The Daily Rip and Litepaper had a fantastic opportunity to sit down with the CEO of one of the biggest names in ETFs: Jan van Eck. With the upcoming Merge for Ethereum ($ETH.X), Cardano’s ($ADA.X) Vasil hard fork, and the myriad of other events in the crypto space, there hasn’t been a lot of focus on the upcoming SEC decision over the fate of VanEck’s third spot Bitcoin ETF application.
The SEC has consistently rejected every spot ETF application. Why is that? And what is Bitcoin/crypto’s role in an overall investment portfolio anyway? We get into these questions and more in today’s exclusive chat with one of the biggest names on Wall Street.
Can you give us a brief intro on who you are and what VanEck is for those who are unfamiliar?
VanEck was founded in 1955, and our approach to investing is what I call ‘macro.’ It’s what international investors are very used to, which is looking at what’s happening worldwide. History as it reminds us that the world is radically changing all the time. As money managers, we try to offer funds that take advantage of the changes in the markets.
My father started the firm and is best known for creating the first gold fund in the United States in 1968, which led to our breakthrough. At the time, gold was pegged to around $35 an ounce and had been pegged against the dollar, not for just a couple of months but the entirety of US history—almost 200 years.
He took his fund and almost all the assets and bought gold mining shares, thinking that that would change. And it did a couple of years later. So I think that’s the kind of perspective we bring to the market.
Coming to Bitcoin in 2017, we had to determine: is Bitcoin ($BTC.X) going to be a real competitor to gold or not? We determined that it was. There was not much to read on Bitcoin back then unless you read the whitepaper or listened to some podcasts, but that was our conclusion. Since then, we’ve been saying that it should be considered a part of people’s portfolios.
Speaking of Bitcoin, let’s get right into that discussion. What role do you see Bitcoin playing in a portfolio?
Bitcoin ($BTC.X) is like a gold competitor—gold has had some soft competitors over time, like silver, platinum, and other precious metals. They are more monetary assets. What makes them different from oil is that oil is linked to the real economy. Copper is connected to the real economy. Gold is priced against central bank activity, and I think Bitcoin is like that, too.
We are in an era of Fed tightening, so stores of value are not going to do well. And you need to allocate to stores of value with that in mind – that’s Bitcoin and gold.
The other parts are the growth segment of your portfolio. For crypto, I look at Ethereum to keep it super simple or baskets of smart contracts or other tokens as part of your growth portfolio.
Growth at the end of last year was ridiculously overvalued. It was clear at the time. When someone says, oh, there’s this great company that’s going at 40x sales, I don’t care what its growth rate is. That people were saying that as a sentence, without a lot of stimulants in their system, is insane.
The good news for investors is that growth and value have converged again, and I don’t know if they’ll diverge as they did the last couple of years. That was a big distortion in the market.
It’s been a tricky and difficult couple of years in the markets for professionals and individuals. So how does the individual investor cope with the kind of market behavior we’re currently experiencing?
Listen, we have behavioral biases, right? A whole school of economics, behavioral finance, addresses those biases. One of them is recency bias, meaning we overreact to short-term stuff.
What every investor needs is a trick to counter their behavioral biases. Have a friend you can call to say, ‘hey, I’m freaking out!’ That’s the role financial advisors play. Our industry has created this whole functionality, and they add a lot of value because they keep people invested in the financial markets.
Over time, you make so much more money if you invest in stocks and bonds than if you keep your money in the bank. But it’s hard to stay in because markets wiggle, and the down wiggles are associated with hideous headlines.
If you don’t have a financial advisor as your trick to outsmart yourself, then hopefully, you have a friend or some other trick. What was really influential in my thinking: Even the best stocks, intra-year, can go down 30% – like Apple. These stocks, which you never wanted to sell, give you great buying opportunities. And if that’s the case for that business, then obviously, other stocks will offer even better opportunities.
Getting back to Bitcoin, do you draw any parallels between when the VanEck gold ETF was developing to the Bitcoin ETF? Is there the same pushback and regulatory pressure/roadblocks?
Yes, the hard thing is new is not always good. We’re all humble. We don’t know the future. We just try to make educated guesses and construct our portfolios in ways that seem reasonable. I think since 2017, the price of Bitcoin has risen – it feels very bearish now – but so far, we’ve been right since that time.
We said in 2017 that there could be a 90% drawdown, and there was. We think allocating to crypto is very hard, and it’s really something we spend quite a bit of time talking with investors about.
But I think there really was confirmation last year when Bitcoin ($BTC.X) hit all-time highs. Now, obviously, it corrected quite a bit again, but still, I think its use case will continue to grow.
I think, though, that your conviction around new stuff tends to be low. You can analyze an IBM or a Microsoft, and you can be more convinced about what might happen to their business. But with a new asset, it’s harder to feel that way. That’s why I think investors become too bullish at the top, and then they don’t want to participate when it goes on sale. So it’s easier said than done.
Could you explain your view on why the SEC has continued to deny any and all spot Bitcoin ETFs?
There are two things going on. There’s the filing cycle. Since our last one was denied, we have to file again, and now they have postponed it. And people tend to look to that for data points.
There was a lot of optimism this summer that maybe Bitwise and another might get approved. But the SEC has been pretty clear, in my mind, that they want to have some supervisory power of the underlying markets before they’re going to approve a spot Bitcoin ETF.
And I also think when they approve it, they’re going to approve everyone at once. I know that the ETF industry is built around first-to-market gets a ton of money, and it’s a breakthrough, but that’s not my base case.
On that note, why do you think the SEC approved a Bitcoin futures ETF but not a spot ETF?
I know that they want some surveillance over the trading of what goes into funds, and they felt like the CFTC, CBOE, and CME were sufficiently surveilling the trading of those futures contracts. That’s what they would point to.
And liquidity, it has to be a big enough market. We’d love to launch an Ethereum ($ETH.X) ETF, but Ethereum futures aren’t liquid enough right now, I think, in the SEC’s view. So that’s what they’re looking at. Some regulatory construct is number one, and liquidity is number two.
Do you think the DeFi space, even after the Celsius and Three Arrows Capital debacle, is a place traditional finance will go for yield if growth slows or drops?
What I think a lot of non-crypto people don’t understand is that many of these tokens are associated with products that generate money. Tokens are a different asset class. But there’s a part of tokens, namely those that are related to the value of the project, that are interesting to investors.
There are obviously tokens that are purely speculative. That’s what many people get phased by, the meme coins and things like that. The first point is there are liquid tokens that have some sort of economic value, and then you’re like, ‘well, how can open source software disrupt Starbucks? Why do I even need to pay attention?’
There are two really big parts of your S&P portfolio: IT and Finance, right? Ethereum is a big cap software company if you look at it that way. And IT is what, around 28%, roughly, of the S&P? So that’s getting disrupted.
What percentage of that market share of payments, of finance, of lending will crypto take? No one knows, but it’s probably more than what it is today because it offers a price and an availability advantage, right?
It’s cheaper than Western Union, and I can get it through my phone. And more people around the world have phones than they do bank accounts, so that’s the opportunity, both for the software and the financial sector.
DeFi, in particular, I think will have to be combined with centralized delivery mechanisms. People want simplicity and ease of use. So it’s probably going to be a hybrid solution. For example, Coinbase is incorporating staking and many of these other kinds of capabilities.
Maybe that’s how it will work rather than the underlying protocols winning on a stand-alone basis requiring a lot of technical knowledge.
Everything is driven by technology, right? And you’ve got to adapt and adopt, or you don’t survive.
When a spot Bitcoin ETF gets approved, are you going to expand ETF offerings in the crypto space? Such as individual cryptos like Ethereum or Cardano, or in sectors like DeFi, Tokens, etc?
Yes, very much so. So we’re a global firm, and in Europe, we have a pretty big operation. We’ve listed 13 ETNS that track a single token or multiple tokens. So we’ve been very aggressive in that space.
And our index subsidiary started offering crypto indices in 2017, as one of the leading crypto analytics shops out there. Obviously, people might disagree, but Coinbase ($COIN) recently launched two products over the last month or so—nano-futures on Bitcoin ($BTC.X) and Ethereum ($ETH.X) —and they used our indices for that. We have categories for the different investible crypto sectors. We as a shop tend to favor what we call smart contracts like Ethereum.
The difficulty is that it’s hard to see from an ETF perspective what we’ve been doing. It’s not just the Bitcoin ETF that the SEC is stopping. They’re stopping all these other kinds of things that we can do in other countries like Canada and Europe.
We do have three ETFs accessing the crypto space in the US – sort of doing what we can. One is industry exposure – like Coinbase and companies like that, the ticker is DAPP (VanEck Digital Transformation ETF). And then we have a Bitcoin futures ETF, XBTF (VanEck Bitcoin Strategy ETF) – the second largest behind BITO, but I believe we have a better tax structure for individuals. And then we have one that tracks digital asset miners, DAM (VanEck Digital Assets Mining ETF).
So, what are you missing there? You’re not getting exposure to Ethereum and Bitcoin; you’re missing a lot.
Regarding your niche ETFs, how do you navigate the tail risks associated with some of these emerging and niche markets? Your Russia fund ($RSX) is a good recent example.
An ETF reflects the underlying market. Now, an ETF can actually improve on those, but there has to be a legit underlying market. GDX is more liquid than any gold stock, so it’s adding value to that category. But there has to be a real category.
Russia was a major market, so it was easy to create an ETF on it. It was very deep and very liquid and had a major play on energy producers. We can’t predict everything.
Something a little closer to the edge is Vietnam. We have the biggest Vietnam ETF. Vietnam is a really interesting story. It’s a beneficiary of Asian growth and diversification from China.
Its equity market wasn’t that liquid, but now it’s trading at more than 10x the daily volume from three to five years ago. And it’s got a lot more large-cap stock (worth over $1 billion). We thought that was where the market was obviously headed, or we wouldn’t have launched it.
How do you differentiate yourself within these emerging asset classes to gather assets as an asset manager? Is it an active/passive decision, tax structure, etc?
First of all, education and research. We’ve got indices that are available on Bloomberg or for free on the internet that help explain what is going on in the space and a lot of blogs.
We do have some actively managed partnerships that we offer to accredited investors. We talk to people about that, so it’s really the education and having quality funds.
For example, DeFi has been a very poor-performing area for several reasons. We love the protocols but don’t think they have pricing power.
Over time, being correct as money managers, you can’t see that in an ETF, but we can see in our discussions and our actively managed institutional funds that our approach makes sense to investors.
What do you tell the individual investor or financial advisor that’s looking at this stuff and saying, “I understand there’s something here, but I don’t know how to navigate it all?” Where should a person start their journey?
It’s a tough question to answer because it’s crazy how much information is out there. Where do you go? I’m really a historian, meaning I really think it’s best to put what’s happening today into some type of context instead of just trying to absorb a ton of information.
I follow the people that filter it for me. Who are the people who have perspective? Howard Lindzon, for example. He has his daily blog. Someone like Howard has seen the internet boom, and he understands the value of individual investors, so he knows how to put these things in context.
And you have to watch out for people talking their own book, you know, like specialty money managers who don’t have the experience of living through different cycles. Listen to the people who have been through wars and bad stuff like that. They are the people who can help lead you towards the right information.
I am a huge fan of individual investors. A lot of them are really smart. You have a lot of really smart individual investors on Stocktwits.
Individuals have the competitive advantage of timeframe on their side. So if they really understand the investment, and it goes down, it’s on sale.
Mutual and hedge fund managers are often judged weekly or monthly, which can be really bad.
I think this equity market, because valuations are just falling out of bed, provides amazing opportunities.
How has social media and content creation changed how asset managers or financial services companies generally market themselves and connect with the public?
I think social media is a really important part of being a good investor. If you want to research a topic or a stock and you’re never on Stocktwits or Twitter, I don’t know how you will get the full picture.
Crypto has taken it to the extreme. There’s a crypto research firm that only distributes through Telegram. So if you’re just sitting there using your Bloomberg all day, you’re missing out on all this information out there.
The experts are on social media, and they’re engaged. If you’re researching as an investor, you need to engage in social media.
Right now, it evolves so fast. You know that with Stocktwits. You have to have followers; you have to have an audience. You have to succeed in social media. As asset managers, we need to make our insights digitally available because everybody’s a digital researcher.
Wall Street use to be a usedce where you got information through your e-mails or phone calls- that’s not the way anymore. You have to make your research and ideas available on these other platforms as well.
We hope you enjoyed the interview as much as we did, and we thank Jan again for his time and insights on these topics. Look out for more great interviews with industry leaders in future issues of The Daily Rip and The Litepaper!