"The Road to Bitcoin ETF Approval"

Bloomberg's Intelligence Research Analyst James Seyffart's Insights and Predictions

Sep 14, 2023

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Unraveling the World of Cryptocurrency ETFs: A Conversation with James Seyffart

In this blog post, I'm excited to share with you the insights from our recent podcast episode where we had the pleasure of hosting James Seyffart, a research analyst at Bloomberg Intelligence. James specializes in the asset management industry, with a keen focus on ETFs, mutual funds, hedge funds, and cryptocurrencies.

Meet James Seifert: The Analyst and Athlete

Before we dove into the world of cryptocurrencies, we took a moment to appreciate James's athletic prowess. A former track star, James was a mid-distance runner in college, participating in cross-country and spring track events, with a primary focus on the mile distance. As someone who personally prefers sprinting over long-distance running, I couldn't help but admire his dedication and discipline.

Gensler's Testimony and Crypto Regulation

Our conversation quickly shifted to the hot topic of the day - Gary Gensler's testimony in front of the Senate regarding crypto regulation. James explained that Gensler has been testifying on various rule proposals, including some related to crypto. However, he noted that Gensler has faced criticism for proposing numerous rules unilaterally.

Spot ETFs vs Futures ETFs

James then delved into the difference between spot ETFs and futures ETFs. Spot ETFs hold physical bitcoin in cold storage or with a custodian, while futures ETFs hold futures contracts. He pointed out that futures ETFs are a less efficient way of accessing the market due to the need to roll contracts every month, which incurs roll costs. On the other hand, spot ETFs hold the actual bitcoin and trade tighter, making them more suitable for long-term holding.

The Race for Bitcoin Futures ETFs

James highlighted the various companies and organizations that have filed for Bitcoin futures ETFs, including BlackRock, Bitwise, VanEck, Invesco, Franklin Templeton, and Hashdex. He also mentioned other companies that have filed for Bitcoin futures ETFs, such as Global Access, Fidelity, WisdomTree, and 21 Shares. James predicted that Ethereum futures ETFs will be approved in October and that there is a high chance of a spot Bitcoin ETF being approved by the end of 2024.

The Benefits of Cryptocurrency ETFs

James discussed the potential benefits of cryptocurrency ETFs compared to platforms like FTX. He explained that ETFs provide more transparency and accountability, reducing the risk of fraudulent practices. He also mentioned that ETFs can use futures contracts to gain exposure to the spot market, which can help address the SEC's concerns about market manipulation.

Cryptocurrencies vs Traditional Stocks

We also touched on the advantages of cryptocurrencies over traditional stocks. I expressed my frustration with stock-based compensation and dilution in public companies, while James highlighted the limited supply of cryptocurrencies as a positive aspect. However, he also noted that not all cryptocurrencies are immune to fraud and manipulation.

James's Stance on Cryptocurrencies

When asked about his personal stance on cryptocurrencies, James explained that he tries to remain impartial but leans towards being pro-bitcoin. He believes that the SEC's role should be focused on disclosure rather than making judgments about investment quality.

The Future of Bitcoin ETFs

James discussed the potential approval of Bitcoin ETFs by the SEC. He highlighted that the settlement issue has been addressed through the involvement of CME, a regulated market, in exchanging futures for spot. This helps alleviate concerns about settlement and money going into the Bitcoin network.

However, he pointed out that the SEC may still focus on custody or the possibility of fraud and manipulation in the spot market. He mentioned the ongoing DOJ and SEC investigation into Binance as a potential area of concern. If evidence of manipulation in the spot market emerges from this investigation, it could impact the SEC's decision-making process.

The Timeline for Potential ETF Approvals

James predicts that by the end of 2024, there is a more than 90% chance of approval. However, he acknowledges that this could change based on various factors, including the outcome of the ongoing investigations.

In conclusion, our conversation with James Seyffartt was an enlightening journey into the world of cryptocurrency ETFs. His insights provided a deeper understanding of the complexities and potential of this emerging market. As we continue to navigate the evolving landscape of cryptocurrencies, it's clear that informed discussions like these are invaluable.