Jan 23, 2024

21Shares co-founder and President Ophelia Snyder joins CoinDesk TV to discuss the significance of the spot bitcoin ETF approval in the U.S. earlier this month, competition in the crypto space and if fee waivers are proving to be a game changer.

Video transcript

This spot. Bitcoin ETF update is presented by Grayscale, the world's largest crypto asset manager. All right. All right, you might have heard about this slew of spot Bitcoin ETS began trading earlier this month after the US Securities and Exchange Commission, commonly known as the SEC finally approved them following years of delays. Joining us now to discuss is president and co-founder of 21 shares. Ophelia Snyder. Hi, Ophelia. Hi. Thank you so much for having me. It's our pleasure given 21 shares and your team effectively kicked off the whole thing. It's because of them that, uh, some of the others actually got regulated. Um, all right. Uh, 21 shares in Kathy Wood's Arc. Uh, that's the team. It launched the Arc 21 shares. Bitcoin ETF. What's been the response so far? Very positive? Um It's been really interesting. So I think the early days of ETF, it's always hard to know because you never actually 100% know who is, is buying everything because it's, it's a highly intermediate space. One of the really interesting things we've seen has just been the reception by advisors and by, um, intermediaries they really interested in this. And I think the most fundamental shift is not having an opinion about Bitcoin specifically was both not a problem and the default and a perfectly acceptable stance. We're now shifting into a world where not having an opinion is having an opinion. That's a very big change. Right. You can't just say, well, I don't have an opinion on this. We can't access it anyway. It doesn't matter or it's irrelevant. I'm not going to look at it. You, you now actually have to have an answer to this. Um a as an advisor, as an intermediary um as an institutional investor of all sorts of different sizes. That's a very big shift. Um And I think we've, we've obviously been active in Europe for about five years. And so it's interesting to see sort of that acceleration that we've seen in the European market over the last five years happen in the US on a hyper condensed time frame. Yeah. You know, it's funny because regulators uh choose to not say anything because uh regulation uh is most convenient through ambiguity. Uh But it's interesting that you say some people have no opinion and that is itself an opinion. Uh That's, that's quite fascinating. Uh What do you, what do you say your edges, your products edges compared to other competitors? Because, you know, once we knew things were going to roll out in favor of the applicants, we were all asking this question, uh fees or, or some other thing like why would investors pick your Bitcoin ETF over others? So I think there, there's a couple of pieces to this answer. But what it boils down to is 21 insurance has been running crypto products for five years in ETF wrappers. This is what we do. Um And we're obviously a crypto native firm. This is the only asset class that we cover. Um We've seen our products in ETF wrappers run through everything from actually the BC H hash war was the day of the first launch of our first product, which is actually an index product. So from the get go, we've seen everything from hash wars to, to forks and airdrops, we saw Luna FTX periods of intense volatility and interest periods of running products that essentially were operating flat for ages, ensuring that that capital market structure is working, ensuring that we're safely storing assets, we custody uh on behalf of our clients about $2.5 billion in assets uh outside of the US. And we've been doing that effectively for five years. So other firms can say that they have that experience but and they say they can do it and they might be able to, but fundamentally, they're not gonna really have that operating track record to show for it. And I think one of the things that's often also misconstrued around the operations of these products is that they're all identical. They're actually not all identical, how you implement Coinbase custody solution? Are you using hot wallets? Are you only using cold wallets? What are the actual internal procedures around control of assets? Are you, for example, you know, we're going all the way down to an unchain level and validating it, right? Which would be the crypto equivalent of physically going into a gold vault and counting gold bars. But that stuff actually does matter from a, producing a holistic operating product. So that, that's one piece of it. The second piece is art has obviously been covering this space for 10 years from a research perspective which is massive um and has been investing in this space in the public markets for eight. which means that also the sales staff and sort of the people who are actually supporting our clients as they're coming into the space had eight years of experience of explaining crypto into these markets. So what you're getting from us is a really robust operating track record, um a history of research and a deep understanding of the sector as well as a group of people who can actually explain it to you uncommon combination. Hm Interesting. Uh So you, you're, you're basically saying you resilient stamina, you have experience in, in the space and, and of course, your product in general has something known as proof of reserves, which most people are worried about these days. Um And, and, and you back that up. OK. Um I mean, I we'd obviously love to hear about the competitors and how they counter what you're saying about whether uh that unique combination uh is, is truly only unique to you. But Coin Des has reported that Bitcoin uh you know, ETF net inflows have neared $1 billion after just three full days. Uh What's not clear or mainstream knowledge at least is uh what are the latest inflow figures for the ARC 21 shares? Bitcoin ETF. Sure. So, um where today are you sitting around 420 million in assets in this product? Um The product has been up and running essentially, we're, we're entering our eighth trading day and we've traded about a billion dollars in, in notional value over that time, which is actually pretty massive. Um The interesting thing about these numbers from my perspective and I know people have been throwing out a ton of numbers in this space, but they, they're kind of hard to read to some extent. Um You know, what we're really excited about is this is organic traction. This isn't um a lot of seed. This is just us coming into the market and offering product and, and that's quite exciting how much, how much of it actually is, you know, organic and how much of it is not uh essentially all of its organic. We, we didn't sort of, I think we, we launched the product with $500,000 in seed. So and the other thing and the other thing that you did when you launch was, uh, you know, it's the fees, the fee waiver that you had and most of the approved ETF S are fees between 0.2 and 0.4%. You know, making one or two exceptions. Of course. Um, and for the first six months you had as you have a fee waiver or 1st 1 billion in a, um Are you seeing that fee waivers are proving to be game changer or like you said, it's a unique combination honestly. No. Um most people expect to hold their. Uh so you, you need to split this into a few pieces, advisors who are now looking at this as a long term strategic allocation. That time horizon is relatively short, right? Six months, even a year, it doesn't matter, right? They're looking at longer term partnerships who's going to be providing their crypto exposure on an ongoing basis because one of the things people don't really remember is that they're not going to take 12 products or 13 products or whatever it is, they're going to take a small subset that check a bunch of boxes for them, right? So we're going to take ones that are, you know, crypt donative, we're going to take people who have commodity products. We're going to take people who have existing relationships with like there are a bunch of dynamics as to why you would pick one product versus another. Um Within that, I think we're the piece that's often missing is that they're really looking at that as a who's going to be offering my crypto products on an ongoing basis. The, the first six months is, is helpful to some extent. And I don't think that um I don't think cost should be a barrier to entry. It's one of the reasons why we price these products this way. Um Also, you know, 21 basis points, 21 shares was kind of in the name the whole time. Uh We also run a product in, in Europe at the same fee rate and have for a number of years. So, uh no, no, I think that that should have been a fairly uh obvious move on our part. Um If you've connected the dots there. Uh But I think that's what people are more interested in is that long term partnership, especially as you start to think about long term asset allocators, right? Think about all of us on a more crypto native side. If you're buying physical um whatever exchange you're using, you're not looking at. Well, what is the first month of this gonna look like? It's actually typically a longer term relationship in terms of how you're managing um that picture. And as you get into trad find sort of more old school approaches to asset management that becomes even more important, the the the length of that relationship and sort of the establishment of the firm and uh of the support for the asset class man. You really, you, you really think that uh uh well, let's say the industry of the ecosystem in, in the space has the, the mental bandwidth to, to put two and two together about uh 21 shares, the number 21 and, and what the fees is going to be, trust me when it was getting esoteric and, and these ETF applications were going through the sec process. We were just trying to make sure that we understood what the hell was going on because it was, it's just a mind boggling experience given. It's never happened before. Right? So that's the biggest thing. Um, and look, I do this for a living and I promise you no one has ever been that interested in what an eight A is. There's a reason no one's ever been that interested. I will tell you honestly, as somebody who has spent the last five plus years of my life building, specifically crypto ETF S and Etps, this is all I do. I don't find them interesting because they're clerical paperwork. They're not interesting. They're objectively not interesting, but for a very brief moment in time, um I got questions I never expected to or of like the minutia of the order of these things. And I'm like, I don't know, like I don't think anybody actually knows the answer to that question. You kind of just do it at the same time. Yeah, I mean, the SEC has never done this. So we, we, we did get this answer as journalist when you ask the question and like, wait, the SEC has not done it before. So, like, how do we know what they're going to do? It was hilarious. But you also said another thing in your previous answer which was almost acknowledging very, very smoothly. I must say that and there are only going to be a few that survive. It's going to be a survival of the fittest in a way. Uh And, and somebody else echoed that you might know him. Uh gray scale investment, Ceo Michael Sunshine. He told C NBC last week that 2 to 3 of the spot, Bitcoin ETS will maybe obtain some kind of critical mass of assets under management, but others may be pulled from the market. I guess my question to you blatantly bluntly is, are you worried for your ETF then? Uh no. Um as I mentioned, this is all that we do. We, we build crypto ETF S as a company. This is our entire business. Uh Well, this and also obviously we, we have a piece that's a bit more crypto native, but the core of the 21 shares business is building crypto ETF S. Um I think we've shown uh the same power in the space. Um If you look at sort of our European business, we compete with a lot of the same names and we do very well in that market. I think you can see Arc's commitment to this space um over the last 10 years. Uh And quite frankly, this isn't the only product that we've launched to begin with. Right. So we obviously have a spot product, but we have five additional products as part of a um digital assets suite that are actively managed by uh 21 Cheers and Arc. And so it's a very different approach. I think the way we're trying to come into this market is really to make sure that we're offering the best product, that product is competitive. But also that we're offering a, a real suite of solutions for people as they are coming into the space. And I think you should be able to read into that obviously, that we expect to make this a long term commitment. Um And we have uh we're obviously also, you know, in application processes on other other products in the U. Let me, let me ask you which three will survive? Complicated question. The actual answer is, I don't know. No, I mean, look, I could come up with some answer that would be based on some logic, but the reality is we need to remember we're seven trading days in no one actually knows yet because the question is, it's a combination of staying power. So are you going to be able to and focus? Are you gonna be able to continue to do what you're doing today permanently. Um It's not a winner, take all market in that way, there will likely be two or three per segment because for example, um wire houses which are sort of like aggregators of financial institutions, you can kind of think of them that way. Uh are going to have different considerations about what they're wanting out of a product than for example, potentially a retail platform and they look at different things and they expect different things. So just because you win in one segment doesn't mean you will in another. Um And I think you'll see that fragmentation persist for a while longer until things start to consolidate. And um I could pick some names based on relative strengths of firms. I could even pick some names based on currently what we're seeing in terms of real organic demand flows and utilization of product, but it's not going to mean anything. That's the issue, right? I mean, look, I could sit here and tell you, well, we're definitely going to be one of them. And obviously, I think that if not, I wouldn't be doing this, but I think that the elephant in the room is, is obviously gray scale. I think it's hard to know 100% what's gonna happen there um for a variety of reasons. And I think that's why you see some of the, the messaging from them. I think the, the current situation with outflows, the involvement with some of the big bankruptcy estates that are still being worked through in crypto, um especially some of the issues with, with DC G and the relationships there with DC G's balance sheet and Genesis and all of those connections. It's unclear to me how that story still ends. And I think that's actually when people are asking for names, that's really the question they're asking is what's gonna happen here. I think it's a little too soon to tell. Um, they need to finish essentially unwinding whatever portion of those assets were not actually interested in being exposed to this asset class um or need to be removed for other reasons. And then they have priced that at a very high fee rate. I don't know how sustainable that's going to be. And I certainly do not believe that that's going to be sellable into advisor channels because advisers are price sensitive to some extent and the liquidity differential and sort of the spreads associated with that are not a sufficiently wide gap to make up for the increase in cost. And so I think it's gonna be the place that's gonna be an issue and that's what you need to look at. So in ETF S, there's actually three components to cost, which I think most people don't know. Um there's your total expense ratio, which is the that 21 basis points for us, but other numbers for other people um you've got a concept called spread, which is the delta between your bid and your ass, which is actually what you're paying essentially the market maker to do this. And then you have in these products, specifically a premium discount that's partially informed by how well you're handling the cash creations underlying this because that tells you what the real cost of Bitcoin inside of that product to a market maker actually is. And there's some fuzziness between premium discount and spread in terms of how market makers are managing that incremental cost for execution. But that's where it's going to show up um either in premium discount or in spread. So those are the three components to actually coming in and out of an ETF in terms of real cost relative to um the underlying asset. And I think right now it remains to be seen. I think a lot of the marketing position has been, you know, be the cheapest and, and that does make sense. Obviously, these are commodity access products, but you, you need to look at it across all three metrics. And I think that's gonna be the piece that's interesting um on a longer term basis as we start to decide who's actually gonna win. And a big piece of those last two pieces, the premium discount and the spread is volume and that is naturally going to aggregate into the top few names. OK? All right. That was a lot to take in. But I'm glad you gave it to us because that helps us kind of break this esoteric Shakespearean almost chapter. And, uh we, we get into the weeds of, of this just like we did as journalists get into the weeds of the sec applications that a lot of you uh put in. Uh, thank you so much Ophelia uh for joining us. It's been a pleasure. Thank you.

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