Dave LaValle, Senior Managing Director, Global Head of ETFs, Grayscale Investments Pegah Soltani, Head of Payments Products, Ripple Brett Tejpaul, Head, Institutional, Coinbase Moderator: Jeff John Roberts, Fortune
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00:00 Hello everyone, I'm gonna throw it to you to open. Please put up your hand if you
00:05 own Bitcoin or any other crypto. Oh my goodness, that's what I asked this five
00:12 years ago, I might have got two hands. And the other thing, I guarantee you,
00:15 some of you who didn't put up your hands, you probably do now, because we just had
00:18 some information out yesterday about who is buying all of those ETFs you guys are
00:23 whipping up, and it's like the state of Wisconsin pension funds and stuff like
00:27 that. So like it or not, you're probably a Bitcoin owner. I'm very lucky to have a
00:31 couple of people on stage here who are kind of had a first-hand seat to that. So
00:34 I mean, Brett, you were the one who kind of, you're the custodian for most of
00:38 those ETFs, and obviously Dave too, you made it happen. So what went on
00:45 behind the scenes? Like tell us, you know, something that we don't know, like what,
00:49 how hard was that, or what was the best and worst moment of that process?
00:52 You know, I mean, what I would say is that there's a lot of talk about the
00:55 inflows, and there's been a lot of talk about the euphoria, but the reality is
00:59 it's really about like an entirety of the marketplace coming together to make
01:02 this happen. It's not just the issuers. It's certainly the issuers, but it's
01:06 definitely the custodians, but it's all about kind of adoption and access. And so
01:10 it's some of the largest institutions in the world showed up to ensure that all
01:13 the plumbing of this product was actually going to work effectively, and
01:16 it is both, you know, unprecedented on the one hand that we had ten products
01:21 come to market at the same time, but totally normal course of action for ETFs
01:25 to democratize an asset class and bring an exposure into the ETF wrapper in a
01:30 really, you know, effective way.
01:32 So it's been a journey. So I've been at Coinbase for four years, setting up the
01:37 institutional business, and no prouder moment actually than starting my career
01:42 in crypto with Grayscale as our largest and most important client. Four years
01:49 later is an awesome moment to have the SEC approve it and bring ETFs to the
01:55 world. We're fortunate in that moment to win eight out of ten of those mandates
02:00 out there, which has been fantastic. The behind-the-scenes comment would be the
02:05 industry got thrown a curveball kind of in the last minute. There's a specific
02:10 way in which the SEC gave guidance on how they wanted ETFs to be created, and
02:15 we were fortunate to be able to accommodate that because it meant that
02:18 many clients needed to align us to buy it, to sell it, to get financing. And so a
02:24 proud moment that everything went through smoothly. We're now almost 90
02:28 days later. The ETFs have been the most successful ETFs of all time. I think this
02:33 as of this morning something like 12 billion of net inflows have come in, and
02:38 I look forward to the new entrants coming in. So we've had two installments
02:43 of 13Fs, and I've been saying for a while that, you know, of the top
02:47 hundred hedge funds in the world, we have about a third of them are on-boarded and
02:51 active in this space, but you know, seeing is believing. And so being able to see
02:55 those filings and see super recognizable names owning very material amounts of
03:00 the ETFs is an awesome moment. Yeah, no, it's been quite a journey because, you
03:05 know, I think Elsa too, you know, you all are from traditional finance, one or
03:08 another, and beforehand with, you know, the banks and stuff like that, you'd ask
03:11 that thing to proclaim not to have heard of it or denounce it, and now they're
03:14 there, they're kind of in the mix too. I was gonna say this for later, but let's go
03:18 there now because we sort of alluded to it. This Gensler fellow, I've heard you
03:21 guys have had some trouble with him. I think all three of you were in
03:24 court with the SEC and Chairman Gary Gensler. Pega, how's that going? Great
03:30 actually. So I don't know who here is familiar with that or not, but last
03:35 summer Ripple won against all the major points as it relates to the dispute with
03:40 the SEC, and XRP is not a security, so feeling really good about where that's
03:47 gone, and same congrats to both you guys as well. Any other, you guys want to
03:53 offer some insight into Chairman Gensler? What I would say is there's a lot of,
03:57 you know, attention that was paid to the lawsuit that Grayscale had and to
04:04 bring everybody kind of up to speed, so we filed for this ETF, we were gonna
04:07 uplist our flagship product to become an ETF, and the SEC denied that application,
04:12 and we challenged that application, excuse me, challenged that denial in the
04:16 DC Circuit Court of Appeals, and we won. And essentially, you know, this was
04:20 not, you know, some sort of, you know, acrimonious dispute. This was about, you
04:26 know, having a disagreement that was going to be settled in the courts, and
04:29 fortunately, you know, we had a pretty common-sense argument that was very well
04:33 received by the DC Circuit Court of Appeal, and it allowed us to bring this
04:36 product to market and to bring that access to, you know, a broad range of
04:39 investors that really wanted it. Yeah, one thing that struck me too, I've
04:44 covered crypto for a decade, is how partisan it is right now too. It just
04:48 sort of seems that Dems, you know, especially with Elizabeth Warren, hate
04:52 everything about crypto and want to burn it down, and then we're seeing a lot of
04:55 the Republicans embrace it, including, you know, Donald Trump recently is out
05:00 there, you know, one-time opponent. It's going there too. I'm just, how did we get
05:04 to this point, and does it have to be this way? I mean, I've always thought, like, I
05:07 don't think of the Internet as Republican or Democratic, but here we
05:12 are. So, you know, did that development surprise you, Brett? I think the
05:18 interesting observation would be 55 million Americans own crypto, and that
05:23 ownership, I think, is super inclusive of both Democrats and Republicans. To
05:30 establish the asset class firmly, I speak from an institutional point of view, but
05:35 it's actually awesome to see crypto becoming a national topic and something
05:41 that people are voting on and have strong opinions about. And for
05:45 Coinbase's efforts, we have helped set up a few PACs, one called Fairshake, another
05:51 one called Stand with Crypto, so invite all of you that care, that raised your
05:55 hands, to help congressmen and politicians hear your voice. So it feels
06:01 like with the establishment of ETFs, with the issue becoming something that's been
06:06 embraced abroad, there's a siren song coming from the UAE, France, England,
06:12 Australia, so many other jurisdictions, it feels like an opportune time for the US
06:17 to respond and figure out a way to adopt digital assets. Yeah, I would layer
06:21 in to what Brett had just said. There are certainly some outspoken voices
06:26 that are on kind of the polar ends of the spectrum, but over the past three
06:29 years that I've been at Grayscale, the conversation has only become more
06:34 bipartisan and more bicameral in the sense that we're spending a lot of time
06:38 down in DC, and the conversations are, we need to be educated on this, and we need
06:42 to be educated by the people that are actually on the ground pushing
06:45 this forward. And so I think you're right in those outspoken voices, but I think
06:51 over the past couple of years we've only seen more and more people embracing it
06:55 because the constituents, the 55 or 58 million Americans who are owners of
07:01 digital assets are making it an important topic. I'd just add at Ripple, we spend a lot of
07:08 time internationally as well, working with regulators across the globe, and US
07:14 is clearly a laggard in this space, and other places like Singapore, like Europe,
07:19 have made advancements that would make US fall behind if they don't speed up
07:23 and provide more clarity and support innovation and growth.
07:28 I want to speak of international, it's a good segue, because a topic that
07:31 interests me too is, a lot of you are probably aware, you know, America's adversaries
07:36 like Russia, like China, one of America's biggest strategic assets is US dollar.
07:40 It's what everyone borrows in. There's more US dollars abroad than there are here,
07:43 which lets us borrow cheaply, and they have an interest in breaking that and
07:46 have seized onto crypto, which I think is some of the hostility from the
07:50 Pentagon and the White House in that. But, you know, technology-applied, you really
07:53 can't stop it, and you're seeing stablecoin corridors open up and stuff
07:57 like that. I think I don't have an answer to this question, but Pega, I know
08:01 Ripple has been very active for years in opening up money corridors, using XRP as
08:06 a bridge, and now has a stablecoin as well. And, you know, so, you know, what's the,
08:12 I don't know, you have to explain the geopolitics, but where is it as a
08:15 use case, you know, emerging? I just don't think it's going away again, but take us
08:19 overseas a bit. How's it working there? Yeah, well, for context, Ripple has been
08:24 focused on creating real-world utility for crypto technology, and we found a lot
08:29 of strength in cross-border payments. We started with Reminsys, which is about a
08:35 700 billion dollar market, and XRP provided really fast, low-cost,
08:40 transparent payments. Over time, we started growing, adding B2B payments and
08:45 treasury payments that are millions of dollars in size, and speed doesn't matter
08:52 as much. So we're using crypto to serve the FX market. It's 30 times bigger, the
08:58 liquidity of crypto, and that's why we needed stablecoins to add that in, to be
09:03 able to support the FX market and grow it out, and hence why we're also going to
09:08 issue our own. The only other thing I'll add is it's obviously a big market.
09:14 Stablecoins, there's two dominant ones right now, but there's room for multiple
09:18 players and to provide choice to whoever is going to use stablecoins. Yeah, and you
09:25 guys want to weigh in. I mean, stablecoins and new currencies, are they sort of a
09:28 geopolitical threat to the US in the long term? I think the most interesting
09:33 thing about stablecoins, and let's just level set on what they are. So sometimes
09:38 the crypto panels use their own terminology. So just imagine a digital
09:42 dollar and a digital dollar that moves around the world on a blockchain. And so
09:48 why is that interesting? Well, it's interesting because of instant settlement
09:53 and the ability to do that 24/7, right? Which is different than a dollar sitting
09:58 in a bank account at a US bank or otherwise, that then needs to be
10:02 sent internationally through a series of correspondent banks that eventually gets
10:06 there, you know, a few days later. So the value proposition here is instant
10:12 settlement and 24/7. So who wants to use that? So what we're seeing now is, in the
10:19 example that I'm using, I'm referencing something called USDC. It's one of many
10:23 different stablecoins in the marketplace. It seems the crypto world has elected
10:29 the US dollar as the currency of choice, which I think is a
10:35 great thing. And so what we're seeing from an institutional point of view,
10:39 that large corporates, huge global retail and consumer platforms, want to enable
10:46 their own ability to make B2B payments, a business-to-business payment, to
10:51 manage their supply chain, or in fact to sell their goods and services using
10:55 crypto. Using, in this instance, USDC or some other stablecoin. So it's a
11:02 really encouraging point now. The use case was kind of born through crypto
11:06 traders that needed an ability to move crypto around the world. And now that
11:10 we've perfected that as a technology, its next application should be to large
11:15 public corporates and others that want to do interesting and new things, like
11:19 the ones that Ripple blazed a trail with many years ago.
11:22 Yeah, what I would layer in is, I think about this as a disruptive technology,
11:27 and we've all experienced different disruptive technologies. I think
11:31 individually, the concept of needing a new currency, if you're in the US market,
11:34 didn't have a tremendous amount of utility as the first application of this
11:38 disruptive technology. If we take the Internet for an example, email
11:41 and communication and chat rooms were very useful for that disruptive
11:44 technology, and then it kind of had applications across different sectors of
11:48 one's life. The concept of having this uniform currency that can have
11:52 really efficient cross-border transactions 24/7, an instantaneous
11:57 settlement, is something that's a tremendous technological innovation
12:01 for corporations. So it's happening at the corporate level, not
12:05 necessarily with individuals who need a new currency in the US market.
12:09 Let's talk to what else to put on blockchain, because for years I've had
12:13 these pitches. You get these pitches of Walmarts doing supply
12:16 chain stuff and Mersk shipping, and it's a bit like the AI
12:19 snake going around right now. It's not in bad faith, but a lot of it just
12:23 didn't pan out. But lately, it seems more real-world assets are being put on the
12:27 blockchain. JP Morgan's experimenting with this, but it sounds like it
12:31 depends on the asset. We were talking a little bit beforehand about the spread,
12:33 so what else is going to go on the chain and be a viable commercial
12:37 product? As a practitioner of markets and someone that was in investment banking
12:42 for 27 years before joining this space, I'll give you the following thesis.
12:49 I do think that over time, and this by the way maps back to Rob Goldstein's
12:53 comments this morning about asset management generally becoming large tech
12:56 platforms that consume information and technological advance and
13:00 innovation in the industry. Sorry, I just lost my train of thought.
13:09 Trying to incorporate Rob too often. Which new assets? Sorry.
13:15 Having seen what's happened to the stock trading, it's been decimalized. It's
13:22 super efficient. I don't really see any marginal benefit to actually tokenizing
13:26 stocks per se. When I look at the fixed income world, and I look at illiquid
13:30 assets that take a long time to settle, there's a huge amount of friction.
13:34 There's a huge amount of cost. When you look at what it takes to service and
13:38 operate a market that opens and shuts and has arcane systems supporting
13:45 it, it feels like a good candidate actually for tokenization and living on
13:48 the blockchain, if only for the reduction of cost. When I think
13:53 about the asset management community, when they look to saying, "Hey,
13:56 we want to do something that's tokenized," I hear elements of, "I want to find a
14:02 way to reach a new investor set." The words of democratizing investment and
14:07 having more open access come up quite a lot. There's a couple use cases that I
14:11 think are high value and some that are probably pretty marginal.
14:15 I would add that the concept of tokenizing real-world assets,
14:19 there's a big bridge between where we are now and the ability to
14:24 deliver that to investors and where we need to be to make that a reality.
14:29 I think there's something as simple as Bitcoin being in eight
14:32 decimal places was a very challenging technological problem for
14:38 real mainstream traditional finance organizations to deal with in the
14:43 context of just bringing a Bitcoin ETF to market. I think there's real
14:47 technology hurdles of where digital assets and traditional finance are going
14:52 to meet, but I think absolutely there's an opportunity for tokenization to be
14:56 beneficial. I think a lot of traditional financial institutions are driving that
15:03 real-world asset tokenization in the next wave. To your point, what we're
15:08 seeing is a lot of partnerships with "crypto-native" companies, so
15:13 people like Ripple, like Coinbase that know crypto space really well and
15:18 partnering together to overcome the technological challenges like building
15:24 on a custody technology, which is what we've been working a lot with some of
15:28 our customers like HSBC and others to enable them to tokenize, but also solve
15:33 the technology challenge together. I think the tokenization of assets is
15:37 going to be something to watch. It's just a superior technology. In my experience,
15:41 in the long term, a superior technology always wins. We opened with
15:45 ETFs. Let's finish with them too. We saw the massive success of the Bitcoin
15:49 one and that brings also a ton of liquidity and that's got external
15:53 benefits. What next? I know you've got your eyes on an Ethereum ETF. When is
15:58 that going to happen? Will there be an XRP ETF? What's next in the
16:03 crypto ETF game? I'll start just to level set. There are a number of
16:07 applications in front of the SEC to consider a spot Ethereum ETF. I think one
16:13 week from today is the first time the SEC will have to opine. The SEC has this
16:17 240-day statutory time frame to review these applications. That 240-day time
16:22 frame is expiring on the 23rd. It will be the first time that we will see
16:27 what the SEC thinks. Are they going to approve or are they going to deny? It
16:31 will put us in a very good position to figure out exactly how we
16:35 will take the next steps to bring the next asset to market in the form of an
16:39 ETF. We're super excited about it. We also have an application in front of the
16:43 SEC. We also have another Bitcoin spot product that's going to
16:47 come into market at a lower fee. We're constantly innovating and we're
16:51 constantly pushing the envelope forward. What's Ripple think about this?
16:55 Is there an XRP ETF going to be a thing one day? I can't speculate on when but I
17:02 think it's clear that there will be other ETFs. In Hong Kong I think there
17:06 is an ETH ETF as well. Obviously regulatory clarity plays a role. Right
17:12 now in the US Bitcoin and XRP are the only two assets deemed not a security so
17:18 that should support XRP. If you just look at the lessons we've seen ETFs go from
17:25 nothing to something that's measured in hundreds of billions and trillions.
17:28 It's an enormous depth of marketplace with a huge choice of investments.
17:33 It's awesome to have the first US crypto in the form of
17:38 Bitcoin but I fully expect we're gonna have a huge menu over the years and give
17:43 investors tons of choice including more advanced trading methodologies and
17:47 indices and the whole multitude of choice for investors of all types both
17:52 retail and institutional. I think we're gonna continue to work
17:56 favorably and constructively with our regulators to ensure that
18:00 this is a strange thing. Usually you have a disagreement with your regulator.
18:03 It's because you feel like you're over regulated. We're actually trying to
18:07 pull this further into the regulatory perimeter and to have a greater
18:11 regulatory framework and greater regulatory clarity. We're excited
18:14 to continue to work with them. Thanks for the sophisticated
18:17 perspectives. I hosted one of these things 10 years ago and it's literally like
18:20 raving people who really lived in caves or something.
18:24 It's just shocking that we're now on Wall Street in the heart of the
18:27 beast talking about Bitcoin and stuff like that. We're out of time but you can
18:32 only answer over or under. I'd like you all to answer it please. Bitcoin at
18:36 $100,000 at the end of this year. Over. Over. Over.
18:43 I guess I shouldn't be surprised. For those people that didn't have Bitcoin go buy it.
18:51 Please give our panel a hand. Thanks very much.
18:54 you
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