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    The Blockcrunch Podcast

    Will BTC ETFs Kickstart the Next Bull Run? - Ram Ahluwalia, Lumida, Ep. 245

    Wed Jul 19 2023
    FilecoinETFsSECBlackRockBitcoinCryptoTokenizationDeFiSurveillance Sharing AgreementGlobal Perspectives

    Description

    The episode discusses the role of Filecoin in Web3 storage protocols, the challenges of getting ETF approval from the SEC, political factors influencing the decision-making process, global perspectives on digital assets, and the potential impact of DeFi. It explores the need for a surveillance sharing agreement, BlackRock's involvement in the ETF application process, and the implications for other cryptocurrencies like Ethereum. The episode also highlights the increasing partisanship around digital assets and the potential for tokenization to disrupt financial markets.

    Insights

    Filecoin's Dominance in Web3 Storage

    Filecoin powers 99% of total storage capacity and 95% of storage utility in Web3 storage protocols. It has gained exposure through hackathon partnerships and has attracted significant investment from startups.

    Challenges of ETF Approval

    The SEC has rejected previous ETF applications due to the lack of a surveillance sharing agreement. Finding a venue that satisfies the SEC's requirements may be challenging. The decentralized nature of Bitcoin makes surveillance more difficult, but a regulated exchange is necessary.

    Political Factors and BlackRock's Role

    There may be a political angle to the SEC Chair's stance on crypto, as he is backed by the progressive wing of the Democrat Party. BlackRock sees tokenization as the future and wants to preserve the relevance of the United States in this space. Larry Fink's support for blockchain and tokenization may be politically motivated.

    Global Perspectives on Digital Assets

    The approval or rejection of stable coins by key figures can shape the course of history. Countries like South Korea, Japan, and China are ahead of the US in integrating digital programmable money into apps. Crypto native funds are considering moving out of the US to execute on different venues. Tokenization can create more liquidity and transparency for financial systems, and DeFi offers a level of transparency that traditional finance lacks.

    Implications of ETF Approval

    The SEC's approval or rejection of ETF products will have implications for grayscale and other ETSCs. If a Bitcoin ETF is approved, Ethereum ETFs are likely to follow quickly as long as decentralized exchanges cooperate in surveillance sharing agreements.

    Challenges in ETF Approval Process

    For an ETF to be approved, there needs to be a method for detecting and identifying infractions, ideally involving multiple exchanges and decentralized platforms like Uniswap. The recent applications recognize the need for a surveillance sharing agreement, and BlackRock's involvement adds credibility.

    Speculation on SEC's Decision

    There is speculation that the SEC may find other reasons not to approve ETFs even with a shared surveillance agreement. The SEC's response time to BlackRock's application could indicate their intentions. Pressure from recent actions against Coinbase and Binance may also influence the decision.

    Partisanship in Digital Assets

    The issue of digital assets has become increasingly partisan in the US. Prominent contributors to the Democratic Party are involved in digital currency initiatives. Advocates for digital assets at the SEC have left due to frustration with their approach, but there are still crypto advocates within the organization.

    Potential Disruption by Tokenization

    Tokenization can disrupt financial markets and eliminate the need for custodians. It can create more liquidity and transparency, addressing issues from the 2008 crisis. DeFi offers a level of transparency that traditional finance lacks.

    The SEC's Approach to Digital Assets

    The SEC's approach to digital assets has become political instead of purely legal. Their job is to enforce laws, not set policy. However, recent actions and decisions indicate a political influence on their stance.

    Chapters

    1. Filecoin and ETFs
    2. Political Factors and BlackRock
    3. Global Perspectives and DeFi
    Summary
    Transcript

    Filecoin and ETFs

    00:02 - 15:26

    • Filecoin powers 99% of total storage capacity and 95% of storage utility in Web3 storage protocols.
    • 70,000 developers have been exposed to Filecoin through hackathon partnerships.
    • 500 startups are actively building on Filecoin, raising about $500 million in capital.
    • BlackRock's application for a Bitcoin spot ETF is the 28th attempt at such an ETF.
    • The ETF is important for crypto as it would transform access to Bitcoin into a security format and bridge it into the institutional finance world.
    • The SEC has rejected previous ETF applications due to the lack of a surveillance sharing agreement.
    • Finding a venue for these ETFs that satisfies the SEC's requirements may be challenging.
    • Rejections of ETFs are due to the lack of a framework for a shared surveillance agreement.
    • BlackRock's approval is still uncertain, as well as other companies like Fidelity, Bitwise, WisdomTree, and others.
    • The SEC requires a mechanism to detect market manipulation in ETFs that trade securities on regulated exchanges.
    • Bitcoin's decentralized nature makes surveillance more challenging, but a regulated exchange is necessary.
    • Coinbase could potentially fulfill the role of providing shared surveillance, despite most crypto trading happening on exchanges like Binance.
    • Multiple exchanges need to coordinate and cooperate with software companies like Solitis Labs to implement shared surveillance agreements.
    • Smaller international exchanges may also be required for a comprehensive approach.
    • The existence of an acceptable shared surveillance agreement is the primary factor impacting the SEC's decision on ETF applications.
    • There is speculation that the SEC may find other reasons not to approve ETFs even with a shared surveillance agreement.

    Political Factors and BlackRock

    14:56 - 23:29

    • Gary Gensler, the SEC Chair, is backed by the progressive wing of the Democrat Party and there may be a political angle to his stance on crypto.
    • The SEC could potentially claim that Coinbase is not a regulated market, which would affect their ability to support a Bitcoin ETF.
    • Grayscale's lawsuit against the SEC argues that they are being inconsistent in their approval of Bitcoin futures ETFs.
    • BlackRock sees tokenization as the future and wants to preserve the relevance of the United States in this space.
    • Larry Fink, CEO of BlackRock, believes that blockchain and tokenization can disrupt financial markets and eliminate the need for custodians.
    • Fink's support for blockchain and tokenization may be a political message aimed at preserving BlackRock's position in a world where asset classes go on chain.
    • The ETF application from BlackRock left certain matters unspecified, but they will update it based on feedback from the SEC.
    • If rejected, it would only be the second rejection for BlackRock out of over 1,500 approvals.
    • Larry Fink may be positioning himself to become the next Treasury Secretary of the United States.
    • The issue of digital assets has become increasingly partisan in the US.
    • Larry Fink and Larry Summers, both prominent contributors to the Democratic Party, are involved in digital currency initiatives.

    Global Perspectives and DeFi

    23:10 - 39:02

    • The approval or rejection of stable coins by key figures like Janet Yellen can shape the course of history.
    • South Korea, Japan, and China are ahead of the US in integrating digital programmable money into apps.
    • Crypto native funds are considering moving out of the US to execute on different venues like Dubai or London.
    • Tokenization can create more liquidity and transparency for financial systems, addressing issues from the 2008 crisis.
    • DeFi offers a level of transparency that traditional finance lacks.
    • The SEC's approval or rejection of ETF products will have implications for grayscale and other ETSCs.
    • Coinbase has sued the SEC to request rulemaking and updated interpretive guidance on NFTs and stablecoins.
    • The recent ETF applications from multiple banks are a competitive response, not coordination
    • The CEO of two ETF issuers mentioned that the chances of approval are uncertain, with one saying it's 50/50 and the other unlikely
    • For an ETF to be approved, there needs to be a method for detecting and identifying infractions, ideally involving multiple exchanges and decentralized platforms like Uniswap
    • If a Bitcoin ETF is approved, Ethereum ETFs are likely to follow quickly as long as decentralized exchanges cooperate in surveillance sharing agreements
    • The addition in the recent applications is the recognition of the need for a surveillance sharing agreement and BlackRock's involvement adds credibility
    • The SEC responded to BlackRock's application within two weeks, which could indicate they're trying to lay out a path for approval
    • There is speculation that the SEC may approve the ETF to appease younger generations or due to pressure from recent actions against Coinbase and Binance
    • Advocates for digital assets at the SEC have left due to frustration with their approach, but there are still crypto advocates within the organization
    • The SEC's job is to enforce laws, not set policy, but their approach has become political instead of purely legal
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