When Crypto Tech Meets Traditional ETF Manager

How Invesco and Galaxy Digital have partnered to deliver solutions for investors

Ric Edelman: It's Friday, December 15th. Coming up on today's show, investing in blockchain technology and digital assets with two leaders in the ETF industry, John Feyerer from Invesco, Steve Kurz from Galaxy Digital. Plus. I'm going to tell you about the ongoing battle against online hackers.

Yesterday I told you that Jason Lowery, the deputy director of technology and innovation for the US Space Force, is encouraging the Pentagon to engage with bitcoin, not because it's the most significant innovation in the history of money and accounting, as he says. But because it has what he calls profound implications for the future of warfare. If you missed yesterday's podcast, the link to it is in the show notes. And it's not just conventional warfare that we need to talk about. We also need to talk about cyber warfare companies, governments, consumers, you and me, all of us.

We are all under attack by cyber criminals. They break into our computer systems and they don't just steal our data. They often freeze our computers. They lock us out of our own laptops. Then they send us an email saying, if we want to get back into our databases, we've got to pay the money. They hold up our data for ransom. This is so common now that it's called ransomware, and it's common for these hackers to demand payment in bitcoin. A town in Mississippi this year paid a quarter of $1 million in ransom to get its systems back online after they were shut down by hackers for three weeks. 

All told, one estimate is that ransomware attacks will cost $30 billion this year, and that's just the direct payment to the crooks. Add in your downtime, legal fees, the money you end up spending to upgrade your computer systems to protect against future hacks. The total cost is ten times that much, a third of $1 trillion a year. Earlier this year, the city of Baltimore refused to pay $76,000 in ransom. The city ended up losing $18 million in damage to the infrastructure in the city. Yeah, this is expensive. And I bet you noticed how fast your new laptop is and how fast you can download movies onto your phone.

Well guess what? Today's tech is so fast that criminals are moving faster than ever, too. From the time a hacker breaks into a corporate system, they start taking control of it in just 79 minutes. That's according to one study, and they say the best hackers gain control in just seven minutes. Everybody's getting attacked. And a survey of big companies, those with 5 billion or more in revenue, they found that 75% of them, three out of four have been attacked this year. That's twice as many as last year. Another survey found that almost every company, 96%, got hit in the last year with a ransomware attack. Clorox, Del Monte, Caesars, MGM, BBC, British Airways, Shell - they were all hacked this year. Even the US Marshals Service was hacked. And how many times have you gotten an email from some company you work with telling you that they got hacked and your info was stolen?

23 and Me just got hacked, and the crooks didn't just get your name and email and social security number and credit card info. They got your DNA too. A medical transcription company got hacked this year. The health data for 9 million people was stolen. Now they know what drugs you take, what your medical conditions are, and what surgeries you've had. And hackers love to get paid in bitcoin, the money gets transferred in seconds and it's hard to identify who's getting the coins. Gangs from Russia run a lot of these scams. They operate like a multinational corporation. They sell ransomware to other crooks on the black market, and they give them the software code that they need to hack into databases. They offer 24/7 tech support and user reviews. Just like Amazon, you can buy these kits for as little as $40 a month. These gangs hire employees, they pay overhead. They even give people vacations.

So if you're the CEO of a Fortune 500 company and your company gets hacked and the hackers demand $5 million, do you pay? Hackers make it hard to say no. They make threatening phone calls to the company executives and the board members. They even call your customers. And negotiating doesn't always work.

One company was told to pay $4 million. The company instead tried to negotiate, and they said, we'll give you $1 million instead. The hackers responded by saying, look, we hacked into your files. We saw your insurance policies. We know you have $6 million in cyber insurance. So we think $4 million is actually fair. And guess what one hacker did after the company that had hacked refused to pay? The hacker filed a complaint with the SEC.

You see, there's a rule that companies have to tell the SEC within four days if they've been hacked. This company tried to keep it quiet. So not only did they end up having to pay the hacker, they ended up paying the SEC a fine on top of it. Can you imagine a bank robber complaining to police that the teller wouldn't hand over the cash?

I mean, this situation is crazy. We hear all the time from crypto haters that bitcoin has no use other than illicit activity like this, that it's only used by criminals, drug cartels, terrorist financing, tax evaders. There's no question that criminals use crypto. But let's not kid ourselves. Criminals are using cash a whole lot more than they're using bitcoin. Most drug users are buying with dollars, not bitcoin.

When the federal government released $6 billion to Iran this year, they didn't send it to Iran via bitcoin. They sent cash. It's estimated that only 0.15% of all crypto transactions are illicit. By comparison, the World Bank says up to 5% of all cash transactions are illicit. So if your sole goal is to defeat the crooks, you would really need to eliminate cash before you bother trying to eliminate crypto. It's all silly notion, really. Instead, law enforcement works really hard to prevent and detect criminal use of money. The Secret Service, FinCEN, Interpol. There are lots of government agencies worldwide working hard at this, and the crypto community is working hard at this as well.

KMPG just struck a partnership with Chainalysis to fight crypto fraud. KPMG is going to provide advanced blockchain monitoring, support, governance and risk management to help its clients with their anti-money laundering efforts. This is just one example of how honest people in crypto are going after the dishonest people, the same way that honest bankers go after the crooks.

The problem here is not crypto. The problem is crooks involved with crypto. Every system has crooks. We can't shut down an entire technology because of that. Instead, what we've got to do is make it better and safer for us all.

To understand this, just consider cars. When Henry Ford started to make cars, the first thing we had were a lot of car accidents. There were lots of calls to shut down the automobile industry, but that would have been crazy. The answer was to build safer cars and to train drivers, and to establish rules of the road, like speed limits and stop signs and traffic lights. The result? In 1920, there were 24 deaths for every 100 million miles driven.

Today, it's one; that's a huge improvement. Yeah, people are still dying in cars. Our work is not yet finished, but this is going to be the same thing with crypto. Yeah, there are frauds, but with continued efforts, we're going to reduce the number of those frauds. We'll all be the better off for it. And we're already getting pretty good at it.

When Colonial Pipeline was hit with a hack, it only took the FBI two weeks to get most of the money back. Because Bitcoin is a public ledger, it's digital and it leaves a digital footprint. The FBI was able to trace the funds like breadcrumbs on a trail. This is why Hamas told its supporters to stop sending them bitcoin. Israel was able to shut down 100 crypto wallets that Hamas was using to get bitcoin. So yeah, we're getting better at fighting hackers. There's no question we're in a war and bitcoin is the hacker's version of a bullet. You remove bitcoin, the hackers will just turn to some other tool. The issue isn't bitcoin. The issue is criminals. We've got to keep working to defeat them. 

And in the meantime, we've got to remain diligent in protecting ourselves. So this news from KPMG is good news. We need more of that kind of good news in 2024. One big way to get that help,  new laws from Congress governing crypto. Watch for developments on this next year.

And if you like the idea of big businesses getting involved with crypto, well, you can't buy shares of KPMG. They're a private accounting firm, but you can buy shares of a lot of other big companies that are big into crypto, like IBM, for example. Two really easy ways to add these companies to your portfolio is to buy either the Global X Blockchain ETF, symbol BKCH, or the Global X Blockchain and Bitcoin Strategy ETF, symbol BITS. BKCH invests in companies that are in the blockchain technology business, bitcoin mining companies, crypto exchanges, companies building blockchain applications and hardware and crypto integration. BITS does the same thing and it also buys bitcoin futures contracts. So you get both stocks and futures in a single ETF. You can learn more about both of these at Global X ETFs.com or ask your financial advisor about them.

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Exclusive Interview with Invesco and Galaxy Digital - Innovative Digital Asset Investing

Ric Edelman: You know, one of the big topics of this year clearly has been that of crypto. Bitcoin is the best performing asset class of the year, up about 150% year to date. There's a lot of excitement over the fact that Bitcoin ETFs are widely expected to be approved in coming weeks. Everybody is hoping, although nothing is certain, and the bitcoin halving comes up in about six months, which is only once every four year event, kind of like the Olympics. And so everybody is wondering is the crypto winter over? And should you allocate to bitcoin or other digital assets? How can you do it since that spot Bitcoin ETF doesn't even exist yet. So to help us delve into all this and answer these questions, I'm very happy to be joined by John Feyerer. He is the head of innovation for Invesco ETF strategies team, and Steve Kurz, one of the founders of Galaxy Digital and their global head of asset management. John Steve, great to have you with me. 

John Feyerer: Always good to be with you, Ric. Thanks. 

Steve Kurz: Thanks a lot. Ric. 

Ric Edelman: Invesco, of course, is a household name, one of the world's largest asset managers. Broad expertise as a pioneer in the ETF space Galaxy is not so well known, but they're one of the top firms in the new crypto industry. And together, Galaxy and Invesco have formed a partnership bringing to advisors and investors easy access to investments in digital assets. So that's where we got a really kind of have to start. John, talk about Invesco QQQ expertise, first broadly in the ETF world, and then Steve, I'm going to want you to tell us about Galaxy's focus on digital assets. But John you go first.

John Feyerer: Always happy to talk about that. Invesco is one of the largest providers of ETFs globally. We've been in this market now for the last two decades. And I think it's really important to put a spotlight on two items, because when it comes to any industry and particularly when it comes to ETFs, experience and skill are incredibly important. We crossed 500 billion in assets and ETFs for our ETF business, which really demonstrates that we have the products, we have the content, and we have the support infrastructure that really resonates with our clients. We've been the one really to push the boundaries as to what an ETF can be. It's interesting, when we started, ETFs were synonymous just with traditional equity benchmark exposure, a la the S&P 500 or the Russell 1000. That has obviously changed markedly, and we have been the key driver in this disruptive innovation that's been brought about over the years. And Ric, as I'm sure you'll appreciate, this is an industry that is incredibly competitive, where the competition is fierce and all market participants are hungry. And the fact that we have continued to not only grow, but to gain market share is really, really a testament to the value that we can bring to the market for our clients. 

Experience is also important. Having been at this for two decades, I think I can clearly say that we've seen the market through different market cycles. We've seen the good, we've seen the bad, we've seen the ugly of equity markets and the fixed income markets. We've been through a couple of deep recessions. We've been through a pandemic, and all of us have seen the impact on our business and the liquidity of our products. So to us, improvising yourself as an expert in the industry is dangerous. But working with partners that have a history of innovation, a history of trailblazing products where it's complemented with a strong ecosystem that really is centered around the client and being able to do that at scale is really important. So if you ask what role do we play in the industry? We believe it's a central one. We're a longtime leader, we're a disruptive innovator, and we're a trusted partner, really, which is brought to the benefit for all of our clients. 

Ric Edelman: Yeah, Invesco has been around for decades or multi trillion dollar asset manager. You have some of the oldest and largest ETFs in your stable of product. Steve, that is the exact opposite of Galaxy. You're not decades old. You don't have trillions of dollars of assets. So talk about Galaxy and your focus on crypto. 

Steve Kurz: Sure I would say we feel that way. I think six years now in crypto at least gives us some dog year equivalent. Maybe, not the scale of Invesco, but we'll talk about the partnership. Obviously, a lot of what you just heard is why we're so delighted to partner with Invesco. And we are humble, which I think is maybe unique in the crypto space but humble specifically about what it means to actually take things to scale. And so Galaxy has always understood as an infrastructure company that is combining crypto native talent with traditional finance experience, that just because we wish we were Invesco doesn't mean that we're Invesco. And so as we go build out our various businesses, which include a trading business and institutional trading business and SEC-registered asset manager that has $5 billion in AUM, which is where this partnership lives, mining business and research and all the bells and whistles that support that. It's very clear that the conservative and institutional and battle tested dynamics of the last five years are what sets us apart in crypto. And while we're not a few trillion of AUM, we are really happy to be a $5 billion asset management platform. I think that is differentiated in crypto, particularly the way that we got there. So much of being in a good position in crypto is not getting too excited at the highs and not finding despair at the lows and really being clear about who you are and what you want to be and what role you want to play. And our role has always been the institutional lane, the education first access, in a safe and secure manner and just helping people get into the space for the first time. 

Ric Edelman: Yeah, I think it's all relative. Galaxy is one of the oldest and largest in the crypto space, but let's face it, it isn't a household brand and doesn't have the broad reach that Invesco has. And that's why I think this partnership makes a lot of sense. Invesco, for all of its expertise and experience, doesn't have a particular level of experience in crypto. The way that Galaxy does this is, I think, you know, chocolate and peanut butter. It's two terrific attributes from separate companies coming together. And you guys formed your partnership back in 2021 so that you could bring ETFs to investors that invest in stocks, but stocks that are vital to the crypto economy. So we're talking about companies engaged in blockchain technology digital assets. And you bring the best of both worlds. So John, elaborate for us on the nature of this partnership and how it all came about, and what you see its benefits are. 

John Feyerer: Sure. It's interesting for the vast majority of successful products we brought to markets have historically been all about partnerships with index providers, partnerships with liquidity providers. If you look at the ETF industry, it's just a big ecosystem. So the idea of partnering with somebody is not at all new to Invesco. It's actually been a critical element of our strategy, going back to the very first funds that we launched now over 20 years ago. It's interesting as we've been able to take on some talent from outside the organization. That's one of the common observations that they have is just the degree to which we rely on our partners and really work with them in order to serve our clients. So, when it comes to digital assets, we started looking at this space five, six, seven years ago, and we asked ourselves, if you think about the asset manager of the future, ten years down the road, 15 years down the road, what's it going to look like? And it was during that process that we formed some foundational beliefs. And one of those beliefs is that digital assets are going to play a critical role in reshaping financial services in the future. And this is a big umbrella of digital assets. And you're going to have different components of blockchain technology, digital currencies, cryptocurrencies and the like. And we also came to lease one of them is that digital assets is a very complex industry. It's a very complex ecosystem. And it's very easy for market participants to say, I'm now an expert here, but as we talk about real expertise, it runs really, really deep. 

Could we have built a digital asset cryptocurrency desk? Sure. We could have done it. But when it came down to it, a choice. And people laugh when we use this, this analogy. But when it comes to your health care, do you want a doctor that plays a doctor on TV, or do you want a licensed surgeon performing your surgery? And for us, the partnership with Galaxy was bringing the license. It was bringing the professional into this industry, and that requires a very deep level of knowledge. Part of running a good business is having a clear understanding of what you're good at. Invesco is very good at providing clients with industry leading products, expertise and once again, that support through the ecosystem. We're one of the strongest players when it comes to ETFs and asset management, but we're not equally as strong when it comes to cryptocurrencies and digital assets. And when we formed this partnership with Galaxy, we soon realized not only does this strategy make a lot of sense, but we have a really good cultural match. We speak the same language, we see the future in a way that is very consistent and we bring together, our strengths and we believe we can create something that is really unique and one that's going to serve clients in a way that is strong, is differentiated in the marketplace. 

Ric Edelman: So we've got a partnership in place, and I find it interesting that it was only created in 2021. Crypto has been around since 2009, and I think it's reflective of the fact that ten years ago it was premature for a company. The stature and reputation of Invesco to jump into the deep end of the pool. It was easy for Galaxy six years ago because you were a crypto native and this was a sole focus. The fact that you've now established this partnership together and that Invesco, one of the biggest ETF managers in the world, is doing this, I think is a reflection of the fact that crypto has gone mainstream, that this is now widely acknowledged as a here-to-stay asset class that is legitimate and appropriate for a great many people to consider as part of their diversified portfolio. But what I find very common is that people, for the most part, are still stuck where they were ten years ago, not understanding what crypto is, even the people who own it. And there's over 50 million Americans today who do. Whenever I encounter people who tell me they do own bitcoin, I ask them a simple question explain to me what it is. They can't do it. Financial advisors can't explain what bitcoin is. So I find that to be a bit of a problem because we really can't adopt something, we really can't begin to understand and deploy it to our benefit if we don't fully understand it. So Steve, that really is where we have to begin with fundamental education. What do investors and investment advisers need to know about digital assets. 

Steve Kurz: It's a great question and we could spend a lot of hours on this, but really part of it is actually getting to a simple answer. Right? And so I don't think there's been a dearth of attempts at education. Everyone talks about education. And I think there's been a lot of even within the bitcoin community, the differences of opinion about what bitcoin is or what it should be. And that's the nature of a messy open source new system. So I would ask everyone listening to have a little bit of empathy for crypto because it's kind of like the internet, it's this Wild West, or at least it was this Wild West seven years ago. And then, you have some of these different, we call them coins, but really they're you could think of them like companies that have found their lane. They've made their way through multiple trials and tribulations, multiple cycles. And the question is, why have some made it? And what does that mean? And why have others not made it? And you need to look at it from two perspectives. One, what are they which is very important. And then what is one is what kind of a tool are they from a portfolio management and from a financial asset perspective. And those are related but different things. By far the two biggest coins are bitcoin and Ethereum. And I do think you're right that we need to start there on education. We are filed with Invesco on both the bitcoin side and the Ethereum side. I think we have a wonderful partnership roadmap to do many things over many years. But 2024 is all about those two very different assets. 

So just because they're cryptocurrencies doesn't mean that we should talk about them necessarily in the same breath or even in the same way in the portfolio. Bitcoin is a report card on the system. That's a that's a macro asset. We've got rates that are going to go down. We just heard from the Fed. And so what does it mean in an inflationary world or in a rate cutting world to have an asset like Bitcoin alongside something like gold? How do you fit that into a portfolio? We're going to talk about that later. Very different than an Ethereum conversation, which is all about the broader innovation trends that Invesco has been so plugged into through QQQ, for example. And that's much more of a decentralized supercomputer that's going to engage with many trends, including AI or stablecoins or other buzzwords that you've heard of. And so I think it is a labor of love that we're going to undertake to just keep saying what these things are over and over and over again in plain English, not in not in computer science speak. And I think the crypto community got way ahead of itself in the last cycle in not just talking about what the what these things are but trying to make it a panacea. The world is going to be solved by crypto, and crypto is everything, and everything else is nothing. And that's nonsense, right? And so it's a calibration point. It's a consistency point. And then it's prioritizing the things that matter like bitcoin and Ethereum, and maybe not focusing so much on Dogecoin or some of the other things that are at least on the fringe, if not in the trash bin. 

Ric Edelman: So if we are going to get right down to the basics, what would you say is the fundamental difference between bitcoin and Ethereum? 

Steve Kurz: Well, one is a commodity and one is a tech innovation project. Bitcoin is digital gold. Bitcoin is a hard asset a real asset. Bitcoin is a macro hedge that has growth characteristics to it. But in its core DNA, it's a scarce asset. And in a world where there's a lot of inflationary pressures and where currencies are being degraded everywhere, it's very obvious why you would want to have a basket, maybe not all bitcoin, but bitcoin, among other things, in your portfolio that serve that purpose. So I think it's very clear what the lane that bitcoin has taken is. But there's no revenues to bitcoin. And some people don't want gold in their portfolios just like they won't want bitcoin. Ethereum on the other hand it's the gas that powers all of the decentralized applications. It's the base layer for any and everything that we talk about when we talk about crypto. And it actually charges fees. And so you can analyze this. There are revenues and you can look at numbers and get conviction that this is a growing network on a user basis, on a transaction fee basis. And that looks much more like a growth stock. And so that's going to that's going to go much more naturally in an equity portfolio than a sort of real assets or, or macro hedge portfolio. 

Ric Edelman: Yeah, I think most would agree that bitcoin is a store of value, that bitcoin can be a transfer of assets from one person or one party to another. But Ethereum has practical application in commerce, correct? Because bitcoin essentially is dumb money. If I send you my bitcoin, you receive it. I might not want you to though I might want you to get my bitcoin only if you do something for me, like sell me concert tickets or I only want you to get it if you win a bet. Like, who's going to win the game on Sunday? You can program those conditions with Ethereum. And that's why they call Ethereum “smart money” or “programable money”. So you've got dumb money and smart money and those are very different applications. Gold is pretty dumb. But we understand the value and benefit of gold. But I don't think we would use gold as an alternative to a legal contract in a business negotiation. So bitcoin Ethereum are very different, even though they're root technologies are fundamentally the same blockchain technology and innovation that's now 15 years old. And this is why the two of them are getting so much attention and differently so. But it then raises the real issue of how do I invest in it. We saw an illusion earlier today about the spot Bitcoin ETFs that don't yet exist, but that everybody is hoping will exist. Invesco has filed an application with the SEC, among others, so I know you can't talk about them because we're in the quiet period. But we are wondering, in the absence of those ETFs, is there no other way for people to invest to gain an exposure to the crypto world? And I think people are surprised to discover the answer is actually yes, not no. 

Steve Kurz: Not only is it yes, there's a whole palette and there are pros and cons, and it's been a journey for many years. I think the most obvious thing that a crypto person would say is you can own your own bitcoin and your self-sovereign and you put it in a coffee can and that's your private keys. And then, no one can take it from you. And that's fine for the people that want to do that. That doesn't make a lot of sense for most people. And so we've had this growth in the space that has not yet reached the Holy Grail, which is a spot Bitcoin ETF, although there are spot Bitcoin ETFs. In Canada as an example, they've done really positive things for the holders of bitcoin, the retail holder. And I think that's a lesson we should learn in the US. But there's been a series of suboptimal ways that you could get exposure to bitcoin, even in the US. You could open a Coinbase account. You could hold a futures ETF. BITO is one way to do that. You could own a private bitcoin fund. You could own a trust structure. So all these different mechanisms to hold bitcoin and own bitcoin are possible. 

But every single one of them has real tradeoffs. With a Coinbase account, you still have to hold your bitcoin on a phone. That is objectively a risk and something that many are uncomfortable doing. Your assets don't sit with the other assets in your portfolio in that context. So it's hard to see everything all at once. And the products that we've had out in the market that look more like an ETF, unfortunately, have had characteristics that hurt investors. So you've had a premium or a discount in the closed end trust structure example of the world. On the futures side, you may remember USO, the oil ETF. There's a real heavy cost to the roll cycle. And there's product functionalities that aren't great for the retail investor. And I think that's why you haven't seen real money come into the space yet. You haven't had a seamless, tightly traded, really low tracking error spot ETF that has all the protections that are embedded in the spot ETF, and that plugs into the RIA ecosystem and infrastructure alongside all of your other assets. That's why we're so excited about the potential for this, this ETF next year. 

Ric Edelman: But in anticipation of it, there's an alternative way that investors have been able to invest in, including through Invesco. And that is what we call the picks and shovels route, where instead of actually buying bitcoin, you invest in companies that are engaged in the bitcoin industry. And there are ETFs on the market right now. John, you have one in Invesco. A couple of them actually that allow people to invest in companies like bitcoin miners and bitcoin exchanges and custodians and other bitcoin-related companies that are directionally involved. You're not going to own bitcoin directly, but you are in the industry. So talk a little about those. 

John Feyerer: Earlier chapters of the partnership that we've had with Galaxy is just those products that you mentioned back in in 2021 that we launched that provided exposure to the blockchain contributors as well as just drilling down deeper into the cryptocurrency. So, I'll echo Steve's comments, we're really excited about what the prospects here down hopefully in the not too distant future being able to offer spot bitcoin strategy. And much like if you look at early iterations within the ETF history, you look at spot exposure to gold. I know we've talked about bitcoin as digital gold. I think that obviously garnered significant  interest on the part of investors. Despite the fact that there's other ways to gain exposure to gold, specifically through gold futures and so forth. But in this case, we think that spot's going to provide a great avenue to get exposure to bitcoin. But we've looked at this partnership, it hasn't just been about, bitcoin. It's obviously right now here and now it feels like it because there's just so much work going into it. But Steve alluded to a little earlier as it relates to building out a broader partnership and what we can do beyond bitcoin to provide exposure to the ecosystem and really provide investors a suite of strategies that they can use within their portfolio. And those two strategies that you mentioned earlier, we think are just the initial chapter in this, what we anticipating a multi-chapter book in the partnership between Galaxy and Invesco. 

Ric Edelman: And this isn't just a willy nilly thing. Your organizations are really serious minded. You both do a lot of joint research. And in fact, Steve, you just published a new white paper to share with us the contents of that. 

Steve Kurz: Obviously, we welcome everyone to read the full report and all of its glory. But I think that its core, it was a five year look back and really got to the question of in a traditional portfolio of stocks and bonds and commodities, where does bitcoin fit into that? And I think the reason we chose five years was because while crypto moves so fast, you really can throw out any back one year at any moment in time. And you don't want to be cherry picking this. The data shows that there's a very clear and marked increase in the Sharpe ratio of portfolios, most pronounced when you go from 0 to 1. In your portfolio of bitcoin. And that's significant because it's very rare. I can't think of any other asset in the last 15 or 20 years where just a 1% position can, can actually affect the risk adjusted return in such a material way in your portfolio. And by the way, the report doesn't show this. But if you do this over ten years, if you do this over three years, you can pick multiple different time periods and it's the same thing. 

So there's a very profound effect to the portfolio. And that's why when we say get off of zero, yes, we are evangelizing for the space, but we're actually talking about this from a cold, hard numbers perspective as well. Incidentally, the Sharpe ratio improves marginally when you go from 1% to 2% or 2% to 3%. That may make sense in certain portfolios, but the most the most pronounced improvement is from 0 to 1%. I would also add that on a correlation basis we've seen correlations go to one at many periods of time. And in the world with, with different asset classes very consistently again, over the five year period. But also when you look at other periods, bitcoin has had a very low correlation to all major asset classes. And in the report for that five-year period, it was sub 0.3 for all of the major asset classes that most investors would care about. 

Ric Edelman: And so just to make sure everybody is clear on this, the Sharpe ratio is a tool that measures risk in a portfolio. And what the research is showing is that and it's going to sound crazy. Adding bitcoin to the portfolio lowers the portfolio's risk. That sounds nuts because we know how risky bitcoin is. So how can you add a risky asset and end up lowering the portfolio risk? This isn't the podcast session that we're going to explain that modern portfolio theory, the efficient frontier. But the bottom line is that when you own two investments and one zigs, when the other zags, you actually reduce the overall risk of owning just one or the other of them. So it's counterintuitive. It is surprising to a lot of folks, but the research is very clear over the last one, three, five, ten years and since inception of bitcoin, adding a very small allocation of bitcoin improves the risk return profile of the portfolio, which is why a lot of advisors are interested in this. And the white paper that Steve made allusion to, we've got a link to it in the show notes today. So you can download it, read it for free, and it's really worth your time to do that. Let me end on this question for you both. We know where crypto's been.  We know what has happened with it. Over the last 14 years, we've seen the incredible appreciation, the best performing asset class in history. We've also seen amazing volatility, scams and frauds and controversies. We've seen that in the past. Historically, that's fine, but who cares? The only thing anybody wants to talk about is what's going to happen next. So talk about the future of crypto. What do you see short and long term for the future of crypto? Steve we’ll start with you. 

Steve Kurz: Sure. Well, a lot of the future of crypto may be very boring. The crypto community that started crypto, 14, 15 years ago and was so excited about certain components of it. A lot of the next five years is actually about integrating. And the ETF is a bridge to this crypto economy. You've got a big traditional spaceship and you've got a crypto native economy, and we're building a bridge. And I think there's going to be a lot more like that. GLD became an asset class through the ETF not over one year, but over ten years. And that's going to be a methodical labor of love that we're going to go with Invesco along the way on every step and you're going to see portfolios that start to have cryptos alongside equities, and maybe you'll have long token short equity exposures, and maybe the token wrapper will even move into and start to replace ETFs over time. So that's going to be that's going to be just a backdrop. And I don't think that's very controversial. I think bitcoin will be a higher market cap.. 

Ethereum will be a higher market cap. Tokenization will come up in conversations more and ultimately be a structure that matters. And that's exciting. And then you'll have some real moonshot potential 5 or 10 years down the road for crypto where the crypto guys get really excited is digital identity. Why should you have your followers stuck with Elon Musk or with Google? Why should musicians who have a billion streams on Spotify get paid $30,000? That makes no sense. And so some of the underlying technologies that exist and are exemplified by bitcoin and Ethereum will be used in very interesting and different use cases. But that's going to be layered in and that's really years away before you get the killer app. But it's going to happen. And so I think really holding those two buckets in your head, what is an institutional crypto asset and how does that integrate with the traditional world. And what are some of the longer term implications for the technology are both things you should understand. One is investable today. The other is one that you want to keep an eye on and probably will invest in tomorrow. 

John Feyerer: And I'll just jump in and, echo a few of the words that Steve shared there. Just the two visuals. There are integration and the building, the bridge. Steve, you mentioned in your comments about getting your average investor off of zero and getting into and starting to more consistently include digital assets in a portfolio. I think we look out over the next 3 to 5, ten years. I think actually just the adoption is going to explode. And in part because of the vehicle, the ETF. And we've just seen countless examples in which the ETF has provided access to an asset class. We use the example here several times of GLD. And I think that's going to play out. You're going to see just more rapid adoption. I think it's  when you look at our partnership, I think one of the critical, probably the critical linchpin that we can bring to the market and we anticipate bringing to the market is really education around this is being able to help investors that are at zero understand the way they can integrate these digital asset strategies into their portfolio. So really excited about what the future holds. And hopefully what the just the not too distant future holds as it relates to this becoming a reality for us. 

Ric Edelman: And you've both mentioned GLD, that's the gold ETF, the first one that was brought to market, which is a multi-billion dollar ETF at this point. And people look to that as an example of what this crypto ETF world May 1st day look like as well. So all very exciting. And I think it's safe to say the crypto winter is over. The thawing is underway. And we're looking very much to the crypto spring, bolstered by not just the new ETFs we're hoping to see enter the market soon, but the bitcoin halving that's coming up in about six months. So very exciting times indeed. I would encourage you to pay a lot of attention to the research and the work that's being done by Invesco and Galaxy and their partnership, and to take a look at the ETFs that they already have available and which they are bringing to market very shortly. We've got links to all of that and to invesco.com in your show notes as well. That's John Feyerer, the head of innovation for Invesco ETF strategy team and Steve Kurz, Galaxy Digital's global head of asset management. Gentlemen, thanks so much for joining us on the show today. 

John Feyerer: Thanks, Ric. 

Steve Kurz: Thank you Ric. 

Ric Edelman: And as I said, you can learn more about the Invesco Galaxy Digital Partnership and their investment offerings at Invesco. As you just heard in our interview, the interest in digital assets is growing rapidly among investors. If you're a financial advisor, are you prepared to answer those questions from clients? I can show you how to get those answers. You need to become certified in blockchain and digital assets. Get your CBDA designation. It's offered by DACFP, my sister company, the Digital Assets Council of Financial Professionals. I've created this online self-study course for you, and that CBDA designation is listed in Finra's database of professional designations, just like the CFP®, CFA, CLU, ChFC.. Any day now, we're expecting the SEC to approve the spot Bitcoin ETFs. That's going to generate a whole huge array of new client questions. You need to get the knowledge today so you're prepared and able to answer your clients questions and help them integrate crypto into the portfolios you provide them. Your CBDA designation will help you do all this. Enroll today and get your CBDA. 

Ric Edelman: That's it for today. You know, the holiday season can cause a lot of stress and strain. Here's how you can get through it all. Listen to my wife Jean's podcast, Self-Care with Jean Edelman. Her weekly tips can be really helpful this time of year. Her new episode came out yesterday. You can listen to Jean wherever you get your podcasts.

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