What happens if the SEC opens the crypto ETF floodgates: James Seyffart

Transcript

Let's talk about the SEC's crypto framework. Unpack what is happening there. Give us the setup. We haven't talked We talked a little bit about it on the show, but we haven't dove into it. >> Yeah. So, I I've been writing about for a long time that I thought they were going to come up with some sort of framework for the ETFs. Like, if you look at what was going under under the Biden admin with Gendler, even parts of the SEC, there was just no like anyone who's paid attention to this space, there was no clarity. It was like what is required? And like if you wanted a Bitcoin ETF or Ethereum ETF, I came on here, I explained all the processes for like what needs to go through these checklists, what needs to happen in order, these dates where they can delay or deny or approve. And that's so crazy.

Like are they going to do that for every single ETF, for every single crypto, every single individual ETF for that crypto? And it's just like not really sustainable like that they changed a whole bunch of things for ETFs are approved years ago. And it was like the SEC needs to come out with some like rules of the road of like these are the assets that are like make sense to go into an ETF rapper. Give us give these issuers some guidance like what can I put in an ETF like what's allowed and our view was they were going to do it and our view months ago was that one of the number one things was going to be have a futures product a futures contract listed with a CFTC regulated exchange. Um and that's what came out.

So the SEC is working now with those issuers, with the exchanges to say like if you meet all these criteria, we'll allow you to list an ETF that holds this underlying asset. We don't need to get into too much specifics, but it comes into like surveillance sharing agreements and these different or ISG organization that basically allows all these exchanges to share data with each other. But really at the end of the day, the number one requirement is basically that you have a futures contract on an asset for at least six months with one of those futures exchanges that meets the requirements uh of the CFTC SEC. And if you do that for 6 months, they're basically going to allow you to have an ETF, which immediately opens the gate

for a whole bunch of different assets. So Coinbase derivatives, that platform is part of the ISG framework. So anything listed on Coinbase or it is with a futures contract for six months theoretically once this framework is approved or if it's approved as it's currently there's there's going back and forth like as you saw with the Bitcoin ETFs and theory ETFs it's the issuers exchanges going back and forth with the SEC and that's what they're doing with this framework. Theoretically the earliest it could be approved is sometime I think it's like September 19th. I wouldn't hold my breath for that but that's where things are headed. Um, but we have a whole bunch of ETFs due under the old process starting in like early October. Um, so essentially they're going to theoretically open the

floodgates once these platforms open these uh assets for futures contracts. 6 months later, theoretically, you're going to be able to have a spot ETF that holds that underlying asset. And a lot of that goes back to the Grayscale lawsuit. Basically, like you can't have a futures ETF and not allow a spot ETF. And I think that's kind of where they're backing into this. And it makes sense from my point of view at least. Let's leave the um when this is approved aside for a second. Uh whether it's September or whenever it happens. This is coming. What's going to be the impact of this? What tokens are we going to all of a sudden see? How many? Like are we going to see is this like hundreds of tokens are going to have ETFs? Five, 10, and and like roughly what do you think the

timing is for when this will happen? Yeah, I mean I'll name the ones that look like they're pretty much ready to go or will be ready to go within the next couple of months for an ETF rapper assuming this platform or this they're called generic listing standards. This is a thing I I'll refer to them as GLS and it basically says if you meet these requirements and you file and we have no problems with the the paperwork you're filing, it's ready to go. So it's like uh Doge, Link, uh so Chain Link, XLM, Stellar, uh Bitcoin Cash, uh Avac, Litecoin, SHIB, Polka Dot, Salana, HAR are pretty much they have futures contracts already on Coinbase derivatives or elsewhere. Uh well,

obviously Bitcoin, Ethereum would fall under gear, but we don't need to go there. They're ready to go pretty much now if this framework were approved. within the next few months, you will also have ADA or Cadano and XRP, Ripple, uh that theoretically would meet this framework as well. Those are the ones that are immediately going to come due and then you're likely going to see other platforms launching futures products and different things. I actually don't like the current framework. I think there's not enough restrictions on like the liquidity or the you know, you like high high FTV low float type stuff like those. I think there should be more on that, but it basically from my point of view, it looks like the SEC is outsourcing that to the CFTC and the CFTC is going to have to dictate whether or not these futures contracts are going to be

allowed. Um, but I I think there should be more protection around what can get in here because you could get some really wonky crap in a spot ETF wrapper, but you know, this is what looks like things are going. So, yeah, we're I just listed off 10 assets, I think, at least. And and I gota be hon with with with within those ones that you listed off. There's a wide range of what I would consider a good asset. I'm not gonna I'm not going to name them here, but there is some within there that fit exactly what you're saying of low float, high FTV, you know, not not maybe a lot of fundamentals behind them.

Here here's my main question though is what is the what is the outcome of this? What's the demand going to be? Because I sit here and I look at two perspectives. One, I look at the Ethereum ETF when it launched last summer and we all had such high expectations after the Bitcoin ETF and then it did nothing. Now, you could argue that that was partly market conditions, but I don't think that's the full argument. And then the other thing I look at is the crypto companies that are IPOing right now. And the demand that they're getting makes me think, okay, so there is big demand for crypto from Wall Street through the public companies and the DATs, but is there going to be demand for the ETFs? Like I can't I can't wrap my head around the

way this will shake out. What do you think? >> Yeah, I I would go back and say two things. one, we were pretty bearish on the Ethereum ETF AUM and flows um compared to many people, but we we weren't even bearish enough. Um so like I got a lot of flack from the ETH community for saying that we thought they were going to underperform their market cap ratio to Bitcoin and assets. Um but we also thought it was just too quick. Like Bitcoin ETFs came out in January and these things were approved in May and launched in July. Like there wasn't enough time for Wall Street advisers to even wrap their heads around what this was. Staking isn't allowed still really in the in the traditional spot ETF rapper. There is a staking Salana ETF out there that goes through a bunch of hoops and like legal loopholes

and things like that to get it out there, which is a great product to get out early. Um, but for the most part, staking is allowed. That's going to I we have very high expectations that's going to be allowed within the next month or two. Um, so like that would be another thing there. And then obviously you hinted at it launched in July into a doldrum on Ethereum price and you know it just never garnered a ton of assets. That all changed when Trump kind of got elected and then it really took off over the last like three or four months >> partially Tom Lee you know he's he's he's the advocate for Ethereum. So what does the demand look like for these other things? Um I would have thought Salana would do pretty well but we have Salana futures products that could be a

decent indicator and we have the Salana product now that has staking. Um, and ironically, >> how are they doing? >> Pretty good, actually. Um, but ironically enough, there's also leverage futures XRP and XRP products. They actually launched after the Salana products and had even more interest. So, there's a lot of interest there. Is it going to be the level of interest that a Bitcoin the Bitcoin ETF launch had, I absolutely not. Like anyone who thinks like, oh, Bitcoin ETFs took in 40 billion, my, you know, XRP ETF is going to take in the same amount or whatever. That's just not how this is going to work. These are longer tail assets. I think there will be demand. There will be plenty. There will probably be multiple products for each of these assets to do well. Maybe not all 10 of the ones I listed, but a decent amount

of them. Is there going to be enough to have like 11 different products that are going to be successful and garner a ton of assets? Probably not. It's not the same as a Bitcoin ETF, not even Ethereum necessarily. The one area that I do think will be extremely beneficial is basket products. So, we have two products that are kind of being held up by the SEC at this point. There's a lot of wonkiness around why they're they were technically approved, but they're not allowed to list from Grayscale and Bitwise, which holds Bitwise holds 10 assets. Grayscale holds five, I think, the Grayscale digital large cap fund. Those products, I think, will garner a lot of assets. So, will these individual ETFs holding, you know, Har gain a ton of money or holding Polka Dot? Probably not, but they'll be trading vehicles. I

think they'll be there's enough for at least one of them to survive and have a decent amount of assets and garner interest. And who knows what's going to happen with the underlying assets, but I'm very bullish on the demand for those basket products. We talked about advisors. They like diversification. So even if it's market cap weighted and it's 70 plus% Bitcoin and then 15 20% Ethereum and then 10% other stuff, I think advisers are going to like love to go in that route even if no matter what it is. Um because they get it's this is a 3% slug in their portfolio or 5% in their client portfolio. They'll just buy a basket product potentially. Or maybe they're like, "Oh, I want Bitcoin." And then I want to have a basket product of everything else. And we've seen a bunch of filings for products like that. So

I'm bullish on the demand for those basket products. And these ETFs listing will allow basically those other products to come to market as well. >> I I I'm bullish on the basket products just because I think they're the best thing for investors. Like I would just I would love to see basket products for my my friends and my family who aren't in crypto because that's what they should be doing, right? Everybody's finally we're, you know, we're we're at that part in the cycle where, you know, we all get texts and we get those questions from friends and family. Is it too late? Should I buy? And I don't I'm very I'm always very hesitant to tell them what to buy other than than Bitcoin, quite honestly. And it's not that I don't believe in the rest of crypto, but I'm here full-time, right? So, I'm following

it. So, I'm not going to I'm not going to get wrecked and I'm not going to get stressed out by the volatility, but I want to tell other people to get in and a basket product would make it so much easier. What is the what's the timeline on these basket products and is it tied to these ETF filings and and them being approved? >> All right, so we're going to go down like we'll put on the tinfoil hat here a little bit because there's no no one really knows exactly what happens, but it seems like the most likely scenario is these things were approved. So they they both both the Bitwo product and the Grayscale product were approved this summer to list and then afterwards they got a stay order from the SEC. And basically what happens is like the SEC is a five member commission typically

and typically it's you know two Dems, two Republicans and then one commissioner who is of the party of the president theoretically and three to two would win out. But there's also this thing called delegated authority which is like it's all these people you can call them bureaucrats but they're usually people who've been the SC a long time sometime lifers and they can handle the vast majority of the stuff the SEC needs to do. They don't need a commission vote on every single thing that needs to happen. It's the comm the staff can just have delegated authority to do things on behalf of the commission. But if there are things done by delegated authority, which these products were approved by, a commissioner can say, "Hey, hold up. I want to look at this closely or I want to have a vote or do something like that." And that's what happened. So

there was two theories when it first happened at Grayscale a couple months ago was a is the SEC just say, "Hold on, let's get these generic listing standards I've been talking about. let's get this done and then we'll allow these basket products to come to market because then we don't have to worry about these special one-off things or whatever benefiting other people or did the SEC someone at the SEC on the commission go in and just give one last like middle finger basically to to these companies and in the industry to stop it from going because you only need one commissioner to do this and honestly I probably lean more towards the latter.

It looks like Caroline Kentron might have done that um for Grayscale and Bitwise. So theoretically, we could have had these products listing and trading these ETFs already, but it was stopped by the SEC and these stay orders. They'll eventually list and convert. Um, there's no way to know for certain what it was, but Caroline Krenshaw wrote a descent after the Bitcoin ETFs were approved despite the fact that a federal court basically said the SEC couldn't do what they were doing. She wanted them to essentially deny a court order in my view. Um, so I don't know. There's no way to know exactly what happened, but yeah, I think that's probably what happened, but again, no way to know for sure. uh she's going to be out of the commission in the very near future. Um so it kind of might have just been you know a last you know harrah on her way

out the door but yeah uh and you mentioned like getting texts from your friends. I'm not really getting that many texts about the assets directly. I'm getting I'm like what do you think about these this these DAC codes? Should I be buying Micro Strategy? Should I be buying Bit Miner? That's that's more of the questions I'm getting which I'm like uh again this is feeling a little toppy. Thanks for watching. Make sure you subscribe to the Milkro Daily YouTube channel. And if you enjoyed this clip, you can watch the full episode here. [Music]