Bankless - Bitcoin ETFs: Bullish or Bearish? with Alex Thorn

Episode Date: November 1, 2023

Alex Thorn is head of Research at Galaxy Digital, leading a team of researchers focused on unpacking the market developments in crypto, producing information for both internal and external audiences. Before Galaxy, Alex was Director of Blockchain Research at Fidelity, so he’s a veteran of straddling TradWorld and Crypto.  Today we talked to Alex about the bull vs. bear case for the BTC ETF.  ----- 🏹 Airdrop Hunter is HERE, join your first HUNT today https://bankless.cc/JoinYourFirstHUNT  ----- 🔐 Get a Free Trial of Doppel https://bankless.cc/doppel  ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE ⁠https://k.xyz/bankless-pod-q2 ⁠  🦊METAMASK PORTFOLIO | MANAGE YOUR WEB3 EVERYTHING ⁠https://bankless.cc/MetaMask  ⚖️ ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum ⁠  🗣️TOKU | CRYPTO EMPLOYMENT SOLUTION https://bankless.cc/Toku  🦄UNISWAP | ON-CHAIN MARKETPLACE ⁠https://bankless.cc/uniswap  🔗 CELO | CEL2 COMING SOON https://bankless.cc/Celo  ------ TIMESTAMPS 0:00 Intro 7:25 Spot BTC Interests 9:15 Breaking Down Alex's Thread 18:20 Spot BTC Pipeline & Next Steps 28:00 Inflows Into Bitcoin ETF 30:00 Predicting How Investors Will Invest  32:30 BTC Price Impact  42:20 Estimated BTC Price Prediction  46:15 Predicting Timeline 49:40 BTC ETF Marketing  52:00 The Bear Case for BTC ETF 1:02:30 Marijuana Analogy  1:04:30 ETH ETF Argument  1:09:50 Galaxy Brains  1:11:30 Closing & Disclaimers  ------ RESOURCES Alex https://twitter.com/intangiblecoins  Galaxy Brains Podcast https://www.galaxy.com/insights/podcasts/galaxy-brains/  ------ Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures 

Bankless Nation, we have a very simple question today. Is the Bitcoin ETF a big deal or not? That is the topic. That is the agenda in today's conversation. We are entering this episode and the price of Bitcoin is over 34K. So I think it just kissed 35K earlier today. David, are you feeling bullish, man? I am feeling bullish.

And after almost two years of just chewing glass in this market right now, I'm not prepared to be hurt anymore. And so if the Bitcoin spot ETF gets approved and it's not bullish, I need to know now. To get that glass ready to put back in your mouth. I think that's the question. And honestly, we have the perfect guest to help answer that question. We have Alex Thorne. He's the head of research at Galaxy Digital.

He's published a ton of fantastic research about this. And we're counting on Alex today, David, to be objective about this. He's not just going to tell us the bull case for the Bitcoin ETF, of which. we know there is one. We definitely want to hear about that. Don't get me wrong. Alex, I know you're listening. We want to hear about the bulk case, but we also want to hear the what if you're wrong case, the bear case for the Bitcoin ETF as well. We've got to find out. Is this thing priced in? Is there a mountain of capital out there waiting to chomp on Bitcoin? That's the question in today's episode. Certainly, certainly. We're going to get right to that question. But before we do,

we need to hear from our friends and sponsors over at Doppel. So if you're like me and Ryan, and you have a bunch of Twitter followers and a bunch of doppelganger fake fishing accounts, then you should be interested in this. If you are a founder with a defy app that takes in deposits, you might also be interested in this. If you have impersonators who are trying to get in front of your customers' money and you, then you should get in touch with dopple. Dopple. Doppel is an anti-doppelganger service.

So doppel-bopper as a service. I'm making words up as I go. Doppel-bopper. Doppel-bopper. Yeah, so doppel automates the detection and take down a impersonators, malicious websites, fishing attempts, which are getting increasingly sophisticated. You know, bank lists, we have impersonators. I know Blockworks just had a big impersonator. So if you plan on having a successful business, you probably are going to have someone who's trying

to dopple that. Doppel gang that. So Doppel wants to help you out. So they already serve brands like Meta, Coinbase, Alana, and Avey to help out pursue any fishing attempts, any malicious websites, cyber threats, et cetera. So there is a link in the show notes. doppel.com slash sign hyphen up. Guys, this is the service that we use, too. So we can testify. It's fantastic. Yeah.

And there's a free trial going on right now. So click that link in the show notes. All right, David, one other question I think we have going into this episode with Alex is, I know we're going to talk about the Bitcoin ETF. And that's, Bitcoin has certainly been on a run recently. But there's also like word of an Ethereum ETF as well. So if this is, if the ETF is bullish for Bitcoin, what about Ethereum? So I've not picked Alex's brain on this.

I want to talk about that as well. Any other questions from you going to this episode that you want to answer? Yeah, I really just want to drill down on the is this, this is not a is this going to get approved or not? I think generally we're making the assumption that this will be approved by January of next year because that is when the earliest deadlines are up. The question is, what is the magnitude of capital that is waiting to purchase and why? And really how does a spot Bitcoin ETF change the market structure of crypto at large fundamentally? And then what are, how big is this before, after a moment? So these are kind of the high level questions that we're going to get into with Alex right after

we talk to some of these fantastic sponsors that make this show possible, especially Cracken, our preferred exchange for crypto in 2023. Don't, don't buy the, if you're listening to Bankless, don't buy the spot Bitcoin ETF, just buy Bitcoin organically through Cracken. There's a link in the show notes to get started with Cracken today. Cracken knows crypto. Cracken's been in the crypto game for over a decade. And as one is the largest and most trusted exchanges in the industry,

Cracken is on the journey with all of us to see what crypto can be. Human history is a story of progress. It's part of us hardwired. We're designed to seek change everywhere, to improve, to strive. And if anything can be improved, why not finance? Crypto is a financial system designed with the modern world in mind. Instant, permissionless, and 24-7. It's not perfect, and nothing ever will be perfect.

But crypto is a world-changing technology at a time when the world needs it the most. That's the Cracken mission to accelerate the global adoption of cryptocurrency, so that you and the rest of the world can achieve financial freedom and inclusion. Head on over to crackin.com slash bankless to see what crypto can be. Not investment advice, crypto trading involves risk of loss. Cryptocurrency services are provided to U.S. and U.S. territory customers by Payword Ventures, EKVI, doing business as Cracken. SELO is the mobile-first, EVM-compatible, carbon-negative blockchain built for the real world.

And now something big is happening. Introducing the cello layer two. It's a game-changing proposal that's going to bring Sello's rapidly growing ecosystem home to Ethereum. Vitalik has shared its excitement for the Sello Layer 2 on the Selo Forum. So has Ben Jones from optimism. But why? The Sello Layer 2 will bring huge advantages, like a decentralized sequencer, off-chain data availability, and one block finality.

What does all that mean? Rock solid security, a trustless bridge to Ethereum, and more real-world use cases for Ethereum without compromise. And real-world adoption is happening. Active addresses on SELO have grown over 500% in the last six months. With the SELO layer 2, gas fees will stay low and you can even pay for gas using ERC20 tokens. But SELO is a community governed protocol. This means that SELO needs you to weigh in and make your voice heard.

Join the conversation in the SELOF forum. Follow at SELOG on Twitter and visit cello.org to shape the future of Ethereum. Arbitrum is accelerating the Web3 landscape with a suite of secure Ethereum scaling solutions. Hundreds of projects have already deployed on Arbitrum. with flourishing defy and NFT ecosystems. Arbitrum Nova is quickly becoming a Web3 gaming hub, and social apps like Reddit are also calling Arbitrum home. And now, Arbitrum orbit from orbit,

allows you to use Arbitrm's secure scaling technology to build your own Layer 3, giving you access to interoperable, customizable permissions with dedicated throughput. Whether you are a developer, enterprise, or user, Arbitrum Orbit lets you take your project to new heights. All of these technologies leverage the security and decentralization of Ethereum

and provide a builder experience, that's intuitive, familiar, and fully EVM compatible. Faster transaction speeds and significantly lower gas fees. So visit arbitram.io, where you can join the community, dive into the developer docs, bridge your assets, and start building your first app with Arbitrum. Experience Web3 development the way it was always meant to be. Secure, fast, cheap, and friction-free. Bankless Nation, I would love to introduce you to Alex Thorne, the head of research at Galaxy Digital,

leading a team of researchers, focus on unpacking the market development in crypto, and producing information for both internal and external audiences. And also before Galaxy, Alex was the director of blockchain research at Fidelity. So he's a veteran of straddling the trad world and crypto. Alex, welcome to the show. Yeah, David, Ryan, great to be here and great to be with Bankless Nation. Thanks for having me. So the big question on my minds, on Ryan's mind, on probably all of our listeners' minds,

is what is this bot Bitcoin ETF going to do to the markets? We saw the false start, the fake start with the accent. accidental slip of the coin telegraph tongue not too long ago. But then all of a sudden, people have reconsidered as to what position, what side of the field that they want to be on. And people have considered themselves off sides. And that's where we've seen a lot of the price action in Bitcoin as of recently. But like I said, Alex, I'm not ready to be heard again. And so if we don't get a bunch of buying pressure post-Spot Bitcoin ETF, I'd like to know it as sooner rather than later. So the question to you is how much interest is in the spot Bitcoin

an ETF. And how do we even measure this? I'll throw those over to you. Yeah, it's a good question. We try to answer it. I will say we definitely don't know. We hear about a lot of interest. I think primarily the segment that we focus on are advisors in particular. And those are an independent advisor, you know, Alex Thorne like advisor with a storefront, but I don't have a back office. So I use Fidelity, Pershing or Schwab and others, these platforms. Those are independents. or it's an advisor that's affiliated with the bank or broker-dealer. So the big banks, most of them have a wealth management division, right? Those are, that's a big segment.

When we add all of that up, that's about $47 trillion in AUM. Wait, wait, wait. Can I make sure I understand that, Alex? Yeah, that's a big number. So you've got a chart here from your fantastic Twitter thread, and I think it has some of the numbers that you were just mentioning. Yeah. Okay.

Yeah. So that this chart in the tweet is sort of the next step where we then discount that total AUM, but we're using as the top line number, this $47 trillion, which is the total AUM of these three channels, broker-dealer's banks and RAs. Is it this? These are the three channels, right? Yeah, 48 trillion. 48 trillion.

Okay, okay. Can you break these channels down for us? I want to be sure the bankless audience actually understands. So, registered investment advisor, David and I call that, that's like the Edward Jones guy that, you know, was a coach on your soccer team kind of person, right? Yes, except Edward Jones is in the broker-dealer side. segment because they are a broker dealer. So that a bunch of those big names are in that BD or bank segment. Whereas the RAAs, we call them RAs here, all of these advisors at these platforms

are registered investment advisors. But what we mean is more independent ones, literally like Alex Thorne advisor, right? Like by himself. So can you break these down by line items? I'm actually just going to describe the table because some people will be listening to this on the podcast. They won't see the glorious visual that you could see on YouTube. If you go subscribe to bankless YouTube channel, everyone. But let me just describe this and then you can kind of break down these categories and who they actually are because it's very clear I don't understand who they are. But we've got a total of $48.3 trillion dollars, U.S. wealth management, okay? And the breakdown, the categories that compose that 48.3 trillion, I said trillion with the T is number one,

broker-dealer, 27 trillion. Number two, bank, $11. $1.9 trillion. Number three, registered investment advisor, RIA, $9.3 trillion. Together, that equals $48 trillion assets under management. This is all U.S. wealth that's like, actually, first, before we dive into those specific categories, U.S. wealth management, is this all our money? This is all of the American people's money? So this doesn't include self-directed accounts. So like if you have a fidelity account with an IRA and that you manage yourself, that's not included here, right? If you have a brokerage count that you manage yourself. That's not included. This doesn't really include 401Ks, which are not included, right, like or retirement accounts. This is really like when you pay

someone to do investing on your behalf. Okay. Okay. So this is the amount of wealth that is under the discretion of somebody who's in charge of managing other people's wealth who could potentially press the buy button on a spot Bitcoin ETF. Yes. And it doesn't also, it also doesn't include funds. You may buy like a mutual fund, which is actually, discretionary, right? Like the fund portfolio manager invest that money for the fund. But for you, if you just have it in an IRA that you manage yourself, then that would be non-discretionary. So yes, this is discretionary advising on behalf of other people. Well, that's interesting because I do have a fidelity account and I could purchase some spot Bitcoin ETF and that

wouldn't be included here because that's self-directed. No, and that's a major, I would say that's, I don't know if it's the biggest. We didn't look at that segment. And the reason is, that we thought that the wealth management industry, these three segments you've described, Ryan, are the segment that will get the most net new accessibility to Bitcoin exposure from the ETF, right? Because you can already go buy Bitcoin on Cracken, right? You don't have to like buy it in the Fidelity account with the ETF. I mean, you could. I mean, you may, but it's, I can and I do, Alex, except that I have these, like, Legacy 401K accounts and Legacy IRA accounts from like previous employers and other things I've set up that are managed infidelity and I don't have

a clean way to port them over to Cracken right now. So, but that is one category. Overall, you're right. Okay. So I interrupt you though. Could you describe these three categories? Broker dealer, bank, registered investment advisor, who are these? Yeah. So the broker dealers are right. SEC and FINRA registered broker dealers. That's a specific thing they can they can buy and sell securities. They can do a variety of things, right? Offer securities, I believe BDs can do. Not an expert to be clear in the actual compliance difference necessarily between these, but those are the big firms you know about. Morgan Stanley, right? All of the big banks, most of the big banks are broker dealers and they fall in this category for us. Then you have maybe smaller banks. Think of a regional bank.

Maybe can't offer their own securities, but they have wealth managers, right? They have a wealth management program. So your local bank, you can go in there and they've got, you know, some offices on one side of it that are people that will help you invest, right? And then the, like, I said, the registers and investment advisors, there's even another category of those types of advisors that they're just not affiliated directly with the broker dealer or bank. They tend to use these more sort of white labelish platforms. I don't remember all of the list of firms that offer them, but I know Fidelity does because I worked there, right? This is sort of a white label version of Fidelity.com, but it's meant for advisors so they can do sub accounts, manage multiple

portfolios at the same time, right? It's sort of just white labeling the back office and UX infrastructure for advisors. And I think Pershing, Schwab, others offer that service as well. So that's basically what we're looking at, right? Because if you're an RAA that has an entire back office, like you're most likely a bank or a broker-dealer anyway, right? So those are the categories that we looked at. And again, we wanted to be conservative.

I absolutely think there will be retail demand for a Bitcoin ETF. If it's you and your IRA, Ryan, like you may want to buy it there, right? we just we felt that you could already buy it elsewhere. And so trying to be conservative, we just focused on this channel that really doesn't have access at the moment. I can explain why they don't have access if that's interesting also. Do you do explain why. So broker dealer at the bank, the registered investment advisor, why can't they log in crack in and buy Bitcoin? Why can they buy micro strategy?

Can they buy like, you know, GBDC like the gray scale trust? Yeah, they may be able to buy some of the like Bitcoin aligned equities, whether it's the one you mentioned or maybe mining stocks, right? I think that is, they probably can buy straight equities, but those are pretty inefficient vehicles in the scheme of things for, I mean, right, they're not directly Bitcoin vehicles. There's other factors that go in there. The OTC products or even the cash settled Bitcoin futures based ETFs that exist, those are not on the, the, the, bank broker-dealer platforms by and large. Those advisors that work for those banks and broker-dealer that do client portfolio management and advising and investment management under the banner of those bigger firms, they can only put their clients into investment options that are approved by the bank

and the broker-dealer. Wait, so they can't buy GPDC? They can't buy the Grayscale Trust right now? No, not really. Maybe with a specific exception, but they would have to go through typically an exception process. In fact, I'm not aware of any of those that actually allow their advisors to put end clients into the trust products or the cash settled ETF, future base ETFs. Again, like, I think, you know, if you brought like a client, if you were the advisor and you brought a client that was going to put a ton of money with you, if you let them do that, the bank or broker dealer might make an exception, but they're not offered on the menu. They're just deemed too risky to esoteric. It could be a variety of things. Yeah. I mean, suitability in general could be a reason. I think I know

of several, for example, of those bank broker dealers that don't allow cannabis ETFs or stocks, right? I don't know why. Do they not like cannabis? That's the reason. There could be a variety of reasons, right? So it could be that they're too costly. They're not suitable.

They could be, you know, bad. I don't know. They just don't make it through a process, but those have a process. It is possible. I'm not sure that the registered independent investment advisors that I talked about being on like the Fidelity platform or Pershing or Swab or these other ones, they may have better access because those platforms, they're not actually, like, affiliated with the platform, right? They're sort of buying it as a vendor. And so the platforms, I think, care much less about

specifically what they're able to buy. But as you notice, and as you read, that is the smallest of the three segments we looked at. And we took that into account also when, you know, the tweet that you showed before, the first one, that's actually us then ramping up what we think the adoption will be per year. And you'll see that we have. higher adoption levels in that independent segment than in the others, right? So, and that's for that reason, right? Like if you look in the first column year one, we're basically handicapping the total AUM of each of each of these three segments by our estimate of how much total AUM will be

able to access it, just purely be able to access it, right? So we're saying only a quarter of the AUM at the broker dealers, which is the biggest segment that we looked at, only a quarter will even have it turned on. in the first year, right? So, and there's reasons behind, whereas we started with 50% for the RAs, right? Because we think it's less of a lift. The platforms don't have to perform the same amount of diligence or care to perform typically the same amount because they're not, they're not a fiduciary behind those

independence, right, investments. They have to do stuff too, but we think they'll adopt it more quickly. Before we're proceeding in this conversation, I do kind of want to just like set the table about like what exactly the the parameters of what we're talking about here. So we talked about these three different categories, the broker dealer, the bank, the registered investment advisors, 27, 12 and 9 million trillion dollars respectively. This is what we are doing is we're talking about the mountain of capital that is out there that has never been able to buy Bitcoin ever before. And with this bought Bitcoin ETF, that pipe is now established between this $48 trillion and

Bitcoin through the spot Bitcoin ETF. like for all the podcast listeners out there, just imagine a pile of money that's $48 trillion large and then look at the Bitcoin market cap, which is under $1 trillion. I think it's like $600 billion-ish, give or take, right now. And so like these are two different sizes. Obviously, there's not going to be $48 trillion of buy pressure that there's other, very many other assets that that is dedicated for, but that would be cool, maybe one day. And so what you're doing in this next step, Alex, is you have then shaved that $48,000,

million off into 25% for the broker dealers, 25% for the bank and 50% for the RIAs, because you're saying, well, of that $48 trillion, only a fraction will actually have access to that buy button. So we're going to trim off by, you know, three quarters or a half or RIAs just because that is at day one, how much access there's going to be. So we're like reducing the pile of money that is actually able to potentially be interested in buying Bitcoin. And I think we're about to take this a few steps further about like, okay, well, still not 25% is going to buy like actually a much smaller fraction.

But that's kind of where we are in this conversation. Where do we go next? Yeah. So before we go to the next actual two steps, which are how much of those funds will choose to buy and then how much will they buy? Those are the steps two and three. But if we instead look at year one, two and three going sort of to the right in the chart, right, looking forward. And this is important because those steps two and three, we keep fixed through the entire time period of our analysis. So I'll talk about that in a second.

But so what we're really doing is starting with a giant pile of money, the 48 trillion and handicapping it based on segment. And when we look at, say, the banks and the broker dealers, this is pretty straightforward. For each of them, we're saying 25% of the A1 will be addressable in your one. 50% of it will be addressable in your two, 75% in your three. We're not just totally making it up. there's plenty of back of the napkin math here in general, right? This is more like a way to think about it. We think it's conservative and we're using it to triangulate what the total

addressable market is. But we did look at the specific broker dealers and banks. And like, for example, there are some we know of that already offer private Bitcoin investment vehicles on those platforms, right? So we assume, okay, they'll probably turn on the ETF in year one, right? They're not. And then there are others that we talked about that not only do they not offer an existing private Bitcoin vehicle, but they don't even offer other stuff that people consider risky the way

they do crypto. And so, you know, maybe we put them in year two or three. So we tried to do it thoughtfully to the extent we know about the sentiment or public statements of the executives or the people, like whether they've said that they hate Bitcoin or whether they're open to it, right? That's how we come up with this ramping schedule, right? So the only thing in the analysis here that we actually change year over year is the big number, the total amount per segment that we think will have access, right? It's just that this first number we've been talking about. That's in our analysis, that's actually all that we changed to ramp it up over time. We just, we say like the, the level of access at each segment is going to grow as they turn it on over. Well, because the big story here is,

as David was saying, right, it's just like we're getting access to. We've gone from like 56K modem to high bandwidth access to capital for our Bitcoin product. Yeah, that's exactly right. And the reason Ryan, you asked earlier why they couldn't buy on Cracken, right, the advisors. And I don't specifically know Cracken's products, but in general, the crypto exchanges, they haven't offered sub accounts in a way for, say, one advisor to log in and easily manage and control, like all the various portfolios of their clients. And there's questions about custody. And by the way, also, even if they could, like some of these advisors may manage accounts

for hundreds of people. and they use really slick UXs to do that and have back offices and how to do it. It's not integrated at all with their stocks and bonds and if you, let's say you're a wealthy investor that uses one of these advisors. Like you could say like, okay, well, you know, why don't you write down that I'm going to buy like, you know, 500K of Bitcoin or something? I'm like, include that in your analysis or whatever advisor. I'm going to go do it separately. And it's just like wealthy people don't want to do that.

They want it all in the same place, right? And even if it were in the same place, even in spot, like, there's trick like if it was like um everyone just had access to spot bitcoin through these existing platforms like then there's weird like custody things the the brilliance of the eat and transactional things and like how do we use it right and who know and also then all them all these um platforms that have to then build spot functionality which is also you know hard right I mean it's not it's certainly not traditional um whereas if it's wrapped in the ETF like this thing just slides right in like every other investment vehicle that is

you know, usable. It goes into all the same portfolio management tools. It goes into all the goes through the back offices, exactly the same. Like, it just looks like any other ETF. Okay. So I think the big lesson that I'm learning here is that on the day that this bought Bitcoin ETF gets approved, everyone who's interested in buying Bitcoin through the ETF doesn't necessarily have access to it.

There's like a rollout period. There's like an initial. Yeah. And we just looked at year one, right? Like, I don't know that. And I'm actually quite sure that most of the banks and broker. or dealers will not turn this on on day one. You might see the platforms that serve the independent RAs turn it on faster, right?

But I think, you know, that's why we say year one. And we could talk in a second if you want about like, okay, well then like when, right? How fast? And maybe like, you know, a lot of people are asking about like, what about day one? What if the day that they're announced that they're approved or the day that they launch, like what does it look like, right? Is it by the room or sell the news? is like, is it bullish that day and permanently bullish?

Like, I don't know. But I just want to add the other, the steps two and three to the analysis are pretty straightforward. So like if you say year one, right, we talked about 25, 2550 for those three segments, that comes out to 14.4 trillion, right, which is we just said that's about 30% of the total. That's the total amount that would have access. Yes, the total amount of existing capital to the other thing, we don't really estimate like if totally new capital flows in.

We're just sizing it based on the size of the wealth management market today. Size the pipe. Exactly. So then we say, okay, obviously if $14.4 trillion could invest, certainly they won't all invest, right? And here, I mean, this is a pretty back of the napkin thing. We said, you know, what's reasonable as a conservative number to say choose to invest anything? We said 10%. Okay, so one in 10.

I think it could easily just choose to invest. Yeah, if any amount, it could be $1 or it could be $100. percent of their portfolio, but only 10 percent of the total addressable capital market there does any investment, right? So now we're handicapping it again. And then we rely on this, like, well, how much do they invest? And we say, well, and we just put out another paper about this a couple of weeks ago. Others have as well, but doing backtesting analysis on adding Bitcoin to a portfolio at various

levels, drawing it from different parts of the existing portfolio, like drawing it from bonds or drawing it from equities or from alts and whatever, this whole thing, add a whole bunch different levels. And I mean, you know, obviously at a long enough time frame, it looks, it for, for, you know, Bitcoin, for ether, for a lot of these coins that have been around a long time. If you go back further, it just looks better and better. But we tried to be reasonable. We said 2018 to present, which was two bear markets and one bull market. So, and basically the biggest, it was positive across all allocation level. So again, 10% we say here would choose to do something. And then how much on average they choose to do. We said one percent. And then,

that's because it was good. I mean, it was at higher levels, again, looking backwards, no guarantee that it would be the same going forwards. But at higher levels, it did better, even on a risk adjusted basis, specifically on a risk adjusted basis. But the biggest net positive impact was just going from zero to one. Like zero to two was one to two is good, but none of the steps had as big a change, which, you know, you've heard this get off zero. I mean, that's the case for it. So that's how we picked that one number, right? One percent number. So it's, it's year one, 25% of broker dealers, 25% of banks, 50% of RAs, that's 14.4 trillion that could have access, we think. 10% of that capital chooses to invest something.

And on average, they do 1%. That's how we get the 14.4 billion in year one as inflows. Seems conservative. That's what we're trying to do, right? I mean, we didn't, it's, we're not trying to do too much moon math here. We really wanted to be like, this is a reasonable way to look at it. It's conservative. It's defensible.

You know, who knows what could happen. There's certainly, I mean, it protects David from getting hurt again. That's true. We're not trying to increase expectations too much. I mean, that is a solid amount of inflow, I would say objectively. But, yeah, I mean, I would, you know, some people really like this. A lot of people said it was too conservative. Some people said it was too bullish.

I mean, right. I mean, when you put numbers out like this, it can go either way. Certainly. And well, there's one dynamic that I want to definitely. parts out here, which is that on year one, you have modeled out potentially, conservatively, $14.4 billion of inflows into Bitcoin per year. So these are flows. This is not just a one-time buy moment. This is now you are saying there it's going to be $14.4 billion of Bitcoin buy pressure per year. And actually, that increases next year because of the increased access. So the next year

that you have modeled out is $26.5 billion. per year. So this is persistent yearly buy pressure into spot Bitcoin, correct? That's the idea. And just so I understand this too, to add to that, it's net new inflows. So these are inflows that we wouldn't have otherwise had because we're going to have inflows flowing to Bitcoin. We already do have them, right? People are already buying their Bitcoin on Cracken to prepare for the next bull run. And hopefully you are bankless listener doing some of this. But we're talking about absent in an ETF, we wouldn't have have had these flows on the bottom of your spreadsheet. Now that we, with an ETF, we will have added another 14.4 billion in year one after the

ETF is approved of net new inflow of buying pressure to Bitcoin. Yes? Yeah, that is our estimate specifically, again, because we're focusing just on this big wealth channel, right? Because I would say, where would the overlap be? Like, what would reduce that for, like, what if we were right on 14.4, but it actually wasn't all net new? That would mean that you were a client of an advisor, let's say, and you separately had exposure to one of the trust products in your own other brokerage account or you had a bunch of spot Bitcoin

that you actually chose to sell and then tell your advisor to go buy the ETF. And I don't think that's a terribly credible scenario because there will be people, but not in the segment, I think really that we're talking about here. There might be people that own spot Bitcoin and would prefer to own the ETF in their brokerage account, right? And so they actually sell it.

But that's not really the advisor market. That's, I think, more like a retail brokerage type market. One other thing I want to ask about this, Alex, is like, so I just want to test my intuition here, right? So this is imagining, this is kind of a spreadsheet view of the world, which is very helpful for analysts and researchers to kind of make sense of this and get to some actual tangible numbers. But this assumes all of the broker dealers and banks and RIAs and, you know, everybody advising this market, they're just dollar cost averaging. in. You know, like, I'm just going to put some money in and I do it every month and, you know, I'm doing my job. I'm dollar cost averaging in. That's not how investors work. We all know. If the price is going up, they get super bullish about that particular product and they smash,

they fomo in, they smash the buy button. Don't tell me that broker dealers are any different than retail from that perspective. And so what we might find is rather than this kind of like 14.4 billion and then 26.5 billion, it's like if the price is going up, I would imagine, some of this demand, well, the averages may be true, could look a little more choppy than in the spreadsheet. Would you say that's a correct intuition? I think that's fair. I think I am going to say there are a little different than retail. And I'll tell you why, right? These advisors, they, first of all, when you use an advisor, typically they don't like day trade for you, right? They're not nearly as active as individuals might be that manage their own money and really succumb to that

FOMO. I mean, I've used an advisor like, I don't now, but years ago during market volatility and called up being like, what do you think about this? Should we do that? And usually the advisors, they've got a longer term plan for you and they're, they'll, the counsel against sort of rash moves. That's what they're there for to keep you right. And to develop a long term portfolio, right? And I think when you when you think about sort of the long term thesis for Bitcoin, it really is a long term goal, even, right? The Bitcoin maximalists will tell you that also for the most part, right? So like I think that the advisor world is is probably going to be less prone here to short-term market movements in general. So it's likelyer to be stickier capital than say, you know,

people with a crypto exchange account or like in their own personal accounts. But, but yeah, I mean, that's totally right. I mean, there's that's one of the many things that can happen that would change this analysis. I mean, right, dramatic moves in price in either direction, I think would alter this analysis. Okay, so while we're talking at price, we've been talking about inflows, net new inflows, the entire conversation. So we have a year one of 14.4 billion in net new inflows,

and that increases over time, 26.5 in year two and 38.6 in year three, okay? The question, though, is what impact does that have on the price of Bitcoin? Is there some sort of amplification effect? I think there's like a surface level analysis of somebody could hear this and say, oh, so you mean Bitcoin? will go up $14.4 billion in year one. I'm not that excited about that, Alex. It's already $600 billion. You're just saying it's going to add 14.4 more. That's not quite how this works in the inflow world. Can you explain that to us? What's kind of the amplifier effect here?

Yeah, this is actually very hard to calculate like fully scientifically because there's factors like liquidity and market depth that, first of all, are hard to actually wrap your head around now will be hard to understand and conceptualize a reasonable possible future under this market structure. And also, you have to make assumptions about things like liquidity in depth and other things that are really tricky. Like, there's a lot of variables to really model that out from a bottoms up. So we did a similar analysis to this, so more of a top-down thinking, right?

And you can think about like Paul Tudor Jones had talked about, right, gold is, gold's market cap is X, like Bitcoin. is why and like Bitcoin's only like 4%. And like what if it went to like 10 or 20, right? Like that was how what he talked about in 2020. We did something a little similar, a little bit more intricate, but basically we looked at we liked gold as a comp and people debate this all the time. Is this in your tweet thread by the way, Alex? Yeah.

Yeah, exactly. So yeah. So this is where we look at the like the sort of the regression on price change based on the flows into the gold ETF. Some people were critical of our R squared here. I think from from looking at changes in price, 0.27's pretty reasonable for drawing a correlation. But yeah, we like the gold ETF for a couple of reasons. One, obviously, gold is, you know, Bitcoin and gold are often compared. I've called Bitcoin gold with wings.

It's got similar scarcity properties, but, you know, you can actually use it. Like, you can't like, you can't like walk around with gold bars in your, in your bag. And you can't really like, you certainly can't store large amounts in gold wealth, really unless you're like a sovereign or a central bank, right? I mean, it's like physically heavy. But with crypto, including obviously Bitcoin, you can store huge amounts of wealth. In fact, the amount of wealth has no impact on the physical weight and all that stuff, right? So there's that overlap.

But also, gold is a global, scarce asset, commodity asset that didn't have big investment-grade vehicles, really until relatively recently, right? And that was an ETF and several ETFs. That's 2004, right? Yeah. So I actually don't recall, but like, yeah, mid mid, I think it was around that mid mid 2000s. So, okay, so there's a cop, right? There's an inflows. We can see obviously different market at that time than today's market like globally and whatnot.

But, you know, it's close, right? And again, this is back of the napkin stuff. And we're trying when you do this type of stuff, right? I also did venture at Fidelity at Avon Ventures. And, you know, when you come up with these types of Tam analyses, you're really just trying to triangulate on something that's reasonable, a reasonable way to think about it. You know, you're always welcoming to others to challenge these assumptions, right?

You just have to make some if you're going to do the exercise, right? So we looked at like what percentage of Bitcoin today is in investment vehicles and what percentage of gold today is in investment vehicles. And then, you know, we think gold. And then we looked at market cap comparison. You know, gold's about 24 times larger in total market cap, but has 36% less supply and investment vehicles, right, is what we, what we were pointing out. So that gives us a dollar equivalent amount of fund inflows to Bitcoin having an 8.8

times greater impact on Bitcoin markets compared to gold markets, right? So this is like the, this is the kind of, you know, we set it up a pretty clear methodology. I don't know if it's certainly, it almost certainly isn't the correct methodology. There really isn't a correct one. And then we basically model forward using our inflows and looking at the comparison and using that as a multiplier. We look at the historical relationship, which is this regression chart, between inflows into the gold ETF and what it did to like XAU, USD gold spot, right? Okay. So this number, this 8.8 number I really want to drill down on because if my memory serves me correctly, as soon as the gold ETF got approved.

and was made available. Gold had just an insane bull run over the like the next decade, I think. It's like a sustained, very impressive bull run. And you're saying this number that you're coming to is that the equivalent of dollar amount invested into Bitcoin is going to have an eight times a greater effect on the Bitcoin price than what would have been into the gold price. Correct? Yeah.

That's our view. And it's, again, and just to be clear, that's extremely bullish, right? Yeah. I mean, it's just the, like I said, it's the back of the. napkin math. I mean, I think there are some, by the way, there's some huge, like, reasonable disagreements on this. For one, when Gold ran in the like mid-2000s to, you know, through the great financial crisis, that was a massive macro economic event that impacted Gold's price as well, right? It wasn't just accessibility. And it did also take a while for inflows to really start ramping

into those vehicles. So it wasn't immediate. And there's certainly, almost certainly were other factors at play causing people to invest in gold than simply not having been able to. But yeah, I mean, that's the basic. And then basically hold that constant, we hold that inflow constant. And then we reduce the multiplier each over each month forward that we look at. Because as Bitcoin grows, then it becomes its percentage in vehicles to its total market cap like grows. Right. So the multiplier actually declines in our analysis. But it starts, right? And so it decays as Bitcoin grows. Again, I can't stress it up, right? But this is what we think is a defensible way to think about it. It's not certainly no guarantee, but that I think we came to about a 75% if you, again,

you agree with our other inflows analysis, about a 75% price appreciation from launch to one year forward. Yeah. And I think the disclaimer here is like we're stacking assumptions on assumptions. And so at the end of the day, like the rope gets frayed. But still, directionally, we can start to model out some sort of prediction about some ultimate actual. price impact. And Alex, I want to actually see if I can get a number out of you, as well as a few other questions as well, just like, hey, where is Bitcoin price going? Maybe to the nearest of our ability to predict it. But also there's like a bunch of ancillary things as well, like the market timing for when this is getting approved is interesting. Like we're closer to

the bear market than when spot Bitcoin futures got approved, which is at the top of the bull market in 2017. Liquidity is low. Also, there's some other like side effects like, well, now there's Bitcoin ETF marketing from some of these big issuers. And so how does that play into public sentiment? So I'm going to ask you all of these questions. But first, a moment to talk about these fantastic sponsors that make this show possible. Metamask portfolio is your one-stop shop to navigate the world of Defi. And now bridging seamlessly across networks doesn't have to be so daunting anymore. With competitive rates and convenient routes, Metamask Portfolio's bridge feature lets you easily move your tokens from chain to chain using popular layer one and layer two networks. And all you have

to do is select a network you want to bridge from and where you want your tokens to go. From there, Metamask vets and curates the different bridging platforms to find the most decentralized, accessible, and reliable bridges for you. To tap into the hottest opportunities in crypto, you need to be able to plug into a variety of networks, and nobody makes that easier than Metamask portfolio. Instead of searching endlessly through the world of bridge options, click the bridge button on your Metamask extension or head over to metamask.io slash portfolio to get started. You know Uniswop. It's the world's largest decentralized exchange, with over $1.4 trillion in trading volume.

You know this because we talk about it endlessly on bank lists. It's Uniswap, but Uniswap is becoming so much more. Uniswap Labs just released the Uniswop mobile wallet for iOS, the newest, easiest way to trade tokens on the go. With the Uniswap wallet, you can easily create or import a new wallet, buy crypto on any available exchange with your debit card, with extremely low Fiat-on-Ramp fees, and you can seamlessly swap on main net, polygon, arbitram, and optimism.

On the Uniswap mobile wallet, you can store and display your beautiful, NFTs, and you can also explore Web3 with the in-app search features, market leaderboards, and price charts, or use Wallet Connect to connect to any Web3 application. So you can now go directly to Defy with the Uniswop Mobile Wallet, safe, simple custody from the most trusted team in Defy. Download the Uniswap Wallet today on iOS. There is a link in the show notes. Are you launching a token? Is it already live? How are you managing the legal and tax for providing token awards for your team? Toku simplifies everything about managing token grant compensation, and you can get started with them.

for free. You'll have access to top-notch legal and tax support to handle the distribution and management of tokens for your team. Toku caters to every step in the process, from user-friendly legal templates for granting tokens to tracking investing periods and calculating withholding taxes. Toku understands every grant structure, token purchase agreements, restricted token awards, restricted token units, token options, and all the other ones. Toku is already simplifying this today for leading companies like Protocol Labs, DYDX Foundation, Mina Foundation, and many more. You can learn more about how Toku can help you streamline your token management and get started for free. Visit Toku at Toku.com slash bankless or click the link in the description below.

Bankless Nation, we are back with Alex Thorne. We are zoning in on the question. So we got all these new inflows, suspected inflows coming in from the Bitcoin ETF launch. What's that going to do to Bitcoin price? And I think we were getting there. And you may have mentioned it as a side point, a number 74%. I want to zone in on that. So what does that? What does this mean, Alex, and how much will these inflows actually impact Bitcoin price according to our analysis? So I've got a tweet thread up here that ends with ETF. First year, Bitcoin price impact estimated 74.1%. What do we mean? What do we mean? Are we taking the price of Bitcoin as of now and we're multiplying that by 74% or like, and then we're adding that to the price? Like, what are we doing at the

74% number? Yeah. So this is just from like launch day one. the idea of ETF launch. So I think we calculated it in the report as the bottom of this tweet says that at the end, we just use end of month September because we wrote this in mid-October, you would basically take this ramp and do it from whatever price Bitcoin is at at the start, right? So because this is really focused on inflows driving that appreciation. So with Bitcoin price, let's say the ETF launches in January, 2024, okay? And that's like maybe an estimate from for most analysts we talked to around that time range. And let's say the the price of Bitcoin is 50K at that time, right? Then we apply this analysis on top of the 50K Bitcoin.

Yes? Yeah, that's the idea. But I think it's pretty reasonable to think. And I think David might have mentioned this at the beginning too, like how much of it is priced in already, right? I mean, I think if we run that far, like you'd assume a fair amount of the price is priced in. But again, our inflows analysis does not suggest that like there's a priced in amount. So yes, in this analysis, you would add 75% on top of that. To me, the price inflows sounds pretty price insensitive. As in they don't really care what the price of Bitcoin is. They kind of just start the DCA or is they're just the smash buyers. I don't really care what the prices. That's the idea, right? Like we're just saying one in 10 of capital that could access it would choose to. I think that's a pretty low number, right?

We're not saying one in five. We're not, now, could that be lower? Yeah, it could be one and 20, right? That would be half a percent, not one percent that cuts the whole thing in half, right? It's totally possible. We don't know. But sorry, it could be 5 percent, not 10 percent. They could choose to allocate less.

But the portfolio benefits for the 1 percent allocation when we came up with that and we're certainly not unique in suggesting that. I've heard that from plenty of people over the years with different analyses. that encompassed fair markets and bull markets. So that included when price was very high, right? It still was additive to the portfolio over that five-year time frame. So, yes, this analysis does not actually, like, calculate what would happen if the price ran up really high or really low. That's just because you guys can't calculate that or else you're a market Oracle and

you know the future and you're, you know, you've time times like Marty McFly. Exactly. Okay, so, but I just want to understand that. So per my example, if in January the Bitcoin ETF has launched and it's at 50K, over the course, over the inflows over the next year, we would expect Bitcoin to increase another 74%. That's another 37K. And we get to a price at the end of 2024, all it's being equal of 87K or something like that. That's what this simple analysis would predict.

That's what the math predicts. Absolutely. Yes, that's what it says. And I know we've said it a million times, right? just back of the napkin, not a total prediction here. But yeah, that's exactly right. Okay. And then can we, is there any way to anticipate like the front running then piece of that?

Let's just isolate that for a second. So, you know, bankless is the number one podcast in crypto. Okay. So this is getting out there everywhere right now. And so a bunch of people are looking at these numbers from Alex Thorne. And they're saying, huh, okay. You know, your price could increase by 74%. So I better buy now.

And that induces more demand, I suppose. And I don't know, there's some front running. It borrows demand from the future. Yeah. So are we, can the front running, how much will the front running dampen this demand? Are you just setting that aside for this analysis? Is there any way to tell? Yeah.

There isn't really. I would say there's, it certainly, there isn't really in this analysis, right? But I will, I mean, I agree. It's actually really hard to think about because I can see reasons why it could both induce more demand or dampen it. So dampening's pretty straightforward. You look at it when you get access and you say, gosh, it's gotten pretty expensive. Like maybe we should wait for it to come down more. You know, we liked it at 30, but at, you know, 50, that seems expensive, right? So that's the obvious thing. People might choose not to allocate if that were to happen or not allocate yet. But again,

we're looking at a whole year here, right? Like we didn't say like month one, too, because we know there's a lot of variables. The other side of it is we've seen Bitcoin volatility come down. And over the years, like an unrealized basis. You can see that chart's lower highs and, well, when it gets low, it never really goes lower than the lowest. It's been. It was actually like super low. Like last year, it was super low earlier this year at some points in like the low 20s,

which is very low for Bitcoin historically. But with declining volatility and increasing market cap and liquidity, you can actually allocate more, right? You can when that's why we risk adjust. That one percent analysis on allocation size is based on using sharp ratios. and risk adjusting it for volatility, right? So if it got bigger and volatility is lower, then you can allocate more, right? Because on a risk-adjusted basis, there's less risk in terms of volatility.

So in that sense, you could see that there are people that there might even be others that we don't even really talk about or just really, really big clients of bank broker-dealer independent RIA platforms that have so much money that 1% is a ton of money, right, or they want to put some to it. And they simply can't because of volatility and other things. So you could see that if it's bigger, let's get really big. Let's say sovereign wealth funds or central banks themselves, right? It's just too small for them. I mean, even at a trillion, it's probably too small, trillion market cap, right?

So there are pools of capital that won't come in until volatility is much lower and liquidity is much higher. So you could, you know, so there is an induced demand factor too. But again, like this is, you know, we really just can't know. I think the people are analysis is based solely. on the fact that we hear there's demand. We know there's a giant pile of wealth that can't access it. And the accessibility is what will, you know, again, one in 10 people owning some Bitcoin. I think that's below even the White House's estimates for people that own crypto.

So I think it's conservative that the same numbers would carry forth into these new addressable markets. I think understanding that if the Bitcoin price appreciated significantly up to the event of the spot Bitcoin ETF approval and made accessible to all this capital, like, It would make sense that there would be less demand for it because price went up. Like the thing is higher, therefore there's less demand for it. But also I've done a few cycles of crypto. That's not how things work.

Like when Bitcoin price goes up, people want more of it. And I think there's definitely an argument to be made that like the marketing, what is Bitcoin's marketing department? It's price. And so if the price does lead into the approval, which leads into further continuation, followed by BlackRock, legitimately marketing Bitcoin to its customers because there's a big race. There's like how many horses in this race trying to become the number one Bitcoin spot ETF? And so this is going to.

Right. So there's 11 or 12 like organizations, big capitalized organizations all going to be marketing to try and jostle their ETF into position to be number one. So there's going to be a massive marketing campaign, right? Am I, am I assuming too much here? Or like this is kind of like the more like I've seen a cycle. are how this plays out. This seems to make sense to me.

Yeah, I can't. I don't know exactly what all the applicants are planning, but if you look at past like ETF launches or when REITs became popular, like you see a fair amount of marketing, right? And there's also educational materials created for all the potential buyers, right? So like, yeah. So that's going to happen. There's clearly a competition afoot.

It's fascinating to me how much Larry Think is talking about this. He's, of course, is the CEO of BlackRock, the largest asset manager in the world right now by a long shot. And he has become like almost Michael Saylor like it is. As soon as they have a product to sell, they're bullish on Bitcoin. I was surprised how far he went. You know, you're probably referring to Ryan, like clip from maybe now two weeks ago or so when he said that like in an in an upheaval world or macroeconomic uncertainty. Flight to safety. Yeah, gold, Bitcoin, gold dollars and Bitcoin could be a flight part of a flight to quality trade.

Which, by the way, I mean, I agree with in the scheme of things. I know that historically people trade Bitcoin and crypto more as a risk asset, but I think it's fair to look at Bitcoin and say that it's fundamentally quite predictable, transparent, it's global, right? Like there are things that should make it like a safe haven act set in terms of its fundamentals. But yeah, to hear Larry Fink say that I think was pretty surprising and I will say monumental. Okay. Are you guys ready to burst some bubbles here now?

I don't do that. No, sorry, David. We're doing it anyway. David, put your mic down for a minute here, okay? So the bull is going on mute. So, Alex, give us the bear case for all of this, because I knew you've heard it. We've laid out the bull case quite well, and we've brought the numbers and the analysis kind of backing the bull case and it's based on inflows to, you know, higher bandwidth

pipe to a lot of capital and get all that. What's the bear case for all of this? I've heard some people say that like this is overhyped. It's already priced in. It's already, you know, front run. Look at the recent, uh, eat futures ETF. It's kind of just like done nothing with respect to numbers. Everyone who wanted Bitcoin already had access to it.

Uh, basically the Bitcoin ETF is overhyped. Ain't nothing going to happen with respect to price. Just kind of like the sound of a balloon deflating. Uh, so give, give us. the rationale behind that that bear case there's a couple i'll start with the some of the ones you specifically mentioned ryan i mean everyone can already access bitcoin right is something i hear a lot and and we've talked about this how you and i can go buy it on on exchanges on on coinbase or crack in or river cash app we can't right but um i've talked a lot about already why like wealth channels can't right

they don't have access to those platforms they don't have the cash settled futures ets they don't have the the OTC products, typically, the OTC trusts. That's why we only looked at this group, right? I mean, I think that that's the first thing I would sort of say is on accessibility. Sure, like I said, if I have a wealth advisor and they have, you know, 99% of my, my family's money or whatever, my money, then they, then yeah, I'm free to take one percent of it and go open an account of Cracken. Like, sure I am, right? But most don't, I would say that use. And certainly the advisors themselves don't bring it there on your behalf.

So I think the accessibility question, this is why we focused on this channel specifically, but it's absolutely possible. I don't really think of there won't be as big inflows as people think as an actual case. I think the real thing is what could cause there to not be big inflows. And I think there are a couple things. One, the biggest thing is a significant risk off movement markets, right? Like we talked about how I think and how and how Larry Fink said that Bitcoin could be part of a flight to quality trade. Well, it mostly hasn't been historically. Like, and maybe it isn't.

And then there is a need to fly to quality and people instead go to something else. You mean it's been more of a risk on type asset. Absolutely. Right. And we could have, right, you could have a recession come or something like that, a big financial problem that's, you know, on the back of the rates and the inflation questions. like that could all move risk in ways that, you know, could dramatically affect people's appetite for something like Bitcoin, period, right? Like, so a material change in that environment, which is possible.

That could be caused by geopolitical events. It could be caused by a financial crisis. Who knows what, right? Let's say inflation ramps up again, huge, right? Just like in the 70s and 80s, when Paul Volker was in charge of the Fed, they tried to come down from their first hikes, then they couldn't. And they had to ramp hikes way back higher, right? That could dramatically affect.

affect risk appetite, just generally, right, which would certainly if think affect a Bitcoin ETF. So that's a main one, right? It was like, in terms of like the the anticipation versus the inflows, like, you know, if I had to guess, like there are plenty of people now trying to, you've seen it in Bitcoin price over the last month, right? Like there are people trying to price, like reprice the asset given the likelihood or not likelihood in their minds of the ETFs generally.

So it absolutely could be like a buy the room or sell the news event on the on the announcement or the launch right because these things also take even if you're bullish like they could take a while to ramp up like I said even the most bullish platforms might not turn it on for it could be months right takes it now now it's got to go through their whatever like risk approval process and committees they have so like our accessibility argument could take longer than we thought right even if we're right on the actual demand like the turn on the ramp up time could be slower than we thought. There's plenty of that is possible, right?

We don't know how fast, like I said, the broker-dealer advisor segments would turn this on. Like, that's why we, you know, we tried to be conservative and said only a quarter of them would even get it turned on in the first year, right? That's, that's, that's, so that's a major thing that could affect it. And who knows, right? I mean, there could be regulatory issues that also affect it. I don't think Bitcoin within the crypto ecosystem is that, like that much in regulators, focuses, but of course, anything like there's certainly stuff in particular that could happen

like on mining, for example. One of the things you've seen all the applicants update their S-1s with is additional risk disclosures around mining, specifically around that the, you know, electricity usage of mining could cause political backlash, which could result in regulate. So like that's something that could happen. I don't think that's very likely, but that could happen. But also there's other regulatory stuff that touches all of crypto, right? Like we were talking about like FinCEN related stuff that could impact all the exchanges or, you know, we saw Senator Warren was effectively saying that self custody was, you know, the chosen tool technology of terrorists.

Self custody is important to Bitcoin also, right? Like that would be negative for Bitcoin just like it is for any other crypto in general, I think. And some people say, well, the ETF's not going to be self-custodied. So couldn't that even like be good for it? And I'm like, no, it's just bad for the overall case for crypto in general. if something like if a ban on self-custody were to happen, you know, what Bitcoiners talk about as or executive order 60102, the seizure of gold by the U.S. government, right?

Like that would be bad overall. So there's regulatory stuff like that that could impact demand for Bitcoin ETF. I still think like even if it's a buy the room or sell the news on the event, either the announcement of approvals or the launch or whatever you want to talk about, whatever the event-driven cycle is there. like that we're talking in this report and also thinking about it as more of a long-term thing. We know it's going to take a little while to happen. We know the inflows don't happen overnight, right?

And I also think you mentioned the ETH futures ETF. I mean, very different market, but we also know these products aren't really like that great. Like certainly not for long-term. The longer you hold, the more decay and roll cost you incur. And if you look at, and it's not like terrible, those vehicles are pretty good for short-term exposure. in the scheme of things. They perform pretty close to Nat to spot price in the shorter terms, but advisors are more longer term investors, right? So that's another reason why they don't particularly like those products. So I don't know. I do think, Alex, a lot of the things

you're pointing to are just general like, you know, bearish, bearish crypto, bearish, bearish, bearish Bitcoin type takes, right? It's like I'm still bullish. I think even the biggest, baddest bear would have to admit that all else being equal. They could still think that, that your Bitcoin prices may be front running this, that it's overhyped that it's all priced in. But they'd have to admit that expanding the pipe of Bitcoin inflows to the tens of trillions of dollars that are available, that's like,

worst case, that's neutral for Bitcoin. It's not negative for Bitcoin. It can't be bad, I agree. It can't be bad, right? And think of the history, the trajectory of this asset. We are 15 years, about 15 years from launch. We just celebrated the birthday of the Bitcoin white paper. yesterday and we are 15 years and we've gotten magic internet money worth nothing worth nothing zero

okay to 600 billion being shilled by the biggest asset manager in the world in 15 years that is quite the accomplishment I would say so hard in that context not to interpret this as as bullish either I agree and you have to realize too how powerful just the ETF wrapper as a product is right. I mean, it has overhauled the asset management industry. It makes trading, you could have passive ETFs that track, you know, one commodity, like you talk about gold. You can have them that track a basket passively, like, you know, it's like a tradifies ERC 20, right? It is. It's like a wrapped asset, basically, right? It is. Like, and, and, and, and the, but then you can use them and all the infrastructure like they're a standalone equity. So you can do things like,

like depending on who you are, you can do margin lending on them, right? Securities lending. You can you can send and settle them like they're like intraday all day. Unlike a mutual fund, they can have their shares created and redeemed all day. Whereas usually if you invest in a mutual fund, you have to send a check or, you know, a wire or whatever in. And it doesn't get out until after the close and then can't take it out until after the next glow, right? Like they're great products in general. They make investing highly accessible. And I would say, I mean, gold being one of the most iconic examples, like there was really no.

investment grade gold access period. Like you could if you, maybe if you were wealthy enough or whatever, you could call up some of the big banks or broker dealers have like a metals desk and they would like buy spot gold for you and keep it in a vault somewhere for you. But like you're not like moving it around. You can't get in and out of it quickly, right? So I agree.

Also the marketing is a huge point, right? Like it matters that. And also if it were to be approved, if they are to be approved, that's a pretty big stamp of approval, right? I mean, especially if you're sort of not in the day to day of this and you're saying, wait, the SEC has just approved Bitcoin's body TFs. Like if that happens, it talks about the level of maturity of the industry, the questions around things like custody and transferring and even like illicit finance

have been sufficiently answered, right, for the approval to have happened. So I think there's a lot that legitimizes it. By definition, it institutional. It analyzes it. And, you know, when the largest asset manager, keep in mind, I think Fidelity is the third largest asset manager in the world. And they're also deeply involved in Bitcoin and have been for years. So like it's starting to look like all the smartest people that, you know, asset managers think this is a really good product at this point and should be approved. You know, it's not little, the maturity of the applicants is also a big part of the stories we've talked about with Larry Fink and others. This is a little bit of a side quest, but I was reading this article. about conservative response towards legalized marijuana. And as soon as marijuana was legalized, conservative marijuana consumption just like approached baseline where it used to be like so anti-marijuana.

And then that makes sense. Like, yeah, they were just like eating the consumables. It's okay now. Yeah. Some people are saying, yeah, I guess some people's reason was just we don't want to do things that are illegal, basically. And if they're legal, then we'll consider it. Yeah.

Yeah. And I mean, obviously this is just like Bitcoin's not illegal. but, you know, if this kind of rhymes, right? Just like as soon as it's gotten the regulatory stamps of approval, people like, I'll buy it. Now we can consider it, right? I mean, that's the other thing we talk about with the advice. Because even if you could access the trust or the cash settled futures, there's like suitability reasons why you wouldn't look at it, right?

Like, if you'd say, I mean, these fees are too high, you might say. I know the trusts have pretty high fees. Like, that might just be a reason not even to bother learning about Bitcoin yet. So the only vehicle I can buy is fees that are way beyond what I would ever like. my client to pay, right? You might say. So you don't even consider it. Same thing. If they're not on the platform at all, the second, it's on the platform. Like, you've got to. You need an excuse not to. Yeah. The question starts being like, well, like let's say Bitcoin, you don't invest and your advisor misses like a big run in Bitcoin and they could have done it. And they really could have

because custody is taking care of all the KYC stuff, all the compliance. It's all taken care of by the issuers, right? And these are real issuers. You kind of, have you done your job at that point? You really have to consider it. Let's remember what we're talking about this. we're talking one in 10 choose to invest in Bitcoin at all and then that of that investment of those one in 10 only 1% that's what your analysis is it's really a tiny fraction right right okay so as we end this episode Alex I want to tee up the question let's take off our Bitcoin hat for a minute actually no I'm gonna keep my Bitcoin hat on my Bitcoin bull hat on and I'm put over top of that hat an Ethereum bull hat okay so the arguments that we just made for Bitcoin

do they also apply for the possibility of an Ethereum ETF, which, according to some analysts, James Heffert and others, if you get the Bitcoin spot ETF approved, then we might be, this is lower probability than Bitcoin ETF, but we might be months away. Months, could be six months, could be three months, could be 12 months from an Ethereum ETF. And if that is the case, don't all of the arguments that we made for BATF, you know, all of the arguments that we made for Bitcoin, then also apply for Ethereum. And maybe in an amplified way, because Ethereum is lower market cap, Ethereum has even less legitimacy than Bitcoin in kind of like Tradify, right?

Gary Gensler's constantly like, well, I'm not going to tell you if it's a security or not, you know. So what is your take on the potential of an Ethereum ETF to affect Ether price? So our analysis isn't, I wouldn't say the price in particular isn't directly comparable because I'm not sure that we would comp it to gold in the same way, which is what we did for Bitcoin. But I would say in terms of accessibility, it all absolutely applies, right? I mean, there are not, just like there are not, advisors are not able to access, you know, Bitcoin. They're not able to access these Bitcoin products today, the existing ones, the cash out futures that trust or whatever. Or like crack in spot, like they're not able to access. ETH spot, really, or the ETH trust.

So I think from an accessibility standpoint, it absolutely will have a pretty large market. I think the narrative for the investment community is further behind. I also think it's thought of more as a risk asset or a technology investment than Bitcoin, which people are, you know, the Bitcoin is digital gold mantra, I think is really taken hold in a lot of investors' eyes and mine. So I'm not sure what the, I think we have to think about a little bit differently. By the way, we will think about it. We will rerun an analysis like this on ETH for the same sizing the ETH ETF market will, you know, call at some point.

But yeah, I think I think it, I think the accessibility, which as we described, right, in our analysis, that's the main thing we're altering, right? I mean, we stayed flat at 10% choose to invest 1%. I don't know if we'll come to the same exact flat like unchanging variables, but the ramp could look very similar in terms of the total addressable market. And so, and look, I agree with, you know, I really respect Eric Bautunus and James Saper at Bloomberg Intelligence. They've been really great on the legal and regulatory approval process, timing and all that for the Bitcoin ETF. Right. The reason they're saying this is because one of the court, pretty much the core argument that the D.C. Circuit Court of Appeals made in that gray scale ruling was that there's no material difference between the futures ETFs and the spot ETFs. In fact, I think they said there was mathematically no difference. They use the term mathematically.

Well, I mean, then the argument obviously holds. Well, like, I mean, if the SEC approved the Bitcoin futures ETFs and now they're, you know, doing work on the spot ETFs. And if they do approve the spot of TFs, well, don't we also have ETH futures ETFs? Wouldn't the same argument apply? I think, I mean, we don't know, but I think, yeah, like I see the logic and why, you know, they could be forthcoming after. We haven't done the math on it. I don't know exactly where we'd land. I do think of Ethereum generally as more of a technology.

innovation play than a pure digital commodity. Of course, they're both like gas tokens for their networks. There are things that are very similar, right? They have similarly, you know, not that inflationary. They're both quite scarce in the scheme of things. Like I can do the EI 1559 conversation versus like Bitcoin predictable scarcity. But like, right, there are overlaps. But I think it's a little different. But that could also even be extremely positive. Like I don't. So yes. I think broadly yes. I think it, they would be big. I think they could definitely be big. There are a lot of people that own Ethereum and a lot of other people who might want to own it that can't currently.

Well, Bankless Nation, you heard it here. There still might be some opportunity to front run Bitcoin. It depends on how you think this is all going to shake out. And it certainly seems like there's some opportunity to front run Ethereum. I will say one thing, Alex, is we recently had some of the folks over at Fidelity on for an Ethereum episode. And it was really interesting, the kind of the more recent narrative around ether, particularly being staked as kind of like an internet bond type of narrative. So this idea seems to be in the early stages of taking hold in Tradfai, which is very exciting for bankless because we've been talking about this for a long time, which is if Bitcoin is gold, then Ethereum could be this form of internet bond,

which could really be interesting, particularly if you had a state Ether ETF at some point in time. You have to assume that the ETFs, if they come out for ether, will stake a large portion. I mean, it's almost, I think most of the custodians will too. Yeah. So, no, I think that's an interesting differentiator, absolutely, from an asset standpoint, right? I mean, it generates some kind of return, even if it's, even if it's dilution protection or a yield or whatever you want to call it, like, staking adds an interesting component here. Alex, this has been incredibly helpful. And you are doing this from a fantastic podcasting booth, podcast studio, I believe, at the offices where you reside at Galaxy.

And that is also because you have your own podcast, as I understand it. What do you guys do on the podcast? What's coming out next? I appreciate that, Ryan, a lot. Our podcast is called Galaxy Brains. It's typically we talk with one of our head traders, Bimeta-Bee, about market conditions and macro for the first 10 minutes. And then we have a guest from somewhere in the ecosystem, occasionally somewhere, from Galaxy. This week, we have two of the top Senate aides that worked on the bipartisan

Proof Act, which has been introduced in Congress, which bans the commingling of customer funds at crypto exchanges and custodians, and also requires a cryptographic proof of reserves attestation on a monthly basis. Very interesting narrow bill. This is something we like. We like the Proof Act. Do it, right? Like, Alex, like this is a good thing. This is pretty narrow and straightforward, right? If you hold my funds, then you've got to keep amount of your account and you also have to cryptographically provide some attestation that and then an auditor will compare that to what they said you're supposed to have and then that has to be published. We don't actually say, the bill doesn't actually say how much that

it has to be one to one. We're saying you have to publish it. So we'll be able to know if you claim that you have 100%, but you don't actually. That's the idea. Give us some SBF protection going into the next bull run. So where can folks access that episode? Yeah, galaxy brains.io takes you right there, but you can also see all of this stuff, including our reports that we talked about today at galaxy.com slash research. Bankless Nation, we will include some links in the show notes for those resources that Alex just mentioned. Alex, thank you so much for coming on Bankless.

We're very excited about the Bullkees for Bitcoin and months, months away, January? Seems close. Okay. We don't know, but I agree with that. January 10th or sooner is the most likely, in my opinion. All right, January 10th or sooner. It could be a fantastic year. Alex, thank you so much for coming on Bankless today.

Yeah, Ryan, David. Thanks for having me. Cheers. Risks and disclaimers. Bankless Nation, got to let you know. Crypto is risky. Bitcoin. Models are risky.

Yeah, so are models. So is analysis. So is buying things and selling things as well. You could lose what you put in, but we are headed west. This is the frontier. It's absolutely not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.