VanEck's Gabor Gurbacs on Bringing a Bitcoin ETF to Market

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It should be less burdensome to get an innovative asset to market. The world is moving fast and we need regulatory support to keep newer technologies in the US.
— Gabor Gurbacs

Interview location: Skype
Interview date: Sunday 2nd Dec, 2018
Project: VanEck/MVIS
Role: Director, Digital Assets Strategy

The crypto bear market has been felt by many. From traders to miners, the fall in prices has led many to lose a significant amount of money. The fall in prices has also impacted companies and projects: GigaWatt has filed for bankruptcy, ETCDEV - an Ethereum Classic team has shut down, and many others are facing challenges times.

Institutions have regularly been cited as a potential end to the bear market, yet ICE’s Bakkt has delayed the launch of their Bitcoin settled futures until January 24th ‘19 and the SEC continues to either delay their decision or deny every application for an ETF. Only yesterday, the VanEck application, the remaining open application was delayed until February, the deadline for deciding on the application.

Jay Clayton, Chairman of the U.S. Securities and Exchange Commission, recently spoke at Consensus: Invest about ETFs, highlighting his and the concerns of others within the SEC. All do not share these concerns, Commissioner Peirce dissented in response to the rejection of the Winklevoss denied application and spoke to The What Bitcoin Did Podcast about her concerns that the SEC is overstepping their mandate, stating “By precluding approval of cryptocurrency-based ETPs for the foreseeable future, the Commission is engaging in merit regulation.”

Gabor Gurbacs, Director, Digital Assets Strategy at VanEck/MVIS shares Hester’s frustration, telling me that America wants a Bitcoin ETF and that a Bitcoin ETF faces a higher bar than other markets. In this interview, we discuss the VanEck application, why market manipulation is not unique to Bitcoin and the unfair standards by which the SEC treats Bitcoin.


TIMESTAMPS

00.03.39: Intro and welcome
00.04.41: Gabor’s background, how he discovered Bitcoin and came to VanEck
00.11.03: VanEck history including building products
00.20.19: ETP 101
00.28.08: Trading style of institutions
00.29.39: The infrastructure of an ETF
00.38.05: The mandates of The SEC and The CFTC
00.47.15: How manipulation is not unique to Bitcoin
00.52.41: Specifics of the VanEck SolidX ETF application
00.56.55: The high bar that Bitcoin ETFs have with The SEC
01.03.17: What happens if The SEC rejects the VanEck application
01.04.36: How people can stay in touch with Gabor


 

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TRANSCRIPTION

Peter McCormack: Good afternoon, Garbor how are you?

Gabor Gurbacs: Great. And how about you Peter?

Peter McCormack: I’m pretty good, thanks. It’s probably in the afternoon where you are, right?

Gabor Gurbacs: It’s around 10:00 here in the New York area.

Peter McCormack: Alright? Well it’s 3:00 is here and there’s an important football match one after this Liverpool playing. So I’m forever but we’ve got a lot of important things to cover. So what I’d like to do today with you is I’d like to cover your background. I’d like to cover the background of VanEck, do a bit of an ETF one. Oh, one because I think there’s some assumed knowledge in there. I think it’d be good to just cover what ETP and ETPs are talking about the VanEck ETF and then some of Jay Clayton and The SEC is quite interesting comments. So you okay with that as a structure?

Gabor Gurbacs: Yeah it’s perfect structure.

Peter McCormack: And if there’s anything you want to add, you just give me a shout. But I think a great thing to start with, I know you’ve covered this before, but I haven’t heard it in for. It’d be great to know your background, how you came to your role at VanEck and also how you discovered Bitcoin and digital assets and what they kind of mean to you and why this is all important.

Gabor Gurbacs: Yep. Sounds good. So I’m starting from the beginning. I was born in Hungary. I just right after the Berlin Wall fell, so in the 1990s baby as people may know and so I spent the vast majority of my, childhood in Hungary and then later moved to Germany and sort of acquired my ground education and Hungary and Germany, mostly mathematics. I was always fascinating but fascinated by math and like seeing the world as it is and mathematics was just sort of one of these beautiful tools to do that. And then eventually I came to finish high school in the United States at Deerfield Academy in Massachusetts wanting to study in the US because it was just a more open world and sort of more open opportunities. So went to Williams college for my Undergrad and so I spent four years, they are studying mathematics, primarily a little bit of German and sociology and having degrees in maths, German and sociology.

Gabor Gurbacs: But most of my focus was mathematics and discrete math graph theory and eventually later on for a little bit at MIT, a root system. So during this time, during the summers and spring breaks, I looked for a project that was from a lower-middle-class family in Hungary. So I always needed to work and I’ve been working from like age 13 or something over two summers. And, so during, during Williams college, I always wanted to make somewhere a little bit of money for it for myself. So I ran to do this research position in 2012 and put a passionate of Budapest, a university of technology. And so in this group, I did Matt Research and I had a few colleagues or group mates of mine who were really interested in distributed systems.

Gabor Gurbacs: And that’s where I sort of picked up my first Bitcoin reference and one of my group mates, purchased a few Bitcoins back then and so fascinated by it. We talked about Bitcoin in the context of sort of, and I’m not sound money and investment in digital google of this today, but what are some of the systems that are really hard to destroy and what are some of the systems that are non-sovereign and that you notarize to resume to be a lot that resonated with me a lot.

Gabor Gurbacs: A reason for that as my grandparents have suffered under a national socialist. And then, after that, my parents, his property was confiscated under communism. So promise to myself that I will do something about it. And when the turn comes to me and the first I came to the US because they thought there was a more open structure. But then down the line when it, when I first heard about Bitcoin, that became very interesting to me. So, in 2012, was, again, just lower middle-class guy working in a research group, we got interested in Bitcoin and this amazing system, but Bitcoin was purchased a very manually she will.

Gabor Gurbacs: So, my group mate, when he showed me how, how he bought his Bitcoin, it was, it was actually kind of ridiculous. So he sends money through Western Union to the guy in Romania. And then, he, the Romanian dude, would email is a public key to access the coin back and a few days later send a physical letter but a private keys, big guns rating in 2012 is when we have come far from futures trading, OTC trading and derivatives. And, but the background is like, this is how I’m at first and this is how I got interested.

Gabor Gurbacs: And then I ran back to school and for a few years it was a dormant period for me because I just had to study a lot. My dad was actually a very illustrative, was taking care of him and in 2014 I joined VanEck a product development team as a product management team. So I’ve been doing all kinds of work to build new products, protect investors and make sure that they eat the difference that we built a three properly in the markets back. So, Bitcoin was, came about because of my grandparent’s history and unfortunately, and accidentally I ran into this group of people that were interested in Brooklyn as well in Hungary and back in the rancher doesn’t flow. There’s a lot of buzz in Hungary, in Bitcoin or there’s an, would have a university of Technology was very experimental and these kinds of new projects.

Gabor Gurbacs: And definitely there were a good number of Abel guys who were willing to spend the time to figure out how systems work. And that’s where I got into it. I didn’t think at that point in time they’ll have a full-time job, related to digital assets in general. but then then again, and so I started in 2014 and the ram two years later I sort of made this effort full time when, when the market stuff and there were sort of opportunities to our CEO, I was a very nice to allow me to focus on something that I’ve, that I could pick up once again.

Peter McCormack: So, considering Bitcoin and crypto since about 2016.

Gabor Gurbacs: Yeah, roughly. I mean we have been talking, there were various groups. So like the…as the ETF that we have is in partnership. It’s all and saw the acts as a few guys who are very interested in blockchain technology and they were early in on the training side and from the institutionalization side and they helped us a lot sort of to, to rekindle a relationship internally and the firm. And then when we have some of our board members mentioned that brought up a Bitcoin again A and M, we tend to take things seriously. So like whenever there is when I was in the product development team, we would look at, you would get say 100 pitches and out of 100 beds we would launch probably one or two projects, but we would take all of them seriously devil at them. And this was no exception.

Peter McCormack: So, people come to VanEck with pitches for products that they want you guys to release.

Gabor Gurbacs: Yeah. So, that’s enough. They’re often clients who would have preferred you would like to access in some asset classes and VanEck has a history of sort of responding to client request very well and building products that are, that, that we, we asked to build. I think that’s the best thing to do when someone is really, an individual set of individuals, big bank or institution wants to use some products and then we would respond that need and build something intelligent Aranda. And when we jump on a nice background now would probably be more clear why we, why we can do this. But the short summer is, so we’re a private company and have always been experimenting with new ideas and build them.

Peter McCormack: Yeah. So that’ll probably be good to look at the history of VanEck now specifically kind of the skin in the game. The VanEck has because there have been so many applications for an ETF, but they will come with different strengths and weaknesses. But there’s obviously a lot of strength behind the VanEck a proposal because they have so much skin in the game with a previous ETS. And actually, something you hinted to me then I did a bit of research with regard to John VanEck’s background as a student have a look, which is really interesting because obviously, it’s the crossover with Austrian economics. So if you could give a bit of the background of VanEck, the kind of products they work on, why they are such a strong contender for releasing and have another proved ETF.

Gabor Gurbacs: That’s right so yes, certainly. So, VanEck is a bank has been built in an established in 1955 by John VanEck. And John VanEck is the fodder for current CEO, Yon VanEck and VanEck family has always been your family. We had Dutch background and super innovative and sort of building the new things and having 10, 20, 50-year-old vision for vision. And in 1955, Mr VanEck John Van has built the first international mutual fund in the United States. So back then international mutual fund investing wasn’t exactly mainstream, but there was demand for it. So Mr VanEck built vehicle that enables investors to invest in the European post word war reconstruction, and again, ultimately first Americans and understanding why invest outside of the US and there are risks there. but, but there was demand that and surely, there’s a lot of things to rebuild that and, or should participate.

Gabor Gurbacs: And in the post war reconstruction. And then, so there was in 55 and 13 years later in the 68, and obviously I wasn’t there, but as you know from the stories and legends of me, no, Mr VanEck has sold the 80 to 90 percent of his business that is successful business that he has built and invested in gold. And why did it do to him in the sixties? People like in the sixties, there was no gold investing a really. And I think it was around $100, million dollars in total market capitalization. And so Mr VanEck just, about having three kids at home, it decided to take a go to evening school and get a PhD in economics and he studied under a little bit fun. Mrs who was at NYU at the moment then.

Gabor Gurbacs: And we like to say that’s when he called the Goldberg and then in 68. So he brought the first, gold equity funds in the US. And then, after that, shortly after in the seventies, we know that inflation picked up, the gold standard was done away and very quickly from a, $35 per ounce for gold was fixed the price 400 and around $1,300 a day. Probably more importantly during this process, we have seen the first one built around gold, which was, took a few years to get there. But, the first one was built and then gold established itself over time as a safe haven asset, especially after the protection that provided, in this inflationary seven east period. And right now gold sits around seven point $4,000,000,000,000 and, and people use this as a safe haven assets.

Gabor Gurbacs: So there was sort of the genre and x story and later on his son neon and boys around the first who built exchange-traded funds in the United States. And actually globally, ETFs are around 17 years old today and there are $6,000,000,000,000 in total assets. And the key to ETS was kind of transparency. And, bringing sort of new data capabilities, so building hedge funds and mutual funds, two point zero and so Yellen has focused on that and belts, one of the first ones like a gold miners ETF and a few others.

Peter McCormack: This seems to be a very natural fit then between the ethos of Bitcoin and the ethos built into Vernon.

Gabor Gurbacs: Yeah, definitely. I mean the two things really on the gold side in we tend to look at Bitcoin as an asset that has the potential to become digital gold and its scarcity property, it’s trust, minimized structure and general. It’s like portability and gives it the potential to give a significant upgrade to gold if it can clean up the markets and we can get to get into that later and sort of properly financial lives that I think we think that that’s key to Bitcoin’s adoption and consideration as a safe haven instrument.

Gabor Gurbacs: So it is definitely a natural fit for two reasons. One, the gold story and secondarily, again, we have built sort of like these early access vehicles and some things that we haven’t talked about as near a book. First, one of the first big emerging markets fund for funds, some investing strategies and, and, and country funds like Russia, Indonesia, Vietnam, which at the point when we build them, we’re not exactly mainstream, but sure enough down the line was accepted. So yes, a Bitcoin definitely fits in and it has its challenges, the parallel universe ecosystem that operates alongside the financial system and we’re trying to kind of bridge the bridge that gap a little bit.

Gabor Gurbacs: And mostly it’s through structuring regulatory conversations and so on. So, we’re, I mean, we’re excited to hopefully bring this Bitcoin ETF to market and the pressure is on for the only surviving the at ETF application and we have literally done everything that we possibly can to help regulators accept Bitcoin and integrated to sort of allow the integration into the Bitcoin capital markets. So what does that mean, and then we can drill down on that a little bit too. It means that we, so it’s physical Bitcoin ETF, so that means the, the underlying is held a, as you hold the physical, as Bitcoin gets you to hold physical Bitcoin futures contracts, or the underlying is insured. There’s proper custody, there’s proper reporting on the net asset value of the ETF and we also just, and it’s also the underlying, some of the underlying is an index to a subsidiary that we have in Germany so that the pricing is institutional, standard, regulated and some of those things that people don’t immediately think about when we talk about ETS.

Peter McCormack: But. Alright, well we’ll, we’ll break down the application soon. and it’s quite funny because you say you’re the only surviving application and we will also unwrap summer. Jay Clayton has comment soon, but one thing I did find interesting amongst his comments were a lot of the media focused on the fact that his comments with regard to market manipulation need fixing and it would seem rather than negative.

Peter McCormack: But actually, I thought there was a very, very bullish statement in there, what multiple bullish statements with regards to how he considers I’m open ledger technology is great for infrastructure, but very specifically when he was asked about, the TSC said, well, let’s see how this evolves. I took that as a very positive statement from him. So you guys have in your open application to me isn’t, it isn’t a closed deal just because of market manipulation but we will unwrap that. Let’s firstly just because there aren’t going to be. People are really interested in this, but they don’t know what this market is about. An ETF form of ETP. So let’s break down what ETPS our ETFs are. The market is about why they exist, uses them. So if you can give kind of like a one on one on ETPS

Gabor Gurbacs: Certainly. So, it stands for exchange-traded product and a broad category exchange traded means that the shares of the vehicle or the investment product, it’s trading on an exchange like Nasdaq or CEM or CBOE. The why does that matter? Well, the reason is, as I mentioned earlier, to hedge funds and mutual funds do not trade on an exchange, so you cannot access the share of a product, an intern day and buy and sell. So, that’s one point. And that sort of DPS, there are multiple, one of them, one of them is called exchange-traded funds, which is the best kind. So exchange-traded funds kind of holds the underlying, generally physical, the shares are so the ETF issuer issues shares and the shares are traded, sort of like in a decentralized trust minimized way among authorized participants, which are the largest banks and institutions kind of in a world.

Gabor Gurbacs: And so that’s an ETF and the ETF has a fit every 15 seconds it has a price, so you can sort of real-time, almost real-time track it’s price and see, see where it is at its shares outstanding. so is also a public and available. So every time that new you look at an ETF, you can estimate very like 99 plus percent of what the underlying, is so that, that’s not the case with a mutual funds and hedge funds will report, mutual funds report at the end of their hedge funds, often report quarterly and you have no idea where your assets are during the day or sometimes during the quarter. And obviously our clients like transparency. So ETFs give that sort of transference. And then there are some other type of instruments like exchange-traded notes, exchange-traded notes like those that we see, in Switzerland or Sweden, they’re issued by an entity and they intend to truck and underlying either in the x or y asset, but the traffic is conditional on whether the institution that’s backing this note will fulfil its obligation.

Gabor Gurbacs: So you’re taking 100 percent credit risk on the, basically you trust the institution that they’re going to do to ride thing, whereas an ETS and you hold the underlying and you have recourse and sort of own the underlying assets you have the rights to it. So ETFs for easier to launch because basically, it’s just an established structure where you can put it in more esoteric assets. ETFs are a harder game, but I think ETFs are better exposure for foreign investors and as far as Bitcoin goes, a stage through to the core principles of it and the, the, and there are some other key exchange-traded products in exchange-traded commodities. And then some others that are, again, similar to ETS, you’re exposed to credit risks. The upshot, again, the few things that are important about ETFs trends, the intraday price transparency, the transparency to shares outstanding, the general physical properties of an ETF.

Gabor Gurbacs: And so those are kind of the ETF characteristic. And then, on the trading side, generally ETFs or a favourable for two other reasons, there’s extra liquidity. So there are some traders called authorized participants, those are the large market makers of the world. They arbitrage between the net asset value of the ETF. So the end of the day, 4:00 PM New York time close value versus the price at which to share straight on exchange during the day. And so they buy and sell to narrow that spread. And to do that, they are naturally incentivized to sort of just do that because they make money on that.

Gabor Gurbacs: So the price and the NAV or arbitrage to be close closer together. So there’s this extra injected liquidity and price discovery in the process that no other sort of instrument has. And that’s one of the reasons why we were very excited to hopefully bring an ETF to market is because it’s going to enable a sort of like more liquidity for the trading as a ETF because large companies hold, Venture to make sure that they can arbitrage spreads.

Gabor Gurbacs: And we hopefully will not see scenarios like flash crashes, uncertain spot threading platform. So that I can’t name, but like, so that’s the hope that, when our funds a thread and Nina gold ETFs and stuff and the hundreds of millions of dollars a day and are in a multibillion-dollar asset range and those, we need to have proper liquidity and proper market structure for those two basically, if we wanted to do the same for Bitcoin because that’s kind of the level that we deal with otherwise.

Peter McCormack: And so, who are the customers of an ETF? Who is it purely for funds, hedge funds and venture funds.

Gabor Gurbacs: The, so we have, I think it’s like the 500, so 460 largest institutions are our clients, the Golden Sachs is UBS as Fidelity’s of the world, the big asset managers that are, those that own our ATS, but there’s also a family offices and brokerage is for an individual. So it’s a big mix. Our Bitcoin ETF is an institutionally geared first, because of the regulatory obstacles that we are having. We’re having primarily and right now, 90 percent of individuals straight on roughly on crypto trading platforms and institutions are not meaningfully involved from a total volume kind of perspective.

Gabor Gurbacs: And so, we geared for our really cool towards institutions, so the basket size is 25 Bitcoins and things like that. So, if you do the math quickly, so if you have 25 Bitcoin basket and is say roughly $5,000 for the sake of argument, so $125,000 basket. That’s pretty big. And then a usual allocation, say tobacco and should range, some are Brooklyn was zero and zero point five half to one percent or maybe one and a half of fear of network.

Gabor Gurbacs: If you just thinking about as another risk asset that you want to put in your portfolio from an allocation perspective, say its one percent, so you have to multiply that 125,000, you have to have like 12 and a half million dollars roughly current price ranges. So it naturally creates an ETF. Natural creates an institutional, a focus or a larger investor focused. And again, we just, we want to give the opportunity to institutions to participate in these new areas. One, they cannot, right now they can spot exchanges. A lot of the institutions are uncomfortable trading futures and hence the and so ETF.

Peter McCormack: Do institutions have any particular trading style? Like do they tend to buy and hold for the longer term? Are there any particular characteristics that stand out for them?

Gabor Gurbacs: Yeah, I mean there are a few kinds of institutions. Most of them that we deal with are kind of long-term buy and hold and fallen from one to 10 years. And so it’s, it’s long-term, long-term money really needs good vehicles and proper market structure to get him. It’s not like, oh, it has right now for going into jump on my xyz account, transfer my money to Asia and claim my assets. That’s not what our clients do.

Gabor Gurbacs: They want a stable recall that takes care of all of that for a Bitcoin, for if they want to access Bitcoin, they just want a strategy that’s doing the work because let’s be honest, I’m trained in mathematics, has done a lot of comps and it’s still really hard to sort of, it’s time consuming. It’s not really hard. It’s really time-consuming to manage your assets and you need to be spending time and figuring out the latest solutions and people just don’t have a whole day too, a month to, to look after their gold or payments portfolio. They have a few minutes and then. So, there’s a lot of UI and other work that needs to get done for Bitcoin or like investment structure and work that needs to get them for Bitcoin.

Peter McCormack: And if these are physically settled, are you, at the time an order is submitted, are you buying yourself OTC? At the same time, how does that work? I don’t understand how the infrastructure for something like that word.

Gabor Gurbacs: Yeah. So, the way in which an ETF. So suppose we are tomorrow’s Monday, right? So actually what this podcast is going to go out, I think it’s going to be Wednesday, but pick a day and then there’s going to be trading on exchange for an ETF. A say there’s 100,000,000 worth of orders for ETF shares, which represents 100,000,000 worth of Bitcoin. That’s Kind of didn’t want to own physical tobacco settlement idea, then the clients are, can get there, or bias can get their share of market makers that is at Nav. So at the of the day we need to source 100,000,000. So we would chat to work primarily over the counter desks and trading. And the trading desk would be, we have reasonably released an index of the three largest trading desks. That is the row is Cumberland circle training and genesis circle financial, angiogenesis trading.

Gabor Gurbacs: And, so these three desks are the largest in the US. They’re a broker. Dealers are affiliates of broker-dealers for regulated entities that are afraid of it. So, we’d go to these desks and a and sourced the required but point and then, the ETF has, right now the rules, for settlement as people. So really you can, you can source the assets in two days at least satisfying sort of like, creation and redemption requirements for it. The reason, again, the reason for OTC trading is that the entities are regulated, they can treat at the size and they are hooked into the global liquidity pools in more sophisticated ways. And a crypto exchanges that are unregulated right now are, and also again, these are, these are entities that are used to treat at size that weekend, a trade of it and now through the index that we both, we have proper price discovery and access to the OTC market.

Gabor Gurbacs: So, there, there are efficiencies to be gained on the pricing side as well. And actually, some people think that in what is wise or you see trading weird, how does it work, does it work in the regular market. So in uniform, in the municipal bond market and emerging bond markets, institutions almost never trade on exchange. So their pricing is our, there’s an institution on the retail price and the institutions are trade over the counter, but large dealers and that’s actually the natural evolution of your large basket trading for bonds and municipal bonds and the three and very infrequently or emerging markets bonds that thread and in a fragment that a system that generally happens to be over at cantor, at size. And I think this is, this is what’s the devil upping for Bitcoin as well. All the over the counter markets.

Gabor Gurbacs: And, so we, again, first we have to be. So I knew that they were regulated entities, so that was useful for us versus getting serious from a crypto exchange. And I also knew that these guys can satisfy your creation. Goulash launch it so that that’s kind of useful. And naturally, the markets evolving towards over the counter, it’s not appropriate for individuals to trade over the counter like the average straight is right now, I think it’s somewhere between 250,000 to half a million dollars. And these are relatively infrequent rates, a few hundred trades a day, but then you can see through raised $30,000,000 or more for Bitcoin. So we definitely wanted to get a price for that institutional, type of trade and trade that is liquid.

Gabor Gurbacs: And, again, I guess we have not been talking about right now is a sort of our ETFs, again, treating the hundreds of millions of dollars range and then the pricing that represents that has to represent a non-academic kind of benchmark of practical tradable benchmark. And we have about 20 guys and in Germany or through at our index subsidiary, which is called MBIS. And they are creating these practical, treatable investible benchmarks that are not academic. It’s really kind of hands-on and helps portfolio managers.

Gabor Gurbacs: And so that’s our hope is that, this new, in fact, for instance, helps regulators get more comfortable, comfortable because we have insight into price pricing and trading in the over the counter markets and we just made sort of like the case that there’s also extra liquidity that we can tap into an unregulated way. So, I’m kind of, I’m bullish on that. And it’s like, it’s a lot of small market structure that will hopefully help over time.

Peter McCormack: And so, the one thing I really don’t understand is actually there are lows, but one error I don’t understand is, so you will have a client who will make an order at a certain price quoted and you said you have two days to settle that.

Gabor Gurbacs: Well, so the process looks like the following. So client makes an order and is guaranteed for an ATF that you can create or redeem at nab, which is the 4:00 PM price. So, the client gets that price. Our goal with the ETF is we have to manage their periods.

Peter McCormack: So what if you can’t?

Gabor Gurbacs: Generally, the authorized participants I mentioned that they have inventory so they would buy and sell a to match that price and they have interest in. So there’s this, if we, it’s almost guaranteed it’s close to guaranteed that we can get there because again, the underlying assets. So, the ETF, if there are assets that are going, we can always issue more shares from the ATF to help to get closer to the price and I think that’s just kind of, that helps to match the price number two. So, you have, I think it’s probably, oh, share a video when you publish this podcast about the authorized participant system, but, but really there’s just some extra set of institutions making markets to get closer to the price and they are incentivizing the process. So that would be my answer. I get rid out and going crazy about it.

Peter McCormack: And let’s talk then a bit about the ETF. As he said, it’s the only one, so the weight in the decision, but it seems to be, how do I put this? It seems to be the one that seems to be mostly geared to addressing the concerns of The SEC. Actually question before that, where does the mandate of The SEC start and then the mandate or the CFTC starting and because there seem to be some overlaps here.

Gabor Gurbacs: Yeah. So there are so few things like, again, like I probably should have said this earlier, but these are my personal opinions and there are certain things and, I can only talk about what’s in the application and not more but. So let’s, talk with the SCC and CFTC map mandate. So, the CFTC has been I think since 2015, the Bitcoin a commodity a that is so, so really the CFTC looks after commodities and futures trading, related to any kind of commodity transaction. So the CFTCs mandate covers an exchange-traded fund is by definition as a security. The Securities and Exchange Commission it’s basically is driving the decisions around The security. Now there are other security is there are based on commodities like gold ETFs, oil ETFs. So, so they’re, the transactional part is kind of a supervised by the CFTC and the trading of The security itself, like an exchange-traded fund is supervised by The SEC now for us, we need to, I think the CFTC has been more lenient and pro-innovation and in the US.

Gabor Gurbacs: So they are two futures contracts that exist in the market by the CBO, and NBC and as I can answer their intention with our subsidiary as well to build sort of like a 2.0, version of that, of those things. So the CFTC is sort of kind of approach The SEC is trying to figure it out. Like how, how do we deal with these new types of assets and a, I think, a few things. One, we made the argument that it will be good for everyone to allow a Bitcoin ETF because right now all the trading is happening in this grey area and that if The SEC does not allow an ETF and threading is, will continue to go to these grey area places. Richard, I don’t have jurisdiction on or cannot regulate. And thereby fail to protect investors and sort of, and keep up an orderly market.

Gabor Gurbacs: So the ETF is one tool to bring threading into a more regulated space and better protect investors and there’s again, there’s a ton of work that we’ve done on the pricing and like years of work on one and what’s the right price for Bitcoin and in a fragment that system and that is representative for liquidity and then they’ve done some work on surveillance from them, some work and custody and all of these questions. So, we’re hoping that, know that work is going to be viewed positively and I think the ecosystem is maturing and the regulators understand more and more about the, about Bitcoin and it’s kind of interesting, like I think like we have, there are public documents out there from our meetings and we’d read Republicans these documents because we want to just allow the general public to learn about these arguments. A lot of commodity ETFs before, like freight futures, gold, silver, copper have been improved without such high level of requirements as a Bitcoin ETF.

Peter McCormack: Well actually it’s funny you should say that because obviously, with The SEC and one of the discussions we had is kind of like chicken and egg, a number of The SEC will be solved by allowing for an ETF.

Gabor Gurbacs: Yeah. So like I’m, one of them is pricing and ETFs have to use transparent benchmarks. That’s kind of sold by definition. We have ETF client production in broker-dealers offering securities. VanEck is regulated to offer securities commodities and your assets that you named one of the first kind of issuers for ETF. So it’s that question. This sold a market manipulation. We have the over the counter markets. We’re regulated broker-dealers, we think that we sold that market manipulation question as well because a new you one price transparency and you have regulated entities that are under an under established legal jurisdiction.

Gabor Gurbacs: So we, I just don’t understand the arguments there. No, we actually…we think that we solved that problem. I think the bigger issue is that a number of people assert that there is market manipulation and there’s grey area activity and outside US jurisdiction, like Asia and all these larger platforms that may have influence on the price of Bitcoin in the United States and from a different jurisdiction. And, honestly, that’s kind of like an unsolvable problem. But I also don’t know why that’s a big issue. And one example that I like to give is that my own country, Hungary and the three countries around that and sort of them, it’s called a Vishing rock group, which is kind of the more established eastern European countries. They control about 75, 80 percent of the Hungarian foreign. Now there are Hungarian foreign futures in the US and the UK, all other places and everyone knows that the Hungarian central bank has an outsized influence on it.

Gabor Gurbacs: This, is the same with like, oil in Russia and Saudi Arabia and other commodities there. And just, there are some areas where there’s the foreign influence on every other kind of assets. So, what we have a hard time understanding sometimes that why does Bitcoin suddenly only have such high standards and, or double standards that I like to call versus other asset classes.

Gabor Gurbacs: There’s actually today more transparency into the Bitcoin markets then than commodity markets and bond markets. So, I think it’s just, again, it’s just a new asset class and the regulators get scared, not scared, but again, they want it. They want to ensure that the market’s growing healthily and there are certain steps that we can take to help this process and help the growth. And again, what would the things that we have them just in the past few, one month actually as we have created this over the counter into exterior show transparency into the, over the counter market pricing and we have also and as a partnership and Nasdaq and Nasdaq is going to surveil a number of spot platforms which is going to be good down the line because you can claim that, okay, these are regulated and surveilled entities.

Gabor Gurbacs: So someone who’s doing bad things then those traders will be caught and actually a number of exchanges, no longer one bath raters on their platform. So, they, I’ve, I’ve noticed that there’s a series of exchanges that are growing out from this immature trying to break things type of thing and want to be a long-term trading business. So, they are, they’re registered as broker the dealers, alternative trading systems and put surveillance from there, on their markets or just will cease to exist and that over time that’s kind of the only viable way, or in the market. So, I don’t know, I’m kind of positive, but I’m also kind of bummed out too to be fair, like spent years trying to really do a lot of work the work that regulators haven’t been doing, and offered all these solutions that do not exist.

Gabor Gurbacs: Even the equity and commodities markets. And then that result is sort of like higher standards for Becca but, but not higher standards for other asset classes. And ultimately Bitcoin gets stopped and threads in this grey area. So everyone is kind of losing out. And then, there’s this entrepreneur, into crypto space and then those who deal with Bitcoin are sort of, they have this fear that how do I do what now, what if the regulators come in and change the rules on me? And that’s just no way to do business.

Gabor Gurbacs: I think it is disturbing actually, because as an entrepreneur or innovator or someone who wants to build a long-term business, many conservation has regulatory support, know I don’t think that most people in VIC point one to be criminals or launder money and all that. And eventually what happens is just everyone is jumping from country to country to find a home, for, for, for the product that they launched and they don’t have the stability. So a crucial innovation is just being stopped.

Peter McCormack: Manipulation in the market isn’t unique to Bitcoin. We’ve always seen examples of when we’ve had other commodity markets. So it’s kind of strange, right?

Gabor Gurbacs: Manipulation is a weird word is manipulation as sort of feels like, capitalism, there some larger players in capitalism, some larger place have undue influence in the markets. And so is that men inflation generally? Well, I don’t know, like, the hunt brothers corner of the silver market, there were men inflation in gold. The SMP 500 is medical related today as we speak today when the markets closed, we record us. But what happens is like some people are trying to gain an edge. True new electronic means and trading. Is that manipulation when not really in what I was stress is Bitcoin is not uniquely and aided. I believe like there are, for instance, like if you trade, I don’t know, commodities, commodities are largely invisible to the world and there are hundreds of trillions of literally trilling when that maybe not hundreds of transmitting trillions of dollars of a commodity derivatives, over-the-counter traded in China, a zero visibility to it, probably large companies and massing amounts.

Gabor Gurbacs: And then, treating it with some strategic vision in mind is that men installation should, should we seize the oil markets or commodities markets because these types of activities happening overseas and the, I mean it’s just, it’s sort of a silly argument. Is single a Bitcoin. I think the right way to look at it as put proper controls on platforms, in places where we have an influence on, and try to build the right ecosystem and incentivize others to participate.

Gabor Gurbacs: So that’s how what I’ve been doing in the past few years trying to talk with my previous exchange colleagues, friends, business partners to do, take a long-term vision, and clean things up and show that we can do just as well, if not better than the equities and commodities markets. And sure enough, right, like in the math or the Nasdaq relationship with a few exchanges that want to have their markets down the road.

Gabor Gurbacs: Sure enough, these over the counter guys said that we’re going to help you with a price data because we wanted to get, we want to legitimize back point everyone to give a little bit more transparency to the market so we can run long-term businesses and we’re okay with higher standards. That is not true for many other markets.

Gabor Gurbacs: So like again, make the manipulation and transparency. All of those are words that are thrown around. And I think you’re absolutely correct that the of like the, it is not Bitcoin is not uniquely men and polluted and so it’s just, maybe I would even claim that it’s, more clean than other asset classes because of the transparency is that you naturally get via the underline Bitcoin, blockchain and as well as some of the freely available data on the markets, meaning that a lot of inequities in commodities, you don’t get free data from trading platforms and crypto you can get linked into a web socket. And actually like peer pressure and the just point pointed this out yesterday and we ended, we series on this that is mostly free. We’re providing a lot of that on the ovary cancer markets. That’s like, what else can you have?

Peter McCormack: Could you argue that the US government manipulates the stock market because if I was once told that the stock market is a sign of a country’s health. Right. And if you’re looking like you’re heading into recession, you are in a recession, the government can issue bonds and manipulate the stock market, right?

Gabor Gurbacs: Yeah. I mean, if US, well, only the US government, every single government men, employee stock markets around the world because they print money and buy up shares of companies not just on their soil but in foreign soil to kind of prop up their balance sheet is that relation, apparently not because the government does it. So, that’s kind of a disturbing and that’s a bigger problem right in the and the long-term. Like you’re Switzerland, Japan, the United States and bought, you’re prompt up the equity markets like crazy with they’re constantly buying and they print money your cost practically. So, then you were like, you think about is it okay to launch a Bitcoin ETF? It’s just a very different category. Sure.

Peter McCormack: So, let’s look at the ETF. So let’s can update me on the current status. When the current status with The SEC, when you’re expecting a possible decision, kind of like, I know you don’t know an exact day, but it kind of timeframe ish or where you feel you’re at. And also if you can explain the specifics, the actual specifics of the VanEck ETF, why you think it is different from those that have been rejected specifically with regard to custody, settling in cash and market manipulation. How you’ve addressed of those?

Gabor Gurbacs: Yeah, definitely. So, this is all public information. We made an effort to pack as much as possible into our, on the registration statements so I can share a number of things and these, so for first, let’s see the timeline is what most people are interested in first. And the next decision is I think the 29th of September. And again, this is public information and the latest decision made US time and The SEC camera mega yes or no decision I think is the 27th of February in 2019. So that’s kind of our timeline. This is all coming up very fast. The specifics of the EPF, as kind of the following. So it’s physical, physically based, it’s not future spaced. The underlying against TAFT hacks, hacks and losses, it is indexed to the MBB, TCU in the experticity, the over counter index today mentioned we’ve built that’s based on sort of regulated platforms and solid and liquid pricing.

Gabor Gurbacs: And so, another kind of point in our ATS is institutionally oriented with 25 Bitcoins per basket at and in general, just this whole product prices stayed true to the core principles of big point. So, here’s one financial vehicle to access this great product. And so while, how is this different from others? All the futures ETFs were, were rejected, right? Like the mass of US, a proposal was rejected too. So, futures the differentiation from futures as clear if it holds the world physical, Bitcoin, and that’s the major thing. And the entrance, the differentiation from, the last vehicle is the following. So are the product is injured and I think we have seen a number of hacks and losses in this market and see why insurance can be very important in this market. The other point is the beauty of working with a deregulated index provider, MBIS, which is our entity and one of the first you benchmark register the next provider.

Gabor Gurbacs: So that there are basically rules for engagement about pricing and data. And the other part is I think it’s very important that we do not operate an exchange or anything like that, then Bitcoin, and that is likely and hopefully makes regulators more comfortable, on potential conflicts of interest. The, one of the big, questions with regulators are looking at as conflicts of interest recently in the crypto exchanges. Like some crypto exchanges are, so basically they hold funds, raised funds that provide indices, sometimes investment vehicles and trade their books sometimes straight on their exchanges. So, there’s a lot of potential conflicts of interest in, by definition an ETF cannot have any of those. And that’s sort of one of, one of the big reasons why we were proponents of pushing an ETF because again, it will just transition a Bitcoin trading, from this grey or to the green and I think it will instil confidence in the market and help, investors who want to get exposure to participate, participate. They can do it right now, like a lot of large bank risk and just say no, sorry, like you can read this and there are, there are good reasons for it from. So I’m hopeful.

Peter McCormack: The interesting thing is that The SEC keeps stating that they’re open, come and talk to us, they seem to be bullish about the potential of the technology and it feels like VanEck, well the VanEck proposal answers every single concern they have. So I mean.

Gabor Gurbacs: I think we do, but that’s just a good board and we actually went above and beyond answering questions that don’t exist, broader market. So it’s like you’re welcome. And I’m sort of lost about an inch of hair already working through all these complexities. And, it would be time to get an ETF, didn’t market, I mean generally say this publicly to that America wants a Bitcoin ETF. It’s true. And I have, this is how that works for way too long. There are worse things in the market and all of these leveraged derivatives like banks being rated. I’ve been looking at some stats which is fascinating to me. I think the entire board has around 60 trillion. That’s kind of the total GDP of the world that you are in 2007 17. So, it’s kind of like a year and a half or two years old.

Gabor Gurbacs: And then the total notion of derivatives in the world as 1500 trillion like that’s pretty crazy. Like we have something like 25 times the total national GDP of the world and derivatives and people worried about 100 less than $100, million dollar asset class having irregulated vehicle about that. So it’s like, I think there are other things to lose sleep over them. What the other thing to think about is there are other countries in the world where, so we are competing in this very highly regulated environment and trying to, at the end of the day we are my team and VanEck is team United States and the world and we want to keep innovation here and then we want to integrate things, have the largest capital market in the world and we do the right things and we want to make things successful so that investors here, it can be protected and successful themselves.

Gabor Gurbacs: And then you use and access technology and you go to like some Asian countries and some smaller jurisdictions and recently, GA type of jurisdiction saying that, yeah, you guys go ahead and innovate and do things and it’s really hard to compete when you don’t get the regulatory support, and the reasons are sometimes unknowable and, and, and so, so I think a lot about that recently too.

Peter McCormack: But, I didn’t expect to become a stage and say, “oh, actually the VanEck ETF looks great”. We’re probably going to approve this I think is very important for them not to give out any of signals for something.[crosstalk 00:54:55]

Gabor Gurbacs: Yeah, no, I know. I’m just saying that I think some jurisdictions have been faster. So, Switzerland has an ATP, mid-market Sweden has figured out ways to kind of mimic the structure and they’re in know Singapore is an open Japan, Australia and South Korea. There’s a lot of developments that are way ahead of the United States. I’m just concerned as I’m 20 years old right now and the vast majority of my career as in front of me and I want to build great things in an environment that supports me and I think a lot of very successful people feel the same way. That if we want to stay relevant and build something in this country then we need support.

Gabor Gurbacs: And, I think recently we have seen the sort of like the go build things in America type thing is like, yeah, we would love to. And, then, unfortunately, it’s just like you spend a lot of money, time and effort building things and the goalpost is moving on us. But yeah, I, again, like without saying anything specific except you don’t have any specific information, a more human, definitely nothing about the approval time and stuff like that where I think new market structure has developed and there are lots to look forward to in 2019. Our, I want to, my CEO is actually much smarter than I am generally in business and he likes to say that, and that was in his closing keynote, a consensus that 2019 is going to be the year of singles, not home runs.

Gabor Gurbacs: So we’ll see small wins, but eventually we’ll, we’ll get there and we’ll see a product. So 2018 was the year of regulation in 2019 for videography and hopefully, 2019 will be the year of implementation. And I think that’s just important to keep in mind and we see those singles coming in, right. Like transparency into the OTC markets. surveillance in some markets, actually people using the Lightning Network, I love the lighting network and adoption is growing, channels are bigger, I think it’s really awesome. And then a crypto exchanges and then people generally talk negatively about them, but I just wanted to point out that they have done a lot of good things too.

Gabor Gurbacs: So it is actually harder today to get a tier tree verification of the Crypto, exchange them to open up German bank accounts and it’s kind of personal experience and on that. And so, there are AML and KYC processes, exchanges are reporting to fence and why regulators may not understand the full process enforcement and law enforcement agencies really like crypto because bad people get arrested faster. And so, that’s kind of, those changes are coming along, and I don’t know, I’m excited to not think that much about financialization and regulatory headaches and I want to think about the next thing. So, if an ETF comes up, how do I leverage like the cool attack that is being built on Bitcoin to enhance financial instruments? So I kind of want to focus more on that once an ETF as, as approved, hopefully, I think that’s much more interesting and we can produce more value for people if he could just do what we do best.

Peter McCormack: Well, unless if this one is rejected, they will have to be some pretty clear guidance on why? And that will be the template for I guess the next step.

Gabor Gurbacs: Yeah. Exactly so, I mean we’re grownups and again, it took us a while to build other market structure, French national equities in gold funds and another sort of like harder to access an asset class. So, well, we’ll fill out the template again and again and again should it shouldn’t be necessary and build this space. And we like to say that we were on a near 48, $50 million dollar business beyond this. So we can stick with it. I just think that it should be less burdensome to get, an innovative asset to market and the world is moving fast and we need regular reports to the brain to bring newer technologies in the US.

Peter McCormack: Well, that was something he said to me when I was with her as well, that as her main concern that it will push things abroad still. I listen, I’m pretty confident it looks like the work you’ve done is great. It looks like you’ve addressed their concerns, it does appear to be, in my limited knowledge, a very different application from the other application. So I guess all we can say is fingers crossed I’m to close out. It would be good to find out how people can follow you, follow their neck, who you want to hear from them. And yeah, how people get in touch.

Gabor Gurbacs: Yeah, definitely. I’m fairly active on Twitter and, and so we have, I’m happy to like we have, we can read it together or my handle is at full name and VanEck underscore the US and we have Emerson. This is, which is at and the season. I’ll send you the links. I think we are, we’re active in social media. We have a rep side and reach out for any information. We’re fairly open. Basically, allow information to flow freely to the extent possible stayed true to the spirit of Bitcoin and crypto. So, yeah, we can. Okay. Let us know if any questions. Like we learned a lot about, for instance, the vaccine side, we have learned a lot about them, over the counter markets and it was recommended to us to work but over the cancer markets. True kind of engagement from the community. So if you have an idea or if you want to kind of partner with us or whatever, we’re happy to help and grow. So happy to introduce you to folks in our network to, to build the space together.

Peter McCormack: Well this has been great and also just personally thank you because you’ve been a bit of a supporter of the podcast. I have an hasn’t gone unnoticed so thank you for that too. And Yeah, look forward to seeing you again soon. Hopefully, I’ll come and see you next time. I’m in New York and we can catch up in person.

Gabor Gurbacs: Yup. Thank you, Peter, for your work on the podcast. And how many followers do you have? How many downloads? For 170,000 less.

Peter McCormack: Yes. I’m just coming within the next week, week and a half, I will cross over half a million downloads.

Gabor Gurbacs: Oh, well.

Peter McCormack: Yeah, and I just did my first hundred thousand listeners for a month. Yeah, it’s growing. Fantastic. But it’s only been possible because so many people have supported it and people like yourself who have agreed to come on a pastor as well and everyone there from the very start. So a lot of big debt of gratitude to others.

Gabor Gurbacs: Thank you, Peter. I think you’re doing. You’re putting the most, so we really appreciate it. We’re definitely supportive.

Peter McCormack: Great. Okay, well listen, have a great rest of your weekend and we’ll speak soon.

Gabor Gurbacs: Yep, definitely.