Markets Never Close: The Case for Tokenized ETPs | Alex Pollak | 21Shares [EP. 308]

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20 plus years ago, people were
very skeptical about the ETF

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industry.
So with the benefit of

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hindsight, 20 years later, it's
become an incredibly popular

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tool.
It reminds me of what we're

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seeing in the crypto ETP space
as well.

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So I think it's got a very long
runway ahead of it.

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Even though with tokenized
assets, with blockchains, the

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way that people interact with
the financial system is changing

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all the time.
This is Money Never Sleeps.

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Sharp riffs, big ideas and real
insights from smart people.

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I'm Pete Townsend.
Let's go money.

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Never sleeps well.
So joining the show today is

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Alex Pollock, Managing Director
and Head of UK and New Markets

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at 21 shares, providing the
largest suite of cryptocurrency

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exchange traded products or Etps
in the world, making crypto

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investing more accessible.
Welcome to the show, Alex.

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Pete, thanks for having me on.
Listen, Alex, when we caught up

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recently, we ended up in a
really interesting place and it

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wasn't just where crypto ET PS
are today, but where they might

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go next.
The first thing I wanted to dig

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into was that this thought I've
had that's been mulling for a

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few years and that as
institutions get more

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comfortable with custody, with
on chain operations, with

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wallets and the related security
around all that, do you think

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they're going to start holding
crypto directly rather than

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through ET PS?
Or is this really about

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operational risk appetite where
Etps will continue to play a

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role?
What do you think if we go back

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kind of, you know, 10 years or
more than that, it was quite

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difficult to to buy, buy crypto.
And the way that the market has

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evolved, I think has been really
helpful in allowing investors to

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access crypto, whether it be via
Etps, They can access crypto via

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centralized exchanges,
centralized crypto exchanges, or

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you can do it via a crypto
wallet or via a decentralized

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system as well.
So I think Etps will definitely

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play a part, but I think more
and more investors will look at

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other options as well as the
market evolves.

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I also think it what it depends
on what type of investor you

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are.
So if you are a an investor just

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looking to allocate a small part
of your capital to the crypto

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space, I think an ETP probably
is the easiest way to do it.

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You can trade it via your
regular brokerage account.

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It trades on a regular exchange.
It looking, it looks and feels a

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little bit like a regular
equity.

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Those investors will continue to
use Etps.

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I think if you're an asset
manager and you're running a

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multi asset portfolio, I think
the ETP is probably the easiest

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way to allocate to the space
because of AML and KYC and

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things like that.
However, I think you know, if

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you are somebody who is deeper
in in in the crypto world or

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you're a crypto native investor
and have been investing in the

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space for many years and you're
comfortable kind of with having

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your own wallet and password and
keys or you are running a crypto

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fund, then you'll probably trade
via one of the other routes,

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potentially not via an ETP, but
doing it directly.

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But but I think what is
interesting, Pete, is, is that

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the ETP narrative is evolving so
quickly.

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Investors, I think assume that
when they're buying crypto

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directly, it's going to be
cheaper than doing it via an

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ETP.
That's not necessarily always

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the case.
We always encourage clients to

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look at this from a, what we
call a TCO perspective, a total

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cost of ownership perspective.
So looking not just at kind of

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what the headline TR is, but
also looking at what the spreads

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are and looking at the
liquidity.

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And because investors want to
know that it's fine to buy, but

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they want to know that they can
sell as well.

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So you know, looking at that
TCO, looking at the liquidity

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and looking at how these
products have performed during

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stressful times is very
important as well.

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Yeah, that's interesting.
I hadn't thought about that in

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that you're going to have a
spread on what you buy or sell

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through a crypto exchange.
And if you're buying or selling

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through an ETP exchange traded
product, then the fund manager

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themselves might have negotiated
a different type of spread or a

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lower rate that you would
typically find buy directly

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through an exchange.
Pi, you know, a few years ago

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when I started at 21 shares, I
remember looking at some of the

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spreads and sometimes even for
some of the more popular coins,

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you know, you'd have spreads of
like 10-15 basis points.

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That's pretty wise.
But when you look at the market

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today like it's come down to
minus minuscule bits.

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If your US listeners, the Etps
there will actually they're ETFs

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in the US, they're some of the
most successful ETFs ever been

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launched in the US market and
those have spread of of

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minuscule bits.
If you do your homework and

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analysis, you'll find that you
may actually get a more value

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for money out of trading the ETF
or the ETP than going in any

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other way.
ET PS are a major financial

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innovation of the last, you
know, 30 years problem, right

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and that we're just at a point
where this is an evolution and

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that we have new products coming
in, we have new asset classes

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coming in and as the market
evolves that so will these

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products with you guys with 21
shares, this isn't just about

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single asset products because
those were technically phase

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one.
Do you think the next phase

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becomes more sophisticated
basket exposures effectively

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doing portfolio construction
inside the wrapper I?

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Mean, first of all, I, I've been
in the ETF industry for, for a

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very long time.
I remember 20 plus years ago I

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was working at iShares and
people were very skeptical about

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the ETF industry.
So, you know, with the benefit

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of hindsight, 20 years later, as
you say, it's become an

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incredibly popular tool.
It reminds me of how what we're

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seeing in the crypto ETP space
as well.

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So I think it's got a very long
runway ahead of it.

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Even though with tokenized
assets, with blockchains, the

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way that people interact with
the financial system is changing

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all the time.
I think baskets will become a

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lot more popular, but I don't
think we're there yet.

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I think at the moment the focus
is still the single coin ET PS

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It's it's a little bit of push
and pull.

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So I think, I think investors
are really interested in

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baskets, but I think many
investors are constrained by

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what regulators are doing for
your UK audience.

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For example, if we look at what
the FCA has done over the last

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six months, they, they, we,
we've made progress in the UK.

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The FCA has lifted the ban on
crypto, we call them ET NS here.

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So resale can now buy crypto ET
NS.

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But what they've done is they've
only opened it up to to Bitcoin

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and Ethereum.
So even even if you're a retail

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investor in the UK and you want
to buy a basket right now, you

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can't because because the
regulator doesn't allow it. the

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US is clearly kind of evolving a
little bit faster than that in

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Europe, as people become more
informed about the asset

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classes, the education improves
and people people want to get

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wider exposure, baskets will
become more relevant.

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But I don't think we're there
quite yet.

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OK, OK.
And just think about where it

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could all go, right?
And that the the dream scenario

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that people in investment
operations started talking about

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10 years ago was that a fund
itself becomes a smart contract.

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And that all of these very
complicated terms that get built

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into old school transfer Agency
systems and share registers and

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all of that, all of that goes
away.

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And when you can truly have
funds operating as smart

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contracts, they become what we
call composable and Etps itself

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will eventually become
programmable.

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What does that resonate for you
like E?

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TETFS are very efficient
vehicles, right?

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It's a great way of getting
exposed.

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Well, you know, whether you're
interested in equity or bonds or

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crypto or commodities, whatever
it is, it's a very, you know,

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it's, it's a great tool.
It's, it's a technology

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essentially.
And I, and I always thought,

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well, why would you need another
version of that when it's

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already a very efficient market?
But actually the way that

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markets are evolving where it is
becoming more of a 24/7 game,

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clearly, when, when your, your
Stock Exchange is closed, how,

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how do you buy and sell into
into this market?

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You know, I think the way that
what you're referring to is kind

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of tokenized versions of of the
EPS and you know, there are some

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big brokers out there who are
working on this.

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You know, we, we are definitely
looking at this.

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In fact, we, we really do want
to tokenize some of our, our

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only ETP's.
And I think the beauty of that

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from an investor perspective,
and it's all about, you know,

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giving investors the tools or
the solutions that they that

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they, that they need to help
them manage their portfolios.

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You know, if you wanted to, you
know, if you're too busy in the

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week to, to actually trade or
you want to maybe trade in the

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weekend based on some news
that's out there, you know, you

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could do it via a token on on,
on a blockchain.

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And then I think what would be
really interesting is that when

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the market opens on a Monday
morning, can you actually

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transfer it that into your
brokerage account?

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So, so, so, so kind of, you
know, make an efficient

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mechanism where you can trade
between the the token and the

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and the ATP.
Yeah, yeah, that's it.

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And it's if NASDAQ, the New York
Stock Exchange and others are

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making a big push into
tokenizing their exchange

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frameworks and tokenizing their
post trade frameworks that this

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all started 7-8 years ago and
now they're just really serious

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about this.
What you mentioned about the

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market opening and closing,
that's that's one interesting

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point is that markets are
effectively open 20% of the

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hours of the week.
How is that interplay going to

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work between we've got
instruments, underlying

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instruments that are trading
24/7 and we've got funds that

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are perhaps not trading 24/7.
How?

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How is that all going to play
out?

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I think that there is definitely
a group of investors who is

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trying to push for that.
But again, this is down to

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regulators as well.
Yeah.

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And so we really need regulators
to help create frameworks to

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give investors guidelines about
what they can and can't do.

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But I think once that is all
live and up and running and

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there's more clarity around
that, it is going to happen.

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So I think, you know, the, it's
almost like the technology is a

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little bit ahead of where the
regulators are.

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But I think once, once the
regulation comes into place, and

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I think it will do, I think we
will see more of that happening.

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In a nutshell, it's not the ET
PS are disappearing.

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They're not or I don't think
they will.

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They will continue to be there
as an instrument that is used

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for people to access certain
returns and certain assets and

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return exposures.
There's tons more innovation

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that can be done with ET PS,
from simple wrappers to

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programmable baskets in a market
that may not sleep anymore.

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Exactly.
Exactly.

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Wonderful.
So listen, Alex, thanks for

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jumping into Rif with me on
this.

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What's the best way for people
to get in touch and to learn

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more about 21 shares?
Research and product information

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00:11:02,680 --> 00:11:05,160
is on the website.
You've got some contact

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00:11:05,160 --> 00:11:07,600
information on there as well.
We're on all the socials as

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well.
We as as an issuer, we're really

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trying to help investors access
this space and doing it in a

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responsible regulated vehicle
and producing content and

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research that will also help
them become more informed about

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the space.
Please look at the website, sign

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up to our newsletters or or get
in touch with us individually.

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Thank you and keep up the good
work.

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Great.
Wonderful.

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Thanks so much, Alex.