ETF investors see explosion in crypto investments with Coinbase listing

The pending Coinbase direct listing, scheduled for Wednesday on the Nasdaq under the symbol COIN, is interesting for a broad base of the investment community outside the usual crowd of cryptocurrencies.

“Coinbase will blow people’s minds,” said Matt Hougan, chief investment officer at Bitwise Asset Management, which pioneered the first cryptocurrency index fund. “I think it will force traditional finance to fight the phenomenal growth that is taking place in crypto.”

It is not difficult to understand why. Coinbase is probably the biggest beneficiary of cryptocurrency revival. It had 56 million verified users, with revenue of $ 1.8 billion in the first quarter alone and a value that could be $ 50 billion to $ 100 billion.

This is an extraordinary assessment for an exchange of any kind. In contrast, the Intercontinental Exchange, which manages the New York Stock Exchange, has a market capitalization of $ 65 billion, while the Nasdaq has a market capitalization of $ 25 billion.

This type of valuation makes the investment community – and especially stock market investors – very excited.

Cryptographic assets have had the same problem as other hot commodities (such as pot or space) in the past: a high degree of interest with a notable lack of investable assets. Coinbase, however, will go a long way toward resolving this issue.

“Coinbase will be the largest public endpoint of pure cryptocurrency,” said Matt Kennedy, senior IPO market strategist at Renaissance Capital, which manages Renaissance Capital’s ETF (IPO). “I expect every cryptocurrency ETF to want (or need) to own it at some point, and it is possible that our ETF will be the first to own it.”

It’s the same story with Christian Magoon of Amplify, who leads the Transformational Data Sharing (BLOK) ETF, which focuses on blockchain technology.

“Being actively managed, we can buy it when it becomes public and we fully expect it to be in our portfolio,” Magoon told me.

Other technology ETFs, especially Cathie Wood’s ARK Fintech Innovation (ARKF) ETF, as well as the Global X FinTech (FINX) ETF, will also be buyers, and this is just the beginning. “You will see many other ETFs requesting crypto funds,” Magoon said.

Because ownership of crypto by individuals and institutions is still quite low, many believe that the Coinbase valuation will encourage more private entities to go public.

“I think we will see a gold rush for cryptocurrencies as investors realize how fast pick and shovel companies are growing in the crypto ecosystem,” Hougan said.

Michelle Bond, a former senior advisor to the SEC who is now CEO of the Association for Digital Asset Markets, an association of digital companies, said Coinbase’s listing “will break down major barriers because it will have to be approved by a traditional financial regulator.” , ensuring transparency, integrity and disclosure. “

Of course, that means more players coming, including high-profile competitors. For example, Bakkt Holdings, a digital asset market owned by the Intercontinental Exchange, has entered into a merger agreement with a SPAC, VPC Impact Acquisition Holdings.

While bitcoin ETFs exist in the US, they do not directly own bitcoin. They hold portfolios of shares considered to be exposed to blockchain technology.

A bitcoin ETF that owns bitcoin is a long-awaited dream of crypto investors, as it will greatly expand the class of potential owners.

“A bitcoin ETF will provide an easy, simple and efficient way to hold bitcoin,” said Som Seif, who runs the Purpose Bitcoin ETF, which trades in Canada. “Like gold, bitcoin storage and custody are unique. An ETF solves this problem. It is also like a stamp of approval: there is institutional support. GLD [Gold ETF] changed the world when it appeared in 2004. It facilitated the holding of gold as an asset class. ”

He anticipates that a bitcoin ETF will do the same for bitcoin.

A few weeks ago, the SEC acknowledged receipt of Van Eck’s bitcoin ETF application, which set in motion a 45-day regulatory review period. At the end of this period, the ESA must either approve, reject or extend the review period. Several other companies, including Fidelity, have also requested a bitcoin ETF.

Most observers believe that the SEC will try to extend the review period. The maximum period is 240 days.

“The Commission doesn’t like to do new things and when something falls into that category, it gives the commission a stir, so the attitude is ‘let’s take the maximum time,'” said a long-time SEC observer who spoke. on condition of anonymity, he works in a sensitive job in the cryptographic industry.

However, most bitcoin viewers believe that the end of 2021 could finally be the year a bitcoin ETF is approved.

“The biggest potential change is [SEC Chair nominee] Gary Gensler, “Magoon said, noting that Gensler handed over the cryptocurrencies and appears more receptive to depositing bitcoin. He also mentioned that SEC Commissioner Hester Peirce, a Republican, also supported a bitcoin ETF.

However, the biggest difference may be improving the security of the bitcoin universe.

The SEC, in a 3-1 decision in 2018, rejected for the second time a request from the Winklevoss brothers for a bitcoin ETF. The SEC has specifically stated that it is concerned about extreme price volatility and cryptocurrency fraud. He also mentioned that 75% of bitcoin trading takes place abroad on unregulated foreign exchanges that could be manipulated.

All bitcoin observers agree that the SEC should be pleased that fraud and manipulation issues have been resolved.

Hougan believes the crypto market has come a long way in addressing these concerns.

“A few years ago there was no regulated futures market, now there is, and the volumes are much higher,” Hougan said. “There have also been no insurance-regulated custodians, now there are. We have made huge strides, whether we have managed to cross the line, it is not clear, but we are getting closer.”

Matt Hougan, investment director at Bitwise Asset Management, and Christian Magoon, who leads the ETF Amplify Transformational Data Sharing (BLOK), an actively managed portfolio focused on blockchain technology, will be our guests at CNBC. “ETF Edge“at 13:00 ET Monday and beyond”Pause report„At 12:35 pm