Supplements » ETF Report Sep 2021

ETF roundtable: A revolution in wealth creation

Funds Europe – What are the main obstacles in the way of cryptoasset ETPs, and how can crypto ETFs hedge against the market’s volatility?

Aviav – The main obstacle in my opinion is not regulation, although that is indeed big, but the bigger impediment to the growth of cryptoasset ETFs today is institutional investor education and acceptance.

The media is mostly highlighting the risks and regulation because these are the things that are easiest to understand. The potential of the crypto world is way more difficult to imagine. It’s very sexy to say: ‘Drug dealers are using crypto,’ (as if there isn’t a huge amount of illegal activities financed with US dollars) or ‘the SEC is investigating X or Y’. There are definitely risks and there are definitely uncertainties, but the potential here is immense. Understanding that potential requires education, imagination and then measured risk-taking.

Cryptoassets are achieving things that would have been hard to imagine only a few years ago. Going through some of the new business models that are emerging from platform tokens and so-called DeFi (decentralised finance) protocols is a mind-bending exercise for a financial professional of my generation – there’s a multitude of crypto-based ‘operating systems’ emerging for a new breed of applications and businesses. There’s not only ground-breaking theory behind these things, but it’s actually being brought to life with tens of billions of dollars and tens of thousands of users. All of this is happening at this very early stage where the wider market acceptance is just not there. So, I can’t begin to imagine the value that crypto is going to create five to ten years from now. It’s a bit of “crypto eats world”.

Sanguinetti – For me, it’s getting all the traditional players onboard with the ideas. Traditionally people are a bit scared and no one wants to be at the forefront, no one wants to be on the wrong side of the story in terms of compliance and regulation. What we think on our side is that it really is a cyclical asset, so you’ve had a big overhype in January/February/March, but now the next phase of the assets will be when we start seeing the use cases. For example, in DeFi. You’ve got some of the brightest minds in the world working on solving these problems and finding use cases for these technologies, and it’s happening very quickly. By the end of the year, we think that we will be bullish in that market.

Baccash – The key thing is making sure that you’re at the right level of institutional set-up, that the infrastructure is in place and that everyone’s ready to go and making sure it’s a coordinated effort to make sure that these things work effectively. Nobody wants to have an issue on the first set of products that are released because of some technical or infrastructure oversight.

Kooij – For a pension fund that thinks about investing in bitcoin or something similar, if they have an ESG framework, they should really be asking themselves questions along the E, S and G lines, and on the E side we know that bitcoin is responsible, because of the incredibly power-intensive mining process, responsible for a huge amount of energy consumption, on some estimates as much as Argentina or Belgium produces in a year.

On the governance side, the whole point of blockchain is deliberately to face down and disrupt the whole concept of fiat currency and therefore to reduce the governments’ control over not just their economies, but therefore their population and societies.

Redding – There is a regulatory component. Maybe not in Western Europe or in the US, but in Asia, the regulatory component needs to really be included in your analysis. We’ve seen what’s happened in China.

Can you stop cryptos? No. But it does scare a lot of central banks as to what will happen here in the crypto world. They’re trying to figure out how to do their currencies as digital currencies because the fiat, as it is right now, is just a different way of doing it. So, maybe the big winner in the long run is blockchain, who knows? As the credibility of a lot of central banks continues to go down in the world, cryptos become a lot more important in people’s minds.

Aviav – In terms of energy, yes, crypto consumes a lot of energy right now. But the technology’s evolving, so a lot of these issues are being solved. Ethereum is going to move to proof of stake versus proof of work, bitcoin will probably address that ultimately as well, other currencies like cardano use more energy-efficient ways of validating transactions. All this says is that this is a technology that’s still emerging and in flux. It’s not in its infancy, but it is very early on. We’re going to see substantial exponential improvements to all of the elements – E, S and G – in crypto. But the benefits are immense. We firmly believe this is the future.

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