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Crypto ETFs are seeing more inflows despite sell-off, strategist says

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VettaFi Vice-Chair Tom Lydon joins Yahoo Finance Live to discuss crypto ETF trends amid the slide in cryptocurrencies.

Video Transcript

SEANA SMITH: Crypto and blockchain ETFs sinking as Bitcoin plunges yet again, falling to the lowest level that we've seen in about 18 months. So here to talk about what this means for ETFs, we want to bring in Tom Lydon. He's the vice chair of VettaFi. He joins us now as part of our ETF report, brought to you by Invesco QQQ. Tom, it's good to see you. Another day, Bitcoin lower once again, right around 22,000. We certainly have seen the selling in Bitcoin reflected in some of those crypto ETFs. What do you think this means for this space and the wider adoption that people were hoping to see when it comes to crypto ETFs?

TOM LYDON: Well, what's interesting about crypto ETFs, Seana, is they really haven't been widely adopted yet. Although we have four that are based by futures-- so ProShares came out in the fall with the first one. And in a matter of days, they have $1.3 billion, which was pretty impressive, followed by Valkyrie, and then also VanEck, and ultimately, [INAUDIBLE] added ETFs that were futures-based as well. The key is, we don't have a spot Bitcoin ETF yet. The chairman of the SEC, Gensler, is not comfortable with it at this point. It's only futures-based. It's overseen by the 40 Act.

So when we look at what investment advisors and individual investors are buying on their brokerage platforms, like the Charles Schwabs of the world or the Fidelity's, it's still kind of a drop in the bucket. But with that being said, we actually have more money that's been going in recently, even though the market's been declining in that space. But because it's down about 66% since these ETFs launched, on a net positive, we've actually seen flows. It's good news because we haven't seen emotion from those that are buying ETFs. They tend to buy on the dip, whether they're individual investors or advisors.

RACHELLE AKUFFO: So then, Tom, when it comes to getting a spot Bitcoin ETF approved and looking at what the SEC is thinking, do you think this latest crypto slide gives them more or less impetus to move forward with it faster?

TOM LYDON: It's going to be tougher because, obviously, there's less demand. So right now, I think Chair Gensler would say, look, if you want to buy into the space, you've got a lot of choices. You can go in with a futures-based strategy in the form of an ETF. We know GBTC has their strategy. However, it's got a discount. Or you can buy off platform in areas like Coinbase where you can buy directly. A lot of folks in lieu of the futures-based strategy, or, in fact, a spot strategy, are turning to miners. And the miner surprisingly, areas like Hut 8 and a few others were actually up today.

So it's interesting. We continue to see people nibbling at this decline. It's going to be interesting to see what goes on. I think the key thing is we survey advisors every year on Bitcoin and cryptocurrency. Their interest from their clients continue to rise. And advisors, although they don't have a lot of choices, continue to consult with their clients about it. And if they are putting allocations in, it's small. It's something like 2% to 5% of the overall allocation.

SEANA SMITH: So Tom, with that in mind then, what of the fund-- give us a sense of what the fund flows have looked like in this space because there certainly was a lot of hype. You're saying that people aren't ready to allocate a larger amount or a larger portion of their portfolio to this space. I guess, a two-part question. What has the fund flows looked like? And what is it going to take in order to get to that?

TOM LYDON: BITO, which is the ProShares strategy ETF, brought in its high, about $1.5 billion. It's about 850-- I'm sorry. 1-- it brought in $1.5 billion, right. And at its high, we're now seeing $880 million. So we've also suffered at 66% decline. So if you go in and you look at the flows over time, and you put in the decline that we've had in the marketplace, it's actually been net positive shares.

So we haven't seen major swings, I think like we have seen with the selling on spot cryptocurrencies out there. That's a good thing because what it says is those that are buying ETFs tend to be a little bit more rational, maybe not as emotional. I think more and more, as we see crypto being adopted by advisors and investors who maybe are closer to retirement, who use the more traditional platforms, may be seeing this as a great buying opportunity.

RACHELLE AKUFFO: And you raise a good point about some of these more traditional platforms. You said that most investors want to make these crypto allocations on trusted brokerage platforms like a Charles Schwab and a Fidelity. But how much market share do they actually have compared to some of these ones that really cater towards retail investors?

TOM LYDON: Well, you're absolutely right there. It's just a fraction. However, I think what we all hope is there's more trust in cryptocurrency down the road. And hopefully, we will see a spot Bitcoin and other cryptocurrency ETFs, as the SEC and other agencies get more confidence, because it is another asset class. We can't avoid that. And there is a demand there. And as more time goes on and there's more adoption, even though there's volatility in the marketplace, it's an opportunity to diversify.

RACHELLE AKUFFO: All right, we do appreciate you coming on the show this afternoon. Tom Lydon there, VettaFi's vice chair. Thank you for joining us.