Me? Grateful for Gary Gensler? You Bet

You might be surprised why I’m proud of him

Ric Edelman: It's Monday, January 22nd. On today's show, I've got a message for and about Gary Gensler. Gary Gensler is the Chair of the SEC. I've talked about him an awful lot on this program over the past several years, mostly pertaining to crypto and the SEC's engagement or in many cases, failure to engage in the crypto community, the failure to write regulations, the fact that the SEC has been doing something called regulation by enforcement, where it's been merely fining companies for doing things that the companies didn't know they weren't allowed to do. Kind of like driving on a highway without knowing the speed limit until after the cop pulls you over for speeding and the refusal of the SEC for the past ten years and throughout Gary Gensler's chairmanship to say yes to spot bitcoin ETFs. It was only after the Grayscale lawsuit last summer that changed the situation. The SEC rejected Grayscale's application for a spot bitcoin ETF, the same way the SEC has rejected every application, and Grayscale took the SEC to court, arguing that the SEC's behavior was illogical and contradictory to its own regulations, policies and procedures. And, by the way, inconsistent with the way the SEC has handled other ETF applications. Most notably, the SEC said yes to bitcoin futures ETFs. So how could you say yes to futures but say no to spot? In other words, that's kind of like saying you're allowed to eat ketchup, but you're not allowed to eat tomatoes. I mean, futures are a derivative. 

If you can say yes to the derivative, shouldn't you be saying yes to the actual asset itself? This was a conundrum, a frustrating aspect of SEC behavior for everybody in the crypto community, and a great many in the financial services investment management community as well. And I have been very vocal over the past several years in my disagreement with Gary Gensler's views and positions regarding crypto broadly, generally, and specifically regarding the spot bitcoin ETF applications. Then along came the court ruling. The court ruled against Gary Gensler and the SEC. The court, in fact, stated that the SEC had acted arbitrarily and capriciously in its behavior regarding these bitcoin ETF applications, and demanded that the SEC revisit its decisions. This was a pretty blunt commentary. The court basically said to the SEC, your decision was wrong. Change your decision. That was last summer, and over the next six months, there was a lot of excitement in the crypto community as it looked like the SEC was going to do what the court told them to do.

And in fact, that's ultimately exactly what the SEC did under Chair Gary Gensler. His leadership on January 10th, several months after the court ordered the SEC to review its prior decisions, the SEC approved not just Grayscale's application, but ten additional applications from ten other ETF sponsor companies. We now have 11 spot bitcoin ETFs on the open marketplace, and they have collectively represented the most successful ETF launch in ETF history, billions of dollars flowing into these ETFs within just a few weeks. 

And that's only the beginning. The reason I'm talking about this today is not to say hey Gary told you so. And, you know, putting my thumb to my nose with an “nyah nyah nyah” kind of an attitude. That's not my message at all. My message is very simple and clear. Today I want to thank and applaud and congratulate SEC Chair Gary Gensler for his leadership. The reason I'm saying that is this. Gary Gensler could have taken a different path following the court's ruling. While the court told the SEC to review its decision, which everybody assumed meant change your decision, Mr. Gensler. The court didn't say that. The court simply said, review your decision. You see, the court said to Gary Gensler and the SEC, you said yes to the bitcoin futures ETFs. Therefore, you ought to say yes to the spot. Bitcoin ETFs.

But Gary Gensler didn't necessarily have to approve the spot bitcoin ETFs. He could have gone in any one of a number of other directions. He could, for example, have appealed the court's ruling. That would have created a delay of a year or more toward the decision. The SEC could have required Grayscale to start over with a brand-new application that would have put a new 240-day clock on the entire decision. Gary Gensler could have caused other delays and obfuscations along the way. In fact, Gary Gensler could have even gone to an extreme level of saying, if the court is telling me that I can't say yes to futures ETFs, but no to spot, then why don't I just say no to the futures and pull them off the market? In other words, instead of giving everybody all the ETFs, let's take away all of them instead. 

Gary Gensler had a variety of avenues at his disposal, but in the end, he chose not to pursue any of them. He did not have the SEC appeal, the court ruling he did not require Grayscale to fire a brand-new application from scratch. He did not obfuscate or delay in other ways. Gary Gensler followed the rule of law, and it is for this reason that I give him my praise, compliment and very deep thanks.

You see, America is based on rule of law. This is what separates us from the vast majority of other countries around the world. And this has been the case for the United States throughout our entire history. Since our independence in 1776. The rule of law. Gary Gensler and I may disagree strongly about the spot bitcoin ETFs. Even while he voted yes to approve them, he issued a statement making it pretty clear he doesn't like them and he's warning investors against them. But yet he recognized that we have a checks and balances system in our country. And it is our democratic approach to government that has made America the greatest country in the world. 

We have a Congress that writes laws. We have an administration that can veto those laws. We have a Congress that can override those vetoes. And then ultimately, we have a court that evaluates whether or not those laws are constitutional. The checks and balances system is what preserves our republic, preserves our liberty. Gary Gensler strongly disagreed with the court, and yet he recognized that he isn't above the court. He complied. I know he had to do it kicking and screaming, biting and holding his breath. But he did what a statesman would do. This is a cause for celebration.

Oh, I'm sure we're not done arguing. Gary Gensler still has a lot of negative feelings about the crypto community and crypto products, and he's terribly worried about investor protection, scams and frauds. He's right on a lot of it, by the way, but I don't agree with him on his posture regarding regulation, and I don't agree with him on a lot of the policies that the SEC has engaged in in this area. We'll continue to disagree, but we will do so within the rule of law. This is what makes America great. Gary Gensler has just demonstrated what a statesman looks like. Gary Gensler, statesman.

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Bitcoin ETF Education Series: The BlackRock iShares Bitcoin Trust

Ric Edelman:  You're listening to The Truth About Your Future. Well, it's now been, what, ten days since the spot bitcoin ETFs have debuted. And we are continuing with our ongoing series introducing you to the new spot bitcoin ETFs. So I'm very happy particularly to bring onto the program Jay Jacobs. He is the US Head of Thematics and Active Equity ETFs for BlackRock, the sponsor of the new iShares Bitcoin Trust. The symbol is IBIT: IBIT. Jay great to have you on the podcast.

Jay Jacobs: Thank you for having me, Ric.

Ric Edelman: So you've got to be pretty excited on your ETF is taken off like a rocket ship.

Jay Jacobs: It's exciting. And you know really, we're excited for investors. The reason why we brought out this product to begin with was we listened to clients who were saying, we want bitcoin exposure in an ETF. And I think a lot of this has to do with the journey that ETFs have been on for the last several decades, with greater and greater penetration amongst the advisor community, as well as end investors of really being a vehicle of choice, but also the growth of the digital asset space where we've seen Bitcoin adoption rising and more people kind of going through that educational journey of what these assets are and how they might behave.

Ric Edelman: And when I mention that it's taking off like a rocket ship, I'm referring to the asset flows. I'm not referring to the Bitcoin price, which is a totally separate conversation and not really germane to what we're talking about here, but it's the fact that you have seen such strong asset flow. What do you suppose the launch and the debut of this new, not just your ETF, but the category of ETFs? This is the very first time we've ever had spot bitcoin ETFs. 11 of these all got approval simultaneously by the SEC. What does all this mean, Jay, for investors and investment advisors?

Jay Jacobs: You know IBIT I think is really an access story. And you have several different groups of investors out there that might look at this vehicle as a preferred way to get exposure to bitcoin. You know, on one hand, you have people who have already had exposure to bitcoin, but they're not happy with the way that they're getting it. Maybe it's complicated. Maybe the taxation is difficult, or the custody is difficult. And they see an ETF as a more convenient way of getting exposure. You have groups of people who may have wanted bitcoin exposure but just haven't been able to for various reasons, but now they can buy IBIT in a brokerage account, advisory account, you know, even in tax-advantaged accounts. And then you have other groups of people who maybe just haven't considered it, and they haven't considered it because they haven't had that access previously, and they're just starting this educational journey around a different type of asset that has historically behaved differently from stocks and bonds. And, you know, they'll ultimately make a decision down the road of whether it makes sense in their portfolios. But there are a lot of different groups of investors that, at the end of the day, now have access and choice to invest in bitcoin because of IBIT.

Ric Edelman: Yeah, I think you're right about that. You know, Bitcoin is now 15 years old. But it's been cumbersome as you pointed out. Up until now you've had to open a crypto wallet, you had to work with a crypto exchange, you were dealing with private keys, and it was just cumbersome, complicated, new and different, and outside the comfort zone of a lot of investors. But now it's an ETF and everybody's familiar with this platform. They're the most popular investment vehicle in the country. BlackRock offers more ETFs. You have greater depth of experience and exposure in the ETF world than any asset manager. I think you have, what, 500 ETFs on your platform at this point? So this is a no brainer from an investor perspective in the sense of familiarity – it doesn't require a new level of knowledge or training or education. Most investors, I think it's safe to say these days, are familiar with ETFs, and a huge percentage of the investing public owns them. So, it's the access, the familiarity, that I think is really different. Is that what you're seeing is a lot of the excitement underlying all this?

Jay Jacobs: I think that's right. I think it's the access. It's that familiarity with the ETF structure. It's the comfort with the ETF structure that's been building over the last several decades. I mean, just taking a trip in ETF innovation back to 1996, it was the first-time investors could get single country exposure. So suddenly you could have an opinion on Brazil and get exposure to Brazil through an ETF in a very efficient way. In 2002, we brought out the first ETFs for fixed income, where you could get exposure to hundreds of bonds simultaneously through a liquid product, and you didn't need a lot of assets to get exposure to it. Again, another point of access for investors into an asset class that they were interested in. And I think bitcoin is really a continuation of that journey. It's that, the preferred aspect of the ETF wrapper to deliver that efficient access to an asset like bitcoin.

Ric Edelman: So like I mentioned, Bitcoin has been around for 15 years. People have had opportunity to buy it as cumbersome an approach that may have been, but some folks like it obviously. Why should an investor consider buying a bitcoin ETF over buying bitcoin directly through a crypto exchange?

Jay Jacobs: Yeah. So we named a couple of the benefits. Going back to that point of access, I think it's really the ability to buy it in a brokerage or advisory account. I would venture to guess that a very high percentage of Americans do have some sort of brokerage account where they could buy ETFs. And now this is one of the options available to them. And that's a very convenient way to see bitcoin alongside their other investments, alongside stocks and bonds, and really be able to see holistically that financial picture. I think the second part of it is convenience. So we've talked about this as well. You know, it's a little bit about just thinking about outsourcing the operations of owning bitcoin to a trusted manager like BlackRock. The decisions between hot wallets and cold wallets on the custody side, the taxation and reporting, which can be more complex with owning bitcoin directly, trading bitcoin can be something that can be more difficult or expensive on crypto exchanges. So the ETF is really providing that layer of convenience in that ETF wrapper as well. And then finally, more unique to BlackRock, is thinking about the quality behind it. We really strive to treat our bitcoin ETF, IBIT, just like we treat our other 400 ETFs in the United States, or frankly, our 1,300 ETFs that we have around the world, and plug it into our technology, into our institutional grade portfolio management and risk management processes – so that it is treated just like every other ETF on our platform, which now has over $3 trillion in assets.

Ric Edelman: And in fact, I want you to elaborate on that for us, Jay. We're talking with Jay Jacobs, who is the head of US Thematics and Active Equity ETFs for BlackRock. And we're talking with him about iShares new, latest ETF, the iShares Bitcoin Trust, which is IBIT, that's its ticker symbol. I want you to elaborate on that point, Jay, obviously BlackRock is a household name in the investment community. And I think it’s safe to say, most investors are familiar with iShares due to the incredibly large number of ETFs that you have available on the marketplace, and BlackRock itself, the world's largest asset manager. What happened here in this launch of these ETFs is unusual in the sense that the SEC did not say yes to a single spot Bitcoin ETF. The SEC said yes to 11 of them all at the same time, which is wonderful for investors because it creates different opportunities. And we now have choice and options. It creates market competition among the ETF providers. So it's great for the investor, but it raises a little bit of complexity for the investor. You know, if there was only one, we wouldn't have to fuss over which one to buy. But now that there are 11, we now have to make a decision, we've got to choose. So what would you say are the key differentiators? Why should an investor look toward BlackRock's spot Bitcoin ETF over the others?

Jay Jacobs: Well we know investors primarily look for two things: value and quality, and not in terms of how they are picking their investments, but when they choose to partner with a provider like BlackRock. In value, it's looking at things like the management fee, but it's also looking at things like the liquidity and the trading spreads and the availability of products to be able to really transact efficiently in an ETF. So I think that's part one, but the other part is really the quality behind it. And we talked about this a little bit, but you know you can imagine we've been in the ETF game at BlackRock for over 20 years. We manage 1,300 ETFs globally, $3 trillion in assets. And we really strive for the highest level of quality. And so what does that mean? That means, you know, we've really built a technology platform at BlackRock to manage those 1,300 ETFs as efficiently as possible. IBIT is in that platform where we can leverage that technology and that automation to manage IBIT in a very efficient, risk-minded way. It's in the partners we choose, partners like Coinbase as our custodian and Nasdaq as our exchange, really looking at best in class partners. And it’s thinking about how we do the storage of bitcoin and really focusing on making sure that every night our bitcoin is stored in cold storage where it can be kept offline and safe for investors. So again, it's the value, thinking about management fee and trading, as well as the quality of the product and the infrastructure behind it.

Ric Edelman: I have to add one additional point. And I know you're not saying it on purpose because you obviously work for BlackRock, but I can say it. I think one thing you didn't mention is not just the quality and value of the ETF and of the partners you've established with the outside firms such as you mentioned, Coinbase as the custodian and Nasdaq as the platform for trading. But let's not minimize BlackRock itself. You know, there have been efforts in the crypto community to launch a spot bitcoin ETF. For ten years, there have been dozens and dozens of applications to the SEC over the past decade. And the SEC has said no every single time to every single application request. BlackRock, for the very first time this past summer, filed an application for a spot bitcoin ETF. And everybody in the crypto community that I have spoken with and most, frankly, in the financial community as well, have said that was the game changer, that when BlackRock decided to say this is an investment category that we think ought to have an ETF representation in it, that spoke volumes. And I think not just spoke volumes in the crypto community and the investor community, but clearly, obviously in the regulatory community, because the SEC has now said yes to everybody when it has consistently said no for a decade. And I think the leadership that BlackRock provided is in no small way a significant reason these ETFs are on the market today.

Jay Jacobs: Well, all I can say towards that is we listen to our clients. You know, we heard repeatedly that this was an exposure that our clients wanted, and they wanted it in the ETF wrapper. And that really kicked off what was a multi-year journey. This did not happen overnight or just over a few months. This was something that took years to build out within BlackRock across tons of different people and groups in the business. So it started with the client, it’s ending with the client bringing out this product to market. So that's really what drives our decisions here.

Ric Edelman: So you mentioned the client – let's elaborate on that a little bit because there are really three different kinds of clients that BlackRock deals with: You have retail investors who are clearly purchasers of your ETFs, there are investment advisors who represent those investors in many cases and build portfolios on behalf of their retail clients, and then there are institutional investors. So talk about each one of those three groups retail investors, institutional investors, and advisors.

Jay Jacobs: Well, each of these groups are our different categories, they think about investing a little bit differently, maybe they even have kind of slightly different objectives. When I think about the end investor, this is actually a little bit of an oversimplification because end investors really run a wide spectrum, but I think one of the fastest growing areas within finance is the younger end investor, the millennials and the Gen Z's that are getting into this space. And we've seen some really interesting stats. Around 83% of millennial millionaires own crypto. Millennials own more crypto, or are more likely to own crypto, than to own stocks or mutual funds. So what we've seen within this younger cohort of the end investor space is really a familiarity with digital assets, a familiarity with bitcoin, and like everyone else, they are looking for efficient and convenient ways to get exposure to it. So that's one important category. When we look at the intermediary space or the wealth management space, this is an area where I think some financial advisors may have had access to bitcoin before, but I don't think it was very universal and I think that may start to change with ETFs in terms of getting more access in this space. And then institutions, again, kind of similar story. I think it really comes down to access. There was a really high hurdle to get bitcoin exposure before IBIT was available. And that hurdle is lowered. And I think for a lot of institutional investors, maybe the hurdle was too great to really kick off an educational process around this asset. And now with an ETF available, they're starting to look at it more seriously. So it's still really early. I think we will have a lot more insights a few months in with this, with this product being live, which clients are using it, how they're using it. But right now it's the same story with our 400 ETFs across the US. They are accessible to a wide range of investors. And I think that's a really exciting moment for us.

Ric Edelman: And so my recommendation, frankly, is that whether you are an individual investor or an investment advisor, you take a serious look at this brand-new asset class and the new investment opportunities within it, because it is something new and different that you probably don't have a lot of experience or education or knowledge about. Now's the time to go get that knowledge and education so that you can make an informed decision based on what's in your best interest or your client's best interests. So I encourage you to take a look at the iShares Bitcoin Trust along your learning, you can visit them at ishares.com. We have a link to that website in the show notes, making it easy for you. Jay Jacobs with the iShares Bitcoin Trust, IBIT, Jay, thanks so much for joining us on the podcast today.

Jay Jacobs: Thanks, Ric.

Ric Edelman: On tomorrow's show: The Magnificent Seven, I'm going to talk about the seven top tech stocks and why we shouldn't necessarily be celebrating them. See you tomorrow. 

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Important Information

This information must be accompanied by a current iShares Bitcoin Trust Prospectus, which may be obtained by clicking here https://www.ishares.com/us/literature/prospectus/p-ishares-bitcoin-trust-12-31.pdf

Please read the prospectus carefully before investing.

The iShares Bitcoin Trust is not an investment company registered under the Investment Company Act of 1940, and therefore is not subject to the same regulatory requirements as mutual funds or ETFs registered under the Investment Company Act of 1940.  The Trust is not a commodity pool for purposes of the Commodity Exchange Act. Before making an investment decision, you should carefully consider the risk factors and other information included in the prospectus.

Investing involves risk, including possible loss of principal. An investment in the Trust may be deemed speculative and is not intended as a complete investment program. An investment in Shares should be considered only by persons financially able to maintain their investment and who can bear the risk of total loss associated with an investment in the Trust.

Investing in digital assets, such as bitcoin, involves significant risks due to their extreme price volatility and the potential for loss, theft, or compromise of private keys. The value of the shares is closely tied to acceptance, industry developments, and governance changes, making them susceptible to market sentiment. Digital assets represent a new and rapidly evolving industry, and the value of the Shares depends on the acceptance of bitcoin.  Changes in the governance of a digital asset network may not receive sufficient support from users and miners, which may negatively affect that digital asset network’s ability to grow and respond to challenges  Investing in the Trust comes with risks that could impact the Trust's share value, including large-scale sales by major investors, security threats like breaches and hacking, negative sentiment among speculators, and competition from central bank digital currencies and financial initiatives using blockchain technology. A disruption of the internet or a digital asset network, such as the Bitcoin network, would affect the ability to transfer digital assets, including bitcoin, and, consequently, would impact their value. There can be no assurance that security procedures designed to protect the Trust’s assets will actually work as designed or prove to be successful in safeguarding the Trust’s assets against all possible sources of theft, loss or damage.

The Trust may incur certain extraordinary, non-recurring expenses that are not assumed by the Sponsor.  

Shares of the Trust are not deposits or other obligations of or guaranteed by BlackRock, Inc., and its affiliates, and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency. The sponsor of the trust is iShares Delaware Trust Sponsor LLC (the “Sponsor”). BlackRock Investments, LLC ("BRIL"), assists in the promotion of the Trust. The Sponsor and BRIL are affiliates of BlackRock, Inc. The Bitcoin Custodian is Coinbase Custody Trust Company, LLC, which is not affiliated with BlackRock, Inc. The Sponsor is not responsible for losses incurred due to loss, theft, destruction, or compromise of the trust's bitcoin.

This information should not be relied upon as research, investment advice, or a recommendation regarding any products, strategies, or any security in particular. This material is strictly for illustrative, educational, or informational purposes and is subject to change.

Transactions in shares of ETFs may result in brokerage commissions and may generate tax consequences. All regulated investment companies are obliged to distribute portfolio gains to shareholders. 

Prepared by BlackRock Investments, LLC, member FINRA.

© 2024 BlackRock, Inc. or its affiliates. All Rights Reserved. BLACKROCK and iSHARES are trademarks of BlackRock, Inc. or its affiliates. All other trademarks are those of their respective owners.

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