James Seyffart on Why 150 Digital Asset ETFs Are Coming

Transcript

Guys, we've got James from Bloomberg coming in. First time meeting James in the flesh. I've actually met James before, but it's been quite a while. James, good to see you. Thanks for having me back. It's fun to do this in It's fun to do this in person. Yes, indeed. Yes, sir. I'm loving the I'm loving the fit here. It's quite the suit. TradFi, you know. I'm not wearing a tie, though. >> [laughter] >> Yeah, I got this suit last week. So, we got to fit the part. You got the suit for this event? Uh it was an event last week, actually. Double-sided. Nice. Very nice. Uh so, James, how's your portfolio doing?

>> [laughter] >> Uh things are fine, you know. It's not too bad. I mean, yeah, I mean, if you if you hold too much crypto, this has been a really bad, I don't know, what, 6 months at this point. So, um fortunately or unfortunately, Bloomberg doesn't allow me to hold too much crypto. There's a lot of restrictions on what I can and cannot hold. So, uh I'm not personally being impacted by too much what's happening here. Good, man. >> Well, you've been at this convergence between like TradFi and DeFi for quite a while. Um It's like this is your year, man. This is Yes. It's wild. Yeah, this is uh I've been like when I would come to these crypto conferences, I'm like, "I'm interested in the intersection of TradFi and DeFi." And I talked to crypto people and they'd be like, "I don't care." Like it's like, "Okay,

that's somewhat interesting. Are the institutions coming?" And then that was it. Yeah, exactly. >> Yeah, yeah. Yeah, so this year and kind of like the end of last has been this massive massive adoption phase, right? I mean, today Securitize partnered with the NYSE. Invesco is taking over Superstate's $900 million on-chain fund. These are just two announcements that seemingly normal. Like we've gotten kind of used to these types of announces now, which are just bonkers. But price isn't isn't catching up. Adoption's speeding up. How do you kind of describe the dynamic of this institutional bull market that's ongoing? Meanwhile, a lot of cryptos almost like trying to find itself in its usefulness in the world.

Yeah, I mean, there has never been a larger divergence between like what's happening in crypto and the way that people are viewing the crypto markets versus like what I'm seeing with the people that were telling me crypto was a joke and not real a few years ago. And now all of a sudden they're like, "We're thinking about tokenizing our fund. We're thinking about doing X, Y, and Z. We're going to the DTCC." All these different things and they're like taking it more seriously now. A lot of it is kind of like the uh you know, go back to 2017, it was like blockchain, not crypto. That that and that's finally kind of happening now. But yeah, it's weird because price is down, but as you said, all these announcements are massive. I was actually just talking with a couple of Securitize people right before I came on

here and they're talking about like there's a lot of things they couldn't tell me, obviously, but they're like talking to a lot of these TradFi people to do more and more and more of this stuff. And yeah, the price just doesn't care. Like if this was announced in 2020, it would have been out of God with Bitcoin. [laughter] But like the other part of it is on the wealth management side, the advisors, the people that are buying these crypto ETFs, like if you talk to any of these ETF issuers that are issuing crypto specific ETFs, they're like, "This has never been a better time for like advisors asking us questions, advisors actually putting money into these things." Like this is as good as it's ever been, and it doesn't matter Bitcoin is still down Well, not 50, 40%, whatever it is right now. I'm I'm

curious with with on your take about BlackRock's obviously, you know, putting tokenization first and foremost from Larry Fink. We had Matt from Bitwise on the show, and he was, you know, really deep in the ETF space early on. Now you're the ETF guy, but, you know, he he was talking about how BlackRock They're I think it was their CFO is Martin from BlackRock that said they're going to token Yeah, from they're going to tokenize every ETF in the next 3 to 12 months. What does that look like on chain once BlackRock tokenizes all those ETFs?

>> So, one, I don't actually know what this is going to look like. There's varying ways that this is going to how it's going to be played out. Like if you're using A lot of people are like you're doing um you're whitelisting certain people to hold these things. Cuz there are still securities laws. Like it's not like you can take this ETF, you're subject to all these securities laws, and just throw it on chain and like let it trade on Solana or Ethereum or whatever digital ledgers you want to talk about. There's rules that you still have to follow. So, depends who you partner with, and there's plenty of people out there, Securitize, Ondo. Uh I don't want to leave anyone out, but other people that are like playing in the space of the TradFi DeFi overlap. Um you It's funny, I was also talking to

people from Bitwise, and I was mentioning the stuff I was just talking about. They they they've had like serious like record success in the first quarter of this year, and it doesn't matter because price is still down. Yeah. But 3 to 12 months seems really ambitious to me. I mean, I can see them like tokenizing a couple ETFs in that time frame, but maybe. Uh honestly, I hope I'm wrong. Um the one thing I would like to figure out is like where does the value accrue? Like who actually benefits from these things going on chain and tokenizing? It's BlackRock is getting a new distribution channel, theoretically. But like is the chain going to benefit from potential new demand? Is the people that are actually facilitating the tokenization going to get most of the, you know, economics that from doing that? I don't know. That'll be

interesting to figure out. Um I won't pretend to be an expert of exactly how it's going to work, but um it's something I'm paying attention to. >> Yeah. You You've been posting a lot about um these new leveraged ETFs consistently being filed. Um I think we I think we talked about this last time being kind of a very frothy uh environment. Has this accelerated or decelerated over the last 6-ish months? Honestly, neither. Like it's it's it's the same It's still like a ferocious pace. Part of it is people were This is going to go a little off the reservation for crypto-related stuff, but people were filing for 3x and 5x leveraged ETFs, which were never going to happen in our view. We never People are still trying. I I don't understand like

there's They shouldn't be allowed. The SEC has basically called these issuers up. There were some articles that reporters dug on that like the SEC was like, "Stop filing these. You're not going to launch them." And people are still trying to launch, and some of those were 3x Ethereum, 5x Bitcoin. Oh my gosh. >> So, like I don't think those are going to happen. But there's tons of other crypto ETFs. Like there we I'm tracking about last I checked like just under 150 filings. We have already 100 ETFs here in the US alone. There's a lot internationally. So, there's 150 filings that are coming trying to come to market. And some of those are like new tokens that don't have an ETF yet. Some of them are like Bitcoin with a covered call, so you're going to get yield. Some of them are like buffered products, defined outcome

products, where you can do things where like you're capping your upside and buffering your downside. So, like there's all these things that have been filed, and then leveraged versions of every product you can imagine. My view, I think I said this last time I was on, like we're going to see a ton of launch. We're already seeing Issuers are not slowing down. The market is down. Issuers might not be launching as quickly, but they're still launching the products. There's going to be a lot of liquidations 12 to 18 months from now. Just because does number 25 on the market cap list of the largest tokens does that need 40 ETFs? Probably not.

Does it need a 2x inverse and long and a buffer? Like there's just so many people trying different things that I think they're going to liquidate. There's a lot of One thing I'm am bullish on is index products or actively managed products that are going to go across like different different assets to invest in. Um but yeah, we're we're going to see a lot of come to market, and we're going to see a bunch of it probably liquidate. How has the market been reacting to the new Ethereum or staked Ethereum ETF from BlackRock? Is that been in in interest from the institutional investors? Like how do they think about actually wanting yield on Ethereum? Is it Is something like kind of changes their decision-making process or is it kind of like a cherry on top?

>> Um so, it's interesting. BlackRock is the only one that they're keeping their ETH A product, which is not staked. They launched ETH B, which is a staking product. Um and people are like, "Oh, it didn't do well." But like it's in the top like 1%, maybe point something percent of ETF launches as far as success goes out the gate with volumes and launches. Just like people go back to like the Bitcoin ETF launch and the first Ethereum ETF launches, and they're not there. But they're taking in money. There's probably going to be a bunch of money that leaves ETH A or their non-staked product into their staking product. But part of the reason there hasn't been a huge massive splash is we already have staking ETFs for Ethereum.

Grayscale has two. One holds onto the assets, one distributes. Bitwise has it. A whole bunch of other issuers already have staking ETFs available. So, like yes, it's a big deal. BlackRock is the largest ETF issuer. They're one of the largest asset managers in the world. It's just that it's not like groundbreaking in the sense of like this is the first of its kind. I'm I'm curious what you're most excited about in this space cuz we're just seeing It feels like we're just seeing a lot more of the same. Like what what captures your attention here? Um going back I mean, I'm The number one thing I'm paying attention to is tokenization. Yeah, okay. Um but that's kind of a little bit out of my wheelhouse. That's like I can talk about if they're going to tokenize funds and ETFs, like that's my area of expertise.

But also, I'm trying to understand exactly what's going on. So, I'm paying attention to that, which again goes back to the whole like blockchain, not Bitcoin thing. It's like finally becoming a little bit of reality. Um Uh so, that's good. And then I I mentioned this already as well. One thing I'm am very bullish on and paying attention to is index-based or actively managed multi-token products. Right now, you have a lot of SMAs and hedge funds that are trading around in the crypto space. Not all these assets are approved into an ETF wrapper yet. They will be. They're They meet the requirements. They're going to get launched. The SEC is going through them. We see new assets going into the ETF wrapper every once in a while.

Um so, like I'm bullish to see like active managers come to the space and launch a product where they're trying to outperform an underlying benchmark index and things like that. So, we have T. Rowe Price, a legacy asset manager, who I've seen people from T. Rowe at these conferences going back to like 2018, 2019. When I tell people T. Rowe's interested in the space, they're like, "No way. That They don't They are so old school TradFi, it's not even funny." And here they are. They filed. They're going to launch an actively managed uh crypto asset or Yeah, and Bitwise has their index product as well. I feel like this is a really nice entry point for people who are like, "Look, I want to get exposure to crypto. I don't just want to buy Bitcoin. Here's what I want to buy."

Yeah, that's exactly what I mean. If you're an advisor, right? Most advisors are not putting 20, 30, 80% of their assets net worth into crypto assets or Bitcoin. Unlike Bitcoin maxis, unlike probably a lot of people at this conference where they're over levered, they're looking at like 1%, maybe 5%. An extreme is like a 10% allocation. And like if you're an advisor and it's such a small portion of your client portfolio and you're like, "I just want to get exposure to this new up-and-coming thing. Maybe you have Bitcoin and you want a Bitcoin allocation." But like for everything else it's like, "I don't want to have to know everything about all these different protocols, all these different chains." Like, just give me the beta exposure. It's kind of like the way I when I talk to advisors and different people in this space, the

issue was trying to sell to the advisors, they view it like the dot-com bubble, right? Like plenty of stuff launched >> and went to zero. But there's still stuff that came out of there like Amazon and others that went to the moon. And it's like, "I don't I don't have confidence that I'm going to be able to pick the Amazon of these protocols." >> almost delegate the decision-making to the issuer basically. >> Yeah, either either either somebody's actively picking or they're just market cap waiting it or using some other waiting methodology to get exposure. Could you explain like I'm five how an actively managed ETF would work? Is it just like a hedge fund under a veil of an ETF? Yeah, so ETFs, the the largest growing sector of ETFs is actively managed ETFs. 80% of the ETFs that came to market last year are technically

active. With there's some nuance there. There's some names that there's some products that are like active in name only. They're not like discretionary where you think of like a stock picker or an active crypto picker where they're picking protocols or stocks. Like a lot of these leverage products are technically active cuz they're leverage they're actively managing their swaps and these options derivatives they have. We don't need to go down that rabbit hole. But it's basically just like a hedge fund or an SMA or somebody who's launching an actively managed portfolio, they're going to go in and choose the weights, they're going to choose the products they're investing in whether it's a protocol or what have you or underlying assets. Um so, yeah, it's basically just an actively managed fund except it's an ETF and you can trade it.

Um yeah. Has has anyone pilled you on vaults? I am only like I have only just scratched the surface. So, I'm close with the Bitwise team I would like to say. So, you said you had Matt on. Huge fan of Matt and and the Rest Musician and all those guys and Hunter the CEO. They are fully pilled on vaults. So, when I see somebody that I respect like that that is like all in, I'm paying attention to it. It's like there's all there's a whole bunch of things in this space where you're going to basically remake the ETF on chain. And I am bullish in that category taking off at some point. I think we're still ridiculously early. The other thing I would say to people saying they're going to completely replace ETFs like ETFs, they were brand new in 1993. They were a

really good launch. The technology is good, man. Like it is really really really really good. Um so, vaults are going to have like a lot of things it takes a lot to like get adoption of new things and you oftentimes need to be multiple times better than the thing you're replacing. Um and we're not there yet. But once you get stocks that are on chain and tokenized and bonds and all these things and you could just have a smart contract that wraps all those things like that makes complete sense to me. You can like remake the ETF. The problem is like what are the fees going to be for doing that? You can get exposure to the S&P 500 right now in an ETF for for two basis points 0.02% on an annualized basis. Like the fees right now and everything on chain, even centralized exchange platforms

they are not good. Like you're paying like 1% fees to trade in and out of these things like I I hope all these guys I wish them success. But like when you compare it to what the Schwabs and the NYCs and the NASDAQs are doing, you're trading petty wide, no transaction fee and you don't have to deal with gas or any of this other stuff that's going on chain. So, I think that we're still a very long way away from that. But there's plenty of people building the space and I'm interested. >> I I think that's the right take. I'm excited for the day when we have some of these institutional issuers issuing the vaults themselves. So, and but right now they're still like Bitwise is still issuing the ETFs.

How long until Bitwise issues their own vault? That's when I think it gets a lot more interesting. >> Yeah, and the other part of it is like how many people are on chain right now? Right. >> It's you we we I had a I was having a conversation earlier today. My boss Eric Balchunas, he's a little older. He's not I'm not DeFi native, but I'm more DeFi native than he is. And he was just complaining about how clunky and confusing it is to do some of this stuff. And like once you get to that point where the UI or UX is like so clean just like web 2 and some of this other stuff. There's protocols and stuff out there that is getting there. But like when you're trying to do things in some of these chains, it is like really hard to figure out. And I think as that

gets better we'll start seeing more adoption. We'll see the people that you were talking about those issuers actually launch things on chain. In your lovely lovely company Bloomberg, there has been multiple articles the last couple weekends with this war going on, this oil mania about this new under the radar perpetuals exchange called Hyperliquid. I'm not sure what it is. >> Yeah, yeah, yeah. Have you heard of this? Yeah, it's it's kind of funny to watch people like some of those people writing those articles also base I mean, I won't say they wrote Bitcoin obituaries, but they might as well have.

Like just completely lambasted everything going on in crypto and blockchain with Bitcoin. And now like they're using Polymarket odds to figure things out and like understand where what the probability of things are. And now they're pricing oil on the weekends and looking at futures markets on the weekends on perps and they're just like I'm like, "You guys, this is what this has been building towards this whole time." It's kind of funny. One thing I will say about that is like I don't know how much of this is true, but like I was kind of fascinated about how little over the weekend Bitcoin actually got hit when all of this risk-on stuff happened. Like in the past when you saw this stuff happen over the weekend, people just sold wherever they could and that tended to be Bitcoin. And usually when stuff bad happened, Bitcoin would sell off

hard and then tend to rally after as people could hedge otherwise. I wonder how much of these like perpetual contracts on equities, on oil and things like that are like I I don't need to just unload risk so I don't need to just sell Bitcoin. I can actually trade I can actually trade the thing that matters Right. more specifically to this. Like cuz what does Bitcoin care about what's going on with oil in the Middle East? >> it's just becomes like the risk proxy cuz you can trade 24/7, yeah. Yeah, a liquidity proxy, a risk proxy. And I wonder how much of these potential how much it impacted already and how much going forward it will actually limit the, you know, theoretical overnight or over the weekend Yeah. prospects. So, Bloomberg is pretty much covering Polymarket and Hyperliquid at like the mainstream level now. Like obviously

there's a whole there's a terminals and there's a whole crypto arm and and all these things. But like as far as like mainstream news, it seems like like the Calcium Polymarkets and then Hyperliquid have like kind of broken through. Obviously Bitcoin, Ethereum, and Ripple and these. But like these more like primitives, it seems like those two are like the big breakthroughs here. Yeah, I would agree. I mean, that there I wonder what else will be there. But that is 100% like the the main thing that I'm seeing done. And again, the Hyperliquid thing is like new as of two weeks ago. Yeah, yeah, like like this is not like they were writing about Hyperliquid and talking about it like a month ago. It's like, "Oh, we can actually understand and look at some pricing over the weekend and we can write stories about it." And same thing happened with

Polymarket. Like all of a sudden they didn't care and all of a sudden people are asking about it. We have clients constantly left and right. You can get on our Bloomberg terminal when you're looking at stuff. You don't even need to go to Polymarket. There's indices and all these these functions that we have in the terminal where you can see exactly what the odds are pricing on various different things for Calcium and Polymarket. Yeah, that's very cool. Um well, I'm just we had Pranav from VanEck earlier on. He kind of had the old adage that absolutely, you know, tremendous episode and and thanks to him for coming on. And and and he just repeated the thing, you know, flows informs price, price informs narrative, narrative, you know, and the flow informs flows and the flywheel continues.

When it comes to the narrative piece in particular, I'm just curious what Bloomberg is looking for like what are you guys watching out there? We talked about Polymarket and and Hyperliquid. These are novel things that came out of this ecosystem. But what is it about those or what is currently capturing the the attention of the zeitgeist that is that is causing them to be included? Um it's the only way they can get that data. Okay. Like they don't they you can't get that data really is what it comes down to. Um so, it's unique in that sense. The other part of it I would say is like I work in a department within Bloomberg, Bloomberg Intelligence. It's the research department. I've been covering the space seriously since 2017. Like I've been a believer in the space. I've been a believer in Bitcoin and crypto long before that. Most of my like

professional career, I have been like snarled at and laughed at by most people within Bloomberg. Like there's a lot of people that still think this is a complete joke. A lot of young people that don't understand things. To be fair, crypto is doing a lot of scams. There's a lot of fraud. There's a lot of like learning lessons that TradFi learned 50 plus years ago about like deleveraging and all these different things. So, it's they they have the they have those things, right? But like there's also a lot of people that like just don't believe in the space, never did, thought it was stupid. And now even if the serious things are happening, they're they're like not willing to like readjust their priors.

Um there are people that readjusting their priors. We have just hired so I actually have a colleague here who I've been met in person yet. We just hired somebody to cover crypto markets directly within Bloomberg Intelligence. So, it's being taken more seriously. But still at the higher levels like they're kind of like we're doing this because we have to more than anything. Like they're they're dipping their toes, they're paying attention, but we're not like at the front, you know, pushing things forward. Um it's more like we're just trying to pay attention, cover it, understand what's going on, and allowing certain people to cover it. There's not like a huge push or initiative for for Bloomberg to lead in the space in any way whatsoever. And I think that's how I feel when I go to TradFi conferences.

There's people like me and others who believe in the space, believe what's going on. But for the most part people like either don't care or actively hostile to what's going on here. Yeah. Um James, my last question here. I a lot of these coins are getting ETFs. Is there any coin out there that doesn't have an ETF that you think should? Uh depends on what you mean. There's a lot of filings. Right. >> So, like there's been filings for like every coin you can pretty much think of. It just takes time for the SEC to go through that process and actually launch them. I'm trying to think of anything that hasn't been filed that I think should. And the answer is no.

>> No. >> Even the stuff like even hype has been filed. >> Yeah. BitTensor, like all these things have been filed. >> Yeah. Um the newer newer kids in the block I would say. Um so, they're going to be here. Right. Um and some of them already have trust and uh DATs and stuff that you can get exposure in the TradFi world already. Right. >> has trust for a lot of these things even though they're not ETFs yet. They're going through the same process they went through. So, um yeah, no, not really. Like I said, I'm mostly looking forward to the actively managed products that are going to go across. I think that'll be and just passive market cap weighted products that will give you exposure to a broad base of crypto assets. Yeah.

James man. >> Enjoy the rest of your conference. Thanks for joining us, man. Thanks for having me. >> pleasure to meet you in person. Wonderful to meet you in person. Yep. Yep. Right. Great work, man. Thank you. We'll see you guys soon. >> Thanks, James.