Now that the Bitcoin ETFs Are Here: My Two Beefs and My Two Predictions

Plus, in our education series on the bitcoin ETFs: here’s our look at Invesco Galaxy’s ETF 

Ric Edelman: It's Tuesday, January 16th. On today's show, we're going to do a deep dive into the new spot bitcoin ETFs. I'm going to share with you my two big beefs and my two big predictions. First off, it was in fact a monumental day last Thursday, the day that the bitcoin ETFs debuted in the public marketplace for the first time. After ten years of efforts by the crypto community and the financial services industry to bring these products to the marketplace. And it was a monumental first day in terms of active trading. And what's really funny is that most financial advisors thought that these ETFs would never happen.

Bitwise does an annual survey every year, and they just released this year's survey only two weeks ago, just before these ETFs were approved. And only four out of ten advisors thought the SEC would approve the spot Bitcoin ETFs this year. I'm not surprised that most advisors got it wrong. Most advisors don't really follow what's going on in crypto, and they really don't know much about it. So if they didn't think the ETFs were coming, that means they certainly weren't getting ready for them. But now they sure are. In that same survey, a whopping 88% of advisors, nearly nine out of ten, say they will invest in these ETFs. And almost every advisor who was already buying crypto for clients says they'll maintain or increase their crypto exposure this year. 

And half of those advisors say that they are allocating more than 3% of client portfolios. I mean, that's noteworthy. I've been advocating a 1% allocation. So clearly financial advisors, on average, are a lot more comfortable with bitcoin than even I had expected. And financial advisors are also finally starting to get their head out of the sand. 60%, six out of ten, admit that some or all of their clients are investing in crypto on their own. Two years ago, virtually no advisor fessed up to that. They were all in denial. But now nine out of ten admit they're getting questions from clients about crypto.

Another crypto study was also recently released. It found that 40% of American adults now own crypto, which means odds are pretty good you do. That's up from 30% a year ago. We're talking about a 30% increase in one year, and 29% of women own crypto. Women are still lagging behind men in their crypto engagement. And of all the Americans who do own crypto, two out of three say they plan to buy more this year. This is why you, as an advisor, must get engaged and you must get engaged right now. Not only do your clients want this, many of them already own it, and if they're not getting it from you, that means you're losing assets. You're also losing credibility because of your refusal to help your clients. I mean, I get it. Until last week, a lot of advisors simply weren't allowed to help their clients. 

Their firms wouldn't let them. But now those problems go away because we now have the spot bitcoin ETFs. So your only task now is to decide which of your clients you ought to recommend it to, and how much you ought to recommend, how much to allocate into their portfolios. And finally, which of the ETFs you ought to be buying.

And that takes me to GBTC and my first beef. We are all deeply grateful to Grayscale for its leadership. It was their lawsuit against the SEC that is directly responsible for the SEC finally granting approval of these bitcoin ETFs, and the SEC didn't just say yes to GBTC. That's Grayscale's ETF. Their ticker symbol GBTC. The SEC said yes to 11 of these ETFs. This is wonderful because it creates market competition that helps to lower the prices for everybody. But it also creates a bit of work for you as an advisor or as an investor, because now you've got to evaluate all 11 of them, and you've got to decide which ones you want to use. So while I say thanks to Grayscale for making all this happen, I have to say that I have to say to Grayscale your GBTC, your bitcoin ETF sucks. Grayscale, you're charging 1.5% per year for GBTC. That's insane. All right, hang on. Wait a minute. Let me amend that. That's 1.5% annual fee. It's brilliant. Not insane.

You see, from Michael Sonnenschein's point of view, he's the CEO of Grayscale, this is indeed brilliant. You see Grayscale has $26 billion in assets in GBTC because this fund has been around for years. And for years, it was the only game in town. I've owned it forever. I've made a ton of money on it. Thank you, Michael. I didn't care about the fee, partly because I was expecting huge profits, which I got, and partly because there really wasn't much of a choice. It was a seller's market. But now GBTC is an ETF among 11 ETFs, and there's simply no reason to pay 1.5% per year. Not one. Franklin Templeton and Bitwise and Fidelity and Invesco and others are charging zero for six months to a year, and even after that time period is up, they're free. Their fee will be a fraction of GBTC's fee. Franklin Templeton is just 0.19%, Bitwise is 0.2%. Blackrock and Fidelity are 0.25%. Grayscale is charging 1.5%. Why?

Well, it's because Michael Sonnenshein is a really smart guy. He knows that the overwhelming majority of people who own GBTC are going to keep it. They're either too dumb to know that they're paying an outrageous fee, or they're too lazy to do anything about it, or they don't want to sell it and incur the taxes on their profits. He's right. I bet that he'll keep almost all the AUM in that fund. He might not attract much more in new assets. 

I mean, why would anybody pick a 1.5% fund when you can pick a fund that's free? But Michael doesn't care. He's printing money for his company. Smart move. Michael, I gotta hand it to you, but it's also pretty rude for the millions of people who own your fund and who aren't proactive enough to fix the issue for themselves. By flipping out of GBTC and into one of the other new spot bitcoin ETFs. But I’ve got to tell you, I'm not one of those people suffering from inertia. I have sold all my GBTC, and I moved that money to Franklin Templeton, Bitwise, Fidelity, Blackrock and Invesco. I like these providers and I believe in diversification. I've maintained my bitcoin exposure, and I cut my expenses from 1.5% per year to virtually zero. And yes, I'll be paying taxes on my gains from selling my GBTC. But the way I figure it, unless I die owning it, I'm going to pay that tax sooner or later. And why incur a 1.5% fee for years or decades? In the meantime, and with all the fiscal problems of our government, I think it's a good bet, depending on who wins the elections in November, that capital gains taxes are going to go up, maybe by a lot. So by selling now, I get to pay capital gains taxes at today's low rate. As I used to counsel my firm's clients for decades: Never let the tax tail wag the money dog. Don't refuse to engage in a smart decision merely because of taxes.

And Grayscale is not the only company I have a beef with regarding these new ETFs. My other beef is with Vanguard. Vanguard is not allowing their customers to buy any of these spot bitcoin ETFs. Vanguard says that these ETFs “don't align with its investment offerings”. Vanguard is a global asset manager with $7.7 trillion in assets under management. And they said, “Spot bitcoin ETFs will not be available on the Vanguard platform. We also have no plans to offer Vanguard bitcoin ETFs. These products do not align with our Vanguard views of a well-balanced long-term portfolio”.

That is beyond ridiculous. Vanguard offers nearly 400 mutual funds and ETFs. It offers thousands more that are sponsored by other fund companies. On Vanguard's platform, you can buy dozens of mutual funds and ETFs that Vanguard itself says are of the highest risk of all investments - commodities funds, emerging markets funds, gold funds. And yet, Vanguard says bitcoin ETFs are not in sync with their views of a well-balanced long-term portfolio. Apparently, Vanguard doesn't know that the SEC has ruled that bitcoin is a commodity. So if Vanguard offers other commodities ETFs, why not this commodity ETF? And apparently Vanguard doesn't really understand what a well-balanced long-term portfolio really is. How can you build a well-balanced portfolio if you're excluding some assets that help you balance out the risks of the portfolio?

Doesn't Vanguard realize that the whole point of portfolio diversification is to own some assets that are highly volatile, in addition to some assets that are less volatile. Vanguard obviously needs a course in modern portfolio theory, the Nobel Prize winning investment management methodology that virtually every financial advisor adheres to. When you add a risky asset to a diversified portfolio, you actually lower the risk of the overall portfolio while increasing returns. Doesn't Vanguard know this?

And apparently Vanguard doesn't understand that it can't predict the future. And yet they claim to be focused on helping their customers obtain a well-balanced long-term portfolio. How can Vanguard say that bitcoin isn't a solid long-term investment? Would Vanguard have preferred that you buy Kodak, which was 150-year-old company but then went bankrupt, or Blockbuster Video that got wiped out by Netflix? How can Vanguard claim that it knows which investments are the right ones for the long term?

And who the hell is Vanguard to make that decision for you in the first place anyway? Vanguard is not your mother. They don't get to tell you what to do. Their job is to make available all the investments that are permitted by the SEC. And the SEC says these new spot bitcoin ETFs are permitted. It's for Vanguard to put them on their platform and then let the investor and the investment adviser decide, just like they decide about all of the other thousands of funds that are on Vanguard's platform. 

You're not hiring Vanguard to tell you what you can and cannot do. This is an obnoxious, arrogant, and highly inappropriate patriarchal decision by Vanguard, and it's going to cost them a lot of customers and a lot of business. Already, social media is filled with investors who are complaining about this, and they're busy transferring their accounts from Vanguard to Schwab, where you can buy all 11 of these spot bitcoin ETFs on Schwab.com. By the way, I'm even putting Schwab's website in, and I'm even putting Schwab's website as a link in the show notes today to make it easy for you.

Boycott Vanguard, transfer your assets tax-free and fee-free to someone else. That will give you the access to the bitcoin ETFs that you want. Schwab is a good choice. It's not the only choice, it's a good one. And lots of financial advisors are also ready to help you, but not those who custody at Vanguard. Even Wells Fargo, Merrill Lynch, UBS and Citi, they're all letting their investors trade these new bitcoin ETFs. It usually takes those wirehouses a year to introduce new products onto their platform, but they realize how much demand there is for these new investments, and they see no reason to stop their clients from having access to them. Vanguard is crazy. They are out of step with the financial services industry, and they are showing themselves for their true colors. They want to dictate what you can and cannot do and how you can do it.

My prediction: Vanguard will eventually change its mind. Five years from now, they will have crypto ETFs and they will allow their customers to buy all the ETF products. But they're going to be very late to the party. And their customers who sit with them and wait are going to miss out on the massive opportunities they currently have to reduce overall portfolio risks and enhance overall portfolio returns. Shame on Vanguard, and what is so amazing is that Vanguard is so out of step with the rest of the financial services industry.

HSBC, Santander, Deutsche Bank, Citi, Euroclear, AXA, Société Générale, all of these banks worldwide are now engaged in crypto. JP Morgan is now doing $1.5 billion in daily transaction value on its Onyx blockchain, even though JP Morgan’s own CEO, Jamie Dimon, says he hates crypto, the company is not dumb enough to listen to Jamie Goldman. Sachs says this. Goldman Sachs. This 2023 is going to be remembered as the year that crypto became institutionalized. Blackrock CEO Larry Fink said just last week, “If you're in a country where you are fearful of your government, if you're in a country where you're fearful, where you are fearful of your future, fearful of your government, or if you're frightened that your government is devaluing its currency by too many deficits, you could say this is a great potential long-term store of value.” 

Notice, he said, “This is a great potential long-term store of value.” Vanguard pay attention to Larry Fink Larry Fink also admitted that he used to dislike bitcoin. He said, “I came around to it three years ago. There's a lot of merit to it. There's a lot of opportunity. The advent of bitcoin ETFs is an example that we're legitimizing it. We're creating more safety.”

Pretty impressive talk from the world's largest asset manager. And we're seeing corporate America continue to engage. The Formula One racing team of Oracle Red Bull, they had a great 2023. Their two drivers were ranked number one and number two. And they're celebrating by issuing NFTs of unique art. FIFA has just announced a new NFT collection, a rare opportunity to give their fans secure tickets to the 2026 World Cup finals in North America. And Visa is launching a Web3.0 rewards loyalty program that it says will boost customer engagement. You'll get a digital wallet you can use to collect tokenized tickets, loyalty coins, digital collectibles, and other perks from all the brands you love. And then you can trade in those tokens for both virtual and physical experiences. American Express, Unilever, Burberry they're all already doing this.

And the Receipts Depository Corporation, RDC, is going to issue bitcoin-based depository receipts in just a few weeks. This company is backed by Franklin Templeton, which already has a blockchain-based money market fund and just launched one of the bitcoin ETFs. These new depository receipts are available only to qualified institutional investors under the Securities Act of 1933. These are similar to ADRs, American Depositary Receipts, which represent shares of foreign stocks that trade in the US. These are a very common investment on Wall Street.

And now for the first time, we're going to have blockchain-based depositary receipts. These things are going to be custody by Anchorage Digital, a federally-chartered digital asset bank. And they will be 100% backed by bitcoin. They can't be lent, rehypothecated or pledged, making them very secure. And the trades are going to be cleared by the Depository Trust Company, a big deal.

And I've got one more beef and I'm going to tell you what it is in 60 seconds.

Yeah. I've got one more beef I want to share with you. Plus two predictions. My beef has been a beef for years. It's a beef I have with the SEC. The SEC is continuing to refuse to create crypto regulations as excited and happy that we are that they finally came around on these ETFs, they still are not issuing the crypto regulations that we all need for clarity on how we can engage. What are the rules of the road? Most recently, Coinbase asked the SEC to create these rules and the SEC responded by denying Coinbase's petition. 

SEC Chair Gary Gensler said, “Existing laws and regulations already apply to the crypto securities markets.” That's nonsense. So much so that Coinbase has now filed a lawsuit challenging, and I quote, “the SEC's arbitrary and capricious denial of our petition for crypto rule”…That's the same language the Circuit Court of Appeals used in ruling against the SEC in the Grayscale case used in the ruling against the SEC. In the Grayscale case, Grayscale had asked the SEC for permission to launch a spot bitcoin ETF, and the SEC rejected Grayscale's request.

Grayscale sued the SEC, and the court ruled in favor of Grayscale, saying, that the SEC's actions were arbitrary and capricious. Now, Coinbase is using the very same language against the SEC again. The ruling last summer was the catalyst that resulted in the SEC's approving Grayscale's application last week for a bitcoin ETF, along with ten others. For the SEC to say that we don't need new regulations to govern crypto is absurd. Current rules do not address the innovations associated with this new technology. Digital wallets. Forks. Airdrops. Staking. Tokenization. All of these are new inventions resulting from the invention of blockchain technology 15 years ago. All the laws governing the securities markets were written by Congress in the 1930s and 40s, when we still did everything on paper. 

We are now in a digital world, and we need rules to reflect this. And isn't it ironic? How often do you see an industry asking begging for regulations and asking? Begging for regulations and the government refusing to provide them and every other and every other industry. In every other industry, companies spend millions of dollars to stop Congress and the federal agencies from writing new rules.

But in the crypto community, we're begging for rules. We need clarity. We need to stop the bad players from engaging. So why won't the SEC comply? Everybody's asking it to Congress, the media, the financial services industry, the legal community, investors, everybody. But Gary Gensler refuses to do so. It's been frustrating for everyone. And now the Coinbase lawsuit will seek to put a stop to Gensler's obfuscation. We'll see how this pans out.

And just to show you how stupidly the SEC is behaving, look at these two stories. First, the SEC tells all investors to use two-factor authentication to protect your online accounts and all your social media. The SEC has actually fined companies that allow themselves to get hacked. But last week Gary Gensler's Twitter/X account was hacked, and somebody used it to tweet out that the SEC had approved these new ETFs, which the SEC at that point hadn't yet done. But the so-called news caused bitcoin's price to jump from $45,000 to $48,000 in minutes. 

And after the SEC announced that they got hacked, the price fell back to $45,000. Clearly, somebody was engaging in a pump and dump scheme, which is an illegal act of market manipulation. And they did it using SEC's own X account. How embarrassing for Gary Gensler. Even more so because the SEC had previously told everybody not to believe anything unless you hear it from the SEC's X account. Oh, boy.

Now two US senators have sent a letter to Gensler saying that the breach was unacceptable. They're demanding information about how it occurred. And Coinbase, which has been sued by the SEC and which is now suing back the SEC. In return, Coinbase has humbly offered their services to teach the SEC how to improve its cybersecurity. Coinbase notes that they have a lot of experience in cybersecurity, protecting their own customers’ accounts, and maybe they're able to help out the SEC too.

And the other story is a crypto fraud case that the SEC is involved in. The SEC accused a crypto company of defrauding thousands of investors of $49 million, and the SEC rushed to court to get their assets frozen. The SEC told the court that the company had closed 33 bank accounts in just the last 48 hours, so the court granted the SEC's emergency freeze. But two days later, the court found out that the SEC was completely wrong. There were no such bank account closures by the company. And then, the SEC had to admit all this. The court canceled the freeze and then ordered the SEC to apologize, to assign new staff to the case, and to order all staff involved to undergo training. Because obviously these SEC staffers don't know what they're doing.

Well, that’s apparently the case because we don't have any crypto regulations, but 23 other countries do. Last year alone, 23 countries passed crypto regulations and legislation, and 19 other countries are working on it. Only eight countries did nothing, and the US is one of them. And I need to read to you the statement that was issued by SEC Commissioner Hester Peirce. She has been the leading proponent urging the SEC to approve these bitcoin ETFs. She is widely known in the crypto community as “crypto mom” rather affectionately, and her statement speaks volumes about the ridiculous behavior of the SEC. Let me share this with you. Everything I'm about to say is a direct quotation unless I say otherwise until I get to the end of this.

“Since I became a commissioner six years ago. One of the questions I've been asked most frequently is when will the commission approve a spot bitcoin ETP? For reasons I've explained many times before, the logic of the long string of denials is perplexing. The goalposts kept moving as the Commission slapped denied on application after application. The SEC has driven retail investors to less efficient means of attaining bitcoin. Futures-based products are more complex and more difficult to manage, which can translate into higher costs for investors. We squandered a decade of opportunities to do our job. If we had applied the standard, we use for other commodity-based ETFs, we could have approved these products years ago. But we refused to do so until a court called our bluff. Today's order does not undo the many harms created by the disparate treatment of spot bitcoin ETFs. First, our arbitrary and capricious treatment of applications in this area will continue to harm our reputation far beyond crypto. Diminished trust from the public will inhibit our ability to regulate the markets effectively. This saga will taint future interactions between the industry and our staff, and will dampen the rich, informative dialog that best protects investors. Second, our disproportionate attention on these filings has diverted limited staff resources away from other mission critical work. Over ten years, likely millions of dollars of staff time has gone toward blocking these applications. Third, our actions here have muddied people's understanding of what the SEC's role is. Congress did not authorize us to tell people whether a particular investment is right for them, but we have abused administrative procedures to withhold investments from the public that we do not like. Fourth, by failing to follow our normal standards and processes and considering spot bitcoin ETFs, we have created an artificial frenzy around them. 

Have these products come to market in a way other comparable products typically have? We would have avoided the circus atmosphere in which we now find ourselves. Fifth, we have alienated a generation of product innovators within our space. Our unreasonable approach to these applications has signaled that regulatory prejudice against new products and services can lead us to sidestep the law and unreasonably delay product launches. The industry has logged hundreds of meetings, has filed submissions, withdrawals and amendments and ultimately had to resort to a costly legal battle to get us to act today. Although this is a time for reflection, it is also a time for celebration. I am not celebrating bitcoin or bitcoin-related products. What one regulator thinks about bitcoin is irrelevant. I am celebrating the right of American investors to express their thoughts on bitcoin by buying and selling spot bitcoin ETFs and I am celebrating the perseverance of market participants in trying to bring to market a product they think investors want. I commend applicant's decade-long persistence in the face of the Commission's obstruction.”

That was Hester Peirce, Commissioner of the SEC, who has been gallantly fighting the fight on behalf of investors everywhere. She deserves a huge round of applause and support for the work that she has done on behalf of investors in this matter.

And the sad irony is that the United States used to have a leadership role in crypto, but it no longer does. We are now in a race to catch up with the rest of the world. Spot bitcoin ETFs have long been available in Canada, Germany, Brazil, Australia, even in the Island of Jersey, Liechtenstein, Guernsey and the Cayman Islands. Hong Kong says they're working on it, and they should have them approved this year for 15 years. For ten years, the SEC refused to say yes. And for ten years, it allowed other countries to get ahead of us. You know, not only were a lot of people saying no to bitcoin ETF, a lot of people were declaring bitcoin dead over the last 15 years. You know, there's actually a website that tracks this 400 times. Very well. 400 times very well-known people declared that bitcoin is dead. Central bankers, financial experts, IT experts, economists, CEOs, entrepreneurs, politicians, professors, journalists, even Nobel Prize winners have said bitcoin is dead at one time or another.

And yet last year, it rose 160%. And yet last year arose 160%, Chainalysis says nine out of ten of all the crypto wallets in the world are now in the black, meaning profitable blockchain is going to be used within the next decade to trade every stock, bond, currency, commodity and piece of art. Every transaction involving value is going to occur through digital assets. It's going to eliminate the need for physical paper. 

Every single thing, every item of value in the world is going to become a token. You know, Israel's intelligence service is using crypto to recruit spies in Turkey to help it find Hamas terrorists. That's pretty innovative, don't you think? But here's the crazy part. Other countries are now complaining that Israel is doing this. They're not complaining that Israel is trying to find terrorists. They're complaining that Israel is using bitcoin to try to do it. That's ridiculous. If you have a tool available to yourself, why on earth shouldn't you be using it?

Got to tell you about a company in Chicago called Jurat. This is a blockchain firm. They just introduced new technology that's going to let law enforcement actions be filed directly on the blockchain. They're going to give state and federal court systems technology that can recover stolen digital coins, freeze accounts associated with illicit activity, and enforce legal recourse for smart contracts that go wrong. By providing these enforcement actions directly on blockchains, you're going to get a faster, more efficient way for victims to get recovery. In other words, law enforcement and the legal system, they're going to get to use the same tools that the crooks use.

You know, that's not the first time this scenario has occurred. Go back to the 1930s, you know, during the depression and the heyday of the gangs, you know, the big names Bonnie and Clyde, John Dillinger, Ma Parker and the Gang, Baby Face Nelson, Machine Gun Kelly, Pretty Boy Floyd, Homer Van Meter, all of these bank robbers were able to proliferate because all they had to do after they rob a bank was cross a state line. The FBI was helpless because of federal laws. State cops couldn't do anything because when they got to the border they had to stop. So if you went from Texas to Oklahoma, if you robbed a bank in Texas and drove to Oklahoma, the Texas police had to stop at the Oklahoma border. And the FBI was helpless because federal agents to weren't allowed to carry guns. That's crazy. It wasn't until 1934 that Congress gave the FBI permission to carry guns. And that was the beginning of the end of the gang. The law enforcement officers finally had the same ability as the crooks. They were armed and they could cross state lines. That meant they could chase them and gun them down.

Well, this new tech by Jurat does the same thing. It lets law enforcement engage with criminals on the very blockchains they are using to commit their crimes. For example, Jurat tech let a US district court block several Russian and North Korean hackers from accessing the crypto they had stolen last summer. I'm hopeful we're going to see a big increase in this kind of crime-fighting technology, not only to help government agencies prevent crime in real time, but also help investors recover the money that they may have lost or stolen. 

The days of the Wild West and crypto are fast coming to an end, and these new spot bitcoin ETFs are a big part of that because their operations are so much safer for investors.

Hey, did you hear about the guys that recently got caught at Heathrow Airport in London? These guys walked off the plane, picked up their luggage and then got nailed. Their luggage turns out had $125 million in cash. Mules were delivering cash for crime, syndicate bosses, drug cartels mostly. Why did these guys try to transport three huge suitcases filled with cash? Why didn't they just use bitcoin? A simple flash drive in their pocket would have held all that value. Or they could have just skipped the flight and sent the money over the Bitcoin blockchain in seconds.

Well, they didn't use the Bitcoin blockchain because it's actually easier to get caught now using bitcoin than it is to use cash. That's evidenced by the fact that the couriers that they caught were caught only after they had made 83 trips. It is so much easier for these bad guys to use cash than crypto. And oh, and guess what helped the cops catch the crooks? The crooks had bought their airline tickets using frequent flier miles. That's a digital asset.

So I've got two big predictions for you, on top of the big predictions I've already made, and those are that we're going to see $150 billion in assets flow into these bitcoin ETFs over the next two years. And within the next two years, bitcoin's price is going to hit $150,000.

Here are my two new predictions. Thanks to these new bitcoin ETFs, we are going to see a radical reduction in fraud involving crypto. That's because these ETFs make it too easy for people to buy bitcoin from safe, reliable, established companies. I'm not saying bitcoin is safe and reliable. I'm saying the companies you're buying it from are safe and reliable. It's bad enough that you're investing in something risky. The last thing you want is a platform that's risky to. FTX caused $8 billion in losses for investors, even though bitcoin itself was doubling in price. So now there's no reason to work with an unknown offshore outfit that you know nothing about.

Last year, the FBI said investors lost $2 billion in crypto scams. I think that number is going to fall sharply. That's great news for everyone.

And second prediction. I'm predicting that the spot bitcoin ETFs are just the beginning. We're going to see inverse and two X bitcoin ETFs. We're going to see Ethereum ETFs. We're going to see combo ETFs that own both bitcoin and Ethereum. We're going to see tokenized ETFs of dozens of asset classes. This is going to be revolutionary for the financial markets, just as revolutionary as the introduction of mutual funds and ETFs were.

This is a very exciting time a tremendous wealth creation opportunity. As an advisor, you can help your clients build wealth while reducing their risks in a diversified portfolio, all while you improve your value to your clients. Your assets under management will rise. Your business will grow. Everybody wins. This is a very exciting time.

I'm going to end today with a quote from Stuart Kirk. He is a writer. He just wrote the following in the Financial Times “My new year resolution is bitcoin. Yes, I know the dangers, but I'm having some anyway. There is no bigger investment story right now. The catalyst is the Securities and Exchange Commission giving the green light to multiple spot bitcoin ETFs. I would be mad to miss out. No one can steal an ETF, and the digital wallets the ETFs will use are also secure. The more you think of Bitcoin as an investment, its many flaws don't differ hugely from most of the other regulated assets you own. Happily.”

If you're a financial advisor, I have an important question for you. Are you able to answer your clients’ questions about bitcoin? Can you explain to them what it is? How about blockchain? With the SEC's now approving 11 new spot Bitcoin ETFs, your clients are hearing about them. You need to be able to answer their questions. This means you need to get knowledgeable right now. And right now is the perfect opportunity for you to become Certified in Blockchain and Digital Assets. Enroll now in my online self-study course and get your Certificate in Blockchain and Digital Assets.

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Ric Edelman: Well, we are now officially at day three. Since the launch of the new spot bitcoin ETFs they launched last Thursday. So we've had trading on Thursday and Friday didn't trade yesterday because that was a holiday. Happy holiday by the way. And we're now on day three and it's very, very exciting. This is the biggest news in the investment management community in over a year. And it's the biggest news in the crypto community in over a decade. We have 11 spot bitcoin ETFs that all simultaneously launched with SEC approval last week. And so we are bringing you a continuing series introducing you to the managers of the spot bitcoin ETFs, to help you understand what they are, who they are, how they work, and how you can consider adding them to your client portfolios. And if you're an individual investor, your own portfolio. So today I'm really excited to be bringing on Invesco and Galaxy, which is a unique partnership in the field of spot bitcoin ETFs. So I'm very happy to welcome onto the show Steve Kurz. He is the global head of asset management for Galaxy Asset Management. And Kathy Kriskey who is the senior strategist of alternative investments for Invesco. Welcome to you both.  

Kathy Kriskey: Thanks so much for having us. 

Steve Kurz: Good to see you, Ric. Thanks. 

Ric Edelman: Good to see you both again. Kathy, I want to start with you, because Invesco is one of the largest, most established asset managers in the country. You are a multi trillion-dollar business, a household name. The QQQ (family) is one of the oldest and most popular ETFs in the industry. Everybody knows the Qs and by extension, Invesco. I have two questions for you. I'm going to take them one at a time. First, given the incredible size scale scope of Invesco, why is Invesco so excited about your new spot bitcoin ETF? By the way the symbol is BTCO. So why are you so excited about this? 

Kathy Kriskey: How can we not be excited about this? Ric. So this is certainly an alternative asset class, right? But remember what made Invesco really popular was our smart beta. And so a lot of the things that we did, we consider ourselves agents of innovation. And that's what really important to us. And that's why really for getting into crypto has been a big commitment. But we knew we didn't want to do it alone. And that's the key here for us because we feel like some of our competitors, there's a little bit of hubris there with like, we've got this, we can do this. We'll just learn all about crypto. Whereas for us, we knew let's focus on what we're good at. We're great at ETFs. As you mentioned the cues, everybody knows it and owns it. But we knew that coming into crypto. And again this has been a multi-year process. We already have products with Galaxy, but we knew we needed a leader to partner with. And that's why we joke on the Galaxy side, like, who's luckier, right, that we found this partnership. Even silly things like, I remember the first time I met the team, I came back, and I said, this is so weird, this really natural fit together. It's sort of like peanut butter and chocolate. I was like, remember that commercial, right where it's like, you got your peanut butter in my chocolate. But we joked about it. But honestly, this partnership has been a game changer. And that is why our product is different. And that's why at Invesco, we have a lot of investors that are looking at this and are learning about it. And one of the phrases that we came up with: is bitcoin is inevitable? There's no more just putting your head in the sand like, oh, I don't have to learn about that, right? A lot of our advisors were concerned initially, but we said like this is the client base is demanding something like this. 

So we owe it to our investors to do it in a really smart way to partner with somebody that is unparalleled, that they are literally the best in their field. So that's why we were very happy that we chose Galaxy. That Galaxy chose us more importantly. And as you said, the BTCO spot bitcoin ETFs are solving a lot of problems that people have been having with their crypto investments. We know about the trust structure that it was expensive, that people couldn't get in and out, that there were things trading at a big discount that even the futures ETFs. I'm a commodity person. So when the first time we looked at bitcoin futures we noticed a lot of contango. So there's negative roll yield in contango. So that is what makes those products under-deliver. And the issues with the physical crypto that we were joking with our advisors about, like you don't have to worry about hot/cold wallet like, you know, public key, private key, we don't have to worry about that. The ETF is a product that's familiar and comfortable. So that's why we really believe this is what everyone's been waiting for. You know we've seen that. And we know that we have the right product. And I would argue the best product. 

Ric Edelman: And what's really interesting to me is that for all the size, scale history of Invesco and its presence, and you could even argue dominance in the ETF world, you readily admit that you don't have that expertise in the crypto space. And so instead of trying to fake it, which quite frankly, some other fund companies are doing. it's just a land grab for them, trying to capture market share to make a buck. You basically said, we want to do it right. And if we don't have the institutional knowledge in-house and experience, then we're going to partner with somebody who does. And that led you to strike your partnership with Galaxy Asset Management, one of the oldest and deepest players in the crypto community. And that really brings you into the conversation, Steve, talk about, more broadly, the notion of investing in crypto and the key considerations that advisors and investors need to be thinking about. 

Steve Kurz: Yeah. Thanks a lot, Ric. I really appreciate it. I echo everything that was just said on the partnership and it's exciting to be here. We've been working on this for a long time. Invesco cares about Bitcoin. We care about Bitcoin. We love the technology. It's not just about a product or a land grab. So I would echo all of that. I think when you look back on this moment in five years, you will have said this is, of course, bitcoin is already a top ten asset globally. But you will see this as an actual institutional global asset. You'll see crypto as an asset class. And you will see this as the beginning of a multi-year process of regulated crypto coming to the fore in the United States. And so under that umbrella, what it means to invest in crypto is to understand which tools in the toolkit are available. And bitcoin is obviously the leader in crypto. We've talked about this before, Ric. There are very few, if any, assets where you can add a percent to your portfolio, and it reduces the volatility. So we love the safeguard and protection of the ETF wrapper. We think there is caution rightfully around volatility and bitcoin. But that's not something to be afraid of.

The volatility of bitcoin is a sizing exercise. And when you look at the last three, five, ten, 15 years of bitcoin's performance on a risk-adjusted basis, its correlation to equities is, without question, a tool in the toolkit. It just hasn't been able to find its way into portfolios and actually do that for portfolios. So we're very excited about the integration of those two things. The other thing that you've been working on and been a leader in, Ric, that Invesco stands for is, education. We've got a great research team. We're partnering with Invesco on allocation frameworks on sizing of bitcoin and crypto in a portfolio. And ultimately everyone talks about the AUM and the big launches and that kind of thing. That's the output. The input is the process. We've got the experience. Invesco has the experience. We know how to do “cash create”. We've done it in Canada. We're going to attach really tightly to the underlying asset. That's going to become a very important theme as you look across the field of these ETFs. And ultimately the flows and volumes are going to build up. And the AUM will go to where the best products that have been built are. And so we're excited about the next two years, not the next two weeks. 

Ric Edelman: So elaborate like both of you to do this, Kathy, you go first. On you mentioned that you think the Invesco Galaxy Spot Bitcoin ETF is the best of the 11 that were launched last week, that yours is the best. Tell me why. What's the differentiator between BTCO and the others. 

Kathy Kriskey: Well, there's been a bit of a pricing war. And it's out there in the public domain. So we actually were the first ones to say a fee waiver. So I think competitive pricing. So that's where I'd like to make sure all investors know that this product is free for the first six months, up to $5 billion. And competitive pricing, that was key, along with the extensive experience of these two counterparties. So remember like we have an amazing capital markets team that has been working on this execution. We've done run-thrus. We were ready we believe before anyone else. And so there are extra costs to some of our competitors on some things because we have Galaxy. So Steve can talk about this, but we are going to have ultimately tighter bid offer spreads and lower tracking error than our competitors. And I'll let Steve go into detail about why that is. And enhanced liquidity. So again, we know what investors want. We focused on building a structure that's efficient. And I'd like to point out like we've done this already. 

So Invesco has done it. We've done it in Europe and Galaxy has done it in a bunch of different domains. And Steve can talk to that. But we've been here, we've done it, and we don't believe anyone else has the experience that we have. We should have less hiccups than some of our competitors. And Steve mentioned education before. They have great podcasts and everything, but people can go to our website and see we have a lot of the Galaxy stuff already there. And this asset allocation analysis, we are here to help. And as Steve said, we're here for the long term, right? So we feel like some of those issuers are going to come in and then leave like a year from now. It'll be interesting to see who's still there, but we're in it for the long haul. And that's what Steve's saying like multi-year. And we know that that takes building up the confidence of our investors and understanding this and that. We're here for them. So again I feel like that's what makes us better. We have this experience and expertise that nobody can match. 

Ric Edelman: A couple of really important points that Steve, I want you to elaborate on the bid-ask-spread and the tracking error. These are “under the hood” kind of issues that won't be readily obvious or apparent to advisors or investors but matter a whole lot. So talk about the tracking error and talk about the bid-ask-spread. 

Steve Kurz: Yeah, for sure. And I just want to be really specific. Everyone's so focused on the fees. And yes, it does make a difference. Of course we're going to be there that way. And you know, a few basis points here or there matters a lot, especially in the ETF world. But just look to Canada for a second. If you look at the Galaxy ETF in Canada just in 2023, our tracking error was over a thousand basis points. So 10% better than the next biggest competitor. And so I really want to make sure that everyone understands the magnitude of that in the context of a volatile asset. And so the biggest thing is not just the bid-offer spread on the ETF itself, the shares, it's really about how do you access the underlying bitcoin. And so remember Canada is a “cash create” construct just like these are cash create constructs. So the workflows that we're using in Canada to get that result for investors through volatile markets through the 2022 bear market and bitcoin, are what we're bringing to this ETF. In the US, we have six apps (Authorized Participants) on day one. We've got a number of underlying counterparties to trade bitcoin to. And we want to touch the largest surface of bitcoin volume across the entire overall global bitcoin market. Many of our competitors are going through centralized venues. There are financing costs. There are transaction costs. There are settlement costs. These things add up and they ultimately take away from the liquidity of the underlying product. We are trying to create an efficient product, and efficient products are the ones that ultimately track well. They're the ones that gather liquidity and volumes. And our point on experience is not just lip service. We manage over $1 billion in Canada and do exactly this, and we're bringing that day one to the Invesco Galaxy Bitcoin ETF. 

Ric Edelman: You referred to the “cash create”. This is another piece of fine print that matters an awful lot. That is frankly different for the ETF than it is for all other ETFs. I mean, stock ETFs broadly don't have this limitation. But the SEC imposed this on the crypto community in the launch of the spot bitcoin ETF. So I don't think most advisors and certainly no investors are familiar with this issue of cash create. Talk about that and why it matters. 

Steve Kurz: Yeah sure. Look what you would hope for over time, and we still do expect this to happen over time, and I won't speculate on when the SEC is going to do this, because who knows, but what you would love for investors for the same reasons you mentioned on the stock side, from an efficiency perspective and from a tax efficiency perspective in particular, you'd love to have in-kind. So the pipes and plumbing of the underlying bitcoin market flowing through where an AP (authorized participant) can bring bitcoin via a create order, and bitcoin out of the funds via a redemption order. The reality is the SEC, for reasons that we won't speculate on either, decided that only net new dollars can go to apps (authorized participants) that then go to the issuers that then buy bitcoin to go into the fund. And so what it means is two things. It means every dollar that comes into these funds is a net new dollar to bitcoin. So that's interesting from an adoption story perspective. And when you look at the flows, they mean something different. And in a way, I think you could say they are more impactful because it's a net new dollar into the Bitcoin ecosystem because of cash create. And then it's obvious in light of my former point, the way that you access the Bitcoin market is everything. And so to the extent there are overlapping centralized dynamics with other issuers, to the extent that you don't access a broad swath of the bitcoin underlying market in a cash create world, that's going to potentially create real inefficiencies as you go to buy bitcoin in large volume at certain hours of the day, and you have 11 issuers doing the same thing. So I really do think that differentiated pipes and plumbing is important because of the cash create dynamic. 

Ric Edelman: And you mentioned apps, the authorized participants. These are the external entities that are facilitating the movement of money in and out of the fund. They are selected by the fund provider. And those are important decisions in who you're choosing to work with to facilitate the movement of the money. This cash create versus in-kind is a big deal, as you noted, because it's a tax issue really for investors. And what it means is that in other ETFs, if you can move shares of stocks in and out of ETFs, and that eliminates tax liabilities and capital gain issues, the SEC has declared we can't do that in these ETFs. So if you own bitcoin, you can't just slide your bitcoin over into the ETF. You've got to sell your bitcoin move the cash into the ETF and vice versa. If you own shares of the ETF, you can't move bitcoin out of it. You've got to liquidate and convert your bitcoin to cash, creating a tax implication. So a little bit more cumbersome a little bit more complicated a little bit less tax efficient. And that's why you need someone who understands all of this and can effectively minimize the hassles, minimize the expenses, minimize the time delay and the tax implications for all of this. And that's why the fact that Steve, you and Kathy are all over this is.

Steve Kurz: And Ric, one point I'll make on that. And just to put some numbers on it, because I think everyone's got a story and that's great. But we just want to show what we've actually done. So obviously Invesco has got a huge business and they've spoken to that. We were a $5 billion asset manager, which is which is big in the crypto world. But more importantly, last year, our asset management business traded $3.5 billion of liquid crypto. That was through the FTX liquidation mandate, which we won. That was through our existing ETFs and our existing active and passive funds. There is no asset manager in crypto that came even close to that level of volume. And what that means for the ETF investor who comes into our product is the benefit of us. Having been such an important client to the crypto street, so to speak, is why we'll be able to get very tight execution and very tight pricing. We already have the relationship with these dozen plus liquidity providers, and this is just a matter of taking that foothold and then using it to the benefit of BTCO investors. 

Kathy Kriskey: And as time goes by, that will be evident. And as when we're one month in, I think it will become very obvious to investors, this tight bid offer spread, this really close tracking to the index, really low tracking error. That is where Galaxy is making a huge difference. 

Ric Edelman: So in the context of this, both of you have articulated really well the advantages you argue that Invesco and Galaxy have in improving the situation for investors, managing it effectively, efficiently, for the benefit of the outcome for the portfolio. But I can imagine somebody listening to this conversation saying, goodness gracious, why don't I just buy bitcoin via crypto exchange? Why am I bothering to use an intermediary of an ETF? So Steve, how do you respond to that? 

Steve Kurz: Well, look, this is great for Bitcoin that I'm going to say this. But take Coinbase the fee war. It's brutal. It's the ETF world. Last week, we saw two years of consolidation in one week. And I think that that's again good for investors. But what also it opens up is a conversation about execution fees on other platforms. So what does it mean to go buy bitcoin on a large crypto players application? And what are they charging as a spread, relative to what's a 0% fee right now for the bitcoin ETF? So it will be really interesting to see where people choose to go for their bitcoin exposure. I think some subset of the market will always put the dollars “under the mattress” crew. It's the “hold your gold bars” crew that's going to be a portion of the market. There are some real original bitcoin and crypto people that are always going to do that. That's totally fine. This doesn't take away from the Bitcoin ethos. And then there are many people who view this as a financial weapon, as I mentioned earlier. And it's really those that are going to take that and incorporate it. The trading community is going to have different reasons. You can margin these shares, right. So the trading community will be able to post these at their brokerage house, get leverage on that. 

They'll be able to short the futures ETF and long the spot ETF. They'll be able to buy stocks in the crypto space and go against the Bitcoin piece. And so this is just going to really open up a new market. And the relationship between the underlying market and the market that lives on top is going to be really interesting. But as an access vehicle for those that want long time exposure to bitcoin, probably a very large percentage of them are going to be very comfortable with the ETF wrapper because this misnomer that you don't own bitcoin is a misnomer. There is a 1-to-1 relationship between the shares and the bitcoin. The bitcoin is stored in cold storage. And that is backed by central intermediaries. But it's Invesco as a central intermediary and it's Galaxy who knows how to build these and make sure there's insurance wrapped around the custody that we use cold storage. We don't trade on exchange. So I think once people realize that and it percolates, there's going to be a lot less anxiety about do I hold my keys or not? But that's still an option for some people. 

Kathy Kriskey: I think there is an operational issue too. We've heard from a lot of investors that when they look to see their net worth, it's all there on one piece of paper. But now, anyone who has crypto and it's separate, that frustrates them. What we've heard from a lot of investors is, oh, now it's an ETF. Now it's in my portfolio with the rest of my investments. And I can understand what my risks are. And we've been talking about that. And because a lot of these investors have come back to us saying well, well how much do I put in, and there's a whole swath of information about like what the allocation should be. But we've been talking to investors about like 1% (allocation). And again, I'm a commodities person. We started out with 5% commodities, made sense in a portfolio. And we've said right now, based on the analysis, 1% out of equities makes sense in this field. And again this product makes sense for our investors because they see it in their monthly statement. And that's comforting to them. 

Ric Edelman: And so that's really interesting. You cite that, Kathy, and this piles on to Steve's comments that are really worth elaborating on, (yeah, I think you're right, Steve, that some people are going to prefer to use the exchanges, whether it's Coinbase, Kraken, Gemini, etc., because they are dedicated, focused on the crypto space and they just want to have that process, others are going to do it in a DeFi platform like Uniswap, MetaMask, etc.) but for most people who don't really have the time to fuss with this, or the knowledge or the know-how, or even the flat-out desire to spend whatever time they have on it, we have to recognize that if you work with a financial advisor and two-thirds of all investors do in this country, your advisor can't help you open an account at Coinbase in the first place. And even if they could, even if they somehow do, as Kathy, you pointed out that Coinbase account is separate and distinct from your brokerage account, which is where you hold all of your other investments, all your stocks and bonds and mutual funds and ETFs in that one simple, easy brokerage account. To have your crypto elsewhere sitting on the side, that is incredibly inconvenient. Just think about the challenges of rebalancing. Think about the challenges of just moving money. Cash in and out when you do buys and sells, of dollar cost averaging, of tax loss harvesting. You can't do it conveniently or easily when you have an outside crypto exchange account separate from your brokerage account. 

Steve Kurz: Even paying taxes Ric right. Going to two places, right? Just that process in addition. 

Ric Edelman: And let me just add on one thing because you said something really fundamental, Kathy, which is in sync with what I've been advocating for years. You set a 1% allocation. You know, it's kind of funny, we're spending so much time talking about bitcoin because of this new ETF. Here's the joke I always give. It's only 1% of the portfolio. Why are we talking about it 50% of the time. And so think about that. If you have $1 million in your portfolio a 1% allocation is ten grand. Are you really going to go to the trouble of opening a Coinbase account for a $10,000 investment, when you can just so easily click a button on your brokerage account at Schwab, and it's done in seconds? Exactly. I think that there's a huge value, and this is why I have been such an advocate. And I know, Kathy, as you have been as well for years, why we've been encouraging the SEC for so long to say yes to these products, because it is so easy and convenient and allows investors to engage in a way that, frankly, most have not, up until now, been able to do. Because the alternative methods are so cumbersome and complicated and inconvenient. This just strips out all of that and makes this as easy and simple as any other ETF, stocks or bonds or commodities, or gold or oil or you name it. And so I think this is why the ETFs are going to win and win big, and why it's important that investors choose the right provider. Because you also said something else Kathy, that is worth elaborating. We have 11 of these ETFs all launched on the same day three trading days ago last Thursday. I'm not sure the marketplace needs all 11. I'm not sure all 11 are going to attract enough assets and ultimately survive. So you do want to pick an ETF from a provider that has staying power, because it's just such a hassle to get a letter in the mail or an email telling you your ETF is being closed because they haven't been able to accumulate enough AUM to manage. 

Kathy Kriskey: Exactly. And that is so important. And I'm so glad you brought that up. But yeah, we're in it for the long haul. And I think that the market's going to get used to hearing those two names together. Invesco - Galaxy. We are the future. 

Ric Edelman: And so how do investors get in contact with you I know we can send advisors to invesco.com to learn more about this. And investors can go there as well. Although I really recommend investors ask your advisor rather than trying to do the homework yourself. But what is it that they'll find at Invesco when they go there? 

Kathy Kriskey: There's loads of information on our website. And again, that ticker BTCO, that's the key. When you type that in you will see everything. So we have videos. We have a lot of analysis. We're going to have monthlies (commentaries) out there as well. We’re working on the first monthly now about what's going on in the crypto space. But we as I said, we're here to educate the investor. We know that this is unfamiliar to a lot of people, and they've been, like you said, looking at it on the sidelines, not wanting to set up a digital wallet and waiting for years for these ETFs. So we take that role of education very seriously. It's all on the website. 

Ric Edelman: Well, this has been terrific information. Kathy Krisky of Invesco, Steve Kurz of Galaxy Asset Management, thanks for joining me on the show today. And best wishes with your ETF, which by the way, I personally own. 

Steve Kurz: Thank you, Ric, appreciate that. And the time. 

Kathy Kriskey: Yeah, thanks so much. 

Ric Edelman: And by the way, the link to Invesco is in the show notes. Coming up on tomorrow's show: Social Security.

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BTCO prospectus: View prospectus

BTCO resources: BTCO education and resources

BTCO product details: invesco.com/btco

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