BlackRock Confirmed Bitcoin Is Here To Stay | Jay Jacobs

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1:00So that fundamental diversifying nature of Bitcoin, we believe still very much holds even as the investor base has maybe shifted over the last few years. What's going on guys? We got a great conversation today with Jay Jacobs. He is the US head of equity ETFs at BlackRock. He's one of the big dogs who has brought ETFs into the industry. They obviously are the Ibit owners and they've brought that to the market and done a fantastic job. But in this conversation, we talk about Bitcoin, the crypto market. What's going on? Why are people allocating to these structures? On top of that, we took about AI, all the infrastructure, the entire value chain, what they think about the next leg of AI and how investors are actually allocating their capital. I think this conversation is really interesting because it's going to help you better understand not only these themes, these technologies and these opportunities, but it's also a little bit as to why ETFs have risen so quickly, why they become so popular in people's portfolio. And I think if you listen to the entire thing, not only will you walk away and be impressed by Jay, but I also think they're going to find a lot of opportunities to go and investigate and maybe put into your portfolio. So here's my conversation with Jay Jacobs. All right, Jay, the Bitcoin ETFs are the most successful ETF product ever launched,

2:01it seems you guys were a pioneer. I remember when you guys filed for the ETF, I said, we're going to get it approved and that's probably going to be a pretty big deal for the industry. When you look back now, what has been the actual measurable impact on the Bitcoin industry from these ETFs? I think the biggest impact has just been the amount of people that can now participate in the Bitcoin ecosystem. So if you think about before these ETFs existed, people had to go sign up on a digital asset exchange, that was a friction for many individuals, that was a prohibition for many institutions that didn't have that ability, or just an incredibly long and arduous process for even many financial advisors or RRAs that had the ability to do that and set up all the plumbing for digital asset exchanges, but just they weren't there yet from a conviction behind Bitcoin perspective. So once the Bitcoin ETPs like IBIT came out, it just made it as easy to access as clicking a button on a brokerage account just like you buy the S&P 500 or buy an individual stock. And so what that meant was individual investors,

3:01so many more had access to a vehicle tracking Bitcoin. Financial advisors over time got access because we saw a lot of financial advisor platforms approve IBIT and frankly approve Ether or Ethereum ETF as well. And institutions now suddenly had a very liquid vehicle to express their views as well. So it increased access. What I think it also did was before IBIT, many advisors and institutions could kind of avoid the Bitcoin conversation. Like they, it was like I can't ignore it. Yeah, they couldn't buy it. So everyone has so much on their plate at all times in these institutions. So are you gonna spend time learning about Bitcoin or you're gonna spend time thinking about like your asset allocation between stocks and bonds? I think a lot of them focused on the latter. Once exposure to Bitcoin became available to them with IBIT, it had to be a part of the conversation of how do they think about this asset class? Does it fit in their portfolio? What are they getting when they allocate to Bitcoin in a broader portfolio? And so it just really accelerated those conversations within some of the most sophisticated institutions

4:03in the world. It seems like Bitcoin's volatility has compressed. It was, you know, 80-ish, vol asset. Now it's like a 35-40 vol asset. I have heard people claim that it's because just Wall Street's participating in general. Some people say it's the ETF. Some people say no, it's actually all of the leverage and options and various other instruments being put on top of it. Do you guys have a view as to like why Bitcoin's volatility has been compressing and will it continue to compress? And people should think of that as part of like the Bitcoin story going forward. You know, I don't think we have a universal answer, but I think a few factors have certainly contributed. You know, one with the build out of the ETPs, with the build out of the options market around the ETPs, it's created more ways for people to participate in Bitcoin and that creates a more robust market. So when people are looking for liquidity or people are looking to put on more complex trades, there's a market that can support that now because of IBIT. And so that should help reduce some of the volatility. I think secondly, again, because more people can participate in it. There's more research, there's more conviction, there's more long-term buyers that have come into the space

5:04that can be kind of the counterbalance to people who are maybe doing more short-term trading strategies, data has helped reduce volatility as well, but overall having more people participate in a more liquid, more robust market can help bring down volatility. Now, when we look at a lot of that volatility compression, I think that there was a bunch of people who were not part of Wall Street, not part of the institutional world. They were very excited about Bitcoin, frankly, because it was outside the system, and it was super volatile, and it was very asymmetric. My friend, Jordi Vister, talks a lot about like this idea of a silent IPO. And his general thought processes if you have a private company, and it goes public, there's usually some transfer of ownership. The private market investors and the early employees at some point they're selling, and you get new shareholders in the company. His argument is that Bitcoin's gone through that over the last year or two, and the ETF's had probably been a big part of that story of allowing access for a new type of investor. It does feel like Bitcoin now is much more interest rate sensitive. It trades with higher correlations to certain assets. Things have changed about Bitcoin,

6:05and so when you guys are talking to institutional investors or the folks that you have in these ETFs, how are they thinking about Bitcoin compared to maybe other assets? Whereas the people before, they're like, Bitcoin is like 100% of my portfolio. I don't care what the Fed is doing or what's going on with the inflation report. I have to imagine the people holding the ETF, they really care about a lot of that stuff. So I think I agree with some of those points. Certainly the investor base involved in Bitcoin now has shifted, and ETFs have played a huge role in that. You see more people participating who tend to be long-term, buy and hold from those financial advisors that have modeled portfolios that are gonna be more kind of strategic in nature to the institutions that are long-term, buy and hold. So the ownership mix has certainly changed. And like we said, that probably had an impact on volatility. But we don't believe that the fundamental characteristics of Bitcoin have shifted, particularly over the long run, that inherently it is still a global monetary alternative that is decentralized,

7:05that is not governed by a specific government that can transact very freely across borders. And that fundamental nature of Bitcoin is still what drives the majority of its value and frankly how it should behave relative to stocks and bonds. When we end up in an environment where people are more concerned about institutions, concerned about geopolitics, concerned about fiat currency, maybe debatement, Bitcoin should benefit. That's also an environment where stocks and bonds tend to generally not do so well. So that fundamental diversifying nature of Bitcoin, we believe still very much holds, even as the investor base has maybe shifted over the last few years. Now from a corporate strategy standpoint, I think there's really three things you can do. You can sit out and just say, hey look, we're not going to participate with, however. You can say we are going to have a lot of breath in terms of the number of coins we're going to support. And there's some firms that are out there with Bitcoin, ETH, Solana, and then coins that I've never even heard of before, frankly. Or you can go really deep with a very small number. And it seems like that last one has been your guy's strategy. You guys have Bitcoin and ETH,

8:06but you also have some income. You've got some stake and unstaked and kind of different variations. Can you just talk about, when you're sitting in the product development room or meeting, how are you guys thinking about what is part of the mandate? And then maybe some of the things that you're like, look, we'll let other people kind of go after those opportunities. Well, I think an important starting point is, remember, Bitcoin and Ethereum make up anywhere between two thirds and three quarters of the whole digital asset market cap. So a tremendous amount of value just in those two assets. And we're still so early in this journey for digital asset adoption in the broader financial ecosystem. So our focus has been, we have the largest most liquid Bitcoin ETP on the planet. We have a stake to Ethereum ETP that's the largest most liquid. We have a, sorry, we have an unstaked version, ETHA. We have a state version, ETHB, that provides an additional income stream for investors. So for us, it's much more about playing in the biggest buckets right now, where we think education, where we think portfolio allocation and having really liquid tools is gonna make a huge difference for investors.

9:06You're absolutely right, though. We have kind of looked at different flavors of some of these assets. So our bringing out ETHB, which is a stake to Ethereum ETP earlier this year, was a big decision to kind of allow for people to participate in staking through ETP structure. And then we also brought out bid, uh, which is effectively Bitcoin exposure with about 30% of that exposure overwritten with covered calls to generate a high income stream for investors. And a lot of that was driven by client feedback that clients are interested in Bitcoin. They like the long term story, but the fact that it's a zero coupon, zero yielding asset makes it sometimes hard to fit in the portfolio that can be very kind of cash flow-based. And so attaching a cash flow to it through an option strategy can help people still have largely a long position in Bitcoin, but also get the utility of having an income stream from it. What about in kind, kind of contributions or creation? That was not part of the approval process or the on, but now that it has kind of entered,

10:08it seems like there are a lot of large holders who are saying, look, there is some sort of easy access of security. It's been definitely in private conversations. A lot of people are talking about cold card hacks or just physical security, whatever, it might better off holding the ETF than the Bitcoin, which I think the hard-core Bitcoin is rightfully so, or like, well, that's kind of against the Bitcoin ETHO's. What are those conversations like with potential or actual ETF holders? When we first launched IBIT, we weren't able to do in kind from a regulatory perspective, but that had evolved and were able to do in kind transactions, meaning through various third parties, someone who owns enough BTC can effectively kind of exchange that for IBIT. I was with you. I thought this was more of kind of a security piece that people who are holding their own BTC were gonna think, I don't wanna do this anymore. I'd rather have institutional love in that. I don't really get in that. I don't really get in that. But what we've learned is that certainly a part of it, but a bigger piece of it is actually the ability to kind of financialize Bitcoin. Barrow against it is a huge use case for people who are long BTC

11:10but have so much of their wealth tied up in it, they want to buy a house or buy a car, being able to borrow against it is a big piece. People who want to overlay different option strategies. If you've made a lot of money in Bitcoin or have a lot of your network in Bitcoin, maybe you do want some sort of protective option strategy or an income strategy on top of it or you wanna do some sort of exchange replication where you can kind of reduce your Bitcoin risk and get more exposure to something like the S&P 500. Once it sits within a wrapper like I bet, there's a lot more you can do with it through different financial platforms. So that's been a big driver of the in kind appetite. Also just the minimums for in kind transactions have come down substantially. So right now it's sort of at the one and a half $2 million level for an in kind transaction. Previously it was much higher than that. And so that's really kind of open the pool to more people to participate in that. Yeah, you just put out this kind of mid-year thematic update in it you guys talk about a lot of AI stuff. And I think that there was a belief previously

12:12that AI was kind of stealing the show from Bitcoin. I think now maybe there's a little bit more kind of even ground if you will. People obviously are convinced the government's gonna keep printing money. There's some questions around the macro environment and global liquidity. And so Bitcoin is kind of like re-emerged, helps the price, you know, and kind of those things that think are related. AI is still a massive story. And I think AI is probably driving the US economy right now. How do you maybe from a framework standpoint look at the AI industry given there's so many different components here? So and to your point, we at BlackRock have been saying now for a few months that AI has effectively become a macro factor in the sense that usually people look at things like GDP growth, they look at interest rates. Now they look at AI adoption as one of the biggest influences on what's happening in the markets. It's true though. If AI slows down, the markets will feel it. If AI accelerates, the markets will enjoy it. Like it is that important to, especially the US markets in terms of overall price levels. So what we did with this thematic media update was, you know, a lot of people kind of know where we are with AI today. This is much more looking at the future

13:13of where things are going to evolve. Some of the challenges, some of the bottlenecks in the build out of AI, some of the next phases in terms of what can we expect once we move out of this kind of major cat-backs boom into more of a inference and adoption boom. And frankly, you know, what does this mean for different industries? Too many people I think still view AI as a tech theme. A lot of the tech companies are building AI, but it's a healthcare theme, it's a legal theme, it's a consumer theme. It's gonna touch basically every industry or sector in one way or another. And we have to start thinking about that across our portfolios. Just because you allocate to a healthcare fund, for example, doesn't mean you've necessarily moved away from the AI trade. This episode is brought to you by Lava. The Lava card is the first credit card that allows you to earn up to 5% back in Bitcoin on every single purchase. Most cards have steep annual fees and unclear points programs, but the Lava card offers a much better deal or real Bitcoin every time that you spend. Plus there's no annual fee, there's zero FX fees and zero spread

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15:15When you get the hardware, it's not like a trinket that you're building either. It is power generation, data centers, chips. You can go through this whole stack, and so now you're talking about real estate. You're talking about debt. You're talking about equity. You're talking about hedging exposures. I mean, you start to then play, well, wait a minute, not all the companies run America. I've got to go learn about a company in South Korea or in Japan or wherever in the world. And so it does feel like the financialization is actually emerging as well of tech and finance. It's almost coming together and people are saying, like, I need to be a smart on how are companies being funded and what are the different tools available? As I need to be, I'm like, just how does technology work? And that, to me, feels like once an opportunity, if you get up to speed quickly, you can kind of have an advantage, but I kind of met that it's super difficult inside of a large firm because you're almost bringing together different teams with different expertise and trying to collaborate on these problems. Well, I think this is one of the incredible benefits of a place like BlackRock is it can look at the entire capital stack of something like artificial intelligence and try to understand kind of where's the opportunities

16:16where I can BlackRock and its clients play a role. But you're right, when you talk about a theme that's in the trillions of dollars, which is where artificial intelligence is in terms of the capital expenditures that are needed the potential economic impact of artificial intelligence, it's not necessarily just a US large cap equity play. It's gonna be much broader. We see that just within the equity ecosystem right now. So we sort of built out this concept of the AI value chain and trying to identify the different companies and the different layers of this value chain. And it runs from power companies and data centers in the real estate space to chip manufacturers, to data owners, to large language model developers, applications that are adopting artificial intelligence, platforms that are enabling it, we're suddenly in the dozens of companies globally that are participating in artificial intelligence across a whole range of sectors. So a lot of the education that we're doing with clients is saying you see this as a tech theme today, this is much bigger than a tech theme tomorrow, really look across the entire value chain

17:16to understand where the best opportunities are. And in fact, some of the best opportunities we think sort of sit outside of tech right now. Some of these physical constraints in materials and utilities in real estate where, you know, it's easy to scale a software, it doesn't have any incremental costs, but it's not so easy to scale compute, which has a tremendous physical footprint. When you're looking at this sector, we obviously see, let's take an example of the DRAM ETF, best ETF launched in history, everyone's all excited about it. To me, I think I was a little surprised at such a specific, you know, kind of vertical application of ETF into a very small number of companies, but there's some reasons I think people have unpacked just as kind of market observers of, you're giving access and kind of doing these different things. How fragmented do you think these investment vehicles can get, right? Like memory is one piece, but like, if you're gonna be able to go down to almost specific components, I mean, there could be thousands, right? Depending on how, you know, okay, well, what about the space, what about data centers,

18:16what about chips, what about all of this, like within chips, what about liquid cooled chips, what about, you know, all the stuff's like, how do you guys think about the ability to drill down into specificity versus maybe more like macro themes, like industry themes? Well, a lot of the way that we think about innovation is based off of three pillars. One is, is this solving a client need? Does this, you know, exposure to a piece of the value chain that is otherwise hard to get exposure to, or do we think that define this part of the value chain? A lot of the value of thematic ETFs is really frankly defining what is the theme, what are the companies involved in it, and that can be a really important access vehicle for investors. I think the second thing is, is there a positive expected return? Is this gonna have utility to portfolios? You could bucket things together, but if it's not worth anything, that's not really gonna help our clients either. And the third is really a stamp of quality. Can we build a good ETF around this type of strategy or exposure? And when you get really narrow into the sub-sub themes of artificial intelligence, and there's only a couple of names,

19:17it doesn't really resemble an ETF anymore, and in fact largely is not doable in an ETF anymore. And it looks a little bit more like, you know, just a very kind of small granular basket. So the way we think about it at BlackRock is really those three pillars, the client use case, the portfolio impact, and the quality of a product we can bring out. Back to memory, memory is a super important part of the whole AI value chain. And it's a really important part today. Tomorrow, the value chain could have a different area of opportunity. It could be in the commodity space. It could all be about copper, if we have copper shortages, right? So the way that we've approached this is, we do have granular ETFs, we do have a copper mining ETF, Icop. But for many clients, they just want an active manager to sit on top of this and decide for them. I wanna be in memory now, and I wanna be in these memory companies, or I wanna move into the power space, because that's where the opportunity is, and really adjust that portfolio for clients on their behalf, so that they don't have to try to research and time these trades themselves.

20:17It does feel like, take a shortage, right? In many industries, when there is a shortage, people are incentivized to come in and bring in capital investment and solve the shortage. That is the whole point of the price going up is this economic incentive. And so if that is going to continue, there's almost this idea of, you all have to kind of predict or think about, what is the next shortage or what is the next area? But maybe also just you're big enough, and you have enough resources, and the firm has enough insights and intelligence, where you're just like, okay, why don't we just go and build products for the whole value chain? And then as the like, you know, kind of micro trends or rotations happen, we can serve everything, we don't have to constantly be trying to like, play catch up to this, right? I would assume that last strategy is much better when you've got the resources to do it. Yeah, so we're doing that too. You know, we have a power ETF, P-O-W-R, that's just looking at companies that are really trying to provide the fuels, the power generation, the power distribution, that could benefit from artificial intelligence. We have a digital infrastructure ETF, IDGT, that's looking at the real estate that is going to benefit from more need for data centers.

21:17So we do look at this at a kind of a sleeve basis across the value chain, but you could always take it narrower, narrower, narrower. At some point, we have to say within the black rock wall, so this is kind of the amount of precision that we think is doable in an ETF and valuable to clients. So we have kind of the one ticker solution with B-A-I, that's the actively managed AI ETF, and then we have the sleeves of that value chain, like power, like IDGT, like copper, I-COP, that allow people to get more granular if they want to play it themselves. Your point though, on the choke points, on the difficulties with the supply chain, this is where I think the biggest mismatch is an artificial intelligence today, because what's happening on the large language model development is the large language models are writing code for themselves to improve the models. This is happening constantly around the clock. You have demand accelerating in an exponential way with companies around the world making decisions in days, weeks to up the amount of money.

22:19They're going to allocate to artificial intelligence and the tokens they're going to spend. But on the supply side, if we need more copper to support the build out of more data centers or to rebuild the grid in the United States, you could be looking at four to eight years until that copper mine comes online. If you need more Indium because copper no longer is the best way to transmit data across a data center and you need photonics and lasers to do it instead, you need to go build a zinc mine, process that zinc, a small byproduct of that is Indium, and then that's going to feed into your lasers and photonics. That could also take years. Even if you use one mill of more chips, we just need more GPUs, there's so much demand for it. We want to accelerate. Today, the fabs take about four years to bring online, even in the United States, even if you're trying to accelerate this build out. So the models are getting much better very quickly. The demand is growing in an exponential rate, but the supply side is lagging by years. And I think we're going to start to feel that in terms of where some of the investment opportunities are, but also maybe in certain ways about how AI evolves from here.

23:21Actually, don't know the answer to this, which is everything you're describing, all of the different tickers and strategies are very much either rules-based, kind of passive. Hey, we want to give you exposure, and we've constructed a portfolio, but there's not somebody at BlackRock like sitting there being like, today I think we should sell, and tomorrow I think we should buy. You know, kind of more actively managing. Do you guys have a family of active management that are in some of these industries, or most of like the AI and crypto stuff, just more kind of passive in nature? We absolutely have active. So B.A.I. is our actively managed AI ETF run by Tony Kim. He's a fundamental equities manager who's run technology portfolios at BlackRock for years. He does a Silicon Valley bus tour meeting all the major AI companies. He's very much a stock picker picking a portfolio of AI companies, and he's rotating across that value chain. That's very different from something like Power, P.O.W.R, which is it's an index-based methodology that it's looking at companies providing the fuel for electric generation, companies generating electricity,

24:23and companies involved in the distribution of that electricity. That's an index. It can still evolve over time based off of those index rules, but there's not someone behind the scenes kind of doing fundamental stock picking. So we have the whole range. And I think that's important for investors because some people want to outsource those decisions to Tony Kim and B.A.I. Some people want to pick this as you were saying. And kind of some people want to get granular and pick the sleeves themselves. In many cases, an index-based approach can be kind of a very efficient way of doing that. Yeah, it's fascinating to me how good you guys are. Also the naming and the tickers, like B.A.I. Pretty good. Power, P, O, P-O, W-R. You don't want to know how much time we'll spend behind the scenes on some of those tickers, but we take it seriously. Well, I also am assuming that there's a whole game of like, who gets what ticker and how do you jockey for getting them and some horse trading, probably going on between firms or whatever. So I've got to imagine though that building the portfolio, anyone can build a portfolio in a spreadsheet, right? Anyone can come up with, I think it should be named this, like there's a lot of intelligent kind of intentionality

25:27behind that. What about from a distribution standpoint? Like cool, you built a great ETF, it's got a great name, but now you got to get people to invest in it. And some of that is like, hey, we just can put it out in the world and maybe the media writes about it or something. But you guys also are very good at distribution. And so how do you think about that component and having conversations with clients on these topics and answering questions, and there's like a whole another part of this business? A huge part of the distribution strategy is just what helps our clients? What are they looking for? What do they need? How do we reach them in the right way? How do we provide the education that they need? So a good example of this, B-A-I, we really approached it from the perspective of we knew people saw the opportunity in artificial intelligence, but they wanted to sort of outsource to a well-regarded manager how to play within the A-I space. And then on top of that, the question we were getting most often from clients was like, what do I do with this in my portfolio? Is A-I too much of my portfolio? Is it too little of my portfolio? If I'm going to allocate to B-A-I, what do I sell? And so from the beginning, we really

26:27thought both from the product design and from the distribution perspective of let's be really clear. B-A-I is designed to be you're selling your tech sector and you're allocating to B-A-I to really, overall, you're going to keep your sector and geography exposure relatively neutral. But you're going to be leaning into the kind of best parts of technology in today and leaving behind some of the parts that are not the most interesting parts of technology going forward. And so having that intentionality, having a distribution strategy that communicates those types of decisions is really important to us. Having the tools, the education, that really kind of completes the ecosystem for a new product. It's not just about having a memorable ticker. It helps. It's good to have a good ticker, but you really have to support it with that portfolio lens and really kind of solving the client need lens. How does the rise of the independent investors change the statistics? We've obviously seen a lot of boutique-y T-F-ishers just say, hey, we're just going to go independent. If you listen to the earnings calls of various companies, including you all, I think there's a lot of talk. Everyone calls to something different, self-directed,

27:28private wealth, independent, whatever. But that feels like it's a big opportunity, but firms are still trying to figure out, how do we interface with these people? And do they want the same things, not the same thing? Just talk about what that looks like today. It's a tremendous opportunity. And it's one of the fastest growing client channels. The important part is one ETFs have always been this democratizing vehicle. In end investor on their online brokerage account, can buy the same exposure that one of the largest institutions in the world can buy to get the S&P 500 or to get Bitcoin. But the way that the end investor makes that decision is probably going to look very different from a very large sophisticated institution. One of the things we've had to get much better at is really thinking about the end investor and who they really are, how they think about what investments they should be investing in, that process, what tools do they need. There's a wide range of end investors. Some people are more kind of trade-oriented. They're looking for laser-specific exposures

28:29and they have really high conviction in what they're doing. Other end investors have just saved their first $100 amount of put it to work in something that resembles their 401k retirement account. Very different products, very different types of investors. They need different types of education. A lot of ways that we've thought about it is let's make incredible products, but let's make incredible products that might not necessarily be for the same investors. Different products are going to have different use cases for different people. Let's make sure we help those investors understand what they're getting into. When you think about the ETF wrapper itself, obviously, a mutual fund industry was incredible. Now it's fallen to the wayside. I actually think it's very interesting when I talk to older people with more experience that come from the traditional finance they think mutual funds are the default and ETF showed this new thing even today. When I talk to anyone who is young, they're like mutual funds. That's a whole different ball game. All I know is ETFs. It feels almost like it is a technology shift, right?

29:30And you see this with AI. There's pre-AI and now there's a post-AI. Crypto is same thing. What is the conversation internally of just the ETF wrapper that rises of it and maybe the value that brings to investors? So I completely agree ETFs are a technology that helped bring more liquidity, more transparency, more tax efficiency to investing for so many more investors. Just to go back to the mutual fund, there's still plenty of demand for the mutual fund structure. It's still largely the predominant structure in the retirement space where tax efficiency and liquidity are not as important. People are putting away money every two weeks. They're not trading, they're not shorting. They're just long only and that's inefficient mechanism for retirement. Also in certain areas of the market where maybe not having transparency on a daily basis, it could still be valuable to have a mutual fund. But for many investors, the ETF is their default investment vehicle going forward. For all the reasons I mentioned, again, liquidity, transparency, the tax efficiency,

30:32that all really much matters a lot. So when we think about product development, in many cases, the default answer will be, this strategy should probably be in an ETF, if it's doable in an ETF at high quality. Doesn't mean everything will be an ETF, but especially in kind of liquid markets that's, you know, tie would go to the ETF. Today's episode is brought to you by token 2049. The largest conference in crypto is back. Token 2049 will host 25,000 people, 300 speakers and 1,000 plus side events in Singapore on October 7th and 8th, and Marina Bay, Sands. The speaker list is absolutely stacked, Shane Copeland from Polymarket, Jeff Jan from Hyperliquid, Adina Friedman from Nasdaq, Arthur Hayes, Balaji, and Eric Trump. Crypto and traditional finance in the same building, which tells you a lot about where this is going, and the conference runs right into F1 weekend, so the whole thing turns into one giant week. If your head is Singapore, use code POC 10 for 10% off your ticket, token 2049, October 7th and 8th in Singapore, go check them out in the link in the description.

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32:34and they also explain how to avoid them before deploying capital. If it sounds interesting to you, you can get it for free at simplemining.io slash pom. That simplemining.io slash pom. Go check it out today and see if you should get into the mining game. When you guys think about the landscape, the product suite that you have built, what are the challenges? What are the things that keep you awake at night and you're like, hey, we still gotta solve this. Because I think on the outside, people were like, man, they killed it with Bitcoin ETF, they killed it with the ETF game in general, the firm is doing very well, it's growing, it's one of the leaders on Wall Street. What's the other side of that story? What are the things that keep you guys awake? Well, it keeps us awake. I think we can always do more on the educational side to help people use our products the best possible ways. That just, we have to reach a lot of investors, we have to be really thoughtful in the types of commentary we're providing. I think that's really important. The other piece is there's so much choice out there now. There's more ETFs than there are stocks listed

33:35in the United States. This is gonna be a record year for ETF launches. We're seeing there's more active ETFs now than index-based ETFs. And with that amount of breadth on the market, it does make it much harder for investors to make the decisions of what ETF they should buy. And making it further harder, the names can be the same. You can have plenty of ETFs that all sound like an AI ETF or a power infrastructure ETF. What's going on under the hood? What are the companies you're invested in? What's the process? How did you structure that product to be really designed in a way that was really thoughtful? One example of that is bid. So bid is our Bitcoin premium income ETF. As I was mentioning a bit earlier, and we made a very intentional choice to structure it and I'm gonna nerd out, I'm sorry, but we structured it as a 33-act product instead of a 40-act product. 33-act is the same structure that you have for Bitcoin, for gold ETFs, but it's a bid unusual compared to the 40-act structure, which is predominantly almost all ETFs otherwise. But we did that because there are certain tax advantages

34:38to investors. It does come with a K-1 form, which can be a little bit more complex, but at the end of the day, it can be more after-tax-efficient for investors. And so we looked at these two different structures. We looked at the 33-act, we had to make the decision of, it might be a little bit more complicated, but if we educate people on why we did this, and it's for after-tax investors, that can ultimately be a better choice for many people out there. So there's so much nuance that goes under the hood with ETFs. I guess my message to people out there is don't just look at the name, I catch your name's great. There's a lot going on under the hood of the decisions on the quality that an ETF provider is putting into their ETF. One other example, it's not just about the design of the ETF itself, it's also about how it trades on the market. That's something that in many ways is a bit arm's length from us. We're not a market maker, we're not setting out markets on an individual ETF, but we have relationships with market makers, and when we design an ETF,

35:38we're thoughtful about what are the pain points for market makers in terms of how they can make the best possible markets for our ETFs. And so again, you could have two ETFs that sound exactly the same. One ETF is supported by a really wide range of market makers. If we end up in an environment where there's liquidity challenges or markets are getting a bit shaky, I'm going to bet the ETF that has a more robust market making community around it and better relationships is probably going to have a better liquidity experience than one where that doesn't exist. Yeah, it's fascinating how you all have been very disciplined as well to not go do certain things. You mentioned in the in kind creation process, you all don't do it, a third party does it and then participates. You're not a market maker. There's a lot of people who would say, if I got that big and I had that many assets, it makes sense to eventually get into that game. And so the discipline almost feels like that is a core competency of the firm, whether it is what businesses do we get into, but even in the fund launches, like you're not going to the third, fifth, tenth, 20th cryptocurrency, you're just kind of saying,

36:41look, two thirds to three fourths of the industry is right here. And let's just be really good at doing this and solving the clients problems rather than trying to, just show people how many tickers we can create or something. Does that feel like something that comes up during the day in regular conversation? It does. Just to be clear, we still have over 480 ETFs in the US. So we have a very wide library, you know, for all the books in your library here, we have an ETF, but we've also probably said no to just as many if not more concepts. And having that discipline around what is our framework for thinking about product innovation is a great North Star to make sure we're bringing out great products for investors. As I've talked to people in the ETF industry, one thing that I'm always interested in, it's kind of like investing. Everyone thinks that buying the right investment is the hard part. I'm now convinced selling and knowing when to sell, how to sell, you know, all at once over time, you know, all these components like selling is actually way more difficult to me than buying. Launching ETF seems like that. I mean, you can just like your fingers to get in the air at this point and there's all these providers,

37:41people can do that stuff. When you shut one down or you realize it's not working, that feels like people all across the industry have different views. And I have one friend, he had an ETF. It wasn't really going anywhere, COVID happened. And he happened to have the exact type of ETF that all of a sudden everyone cared about. And it was for airlines and it exploded. And it was like, oh, he's a genius. And I'm like, I don't know, man, he kind of ate it for two years or three years or whatever, right? And he was losing money and doing this. And so he got rewarded for not shutting it down. COVID never happens like he probably was not being smart and should have shut it down. So how do you guys think about, you know, you have 400, 500 different ETFs? I'm sure one time you lost one and you ended up shutting it down. So what does that framework look like? So a lot of it has to do again with client demand. If this is continuing to provide an important allocation or strategy to clients and they're looking for this type of exposure, we have plenty of scale to support those products. Even if the market has to evolve a little bit to make that exposure a strategy really valuable.

38:43Sometimes that doesn't always work out. I think we have quite a high hit rate of bringing out products that people love, but being patient, I do think is important, especially if you're looking at the thematic investing space where these themes can just take quite a long time to play out and to be really valuable. I think to your point, I really like your point though around it can be harder to sell than to buy. We hear this from clients all the time. Like it's easy for me to come to a client and say, here's a really cool part of AI. What do I sell to fund to that really interesting part of AI? And one of the ways that we've developed products around that type of discipline is to build out rotation strategies, which are run by our systematic investing team, which is ingesting hundreds of different data points and signals around the world constantly to basically understand what are the buy and sell signals on behalf of clients. And there's two benefits to this. One is if you were trying to pick these themes yourself, you have to get the timing right. So if you were thinking sell tech by AI, you'd be ideally one of time that trade appropriately.

39:44But then two, even if you get that right, you might still have a tax liability at the end of that because you've sold something at a gain and you're buying something else. By wrapping a rotation strategy in an ETF, it's timing those trades for you and we're able to use the ETF structure to effectively defer those capital gains until someone decides to sell that ETF. And so this has become a really important part of our active ETF strategy. It's taking things like themes, like factors, countries, where people like to be tactical but struggle with timing and can struggle with some of the tax implications of trading those very quickly. Yeah, it's fascinating because there's also been a rise of, what is it, three 51 exchanges or something right? Where basically you can use the ETF wrapper as a tax mitigation strategy or a tax deferment strategy. And to me, you know something has become successful as an industry once you start getting to the tax stuff.

40:442012, no one is talking about Bitcoin and taxes. 2021, there's a lot of people talking about Bitcoin and taxes, right? And just like, hey, what do I do? What is the tax implications, all this kind of stuff? ETFs, now I actually do hear quite a bit of tax, whether it is I've seen individuals who have a portfolio, so should I just set up an ETF and put all my own stocks in there? I don't know if people have been super successful doing that but like that's been something, three 51s, this rotation strategy. That to me tells me we have a mature market that now is like ready for the big time and it's going to continue to grow at a pretty healthy clip, right? Well, I think tax efficiency has always been core to ETFs. It started with early ETFs, just where index based and didn't have a ton of turnover, it evolved into the ETF structure itself and how it can use the called custom in-kind baskets, but effectively defer some of the capital gains, especially in the US equity markets. But it's not some universal constant that ETFs have to be the most tax-efficient vehicle.

41:45There are other ways that people are looking to mitigate taxes, there's different strategies. I won't get too far into that, but I think what's important is as you see more ETFs coming to market, it's not as simple as saying ETFs are the most tax-efficient vehicle. For example, certain strategies using certain different underlying financial instruments might not have the same tax efficiency. If you're buying options or futures, it's going to look very different from buying stocks. If you're buying bonds instead of equities, it's going to be very different in terms of how you see the implications of coupon payment versus the dividend payment. So I think for investors, it's again, do your homework situation of ETFs can be more tax-efficient, but as we see the ETF vehicle being pushed into more and more strategies, there's more homework to be done. When you look over the next 12 months, 24 months, there's a lot of questions around interest rates, around inflation, around the election, around geopolitics, around technology, and what is real, what is not, what is hype. How do you personally think about the market?

42:46And how much of that stuff is noise versus just like, woo-sai, you know, and let it all happen, but here's kind of the ability to navigate this with a long-term mindset. So I've always thought about it as, you know, one really important to build a portfolio anchored on the core. The core should be based off of, what are your long-term goals in your investments? If you're saving for retirement, having low-cost, tax-efficient, liquid vehicles to be able to achieve that is a great place to start your portfolio. I, for one, have just long been someone who's thought about long-term structural shifts, and I think there's plenty of opportunity if you can capture those shifts the right way. So when we think about AI, when we think about geopolitics, I tend to look at kind of what is the major inflection point that we're seeing? It's not about the news on a day-to-day basis, it's not about some rumor or some company with necessarily just kind of a new product upgrade. What's changed? And when we look at artificial intelligence, I mean, clear inflection point, chat GPT in November 2022, right? What changed?

43:47In many ways, that version of GPT was not that new, or interesting, it was a couple of years old already, but they introduced a chat box, which meant that so many more people could participate in it, and it became the fastest growing online platform of all time. That's obviously an inflection point. If there is some new regulation that passes, that can be a major inflection point. We saw the huge infrastructure bill, what was it, 2017, I wanna say? Huge inflection point for the build out of infrastructure in the United States. So it can come from a variety of different sources, but when you see that major tech breakthrough, that major new change in regulation, major societal change, that's what we wanna anchor our insights on to think about kind of adding themes to a portfolio. The, I think the story in finance has really shifted now to sovereignty, decentralization of now there's so many firms, it's pushing towards these independent investors.

44:49It really does feel like AI and Bitcoin, like the ethos is more generational than just the technologies. I think you and I probably, we think differently than maybe our parents or our grandparents do about investing. And I always wondered is chicken erect? Do we think differently because the industry was changing or because there's a bunch of people who are 20 to 50 years old, they think differently so the market starts to shift? And I don't know the answer, right? But it's fascinating to me as this changes, you get the Robin Hoods and the Fintechs and all that. But I'll give you a concrete example. On Soviet, the consumer platform that we have, when you look at the asset breakdown, you still have some timeless things. There's, I don't know, 20-ish percent or so of assets, primary residents or real estate makes sense, right? When you think of like, oh, people are using a Fintech product, you're like, everyone is obviously, you know, and the latest meme stock, like that's what I'm hearing, you know, the headlines. Oh man, they still own a real, they are still on real estate. Only 10% is crypto.

45:50So you would think that people coming from my audience are like, oh, they must be 90% crypto. 10 is a higher number than I think they are, they're average American, but it's still like a relatively low number. You look at public equities. That is the bulk of their investment portfolio. And so it always is fascinating to me. It's like when you look at the data versus the narratives, we know things are changing, but how much do they really, you know, people still are going to allocate in a certain way. And I think that's why maybe you guys are so interesting as a business is you are leading with Bitcoin. You are leading in AI. You are leading in many of these areas and you're like embracing the new stuff. But if you go and you look at the assets, you still got a lot core and, you know, these like normal assets that maybe the early adopters, you know, that's where the bulk of their capital is. Absolutely. You know, I think going back to the generational comment, you know, millennials are the first real kind of tech native generation, but social media wasn't necessarily native to all millennials. For many of us. When you get a cell phone, I got in high school, there was a flip phone.

46:50And I remember still like punching the number four times to get like T9 sent in to be a P whatever was, right? Like, so boomer. My thumbs are still sore. By the way, I told somebody in our office recently, I was like, yeah, you know, we had a T9 texting phone and they were like, what's T9? Oh my god. Like we're getting old, you know? We're going to know I had the flip. I had the slider. I had the one that had the keyboard and like flip that way. Like you used to do like the generation looked completely different. Sidekick, you know, flip or whatever you turn it. And it would like to have a keyboard. You could do you use two thumbs. Yeah, yeah, yeah, yeah. I'm moving. And then it was, and then having a track ball on the blackberry, like, yeah, that's a huge range. But it was still pre social media. And basically because it was pre 4G connectivity where it was really hard to watch a video or send a photo on these early cell phones. The Gen Z generation, like born in social media to like don't know another life. And I think you look at like Gen Alpha. And a lot of how they're going to experience the financial world is going to look very different

47:50from how their parents and their parents' parents interact with it. So I do think it's important to understand these differences. It's also important for when we think about our business, a lot of it is bringing our ETFs to financial advisors who are serving those generations. And they have to talk to the parent and the child in a lot of those relationships. And so the parent saying, you know, talk to me about your large cap growth fund and the kid is saying, tell me about your Bitcoin fund. And so oftentimes a lot of the education we do is helping advisors communicate to both generations, especially amid this tremendous amount of transfer of wealth that's going to happen from the boomer to the millennial generation. So one of the reasons why I think I've been so successful is advisors have recognized the types of products that they spoke about with their baby boomer generation clients does not necessarily resemble the types of products. They'll talk about with their millennial clients and they need to bridge that gap and be at least conversant in some of these topics. And it makes sense, right? And I don't know, I hear all the time,

48:51like I think they call it the silver tsunami of like all these assets are going to come and the young people are gonna like sell whatever and they're gonna move it into the things they like. And I think there will be some of that. I think that there's a lot of businesses that are kind of what is our plan, our transition plan, farmers are coming under a lot of pressure because usually they're a fourth or fifth generation farmer and they would hand the farm to their kids and their kids don't wanna be a farmer. And so that's happening I think with businesses, it's gonna be fascinating to watch with the assets. Like if you're a kid who you don't inherit some incredible amount of money, maybe your parents just had a small stock portfolio. Like do you go and sell those stocks to buy something else you like? And maybe your parents had Coca-Cola and Walmart and you're like, well I wanna own Palantir and Tesla or something. I don't know. But I think that's probably the challenge for a lot of these financial advisors is like, they may be the only constant in that conversation and try to figure out what to do with the assets. Yeah, they have to manage that transition.

49:52They have to manage the fact that many ways that millennials or Gen Z1 interact with their finances is gonna be in a more kind of technology driven way as well. So building tools for advisors. It's an important shift for sure. I do think the fundamental principles of building a portfolio are in generational. These go back to just basics of risk and return. The instruments available are shifting. The structure of those instruments, the different types of asset classes. Those are evolving, but the fundamental principles of portfolio management don't change. And so I think the important thing for advisors is stay clear with how you manage money but be able to have the conversations with each generation mostly from a behavioral perspective to keep them focused on their end goals. Now I said all that and the Sylvia misfits that are like over the age of 50. There's a couple of them that they'll comment and they'll say, I own Palantir, I own Tesla, I own whatever. And they'll say, I'm not like the rest of my cohort. So there's obviously a lot of unique ones as well.

50:53Where can we send people to find more about the funds that you guys have or find you online? Easy, iShares.com, specifically iShares.com slash insights is where we have our thematic mid-year update. That's where we have basically 10 really interesting slides on what the next phase of artificial intelligence is going to look like what some of those choke points might be where we see some opportunity in various different sectors that live outside of technology. So encourage people to go there. iShares.com slash insights. Amazing. Well, thank you so much for doing this. I always enjoy talking with you and look forward to doing it again in the future. Thank you for having me.