This weekend only, get a Marketplace zip–up hoodie when you donate $8/month. Don’t wait — this offer ends at midnight Sunday!
For years, cryptocurrency has been simmering at the edges of the financial system, viewed by many as kind of a fad. This week, crypto is having a moment.
On Tuesday, an exchange-traded fund that tracks Bitcoin futures debuted on the New York Stock Exchange. Futures are contracts that speculate on what Bitcoin might cost. Bitcoin, a pretty volatile asset, has been accepted, to some degree, by one of the oldest and most traditional marketplaces in the world.
According to Gil Luria, a technology strategist at D.A. Davidson, there are a few reasons why 2021 has seemed a turning point for crypto. The following is an edited transcript of our conversation.
Gil Luria: Many of the fund managers have already held crypto in their accounts for many years and have made a lot of money doing so. So they were prompted to start thinking about that as an investment their funds should make on behalf of their customers. Secondly, Bitcoin has grown to such a level that you can’t just think of it as a cute little thing on the side. It’s a big deal, and you have to have a strategy and you have to start dabbling. And finally, the third one and very important development, was Coinbase going public. There is a mega cap that trades on the exchange this year, it started earlier this year, that all they do is crypto.
Kimberly Adams: These are institutions that are very skeptical of crypto. But right now, we do have these low interest rates. How are they marketing that to their clients?
Luria: Well, the right way to market it, and we see all the different ways, the right way to market crypto is that it is a highly speculative asset class. It should only be invested in with amounts that an investor is willing to lose.
Adams: How are U.S. regulators generally approaching this year of change around crypto?
Luria: Very thoughtfully. They have a lot of tools to address the types of behavior they’re seeing in the market. There are things that are outright fraudulent, and they are going after those criminals. And that’s a good thing, and we want that. There’s nuances to crypto that they still have to adapt to. They’re doing that and they’re asking Congress to help them with that. But overall, they do have the tools to deal with it. As it happens, the head of the Securities and Exchange Commission, Gary Gensler, is a crypto expert, so he has a good plan that he’s started executing on how to make sure that these crypto-related companies are well regulated. And that’s a good thing for everybody involved. These companies should be regulated, consumers need to be protected. But they need to be protected without shutting it down and slowing the growth of the category.
Adams: Is there some irony to the fact that crypto started as sort of an alternative to institutions of capitalism and now is being accepted and, in some cases, even promoted by the same institutions?
Luria: I would think of the parallel to the internet 30 years ago. Initially, the internet was a novel thing that only small upstarts would get involved in, and some of those small upstarts ended up being the most important companies in the world: Amazon, Google. But everybody else also adapted [to] and adopted the internet. We’re gonna see the same thing with crypto, there will be upstarts, but all other financial institutions need to figure out how to adapt to a world where a lot of the financial infrastructure is built on this type of technology and crypto-based technology. And the good ones will, and they’ll adapt and they’ll grow and they’ll succeed. Just like today you see Walmart, and Costco and Best Buy succeeding, and they’ve adapted to the internet. And they compete with Amazon, just like many financial institutions will compete with the Coinbases of the world, going forward.
Adams: This is also an unregulated currency. What are some of the risks of it becoming more mainstream?
Luria: So the companies that do business in crypto are regulated. The technology itself, you can’t regulate open-source software. All these crypto assets are open-source software, they operate on any computer anywhere in the world. You can regulate the participants, the companies that provide services around it, they already are regulated, they could be even more regulated. But you can’t actually regulate the technology. And that’s part of what Western governments have all recognized, that it’s tempting to say: Let’s try to shut this down. But that doesn’t make any sense because you can’t truly shut it down, A, and B, if you try to shut it down, you’re pushing innovation to other countries. If the U.S. was to decide to make Bitcoin illegal, all that means is that all those investment dollars, all that venture capital, all those transaction-processing investment dollars, would go to Europe. And that’s not something we want. We want the development, we want the technology to be here. We want to grow our companies here and create the wealth here. That’s why we need to regulate the companies that do business here. But you can’t actually regulate or shut down the technology, as many people pontificate.
Adams: Bitcoin went up this week, probably influenced by the debut of this futures fund. How do you think it’s going to change the way that investors who maybe looked askance at crypto and Bitcoin in the past might start interacting with these types of investments?
Luria: So remember, the easiest way to own a crypto asset is through the wallets that are commercially available by companies like Coinbase, Square and PayPal. That’s still the easiest and most direct way to own a crypto asset. For many people, they don’t want to have another investment application or third party that they work with and that’s why they want to invest in crypto in the same place they invest in stocks and bonds. That’s the market that ETFs appeal to. The real ETF that everybody’s waiting for is the Bitcoin spot ETF. Everybody will be able to get direct exposure to that asset in the stock exchange, right next to their other stocks. Bitcoin futures ETF is a step in that direction.
As Gil said, cryptocurrencies and futures trading can be pretty risky business. CNBC has a piece laying out the risks, and just who might see the rewards from this new ETF. Our Marketplace colleague Sabri Ben-Achour also covered the ETF on launch day.
For a bit of a dose of cold water when it comes to crypto, we’ve got a link to couple of pieces at Slate by Ben McKenzie and Jacob Silverman.
One highlights the role celebrities play pumping up dubious financial products online, including cryptocurrencies, often at the expense of their fans.
And the other warns of the “potential grenade” at the center of the crypto economy, arguing there’s an unavoidable clash coming between regulators and “stablecoins” like Tether. Because with this much money sloshing around, there’s bound to be some bad actors.
Every day, the “Marketplace Tech” team demystifies the digital economy with stories that explore more than just Big Tech. We’re committed to covering topics that matter to you and the world around us, diving deep into how technology intersects with climate change, inequity, and disinformation.
As part of a nonprofit newsroom, we’re counting on listeners like you to keep this public service paywall-free and available to all.