Jan 19, 2024

Sandy Kaul, Head of Strategy for Digital Assets Unit at Franklin Templeton and BlackRock Head of Digital Assets Robert Mitchnick join "First Mover" to break down the asset managers' journey to spot bitcoin ETF approval in the U.S. Plus, what's next for both firms.

Video transcript

We uh let our digital Asset team loose on Twitter and uh they had a great time and we've had a great time. We thought what a fun way to take the old fashioned image of Ben, right, Ben Franklin for Franklin Templeton and give him the laser eye that shows we really understand, believe in and support where we see Bitcoin headed, that was head of strategy for Franklin Templeton's Digital Asset Unit. Sandy call on all that banter on X formerly known as Twitter. I can't stop calling it Twitter one day, maybe I'll get there good afternoon and welcome to first mover on coin desk on this show. You get all of your top news headline and interviews with industry heavy hitters and today is a big one. We talked to Blackrock and Franklin Templeton just over a week after they both started trading the spot. Bitcoin ETF S in the United States. We'll hear from them in just a moment, but let's take a look at what's going on in the news this morning. The last week has been all about Bitcoin on the back of the spot, Bitcoin ETF News. But analysts and traders are also watching Ether closely in 2023 Ether underperformed Bitcoin. And now analysts are saying that investors will likely have a re look at the second largest Cryptocurrency by market cap this year as it is still the world's leading smart contract Blockchain with key upgrades lined up in a weekly newsletter. Coinbase said quote last week, Bitcoin ETF news proved to be a boon for Ethereum which briefly spiked above $2700 reaching the highest price since May 2022. And there are reasons to be even more optimistic about its near term future. For one, several of the firms behind the Bitcoin ETF S including Blackrock and Van Eck are also plotting Ether based by ETF S end quote. But JP Morgan thinks there are still some challenges ahead. According to the investment bank. The probability of the sec approving a spot E TT F by May is no more than 50%. JP Morgan points to lawsuits against crypto exchanges offering staking services for proof of stake blockchains including Ethereum. They say that this makes the approval of a spot Ether ETF more challenging. And Donald Trump is out with his latest NFT project. The former US president's NFT venture announced on X that collectors who purchased 100 of his mugshot NFTS, which cost $99 will get a unique card in the form of an ordinal on the Bitcoin Blockchain. But buyer beware the ordinals and the 100 NFTS you have to buy to get the ordinal cannot be traded by owners until December 2024. The thread on X said the restriction is meant to reduce their appeal as investment vehicles. This spot Bitcoin ETF update is presented by Grayscale, the world's largest crypto asset manager. Blackrock's move into the crypto space surprised the industry when they filed for a spot. Bitcoin ETF with the SEC in June last year. Yesterday, after one week of trading, the firm spot Bitcoin ETF became the first in class to reach $1 billion in assets under management with 11 asset managers receiving approval. At the same time, we caught up with Blackrock head of digital assets, Robbie Mitch Nick to talk about how the firm plans to stay competitive. Let's take a look, Robbie, how is it going? How are you feeling one week later? How many parties have you guys had over there? Hey, Jan. Well, thanks for having me on. Not, not too many parties. To be honest, we've been uh very focused on uh the launch which is has gone very well. Um You know, we're excited about that and we've had lots of uh client interest uh as you can expect. And so we've been kind of all hands on deck um being out there talking to clients and educating them on, on the project product and the story and um and all the elements of it, I believe Blackrock now has over a billion dollars in their ETF, uh fund. Is that what you were expecting? Were you expecting more? Were you expecting less? How, how is the traction matching expectations? Yeah, I don't think anyone knew exactly what to expect. You know, this was, uh, an unprecedented, uh, dynamic in, in many ways. And, um, you know, we're, we're very pleased obviously with, uh, the early results. Um, you know, product has, uh, traded, very significant volumes, has been been quite liquid. And um you know, we've seen obviously the strong inflows that, that, you know, so, um you know, we're, we're very bleak now for those in the crypto industry, this has been a 10 year long battle and some were uh shocked and pleasantly surprised when Blackrock decided to throw its hat in the ring um and submit an application for a spot, Bitcoin ETF in the United States. What went into making that decision? How have you been tracking the digital asset industry? Uh And how are you looking at it moving forward? Yeah. Well, it's been really a multiyear journey for us. Um You know, and I think uh it, it, it's been very much uh client focused in terms of how we've engaged in this space and what our strategy has been, we've been focused on uh being able to provide uh solutions and, and access vehicles in this space to those clients who seek it. And so when we look at what we've done over multiple years you know, partnership with, with Coinbase or partnership with the Circle and the technology capabilities we build. Um You know, this is a natural extension uh of that journey that we've been on. Robbie. Everyone's talking about the competition. 11 asset managers got that approval at the same time as Blackrock did. Uh Some are saying that Blackrock, although it is the largest asset manager in the world, like I mentioned at the beginning of this industry, at the beginning of this interview, excuse me, uh that Blackrock isn't a crypto native firm and some of the crypto native asset managers are using that to say, come, come trade with us. How would you respond to that? Yeah, I think we, we're very focused on the capabilities we bring across uh the spectrum here. So obviously, uh you know, we've been a leader in the ETF space for multiple decades. Um We've been a leader in innovation in, in many areas within, within ETF S and uh this is another of those, but I also think it's important to look at the digital asset capabilities that, that we've built uh alongside that I'm thinking in particular about our partnership with, with Coinbase dating back to the 2021. And um the integration that, that we did between Coinbase Prime and Aladdin to make Bitcoin work uh with Aladdin and then be able to run it on, on the same ETF servicing platform that, that supports three trillion in ishares assets. I think that's a really important part of what we, we bring to the table here and being able to provide an ishares quality product uh, to investors. One of the big headlines this week has been all about the fees. I know Blackrock reduced their fees. I think the latest asset manager to reduce fees yet again was Franklin Templeton bringing them down to 0.19. Are you expecting your fees to, uh, reduce even further? And I guess on top of that, how, how are you planning to remain competitive with 10 other asset managers, uh, offering the same product? You know, I think, um, you know, fees are just one part of the story, right? Um, you know, is the overall value proposition of the product, but we certainly feel like our fees, uh, today are, are, you know, very compelling and we've gotten, uh, you know, positive feedback from, from clients around that. And that's part of what we try to, to do at ishares is to, to be able to provide, um, low cost, high quality access solutions. And, and we think we've done that here. Are your clients knocking down the door for a spot E TT F. Uh, all I could say is, you know, we, we did file, uh, for that in November, um, and you know, who knows how that ends up playing out, but certainly the majority of our client interest today is in, in Bitcoin. Have you had any uh engagement with the regulator on that spot e ETF application so far or has the focus really been on the Bitcoin one? Yeah, that, that one I can't comment on unfortunately. All right, when it comes to digital assets moving forward, what are you looking at, you know, you, you look closely at this industry outside of Bitcoin and Ether. Uh how is blackrock looking at the industry in general? Yeah. Well, we think of the space across kind of 33 buckets, three key areas of of focus where uh you know, innovation of significance is happening. One bucket is is crypto uh itself. Uh a second is stablecoin. So we've done a lot. It was the primary reserve manager on the, the circle us DC reserve and it's done a lot of interesting technology collaboration with them there as well. And then the third is is tokenization which we think is, you know, more of a uh longer term trend in terms of how that's gonna play out. But um you know, we're very excited about the efficiency and access uh opportunities that tokenization may present as well. And zoom out a little further for me coming from traditional finance. How do you think traditional finance and crypto will work together to build out the future of finance? What does the future look like to you? Yeah, it's a great, it's a great question. I think, you know, we think about the potential of this technology and this idea that you can have uh transparency that you can have global transactions uh in near real time and near near zero cost that things can be digitally native and programmable. I mean that unlocks all kinds of interesting applications in terms of, you know, efficiency cost access. Um And so we're excited about uh about all that and that's why, you know, you've seen the exploration and the initiatives we've undertaken to date. Ok, Robbie, we're gonna have to leave it there. Thanks so much for joining first mover. Thanks so much for having me on Jed. That was Blackrock head of digital assets, Robbie Mitnick. Let's take a look at the chart of the day. The chart of the day is presented by crypto.com, the leading crypto platform trusted by over 80 million users worldwide. Today's chart of the day is all about crypto crime. According to chain analysis, 2023 saw a significant drop in value received by illicit Cryptocurrency addresses totaling $24.2 billion 0.34 percent of total on chain value. The majority of crypto received by illicit addresses is marked by the green on this chart representing sanctioned entities. The second largest amount is attributed to scams. The on chain analytics firm says in the report that they should caveat by saying these figures are lower bound estimates based on inflows to illicit addresses. They've identified the number should become higher as they identify more illicit addresses and incorporate their historic activity. All right, that is enough with crypto crime today. Let's get back to the spot. Bitcoin ETF S. This next asset manager has stolen the buzz on X with their banter and they have their sights set on even more digital asset offerings moving forward. Joining us now to weigh in on what happens from here is head of strategy for Franklin Templeton's Digital Asset unit. Sandy call Sandy. welcome to the show. It's nice to see you again. Great to be here, Jen, nice to see you again as well. Ok, Sandy, this is what everyone wants to know your Twitter account. A drastic change happened as soon as that ETF was approved, what's going on. We uh let our digital asset team loose on Twitter and uh they had a great time and we've had a great time because we're big believers in digital assets and we thought what a fun way to take the old fashioned image of Ben, right, Ben Franklin for Franklin Templeton and give him the laser eye that shows we really understand, believe in and support where we see Bitcoin headed. Um And we've really had fun with the social media since then as well. Um You know, a lot of the big traditional asset managers still are uncomfortable with this channel. But luckily, we have uh lots of great young, engaged and enthusiastic people in our team who really love like engaging in that medium and so they, they've been having a great time and it's really so fun because they've worked so hard to get us to this point. So it's been a really fun week for everyone on the team. Sandy take us behind the scenes a bit. When I think about an asset manager as established as Franklin Templeton, I think that sometimes in organizations like this, it's hard to make change quickly, especially a drastic change like this. What, what was the um I guess was it an uphill battle to try and get the strategy approved? Uh you know what it actually was not? Um We're so fortunate Franklin because from our Ceo Jenny Johnson down, um there's a huge belief in bringing our clients and our investors um the best possible investment opportunities and being headquartered in Silicon Valley. Uh We're very attuned to new technologies. And then when you think about what happened last year with generative A I, there was so much buying interest and you saw so many investors really able to benefit from this new technology coming out, but it's been hard to benefit from the new technologies that are emerging from the crypto domain because you've had to have specialized accounts or you've had to have access to digital wallets or work with ex changes that aren't registered. Uh And all of this has really kept this opportunity out of a lot of investors portfolios. Uh And that's why we were so enthusiastic about the ETF as an access vehicle because it's really opening up this entire new uh innovation uh area to investors to really benefit from the growth and, and the new technologies that are emerging from it. We are a week and a day out from the day when asset managers started trading that spot, Bitcoin ETF, talk to us about the interest that your firm is seeing. Is it meeting expectations exceeding them? Yeah. So we have 22 views on this, right? There's the short term view and we're so thrilled with the growth of the overall Bitcoin ETF uh ecosystem. You know, we've never seen a situation like this where so many firms launched at the same time. And so it's really exciting to watch the horse race. Uh But where we think the real battle is going to occur is as this moves out of kind of the speculative, direct to consumer channel and in to the more wealth channels. And that takes time to get listed on these platforms, they need to really examine and look at each product and how it performs. And this is where Franklin Templeton's strength lies. So we've done great uh in the out of the gate. But our sweet spot, uh you'll really see that start to kick in over the coming months as we say to people, it's a fun horse race, but it is not a short horse race and it's gonna take some time to really see who the true winners are in the end. Let's talk a little bit more about that race. I mentioned it in my intro, Franklin Templeton has the lowest fees at 0.19%. I believe you lowered fees again after the approval of the ETF, what went in to making that decision? Do you really see, uh, the fees being a competitive advantage for you as you move forward? I think fees are always important to think about, not because they're important to the asset manager, but because they're important to the client, right? And we aren't looking at the spot. Bitcoin ETF is kind of an asset gathering opportunity. We're looking at it as an investment opportunity. And so we want our investors, particularly those who reward us with their trust in coming early into the fund to get the full benefit of that. And we decided that we're in this for the long haul. We have already multi coin portfolios that we're trading in separately managed accounts. We have the first ever uh us public mutual fund on Blockchain. We, we have many products that we're looking to push and the Bitcoin is a exciting new one and we want our investors to get 100% of the benefit of that out of the gate. So we really decided to suspending the fees until we got to 10 billion A. Um Or until we got to the first through the first six months was the way to really reward those who went on this journey with us. You just mentioned a few different types of digital asset products. Um Are you seeing new clients come to Franklin Templeton for these offerings or are your existing clients? Um you know, are they excited about these products or is there kind of a an educational gap that the firm is trying to fill for them? Well, we have a whole range, right? So there's been clients that have been on this digital asset journey with us from day one. You know, we run our own nodes, we're on five different public blockchains. We're really working um across many of the crypto natives and with many of the crypto natives in the space and there's been a crypto native audience that's been investing with us for many years now. Uh Then there's been a set of investors who are investing with our venture capital fund who are inventing investing uh through some of our separately managed accounts. Um But it's the newest audience that we're excited to be accessing, which is the more everyday investor that hasn't had this opportunity or, you know, the real technical know how to get into the space. So I think you're finding different audiences have different levels of excitement and it's this newest audience that really has been probably watching but not really feeling comfortable getting into digital assets uh that we think are the most excited about this opportunity. I want to talk about that new audience and come back to the Twitter. Uh There's been some buzz around Solana. I know Franklin Templeton has been tweeting about different ecosystems, different layer ones, Ethereum and Solana being two of them in the last week. Does that mean that investors can expect products that might give them exposure to these two assets or are you maybe thinking about a Solana ETF in the future? Well, we, we have our own investment research team that does research on individual coins and, and certainly both Ethereum and Salana are coins where we co we have coverage, we have our own price forecasts and targets. Uh We talk with our investors about what our research is showing us. Uh And so it feels natural that over time our ETF uh ecosystem will expand. Uh but I can't comment on any specific timing on any of that. But you know, this, it makes sense to think about this as a portfolio of ETF S and opportunities, not just a single Bitcoin portfolio. OK, Sandy, I have to ask you the last time you and I spoke was at consensus 2023 and we're talking about music and culture as digital assets that folks could invest in any progress there uh from the firm's perspective or has the focus really been on getting this ETF off the ground? Well, we have different teams working uh on different initiatives within the group and I could say that we're starting to make some very interesting partnership decisions uh that will hopefully allow us to have some progress on these cultural assets. And this idea that you can own a growing set of assets by using the tokenization wrapper uh and embedding the utilization uh rights and the benefits and the rewards. Uh And we're starting to experiment this with this even within our own organization uh for our conferences. Now that our digital asset team helps to support we're issuing NFTS for those conferences and those NFTS are giving access to the research, uh the proprietary research that we're publishing. So that's our first step on this journey in starting to bring smart contracts into our ecosystem. And we continue to expect that to evolve and grow over time. Our audience might not have been a consensus 2023 last year. So just explain to us a little bit about how Franklin Templeton is thinking about music specifically as a, as a digital asset, as an investable asset for uh investors who are working with your firm. Yeah, I mean, music is a fantastic example, Jen, because when you think about it, you know, royalties are a wonderful cash income stream, right? You know that the songs are gonna be played. Uh you know that the artist has a body of work that keeps their uh fans interested. And it it's a great way to add an income stream to a portfolio, but it's very hard to think about administering a re a royalty pool across millions of investors, right? It's just operationally too difficult to do uh in today's world. But once you start moving into the world of smart contracts, and you start to be able uh to really programmatically split up that pool of royalties into small small fractional shares and have that automatically administered by the algorithms. All of a sudden those royalty pools become amazing sources of potential return. And so this is something we want to unlock for our clients. We think that music are digital, um you know, collectibles. These are all things that people have always put money into for investment purposes, but they haven't been able to wrap them into a portfolio. Uh and therefore you're not getting the risk benefit, the diversification benefit. And we think that this is really going to change in the next few years and we really want to be at the forefront of that. OK. And Sandy, just before we wrap, we've been talking to all the asset managers, your peers who have been approved for a spot. Bitcoin ETF many of them come from the traditional finance world if you were to look forward, uh paint a picture for me, what does the future look like with traditional finance firms, interacting with crypto and vice versa? That's been the most uh I think enjoyable and exciting part of what's been happening in the last few months, Jen is that I think we're finally starting to see the two sides come together, right? The innovation, the creativity, the willingness to push the boundaries and find new business models that the crypto natives represent, um which is just not coming in many instances from the traditional investment side. And yet the comfortableness working with regulators, the understanding of investor protections, uh the thinking about the total portfolio and how that comes together from a risk management and a volatility perspective. That's the real strengths that traditional investment managers bring to the table. So combining uh these innovations with these uh traditional values that have really worked over decades. I mean, Franklin Templeton is 76 years old. Um That's what's so exciting to me. That's really what opens up the potential of the future and it's all to the benefit of our investors. And that's what, you know, all of us in this industry are the most focused on and we're the most excited about Sandy. It's been such a pleasure chatting to you. Thanks so much for joining the show. Thank you so much for having me. That was head of strategy for Franklin Templeton's Digital Asset unit. Sandy K. That's a wrap for first mover. We hope you have a Happy Happy Friday and we'll see you again on Monday morning. Thank you so much for watching this week and thank you to our guests today, Robbie Michnik and Sandy call as a note, interviews are sometimes edited on first mover for clarity and consistency. We hope you have a great weekend and we'll see you next week.

Learn more about Consensus 2024, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to coindesk.consensus.com to register and buy your pass now.