Day 1 of Spot Ether ETF Trading With BlackRock and Franklin Templeton

It's Wednesday, July 24th. And this is Markets Daily hosted by me Jen Sani. On this show, we navigate the currents shaping the crypto markets, providing insights against the broader financial landscape. So whether you're actively trading or simply fascinated by the volatility of the crypto markets. This show is your compass to understanding what's happened where we are and where we're going. Good morning everyone. It is Wednesday and the Spot E ETF S have pushed past $1 billion on the first day of trading with around 100 and $7 million in net inflows. Now of the eight firms issuing the product surprise, surprise, Blackrock had the most inflows at 266 $0.5 million. We caught up with Robert Mitch. Nick Blackrock's head of digital assets to talk about the milestone. Last time you were on the show, the Bitcoin ETF was just approved and I asked you if you were popping bottles over at Blackrock, if people were celebrating uh behind the scenes. And so I gotta ask you again, uh or is it just feeling like you know, another ETF approval? And one of many? Well, it is a big moment for us. Obviously, there's uh you know, great energy uh and excitement around the, the many teams uh at Blackrock who, who worked on this, but kind of similar to, with the Bitcoin launch. Uh we're very focused on, you know, executing around this product launch. Uh responding to what is it a significant level of interest from our clients, both in the new e the product and also uh continued and, and fragment in some ways growing interest uh around Bitcoin, I spoke to Kevin o'leary on the show yesterday. He said he's not a fan of the ETF products because he can just hold Bitcoin and Ether. And he thinks that eventually, now there's no timeline to what we spoke about that eventually people will go to the exchanges for these products. Now, it, when you think about your competitiveness and your long term vision for these products, is that something that you think about? And that you're preparing for is that as people get more educated, they'll go over to the exchanges and hold their assets in their own wallets. Well, I think it really uh depends on the investor in their circumstances. And obviously, there's lots of uh investors and users in the crypto space that um enjoy and value uh the experiences of going directly and in some cases self custody. Um I know there's very many who uh appreciate the ability to access these uh conveniently uh in a low cost efficient way through a traditional brokerage account. Um And we think in particular about the wealth advisory space, we think about institutions, I think overwhelmingly there's a preference more in the direction of being able to hold through the ETF wrapper, but you'll continue to have a bifurcation in the market. And I think that's entirely healthy. What are wealth advisors and institutions asking about e if we compare that to their questions about Bitcoin? Is there an understanding of e and what it is and how it might look when we're looking at portfolio allocation? Yeah. Well, I think, um you know, we've been in the 6.5 months since I launched spending a lot of time on education, uh talking through Bitcoin, it's risk and return drivers. Um thinking about investment, thesis, portfolio considerations, et cetera. And uh for Ether frankly, uh it'll be more of the same but in some ways a little bit harder, it, it is uh a little bit of a more complex story to understand, think about, you know, what it means to be a platform uh on which decentralized applications are built and what form those decentralized applications may hold. And so we expect to spend, you know, just as much time as if not more uh on, on education with our clients around Ether. Tell me a little bit more about that education. If we're looking at Bitcoin versus Ether, what's the investment case for each of them? I think they're quite different. Um You know, we think about either at its highest level is a bet on technology innovation around Blockchain. Uh That's pretty different from where, you know, Bitcoin is, is most uh focused and most resonating today, which is this uh emerging global monetary alternative. So, you know, historically, they've been quite correlated in terms of trading. I think that's in part because uh yeah, they've been driven by the center, a broad crypto adoption and acceptability uh trends, but going forward, um you know, those are pretty distinct investment thesis, um they'll likely have very distinct uh trading behavior, correlations, et cetera. Um You know, and that's a, that's a journey that I think would just reflect the maturation of this market as, as it continues, what defines success for you in this product? Yeah, I think it's uh you know, first and foremost, delivering a black rock and ishares quality uh product to our clients. Uh You know, that's where we've obviously been focused to date. And then, yeah. Secondly, we're focused on uh being a great uh do partner and dot leader in this space playing a key role in education as our uh clients navigate this novel asset class and this uh specific novel asset in terms of, you know, clothes and, and other considerations, obviously, you know, I bet at, at 22 billion uh in a um now after six months or so, that's sort of uh rewritten a lot of the, the ETF records, uh, that's, that's, uh, you know, not something that's likely to be, to be replicated, but there's a lot of room for success. Um, you know, even well shy of, of those, uh, substantial numbers. And are there any other crypto ETF s that you're thinking about for the future? I know that a few different firms have filed for, um, a sole ETF, but it is kind of general consensus that we wouldn't see one of those until next year after the next election. Any other assets that Blackrock has their eye on in terms of a crypto ETF. So at this point, you know, our clients overwhelmingly, they're most interested in Bitcoin. There are some who are uh interested in, in Ether, you know, that that's a driving force of what we've done in this space, not a lot of interest uh today, frankly for uh assets beyond that. And also if you think about maturity liquidity track record, um you know, clarity of investor narrative, um There's some exciting other projects out there but they are way behind. Um and certainly Bitcoin uh on, on a lot of those metrics today. And um so this, this is where we're focused for now. Now, while Blackrock is the largest asset manager in the world, it faces competition from seven other asset managers that all saw inflows of over $5 million. Let's put that into context. Bloomberg, ETF analyst, Eric Balchunas, who has been on this show before. Said that a good ETF launch sees a million dollars on the first day. If we take that into perspective, it seems like all the asset managers are doing just fine. I should however note that Grace Gill's Ethereum Trust saw a $484 million outflow as the product launched, Franklin Templeton's head of ETF product and capital markets. David Mann makes sense of what this means for investors and what's next? I wanna start off with this question. What's the investment case for Ether? Yeah, hi. Thanks for having me. Um Sure, this is an exciting time. We launched Ezet, that's the Franklin Theorem. ETF And, you know, it's been interesting. Uh and I'll, and I'll get your answer in a second, but it's funny from an ETF perspective where, uh you know, I'm used to bringing stocks and bonds with an ETF S that all of a sudden within the last um 67 months, we've started adding cryptocurrencies. And so back in January, we launched E BC, that was our Bitcoin ETF. And then yesterday we added Easy Et Ethereum. And so now we're having a much broader conversation about giving investors the ability to access whatever they want within the ETF vehicle and specifically for Ethereum, there's a big white crypto that was sort of the conversation we were having over the last six months that was specifically aimed for Bitcoin. Now we're adding Ethereum. So now much more nuanced conversations about um proof of stake and proof of work and thinking about uh you know, Ethereum as almost like a technology and, and, and powering all these smart contracts and all the new decentralized apps that are being built. We think there is a um uh a really interesting case about why a theory makes sense within a portfolio. I want to dig a little bit deeper into that in just a second. But just given your experience, the fact that you've been involved in launching many ETF products outside of crypto to see the success of the Bitcoin and Ether products. Is that surprising to you? I mean, like what is it about crypto about Bitcoin, about Ether that has kind of blown the other ETF launches out of the water. So I wouldn't lie to you that if I, if I went back to let's call it November, December, I was fairly certain all of the usual ETF plumbing from a croat redemption and trading was going to work properly. But there was a lot of new new uh actors in the, in the uh in the process. So thinking about coin brokers and cash creations and all the, all the bits that we had to build out. Uh you know, we use Coinbase as our, as a digital custodian. That was, that was a new build as well. So I was fairly certain that the ETF rapper was gonna work as we expected uh, come January when we saw tight spreads and efficient trading that we've come to appreciate. Um, it was sort of a, a, uh, you know, colored sigh of relief. And so coming into Ethereum, uh, yesterday, uh, maybe a little bit less, uh, stress because we'd already seen the process work properly and, and yesterday's trading was, was quite seamless. So, uh, not surprised that it's worked, uh, as expected, but it didn't mean there wasn't a little some nerves along the way. Not only did it work though, but the flows that we're seeing have, have blown flows of other ETF lunches out of the water. I mean, like is, is this something that you could have predicted back in November or December? Uh we had a, we had a feeling uh based off of the amount of demand for Bitcoin that uh within the ETF vehicle because the ETF vehicle has been, uh you know, the, the growth is astonishing. I mean, globally, we're, you know, Franklin's up to 28 billion now. Um You know, I came here eight years ago where we had one fund. So just to watch our own growth has been awesome. And to see, I think the all the launches from January brought in a combined 36 37 billion of new assets. Uh just shows uh there was a lot of demand and I, I'm cautiously optimistic that a lot of the main users of ETF. So some institutions uh a lot of the gatekeepers, they're still going through a due diligence process. I'm not surprised there is that much uh demand but still to see almost 40 billion of net inflows for those new launches is is awesome. Let's talk about um let's dig a little bit deeper into that investment case for Ether when we're looking at the E TT F and the Bitcoin ETF, how are you thinking about that in a portfolio perspective? And, and how should wealth advisors and institutions be thinking about that in the same way? You know, the initial conversation, you know, because this whole concept of blockchains and digital assets was sort of brand new. There was AAA lot of research and work done to say, OK, what's the right percent allocation with the portfolio for this new asset class, given its underlying metrics? OK. So things you know, look at the volatility, look at the Sharpe ratio, look at its performance over the last decade. Um That's, that's a brand new thing even though it's, it's, it's, it's been around for a while to see it now with an ETF was, was somewhat new uh for Ethereum, we're now with a little bit more like uh no different than the type of research or analysis that would go to a lot of our other, you know, Franklin equity growth uh funds and you know, Ethereum has revenue, it has cash flows, it has, it has a business and so we can now start modeling that to think. Ok. Well, here's the, there's the case for Ethereum, here's the competitors for Ethereum. And then we can thoughtfully say, OK, why, why should we be overweight or underweight the theory within our portfolio? Even though that's part of a, you know, subset of digital assets. And when you're explaining the business case for Ethereum as part of the education that you have to do um for wealth advisors and institutions as this product becomes more mature. How do you, how do you explain that? How do you help them understand the tech, the underlying technology uh when it comes to Ethereum? And how do you, I guess compare and contrast that against an asset like Bitcoin, the one thing that we're trying to do that I think has resonated the most is um why, why would Ethereum uh get more popular? What's the underlying technology? Uh you know, just I'm not going to be able to explain to someone all the weeds of, of uh of smart contracts or how that's why I asked. It gets very confusing. Yeah, I know it's very confusing but, but you can kind of get a sense of like, you know, it's no different than, you know, back to my earlier point of, of uh you know, our Franklin focused growth is overweight NVIDIA. You know, there's a whole dedicated team that's researching all of the growth stocks to say, OK, here's why we have an of NVIDIA compared to Microsoft compared to Apple compared to Google. As an example. I think this the theorem is going to be in a very similar um you know approach where we're now researching, OK, the revenues, the cash flows, the business model, the competition and how that's gonna stack stack up against other projects is what's going to lead to the investment case of why a theorem would make sense within a client's portfolio. Talk to me a little bit about how Franklin Temple is thinking about remaining competitive with the Bitcoin ETF. There was really this kind of fee war that the media highlighted. It's kind of been similar with the, with the E TT F. I don't think the uh scale of fees is as large as the Bitcoin one was but outside of the fees. I think everyone understands that. How do you think about remaining competitive amongst these seven other asset managers who have launched an ET ETF certainly from uh you know, my role within the ETF ecosystem, ensure that the creation redemption works properly, uh Ensure the spreads are tight uh that that the trading is in line with the, with the price of Ethereum. All that stuff is happening. I mean, it's only a day and a half in but it's, it's al it's already happening um from a differentiation and you mentioned costs and, and a lot of a lot of the other uh theory and ETF S are are waiving fees. So that's, that's gonna be a push, at least for the short term, uh is our digital asset team's capabilities. You know, the, they've been now running strategies for 56 years now. They're uh node validators. There's they, they run an on chain money market fund, they provide research and a lot and analysis. So I think the mix of the Franklin Templeton ETF story with those digital asset um capabilities, I think makes the Franklin Templeton story uh very compelling. You know, I asked this question to the folks from Blackrock earlier on the show uh about the potential for any more crypto ETF si know that some asset managers have filed for a soul. ETF I know Franklin Templeton has done a lot of research on soul and that very hilarious X account that Franklin Templeton has is always talking about soul and participating in the, in the memes. Um How are you thinking about other crypto ETF S as we head into and pass the election? And are your clients interested in other crypto ETF S? Uh Yeah, I think the X account um I learned some of my crypto knowledge from watching, watching all those posts. Those are, those are pretty amazing. Uh Yeah, we're watching this space. I mean, the, the uh the reality and it's been well well discussed is the, uh you know, the regulations around ETF S and uh you know, the time to market for the Bitcoins now, Ethereum, uh, I think there's gonna be a real discussion about the next wave. I think, you know, putting on sort of a regulatory view. Bitcoin, I think everyone is pretty comfortable, uh, treating that one like a commodity and, and, you know, regulated as a, as a grant or trust. Uh, Ethereum, similarly, it's been, you know, one of the original, you know, run one of the original cryptocurrencies number two in market cap. So not surprised as well. I think as we start going down the coin spectrum, that's where there's gonna be, have to be some um decisions about how those should or shouldn't, how those should be regulated within the ETF framework. Thank you to both Robert and David for joining the show today and thank you for listening and coming on this journey with me to better understand the crypto markets. If you enjoyed this episode, be sure to subscribe on the Coin Desk Podcast Network that's available on your preferred podcast platform. Leave us a five star review and subscribe on youtube and hit that like button. Your support means the absolute world to us. We appreciate you. We hope you have a fantastic day and we'll see you tomorrow.