Steve Ehrlich, the director of Forbes Digital Assets, join "Forbes Talks" to discuss how Bitcoin's surge could have an impact on potential Ether ETFs.
0:00 Introduction
0:30 The New Demand For Bitcoin
2:30 BlackRock Changing The EFT Game
3:42 Ethereum's Role In SEC
5:56 President Biden And Crypto Legislation
6:34 Industry Strategies And Leaders: Coinbase
9:48 Ether EFTs
Read the full story on Forbes: https://www.forbes.com/sites/stevenehrlich/2024/03/01/why-bitcoins-surge-could-be-a-boon-or-trap-for-new-ether-etfs/?ss=FDA&sh=3cc645e772f8
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0:00 Introduction
0:30 The New Demand For Bitcoin
2:30 BlackRock Changing The EFT Game
3:42 Ethereum's Role In SEC
5:56 President Biden And Crypto Legislation
6:34 Industry Strategies And Leaders: Coinbase
9:48 Ether EFTs
Read the full story on Forbes: https://www.forbes.com/sites/stevenehrlich/2024/03/01/why-bitcoins-surge-could-be-a-boon-or-trap-for-new-ether-etfs/?ss=FDA&sh=3cc645e772f8
Subscribe to FORBES: https://www.youtube.com/user/Forbes?sub_confirmation=1
Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:
https://account.forbes.com/membership/?utm_source=youtube&utm_medium=display&utm_campaign=growth_non-sub_paid_subscribe_ytdescript
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Forbes newsletters: https://newsletters.editorial.forbes.com
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More From Forbes: http://forbes.com
Forbes covers the intersection of entrepreneurship, wealth, technology, business and lifestyle with a focus on people and success.
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NewsTranscript
00:00 Bitcoin ETFs were a great success and now people are looking to Ether ETFs to see if
00:08 that same success can be duplicated.
00:12 Hi everyone, I'm Rosemary Miller here with Stephen Ehrlich, the director of Forbes Digital
00:16 Assets here to tell us more.
00:19 Thank you so much for joining me today, Steve.
00:21 Hi Rosemary.
00:22 So Steve, how has Bitcoin's recent surge impacted the interest in Ether ETFs and what challenges
00:28 might issuers face in the light of this?
00:32 So at this point, I think the wild success of the spot Bitcoin ETFs that began trading
00:37 on January 11th have really whet the appetite for more.
00:41 And by wild success, I mean about $7.5 billion of new net demand has come into the market
00:47 through these products.
00:48 BlackRock's Bitcoin ETF has more than $10 billion in assets under management.
00:53 I mean, these are massive numbers.
00:55 So can this be duplicated?
00:57 Well, the next sort of date on the calendar that people are looking to is May 23rd.
01:02 That's the final deadline for the SEC to give a go or no go decision on a spot Ether ETF
01:08 application.
01:09 And these will work the same way as the spot Bitcoin ones.
01:12 Essentially, it would let anybody with an investment account get exposure to Ether without
01:18 having to go through the hassle of signing up an exchange and custodying it themselves
01:22 and so on and so forth.
01:24 So a lot of anticipation there.
01:26 But there are a couple of additional complications surrounding these Ether ETF applications that
01:32 are potentially putting some issuers or presenting them with some difficult questions.
01:39 For one, as much of a struggle as there was to get the spot Bitcoin ETFs off the ground
01:45 and we've spoken about this in prior discussions, I mean, it was more than a 10 year fight to
01:48 do that.
01:49 A lot of it really focused on whether or not the SEC was comfortable with Bitcoin being
01:54 a large market that's free from fraud and manipulation.
01:59 And Ether will have to meet that same hurdle again.
02:02 But one thing that Ether may need to contend with that Bitcoin did not is whether or not
02:07 the SEC sees Ether as a security.
02:11 That has some important implications because securities are regulated by the SEC.
02:16 Commodities such as Bitcoin are not.
02:19 And all the spot Bitcoin ETF applications were filed under something called the 33 Act,
02:27 which is really used for all commodity ETFs.
02:31 And the Ether ETFs were filed under the same act as well.
02:33 So the issuers, the same group of people, the likes of BlackRock, Fidelity, Invesco,
02:38 VanEck, ARK21 shares, they're all treating Ether as a commodity and how they have applied
02:44 to launch those products.
02:46 But the SEC has been very careful to not say one way or another if they see Ether as a
02:53 security or a commodity.
02:55 If they do, then these 33 Act applications would probably not be allowed to trade.
03:01 So here's the real dilemma.
03:03 Say the SEC feels that Ether is a security that could incentivize some of these issuers
03:10 to say, you know what, I want to get this off the ground.
03:13 These spot Bitcoin ETFs were so successful.
03:15 I want to get I want to get past the starting gate first.
03:19 I will change.
03:20 I will make the application in the application.
03:23 I will treat Ether as a security to perhaps ameliorate that concern from the SEC.
03:29 But if they do that, that could really that could be seen as almost traitorous in the
03:33 crypto community where decentralization, a core component of whether or not something
03:37 is a security, is just foundational to the entire ideology.
03:42 So Steve, how exactly does the origin story of Ethereum play a role in SEC in the SEC's
03:49 consideration of Ether as a security?
03:52 This is an important this is an important point.
03:55 And Ether's history is quite different than Bitcoin's.
03:58 I mean, for instance, when Bitcoin, which was first sort of unveiled to the world in
04:04 2008, when the pseudonymous Satoshi Nakamoto released the Bitcoin white paper in on Halloween
04:09 night of that year, and then Bitcoin, the Bitcoin network actually went live in 2009.
04:15 It was basically open source code that was set out into the wild and anybody could have
04:19 joined it and started mining tokens.
04:21 I mean, the founder Satoshi, whoever he, she or they are, did not keep any tokens for for
04:26 himself or themselves in reserve.
04:29 It was kind of seen as a fair launch.
04:31 Everybody had equal had an equal opportunity to get those initial bitcoins.
04:36 Ethereum was a little different because they sold these tokens in 2000, I believe, 16 through
04:42 what was known as an ICO, an initial coin offering, which the SEC has had numerous problems
04:47 with.
04:49 And in addition, they reserved a portion of the 72 million Ether tokens at launch for
04:53 founding team members like Vitalik Buterin, who is seen as the founder of Ethereum.
04:58 So there was already this kind of degree of centralized control might be too strong a
05:03 word, but just this like centralized actor that was sort of involved in developing and
05:09 steering Ethereum.
05:11 And because they sold these tokens and because they reserved some on their own, that added
05:16 a degree of centralization, which is critical to determining whether or not something is
05:20 a security.
05:22 Over time, it has become more decentralized.
05:25 At this point now, it's not even mining, it's proof of stake and there's a wide variety
05:29 of stakers and so on and so forth.
05:30 But this origin story has been a problem.
05:33 In fact, back in at the end of the prior decade, Bill Hinman, who was previously the SEC's
05:40 director of corporate finance, gave a speech that was celebrated by the crypto community
05:44 where he basically said that Ether may have been a security when it launched, but now
05:51 in his opinion, it's sufficiently decentralized to the point of not being a security.
05:56 But there's an important distinction to make here.
05:58 One, he does not speak for the entire agency.
06:00 That is not policy.
06:01 I mean, you would imagine those comments were vetted, but that doesn't mean that it speaks
06:06 for the entire agency.
06:07 And two, he did this under a prior administration.
06:10 The SEC chair back then was Jay Clayton, who was appointed by former President Trump.
06:14 Today, we have Gary Gensler, who was appointed by President Biden.
06:18 And Gensler has been very careful in public to not state whether or not he believes Ether
06:23 is a security, although he has intimated in certain public comments that he does feel
06:29 that Ether has certain qualities, qualities of a security.
06:33 Well, Steve, how does the involvement of major players like Coinbase and advocating for Ethereum
06:39 as a commodity impact the SEC's decision making process?
06:43 And what role do industry ideals play in the industry's strategies?
06:48 So Coinbase is a really fascinating player in all of this because they play multiple
06:54 roles in this story.
06:55 I mean, for one, Coinbase is a key partner to most of the spot Bitcoin ETFs in the sense
07:00 that they custody the assets that are behind the shares and their prime brokerage services
07:04 are often used to source those assets.
07:07 And they'll be playing similar roles for these Ether products as well.
07:10 So that's that's kind of important.
07:12 There are two.
07:13 Coinbase, along with Kraken and Binance, those are two other exchanges and others have been
07:18 sued by the SEC, claiming that they're operating in contravention of U.S. securities laws by
07:24 listing tokens that should be considered securities in the SEC's point of view.
07:29 These are tokens like Solana and Cardano.
07:32 But really, interestingly, they did not name Ether.
07:36 And that was kind of curious to to myself and a lot of other observers, because that
07:41 would be a great opportunity for the SEC to stake its claim that Ether is a security if
07:46 that is how it felt.
07:48 So that that omission really kind of spoke a lot of volumes.
07:50 But it talks about sort of that sort of like this, this stage of just not knowing where
07:58 where we are with it.
07:59 So there's a lot going on there.
08:01 But but here's the real dilemma.
08:02 Like, for instance, say a company like like like BlackRock, who partners with Coinbase
08:07 on Bitcoin brokerage services and other things, say they decide that, you know what, we're
08:12 not like pure crypto idealists.
08:15 We just want to get this out the door so we can replicate the 10 billion dollars in AUM
08:19 that we brought into these Bitcoin products.
08:21 We'll file under the 40 Act, which is which is how traditional ETFs are filed, calling
08:28 Ether a security, even if it's just to to pacify the SEC.
08:32 Well, what does that then mean for the SEC's case against Coinbase and and other and other
08:40 exchanges that they're currently suing?
08:42 Because that would even though Ether was not mentioned in those suits, that can always
08:45 be added.
08:47 And that kind of would muddy the waters a little bit.
08:49 So there's a lot there to consider.
08:51 Plus, the other point to just if one of these issuers decides to take the step and to be
08:57 clear, I actually spoke with two on the condition of anonymity who said that they would be willing
09:01 to change the registrations from 33 Act to 40 Act products.
09:05 So this is not just me guessing or playing hypothetical.
09:09 These are real statements that I had been told that could also lead to some interesting
09:13 questions for exchanges.
09:15 I would imagine Coinbase and Crackit and others that strongly believe they do not list securities
09:20 would not delist Ether, but others could.
09:23 Or it could also lead to decreased demand, at least in the U.S., which could also hamper
09:28 the orderly functioning Ether market.
09:29 So there is there's really a lot going on here.
09:32 And I think it really also just speaks to how much how the market is hurting because
09:39 it does not have clear guidance and Congress has not been able to pass laws to sort of
09:44 make these important distinctions so that everybody knows the rulebook.
09:48 Well, Steve, how would Ether ETFs impact investors?
09:53 I mean, in the same way that that Bitcoin ones really do, it's as much or as easy as
10:01 it has become to sign up for exchanges, crypto exchanges or buy these assets during through
10:08 Robinhood or PayPal.
10:11 It's just an entire world once it gets access to the multi trillion dollar investment advisor
10:18 community.
10:19 And we're really just starting to scratch the surface of this when it comes to traditional
10:25 RIAs and asset managers in the Bitcoin world.
10:27 I mean, now we're seeing reports that Morgan Stanley and I believe Wells Fargo and others
10:31 are are starting to kick the tires on making these products available to their investors.
10:36 And the same thing could happen down the line if Ether if Ether products do get the green
10:41 light.
10:42 That said, I think it's important to to be cautious about not expecting the same type
10:49 of momentous inflows into an Ether product that we saw with with Bitcoin.
10:54 I mean, for one, I mean, Bitcoin, I believe, especially in the eyes of investors, has a
11:00 clearer value proposition and a use case of a secure store of digital value with a pre-programmed
11:09 monetary policy and so on and so forth.
11:13 That's something there are some people that will just never believe in that and will feel
11:16 that Bitcoin has zero intrinsic value because it's just a bunch of numbers and letters on
11:20 a piece of paper or a computer screen.
11:23 But for those believers or the people that just want to devote a little bit of that portfolio
11:28 into this asset class, that's at least a value proposition that's easy to understand.
11:32 Ether is a little bit different because that's seen as it's Ethereum is more of like a multi-purpose
11:38 blockchain that's designed to power decentralized alternatives to social media sites and search
11:43 engines and data storage.
11:46 So it's kind of seen a little bit more as a growth stock, a little bit more as just
11:50 like it's kind of seen a bit more in that vein.
11:54 So it's a more apples to apples comparison, my point of view, to the tech stocks that
11:58 the Magnificent Seven that are just carrying the S&P 500 right now.
12:02 So I think there might be some more interesting conversations to have for RIAs and asset managers
12:07 to have with their clients to figure out how that really fits.
12:11 But I think the broader story, again, is just that if this happens, it'll make it much easier
12:16 for a wide variety of investors to get access to this product just by pushing a button or
12:20 two.
12:21 Well, thank you so much for joining me today, Steve.
12:24 Great.
12:25 Thanks, Rosemary.
12:25 Thanks, everyone.
12:26 Thanks.
12:26 [END]