Transcript:
Caroline Woods:
Joining me now, Zach Pandl, Head of Research at Grayscale. Zach, Thanks so much for being here.
Zach Pandl: It’s my pleasure. Great to see you.
Caroline Woods: So we’re here to talk about the ETF. It’s the grayscale CoinDesk crypto five ETF sort of a milestone for the crypto world because it’s the first multi-asset crypto ETP I guess we can call it. It consists of what. Bitcoin Ethereum. XRP Cardano and Solana. And tell us just I guess to start give us a quick 101 of what we need to know about each of the five holdings?
Zach Pandl:
Yeah great. Great question. People are getting familiar with Bitcoin, which is a sort of digital gold use case, a store of value, digital asset. But there’s lots of other applications of blockchain technology. And that’s what many of the other assets in this product are doing. So things like stablecoins, things like tokenization, decentralized finance for investors that want exposure to those ideas. Beyond digital gold. This is the type of thing that this product offers.
Caroline Woods:
It’s interesting because it seems like although Bitcoin, to your point, is the most recognized. Still, it seems like there’s some diversification going on. What does that tell you about overall crypto sentiment and where we are in the space?
Zach Pandl:
Well, crypto is growing up in all kinds of different ways. And that’s both on the investment product side of things, the ability for fund managers like ourselves to offer index based approaches to investing, which are very popular and common in all other asset classes, stocks, bonds, et cetera. And it’s also in the applications of the technology, you know, stablecoins coming to Wall Street, coming to mainstream finance with a comprehensive regulatory framework, for example. So this technology has been around for 15, 16 years. And it had a, a slow start, but now it’s really going mainstream in lots of different ways. And I think that process is going to continue over the next five, 10, 20 years. And these types of products, these types of ETFs are a way for investors to capture that trend over time.
Caroline Woods:
Talk to me about the benefit of investing in GDXJ versus just buying Bitcoin, Ethereum XRP outright?
Zach Pandl:
Yeah of course. You know, when people approach the stock market, some people want to be stock pickers and decide which one of the 500 sales is going to be the best performing. Other people just want exposure to the asset class, exposure to the beta. And so an index approach that rebalances over time, that follows a transparent index is a very successful way to access these markets. And the same is true in crypto. People don’t want to be coin pickers necessarily. There is a lot of complexity to blockchain technology. They just want to capture the opportunity, capture the trend over time. The beta of the asset class and this product. The grayscale CoinDesk crypto five ETF, is a great way to do that. We’ve been running this product since 2018 as a private investment vehicle. We’re thrilled to be able to offer it to many more investors as an ETF, but it’s important to note that GDXJ doesn’t actually have the same protections as a normal ETF.
Caroline Woods:
So talk to me a bit more about the trade off between the access, but also the risk?
Zach Pandl:
Well, the biggest risk for crypto investing is the same as everything else. It’s just market risk. You know this technology has been around a long time. And there will be adoption cycles and phases of success and phases where there are setbacks, just like in everything else, whether it’s quantum computing or biotech or anything else but the market risk, the ups and Downs of the asset, that’s the biggest concern that investors should have, and they should be aware of the volatility and always put these things in the context of a broader portfolio.
Caroline Woods:
Does bringing multiple five, in this case digital assets under one wrapper actually mitigate some of the volatility or does it concentrate the risk?
Zach Pandl:
It will mitigate the volatility to a degree, in the same way that diversification helps in any type of asset allocation, but the biggest thing is that you’re diversifying across the use cases of the technology. Bitcoin really has this digital gold use case a macro asset. What brings someone like myself that focuses on macroeconomics into the crypto asset class. But as I said, there’s so many other things going on like tokenized assets, tokenization, and we want to get exposure to those things as well. And kind of spread our assets around within crypto. So that same principle of diversification that works in other asset classes can absolutely be applied to crypto.
Caroline Woods:
How should investors be thinking about things like the government shutdown and tariffs as it relates to crypto. Because despite those things, we’ve seen the equity market power to all time highs. Crypto has been doing pretty well as well. But how should they be factoring in potential headwinds like those?
Zach Pandl:
Yeah the crypto asset class is becoming a part of mainstream finance. And that’s great for where these assets and where the technology, blockchain technology is going over the longer run. But it also means that the asset class is affected by some of the same macro risk, things that affect stocks and currencies or anything else. So shutdowns, tariffs, the emerging kind of pressures and lending markets and credit markets, for example, all of these things can spill over into investor risk appetite and therefore into crypto. Even though the technology and the trends that are driving it from a fundamentals standpoint are completely different. So these are just the types of things that investors need to be aware of when they’re managing their broader portfolios. They need to think about this with crypto. But the broader trend is about adoption of this technology, adoption of public blockchain technology. And what we’re providing is a way to access this through ETF type products.
Caroline Woods:
Regulation is also still a wild card. Still a bit of uncertainty around there. What’s the next big policy decision that you’re waiting for that could either expand the market and help it really take off, or that could potentially constrain it?
Zach Pandl:
Yeah, absolutely. We’ve seen a lot of change already this year and there’s more to come President Trump came to office with a mandate from voters to bring regulatory clarity to the crypto asset class, and has really been delivering on that, both from an agency level, regulatory agency level and in terms of bipartisan legislation. We have the genius act in July on stablecoins. And now a bipartisan group of senators is working on the next phase of what we call in the crypto industry, the market structure bill. And this will touch lots of different aspects of the industry. I would love to see that done by the end of this year. I think maybe more like the first quarter of next year. But this is another big piece of regulation, and this is going to help deepen Wall Street’s and commercial banks access and integration with blockchain technology. So that’ll be the next major thing to watch. Watch this space Senate is actively working on it to now.
Caroline Woods:
OK just final thoughts for investors. What’s your best piece of advice for them as they think about maybe allocating some of their portfolio to crypto?
Zach Pandl:
Yeah, I’d say don’t miss the bigger opportunity. There are lots of particular things going on and lots of things to learn about the assets and blockchain technology, but this is a beta opportunity, an emerging asset class, and you don’t want to miss the boat in some broader way. So diversified exposures like our HDLC product are a great way to build that into your portfolio. And a little goes a long way. You know, this is about building a diversifier into a broader portfolio with stocks, bonds, and other alternatives. And we think it’s a great way to go. Still, 1% to 5% of the portfolio that used to be the crypto allocation is, we say 5% plus or minus, depending on the investors. But we work closely with financial advisors on helping them tailor that recommendation to all their specific client needs.
Caroline Woods:
OK, Zach, Thank you so much for sharing your insights on GDXJ.
Zach Pandl:
My pleasure. Thank you. Caroline Woods: That’s Zach Pandl, Head of Research at Grayscale.
