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Yahoo Finance's Brian Cheung leads a panel on Bitcoin ETFs with Rumi Morales, Outlier Ventures Partner, Joseph Hall, Davis Polk Capital Markets Group Partner, and Dave LaValle, Grayscale Global Head of ETF.
BRIAN CHEUNG: Rumi, I just kind of want to ask you about the big elephant in the room with regards to not just Bitcoin ETFs, but the broad crypto community. And that is the crackdown in China, them declaring virtual currency related activities illegal. It seems like crypto exchanges are stopping new account openings. We know where the wind is blowing over there. How does that affect the regulatory conversation internationally, knowing that a big selling point for crypto is supposed to be the breaking down of cross borders?
RUMI MORALES: I think it's interesting for those who are waking up to crypto this year and looking at the China news and being a little concerned. For those of us who've been in the space for a while, this is not necessarily anything new. I think what is interesting is this may be, like, the fourth time China has tried to crack down on crypto, versus the one time they said no more Facebook, and Facebook didn't exist before. Like, this [INAUDIBLE] didn't exist after that.
This speaks to the power of decentralized networks, that China has tried to crack down on this before. We will see what happens next. But I'm guessing, given the power of Bitcoin and other decentralized currencies and the ecosystems, that this is going to continue to grow. And then regulators are going to be looking at investors, they're going to be looking at consumers, and seeing that this is something that, increasingly, people want to participate in. The genie was out of the bottle a long time.
And I think regulators looking for this may see an economic opportunity [INAUDIBLE], but at the very least, understand that this is an important economic development. And for all the time that it's out there, there's countries like El Salvador that are really embracing digital currencies. And so I think there's a lot. There's a lot that we can learn by regulators taking different approaches. But ultimately, this is not going away. It's not.
BRIAN CHEUNG: So Joe, on the regulatory story, I mean, how much water do international developments in China, or even El Salvador, basically anything outside of the United States, weigh on what Gary Gensler is trying to do in the SEC offices in DC? Is it mostly insulated? Or is there some level of not necessarily international cooperation, but just kind of countries keeping an eye on what the other is doing to make sure that there isn't any sort of arbitrage that could exist legally between different countries?
JOSEPH HALL: Well, two thoughts on that. I mean, you know, I don't think it much matters to the SEC what approach a foreign regulator is taking. In other words, you know, I don't think a foreign regulator's acceptance and welcoming of digital asset investments or barring digital asset investments has much of an influence on the SEC. That said, I think that activity outside of the United States, you know, definitely has an impact on the way our regulators think about it.
You know, when Chair Gensler is talking about digital assets sort of being the Wild, Wild West, I think he's talking about activity offshore. And so, to the extent that there are blowups offshore-- I mean, go back a few years ago, Mt. Gox or something like that. To the extent that they are big shocks offshore that have an impact on pricing or on investor confidence in the asset, I think those sorts of offshore activities very much weigh on the SEC's decision making. But I don't think the relative posture of the foreign regulators all that persuasive to the SEC, for good or for evil.
BRIAN CHEUNG: So I want to direct this question to Dave. So if-- going back to the specificity of the Bitcoin ETF, this is kind of a little bit more of an insulated conversation, as opposed to people watching what China is doing per se. What's your messaging to the SEC as they kind of weigh through whether or not they want to have a Bitcoin futures product or a Bitcoin spot ETF? What are you advocating for? Do you feel like they've been soliciting the industry in trying to get comment as they try to sort through these things?
DAVID LAVALLE: We think that the SEC should really take an equitable approach to allowing investors to choose which type of Bitcoin exposure in the form of an ETF that they would like. And so we're strongly advocating that a Bitcoin futures ETF and a spot Bitcoin or a physical Bitcoin-- it's a little silly to say physical Bitcoin, but a physical Bitcoin ETF-- be brought to market at the same time to allow the opportunity for investors to choose their own exposure that meets their own investment needs and their own investment thesis.
BRIAN CHEUNG: As a quick follow-up to that, I mean, who is the target demo for a Bitcoin ETF, not just from Grayscale, but across the board? We know there are many other applications out there. Is it people who are scared to get a crypto wallet because they're intimidated by the extra steps that might be involved? It might be easier just to open up the portfolio you already have and jump into an ETF. Or is it a lot of people who are already in the crypto space that just want to load up on new products? Who is the target demo for a product like that, if it does get approved someday?
DAVID LAVALLE: I think the answer to that question is yes. I think it's anyone and anybody who is interested in utilizing an ETF for a segment of their exposure to Bitcoin. I think that historically, again, utilizing GLD as an example, it was fairly simple for gold as a means of your investment portfolio until an ETF came along, and it became, you know, increasingly more simple and reliable to have gold exposure in your investment portfolio.
And I think this is a similar case. It's very similar that Bitcoin can be a little bit challenging for many investors to determine how to seek exposure or store it reliably and have a component of their investment portfolio in that asset class. I think the ETF opens up, you know, the pool to a much larger investment universe and also add simplicity to the asset class being pieced into somebody's portfolio.
BRIAN CHEUNG: Rumi, last question here. Not to say that this is a zero sum game, but would it be bad on balance for crypto wallets or crypto exchanges for these traditional ETF products that get all the benefit of price movements in Bitcoin without actually having to be in a Coinbase wallet, for example? Or do you think that because the pie is growing, you know, ultimately, the space as a whole can benefit?
RUMI MORALES: I definitely would say the latter. Any new ways for investors to gain exposure and understanding of the wonderful economic opportunities that digital assets provide, let's have all those ways. As someone who's been in this space for eight, nine years now, it's amazing the type of innovation that we've seen. But I have to admit, it's only been really appreciated by a really small sliver of people.
And for those who know just the great opportunities that can exist in crypto assets broadly, not just with ETFs, but even going into things like nonfungible tokens now and what's happening in creative economies, not just financial institutions, it's really important for consumers everywhere not to then understand this, but to participate in it. It's the greatest economic opportunity of our lifetime. And I'm just very proud to be part of it. I can't wait for more [INAUDIBLE].