00:00I'm an ETF analyst with Bloomberg Intelligence so I write research on ETF primarily and I do cover the crypto market as well. So that puts me square in the middle of the race to launch a spot Bitcoin ETF. So that's where I spent a lot of my time covering. I'm going to let each panelist take hopefully less than a minute to introduce themselves briefly and then we'll we'll dive into some questions. I'm Barb Smith I at Susquehanna. I currently head up digital asset strategy globally for the firm. And for the last 10 years I've run the ETF group and have been responsible for the credit sale and trading business amongst a couple of other projects. Hi I'm Brett Harrison. I'm the president of FTSE U.S.. We are a spot crypto currency exchange as well as we run a derivatives pack for foreign policy FCX U.S. derivatives formerly by tracks prior to RTX. I spend most of my career at James Street Capital and then I said it all securities. I am Emma Chandra. I'm just watching the yes part as to how much longer we actually have to talk. And I'm at the ADHD Universal Delphi Holding Company. It was started. It's a proprietary trading phone. We don't take outside funds that we totally invest in D5 trying to bridge Delphi and try to buy into what we think will be a new fight. I started my career at a big law firm working with probably many of the institutions in this room and then jumped over to crypto for the Maker Foundation which bootstrapped the Maker Dow Protocol which manages the diversity of bitcoin. It's tough to follow. My name is Greg Lisa. I am a chief legal third element finance device startup in there for about half a year now. But I spent five years as a partner at Hogan Levels. But most my time in the federal government I played cops and robbers for the Justice Department in the organized crime section and then I moved over in the early days and see APB under Elizabeth Warren and Rich Cordray and then moved over and was the head of enforcement and compliance over at defense and doing email work and other types of illicit finance. On the con side of illicit finance. To be clear but it's pretty much me. Good afternoon everybody. Brad Redfern I have founded an advisory practice called Panorama of Financial Markets Advisory. I've been doing that for less than a year prior to that. I was at the U.S. Securities and Exchange Commission for about three and a half years. I ran the division of trading the markets. While there I dealt with a whole bunch of crypto and digital asset issues not to mention everything else. So fascinating experience. Part of that as a J.P. Morgan for 14 years and ultimately ran market structure of them globally across asset classes and in between the S.E.C. and my practice. I was at Coinbase for about four months and is looking at building a digital asset securities business there. All right. So polling is done. So the majority the audience doesn't think we're wasting our time up here. As you can tell from the introductions I'm by far the least impressive person on this panel. But we'll get start with Greg since this is kind of what he's doing. Can you just talk about for those people who are skeptics how does defy blocking crypto merge or what's going on with that in the traditional financial world. What are you guys trying to do it element. Yeah. No it's a great question. And it's a big one. Could spend all afternoon on that which I will basically define is is essentially the cryptocurrency part of the part of the cryptocurrency ecosystem that is branching off from Central ISE Finance essentially saying there is not as much a need for centralized intermediaries to perform basic financial transactions especially since so much of that can happen by code. I mean that's that's an oversimplification. But ultimately the focus of defy is to avoid central intermediaries whether in the form of custodians or surveyors or other people who need or other companies that might need to approve a transaction. And ultimately that could be done by the equivalent of a Craigslist where there could be a peer to peer transact or again ridiculous oversimplification. And ultimately what we're doing at Element is we have launched we had launched a protocol which allows companies and individuals to split their tokens into a yield and variable rate token and to to perform investment strategies following that. But we have decentralized so we've released that code. It is open source and we're now a research company that that basically allows we ourselves are building on top of it. And other companies can fork that code can build other projects on top of it. Sometimes in partnerships with others. But but again we know that code is no longer ours that's been released to a governance system. John real quick to on the same thing on the same topic. How do you see this playing out. We're going to see like a competition between defy and track firings see emerging. How do you see it happening and over what timeframe do you think it'll happen. Yeah I think time frames hard to nail down. Right. Just if you look at defined as as itself it's rocketed from zero to 100 billion in two years. So maybe that trajectory continues and traditional finance gets involved and they get married very quickly into this new finance that I've talked about. But I think you will see that happen. New finance. There's already protocols out there who are working on creating access for traditional finance companies to come into the space creating platforms that will allow institutions to come in and do their trading multi chain throughout the day and then settle all those. Change at once at the end of the day without spending the gas transaction by transaction. On each of those change and trying to keep track of them across those chains there is already no digital identity companies out there trying to create protocols that can track digital identities of customers as well as the institutions so that you could do KYC AML and KYC AML solutions for the institutions that need them upfront and easy to access without having to do it platform by platform which many D5 platforms can't or you know ideologically won't do. And so I think all that's developing rapidly right now and you're going to see those come to market probably within the next six months to a year. Most of them and that'll be interesting to see how it's picked up probably by crypto institutions first and then hopefully by traditional finance. Yeah real quick. I'm assuming most people know what this is but KYC is know your customer AML anti money laundering. So it's just basically ways to know exactly who's interacting and a lot of the. Yeah. We'll just keep it there. To start off with something extremely topical and very relevant to the merger or competition between defined trad by Brett. We have to Brett's up here. So want to talk to Brett from RTX. You guys have a proposal with the CFTC for new clearing model. Can you walk us through what this new clearing model is what your goals are and how it's different from what the current clearing model is. Absolutely. So first as everyone here knows futures are a vital part of any healthy financial market. It's hard to imagine us having stock trading without being able to trade S & P 500 futures in that market as well. And in fact in most asset classes the derivatives for example futures options trade more than the underlying assets themselves often because they're more capital efficient they provide you ways of being able to easily let's say go short a product against a longer position. They let you capture the basis between what's a spot and a future settlement price. Well in crypto more than ninety five percent of all derivatives trades happen outside the US. And that is because up till now there hasn't been a crypto native player basically an exchange where you can actually trade the physical spot as physical as you can call a bitcoin spot bitcoin on the exchange at the same place. You could trade futures and so we RTX us. Last October acquired a company called Ledger X which is a CFTC regulated DCM or exchange and DCA clearinghouse and we rebranded and FCX U.S. derivatives with the hope of being able to bring these futures products to U.S. customers. But up till now the FCX yesterday trade is DCA requires all the products to be fully collateralized. So put up one bitcoin to trade one bitcoin future which is a very boring product for most people. So we have an application in front of the CFTC to enable margin in our clearinghouse but it has a couple of unique components. So the first is that it is real time marketing which means most traditional CCP is the initial margins are recalculated once per day. Only on weekdays which means if you come in on a Friday at 3 p.m. and put on a large futures position and then what's a one large country invades when other large country. On a Saturday. Then by Monday all of those positions have gone some violent different direction. You can't actually remove risk from the system until maybe three days later. For RTX ISE derivatives we do margin ing every 30 seconds 24/7. So that's the second aspect of our application that's unique which is that we are proposing 24/7 real time clearing which really matches the 24/7 nature of cryptocurrency but also the internet. And we are certainly in the age where we can support such technology. And the third is that we have optional this interim disintermediation meaning that interestingly peering models you need to go through and FGM or a futures commission merchants or trade a future. But we are proposing allowing customers to onboard directly with the exchange and clearing house and with the huge amounts of capital that we put into our default waterfall. We believe we can very well sustain the risk required to be able to manage all those customers. So let's go to the other Brett real quick. I think pretty much everyone up here has comments to make on this. But if you can talk about the pros and cons and how you view this proposal. No I mean look I will just say that you know I think that one of the amazing things about when you see crypto coming into traditional financial services markets is it brings innovation it challenges the status quo it brings new models. And I mean in many cases it might make some of the competitors in the space get a little little riled up about some of the changes that are going on here. So I think that in this particular case I'm very interested to see how this plays out. I think that there are very innovative aspects to this. And you know so you know good luck. But I know you had some comments. We talked about this before him talking about some of the FCA and some of the details of the. Some of the people complaining that there's a lot of people in the trash fi world original finance world that are anti FTSE proposals. Well I don't wanna work 24 hours a day. Which I don't blame. No. It's just kind of we read a letter in support and we think that it's intimate. It's innovative. And we have to lead innovation here in United States. And you know there is a there's ninety five percent of of the futures that that trade outside nine states. And there's been liquidity 24/7. And I think the model but that that RTX done outside the US has proven that it would work here in the US. But yes it's soon it's going to take some changing to a very slow evolving part of our financial markets. And I think that this pushes the envelope a little bit which we believe is a good thing. You know in aggregate. All right. Moving on to another proposal from the S.E.C.. They want to expand the definition of an exchange and RTX alternative trading system basically to encompass a lot more things. They basically change it so that basically the wording is a communication protocol that transfers the value securities. I guess Greg or John were probably best to comment on this first. Do you feel are you guys concerned about this proposal and the language in this proposal. How are you guys looking at it. I don't operate a communication network. Yes. So not very much. But I think it's it's interesting. And I think Brett will probably have more to say about it. But the initial impetus for this proposal when it originally came out not when it was updated recently was about you know our Q networks and other things like that. And the language change has dramatically expanded its potential scope. I know that many in the digital assets space particularly decentralized exchanges even centralized exchanges are concerned about it because they're not sure what it means. I know protocols that aren't necessarily considered exchanges that run and pools or other liquidity type pools are concerned about it even if it's you know P2P transactions. You know if we have a communication network what does that mean and what are we doing. What are we operating. If we operated it are the SDC staff going to start looking at developers and software engineers who just released something into the into the block chain and now they're responsible for it even though they're not using or operating it. So it certainly caused a not insignificant amount of concern in the industry. I think it has yet to see how it plays out especially with all the comments that have come in and we'll continue to come in. I think it's just been extended the comment period. And that's a process discussion that I know I heard on the retail panel brought up the comment periods and how they've dramatically shortened over the past two years. But like I said I'm sure Brett has a lot more to say about this proposal. He certainly did on our pre call. There's things you can say on pre calls that you can't always. Oh. So yeah I mean. So I mean you know this was about fixed income markets right. This was so the fixed income market section advisory committee that we formed to deal with a number of issues in the fixed income markets had a recommendation back in 2018 18 and it was largely looking at the regulation of different types of you know participants in the market. Some had to register as 80 S's because aid firm quotes some didn't because they were RF Q markets. And so there was a view that there was sort of maybe unfair regulatory environment going on and some sort of regulatory arbitrage ISE being played by those who weren't from quotes because they didn't do it. So it was largely about electronic trading and in fixed income markets that this proposal came out. And you know and it wasn't contemplated to be I think rolling over into all of these other other things that we're seeing now the redefinition of an exchange as it's as it's being contemplated now. It's interesting right. So you know in the in the commission or on the staff I would say and I don't have to say every time that these are not my views of the commission or anybody else. So that's kind of ISE. But in there when they look at what a market is. Right. And we're looking at the you know we'd be looking at the crypto markets or what's happening. Right. So those same sort of definitional issues can come into play. Right. So if that were to be come the final rule. And so I think there's a very reasonable reason for some concern there that could that be then applied to other circumstances where there are communication protocols or are cute like things like for example M M and D fire things like that. I think the answer is that that's you know a very reasonable assumption that that could happen. And so I think it's definitely worth looking at. The definition is not just how it was applied as originally intended to fixed income but to other asset classes as well. And I'd just like to add to you know a lot of the concern is coming because of this expansion of the potential. The quote unquote definition though I don't think it's an actual expansion of the specific definition but what. A lot of the concern is coming from people who should probably already be looking at what they do and whether it falls into the existing definition and they're not. Which gets into a lot more discussion of regulation of of digital assets and crypto. Well that would change theoretically against or just starts calling a bunch of these things securities theoretical right. Well yeah that's the first. That's the first examination right. Are you trading securities. Are you listing securities. And if so is what you're doing you know in exchange. Or does it fall into the exemption as an it. Yes. But at the same time you know you could then say well OK sure it's not a security but by decree so far it would be a commodity which then means CFTC. Yeah. Are you. Are you trading under a different regime and should that be examined. And so I think a lot of the. Loud concerned that you hear from some of people in the industry which I'm sympathetic to. But at the same time as an attorney I'm saying you should probably be looking at what you're doing under the existing definitions in the first place. Before we get as exercised as we are about the new definition for those products that aren't securities it's kind of an irrelevant point. Right. But I think that's it's the fear of that sort of migration to calling more things securities or commodities. That then brings all of these other assets within those regulatory regimes and then it becomes impactful. And that elasticity or ambiguity is more if you want to wake up in the morning with a clenched jaw like become the chief legal officer of a company that that elasticity or the uncertainty there that actually could be more harmful than a an oppressive regulatory regime. I really think that that uncertainty is more. I also think that just from the equity in ETF marketplace it brings into question something that's always been pretty basic which is when is a trade a trade. So now you're bringing this in and all of a sudden someone puts me in competition on a Bloomberg ETF IQ system and all of a sudden the ticket never comes. And my bound by that trade I never had a ticket. So it just creates a lot of ambiguity to things that are pretty tried and true in the marketplace that I think from traditional finance they there's many people who have concerns around it as well. The real problem here though is even if you were able to clearly define every token out there as a security what's their registration process for a company to register a digital assets security. And once the registration process for an exchange to register itself is a digital asset security exchange I think the answer is there really aren't either. I think there's a lot of companies that issue tokens that would say if there was a very clear process but the FTSE to register a token while we do it. But we're not going to do a what is an S-1 filing and go IPO as a protocol token paid out to the validators on a proof of state network doesn't really work. And so we're stuck in this sort of no man's land of having spot tokens that first of all we're not quite sure whether it even makes sense to describe it as a commodity or security versus trying to figure out what disclosures are required for investors to confidently invest in these tokens. And then even if you do it there's no registration process. And so that's that's the area of regulation that we need to push forward the most in the US. So. So this is I'm going to go a little out of order here because I think we're touching on something I was planning on asking later. But so do we need a whole new regulatory framework or are the securities laws that we're using that were literally made in the 1930s and 1940s good enough for this new environment. Or I or am I asking something as unrealistic. What what do you think's going to happen. I guess Brett's probably the most adept person to answer this question. Yeah no. So I mean first of all look I think in the commission you know they're there. They're trying very hard. I have a lot of respect for all my former colleagues. They're trying very hard to kind of get up the curve on what's going on in crypto. What are these products and how do they work and what is what. Right. But for those of you who are trying to follow this space like you can study this stuff all day every day and feel like you're falling behind because it is moving so fast. Secondly being able to bring in that kind of expertise into the commission for for those people in the space like hiring really smart good engineers or developers or people with knowledge about crypto is hard right now. Imagine how hard it is for the government. Right. So that's even harder. So in terms of really trying to understand they I believe my gut would be that there's sort of a starting assumption that we have. You know I've heard this. Right. We have a regulatory framework for securities laws. It's worked very well. We are the envy of the world in terms of how well our laws work in the trust. Oakley And all of that is generally true. But it's different for crypto. And so the question and the way to engage with regulators I really believe is this. And I think this has to happen is you have to explain to them why it's different. What needs to change how this can work for some of these things. What is the difference between a security and a protocol or why this token is different to something else. Because I think there's a pretty strong view that the investor predictions are not in place as I think they saw. As we all saw last week that can be quite harmful in various circumstances. And so how do we bring you know anti fraud and manipulation. Right. Other investor protection to the market for this asset class which is different. And so you know a question that's been asked to me when I have engaged with them is well so what is it different and what are the exceptions that you need and what are the frictions and why then how do we do this differently. Because I think once that starts to come to light then we can have a realistic discussion about well OK what would a registration process be that works. What would a registration process before an exchange. That's a crypto exchange where intermediaries play very different roles. Right. You don't have the same sort of role of a broker and you have you know pretty much instantaneous settlement. You have a lot of things that are very different. Right. So those. Stations have to happen and I really feel like we're kind of on the ground level but we need we need to have those conversations because they need help in terms of I think getting to a place where they can sit the basic investor protection regime with the new nuances and the differences of what's happening in digital assets. Doesn't the rhetoric have to be come down before anyone can reasonably do that. Because to this Bret's point the every person who raises their hand and goes in just feels like they're putting a target on themselves for an enforcement action. And when you make these just like boards like these like broad you know statements like pretty much everything is the security except a couple of different commodities. But you're just saying that you have violated the laws. And you know I don't know that I'd feel comfortable walking into 100 F Street if I felt like those going in to debate whether or not I violated their securities laws without any guidance that's being put out. So I think it's I think in order for that to happen those conversations happen. The rhetoric has to be dialed down and doesn't have to be so draconian that people feel like they can have a conversation without just being straight. Worse off for initiating it. Yeah. I mean we we saw we saw the news last week two weeks ago at the S.E.C. doubling the size of its crypto enforcement. And there's really not much regulatory clarity coming out. So I guess real quick if anyone has anything to add to that how do you John. You look like you wanna say that you know it just to build on Bart's point. It's it's not just come in. And then everyone we've seen come in ends up with you know an enforcement action or no. Or a hard classification from the staff that they are security or about to issue a security or they aren't exchange whatever the case may be. I think unfortunately right now finding that you know expertise and getting smart on it for specifically the S.E.C. staff has taken anecdotally has taken the approach of letters from the enforcement staff. It has not been trading in markets. It has not been caught fin. It's been enforcement sending projects a letter saying tell us about you. And so who then wants to work with the other staff who might be shaping regulation when they have this sword of Damocles. The enforcement department hanging over their head. It's hard to work in that environment. I think for anyone but certainly a space like crypto that doesn't have the institutional knowledge that many in the audience would have about how to work with the staff. Yeah I agree. And regulation by enforcement is a a not just imperfect but a horrible way to decide. Did you realize where your landlines are. By stepping on them. But that's it. And look I agree I agree with with Bart's point about the rhetoric the rhetoric on the other side. Industry has not done itself a ton of favors here. By putting dunce caps and clown noses on Chairman Gensler or by saying that Elizabeth Warren or Janet Yellen doesn't get it is doing a huge disservice. And ultimately where we as an industry as an industry and others are trying to get adoption even retail adoption from 16 percent to something north of that you know the majority of the rhetoric and even the engagement regulators fully agree with with John's point. But the rhetoric on the other side has got to be more productive and engaging because otherwise there just won't be a path forward. And credibility and reputation and responsibility in this. I think that's more existential than any any market forces or any regulatory regime. And to give credit to you know Brett and his colleagues at RTX we at the UDC believe that the future of Crypto and Defy and then Trad Fae and New Phi is through compliance and through working within the regulatory structures. And so that's you. We work with our portfolio companies on their arc of compliance. How do you get there from beginning of the protocol or the project to where you want to be in market. But also speaking with regulators and legislators on what these ideas. You know for the right regulations should be. Let me just say most of the clients I'm working with are traditional financial services firms who are trying to apply block chain to transition their own businesses. Right. So the first question that we had at the beginning was you know what sort of thinking about crypto and you know is it the future finance or is it like it's everything. Like crypto is so many different things in the way they block chain is being applied is very significant in traditional financial services whether it's funds potentially going on the block chain whether it's transfer agents whether it's changing the clearing or whether or not it's other financial services products that will be put on the block chain. Right. So those discussions are happening with the commission in terms of how that can work and even those don't fit within the right. Same thing about digital assets securities. You can't custody it unless it's with a special purpose broker dealer. But to the point of you know I still believe that engagement has to happen. People have to find a way. Because the information gap is still not insignificant. And you're right. If if if if it doesn't happen right at the policy people aren't getting the word. What's gonna happen is you are going to see not only you know regulation by enforcement begin to see policy by enforcement. Right. So I sort of look at what happened with block fire is an interesting case study. Right. They built a big business. They put out a you know essentially like a crypto land product. Right. And when they got fined and when they negotiated the settlement if you read that settlement order it's sort of like OK yes here's here's your hundred million dollars. But it also says. And now here's what you need to do to come into compliance. You need to register as an investment adviser. You need to register under you know trust the next track. Right. There's sort of like a roadmap on how to do it. And I'm a little bit concerned that if there's not some some form of finding that engagement that that's what we're gonna see. It's going to be you know enforcement actions going this element where all of a sudden you see a registration path outlined potentially in the you know in the enforcement order. And people go oh now we see how it's done. And I don't I don't love that as a the best approach. It's like a hundred million dollars in billable hours at FCX. We've spent maybe ten thousand plus hours but the CFTC staff all the way up to the chair. We spent a lot of time with the FTSE staff all after the chair. We've got sort of an insider's view of what is happening from the exchange perspective and the exchange really just sit on the border between the traditional financial system and the default ecosystem. I think to answer your question from before. Do we need a whole new regulator or regulatory regime. I think the answer is no. I mean for a few reasons. One the CFTC already regulates digital assets through derivatives. They regulate bitcoin and ether futures on CMG ISE and a bunch of other exchanges including ours which means they figured out how to regulate things like crypto asset custody. They figured out how to regulate cloud based exchanges which is not necessarily a crypto specific but something that all crypto should just have in common is they all operate in the cloud. They've done this very successfully. Why can't they also regulate spot crypto assets. Of course they could on the digital assets security side. Yes there is some ambiguity between whether this the FTC or the FCC would have jurisdiction over those assets. But there is precedent for cases where the two agencies have jointly regulated a product for example your Treasury futures or a single stock futures or VIX or spikes futures. So I think there's a precedent for that as well. I think the biggest problem to solve is the fact that by being again in this sort of no man's land of what are these tokens we're sort of missing the point. The point is not whether a token is you know two inches to the left or the right of the Howie test. It should be. What are the common disclosures that all tokens should be required to put forth in order to list somewhere. So maybe it's you know who are the founders and you know what's the total supply of the token. What's the road map for it. Whereas like the protocol foundation principally based in what country doing sort of KYC AML and all the founders these sorts of things. And if those were listed clearly then we could actually come up with a proper procedure. This the FTSE you could work together on that and then we could actually move forward and regulate a exchange like RTX is saying why you regulate the CMC or any other electronic exchange where something with a price is transferred within data from people. So I would say I think that's happening like I think those conversations between the S.E.C. and the CFTC would be going on. You know the way I think of it is they're definitely interested in seeing exchange register. They're interested in seeing you know people having to register some form of registration for securities or interest in broker dealers have some sort of registration. And I would expect that the S.E.C. and the CFTC would be humanlike. Again I was involved in a lot of those conversations in particular like around Dodd-Frank and on the spikes product and things like that. Right. So Emil use can be formed. There can be conversations it can be had. They can figure out information sharing. And then you know presumably it be is the same set of rules for commodity cooked securities tokens and commodity tokens. But I think that that's moving. I just think that again I think there needs to be a lot of engagement to make sure that the nuances of capture. Right. But I think it can also come from industry. You know we can start normalizing as an industry whether it's through investors demanding it from projects when they invest in them whether it's retail customers demanding it before they put their money with the project in some way shape or form buying a token interacting with the exchange whatever it is. Let me see you know a quantitative or qualitative audit. Let me see a mathematical audit. That would be great to see from everyone. Let me see all the information on your founders and how this got started and start there. And if it becomes a norm within the industry I think it helps guide regulation a little bit. And it also has an expectation of what each project is required to provide for to its users its constituents so that you know they know it's a safe project. They know that investors are being kept in mind. All right before we jump to Luna there's going to be one topic between there. I feel like we have to talk about women on terror and USC. But this topic is near and dear to my heart. Spot Bitcoin ETF. They have to go through a process known as 19 before we've had. I don't even know 50 denials of futures ETF since Spot back when ETF. We now have Bitcoin Futures ETF. But the division at the S.E.C. that denies these or approves them is the division of trading markets and we have somebody on stage who used to head that division. So I guess my question to you is did one like what do these issuers need to do to get a spot Bitcoin ETF approved and did approving the futures ETF that they've approved both under the 40 act in the 1933 Act V the nineteen nineteen before process contradict their stance. Wow. Thanks. Thanks for that. Yeah. We just approved those. So you know first of all the biggest surprise for me going into trading in markets was how many crypto and total assets things were coming like that. That was probably something that was not completely expected. But the number of filings it came. Right. So it's it's been very clearly articulated. The answer to this question from the first disapproval order through all of them. Right. And that language is oftentimes almost identical which is you need a surveillance sharing agreement with a regulated market of substantial size. And that was in the Winklevoss order. And it's been repeated many many times if you want to meet your obligations under the exchange CAC. Right. Because I think the mindset is I'm not speaking for anybody else but I think the mindset is that you know if you want to meet the various obligations under the Exchange Act that you have to be able to surveil the market make sure that it's not being manipulated. Look at these underlying products. Right. And so they I think that the way that they look at the U.S. equity markets and the products that are on it is we'd like to know what that is. Right. So in Bitcoin. Right. Do we have a regulated market. Well some people say it's regulated but I don't know if the view is that it's really regulated. Are there. What types of surveillance programs are in place. We're not being regulated. There's there's surveillance program in place. There's vendors that are used. But is it the same type of surveillance program. I'm not sure if it's looked at similarly as a surveillance programs that are in other regulated markets. And is there a market of substantial size. What is the market share of the biggest market and could it potentially be manipulated by activity that's happening and I don't know pick whatever market you want in Asia or elsewhere in the world. And to what extent could that potentially have a manipulative effect. So that's been kind of the crux of the argument whether you agree with that argument or not. That was the precedent that was set at the beginning. And so they've kind of set a bar. And until you can kind of surpass that bar and I think there's other features that are in these disapprove laws. But until you can pass that bar I think it's going to be tough to see a spot Bitcoin ETF get approved. I know Bart has a lot of thoughts on this. I mean it's just the two grim approval which I thought was very surprising. Not least of which because it wasn't a 40 CAC fund. And they said that they wanted protection for the fund. They approved this 30 Dec 3 fund put in there. It said there is a surveillance activity by the CMA. So it meets the rule. And because of that even though the S.E.C. said that the spot market was much larger. Right. And they end and they too cram an AKA said that they believed that they couldn't use the spot market to manipulate the futures and thus the ETF and the S.E.C. disagreed with that statement which is effectively saying we think they could manipulate that. But because there's surveillance on top of those futures they basically got approved on a technicality. And I just I just I just find that odd you know. And then over the years you don't think they should have approved it. I just think it creates a contradiction. I'm not making a point that I'm not saying that they should or shouldn't. But that's obviously not my my job. I just think that now it's a distinction without a difference. Right. You have you have these five exchanges that make up the index to which the future settles on. And that is the same five exchanges to make up the index which puts the spot market settles on. And you're saying because you can surveil this market which everyone including the S.E.C. has acknowledged is not a market of significant size but because it's just that tiny market they don't have anything else in there. We kind of have to approve it. And if that's the case you have this 30 billion dollar ETF that is trading at a 30 percent discount with eight hundred thousand plus mostly retail investors who are stuck with this discount. And you have you have a firm like Grayscale and Bit Wise and others who are begging to be regulated to create this centralized book order book that has counterparty resiliency and pricing for you know for a price transparency if you think about the credit market. Right. None of this stuff exists. Right. The credit markets high yield investment grade. It trades RTS. There's no there's no surveillance agreements in place. And they created this ETF that fixed a lot of the. Efficiency of the credit market. Right. You have a central order book you have price competition your pretense of transparency so much so that when the United States wanted to inject liquidity into the market post pandemic they used the ETF to buy the assets just to prop up the market. And so I just don't understand why the ETF that the S.E.C. wouldn't want to have this product there that has all of these clear virtues benefits around it. And and yet this other thing gets approved kind of on a technicality. I know it's in the SCC in a tough spot here. And and I and I you know I admire the stuff they do day in day out. This one just doesn't make sense to me. Is a regulated market of what the surveillance sharing agreement of sufficient size. And I mean. I mean did. That's the point. The point is is it it's not in the fixed income market. It seems to work. Right. It's I mean look I'm not going to take the other side of all of the other like rationales that are here. I'm just saying there is a precedent there. There is legal language. I think they've set the bar in many many of the disapproval orders. And so I think that is the challenge that is faced here in terms of getting that across the line. I think there are a lot of other reasons why it makes sense when you look at the inefficiencies of some of some of what's happening in this marketplace. Those are very real right. And if it was solely based on an efficiency market efficiency argument then it would be different. But I think they do have some legal arguments. I think they are probably also is a desire to see regulated markets in this space. I feel like the FCC with that language is kind of backed themselves. And I am not speaking for the FCC. Very my. My personal opinion. So we don't have much time left but we have to talk about Luna a little bit. So little background. I don't wanna spend too much time talking about it. Basically us he was supposed to be a stable coin peg to a dollar. The way you could reach that is that Luna the the token on the terror protocol. Basically you could always exchange one USD for one dollar's worth of Luna. So as long as Luna has value you can always peg it to the one dollar essentially that completely utterly collapsed. I guess Bretton Bart I guess the threat and Bart the two closest to me if you can talk about can you talk about if you guys interacted with how you handled the situation how you view it does it open things up to regulators to really use this fiasco as a scapegoat to really dive in even further and really demonize the crypto market. So in terms of will. Will that happen. I think probably yes. I think there's a lot of you know noise right now in the market as a result. What I think is laid bare as the fact that people were using the term stable coin to mean very very different things and we should break down what those are. There is a Fiat backed stable coin like USD C which is issued by circle where the way it works is you put it in one U.S. dollar and they give you one USD. See it's the simplest thing you could possibly imagine. It's a 100 percent reserve currency just issued digitally. Now let's go on the complete opposite side of the spectrum. You have us T which is an algorithmic stable coin. It's not a stable coin. It's a structured product that was like an auto rebalancing product using a volatile underlying asset. That is a very very different thing from a 100 percent reserve currency. And so the prevailing wisdom in the market was yes of course there is risk of this thing. Why else could it provide a 20 percent yield on its asset for people to be able to invest into it. And so it was sort of like a perpetual motion machine. As you know Matt Levine described it that was bound to eventually slow down. And so unfortunately this is basically brought into question things like well could you SDC lose its peg. Well no because you could actually redeem all of USD C because you just get all the dollars back. It's not some sort of algorithmic process by which people need to rely on some computer program to rebalance based on a risky assets. So I hope it comes out of this is clarity over stable coins who the issuers can be what assets they have to hold that underlie that particular coin to be able to call it a stable coin. I would add that us at Bloomberg Intelligence all of us who care for crypto started calling these crypto dollars rather than stable coins because 99 percent of them or the assets are backed by actual dollars. For the most part unfortunately we're out of time. I think it's important to point out to on top of what Brett said is. Regulators could use this because of the noise in the market and you know if know you read mainstream press for instance The New York Times had an article about the queen today and what happened or you read the crypto press everybody's talking about it and won't it won't stop the regulators the U.S. government specifically Secretary Treasurer Yellen knows the difference that Brett was talking about and testified about it last week. So regulators know there's a difference between a Fiat backed stable coin and a quote unquote algo stable coin. They even marked it in footnote 5. The president president's working group report on stable coins. And if you go speak to regulators they know that there's also middle ground which is you know the project that I worked on previously Die which is collateralized. You know up to a value of crypto assets behind the stable coin that's pegged to a dollar or another currency that's usually over collateralized. So the value is always there. So I think yes regulators certain regulators will maybe take this as an opportunity. But I think it's already been acknowledged that the differences is clearly defined and marked out by the government. And the vast majority of the people we're not using as a stable coin. And I think that's the greatest distinction is that people were using this because there was an artificial 20 percent rate of yield that existed that was free. And and I think we've all of us who've worked in finance knows there's no such thing as 20 percent free. There's no free lunch. And so if something looks too good to be true it oftentimes is. And so people were using this to get neutral exposure to crypto into dollars. They were using this as a means to get a kind of a ginned up yield in these tokens. And you know when it slowed down the whole thing fell apart. And I think that was probably fairly predictable. And James to your point to your initial question is will that narrative. Will those events potentially lead to an overreaction or a false narrative that results in a lot of unintended consequences for the for that. Yes. At back to the Fiat stable coins or the real stable coins. Answer is yes. That's really possible. That's really possible. Regulatory accelerant. I mean I think you could probably do a whole 45 minutes unstable coins in central bank digital currencies. But unfortunately we're out of time. So thank you everyone and we'll see you on the floor.
