ETF investors see explosion in Coinbase listing crypto investments

Coinbase’s pending direct listing, scheduled for Wednesday on the Nasdaq under the symbol COIN, is an excitement for a broad base of the investment community beyond the usual cryptocurrency crowd.

“Coinbase is going to amaze people,” said Matt Hougan, chief investment officer at Bitwise Asset Management, which pioneered the first cryptocurrency index fund. “I think it will force traditional finance to grapple with the phenomenal growth taking place in crypto.”

It’s not hard to see why. Coinbase is probably the biggest beneficiary of the cryptocurrency revival. It had 56 million verified users, with $ 1.8 billion in revenue in the first quarter alone, and a value that could range from $ 50 billion to $ 100 billion.

That’s an extraordinary appreciation for a trade of any type. In contrast, Intercontinental Exchange, which runs the New York Stock Exchange, has a market cap of $ 65 billion, while Nasdaq has a market cap of $ 25 billion.

That kind of valuation makes the investment community – and investors in exchange-traded funds in particular – very excited.

Crypto assets have faced the same problem as other hot commodities (such as pot of space) in the past: a high level of interest with a noticeable lack of assets to invest. Coinbase will go a long way in solving that problem, however.

“Coinbase will become the largest public pure-play cryptocurrency company,” said Matt Kennedy, senior IPO market strategist at Renaissance Capital, who leads the Renaissance Capital IPO ETF (IPO). “I expect every crypto ETF will ever want (or need to) own it, and it is possible that our ETF will be the first to own it.”

It’s the same story with Amplify’s Christian Magoon, who runs the Transformational Data Sharing ETF (BLOK), which focuses on blockchain technology.

“Because we are actively managed, we can buy it as soon as it goes public, and we fully expect it to be in our portfolio,” Magoon told me.

Other tech ETFs, most notably Cathie Wood’s ARK Fintech Innovation ETF (ARKF), as well as the Global X FinTech ETF (FINX), are also likely to be buyers, and that’s just the beginning. “You will see many more ETF companies applying for crypto-like funds,” said Magoon.

Since crypto ownership by individuals and institutions is still quite low, many believe that Coinbase’s valuation will encourage more private entities to go public.

“I think we are going to see a gold rush for crypto stocks as investors realize just how fast the picks and shovels companies of the crypto ecosystem are growing,” said Hougan.

Michelle Bond, a former senior adviser to the SEC who is now CEO of the Association for Digital Asset Markets, an association of companies in the digital marketplace, said the Coinbase listing will “ remove the major barriers as it must be approved by a traditional financial regulator, which ensures transparency, integrity and disclosure. “

This of course means that more players are coming, including high-profile competitors. For example, Bakkt Holdings, a digital asset marketplace owned by Intercontinental Exchange, has entered into an agreement to combine with an SPAC, VPC Impact Acquisition Holdings.

While bitcoin ETFs exist in the US, they don’t directly own bitcoin. They own portfolios of stocks that are believed to be exposed to blockchain technology.

A bitcoin ETF owning bitcoin is a long-awaited dream of crypto investors as it will vastly expand the class of potential owners.

“A bitcoin ETF provides an easy, simple, and efficient way to own bitcoin,” said Som Seif, who runs the Purpose Bitcoin ETF, which trades in Canada. “Like gold, the storage and safekeeping of bitcoin is unique. An ETF solves that problem. It’s also like a stamp of approval: there is institutional support. [Gold ETF] changed the world when it came out in 2004. It made it easy to own gold as an asset class. ”

He expects a bitcoin ETF to do the same for bitcoin.

Several weeks ago, the SEC acknowledged receipt of Van Eck’s bitcoin ETF filing, initiating a 45-day regulatory review period. At the end of that period, the SEC must approve, deny, or extend the review period. Several other companies, including Fidelity, have also applied for a bitcoin ETF.

Most observers believe the SEC will step down and will try to extend the review period. The maximum period is 240 days.

“The committee doesn’t like to do new things, and if something falls into that category, it gives the committee agita, so the attitude is, ‘let’s take the maximum time,'” said a longtime SEC observer, who talked about condition of anonymity he works in a sensitive job in the crypto industry.

However, most bitcoin watchers believe that the end of 2021 could finally be the year that a bitcoin ETF is approved.

“The biggest potential change is [SEC Chair nominee] Gary Gensler, “said Magoon, noting that Gensler has learned cryptocurrencies and appears to be more open to bitcoin filing. He also noted that SEC Commissioner Hester Peirce, a Republican, was also an advocate of a bitcoin ETF. .

However, the biggest difference may be improvements in the security of the bitcoin universe.

The SEC rejected an application by the Winklevoss brothers for a bitcoin ETF for the second time in a 3-1 decision in 2018. The SEC said it is specifically concerned about extreme price volatility and cryptocurrency fraud. It also noted that 75% of bitcoin trading abroad takes place on unregulated foreign exchanges that can be manipulated.

All bitcoin watchers agree that the SEC must be confident that fraud and manipulation issues have been addressed.

Hougan believes the crypto market has come a long way to address those concerns.

“A few years ago there was no regulated futures market, now there is, and volumes are much higher,” said Hougan. “There were also no regulated custodians with insurance, but now we have. We have made enormous progress, it is not clear whether we made it to the goal line, but we are getting close.”

Matt Hougan, Bitwise Asset Management’s chief investment officer, and Christian Magoon, who leads the Amplify Transformational Data Sharing ETF (BLOK), an actively managed portfolio focused on blockchain technology, will be our guests at CNBCs “ETF Edge‘at 1:00 p.m. ET on Mondays and later’Halftime report“at 12:35 pm