Som Seif was an investment banker with RBC Capital Markets before he founded Claymore Investments, a provider of exchange-traded funds, unit investment trusts and other services, which he sold to BlackRock in 2012. His new company, Purpose Investments, has launched ETFs for bitcoin and ether, attracting more than $12 billion to its bitcoin ETF at the time of writing.
U.S. regulators haven't approved ETFs for digital assets, much to the annoyance of many investors and crypto investment firms, who believe such vehicles are crucial for more mainstream acceptance of the industry. CoinDesk caught up with Seif ahead of his appearance at Consensus next week. The following has been lightly edited for brevity and clarity.
CoinDesk: Why do we need a bitcoin ETF as opposed to just investing in bitcoin?
This is an important asset class that’s getting more and more demand by all types of investors. But the reality is that, for most investors, it’s a very clunky asset to own. Prior to the launch of the ETFs in bitcoin and ether, investors would have to open up an exchange account or a separate custody account and then execute transactions using a nontraditional brokerage or their own wallets. It’s like how it was with gold in the '90s and early 2000s, before the gold ETFs came.
With ETFs, the assets are available to every investor in the same way that they would normally invest in any other security, in their traditional accounts in a traditional company and tradable like a normal security. For an asset like bitcoin, which is very much supply and demand driven, it will open up the ability to capture much greater demand for the assets in time. It’s like what we saw with gold once the original gold ETFs were launched in 2003 and 2004. The demand function of gold grew exponentially over the next 20 years, and today it's a core part of many people's portfolios.
CoinDesk: How much of a demand increase might we see because of ETFs for bitcoin and ether?
Digital assets are a young area. It's only 11 or 12 years old in terms of kind of knowledge and awareness. For most people, bitcoin has only been growing for the last five years. So it’s got a long way to grow. ETFs give people an easy and secure way to access demand, and it makes people more likely to purchase. People were interested in bitcoin and ether previously, but exchanges and custody create friction.
In the institutional world, unless you were going to go through the process of opening up a crypto custody account, most of them didn’t touch this. With normal securities, you understand the structure of things, but digital assets are quite different. You don’t have the back-end settlement structures and the traditional custodians. Because it’s a bearer asset, the security around the asset is an important thing, and it’s very different from securing a stock.
With ETFs, all of that goes away because the investment is in a traditional form, and you can have confidence in that structure in the same way as you would have confidence when you're buying the S&P 500, the Nasdaq or whatever. You can hold it in your traditional custody accounts and you can put a traditional ownership and governance structure around that.
CoinDesk: Regulators in the U.S. haven't approved ETFs for digital assets. Why do you think Canadian regulators have been amenable to these products?
Canadian regulators historically have shown a willingness to have a conversation and to be open-minded about innovation. There’s a long history of Canada being first in the investment world and with ETFs.
Back in 2017 and 2018, both sets of regulators made the decision not to approve the products, and there were two reasons. One was a question of whether this is a legitimate asset and do we want people to have access to it? There are questions around brokerage, trading and whether there is enough liquidity.
The second was, is the infrastructure there to even enable a product like this so there is sufficient liquidity? Is there sufficient market-making capability to ensure efficiency of price? Are there institutional-quality custody solutions from the security and structural perspective? Back then, both regulators made the decision that the market didn’t have enough structure for both of those things.
The Canadian regulators made a decision that people are going to want to access this one way or another. We had a couple of examples of unregulated exchanges that ended up being fraudulent, like QuadrigaX. And regulators said we’d much rather give access via a regulated security structure versus an unregulated security structure.
And I think the SEC (U.S. Securities and Exchange Commission) has to ask the same question. Companies like Coinbase and Grayscale are giving investors access to this market. That makes it harder to argue that we shouldn’t give people access to a more efficient structure. The trading fees on Coinbase are ludicrous. You can see in their profits – they are making a lot of money. And my guess is that the SEC will approve it, and it will be very rational for them to do so and very irrational for them at this stage not to.
What are your long-term outlooks on bitcoin and ethereum as assets?
They are very different assets, and they play very different roles. I’ve been very personally biased towards ethereum in the last few years.
My view on bitcoin is it's purely a supply and demand store of value. We know that supply is limited by a specific structure of inflation every year, we know the inflationary rate of bitcoin. I'm a big believer that over the next number of years, bitcoin will be much higher in price, but it’s hard to argue where it’s going to be in the next six or 12 months.
On ether, it has a very different utility. It’s not just about supply and demand. It’s about growth and applications. Bitcoin is ubiquitous and people don’t think of crypto without thinking about bitcoin. With ether, awareness is only starting to grow. As NFTs (non-fungible tokens) and DeFi (decentralized finance) continue to grow, we’ll see more and more people come in, and I think we’ll see significant upside in the next 12 months, perhaps up to $10,000. Over time, I think ether will be the more valuable platform, but it could take a number of years.
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