The $10 Trillion Question: What’s Next for Crypto ETF & ETP Demand? | EBC11

So first of all good morning everyone. Um thank you very much for uh staying for this session. Every time we talk about crypto um it it it has a new phase. I mean starting earlier from 15 years ago then the ICO boom that we have seen and now it's it's not the question of if crypto is here to stay. It's all about it is here for sure the multi- trillion dollar market and now how to build different investment products on top of it to give exposure to institutions.

Now the title of this session the trend trillion dollar question I wish I personally had the answer to this question but I I don't but I do have a bunch of experts who do. So without further ado I would like to proceed with introductions first.

Great. Hey everybody it's good to see you again. Good to be back at EBC. Hey, I'm Matt Hogan, chief investment officer for Bitwise Asset Management. We're a global crypto asset manager with about $15 billion in assets under management in the US and Europe primarily.

Hey everybody. Um, glad to be here. I'm Elliot Johnson, chief investment officer at Evolve ETFs. We are a Canadian ETF provider. We've got seven crypto ETFs alongside 31 other funds in Canada.

We're just over 8 billion in assets. Um and uh we also this year launched a Bitcoin treasury company. So um we're in that space as well.

Hi everyone. Very nice to meet you. This is my first time here. So thank you all. Thank you to the organizers.

My name is Andrew Forsen. I'm the president of DeFi Technologies and chief growth officer of velour. Uh we too are an asset manager. Um, we have 99 digital asset underlying ETPs listed predominantly in Europe and it's about a little over a billion in assets under management. Thanks.

So Matthew, you're starting with you. I mean, Bitwise is one of the known names in the industry with multi-billion dollars of assets under management. How has the entire landscape of crypto investment management products changed in the last few years?

Well, it's it's changed completely. I mean, I I think uh Europe was certainly ahead, but the approval of spot, Bitcoin, and then Ethereum ETFs in the US really, I think, cemented the movement of this asset class from a deep alternative, mostly used by retail to something that's increasingly used by institutions. Uh, every class of institutional investor is now allocating, whether that's financial advisors, IFAs, broker dealers, pensions, endowments, we have sovereign wealth funds. So I I I do think we've done sort of the 1.0 version of making this an institutional asset class.

There are other phases to come. Excited to talk about what some of those are. Um but I think it's been transformative. Yeah. And we were talking about earlier like everyone remembers crypto ETF approvals in the US but crypto ETPs have been around in Europe for quite a long time.

How do you see the approval of crypto ETFs in the US and now new ETFs are coming almost like every other month? What sort of impact it would have on the Europe cryptob market?

Yeah, I think it has sort of two impacts that we've seen. So big picture, it is a rising tide lifts all boats. crypto is such an attractive asset class that the only reason most institutions and most professional investors haven't allocated to it is that there's something in the back of their mind that they think I must not be getting it otherwise it's the best performing asset class of all time it's not correlated to other assets it's liquid it's a no-brainer they have this itch in the back of their mind that's preventing them from allocating one of the things was that the US the world's you know largest financial market its regulator hadn't yet endorsed crypto is valid. It had said it was too risky to let people invest in. So I think that uh sort of stamp of approval has been really significant.

But there's another effect that we see uh at least in our European ETP business which is as we get closer to approval in the US, you start to see futures volume grow on the related asset. We're seeing that right now with Salana. You see a dramatic expansion in the open interest on the CME for Salana futures and often what we're seeing is people in Europe taking advantage of that to allocate to European ETFs and run a carry trade ahead of the US approvals. So we think the US market makes the European market bigger. Europe is still leading in terms of number of assets.

We think it it provides a guiding light for the US. So I really see it as a nice symbiosis

and Elliot in the first decade or so it was all retail-driven market retail traders investors were the one who held this market for quite a long time but in the last 5 years or so it's all about institutions obviously retail market is still there and very important but we are talking about institutions as well help us understand which kind of subsectors within institutional framework you are seeing the most demand for crypto ETFs and ETBs. Yeah. Well, I think first thing about institutions is that they're much further behind retail in terms of adoption. Um, but they're getting there and incrementally every day, you know, there's more adoption happening, but it's it does take longer. I kind of look at the institutional market in sort of like four different uh large players.

Uh, the first probably moving fastest is the adviser-driven asset base. Globally there's an estimated something around 150 trillion in assets that are directed by advisers on behalf of individuals and that is um a space where because they interact with regular retail people they have more conversations and the channels are slowly opening. I mean even in Canada we're not as open for business as you might think despite the fact we've had spot bitcoin in an ETF form since 2021. only one of the big six banks allows advisers to put uh crypto products into their client accounts on an unsolicited basis as part of a plan. So, we have a long way to go, right?

Like I have one message again this year as I have last year. We're so early it's crazy. Remember how early we are because adoption is a one-way door. Once people go through, they don't come back. They allocate and then they continue to allocate.

And we still have more people on the zero side than the nonzero side of allocation right now. Um, so advisor driven assets, big one. Uh, you've got, uh, sovereign wealth funds, we've seen them starting to nibble at the market. Um, uh, I think Abu Dhabi is the one of the biggest shareholders of IBIT. I know Bitwise has sovereign wealth funds as well involved in their platform.

So, you've got those investors are now, um, making their way into this asset. They desperately need it because they have the infinite long-term time horizon, right? These are the this is the this is the lowest time preference investor out there in the market. Um we have traditional institutions, pension plans and other kinds of funds like that. I think they're slower to move because the volatility is not something that they like very much and they can't match off cash flows against liabilities.

So it doesn't kind of fit the mental model as easily and it's more about growth. Um and then the final one that we're very excited about is corporate treasuries. There's 8 trillion in cash on corporate balance sheets right now. If you're the CFO of a company and you're not concerned about the purchasing power of your cash, you're probably not paying attention to your job as closely as you need to be. And uh digital asset treasury companies are showing that um there's a lot of value creation to be had by owning a digital asset.

You know, just simply from an ROIC perspective, the growth of Bitcoin is uh on a track of being about 30% a year. So, a company that only owns Bitcoin has an ROIC of 30% a year. that's pretty hard to beat with operations in a traditional industry. So CFOs need to kind of get themselves to the point where they're making productive use of their cash. And so we think that that's a um a domino that's about to fall.

That's going to be more than just, you know, micro strategy or some of the treasury companies that we've seen this year. I think it's going to become a mainstay of the portfolio of assets that public companies hold. Some of that's just from normalization. Some of that's from regulation. there have been improvements to IFRS recently that allow for it to be treated a little bit better by companies and so there's a lot of cash there.

So the those are the way I kind of see the categories each one in its own different stage of development and um and it's you know again it's going to take time because the this non retail category is further behind retail. They're not sitting around doing their own research in the same way as the retail investor has been over the past 10 years. I think you made a really good point on sovereign wealth fund and uh then treasuries as well because a lot of people that I talked to lot of corporate treasuries they are talking about adding bitcoin as an asset class for diversification as well and we won't be surprised to see the adoption going forward in the coming years. Um Andrew uh when we talk about regulation I I remember last time I was here in 2023 at this convention people were talking quite a lot about regulation. And obviously we still we still do a lot has changed since then that has supported the adoption of crypto ETFs and ETPs.

What about the current regulatory landscape across the world? Obviously in different in different regions but what are your thoughts? Is it is it supportive enough to boost the adoption of crypto ETFs and ETPs?

Yeah. Um that's a great question. I think whenever you look at the different regulatory landscapes, you sort of have to think about who the regulations are for and how it actually impacts the underlying technology. Now, at the end of the day, and it's something that I think Elliot was alluding to somewhat, a lot of the institutional investors and institutional money is at heart risk averse. and they're riskaverse because they have a fiduciary responsibility to look after the capital that other people give them to invest in.

But I also have another theory as to what makes it a bit challenging for people to invest in digital assets. Traditionally, it's very hard to value. uh most of us here who have either been to business school or have been working in the markets, we understand the concept of oh a discounted cash flow for defining a stock price or another underlying asset price. I think this is one of the first times in history that we have such a broad asset class that has value. In some instances, it's able to generate yield and we are not able to quantify how that yield necessarily relates to an underlying token price because there's so much movement in the space.

As Elliott mentioned, we're probably closer to the zero side of things than to the one side of things in terms of broader adoption. So, how does all of that relate to the regulatory landscape? Well, regulators by definition are there to mitigate risk and help quantify risk. And I I think depending on your perspective, if you're an application developer, you may just think, well, they're slowing down innovation. But really, they're trying to bring the rules of an efficient marketplace to all of these assets.

And what we're seeing is different pockets of regulation. You have Europe, Canada, I'm not as familiar with, but certainly in the US we've seen a lot happening with the Genius Act where they're trying to make it more palatable for institutional investors to allocate capital to these instruments. So in my view, even though we have different pockets of regulation throughout the world, you have different countries, some small countries deploying vast regulations. Well, what what is basically happening is it's creating a broader narrative of these investments are acceptable. And I actually think whenever it comes to ETPs and ETFs, this is incredibly valuable because a lot of asset managers, family offices are able to invest crossborder.

So if you have one significant jurisdiction that says something good is happening with these assets, we're going to allow it. it normally means other jurisdictions will start to catch up. I can bet for instance that the EU's approach to stable coins in light of the Genius Act is going to liberalize somewhat. So in this way from a developer perspective perhaps the regulation may seem to be impeding innovation to some extent. From a long-term view of the asset manager, I think it legitimizes these investments and it unlocks capital so that capital allocators can feel uh less of a sense of risk and allocate capital to our instruments more.

You highlighted Europe and you talked about US as well. Any particular region that you want to highlight in which you feel the regulators have advanced a lot in the last few years? Yeah. Well, I I think if you look at the Gulf Coast countries, you can see that they've gone from countries that were predominantly based on a commodities type of economy to countries that are now leading the space in terms of AI and the digital asset space. So much so that many of the digital asset projects that used to be based out of a crypto valley out of Switzerland where I'm based are now actually reheadquartering redomiciling in these countries.

That goes to show the power of uh an innovative and progressive regulatory framework but it doesn't necessarily mean the beauty of this technology is just because it's born in one region doesn't mean it's inaccessible in another. And I think that's something that regulators are going to have to come to terms with.

And one question to all of you and I'll start with you Matt because you mentioned something market is still dominated by Bitcoin and Ethereum. There is absolutely no doubt about it and it's very hard for other crypto assets to compete in some way or the other. You mentioned about Solana gaining quite a lot of popularity as well. Do you expect other digital assets in the crypto ETF ETP space to gain similar sort of traction? probably not at that scale but in terms of popularity among institutions

I think there's a lot of institutional demand right now for anything that's associated with stable coins and tokenization so I think assets that have a link to that Salana is a good example Tron would be another good example um I think those will have significant pickup uh other assets that don't have great demand won't I think a mistake people make is they assume if you launch an ETF people will come if no one is buying a coin natively. If there is no good reason to buy it on the retail spot market, no one's going to buy it in an ETF either. I actually think the biggest new category of ETFs is not going to be any individual asset. I think the the next trillion dollar market that's going to open up uh is is when we get index based assets. The uh institutions that Elliot was talking about, particularly financial advisors are inclined to allocate to index based products.

So, I'm excited about Salana. I think XRP will get flows. I think some of these other smaller assets will get flows. But I think the next biggest category, indeed, the biggest category after Bitcoin is going to be index based solutions. And I think that will open up in the next year.

Yeah. Well, I definitely echo that. We have um a multi-crypto ETF. Um it holds the four other ones that we have, Bitcoin, Ether, Salana, and XRP. Um and as new ETFs are approved in Canada, uh we add them to that.

And that's become a very popular product um because people want to have a one ticket solution and I think it it represents a lot about how investors think about things right indexing is obviously a huge part of investment management for so many people. People want their access to digital assets. They may not be as educated on the difference between Salana and Ethereum. So they want something where they've got exposure to both and then that way they can get the benefit of the category while these other waves of adoption happen. And I also totally agree with Matt on tokenization being a driver for utility reasons.

And I think we um the the one thing that I'm trying to spend a lot of time thinking about is what does the world look like 5 years from now. Um, if you assume that Tether and the other US dollar stables are the proof of concept for tokenization of all assets and you know that you know just from announcements there are a lot of very big platforms looking to try to tokenize other exchange traded assets in along with private assets, real estate and other things. Are we going to get to a point where the traditional rails become maybe less um, you know, right now they're almost entirely dominant, right? But do they become less dominant for people who are investing in traditional assets? Do people start to say, "Well, I can get my S&P 500 exposure through a token version of that that trades 24/7 and I'm then therefore accessing it through a digital wallet and therefore I'm going to come in and out of that through a stable that's in my currency, which then would cause uh stable coins for all other non- US dollar currencies to really increase in size."

Like those kinds of things seemed plausible. I don't think we have to um you know make up a dream future for that to be the case because I think direction of travel is moving that way and that that I mean you know it's hard to sort of see what the world looks like then but I think we all need to be thinking about how do we adapt to that because uh this to me feels a lot like the internet in that it can it could transform things very very quickly and so you need to be paying attention you need to be participating in it you need to be looking at this and then asking yourself what does this mean to my business you know to some extent as an ETF provider We're in the tokenization business. We tokenize portfolios by putting them onto the exchange. That's not that different from tokenizing an asset and putting it onto Salana or Ethereum. And I think things are going to move faster in the next 5 years than they have in the past 5 years.

So super exciting to see where things go. And I think everybody here is obviously working on that. And it's one of the reasons I love this conference because this there's people are really building here. This is not just about number go up. This is about how do we actually build the next wave of this uh industry.

Andrew,

yeah, I think to echo both Matt and Elliot, um I think any time an instrument can reduce friction, uh it's going to be adopted. No matter what anybody says, it will be adopted. But there's one thing that I'd like everybody in this room to think about. uh particularly for those of you who are in the development space. All of us here are living now in developed countries where we don't necessarily need access to tokenized instruments.

But our developed countries maybe make up 900 million in population of an 8 billion populated earth. I'm talking about pretty much North America and Western Europe. Now Elliot made a very interesting point earlier that the return on Bitcoin has been approximately 30% peranom that's an excellent return and if you look at the return on the S&P 500 last year returned 25% on a fully diversified portfolio but if you are in a very populous country in the global south and you hold your money not even in a bank account if you're lucky enough to get it you just happen to hold it your money might be depreciating at a rate of 20 to 25% per quarter. Now, think of what that means if you are now able to access access tokenized instruments because we certainly know if you're living in a poor country and you try to open a brokerage account in New York or Toronto, that ain't happening. That's not going to happen quickly.

So when somebody wants to understand what is the scale of the markets and where do we have to go and what is driving this as Matt correctly pointed out the killer app of blockchain without a doubt in my view is stable coins but who are the people consuming this most it's mainly the people who are working crossborder with countries that don't have good fiat rails so in that same vein it's these same people who are going to be consuming the tokenized instruments just like Kenya led the way with Empa. That demand is going to impact our industry and create continued growth for generations to come.

Yeah. I would just add I think people underestimate the impact of the growth. I'll give you an analogy. People said when retail investors really started becoming a thing, people kept saying they didn't matter because they were too small and you should just pay attention to the institutions. And now to some extent retail investors are driving the market.

I think the same is true for global investors. I think a lot of people are like, "Ah, all the money is in US institutions." But I think people dramatically underestimate the impact that's going to have.

Yeah. And if I could just also add, it's a great point and and uh look, Tether is the test case, right? Tether is the seventh largest buyer of US treasuries in the world and they did not get their asset base from people who were already using the US dollars in the US banking system in the United States. Right? This is a global south buying Tether to get out of the inflation problem that Andrew correctly pointed out because that's their store of value.

And you know, for those of you who talk to um officials in in your government, in in your country, um one of the messages I've been giving some politicians I've been speaking to in Canada recently is that we have an opportunity for capital formation in Canada if we are forwardinking on tokenization because the Tether case proves that out, right? Why should Canadian equities only be available through Canadian brokerage houses to Canadian investors? Why can't people in the global south invest in Canadian companies? Right? These are excellent companies.

We're a well- reggulated country. If somebody wants to buy US dollars to get away from their local currency, they probably also want other investments. They probably want the S&P 500. They probably want the TSX60. They probably want all kinds of different things.

If you tokenize, it brings capital into your country. But but to the big point about friction relief, which I think all of us here appreciate digital assets bring, um I would encourage any of you to try to list a public company in your home jurisdiction. And even if you live in a fairly good country, it will cause you so much pain that you will really hope for the day where tokenization can allow you to form capital more easily because it's still super hard. Um it's even harder than sending a wire which is I think my second on my list of painful activities uh that we do every day.

I mean we are talking about trillions of dollar flowing into this crypto ETFs and ETP space staying on what's going to happen in the future. Where do you see we'll start with you Andrew where do you see market in the next 5 years when you specifically talk about crypto ETFs and ETP? the market in the next five years. Look, I I think we're really just beginning. We, you know, when I was growing up, it was only a select few that would actively pick stocks.

Right now, because of social media, you have people not only picking stocks, but really promoting crypto, digital asset investment. But the biggest thing that I find interesting is accountants actually have a hard time dealing with digital assets. Like it actually occupies an entirely different asset class. But the funny thing about this asset class is it is truly accessible to everybody. Governments even try to block people from gaining access to it.

They quit and then in the cases of some governments they decide to make digital assets their legal tender. So this goes to show you that there is a hunger for justice in the financial and monetary system. But more than that, people are being crushed by the weight of taxes and by the weight of sovereign debt that individuals are having to carry. It's very hard on the basis of your employment income alone to have the lifestyle that our predecessors had. So of course they're going to want to invest.

of course they're going to want to have access to these different tools that have otherwise only been accessible to an elite few. So on this basis alone I think we're headed for a revol a revolution in terms of the amount of capital that will be heading into these instruments. I'll close with one other point. Since the inception of our company velour, we have not had a week of net outflows in capital, despite uh crypto winters, despite last Friday, every single time there's been one day of outflow, it's followed by multiple days of inflow. And since inception, we have the data.

We have had month positive net inflows. And I think that says a lot. And and our client base is mainly out of Scandinavia, which is a pretty well-developed part of the world, if not the best developed part of the world.

Uh so if you were fishing for price predictions, um I'll leave that to uh people who who know know where the market's going. But uh uh I let me just reiterate kind of my my main point, which is that adoption is a one-way door. Okay? I don't know anybody who said, "Well, I used to be invested in Bitcoin, but then I heard this really great podcast about the US dollar, so now I'm like all in on dollars and I love the banking system. I can't wait to send a wire."

That's not a thing that happens. And everybody who goes through the door and gets off zero and goes to some non-zero allocation starts their journey. And then I think what happens from there is you then become comfortable with more digital assets. And I think that there's such a self-reinforcing effect of having some maybe it's Bitcoin is where you start because you get the store of value thesis. It makes sense to you.

It's digital gold. It's easy to understand. Then you end up looking at, you know, utility chains, Salana, Ethereum. Then you hear about people who are doing interesting things with digital assets natively. That becomes natural to you.

And all of this just continues adoption. And and the other thing that's great also about this community is uh everybody I speak to around here, I know they're talking to people who were still on zero and explaining this to them. We're all talking about this. That's that doesn't happen at other conferences. Like you don't go to a fixed income conference and have somebody say like, "Oh man, I was talking to my mom about bonds yesterday.

It was amazing." That's not something that happens. So continue to spread the word. This is the most exciting area of finance. It's anyway, it's wonderful to be here with all the people in Barcelona this week.

Wow, it's hard to beat those things. Um, a a change in fundamental living standards, the most exciting things in finance. Let's see, what can I add? I mean, I do think, you know, specific to the ETP market, we're in the very early days. I would note that almost no ETF has the most inflows in its first year.

The ETF flows build over time, so it's not just a one-way door. How many people here bought Bitcoin the first time and have never bought it since? No one. And that's the same with ETPs. So, we're going to see ETP flows rise.

I think IBIT will be a trillion dollar ETF within a few years. Um, I think it's going to be a big market. Maybe maybe an outside thought that I think we'll see uh happen more and more is the line between crypto assets and stocks. I think it's going to blur and people are going to blend them into portfolios. I think people may stop talking about the Mag 7 and may talk about the Mag 10, which would be the Mag 7 plus Bitcoin, ETH, and Salana.

I think you're going to see more people put those assets together. We get more questions right now about how to build a sleeve of crypto assets and crypto equities than we do about how do what do I think about XRP or what do I think about Salana? Where institutions want to know is where these fit into portfolios. So, I I think that's maybe the thing people are underestimating. It'll be a big deal.

But I agree, it's going to be a multi- it'll be a decade long run of record setting inflows year after year after year. Well, thanks everyone for your valuable insights and thank you for staying with us for this session. Thank you so much.