EXCLUSIVE: Cathie Wood: "The SEC is not going to authorise staking".

The Big Whale: After 18 particularly complicated months, cryptos are back. Bitcoin has just hit a new all-time highabove $70,000. What do you think of it?

Cathie Wood: I have nothing but good things to say about it! We started investing in bitcoin nearly 10 years ago, and despite periods of volatility, we are convinced that it is a new asset class.

What do you think justifies bitcoin reaching a new all-time high, even though interest rates are still at particularly high levels?

I think there are several factors: the first is obviously the arrival of 11 Bitcoin Spot ETFs in January. There was a bit of a "Sell the News" effect after the files were approved, but very quickly things turned around and the markets started to rise again. Many financial advisers and distributors realised that there was a real demand for crypto-currencies.

The most interesting thing is that no financial intermediaries of the size of Morgan Stanley or UBS have yet positioned themselves in ETFs. Today there are only small distributors that allow you to buy them, but the bigger ones will come, it's only a matter of time.

The second thing is that we are experiencing a new regional bank crisis in the United States. One year after the collapse of Silicon Valley Bank (SVB), several regional banks such as New York Community Bank have had to be recapitalised in a hurry after their collapse on the stock market.

Anyone who thought that last year's crisis was cyclical was wrong. It is indeed a structural problem, and investors who are also the clients of the regional banks are increasingly understanding this.

Last year, bitcoin rose during the collapse of SVB, and the same phenomenon is now happening again, but to a greater extent because bitcoin is now seen as a non-risky asset. In fact, there is no counterparty risk as there is with banks!

You regularly explain that bitcoin is going to reach a record price. A few weeks ago, you told CNBC that it could exceed $1.5 million by 2030. Why do you say this? What is your price target in the shorter term?

There is a lot of focus on price forecasts, but knowing how much bitcoin will be worth on such and such a date is not the most important thing. The only certainty is that its value will continue to rise over the coming years.

How do you see things developing over the coming months? Could bitcoin continue to gain momentum? Remember that it's already up 65% since the start of the year!

That's a good question. We've just taken profits on Coinbase because we think things could calm down a bit in the short term on bitcoin and Coinbase is particularly sensitive to bitcoin's movement.

This slowdown could benefit other cryptocurrencies, unless the regional bank crisis were to intensify in the coming weeks. In those cases, bitcoin could continue to rise sharply.

If nothing happens between now and then, I think bitcoin's next acceleration will come when the big distributors like Morgan Stanley and UBS enter the market. These are players that need time; they need to know which ETFs they're going to use and sell to their clients, but what's certain is that they're going to get into it in the coming months.

You didn't mention bitcoin's halving, which is nonetheless considered by many to be a key factor in the trajectory of the planet's leading cryptocurrency. Why is that?"

It's interesting because in all our meetings, we obviously talk about halving, which will further halve the number of bitcoins issued. But I have enough experience to know that while halving has an impact on the price of bitcoin, its effect is also more spread out over time. 

The only thing that is really different with this halving is that the growth rate in the annual supply of bitcoins will fall from 1.9% to 0.9%, and it will be lower than gold for the first time. This is a turning point in the long-distance match between gold and bitcoin.

You mentioned Morgan Stanley and UBS as possible intermediaries to sell Bitcoin Spot ETFs to their clients. Do you talk to them?

We talk to everyone. What's interesting is to see that all the financial players are working on the subject, they're really trying to understand what's going on, to understand tech, our thesis, and that's a very good thing.

Are they really all doing it?

Yes, and the most impressive thing is to see that even the most conservative are very interested in the subject. We're talking a lot with a distributor that I can't name, but is a very big player, and will be making announcements soon.

BlackRock got off to a flying start with its Bitcoin Spot ETF, which has exceeded $10 billion. Do you think they've killed the game?

You know, we're very happy to see what's happening right now. Having BlackRock in crypto is a great thing for the sector.

We started investing in bitcoin in 2015, when it was only worth $250. At the time, BlackRock and every major asset manager on the planet thought it was ridiculous. They laughed at us when we put bitcoin in our portfolio. For them, it was just marketing.

For five or six years, we were a bit on our own, but then things changed. Since 2021, BlackRock and the other funds have been saying that cryptos are a new asset class. They are even so attracted to the subject that BlackRock took the liberty, against the advice of the Securities and Exchange Commission (SEC), of signing a partnership with Coinbase in 2023. That's when we realised that BlackRock was really going to go into Bitcoin Spot ETFs.

How do you explain this change?

They didn't change because they wanted to, but because they had to. When you're BlackRock or Fidelity, you can't miss out on such a promising new asset class. Clients wouldn't forgive you.

Ark Invest has also launched its own ETF, in partnership with 21Shares. What do you think of your launch, and why this partnership with 21Shares?

We are very pleased with the launch of our ETF with 21Shares. We are 3rd behind BlackRock and Fidelity with over $2 billion invested. A lot of people are surprised that we're 3rd ahead of Invesco and Franklin Templeton, who are much bigger than us, but we have real expertise and investors have confidence in us.

With regard to 21Shares, I've known them for a long time. I met the co-founder, Ophelia Snyder, at a conference in 2019, and to be transparent with you, I've been on their board for several years. 

21Shares convinced us because they have around forty funds, they've been around for years, and they've always managed to deliver whether in Bull or Bear Markets. Their technologies and products are very good. We don't have their infrastructure and we thought it would be a good partnership, and indeed it is, as the successful launch of the ETF shows.

How do you explain this success?

From the outset, Ark Invest has put tech and research at the heart of its business. We wrote a white paper on bitcoin back in 2015, explaining that it was an asset that could fulfil the 3 roles of money: store of value, unit of account and means of payment.

We wrote this article with economist Arthur Laffer, best known for "the Laffer curve" (according to Arthur Laffer, the higher taxes go, the lower their returns). Arthur Laffer worked with us on this article because he realised that bitcoin was what he had been waiting for since the end of the gold standard in 1971... Having such an economist with us, to say that bitcoin Bitcoin is a new standard for a new international monetary system, obviously gave us a lot of credibility.

In 2016, we wrote a new White Paper with Coinbase. At the time, they were much smaller, but our aim was already to draw the attention of institutional investors to bitcoin. So people know that we've been working on these subjects for a very long time and they trust us to do so.

The second thing is that our super team (Ark Invest has around fifty employees), and I'd like to salute them, has been explaining bitcoin and cryptos to our partners for almost 10 years, and it's starting to pay off well.

What do you think of Europe? In two months, we've seen more capital come into US Bitcoin Spot ETFs than into European ETPs...

As you know, there's been a lot of controversy surrounding cryptos in the US, particularly with the regulator. Gradually, US elected representatives got involved and the SEC began to lose the balance of power. The elected members of Congress told the SEC, and its chairman Gary Gensler, that they had exceeded their rights.

It is not up to the SEC to say whether bitcoin is a good investment. The SEC should not judge the quality of assets, it should just say whether it is possible to create an ETF with bitcoin, and in this case it is possible, as the approval of the Bitcoin Spot ETF filings has shown.

The irony of the story is that with its opposition, the SEC has pushed investors to take an interest in bitcoin, to understand what it is, and this interest has converted millions of people, hence the success of the Bitcoin Spot ETFs.

How do you explain that all the files were validated at the same time?

I think the SEC didn't want to make anyone jealous, so everyone got the green light at the same time, which also created the volumes we've seen.

All the files were accepted at the same time. Don't you think that's a bit unfair when you're one of the players who submitted applications years ago?

I wouldn't say it's unfair. The most important thing for us is that the subject has become mainstream. It's great to have all these companies supporting bitcoin.

And regarding the ETF Ethereum Spot, what is your position? This is clearly the next big battle with the SEC.

Here too, we are the first on the application with another partner, VanEck, and the deadline for our application is 23 May. For the others, the deadline is not until October.

After what happened with Bitcoin ETFs, we hope that this will not be another mass shooting with a blanket green light for everyone. This time, the SEC needs to go back to the basic rules, i.e. "first lent, first served", and we were there first.

Ethereum is now operating in Proof-of-Stake. Don't you think this will change the SEC's approach?

The SEC is not going to authorise staking, and that will still require legislative intervention. The fact that the SEC will not authorise staking is proof that we need a new legislative framework. We are talking to a lot of elected representatives about this.

So there will be no Ethereum ETF?

Even if staking is not validated now, we hope that there will be legislation on Ether Spot ETFs, and we hope that the Commodity Futures Trading Commission (CFTC) will take up the issue at the SEC.

It's big news to say that the SEC will reject staking no matter what...

Yes, of course, and that's what leads us to believe that the SEC will reject Ether Spot ETFs unless there is just such a piece of legislation. But look at what happened with bitcoin: despite all the difficulties and controversy, we got there!

How will your Ether Spot ETF work? You announced that you were going to store part of the reserve. Is this an economic obligation in order to be profitable?

Yes, it's part of the way ether works. In fact, that's the whole debate with the SEC. They consider the income from staking to be dividends and that's why they want to treat ether as a financial security under their jurisdiction.

Do you understand that there could be a debate on the subject?

Ether is not a financial security, it's a new decentralised financial system. It is the fusion of technology and financial services. That's Ark Invest's whole thesis.

We talk a lot with regulators about these subjects whether at the SEC or the CFTC, and honestly, many of them understand very well what's going on. The only one who gets in the way is SEC chairman Gary Gensler, who doesn't understand anything about these issues.

To hear you talk, it sounds as if the crypto industry is gradually winning the battle?

The fall of FTX was a real shock, but what happened last year, from a legislative and judicial point of view, proved us right. I like to point out that the fall of FTX actually totally validated the case for bitcoin.

FTX was centralised, opaque and risky. Bitcoin, on the other hand, is decentralised, transparent and there is no counterparty risk. When FTX fell, many players were affected. With bitcoin, that's not possible.

Speaking of transparency. How is Ark Invest doing? You've made a lot of bets in recent years and your recent performance has been much criticised. Since 2021, Ark Invest's assets under management have fallen from $50 billion to less than $10 billion...

A lot has happened and people tend to confuse everything a bit, so I'll rewind a bit. We experienced crazy growth during Covid, and when the pandemic subsided and we were back to normal, the context changed completely: the central banks raised rates to counter inflation, which penalised us.

In 2022, it was a very complicated year. We underperformed the Nasdaq, which makes no sense, and so there we are gradually coming back. In 2023, we began our comeback because investors are anticipating a fall in interest rates, which will benefit the technology stocks to which we are very exposed. If the rise in rates penalised us, the fall will benefit us.

What is your forecast for interest rates?

We are convinced that they will fall sharply.

When exactly?

This year! The rate cuts will take place this year because companies are no longer controlling their prices, and the unemployment rate will rise in the US with a drop in purchasing power.

To revive the economy, the Fed is going to cut rates, and this cut will benefit our portfolio, and of course the crypto sector.

Won't the fact that the markets are at record levels deter the Fed from cutting rates?

You're right. They need a crisis to cut rates, and I think it's going to come from rising unemployment. Don't forget that we're in an election year, so if things get tough, all the candidates will be putting pressure on the Fed. Given that inflation has fallen a lot, they're going to have to deal with the unemployment rate.

The other important point is that a lot of US regional banks are not in good health. We're seeing a lot of capital outflows. There's also a crisis in commercial offices, which are largely financed by the regional banks, so the situation is tight. There are going to be bankruptcies in the coming months.

Let's talk a bit about Coinbase. Like you, they had a huge boom during Covid, followed by a particularly complicated 2022. In 2023, they're back in the black, yet you've just sold some of your shares. Why did you do this? Was it really the right time?

As soon as there was regulatory tension around bitcoin, we bought Coinbase shares. We've always done so, and today Coinbase remains our biggest investment. But you have to understand that we have a portfolio to manage, so when the share rises as it did in 2023, particularly thanks to the fall in FTX and the decline in Binance, we take a little profit. This is totally normal!

Coinbase has developed very well, in the United States and also abroad, in Europe. As you know, they've just opened an office in Paris, and we're supporting that strategy, but some portfolio companies have had difficulties, in healthcare and science, and so we need to balance that out.

How do you explain that your strategy is sometimes so misunderstood?

It's funny because we make our operations public every day, and sometimes that backfires, like with Coinbase. Some people say "That's it, they don't believe in Coinbase anymore, it's over", but no, we just take profits.

As you know, there are a lot of "narratives" in crypto. Which is your favourite? Bitcoin, decentralised finance (DeFi), NFTs, decentralised Science?

If you had asked me what I thought was the big winner in the crypto universe, I would say bitcoin without a doubt. We love Ethereum, Solana, and other projects that are very promising, but Bitcoin really stands out because it's the most innovative idea.

Bitcoin is the first monetary system in history, which is global, decentralised, private and based on clear rules. A growing number of people understand very well the interest of bitcoin in the face of currencies whose value keeps falling.

Are you interested in decentralised finance?

Yes, of course, especially Ethereum and Solana, which are currently the two biggest players in this universe. Decentralised finance is the Internet's financial system.

The inventors of the Internet forgot to give it financial tools, and decentralised finance fills that gap.

What is the advantage of decentralised finance?

It is more transparent and will make it possible to do without intermediaries, who are often too expensive. In 2024, some financial transactions will still require 26 intermediaries. It's totally absurd! With cryptos, you only need two or three, and it's much more efficient. The financial system is going to save a lot of money with cryptos.

How is your crypto portfolio made up?

I have a very broad portfolio. Our first crypto analyst at Ark Invest was Chris Burniske. He was an excellent analyst on new tech stocks and he fell down the crypto rabbit hole without ever being able to get out.

Since then, he has launched a crypto investment company, "Placeholder", and I am an investor in their 3 funds. Aside from that, bitcoin is my main investment by far.

What do cryptos represent in your portfolio?

If I take out real estate, equities and Ark Invest, I'd say that a third of my portfolio is in crypto.

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