Animal Spirits Podcast - Talk Your Book: The Macro Case for Crypto

Starting point is 00:00:00 Today's Animal Spirits Talk Your Book is brought to you by Fidelity Digital Assets. On September 19th, 11 a.m. Eastern, Fidelity will be having their next edition of the value exchange. We're going to discuss our latest research report. Ethereum investment thesis, Ethereum's potential as a digital money and a yield-bearing asset, which we're going to talk about on the show today. If you want to learn more, we're going to have a link in our show notes. You can also go to Fidelity Digital Assets.com to learn more. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching.

Starting point is 00:00:35 All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Ridholt's wealth management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ridholt's wealth management may maintain positions in the securities discussed in this podcast. All right, so it's Wednesday, August 30th, on Tuesday. Big news hit the crypto industry. GBTC, the trust, not an ETF that has been at the center of a lot of ups and downs over the years inside of the crypto industry, one, their case against the SEC, which is notable. I think just the idea of an asset manager suing the SEC and winning is something that most

Starting point is 00:01:26 people probably would have thought unlikely, although I guess in this case, a lot of industry insiders did actually expect this outcome. But definitely a watershed moment. People say the caveat is it doesn't necessarily mean that ETF is for sure. The SEC could, I guess, try to fight back. But it sounds like at this point, it's inevitable. Yeah. And it wasn't like the court ruled against the SEC and said, oh, yep, there's an ETF coming November 1st. Right. Because of where we are in the cycle in like the crypto winter or whatever, where the speculative excess has been totally rung out. and there's not much talk about it anymore. I'm really curious to see what this means.

Starting point is 00:02:02 I mean, if the ETF would have come out when Bitcoin was at $70,000 or whatever, wherever at peak, I think it would have been a way different scenario than where it is at 27 or wherever it is when it happened. There was a little bump in the price, but not a huge bump. So I'm really going to be interested to see how big one or multiple of these Bitcoin ETS will be once it happens. Yeah. And again, short term, but whatever. It's giving back a little bit today. So, yeah, we'll see.

Starting point is 00:02:30 Definitely interesting news. All right, don't want to step in a tutorial. We got into this with the guys at Fidelity Digital Assets. So with that, here's our conversation with Jack and Rameen. We're joined today by Jack New Rider. Jack is the senior digital analyst at Fidelity Digital Assets. We're also joined by Rameen, Big Deliazari. Rameen is the director of product at Fidelity Digital Assets.

Starting point is 00:02:54 Good to have you guys back on the show. we're going to start today talking about the elephant in the room, which was the GBT ruling. This is, today is Wednesday, August 30th. Before we get to that, Jack, describe for us, this came in an interesting time because the, the vibes, the overall sentiment, almost apathy it feels like towards crypto. I don't even know if it's a winter or what you would call it, but it seems like there was very little going on. So before, prior to the announcement on Tuesday, how would you describe, maybe with some data if you have it, the state of crypto? Yeah, I think you kind of summed it up there a little bit. It's not a whole lot going on. I mean, you could say that

Starting point is 00:03:45 sentiment is poor, but I don't even know if I would say it's poor. It's just the only people left are the people, you know, that have been here for a while for the most part. You know, broadly summarizing that, of course. There are net new faces here and there. But it's a lot of like people like to call it a PVP type environment, player versus player, where it's the same capital sort of sloshing back and forth alongside, you know, some of these protocols based on, you know, small things happening in different corners of crypto markets. But it's not, you know, you don't see necessarily like a huge new use case that brings in a whole slew of new users. So what I would say that's like kind of classic crypto market cycle and what you saw back in like 2018 after the

Starting point is 00:04:31 drawdown in the first half of 2018 from mid 2018 through 2020 it was kind of just a I don't want to say boring as the word there's there's stuff happening underneath the surface but from the you know the traditional asset manager that's just looking at crypto they're probably not spending much time paying attention to it because it's not making you know a bunch of news headlines the way that it is during a bull market. And so low, low volatility, you do lose some of the correlation during these time periods because traditional asset managers aren't as deep into the space or aren't paying as much attention to the space. But it's not necessarily for like great reason, right, because you're not seeing a bunch of outperformance from crypto assets.

Starting point is 00:05:15 So it's kind of, you know, your classic bear market. Rameen, we got a question from a listener actually earlier this week, said they've been kind of following the ETF stuff and saying, hey, I've never put any money into Bitcoin or Crypto before, but with an ETF coming, I'm starting to think about it more for something like my IRA. And their whole thesis was, I'll read here, they said, we're thinking an ETF would make sense because it would be considerably more mainstream and therefore maybe entice more investors to take the plunge and possibly drive up the price. Obviously, with a caveat that we never know what's priced into these things, what do you think

Starting point is 00:05:51 the expectations are? because obviously we saw the stuff from the court hit and the price went up. It didn't go up a ton. It went up, I don't know, 6 to 10 percent or something. But how much do you think, how much money do you think coming into this space has been priced in? Is that impossible to know? It's pretty impossible to know exactly how much has been priced in. But I think more theoretically, the offering of an ETF does exactly what is being proposed.

Starting point is 00:06:17 It provides a really easy entry point, really efficient entry point for those that have, you know, accessing access to broker-dealers and through their advisors, through retirement accounts. In today's environment, because of the regulatory frameworks, you see that there are distinct providers that have been set up specifically to offer services for digital assets. So for someone to come in access digital assets, they need to onboard to a completely new experience, exchange or custodian, access liquidity through them. And that's just generally a burden or a hurdle for those to get into the space. And so I think the general sentiment is that with an ETF offering, it just becomes much more seamless.

Starting point is 00:06:55 You go through your traditional channels. You get, with any other ETF, you have the options of different types of accounts that you can access. So you have more tax advantage accounts, which generally, with the optionality, more seamless opportunity to access the asset class, you would imagine that more money would flow in. In terms of exactly how much is priced in, I think it's very difficult to say. I'd say, you know, expect the market to be fairly efficient in such that, you know, so much of this would be priced in by now, but I think it's just very difficult to say right now, given what we're seeing in terms of activity, exactly what the result will be in the price.

Starting point is 00:07:30 Michael, you had a number. What was it? What did you say $100 billion eventually within a certain? What was your number? So I threw it $100 billion in the first year, and Balchuna sent me straight. He's like, dude, GLD has $55 billion in assets. So maybe I was a bit optimistic. But I will, let's say, let's say I was over-optimistic by two. Let's say $50 billion. Although, I don't know what, how much, do you guys know how much are in the ETFs in Canada? I think it's only a billion or two. I don't know if it's a great proxy, but you got a fact check me, but. All right. Well, so we got the news yesterday and Bitcoin underneath popped, although, yeah, not like crazy. I don't know. It's five,

Starting point is 00:08:07 six percent. GBT, of course, the discount now, it's substantially, I think from like 25 to 17 or something, something thereabouts. And the, the judges ruled three to zero. I don't know if SEC is going to appeal. Maybe they will. Maybe they won't. I don't know how any of this works. But what they said was, like, they used words like the SEC was arbitrary and capricious and their ruling and that you have to treat like cases as like. And of course, the futures Bitcoin ETF, which currently exists, is not too dissimilar from the spot Bitcoin that they're wanting. And then going beyond that, there's a leveraged futures ETF, which is, I mean, I just, you know, that just sounds a little, a little wild to me. But be that as it may,

Starting point is 00:08:49 It sounds as if a spot Bitcoin ETF is on the horizon. And this has major ramifications because I would suspect that pick a number, 90% of all people that want to open up an account and buy physical Bitcoin or ETH or whatever have probably already done that. There's been like several speculative manias. And if you haven't done it at this point, you're probably waiting for an easier way to do it because it's still it still could be a bit, a bit cumbersome.

Starting point is 00:09:22 So this has to change the dynamics going forward. Do you think that the ETF is going to simultaneously kill demand or dampen demand for the actual coins, but also bring more people in? And if so, sorry for the rambling question. And if so, like, where do we, what sort of impacts do we think this is going to have on the overall market? I don't know about dampen demand for the actual coins. I think there's an explicit reason why, like, people would utilize the spot Bitcoin ETF as opposed to going through the entire process.

Starting point is 00:09:59 You kind of named it out of all the operational and other considerations that go along with creating a separate relationship for a small portion of your traditional portfolio. So maybe for Bitcoin, you would see, you know, flight to just a simple ETF-like product as the crypto industry is trying to bring crypto to traditional investors rather than historically it's been traditional investors have to go out of their way explicitly to come to the crypto industry to make an allocation. And so this would be like a huge move towards bringing crypto to traditional investors in a way that wasn't previously possible. But it is at the moment anyways, only Bitcoin exposure here. And so I think for a lot of traditional investors,

Starting point is 00:10:47 is that enough? You know, it's an easy way to get exposure to what makes up 50% of crypto's market cap. I think you can make that argument. But at the same time, you know, the ancillary services and offerings that custodians can offer don't exist in products and, you know, probably won't for the time being, which is, you know, the fact that you have proof of stake assets, you have, you know, alternative assets that aren't going to sit inside of these products, at least at the moment anyways. Rameen, do you think I'll use the word Bitcoin here, not, not, you know, let's just focus on Bitcoin for a second and not ETH or any of the other stuff.

Starting point is 00:11:29 Can Bitcoin be an asset class if the use case that, that started this whole thing never really materializes? And that being mostly Heyman's use case is what you're referring to? Yeah, just, just self-sovereign, nonsense. If people never really use Bitcoin in the way it was intended, can it still stand on its own as an asset class for investors in their portfolios? Could it be like millennial Gen Z gold? Yeah, I mean, I was going to say the ETF is going to be a monumental shift, right?

Starting point is 00:12:03 And the kind of dynamics of how people access the asset class. But Bitcoin is very much a global asset. And so you think about those that do not have access to traditional broker dealers. I think one of the primary use cases initially was, you know, banking the unbanked as well, right? So those that do not have access to traditional financial services products, accessing Bitcoin as an alternative, really, as a store of value. So we're to maintain that value outside of kind of local currencies. So that use case still stands firm, right? So the same people would not have access necessarily easily to this ETF product, right?

Starting point is 00:12:37 There's not just the US ETF. There's been one lunch in Europe now. There's some in Canada as well. So I think there will be more and more products available on a global basis, but I think the use case still stands. I think people will continue to hold the spot physical, de-materialized Bitcoin, and you think about it for real use cases. So if you do want to use it for a payments use case, I think that we haven't seen as much activity, I think, as expected early days of Bitcoin, but it's still a use case. And then, you know, in terms of really store a value on a global basis, I think that thesis still stands. finance people are so stuck at the past because we still call it a coin and we still call it physical

Starting point is 00:13:16 shouldn't it be called digital bitcoin exactly yeah just to add to some of what rameen was saying with bitcoin there's basically two use cases right it's censorship resistant payments and it's an aspiring store value asset there's only going to be 21 million of them and it's ruled by this decentralized governance process that would have to determine that there should be more than 21 million coins, and that's not in the broader consensus interest. So those two properties still exist, even if spot Bitcoin ETFs become large holders of Bitcoin. And that's the way that investors that live in large developed countries allocate to the space, right? Maybe they allocate not because it's this censorship-resistant payment network, but because it's a store-value

Starting point is 00:14:06 asset and the way that they get access to that is via, you know, an investment product with a, you know, a custodian on the end that they're, you know, trusting. But that doesn't take away the fact that people in emerging countries can utilize it as a payment network or can utilize scaling technology on top of it. And so just because, you know, one of the value propositions is more important to a certain set of investors doesn't take away, you know, the other use case that exists. And that's a really fair point. Not, you know, as an American, we forget that not everybody has the global reserve currency in their pocket. So that's a really, really good and often overlooked point. There is a great irony that one of the largest holders

Starting point is 00:14:47 of Bitcoin in a couple of years could be a large traditional financial asset manager, whether it's, you know, I shares, fidelity, whoever. So I don't, you know, whatever. Well, it's not the result of those people looking at existing payment providers and saying, oh, this is so much better for payments, right? It's more the result of, hey, look at global sovereign debt levels and look at what the likely outcome is, right? Is our, you know, is fiscal policy going to become more restrictive? Are we going to have austerity and less spending? Or are we going to have debasement in a central bank that monetizes debt over time? You know, if you think that that's more likely, then maybe you look at Bitcoin as this aspiring store

Starting point is 00:15:33 of value asset. And I think that's the framework that most large investors that are looking at the space, they see the value prop through that potential store of value asset. Well, if Bitcoin has an ETF approved, I would assume the Ethereum ETF would not be too far behind. And the way that it was always explained to me is that Ethereum is kind of taking the building blocks of Bitcoin and building on it. And it was kind of like, this is, if you could have invested in like the internet when it was first started, like the network of it, you're investing in like the computer network or however it is, however you want to describe it, where do we stand in terms of Ethereum? Because it does seem like Bitcoin is kind of pigeonhole

Starting point is 00:16:10 into this store of value, you know, censorship resistant, all that. And Ethereum was supposed to be, okay, we're going to build on that. Now you can do something on this network. So where do we stand with Ethereum these days? So I think, again, and we probably mentioned this before, is Ethereum added this idea of smart contracts and programmability that we could have other use cases outside of simply peer-to-peer payments and potentially being this alternative monetary system that can serve as a store value. And with it comes this whole idea that if you can build applications on top of it, could we put other assets on top of this network and create more transparent banking and financial markets infrastructure? Or could we decentralize some of the

Starting point is 00:16:55 idea of like content ownership on the web? You hear this idea of like web, three and taking out, you know, sort of the middleman in some of these situations. It is necessarily more speculative, especially today, given that, you know, if you want to bring real world assets onto these chains, the regulatory environment hasn't really given you a lot of clarity and reassurance that, you know, your token is a claim on a real asset, right? And like, large capital can't really interact with these networks necessarily on chain because of, you know, certain K-Y-C-A-M-L laws that don't factor in the fact that if you interact with a decentralized application, you could be interacting with somebody money laundering or something like that,

Starting point is 00:17:39 right? I mean, it's an extreme scenario, but that prevents a lot of, you know, would-be allocators or users of these networks from using them. And so with Ethereum, what I like to say is, like, it is a technology platform. It is necessarily more speculative in its use cases at the moment. it's also five, six years younger than Bitcoin. And so we have to kind of think about it from a timeline perspective and where Bitcoin was five or six years ago, because that's kind of where Ethereum is at the moment.

Starting point is 00:18:09 And then that changes, you know, sort of the risk reward outcome, right? There's probably more risk embedded in it because the use cases are more speculative, but also at the same time, that could, you know, have a higher payout rationally. Yeah, I think just to add on that, you know, Bitcoin, the use case for Bitcoin is Bitcoin versus Ethereum is a foundational technology that creates a decentralized computing network, essentially, where you can build the use cases on top of it, right? So the collection of these decentralized applications then create value in the network. And so it's dependent on the delivery of those use cases, the proliferation of those.

Starting point is 00:18:46 And so I think we're seeing some interesting use cases come to life now, but it has been a little bit slow. We're seeing most of the activity and really defy activities, so decentralized. financial applications, tokenization of money with stable coins. I think there's end number of use cases that have been looked at, but it has taken some time. And so as Jack mentions, right, the foundational technology is out there. They're continuing to upgrade that technology in order to make it more scalable to really think about the future use cases and make sure that the platform itself can handle those. But there's more work to do.

Starting point is 00:19:21 The platforms are done. And I don't know if it will be, quote, quote, done. But the more we see use cases build on top of it, the more use there will be of the network and therefore kind of the value grows of the underlying technology. Defi has not, I don't think, to correct me from wrong, taken off to the weight to the extent that people might have hoped. Also interesting to note that MasterCard is hitting an all-time high right now. Visa is not far behind. So the traditional payment rails have, you know, they're fairly entrenched. And I think it's going to be maybe more difficult. to disrupt, then people might have thought, as far as the Ethereum stuff goes, and the smart

Starting point is 00:20:01 contracts and the Legos, which was a good analogy, do you think a lot of the wind was sucked out of that space because of the proliferation of AI, just in terms of where capital and talent is flowing these days? Yeah, I mean, I think talent has been driven out of all kind of spaces towards AI, right? I think you see some of the valuations and the activity from some of those AI-focused companies. And yeah, I think there's just a lot of excitement there. It's truly foundational technology that could change the way that we live. I think just like it has any other industry, it's impacted blockchain developers. I don't know that I would say that it has a direct impact specifically to defy that I've seen unless Jackie have any data that says differently.

Starting point is 00:20:44 No, I don't. But what I would say also is while crypto is easy to look at price volatility because it trades 24-7-365. At the same time, these are, like, networks that are trying to take core primitives that exist in centralized finance and then recreate them in an on-chain, transparent way that anybody can get access to. And when you say, like, what's sustainable, like, ultimate success of defy? It's, in my mind, anyways, 50 years from now, we have a more transparent financial system where, you know, anybody can get access to it or they could go through a third party to get access to it. But underneath the surface, the entire system, you know, operates in a more fair, transparent way. And so if that's the ultimate goal, like, sure, we are always

Starting point is 00:21:41 going to measure things on the surface of where do prices go and what is usage over a, you know, a six-month time period. But you're not going to change the entire financial services industry and the way that people interact with it over a one, two, three-year time horizon. And like if we go back, uniswap, 2018, AVE same time period, like the core primitives of Defi of trading, borrowing and lending, the true adoption of like stable coins in any meaningful way, it was in like the 2017 to 2019 time period. And so those have existed for like four years. And so those have existed for like four years with the idea of making a more transparent version of the existing financial system without true regulatory clarity. It's just the big picture of what could make this

Starting point is 00:22:30 sustainably successful won't happen over the micro six, 12 months. It will happen over the span of 10, 20, 30 years if it's successful. We talked to both of you almost a year ago. I guess it was last fall in Boston. And you were saying, listen, in the crypto winter, I think, could already kind of be gone, or at least the pretty nasty bear market. And you said, we're seeing an exodus of people from the space that they're coming, and Fidelity is trying to bring some of those people in. Where do we stand in terms of that, in terms of people becoming available, interesting, smart people in this space that are kind of up for grabs? We've done a lot of hiring in the last few years. So we've grown pretty substantially in the digital

Starting point is 00:23:13 asset space of Fidelity. I think what we saw is that the market was incredibly tight, for a while, right? Through kind of the bull runs that happened. I guess it was about two years ago now. It was very difficult to bring people in. I think there were a lot of new ventures that were starting up. There was a lot of excitement. What we saw, though, is that we, you know, that changed a bit and we were able to do a lot of hiring. We've been able to get a lot of talent from outside in the market. And then also what I'd say is even internal to fidelity. As years of past, people have been able to explore the space themselves and built a level of expertise, such that when we bring them in, bring them into the digital asset space, they come with a level

Starting point is 00:23:51 of knowledge that they're able to gain on their own, but, you know, it's very valuable to us. And so I think just as time has passed, you've seen that, you know, there's just a greater population of folks that have actually dealt in the space, either at a personal level or professionally. I think it's been a little easier to kind of find, find that talent in market recently. Of course, still fairly tight, but has become a bit more favorable. Can we get back to Jack, you were talking about earlier the case for Bitcoin on the macro front. I think it's really interesting. The interest expense on our debt, I think is going to exceed, if not already exceeds the our defense spending budget, which is a ludicrously large number. So whether

Starting point is 00:24:34 there's debasement in our currency, which of course there always is, like to me, just that is a reasonably objective bulk case for an alternative store of value, like Bitcoin. And yet, you could never really draw one-to-one conclusions, like, oh, Bitcoin is up today because people are afraid of the federal deficit. Like, it's very difficult to draw those direct lines. But are you surprised at how Bitcoin has been acting over the last, I don't know, a couple of quarters? Not necessarily, because if you look at, like, what's the traditional store of value asset

Starting point is 00:25:10 If we call it cash or if we call it fixed income instruments, they've arguably become more attractive over the past six, 12 months, right? Because cash isn't trash if it pays, you know, five and a quarter percent, give or take, and inflation is, I don't know, three percent over the past year. I mean, that is a positive carry on your cash position, whereas before it was, you know, you were getting paid nothing on cash and inflation was, you know, one and a half, two percent. And so it was a drag on your portfolio, right? It was a melting ice cube, as some in the Bitcoin space would say. And now that's not necessarily the case in the short term.

Starting point is 00:25:51 But again, you mentioned this whole idea of like, okay, well, what does interest expense become, right? And when does that start to become problematic and who's going to buy all of that debt? That's the big picture that, again, on a micro, you know, six, 12 month time period, sure, can we, you know, paper over larger interest? interest expense, yes, but it becomes problematic on a five and 10 year time horizon. If we're rolling over all of this debt at far higher rates with debt to GDP at 120%. The only other time you had that in U.S. history was post-World War II, which was a period of financial

Starting point is 00:26:28 repression, negative real interest rates. Well, Jack, I know you've written a piece in the past trying to value Bitcoin. Do you take things like real interest rates into account? Because that's always kind of been the thing I've heard for gold is if real interest rates are rising, that's bad for gold because gold doesn't really pay a dividend. Obviously, there's always other variables at stake here. But is that something that makes sense to you if real interest rates are rising, that that would be, should be bad for crypto. It's a headwind, I guess. Yeah. So there's sort of, I would argue, kind of like two elements here, right? There's the macro things that, like, ultimately Bitcoin's not controlling. That's like the extrinsic

Starting point is 00:27:05 variables. Then there's the intrinsic variables of like Bitcoin itself, its supply schedule, there's only $21 million. And then there's a it posing itself based on its monetary properties against traditional monetary assets, fiat currencies, fixed income instruments, golds, precious metals. And if you look at like the adoption curve, this is what I talked about or wrote about in the piece on valuing Bitcoin. We know Bitcoin's supply schedule is inelastic or irresponsive to changes in demand, right? It just follows along its 21 million supply curve that halves every four years its issuance rate. Its demand curve looks like a technology adoption curve, like cell phone adoption, like

Starting point is 00:27:56 internet adoption. Urien had done some work on this a couple of years ago. other folks in the space as well. And it still does look like that. But the rate of adoption, if we look at like address growth has decayed during this bare market, that's kind of what you would expect, right? Because it's very cyclical. You have like above expectation rates of adoption when prices are up. And then you have below expected rates of adoption compared to prior technologies when prices are down. And so the long term picture of thinking about valuing Bitcoin is supply and demand, shirley. And then you have this short-term variable of changes in the macro

Starting point is 00:28:34 environment, which at the moment, I would argue, is a headwind. And actually, I believe Urien has done some stuff recently where he's trying to tie in real changes in interest rates or real interest rates alongside the adoption curve. So, like, putting those two variables together. But those are like the primary drivers, right, of whether Bitcoin is attractive as an alternative store of value. and then over time, whether the technology is being adopted. Yeah, I think it's interesting because the paradox that is causing debt to increase is also what might be driving investors away from Bitcoin. If you can just simply collect 5 plus percent on your cash, that's a really attractive

Starting point is 00:29:18 alternative to the ultimate alternative store value. Yeah, no, I would totally agree. I think the place where I think that starts to break. down is, is that sustainable over the long term? And I would argue it's not without like a central bank potentially monetizing that debt in a roundabout way, right? You couldn't, you know, if you have QT at the same time as you have rising interest rates, which we have had at the moment, right, in this very micro six, 12 month period of time, can you do that for five years? And with the system so highly leveraged, I guess I would make the case that there's a high probability that you won't

Starting point is 00:29:56 be able to, right? That the phrase of like something will break, right, or some sort of policy change will have to take place. And when it does, what will it be, right? Will it be lower interest rates? Will it be quantitative easing? Like, all of that plays into the idea of this alternative store value if you see dovishness would probably perform well. And the argument is a leverage system is necessarily more fragile to like any rate of change in like monetary and fiscal policy. And so at some point here, like, is there a high probability that you can stay hawkish for the next five years? I would argue no, in which case that is kind of the pitch for investing in Bitcoin. Again, anything can happen, of course. But I think if you look at the

Starting point is 00:30:38 probability and likelihood of outcomes, it probably favors at some point easier monetary policy. So you guys recently talked to a friend of ours, Tyrone Ross, on a webinar about some new solutions for advisors. And I think that's been one of the hurdles for advisors as just finding trusted partners. So what can you tell us about that? Yeah, I think as we talked about just earlier in the pod about ETFs, what we've heard from advisors is that one of the biggest hurdles for them to provide services for their clients is an easy access point. And so as I mentioned today, any advisor that wants to give their clients access, they need to go and open up a new relationship with a custodian or an exchange and be able to kind of offer these services

Starting point is 00:31:25 which is completely discreet from managing the rest of their portfolio. There's not integrations with aggregator reporting services, et cetera. And so what we've done recently is this summer we launched Fidelity Crypto for Wealth Managers. And so Fidelity Crypto for Wealth Managers is essentially an integration of the Fidelity Digital Assets platform that we've been running since 2018 and distribution of that through the Fidelity Institutional Wealthcape platform. And so what that offers is that clients of the Fidelity Institutional that have access to the Wellescape platform to manage their clients' portfolios and securities, the brokerage can now open up an account through that portal to Fidelity Digital Assets, open up an account that allows their clients to make allocations to Bitcoin, to Ether, and to really access the platform that we built and have been running for years now. And so the big play here is that we want to give our clients' optionality. And so you can access Fidelity Digital Assets directly or you can access it through Fidelity Crypto for Wealth Managers through your Wealthcape Ordle.

Starting point is 00:32:25 But it's really an aggregation, right? So allow our clients to have really an easy way to access the products and it aggregate that experience across their entire portfolio they're managing. What sort of integrations exist with an advisor's tech stack? Are there any at this point? No direct integrations with the advisor's tech stack. we're working on. What we're working on is integrations with reporting solutions that they likely use, which I think that that will come in time, but otherwise, you know, direct integration all services through, through Wellescape. You guys are hosting an event on September 19th.

Starting point is 00:33:02 Talk about your latest research report, Ethereum investment thesis, Ethereum's potential as digital money and a yield-bearing asset. What can, for people that are interested in tuning in, is that for fidelity clients only or advisors only or who could access that? I think as far as I know anybody can access it. I think we're sort of posing the event intended for advisors. But anybody that wants to is able to sign up for that. So maybe this goes against my thing about the real interest rate and how gold doesn't have a yield. So maybe just explain how how Ethereum could be a yield-bearing asset then? Yeah. So last year, last September, Ethereum transition, I mean, I guess that's almost a year now. It feels like yesterday. Ethereum transitioned from a proof of work network,

Starting point is 00:33:52 kind of similar to how Bitcoin operates with minors that are involved in the governance process to a proof of stake network in which anybody who has 32 eth or wants to delegate a portion of their eth to somebody that can create a, you know, around 32 eth lot, can stake those Ethereum and earn a yield for helping run the network, essentially, secure the network and ideally decentralize the network if, you know, enough people are running validators themselves. And Ethereum becomes a yield-bearing asset, because if you think of miners in a proof-of-work network, well, how do they get paid? They get paid through an inflation subsidy on Bitcoin's network, and they also get paid through transaction fees when people want to transact. If a lot of

Starting point is 00:34:42 people want to transact, there's only so many transactions that can fit inside of a single block. And so fees rise as there's more demand for block space and fall as there's less demand for block space. Similarly, on this end, instead of paying the miners for allowing you to transact on the network, you pay who's in charge of the governance process and security of the for Ethereum now under proof of stake. It's the validator. So it's people that are staking their ETH. And so ultimately, ETH has become a yield-bearing asset where if you hold ETH, you have the optionality to stake the asset and earn a yield for doing so. And that yield is directly correlated to the usefulness of applications on the network and the number of users that are actually

Starting point is 00:35:29 willing to pay fees to transact on the network. Jack and Rameen, this was great as always. Thank you so much for coming on. We appreciate the time. We'll link to The event in the show notes, some research stuff in the show notes. Thank you. Thanks, mate. Peace, Ben.

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Animal Spirits Podcast - Talk Your Book: The Macro Case for Crypto

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