How does your ETF work?

We wanted to build an index of publicly-traded companies that are using blockchain or developing the technology for it, or even companies investing in it. And from there, what we wanted to do was somehow objectify it. Because this is so new, we knew we had to come up with a robust scoring system, and so we came down to seven factors that we can look at.

 Why a blockchain ETF rather than a cryptocurrency fund?

I’m not an anti-cryptocurrency person at all, but we are big believers in the technology. If you think about the technology versus the cryptocurrency itself, the cryptocurrency is as far out on the speculative spectrum as you could possibly go. As you walk yourself back, you get to the infrastructure — the people who are building out the infrastructure and providing the services on that infrastructure. Those are the people that you can count on. It’s more measurable and it’s easier to monetize innovation if you’re a service provider in the innovation cycle.

Think about Wal-Mart, for example, as they eradicate food poisoning issues due to the blockchain technology and their supply chain usage. That’s a massive cost-saving metric for their business. Or JPMorgan as they launch their blockchain — they won’t have all of the trade processing or wasted friction. That’s another example of how this can have nothing to do with cryptocurrency and how it’s just another shared database. The point is that blockchain technology is a lot bigger than bitcoin.

It sounds pretty active for a passive ETF.

Sure, some of that scoring is subjective. If you think about the economic impact, that’s a little bit subjective. That’s why we built out an advisory board that goes beyond the Reality Shares index team — to help us put a human element to some of our qualitative factors. So we’re essentially active, but then we boiled it down to a rules-based index. Then there’s no need for money managers at that point.

What challenges did you face with the SEC?

The biggest thing they were concerned about was the name. There’s a rule where basically 80 percent of the fund has to be invested in what the name of the fund is. So, if you call your fund an international ETF, then 80 percent of the fund has to be in international names.

Blockchain is a little bit different, though. We’re saying that 100 percent of the fund is invested in companies that are using or implementing blockchain technologies, but the SEC pushed back, asking what percentage of their revenue is coming from blockchain technology? And that’s a little bit harder to pinpoint. To that end, they say that we can’t name it blockchain unless we were willing to delay our filing. But in the interest of time we just changed the name and everything else remained the same.

Any sense of who is going to be buying this ETF?

We have some institutional demand to potentially develop total return swaps and structured products on the index underlying the ETF itself. Financial advisers are appreciative of it also because it’s a way for them to answer their clients’ demand for “get me into that cryptocurrency thing!”

Any other blockchain-related products you’re working on?

We’re looking at an advisory business, as well as offering our ETF in a tokenized format on a blockchain exchange. We might be the first ever ETF on an exchange like that.