ETF Prime: Tom Lydon on ETF Flows, Plus Grayscale’s Court Win

To open the podcast Geraci speaks with Craig Salm, who is the Chief Legal Officer at Grayscale. Salm opens the conversation by highlighting some of the key details of why Grayscale filed the lawsuit in the first place. Salm also touches on the core argument the firm has had throughout the entirety of the case.

“The real basis of our argument all along is the common sense and compelling argument that bitcoin futures and spot bitcoins are inexplicably linked,” said Salm.

Salm also highlights that the preparation and individuals who got involved in the lawsuit had the firm going into the hearing confident. Salm believes all the research the firm did is what ultimately led to the unanimous decision from the panel of three judges ruling in the firm’s favor. The pair then dive deep into the intricacies and the complexity of the case overall.

Salm and Geraci then discuss the next steps for Grayscale now that the firm has won its case against the SEC. Geraci mentions that the SEC has 45 days to appeal the ruling that was made. Also, regardless of what the SEC decides to do, the 45 days must run its course. Salm mentions until the time is up, the issue is still with the courts. Geraci then asks Salm if he believes there are other reasons why the SEC could still reject spot bitcoin ETFs. Salm highlights that the SEC has continuously rejected these products because of the possibility of fraud or manipulation. He believes his firm has done enough to prove otherwise.

“If there were some other reasons for the commission for denying these products, we believe they would have come up in the 15 denials,” said Salm.

In addition, the pair continue to discuss Grayscale’s next steps and potential options for the SEC. They also discuss, if approved, how the spot Bitcoin approval process should go.

Geraci then brings on Tom Lydon, Vice Chairman of VettaFi, to discuss ETF YTD flows. Geraci highlights that he has seen about $295 billion in inflows in 2023 thus far. He also says flows have been muted for the most part this year, specifically on the equity side of things. Geraci then asks Lydon what he is seeing in ETF flows this year. Lydon highlights that even though the magnificent seven lofted the S&P 500 for most of the year, investors are starting to allocate money elsewhere.

“In the last three months, we have started to see other areas of the market pick up. Small caps have picked up a bit and have gotten flows,” Lydon said. Lydon also mentions how equal-weight strategy funds like the Invesco S&P 500® Equal Weight ETF (RSP A-) have also seen an influx of inflows.

In fixed income, Lydon is interested to see what happens with flows from now until the end of the year. Especially as investors wait to see what the Fed will do later this month. The pair then discuss how investors are approaching duration and how funds like iShares 20+ Year Treasury Bond ETF (TLT B-) have seen significant inflows this year.

Geraci then asks Lydon about what other key trends he is seeing from the ETF flow data. “As we look at markets today, I think the key is diversification, and there is a lot of opportunity to diversify on both the equity side and the fixed income side,” Lydon said.

Lydon highlights that both of these asset classes look much better than they did just a few years ago. To close the segment, the pair discusses other areas investors are currently looking at and the success of VettaFi’s Artificial Intelligence Symposium.

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