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“What Does It Mean for Price?” — Michael Venuto on a Spot Bitcoin ETF

Michael Venuto discusses his view on blockchain’s intersections with artificial intelligence (AI) and the metaverse on Opto Sessions. He explains why he thinks bitcoin stands as a hedge against hyperinflation, the potential impact of Coinbase’s custodianship of BlackRock’s spot bitcoin ETF, and the latest updates on the Amplify Transformational Data Sharing ETF.

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Michael Venuto is Chief Investment Officer and Co-founder of Tidal Financial Group, one of the fastest-growing platforms for entrepreneurs who want to launch and grow ETFs. He also manages the Amplify Transformational Data Sharing ETF [BLOK].

Previously Head of Investment at Global X ETFs and Senior Vice President at Horizon Kinetics, Venuto is a former ETF.com all-star and a regular contributor to Bloomberg and Reuters.

Venuto is a staunch cryptocurrency advocate, and he discusses the upcoming bitcoin halving, which is due in April or May of 2024. Halving is a periodic event in which the amount that bitcoin miners are paid per bitcoin mined is halved, meaning that the value of mining new bitcoins will, eventually, approximate to zero.

“It’s impossible for it not to have an impact,” he says. “It’s how the miners are compensated, and if they’re getting half as much bitcoin, that’s a big haircut. Knowing that you’re going to expend essentially the same amount of resources to receive half as much of the commodity you’re producing — that’s got to shake out the market in some way.”

In practice, this implies that either the price will increase or the number of miners will decrease. “What does that mean for price? That’s the real question that everybody wants to know.

“The answer to that one is, I have no idea. I can say that historically, it has gone up. But whether that’s three months before, three or six or nine months after, and what else is going on in the world at that time… who knows?”

News on the BLOK

BLOK is an actively managed fund, which Venuto says enables him to increase exposure when blockchain sentiment is positive, and reduce it when sentiment is more downbeat. On the one hand, sentiment can be dependent on “what’s going on in cryptocurrencies, blockchain and bitcoin”, and on the other hand, on “what’s going on in traditional finance in terms of valuations and monetary policy”.

“For us, the short-term price movements of bitcoin really mean nothing. We have a thesis of where it’s going over time.”

BLOK’s holdings are capped at 5%. Because of this, Venuto says, the fund took a lot of profits over the summer. “We had a great first quarter (Q1), a great Q2, we participated a lot in the miners.”

These profits have been used to build up existing and nearly new positions. “There are two positions that we owned five years ago and exited two or three years ago that we’ve brought back.” The fund dropped both of these companies from the fund when they reverted away from blockchain initiatives but added them back after they recommitted to their former initiatives.

“For us, the short-term price movements of bitcoin really mean nothing. We have a thesis of where it’s going over time.

One is Wipro [WIT], the Indian consultancy that offers blockchain technology services to its clients.

“I was looking for something interesting in India,” says Venuto. “They’ve engaged with us, we’ve talked to them, and we see where they’re going.”

The other is Opera [OPRA], “a search engine that’s mostly used in emerging markets” that offers blockchain and crypto exchange through its platform.

“I think they’re going to make some amazing impacts in emerging markets with an existing client base,” says Venuto.

Blockchain’s intersections

Venuto comments on the global devaluation of currency that is currently occurring, saying that “just being able to go further and further into debt is not sustainable.

“I think the hope is that technology, or AI, creates so much production that we essentially softly inflate our way out of these debts.”

The utopian ideal of AI intersects with blockchain, in Venuto’s view, because “for AI to actually be meaningfully changing the world, it has to be somewhat decentralised.

“I don’t see a world where general purpose AI creates a utopia and it’s centralised. I just don’t see how that’s possible.”

BLOK holds Roblox [RBLX], which Venuto calls a “pure-play metaverse company”. Like AI, Venuto sees the metaverse as having a significant intersection with blockchain.

“For the metaverse to work, just like for AI to work, there needs to be some form of decentralisation,” he says.

For the metaverse to work, just like for AI to work, there needs to be some form of decentralisation.”

The metaverse is “going to be a meaningful part of the blockchain community in the future”.

“Roblox was the place where we found the most interesting way to get the exposure. We started really small, and every time the market made it smaller, we bit off some more.”

Roblox is now, says Venuto, a core position that his team are building over time. “I’m very excited about the company and what it brings to the portfolio that is very different from everything else in the portfolio.”

Coinbase and BlackRock

Earlier this year, the US Securities and Exchange Commission indicted Coinbase [COIN] for “unlawfully facilitating the buying and selling of crypto asset securities”, according to a June press release.

The next month, the Nasdaq selected Coinbase to be the custodian for the spot bitcoin ETF that BlackRock [BLK] has applied to launch on the exchange. Venuto sees an irony in this: “That blows me away, right after the SEC sues them,” he says.

“There doesn’t appear to be any company in the US that really conforms to what the SEC is calling the requirements for a qualified custodian.” Consequently, Venuto doesn’t expect a spot bitcoin ETF to reach US markets before Q3 or Q4 next year. “I give it almost a 0% chance that we see it in 2023. I think the approvals will start to come in March to June next year; then the actual launches will be two to three months after that.”

While he expects investors to benefit from having the bitcoin access this ETF could provide, Venuto thinks it could be bad news for the asset itself if the SEC approves the fund.

“This is really good for ETF investors; it's really good for traditional institutional investors. A big influx of money that doesn’t understand it may not be good for Bitcoin.

“It might be great for the price, but it won't be long-lived. We’ll just have larger sums of dumber money, creating potentially even more swings.”

As for wider SEC reforms of cryptocurrency regulation, Venuto views it as fundamentally beyond the organisation’s remit.

“This whole idea that the SEC is going to decide the US government’s stance on crypto was always a farce. The SEC is there to protect investors, not to make monetary policy.

“Gary Gensler [Chair of the SEC] is not the problem. At the top levels of our government, there’s no decision made on whether they want to embrace cryptocurrencies or not.”

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Listen to the full interview and explore our past episodes on Opto Sessions. You can also check out all our episodes via our YouTube Channel.

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