VettaFi financial futurist Dave Nadig appeared with Spark Founder and CEO Jim Wiandt, ETF Think Tank Head of Research Cinthia Murphy and Bitwise CEO Matt Hougan for a special edition Future Proof of “pennies from heaven” podcast.
Wiandt began by asking the panel, “What’s the big idea of what’s happening this year?”
Nadig said he had five things he was tracking, but if he had to pick one it would be “this ridiculous fight we have about what ESG is, whether it’s good or bad.” One of the biggest criticisms of ESG from its detractors is that ESG is “boycotting energy companies,” a patently false claim, according to Nadig. “People on the other side of this argument make a lot of spurious claims about ESG.”
Wiandt considers it unfortunate that ESG is becoming politicized, and the panel as a whole wondered if ESG as a term could survive. Trying to dig into what it’s really about, Wiandt said, “It’s a reframing around innovation and an opportunity for innovation.” The group discussed how ESG is a broad category that essentially drives innovation, which Wiandt sees as a positive.
Nadig agreed, saying, “It’s legit money doing real work.”
“At the end of the day, I think American investors are really focused on performance,” Murphy said, speculating that some investors see ESG as unrelated or even in opposition to performance.
As for the big ideas that Hougan was following, he said, “The two things that stand out for me are the massive mutual fund sellout. The other thing is the rise of assets. Mutual funds are effectively disappearing in favor of ETFs, which are a more efficient vehicle. Active, meanwhile, took a sizable slice of the pie. “I still think direct indexing is the only solution that works for ESG,” Hougan remarked.
Murphy said she had a lot of “little ideas” instead of one big idea. The notion of ETFs as a service is striking to her, and she noted that single-stock ETFs play into that idea. “I’m going to hate having to write about every single one of them,” she joked, continuing, “as an innovation, I think it’s really interesting.”
The individual stocks caused some division in the panel, with Nadig being skeptical about certain aspects of these products. “Each of these things has an opportunity to misprice,” Nadig said, noting that thousands of single-stock products are thousands of opportunities for error.
Wiandt pivoted to blockchain, remarking, “Far more interesting to me than crypto assets is investing in companies that will transform trading systems.” He wondered if it would take five or ten years for the transformation to become truly substantial.
Hougan thought five years was unlikely, but said he thought it was highly possible in about a decade. “I think the derivatives markets will be the first to change.”
Nadig noted that regulatory issues stand in the way. “This ability to tokenize your beta exposure and have smart contracts and embed them in your portfolios – that’s clearly the future.”
Wiandt said he sees ETFs and blockchain as efficiency tools that have changed the user experience for investors. Hougan says you can see it in crypto, which trades 24/7/365 around the world. “You don’t have things like captive capital,” he noted. Hougan wondered if asset management firms are becoming purer intellectual property firms.
From this idea, Nadig envisioned a world where smart contract-based asset management could transform everyone into an asset manager, with influencers playing a greater role.
The reluctance to regulate crypto, Wiandt said, stems from fear of unintended consequences. “It’s like a Pandora’s box and worrying about opening that box.”
“I don’t think the government knows how to regulate something new like crypto,” Hougan said.
Asking about regulatory hurdles, Nadig said, “I think crypto is moving at a cyclical rate faster than regulation is possible.” He speculated that when regulation came for crypto, it would regulate the “2015 version” of crypto.
Hougan compared it to the early stages of the internet. “In the early days of the internet, they didn’t tax sales,” which he saw as intentional, a deliberate choice to let disruptive technology flourish and clarify regulatory needs.
In the short term, Hougan worries about overbroad regulation and rising interest rates. In the long term, he is optimistic. “Now I’m extremely confident that the next cycle is 10 times bigger than the previous cycle,” he said, noting the increased interest and improved products. He sees the crypto industry as on the doorstep of some really big innovations.
“I was just watching the ProShare Bitcoin Strategy ETF (BITO), who will be one year old next month. It’s a half-billion-dollar fund, which is surprising to me that it’s found so much success. But the next big thing doesn’t even come close,” Murphy said, “it’s kind of a one-hit wonder.
The conversation turned to how people and institutions are exposed to crypto and where the real value lies. According to Hougan, crypto exposure rests on three pillars: private, public, and liquid. He noted that a majority was made up of liquid assets. Murphy sees an uptrend in the story, but stocks have been skimmed.
“I think most of the value is going to come back to the protocols themselves,” Hougan said, noting that funds like the ETF Amplify Transformational Data Sharing (BLOK) offer investors who cannot buy the direct assets a tangible option for exposure to space. Hougan said crypto is the best performing asset of the past 10 years, despite the pullback.
Speaking about the social aspect of crypto and the passion of its believers and the contempt of its detractors, Hougan joked, “I think everyone who hates crypto hates it for superficial reasons,” while asserting that anyone digs into it becomes extremely intrigued.
Turning to bonds, Nadig said, “I think there’s a tremendous opportunity for bonds as better-conditioned portfolio assets.” Hougan agreed that fixed income and crypto are two of the most compelling spaces in the ETF world.
Addressing the products that are getting more attention this year, Murphy remarked, “This year has been a good reminder of the power of an alternative ETF.” Nadig observed that there are a lot of “academic nerdy” around portfolio construction these days.
The panel concluded by talking about the unique aspects of Future Proof. As an outdoor conference with a unique mix of attendees, the panel was eager to see how this event unfolded. “I’m super excited for what’s happening on the stages here. These are voices we don’t always hear,” Nadig said. “The vibe is different, I think it actually allows you to relate better to people.”
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