New crypto ETF captures ‘cross-section of technology and finance,’ Grayscale managing director says
David LaValle, Grayscale Investments Managing Director of Global Head of ETFs, sits down with Yahoo Finance Live to talk about Grayscale’s new bitcoin-oriented ETF, the future of financial infrastructure ETFs, and crypto hacks.
Video Transcript
BRAD SMITH: But switching gears here, Grayscale Investments launched their first ETF as the crypto space seeks answers on regulation this year to offer a path forward for decentralized finance. And joining us now, we’ve got Dave LaValle, who is the Grayscale Investments managing director and global head of ETFs. Dave, great to speak with you today. We know that the House Financial Services Committee held its latest digital currency hearing on Tuesday, this time, pertaining to stablecoins. More broadly, though, do you expect any substantive crypto regulation to come in the months ahead?
DAVID LAVALLE: So we’re really proud of Grayscale that we have a very strong relationship with all regulatory agencies. And we’ve been engaged with them, obviously, for, you know, our desire to convert GBTC into an ETF. But, you know, we’re keeping a very close eye on what’s happening down in Washington. And, you know, I applaud the work that our regulators are doing.
EMILY MCCORMICK: I want to ask more about your ETF because many of the stocks that comprise top holdings in the Grayscale Future of Finance ETF often moves closely according to the price of Bitcoin. What’s the argument for investors investing in this basket of crypto-related companies, as opposed to just investing in cryptocurrencies directly?
DAVID LAVALLE: Yeah, so, you know, we decidedly have created an index that, you know, is not intending to be replicating the price of Bitcoin. In fact, we’re defining a new theme, which is the digital economy. And it’s very different than the products that are currently in the marketplace.
Many of the products currently in the marketplace are holding companies that actually have Bitcoin on their balance sheet or have technologies that are driving the underpinning of mining. And what we’re really doing here is defining a new theme, which is the digital economy. It’s a cross section of technology and finance. And it’s really pushing forward a new theme that hasn’t been seen before in the marketplace.
BRAD SMITH: What type of volatility would you anticipate with any kind of consortium of companies that do carry Bitcoin on their balance sheet, even though it’s usually a small portion in comparison to their broader market cap as well?
DAVID LAVALLE: We actually think the Grayscale Future of Finance ETF, ticker GFOF, is really going to dampen any sort of volatility that you see in the market tied directly to crypto. And it’s also going to help dampen some of the regulatory uncertainty that we have experienced over the past several years. And the way it’s going to do that is it’s really built on an index that is capturing companies that are going to have to produce in the future.
And for those companies to produce, they’re going to have to meet the regulatory headwinds or do what they need to do to be productive, regardless of what regulation is in their purview. So we feel very confident that the Grayscale Future of Finance ETF is going to really dampen volatility and also dampen that regulatory uncertainty in the future.
EMILY MCCORMICK: How are you thinking about what the future of finance is going to be looking like and which companies are going to be at the forefront of that? And tying this all back into your ETF, how then do you screen the companies to actually comprise some of the biggest holdings in this ETF?
DAVID LAVALLE: Yeah, so the index that is based on the Bloomberg Grayscale Future of Finance Index is an index that is comprised of three independent pillars. So it’s the financial foundations, it’s the technology solutions, and it’s the digital asset infrastructure. And so what I like to say is the digital economy is something that’s very new. And I like to make the analogy of imagine if you could buy the internet infrastructure ETF in 1995. You’re not picking winners or losers in terms of individual companies, but you’re having a diversified exposure to the infrastructure of what is going to become part of our everyday fabric in the future, the digital economy.
So right now, you may see some overlap with other products in the marketplace. But as time goes on, and more and more companies are really becoming more engaged in the digital economy, you’re going to see divergence, and you’re going to see some growth. That’s really exciting for our investors.
BRAD SMITH: When you think about the components and any type of rotation that would be necessary in this ETF, even as more companies come into the equity traded space and meet the criteria to be also a part of this ETF, in the Future of Finance ETF, particularly , what does that make-up look like? How does that change over time as well, considering how some new companies may also enter into the fray, either holding Bitcoin or cryptocurrency on their balance sheets, but also just offering some type of platform or service that correlates directly with the future of finance?
DAVID LAVALLE: Right, so again, this product is not going to hold companies that actually hold crypto on their balance sheet. And it’s also not going to have companies that are just some bits of technology that are helping some of the mining rigs and the like. It’s also not going to hold broad-based payment processors, which we’ve seen in some of the other products that have come to the marketplace.
And our partnership with Bloomberg, we’ve really built an index that acts as a net. And it’s going to be rebalanced on a quarterly basis. And we’re going to throw roughly 1,000 names into that net. And that net is going to be the index methodology which catches a number of different names that are really performing in the financial foundations, performing in technology solutions, and really performing in the digital asset infrastructure. This is really an infrastructure play more than it is picking and choosing companies that we think are going to be successful because of the rise or fall of the crypto markets.
EMILY MCCORMICK: Switching gears for a moment, just yesterday, the Justice Department announced that it had seized over $3.6 billion worth of allegedly stolen cryptocurrencies from the hack of Bitfinex in 2016. How widespread of an issue is crypto hacking and scamming? And is it more or less prevalent and of concern than it would be for a platform dealing in Fiat?
DAVID LAVALLE: Yeah, so I think, you know, at Grayscale, we certainly applaud the regulators and applaud the ability for any sort of fraud in our marketplace to be stunted. And so, you know, it’s very hard and difficult for me to make a statement of how prevalent that is. What’s important to us is that the transparency afforded by the blockchain technology will ultimately ensure that those that are taking advantage of it or acting inappropriately will be brought to justice. And so Grayscale is very outright– excuse me– very outspoken in the support of ensuring that fraud is taken very seriously and is handled by the regulators
BRAD SMITH: David LaValle, thanks so much for joining us here today, breaking down the components in this broader ETF and index that’s going to be backed by David LaValle, who is the Grayscale Investments managing director of global– and global head of ETFs joining us here this afternoon. Thanks so much for the time, Dave.