The Race to the Spot Bitcoin ETF Heats Up w/ John Palmer

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1:30Hi, everyone. Welcome to the Real Vision Crypto Daily Briefing. With me today is John Palmer, the head of SIBO Digital. Hi, John. It's great to see you. Hi, Megan. Good to see you as well. So just a quick check of where we are before we jump in, where we are in the markets. So we've got crypto up for the most part, Bitcoin up about 1.7%, 31 ,077, Ethereum up 2.8%, around 3 % just a few minutes ago, 1 ,967. So a green day for crypto. So, John, SIBO has a long history in the traditional options and futures market. It's a bit newer in the digital asset space. Before we sort of dive into some of specifically some of the stuff you have going on, I understand you played a role in both sides of the business.

2:18So talk to me a little broadly about what the catalyst is for CBO to get involved in the crypto space. Yeah, as you mentioned, we've been in business for 50 years. We operate markets globally across multiple asset classes. So 26 markets, 18 different regulatory jurisdictions. So, you know, we know how to operate markets well. And as we look at our global expansion, one of the things that we always consider is not only regional presence, but also different asset classes. And so as digital continued to grow, we saw it as an opportunity to bring the same efficiency, the same trust, the same resilience that we operate our other markets in, but into the crypto landscape.

2:59So for those who haven't been tracking this part of it closely, CBO recently launched a new levered Bitcoin futures ETF, BITX, as well as filed for applications for Spot Bitcoin ETF on behalf of some of your large institutional clients like Fidelity, WisdomTree, VanEck and others. Is that correct? Is that where we stand? Are those your big initiatives? So we have a lot of initiatives kind of globally going on. But if we look at what's happening in crypto, we have kind of two pieces of the puzzle of many pieces, really. You have obviously the ETF listings that you just mentioned. And then we have our actual digital asset exchange, both for spot and futures.

3:40I think you're speaking to the ETF listings. And I think that's probably the closest. I don't have the list in front of me to know what the exact issuers are. But, yeah, we definitely have seen some movement there. And I think as I think about it from the native digital side, that's really fantastic movement, right? And it's showing progression. It's showing uptake and demand. And I think it's really interesting to see how that continues to shape up and evolve. Yeah. I like when you say progression. You're an optimist, obviously. You have to be if you're in this phase, right? But we'll unpack that a little bit.

4:17So let's talk about – I want to talk about the digital asset marketplace as well. But let's talk about these two sort of ETF vehicles because it's been kind of in the news, right? So the Bitcoin futures ETF, the levered Bitcoin futures ETF, that launched end of June, just recently, right? Like June 27th, a week or so in. So obviously really early days, but what's the reception like? Have you been happy with the volume so far? Yeah, so I think, as you mentioned, it's early days. And I think it's interesting to see, obviously, there's demand for the product. there's a lot of buy side customers, different funds, different mandates that customers have to adhere to that can't access the spot platform or even a spot asset.

5:03So these are vehicles for them to gain exposure, whether they want, you know, one-to-one exposure, they want some sort of leverage exposure. I think it's really important because there's different appetites at different investor levels. And so this is just a reflection of that. I think we're going to continue to see that grow as it sits in the market and we continue to see more and more participants look for that type of access. Yeah, I'm curious, did you, was it a build it and they will come type of attitude toward this or was this a response to customers asking for this? Yeah, I mean, I think it's always a little bit of both.

5:39Obviously, we have great relationships with all our issuers and so we're constantly working with them and understanding their needs and really helping them in their journey as they want to bring new products to market. And so we want to continue to understand what they're hearing from their customers and understanding what we're hearing from our customers and our liquidity providers and how we kind of, you know, put the two together, right, and to help them bring a really fantastic product to market and then watch it grow and help support it in its growth. Yeah. So, you know, when we're talking about this demand side, There were reports in the Wall Street Journal Friday that the SEC is, again, blocking BlackRock's spot Bitcoin ETF applications.

6:22We're not talking about the levered future one that's trading for you now. We're talking about these spot applications. Why are so many institutional clients pursuing this space and looking at the products you just talked about at a time when the regulatory landscape in the U.S. seems so challenging? It's hard for people to, I think, put those two things together. Yeah, I think if we take a step back, I think it all comes from use case and how you expect different participants to gain exposure to the different assets. And so if we think about Bitcoin and spot Bitcoin as an example, it's a little difficult to actually go out and buy and hold that Bitcoin compared to maybe buying an ETF or buying a stock or maybe difficult isn't the right word, but it's more unknown.

7:10That's the one I would use, John. Right, I mean, understanding keys and wallets and private keys. Yeah, you were on this journey. It's a little complicated, right? So I think as we think about broad usage and use cases and how different participants in the market want to hold different types of assets and where they want to hold them, a spot ETF is a really interesting product because there may be masses of folks that want exposure, whatever the amount is, in Bitcoin, but aren't willing to maybe go down the rabbit hole or the journey of understanding how to actually hold the spot commodity or the spot token itself.

7:45And so I think that's really the interesting play here is getting something that's a well-regulated vehicle, a well-trusted, has proper disclosures, all the things that modern investors are used to today and other ETS or ETPs or any sorts of securities that they're buying. It comes with that concept of trust. And so I think if we can deliver a product that has the same, you know, kind of pillars or tendencies or disclosures, trust, et cetera, as what they're used to, then their appetite to own it and the confidence in owning it, I think, increases. And I think that's what's really interesting about any of, you know, just in general about a spot ETF, put aside, you know, the different issuers at play.

8:30It's just a spot ETF and now opening the doors, right, to more investors into this ecosystem. So that's really interesting because, you know, from somebody who any of our regular viewers know, a lot of the time I'm on, for lack of a better way to explain it, the macro side. But I, you know, traditionally have looked at traditional finance markets, capital markets, the things we're used to. And whenever we're having these crypto conversations, the thing that comes up all the time, no matter what panel I'm on or if I'm moderating questions, it's always that where's the bridge to sort of mass adoption, right?

9:07What are the vehicles that are going to get over some of those hurdles that you just said? The way you're describing it, you and presumably the clients that you work with see this spot ETF as that bridge to sort of mainstream it and make access wider and adoption wider to many more people who are used to operating in an ETF type world. Is that right? I think it's definitely one of the bridges. I think there's probably multiple bridges, given how we've seen the crypto ecosystem grow and then specifically maybe some of the challenges in the U.S. And I'm sure we can talk about that in a little bit when we talk more on the native digital asset side.

9:45But an ETF or spot ETF is definitely one of those bridges. And so does an ETP, right? The futures listed or the futures backed ETPs are also that bridge because they're holding futures that are listed, traded and cleared through a federally regulated exchange and clearinghouse, right? under the CFTC. So I don't want to forget about those. I think it's just, you know, there's different appetites, ETPs versus ETFs and what really what investors want to have access to. Yeah. So I would be so interested for anyone who's listening to weigh in, would you be much more prone if you are not? If you're listening, you may already be, you know, going through the steps of getting your wallet and acquiring either Bitcoin or, but if you don't, if you haven't, or if you want more, would this open up the way for you?

10:34I'd be so curious to hear that because it has been the missing link. So what are you hearing from your institutional clients, John? I mean, there's been so much lack of clarity. There's been a lot of hurdles. It's been a longer road. A lot of people have repeatedly been putting applications. What are you hearing from your clients in terms of what they're expecting from this? Do they think it's eventually going to get ironed out and they're just going to be moving forward? Or are they concerned that the longer this takes, the harder it will be? You know, I think it's it obviously depends on the institutional investor and kind of where they're at also in their journey and where they're at in the landscape of, you know, the different types of assets they may be involved in.

11:11But I think generally the course of direction is positive. It may be a very long kind of timeline we have to look at for generally, because obviously we've had quite a bit of cycles in the crypto landscape, which I think has, you down some adoption or maybe some folks have decided to pause or pull back. But I think the general trend is up. More and more institutions are starting to dip their toes into digital assets, crypto assets, whether that's via some of these things that are very more on the traditional side, like ETPs or ETFs, or are really growing their knowledge and starting to take their journey into the actual digital asset or crypto game when getting involved with custodians and figuring out how they're going to access the different markets and what platforms they want to access.

12:01So I think broadly, it's going the right direction. Hey, everyone, we're going to take a quick pause and hear a word from our partners. We'll be right back.

12:12So if we look at the the levered Bitcoin future ETF that you got through. CBO, you managed to get approval for this, which is not a phrase we hear often in this landscape. What did you do differently that helped you get that across the regulatory finish line? No, I think it's important to look at just, you know, this is not a new process for us. We work with our regulators. We work with our issuers very closely time and time again. I want to kind of pull the crypto off of it just because it's a levered ETP on futures that are regulated by the CFTC, the trading and the clearing of that. Let's just pull back the stigma of it being on Bitcoin.

12:59It's a regulated vehicle, highly regulated vehicle that looks and feels like all the other levered regulated vehicles. So, you know, I think from our perspective, we look at it as just another opportunity for different types of exposure and different investors to gain access to something they're used to, right? Whether it's a levered vehicle on, you know, a different commodity, right? They're all kind of traded and regulated the same way. Put spot Bitcoin aside, futures on Bitcoin are highly regulated by the CFTC. So, you know, I think that's really important. And I think that helps, you know, helped the ability for us to be able to continue to deliver new innovative products in this ecosystem.

13:42Yeah, it's hard, though, when you say in Washington, pull the crypto aside and this is going to, you know, this operates like everything else we touched. That has not worked, that argument, or it's fallen on a lot of skeptical ears in Washington. You did have to go back with the application, right, and provide some additional information. Is that a sort of framework and is that additional information? How did you convince them on the risk mitigation part and that the regulations in place would be satisfactory enough for this digital asset as well? And do you think that can be replicated and that will help in the future with these kinds of regulatory issues?

14:23I think we look at any kind of new product. Part of this process is always education. And it's not just education to the industry or to the customers. It's also education and working with the regulators kind of side by side. And so anytime they may ask for more information or they're looking for additional kind of processes, procedures, governance, whatever it might be, I think it's a favorable sign. And so it's just part of the process. us. So I don't necessarily view it as a bad thing. I think it's really a good thing. Obviously, there's a fantastic result. I think as we continue to see the ecosystem grow, it is a new asset class.

15:02It is a nascent spot asset class. And so I think it's, and unfortunately, there's been a lot of negative headwinds, I think, associated with just how some of the global issues that we've seen in the ecosystem. So, you know, I think that the prudency at the regulatory, at the federal level on, you know, these types of products, I think is understandable. And I think, you know, they obviously are looking out for the best interests of the industry, for the end customer at mind. And so, you know, if they were to ask for a few extra things, you know, that's fine. I think it's important progression.

15:37I'll go back to that word because, you know, when they ask for these types of things, it's not a no, right? They're actually giving us guidance. They're giving us information on how we can continue to help provide them information that may get us to the finish line. And so I think that's, you know, it is a really fantastic end result. Yeah, listen, everybody thinks that, you know, S &P Futures and all of these products that you deal with, they have existed forever. That's not true. I mean, we have some amazingly experienced members in our RV community who were some of the first to trade some of the derivative products and futures products that were developed along the way to sort of enhance liquidity and vehicles and capital markets.

16:17So this has been an evolution. This is just the next stage. But as you say, there's a lot of attention and a lot of it negative and headwinds because of some of what we've seen happen in the crypto markets. And that's got to be putting up additional barriers. Part of that was interesting for me to see the levered Bitcoin future get approval because on the face of it, that sounds so much more inherently risky than something like a spot ETF. So how is it that that got past the finish line? Is it just because the CFTC and SEC look at things so differently? Is it because of the regulator in charge?

16:58Is it because CBOE and CBO have such a long history dealing with this? How is it that that was the one that got through? Yeah, that's a difficult question. I can't answer on behalf of the regulator. So, you know, I think it's part of it has to do with, you know, what's existing and how we can continue to grow that and how we can continue to grow that prudently. I wouldn't be surprised if, you know, we get something in the spot side, then you continue to see the same sort of evolution, right? If we think of how other products have been brought to market, typically you don't see a levered product brought to the market first.

17:37You see a one-to-one product and then you see the ecosystem grow around that. So again, pulling the crypto stigma away from it, I think it's just natural evolution. And sometimes these things need to be in the market and they need to be out there for a while before the comfort of the industry, including the regulator, grows to a point where they're ready for the next step. And so I think it's just, again, important progression. Yeah. I suppose it's interesting that it's mostly an institutional. I'm assuming it's this is created the the clients that this is designed for are mostly institutional.

18:14Is that right? Hi, it's a good question. I mean, I think it depends on the appetite of the investor. You know, I think institutions, more sophisticated investors will tend to look maybe potentially at levered products because they understand, you know, the risks associated with it and they're comfortable with those risks. And, you know, they may be looking at specific, you know, styles of, you know, investment where, you know, this meets them versus that doesn't necessarily mean that someone that doesn't have that same sophistication can't have access to this. It's just, you know, making sure that they understand what the vehicle is and how it works.

18:51And so I think that's why an ETP is really interesting here because it comes in that same wrapper that they're used to. So, you know, it's hard to kind of pick who the, you know, the end customer is, but I think it really is a broad range. So there are some who say that, listen, so much of the trouble in crypto last year was because of excess leverage and that unequivocally leverage and Bitcoin don't mix. They don't mix. What do you how do you respond to that? What are your thoughts about that criticism that's been leveled? I feel like this is a really interesting segue into more of the native digital asset side of the fence, because I think it's a really there's a big difference between market structures and how things are run or kind of oversaw in kind of these two worlds.

19:42And so if we look at, you know, the leverage in kind of the international crypto industry compared to, you know, a levered ETP in the U.S., the way in which those market structures work are completely different. It's like apples and oranges. And so I think comparing the two and saying there shouldn't be leverage at all, I think is too broad stroke. I think we have to look at and understand how risk is mitigated, how regulatory oversight works within the different participants that are in kind of the lifecycle or the ecosystem of, you know, from idea generation to actual trade clearing and settlement.

20:20And I think there are, you know, given those major differences, I look at what we're doing in the U.S., inclusive of, you know, spot and derivative trading in Bitcoin, which is what Cibo Digital is doing, much different than, you know, some of these more, I would say, very vertically integrated platforms internationally that are offering significant amounts of leverage. Hey, everyone. We're going to take another quick break and hear a word from our partners. We'll be right back to the Real Vision Crypto Daily Briefing.

20:54So as a layman in this universe and you're the expert, help me understand this because when I was looking at it and asking around about this idea of leverage, because let's remember, well, a leverage has caused mayhem in traditional markets too, right? So you need to understand what you're playing with when you do leverage. Someone explained it to me that when you have leverage, leverage creates real demand based on imaginary supply, let's say. But the problem with Bitcoin is that no one can, there's a hard cap on the supply, right? So you can't satisfy in a kind of crisis situation claims on it.

21:35Is there something fundamental about the way Bitcoin operates that you have to be aware of in a levered universe or in a marketplace where you're using leverage? Does that make sense? It does. I would say that I don't know if I have an opinion one way or the other on that. You also could tie in securities lending, stock loan, hard to borrow. It kind of brings to that standpoint as well. And so that's an interesting debate. I think when I consider the differences, whether it's Bitcoin or stocks or a some other version of leverage. I think it's important to understand all the pieces of the puzzle from when you're buying something to how it's being levered to who has oversight, who's, who's, you know, looking at those participants and making sure that they're doing what they say they're doing versus, you know, versus the other types of leverage you can get.

22:34And so, you know, it's always, you know, what do we, what do we call it in crypto? You know, do your own research, you know, there's a big term, right, that everyone kind of has been, you know, calling out over the last 12 or 18 months, you know, to your point, you know, we've seen issues in traditional, you know, traditional finance over the years with leverage, without leverage. So, you know, the crypto industry is not immune to learning the same types of things that we continue to learn and evolve in in traditional finance. I think we've done it in a much faster cycle or cycles than maybe we've seen in other markets.

23:09But I don't think we're different or immune. I think the same risks, the same controls, the same checks and balances that are necessary need to be in place in crypto to continue to see the market evolve and grow. Yeah, I think that's a great point. I think that's why also a lot of people would like regulatory clarity to pull this onto, you know, into the light, into places that are transparent and institutions that have a track record in TradFi to get involved. But, you know, you've got that argument, right? And I'm wondering if that's the competition you face. Something I saw in the jungle that is Twitter that not always pay attention to, but this struck me as something that is probably an issue you're going to have to grapple with.

23:54Someone was talking about the BITX that hit the market. The institutions don't want this product because Bitcoin is volatile enough. retail doesn't want it because they either want cold storage or they want 100 times leverage on an offshore exchange. Is that sort of international, the ability to just do that internationally? Is that something that you see as competition or that you are going to have to fight against? I mean, I think across all the ecosystems, there's pieces and there's broad swaths of of investors that are going to want different types of vehicles. Obviously, 100x leverage internationally versus 2x leverage in the US are completely different things.

24:42Also, if you're in the US, you can't access the 100x leverage. So if you're looking for leverage, it's difficult to find. And the only way you can find that is in derivatives, right? And if you don't want to trade derivatives specifically called futures or even options, then the only other way you have to gain access to that is through a vehicle like an ETP. And so I think, you know, offering that choice and offering it in a structure that investors have the same protections that they have in all the other vehicles that they can choose to buy or sell, I think is really important. And that's the way we've built our markets in the US.

25:16And that's why the US markets are some of the most highly liquid and resilient markets globally. That's why a tremendous amount of the asset management firms globally sit in the U.S., right? And so I think it's important that, yeah, while we would love to compete maybe dollar for dollar or leverage to leverage internationally, I think it's important. We have to grow into it too. We can't just come in and say, hey, let's offer 100x leverage. I don't even know if 100x leverage is suitable. That's a lot of leverage. That was my thought exactly and like a telling part of the comment, I think. But still, you know, that that sort of in any of the regulatory conversations I've been in, the worry about the innovation leaving the U.S.

25:56and going abroad is real. Is it does that something that you worry about? I do worry about that. I think it's important. You know, crypto assets are built on the blockchain, the DLT technology and the concepts around that. And so it's important that we don't kind of isolate the U.S. from these technologies and the efficiencies that they can bring our financial markets, all because of crypto asset or, for the back of a better term, maybe bad actors in that space. You know, tokenization is something that's real. It's growing. There's a lot of participants are focused on tokenization. And if you believe that a lot of the same things that we trade today, whether they're bilaterally traded electronically via voice or they're highly liquid centrally cleared vehicles, if those are going to be in a more digital form, a more traded or exchanged on blockchains or in some sort of DLT framework, then the innovators along with the rest of the world in the US, because our markets, those same markets that I spoke about earlier that are the most highly liquid markets.