What the SEC ruling means for the crypto market

Connie Queline

What the SEC ruling means for the crypto market

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JIMMY MOYAHA: Shortly before midnight last night the Twitter space – or the X space – was abuzz. After the show ended yesterday, I went home and sort of in the couple of hours leading up to midnight there was a lot of speculation around what’s happening, whether or not we’ve got the approval from the Securities Exchange Commission [SEC]. There was an SEC document that was dropped that was subsequently removed, and the page crashed. There was a lot going on yesterday.

Read: SEC X account compromised to falsely say bitcoin ETFs approved

The conclusion and the summary of that was that around, I think about 11:35 [pm] South African time, after the US close, the Securities Exchange Commission in the US officially confirmed that they had approved bitcoin ETFs [exchange-traded funds].

Within minutes the Twitter space, the X space, was abuzz with bitcoin #ETF trending, having over 130 000 posts within the hour. So obviously very, very big news came out there, and it has had an effect on the crypto space.

To take a look at that effect, I’m joined by the CEO of VALR, Farzam Ehsani. Farzam, thanks so much for the time. Always a pleasure speaking to you. The decision that happened overnight goes beyond bitcoin. Let’s start there, let’s start unpacking the decision and see what does that mean for the crypto world in general.

FARZAM EHSANI: Yes, good evening. It’s lovely to be with you again. This is really a watershed moment for the crypto industry overall, particularly because it’s a spot bitcoin ETF, and particularly because it’s from the Securities Exchange Commission out of the United States of America, the largest economy in the world.

Now, it’s important to note there are ETFs in other parts of the world that do exist. There’s a futures ETF already in the United States that was approved in 2021, which made this ETF’s approval all the more perplexing as to why it’s taken so long. It’s taken about 10 years since the first applications were made to the Securities Exchange Commission for this to be approved. And it’s particularly important because the largest asset managers of the world are the ones that are behind a lot of these ETFs, the likes of BlackRock, Fidelity and others.

Read: Bitcoin briefly tops $47 000 in cool response to US ETF approval

This really opens the door for the first time for the public to be able to get access to this asset class, bitcoin specifically, through your traditional brokerage channels, [where] you can go and buy a stock or another S&P 500 index, and now you can buy a spot bitcoin ETF as well.

So I think it’s going to be opening a lot of doors for people to come into this industry.

But one thing that’s very critical to note about a spot bitcoin ETF is that it’s the first time in history that we’ve got an ETF that’s available to the public – whose supply of the asset is absolutely limited. That’s never happened before.

I know your previous caller was talking about the market cap of gold being at $14 trillion and bitcoin being about $1 trillion right now. I think that kind of shows where we are in the maturity of this asset class – which is we’re only 15 years into the establishment of bitcoin, the first time a crypto asset came into existence. That’s very young, that’s a teenager. And so we expect a lot of growth to be coming from this announcement, and I expect other jurisdictions to follow in the months and years ahead.

JIMMY MOYAHA: Farzam, you mentioned something quite interesting about the limited availability. As you are mentioning this, I see there’s commentary from another one of the big producers, or one of the ETF makers actually. And that is in the form of ARK Invest, the alternative asset manager. CEO Cathie Wood has called bitcoin at $600 000 by 2030 as a base case. And we’re at $46 000 now. Does that make sense?

And where do we think that institutions are sitting on bitcoin and on cryptos as a whole?

Jamie Dimon [of Chase] came out last night before this approval to say that bitcoin is only used for nefarious activities and he mentioned three or four of them. And yet JP Morgan, the company he’s the CEO of, is involved in the ETF space. Where do we think institutions sit when it comes to the crypto space – are they coming alive to the fact that they are going to be involved, or are they already involved and they’re just not telling us?

Read: Is it better to own bitcoin stocks than bitcoin itself?

FARZAM EHSANI: I love that the CEO one of the largest banks in the world is very bearish on this asset class, and that kind of shows just how early we are. There’s still so much of a divergence of opinion on this asset class. But the fact remains that his institution, as an example, is definitely involved and is supporting this asset class. So those are his personal views, but the world is moving on.

And to your point about the projections, right now, as I mentioned, bitcoin’s market cap, the market value of all bitcoin in existence is just shy of US$1 trillion. If you were to match the valuation of gold, as we mentioned, that’s a basically more than 14 times increase of where we are, which effectively gets to your base case – of Cathie Woods’ $600 000 kind of base case – by 2030.

Read: Options traders are setting their sights on bitcoin at $50 000 by January

Now, there are many who will say that that’s fine and it’s a lovely comparison, but there are many aspects and characteristics of bitcoin that far surpass that of gold. It’s digital. It can be transferred from one point of the globe to another within minutes at a fraction of the cost of gold. It can be self-custody, which is much more difficult with gold. And so many people expect this digital version of gold, some people call bitcoin ‘gold 2.0’, to far exceed the market cap and the market valuation of gold.

And in that case there are many calls to see, over the next decade, prices in excess of $1 million per bitcoin.

JIMMY MOYAHA: Farzam, let’s take a look at the ETF decision that came through today and the impact that it now has on other cryptos and other investment opportunities. We know that next up for bitcoin is, of course that bitcoin halving, and that’ll go through as the previous halving went through without any real concerns there.

But let’s take a look at what this actually means for other cryptos and other investment opportunities that retail investors might want to be looking at.

Can we anticipate that there’ll be more ETFs made available – not necessarily for bitcoin – and, if we are looking towards other ETFs for other cryptos and the entire crypto landscape, are we pushing closer towards regulation, or are we still dealing in a decentralised environment that just happens to have a couple of products that are regulated?

FARZAM EHSANI: I think there are two things to note. Number one, I think this kind of paves the way for many other jurisdictions to introduce bitcoin or spot bitcoin ETFs in their jurisdictions. I think we’ll see South Africa follow suit soon. VALR has been in discussions with many of these and we hope to be the custodians of those in the future. I think that will happen in South Africa and elsewhere.

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I think we need to temper our expectations with regard to other crypto assets – particularly coming out of the SEC’s narrative that they put out. They talked about bitcoin, which is a non-security, but there’s been a lot of resistance to defining other crypto assets and whether they’re securities or not.

And so I think we will see a lot more kind of resistance to that, but in time it is bound to come. I’m just tempered in my expectation of how fast that will be, given that it’s taken 10 years to get to this point.

But, if you take a step back and have a much larger horizon, I think this is a very first step in a much larger narrative about an asset class that is going mainstream, that will have its rightful place in retirement funds, investment portfolios of the masses.

Now it’s available to be there. It’ll still remain volatile. And I think people will need to be very careful because, even though there are these massive calls for these high prices, there’s a tremendous amount of volatility. So I think those wise asset managers will be allocating a fair share – and when I say ‘fair’, I’m talking about a low percentage – into those funds.

But the point is that it is starting and that universe is so huge. So we expect it to effectively follow suit, as I said, in other products around the world and also those other crypto assets that you talked about – in time but not necessarily immediately.

JIMMY MOYAHA: Farzam, I love that you brought in the asset-manager angle because that was going to be the next question. From a retirement point of view, from a long-term outlook point of view, would asset managers now be thinking this is something we can include in terms of asset classes? I suppose you answered that in part to say that they would be looking to dip their toes in the water, not necessarily commit all the way. What would it take for them to commit all the way? Is it just a matter of wanting to see a more mature market and a more mature environment? Or is it they want regulation because they have to have regulation in place?

Read: FSCA gets 93 crypto asset service provider licence applications

FARZAM EHSANI: Asset managers are often looking for diversity, diversifying portfolios, looking at sharp ratios, etc. And when you look at these things there is a very rightful place for an asset like bitcoin in a larger portfolio.

Historically the story has been that it takes a brave soul in that traditional asset management space to propose having bitcoin in the portfolio. It was a very risky move at that time – because there are people who have done that – to do that.

I think we’re moving to a world in which it’s going to be risky not to do that because more and more people are going to be coming in. And if we do see the large moves in price because of the limited supply of bitcoin, then the natural [thing] that our asset manager is [going] to say, in time, is: ‘Well, everybody else has been doing this; it makes sense logically given all those metrics that we’re looking at. Why did you not include this in your portfolio – obviously in a measured perspective?”

But I think we are at that stage where that transition is happening from when it was too risky to include in a portfolio to a point where now it’s probably getting to the point that it’s too risky not to include in a portfolio.

JIMMY MOYAHA: How things change overnight! I know you mentioned that this has been 15 years in the making, but if you just think about where crypto was in 2016 or in 2014, less than 10 years ago, versus where we are now, a lot of the progression has happened very, very rapidly. I suppose it’ll continue to happen at that rate.

I think as we include more education and more information in the public domain around cryptos, and as people discover these more and more, it’ll definitely drive a lot more interest and a lot more sentiment.

A final question from my side. There was a study that was done, in South Africa actually, that said that by 2030, I believe, more than 40% of the South African population will be exposed to crypto in some way or another, or will be holding crypto assets in some form or another. Do you think 40% is a conservative estimate considering how rapid these sorts of developments unfold?

FARZAM EHSANI: That would be my hope and my aspiration. I think we need to be careful and again temper ourselves and our excitement about these happenings. Bitcoin and crypto is still very, very volatile. The nature of the South African population is that there are many groups and a large proportion of the population that don’t have discretionary income to invest in investment classes.

And so while I think that by 2030 we will start moving in that direction, I am also one of those people who says crypto is not for everyone at the moment because it’s still extremely volatile.

Read: Around 4m people in SA own crypto, and even more use it

And so as we solve some of our social problems in South Africa, and as bitcoin becomes a bit more mainstream and the volatility starts to reduce, I can definitely see that happening. In fact, I see that going much higher in time.

But I think there is a path to be taken, and that path will have volatility, ups and downs.

And so I think we just need to be measured in our anticipation of what this means. This has been a remarkable episode that just happened, but this is in the context of social kind of considerations – particularly for a place like South Africa.

So I think as the first step, it’s going to be a great path forward. We need to remain measured. I think it will touch the masses in the next few years and definitely within the next decade.

JIMMY MOYAHA: Responsible investing – I love to hear it. Thanks so much, Farzam. That’s Farzam Ehsani, who is the CEO of VALR, giving us his thoughts on the latest announcement from the Securities Exchange Commission in the US that bitcoin ETFs have been approved.

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