. That's essentially how we 0:19:27.840 --> 0:19:31.280 t fs really started. But then you have and and 0:19:31.400 --> 0:19:35.920 keeping in mind that bitcoins a commodity, you have a 0:19:36.040 --> 0:19:38.200 lot of e t f s. They're they're actually not 0:19:38.280 --> 0:19:41.160 forty Act funds at all. They're filed under the thirty 0:19:41.240 --> 0:19:44.720 three Act, and they don't have an investment manager. So 0:19:45.000 --> 0:19:49.200 what happens is that and strictly speaking, there's probably four 0:19:49.320 --> 0:19:52.840 or five permutations of this. So if you're filing a product, 0:19:53.680 --> 0:19:56.440 it's going to go to the regulator that governs that 0:19:56.800 --> 0:20:00.359 particular type of product, and in all cases it might 0:20:00.480 --> 0:20:03.600 lead to a different department. And that sounds a little 0:20:04.359 --> 0:20:09.480 I guess, um, you know, silly, but the reality is 0:20:09.640 --> 0:20:12.600 that there are bodies of law that govern different types 0:20:12.640 --> 0:20:15.920 of investments differently, and that's just kind of the way 0:20:16.000 --> 0:20:20.600 the the ecosystem has evolved here since, you know, since nineties, 0:20:20.640 --> 0:20:23.280 and it hasn't changed a whole lot. So the letter 0:20:23.359 --> 0:20:26.320 that got sent out was sent by the Division of 0:20:26.400 --> 0:20:30.720 Investment Management at the SEC, and that division is specifically 0:20:30.840 --> 0:20:34.200 concerned with forty Act funds. There are a number of 0:20:34.240 --> 0:20:40.480 filings that are still in and they basically don't have 0:20:40.600 --> 0:20:44.040 an access to the Division of Investment Management. UM. So, 0:20:44.240 --> 0:20:46.679 so a letter was sent back in January by Dahlia 0:20:46.720 --> 0:20:49.520 blast Um and the Investment Management division of the SEC 0:20:50.119 --> 0:20:55.159 regarding the bitcoin funds that had come to them seeking approval. UM, 0:20:55.280 --> 0:20:56.720 Can you tell us a little bit about what that 0:20:56.960 --> 0:21:01.119 letter said regarding their concerns? Sure. Yeah, that was a 0:21:01.760 --> 0:21:03.960 sort of an industry wide letter that came out and 0:21:04.480 --> 0:21:07.720 they articulated I think it was like thirty eight different 0:21:07.800 --> 0:21:10.480 questions in that letter. UM. Really as a as a 0:21:10.640 --> 0:21:14.280 letter to the I c I and really all mutual 0:21:14.320 --> 0:21:18.920 fund or forty Act fund providers that ask them questions 0:21:19.040 --> 0:21:24.720 regarding valuation policies around bitcoin, uh, custody issues around bitcoin 0:21:25.400 --> 0:21:30.080 arbitrage mechanics with the market making community. Essentially, I thought 0:21:30.080 --> 0:21:33.280 it was helpful to understand where they're coming from. So 0:21:33.400 --> 0:21:35.440 it's a little bit of an extraordinary move. You don't 0:21:35.480 --> 0:21:39.199