ETF Prime: Dave Nadig on Crypto Regulation

Commissioner Hester Peirce has long been a vocal proponent of crypto. Peirce’s most recent speech took a very targeted stance on the lack of meaningful crypto regulation by the SEC and the continuing lack of approval of a spot bitcoin fund. Nadig explained that Peirce’s stances on the subjects weren’t surprising, but the very pointed and blatant criticisms of the SEC regarding crypto by someone from within it were.

“I think in its brevity and its pointedness, it was a bit of a sea change because this was not an ‘oh, there are disagreements and we’re taking things under advisement’. It had none of the somewhat hedgy language she has often used in the past and was really just a direct assault on the process her own organization has taken, with receipts.”

Among the litany of criticisms Peirce had, all backed by detailed examples and footnotes, was the lack of a spot bitcoin ETF and the SEC’s inconsistency in its insistence on a 1940 Act structure for bitcoin futures, and then approval of a ’33 Act bitcoin futures fund this year. Peirce also takes issue with the regulation through the enforcement approach that the SEC currently utilizes.

Nadig believes the core issue is the concern of fraud and manipulation of the underlying markets, an issue that still needs to be addressed. Peirce lays out two potential paths forward. One path is that all crypto participants agree to surveillance and prove that they meet the SEC size requirements, and the other path is where the industry proves that the underlying markets are not susceptible to manipulation.

Stepping back to discuss the broader meltdowns currently happening in crypto right now, Nadig believes that much of the core parts of crypto are still functioning fine and that the failures happening have provided learning opportunities.

“There’s still a lot of great applications here and we’re learning a lot about how to harden systems and about how to make those systems support an intended utility, not just to develop a network effect,” Nadig said.

Next on was Mark Yusko, founder and CEO of Morgan Creek Capital Management, and portfolio manager of the AdvisorShares Managed Bitcoin Strategy ETF (CRYP), who discussed SPACs and explained the definition of a SPAC and how they work, as well as why they are not an inherently bad thing.

“If you think about a SPAC, it’s a pool of capital, invested in Treasuries, that then liquidates when the deal is consummated and the SPAC de-SPACs, and the money either goes into the new company or, as an investor in a SPAC, you get to decide — you can take your money back,” Yusko explained.

Yusko went on to discuss merger arbitrage and arbitrage in general, innovation, and current crypto uncertainty and volatility cycles for bitcoin.

Last on was Sean O’Hara, president at Pacer ETFs, and the fastest-growing ETF issuer in 2022, having grown 50% year-to-date in a challenging market environment. O’Hara attributes the growth of Pacer ETFs to its network of wholesalers who work with financial advisors to find the best ETF solutions for their portfolios, and their diverse offerings in strategies ranging from trend following to the cash cows lineup of funds.

“We’ve launched a bunch of factor-based ETFs like low volatility and high-beta rotation strategy, and we started there about a year and a half ago with about $100 million and we’re almost $1 billion today,” O’Hara explained.

Geraci and O’Hara also discussed the Pacer US Cash Cows 100 ETF (COWZ) and the current market environment and suite of Pacer Trend Pilot ETFs.

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