Benefits in creation of possible U.S. cryptocurrency ETFs

Dave Nadig, CIO and Director of Research for ETF Trends, joins Yahoo Finance’s Kristin Myers and Alexis Christoforous to discuss the possibility of cryptocurrency ETFs.

Video transcript

KRISTIN MYERS: Well, let's go now to our ETF report, brought to you by Invesco QQQ. We've got Dave Nadig, Chief Investment Officer and Director of Research for ETF Trends. Great to have you with us here, Dave. So, I want to start with cryptos, especially since [INAUDIBLE] lead us in that direction.

So, we don't have any cryptocurrency ETFs in the United States. There is BTCC in Canada. But looking out ahead, are you imagining that a crypto ETF explosion is just a couple of months away?

DAVE NADIG: Yeah, I think my current guess is that we're looking at sometime towards the fall. We barely got the new chair of the SEC, Gensler, sitting at the desk yet. We don't have a new Director of Investment Management. So, I'm not expecting anything to happen really in the next couple of months.

But I think as we start getting towards that six-month mark from when the Toronto Exchange started trading BTCC, as you mentioned, that gets us into August, September. I think that's a reasonable time for us to start really looking for some guidance from the SEC. We've got nine ETF filings right now for a Bitcoin ETF in the US.

Two of those, the ones from WisdomTree and VanEck, are pretty far through the process. The question is, will the SEC simply say, great, you guys can run, or will they issue guidance where all of these filers can go back, address whatever final concerns they may have, and then it's a bit of a horse race to see who gets to market first?

ALEXIS CHRISTOFOROUS: What do you think that's going to do to the crypto space once those crypto ETFs are up and running? I mean, I would imagine there's going to be this initial surge of excitement and enthusiasm, but do you think it will actually, over time, Dave, help the market to stabilize and sort of find a floor?

DAVE NADIG: Yeah, absolutely, right. The more institutional money, the more traditional money is playing in the crypto space, the less volatility we'll see. Because you'll simply have holders that are being more rational about what their goals are for their Bitcoin holdings, right? A company, like a Tesla or a MicroStrategy, that's putting Bitcoin on their balance sheet, they're not trading hundreds of millions of dollars with every swing that we see in the market. That's still largely being driven by smaller blocks of trading.

So, when we get these ETFs showing up, like the one that we have in Canada. We have $60 billion in some sort of package vehicle all around the world right now. That has a real stabilizing effect on the asset, on Bitcoin underneath it. So, I think it will be great. It'll also be great for investors because it will make access easier. While a lot of retail investors and a lot of advisors do have crypto exposure now, you got to jump through a lot of hoops to get there, and ETF would make it a whole lot easier.

KRISTIN MYERS: All right, even though you can invest in a cryptocurrency ETF, you can invest in Blockchain. Now, Blockchain ETF, I'm thinking B-L-O-K, BLOK, for that. Are you seeing increased interest in these blockchain ETFs? Do you imagine that they'll become more successful or more popular, especially as we see Bitcoin rise and some of the other cryptocurrencies continue to do quite well?

DAVE NADIG: Yeah, absolutely. And I think the key thing, the two that I'd highlight here, are BLOK, which you highlighted. That's one of the first. It's got sort of multi-billion dollars in it. It's a big established ETF.

We just had a recent launch, DAPP, from VanEck, which is really a digital asset platform play. That's what we call DeFi, or Decentralized Finance. That's where a lot of the interesting stuff is going on in blockchain technology right now. It's a little disconnected from the day to day swings you might see in Bitcoin, but these are the companies, these are the technologies that could really reinvent financial services around the world. And those are the kinds of companies you see in ETFs like this. So, we are seeing an uptick in interest, not huge flows, but definite interest.

ALEXIS CHRISTOFOROUS: You know, the last time we spoke, I'm just going to pivot here for a minute, Dave. I believe that we're seeing that rotation out of stocks and into bonds as those yields were starting to rise. What are you seeing now, and what's the play there in the bond market, if at all, right now?

DAVE NADIG: Yes, so, what we're hearing from advisors is, they don't like bonds. They really don't think there is an alternative to being in the equity space, a so-called, there is no alternative market, or TINA market, because they just don't feel like they're getting paid to own bonds. And it's pretty tough to argue with that when you're talking about things like 1 and 1/2 percent on the 10-year in a world where we've got 2% to 3% inflation expectations. That's negative real yields. And people have a hard time stomaching that.

So, what we see instead is a bit more rotation to what I would call, safer or more defensive equities. Some of that's traditional things, like going into dividends, or even rotating into utility stocks, those sort of widows and orphans type stocks that are in ETFs. But more interestingly, we've seen some real money flow into value funds, things like Vanguard's VTV.

That's in the top 10 asset gatherers for the year so far. So, there is definitely a rotation, but it's not out of equities. It's into less interesting, perhaps more boring, perhaps more stable, equities.

KRISTIN MYERS: So, to that point then, Dave, especially as we hear some folks talk about a potential pullback or correction later on in the year. And folks have said that these high growth stocks are not going to be leading the market in 2021. What are you looking at for some folks who might want to look for some of those growth opportunities, but not necessarily in growth, perhaps in value? Where should folks be looking right now?

DAVE NADIG: Yeah, I think there are a couple of different approaches here. So, one way people are doing this is by looking at sort of non-traditional ways of thinking about value. I'll highlight Cambria's shareholder yield fund, it's SYLD. And it looks not only at just raw valuation things, like price to book, price to sales, but also at shareholder return.

What's it doing in terms of giving companies-- giving money back to shareholders through dividends, through buybacks, through mergers and acquisitions, all things that are accretive to value for the shareholder in the long term. What you end up with is a portfolio that, yeah, has some value characteristics, but actually manages to hang on to a lot of that growth and momentum that's driven the market so much as well. Doesn't ignore trend. So, funds like that, which look a little nichy, are really starting to find their feet.

The other place we're seeing a lot of interest in is in what I call, pattern molding ETFs. These are generally ETFs that use options to sort of smooth out your ride. So, you're not just fully exposed to everything that might happen in say, the S&P 500.

I'd highlight, Simplify's SPYC, or "spicy," as we call it, as probably the lead dog in that race where they've got options positions that they give you more performance both on the upside and on the downside. If the market comes down, it holds put, which will increase in value and potentially let you profit from an extended downturn.

A lot of products in that space now. A lot of product development. It's very interesting and exciting, and becoming pretty core to a lot of advisors' thinking.

ALEXIS CHRISTOFOROUS: Dave, before we let you go, real quick, Dave. Another thing that's been hot, or was hot for a while, were those Cathy Woods ARKK ETFs, particularly I'm speaking about innovation ETF with all those big name tech companies. We've seen it really slide recently as investor appetite for those equities wanes. Where do you see things heading at the moment? Has it peaked? Does it look like it's going to be coming back any time soon?

DAVE NADIG: Well, I wouldn't be dancing in any graves here yet. Yes, we had a small pullback in some of those core funds. The ARKK probably being the flagship that everybody knows. We actually didn't see a lot of outflows. Those funds are still up huge on the year, in terms of asset gathering.

So, it took a little bit of a breather. I think that's pretty healthy. If you look at what they're doing inside the fund, they're kind of ignoring all this noise.

They're just sticking to their knitting. They're investing in the same strategies that they've been talking about for the last three or four years. They're doing it the same way they've been investing for the last three or four years.

And it seems to be working for them. So, while some of the noise may be coming off that story, I think the team at ARKK is going to just keep doing what they do. And for those investors that are real believers in that strategy, it's been paying off.

KRISTIN MYERS: All right, Dave Nadig, Chief Investment Officer, Director of Research for ETF Trends. Thanks so much for joining us today.