Brent J. Fields, Secretary at the Securities and Exchanges Commission (SEC), has announced that yet another ETF has been delayed.
The reason for the delay is not given, but maybe they need time to read “1,400 comment letters.” Or perhaps they worried if it is denied then it will go to a commissioners vote and this time Hester Peirce with Elad Roisman might persuade the other three commissioners to give the green light.
The probable reason for the delay is because they probably wanted to deny it, but SEC tends to give the proposer the opportunity to withdraw the application so that they can pretend they’re encouraging capital formation by rarely denying applications.
Whatever the reason, we want to argue this is good for cryptos (someone has to) and that’s because this will now force the crypto ecosystem to build their own ETF like products, but without necessarily having to touch paper stocks, thus falling outside of SEC’s jurisdiction.
If we were a smart 20-30 year old, a go-getter, high achiever, someone basically others look up to, then we’d want most of our savings to be in stocks so that we can benefit form Fed’s continuous propping up of the stock market.
We would however be concerned regarding the many gains stocks have had in the past decade, so we would wonder whether they are now in a bubble and whether they will cyclically crash, so we’d want a very small amount of our savings in gold and other commodities as a hedge.
Then we’d want the rest on cryptos to potentially benefit from adoption, growth and so on, as well as a potential hedge, for diversification, or maybe just because we think they’ve fallen too much so now there might be upside.
Assuming this is perhaps 30% of our savings, we wouldn’t want it all in just one crypto as the basket might fall and break the egg.
Therefore we’d want the majority of it on eth because of its smart contracts, its ecosystem, and clear roadmap to scale on-chain to meet demand. Then we’d want some of it on bitcoin just because it has access to more markets and is better known. Then we’d want some of it on ERC20 tokens as one of them might become Apple or Amazon, and then some of it on other non-eth and non-btc public blockchains.
Now our job is not trading, we might be a busy lawyer or whatever. So we don’t want to do any crypto-trading related work, except for now and then maybe telling someone we want this or that.
With stocks, we just give our money to some asset manager or a hedge fund or we invest in an ETF which manages the distribution of funds between assets and we can choose whether we want the ETF to be actively trading or to be more passive.
In cryptos, we kind of have to do it all ourself, which is a lot of work. We could of course use Coinbase’s index fund, but that’s just four cryptos: bitcoin, ethereum, bitcoin cash and ltc.
It is better than nothing, but we’d also want an index fund that has a lot more coins, either in general or an index fund that is specialized. So say only cryptos with a market cap below $50 million or $100 million. Or only tokens, or only top 10-20 by market cap, and so on.
There probably is a market and there’s probably demand for the above from institutional investors and ordinary investors like our go-getting guy and gal.
Where there is demand, the market will of course provide. For now it might have waited for SEC and the crypto market wasn’t really that big to provide many index fund options, but with SEC saying njet and with the crypto market now in hundreds of billions and potentially growing to a trillion or more, it may well be that such products now start to launch.
Unlike the detached big wall street which in many ways is inaccessible to most, such crypto etf-like products would be from the ecosystem and for the ecosystem, thus would be more open, more accessible and more convenient.
SEC therefore may have unintentionally done this space a favor by forcing new market entrants after they’ve closed the door to old traditional markets and institutions.
As the new start-ups would have to gain trust, they would provide far better products, more fairer products and services, and in effect would bend backwards to serve the customer, unlike the complacent monopoly institutions which prefer kicking their customers.
So such crypto native ETF-like product would be as convenient as one click, as accessible as any website, would probably accept cryptos, and might even be decentralized.
Melon (pictured), for example, is an ethereum based project that basically tries to do what we are suggesting in a decentralized fashion. They’ve recently launched on ethereum’s testnet, and once they’re fully out then anyone would be able to put forth their own index fund with others then able to invest in it.
The idea is interesting and potentially useful with or without a SEC ETF. Without such ETF, however, it might find more adoption because it wouldn’t have to compete with paper stocks.
One negative in this good for cryptos narrative is that pension funds can’t invest more than 10% of their holdings on non-stocks, like cryptos.
The ETF, therefore, would have given them more options, which means a late 20s-30 year old could have distributed some of his/her pension to cryptos as a hedge because much can happen in 20-30 years by the time they need the pension pot.
They can still do so, but to a far more limited extent or with some slight inconvenience in going to the XBT Provider products traded on Stockholm’s Nasdaq and now being ported to US.
So the market has already found a way around SEC, but as they continue delaying and rejecting ETFs, the market might just start going crypto-native and build 21st century products rather than bother with the old guard and their century old laws.
That can only be good for cryptos and it can only be good for the investors as they’re provided with options and as the market becomes more competitive with innovation further providing decentralized etfs and index funds which are truly crypto native with all the benefits that entails such as one click access, very low fees, all transparent and fair, pretty fast and very convenient.
So thanks SEC, never change.