Binance VIP Voices: The Arrival of Crypto ETFs and Institutional Adoption of Digital Assets
Main Takeaways
Explore the transformative potential of Bitcoin ETFs with insights from industry experts Martin Bednall (Jacobi Asset Management), David Fauchier (Nickel Digital), and Fabio Frontini (Abraxas Capital).
Crypto-native asset managers hold an advantage over traditional finance entities entering the crypto space, but education remains key to promoting Bitcoin ETF adoption among wealth managers.
According to our panel, the potential approval of a Bitcoin ETF in the US could result in heightened demand and potential congestion on the Bitcoin network, although they are also confident in the marketâs ability to adapt and stabilize.
Martin Bednall (CEO, Jacobi Asset Management): With over 18 years in the ETF industry, Martin brings his expertise from traditional finance to the world of crypto, having successfully listed the first spot Bitcoin ETF in Europe.
David Fauchier (PM, Nickel Digital): At Nickel Digital, a crypto-focused regulated asset management business in the UK, David brings insights from his previous experience running one of the early crypto market-neutral funds.
Fabio Frontini (Founder, Abraxas Capital): Fabio, a veteran in traditional finance and proprietary trading, entered the crypto space in 2017 and has since been at the forefront of arbitrage strategies within the crypto market.
The introduction of crypto Exchange-Traded Funds (ETFs) marks a significant development, bridging the gap between traditional investment methods and the emerging world of digital assets. As crypto ETFs gain momentum, they offer institutional investors a familiar format to engage with digital currencies.Â
Read on to learn more about the role these ETFs play, the challenges and opportunities they present, and their potential effect on the wider financial market.
Please note the material published here has been edited for clarity and length. These insights represent the views of our guests only and are not officially endorsed by Binance.
1 / On the Significance of Exchange-Traded Funds
Could you elaborate on the nature of ETFs and their importance?
Martin Bednall (CEO, Jacobi Asset Management): An ETF, or Exchange-Traded Fund, is structured similarly to traditional investment funds that people commonly buy into. Each of these funds has its own segregated assets and liabilities. The key difference between an ETF and a standard investment fund is that an ETF is listed on a stock exchange, or sometimes multiple exchanges. This allows investors to trade shares in ETFs in the same way they would trade shares in equities or other listed products.Â
Most investors can easily buy ETFs through their standard brokerage accounts. In fact, some providers even offer the option to trade ETFs commission-free. This ease of access and flexibility has led to ETFs becoming a preferred investment vehicle for investors, both institutional and retail. Particularly in the crypto market, this is significant, as it provides investors with a new method to access digital assets. It allows easier entry through a familiar and accessible investment format.
2 / On the Role of ETFs in Bridging TradFi and Crypto
How are ETFs contributing to the integration of cryptocurrencies within traditional financial systems, and why are they seen as vital in the current financial landscape?
Fabio Frontini (Founder, Abraxas Capital): The potential approval of ETFs for digital assets, expected in early January, is crucial as it lends an official stamp, akin to regulatory approval. This boosts the credibility and acceptance of digital assets in traditional finance, leading to increased participation from both institutional and retail investors. While ETFs generally enhance price stability, the impact on Bitcoin is still uncertain. Nevertheless, the regulatory approval embedded in ETFs is significant and is likely to instill confidence and encourage more participation in the digital asset space.
Martin Bednall (CEO, Jacobi Asset Management): Incorporating crypto assets into the ETF structure and offering them through ETFs creates a vital link between the digital asset ecosystem and traditional finance. People familiar with traditional finance know how to trade ETFs. By including crypto exposure within these ETFs, we improve the connectivity between these worlds. The use of ETFs enhances this bridge, making the transition smoother for those accustomed to the traditional financial system.
3 / On the Landscape Between Crypto Native and Traditional Firms
How do you compare the roles and advantages of crypto-native asset managers to those of traditional finance entities currently entering the cryptocurrency space?
David Fauchier (PM, Nickel Digital): Crypto-native firms have a substantial headstart over traditional finance entities. They gain from regulatory and reputational risk arbitrage, enabling them to trade across traditional finance, CeFi, and DeFi. Traditional financeâs âcrypto quant tourismâ in recent years was counterproductive, as these firms entered the crypto market without a long-term strategy, harming their talent retention and reputation.Â
In crypto, bespoke infrastructure is essential, underlining the need for skilled talent in trading, legal, and risk management areas. Crypto-native firms have capitalized on acquiring talent from traditional finance firms that exited crypto abruptly. Traditional financeâs involvement in crypto has been more reactive, often chasing short-term gains rather than building lasting infrastructure. As the market matures, crypto-native firms are likely to retain their advantage, thanks to their expertise and strategic approach.
4 / On Europeâs Position in ETF Rollouts
Could you share insights into listing a Bitcoin ETF on the Euronext Amsterdam exchange, and your thoughts on Europe's position, possibly having a first-mover advantage?
Martin Bednall (CEO, Jacobi Asset Management): Our effort to launch a regulated Bitcoin ETF took about three years, navigating regulatory challenges and market shifts like the FTX incident. As Europeâs first regulated ETF, perseverance was essential. We aimed to make crypto more accessible to institutional and qualified investors, also focusing on educating those new to crypto. This educational aspect is critical.
Regarding Europeâs role, Canada introduced spot Bitcoin ETFs first. The US market, however, shows intense anticipation for similar products, with expectations of imminent approvals. The SECâs engagement with ETF applicants signals progress. Bitcoinâs price surge is partly due to this. Yet, the ETF markets in the US and Europe differ significantly in regulatory and market dynamics, making it hard to claim a first-mover advantage for Europe.
5 / On Enhancing Bitcoin ETF Adoption
How can banks and broker-dealers in the wealth management industry be effectively utilized to promote Bitcoin ETF investments to their clients and investors?
Fabio Frontini (Founder, Abraxas Capital / Heka): The key to encouraging ETF investments lies in education. Simply having ETFs in the ecosystem doesnât guarantee widespread adoption. Many wealth managers are hesitant to recommend these products due to a lack of understanding. Education and information are vital. The existence of an ETF under a regulatory umbrella implicitly approves the asset class, making it more investable. If these assets outperform others, wealth managers risk losing clients by not engaging. Moreover, ETFs might be used as collateral for more complex strategies, broadening their appeal and use. However, this shift wonât happen overnight; education and gradual acceptance will play crucial roles.
Martin Bednall (CEO, Jacobi Asset Management): Fabioâs point about regulatory influence is crucial. When the SEC approves Bitcoin ETFs, itâs not just about US investors. This approval will likely influence regulators globally, including the UKâs FCA, and institutional investors, who may reconsider their stance on crypto. Even if money doesnât flood into ETFs immediately, the approval legitimizes digital assets, making it easier for investment teams to consider investing in them. The SECâs approval could catalyze a snowball effect, encouraging broader acceptance and investment.
6 / On the Potential Approval of a Bitcoin ETF in the US
If a Bitcoin ETF is approved in the US, what do you think the market reaction would be, particularly in terms of demand and network capacity to handle it?
Fabio Frontini (Founder, Abraxas Capital / Heka): The reaction depends on the ETFâs initial subscription size. If itâs in the billions, it could create congestion due to arbitrage activities. Most likely, ETF players will concentrate on specific regulated institutions, impacting prices on other exchanges and creating arbitrage opportunities. However, significant subscriptions could congest the Bitcoin network, causing delays. Despite potential initial volatility and congestion, I believe the network will ultimately cope.
David Fauchier (PM at Nickel Digital): Iâm more optimistic about the marketâs capacity to absorb ETF inflows. Even with substantial inflows, given the daily spot and derivatives volumes in Bitcoin, I donât foresee the market grinding to a halt. Arbitrages with adequate capital can efficiently relocate liquidity. So while spreads may be the best all year, I donât expect blockchain unusability or significant disruptions.
Watch Episode 5 of Binance VIP Voices.
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