Bankless - BTC ETF Approval with Eric Balchunas

Episode Date: January 11, 2024

The Bitcoin ETF was just approved. What happens next? How does this change everything? Which ETF can crypto expect next? When? Answers to these questions and so much more!  ----- 🏹 Airdrop Hunter is HERE, join your first HUNT today https://bankless.cc/JoinYourFirstHUNT  ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE ⁠https://k.xyz/bankless-pod-q2    ⁠ 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle  ⚖️ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum  🔗CELO | CEL2 COMING SOON https://bankless.cc/Celo  🗣️TOKU | CRYPTO EMPLOYMENT SOLUTION https://bankless.cc/Toku ------ TIMESTAMPS 0:00 Intro 4:00 ETF Day 6:05 SEC Twitter Hack? 8:40 Commissioner Statements & Votes 12:30 BTC ETF Volume 19:50 Size of BTC ETF  22:00 Flip Gold? 22:25 Spot ETH ETF? 24:20 Closing & Disclaimers ------ RESOURCES Eric Balchunas https://twitter.com/EricBalchunas  BTC ETF Approved https://x.com/BanklessHQ/status/1744830610370421029  ------ Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures⁠

Bankless Nation, it is Thursday, January 11th. And the reason I give that day is it's an absolutely momentous day. The Bitcoin Spot ETFs just got approved. This happened yesterday. And the markets went live with many of these ETFs today. We brought on Eric Baltunas, who I'm about to introduce and talk to you. As you'll know, he's one of the main analysts, ETF analysts who've been predicting the Spot Bitcoin ETF and updating the bankless community about where it is in the process. And he, I think quite accurately predicted. He said many months ago that with a 95% certainty, we would have a Bitcoin spot ETF in January.

And indeed, now we do. So I grabbed some of his time. He's on the circuit today talking to many different organizations. But I want to get a market reaction on the ETF, how it's doing so far, check on volumes. Also, want to talk to him about which products might be winning and, like, whether they're meeting expectations or not. and all of the other details that have come in last minute. So I'm going to get with Eric.

We're going to have that conversation, keep you updated on the latest with the Bitcoin Spot ETF and celebrate this momentous occasion in just a minute. But before we do, we want to thank the sponsors that made this episode possible, including our number one recommended crypto exchange. That's Cracken. Go check them out.

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Visit Toku at Toku.com slash Bankless or click the link in the description below. Bankless station, we have Eric Balchunis here. He is a senior ETF analyst for Bloomberg Intelligence. Of course, he has been keeping us informed of the spot Bitcoin ETF. And now, here it is. Markets have just gone live. I'm going to check in on that with him. Eric, how are you doing?

Good. A little tired running on fumes. Yeah. These are a great, these are once in a while situations. So I enjoy the excitement. I've been covering this stuff for a long time. And there's long stretches of just normalcy. So the past week in particular has been really exciting, but tiring.

Yeah, I bet it's tiring. How does this match for excitement of other ETF launches in kind of your career and your history? This one definitely rings with Biddo, which was the futures ETF. But then we've had like, remember when Arkmania was going on? there was a lot of um that was about a year where arc was just doing things that were unreal like supernatural kind of feats that that's a kind of exciting and then i'm always excited by vanguard i've been covering them for a loud they're almost like a uh like a slow-moving aircraft carrier so they're not as jumpy or exciting but what they're the size and the sheer mass i find exciting and i cover them a lot so um there's definitely areas that are exciting but um this is the size and the sheer mass i find exciting and i cover them a lot so um there's definitely areas that are exciting but um this is

really unusual in that it's sort of like two worlds colliding. And, you know, obviously, a lot of the data that we have on the terminal, it's cool. It's interesting to see them up there now and trading. So the first day or two is big. Over the next couple weeks, though, this will die down. They'll be like the volume will settle, the excitement will settle. So we're kind of, we're peaking off. You know, my engagement on this is probably at the peak the last two days. It's probably going to start going this way over the next couple weeks. Yeah, that makes sense. And your engagement on crypto Twitter is you've become, I think, a mini celebrity of sorts on

crypto Twitter. And that's got to be somewhat unique. You probably don't get that sort of public reaction with the Vanguard ETFs. Maybe I'm wrong about that. But I know the crypto community is pretty loud, at least on social media. Oh, yeah. So I went to the Bogelhead's conference in like after my book came out a year ago. And some people had read the book there.

So we'll be known in sort of that audience a little bit, but not like this. And a lot of those people are not on social media. When it comes to social media, yeah, this audience very engaged, very vocal and creative and funny. So it's fun. I mean, I totally enjoy it. But yeah, there's really nothing to compare this to, to be honest. All right. So this was a little bit weird.

I want to get your take on this. I don't know if this happened. You were on air somewhere live. But this happened on Tuesday. The SEC's Twitter account appeared to announce that the ETF, the spot Bitcoin ETF, had been approved. It turned out that, as they said, that their Twitter account was compromised. This was maybe a hacker or some other person who got into the account and posted some misinformation. Like, what is up with that?

Have you had time to digest that? How bizarre is that to happen at the 11th hour? Really bizarre. I was, my initial reaction was, it's accurate because I, again, I never thought that particular Twitter handle would be compromised. It just didn't cross my mind. Then the graphics, you know, I, maybe I didn't read it close enough. When I go back and read it, I'm like, okay, yeah, there's a couple things on there, but kind of look legit at first glance. And I was expecting them to announce everything exactly 24 hours later. So I thought, mate, I thought, okay, well, maybe

they just want to get ahead of this, drop it as a PR situation, and then do all the backfill with the documents later. That way, people aren't just, like, hitting this on their website and crash their website. Like, I could see that. And so I was like, all right, it's like an early Christmas present. You know, it's like getting a present on Christmas Eve. Now they're approved. I thought that was the whole plan. So then you find out what happened crazy. Just ironic, hypocritical a little bit, because, you know, they're supposed to be into security. And then, like, the look like the X security safety people put out that it was you know they didn't have a two-factor identification or a thought I was that called authentication so I don't know um that's a little egg on

the face for them for sure on top of this whole gigantic delay on this stuff and then um you know they have their own issues on that but that was a curveball some people started to go wait a second they're going to have the FBI investigate this is what they're going to use it as an excuse some people thought Gary was so maniacal that he did that on purpose so that he could then reject them. And he has, and he also had the staff working for three weeks straight, you know, around the clock so he could just go, well, we did. So I had to deal with a lot of people who had these theories. Right.

And I just, I was like, it doesn't make sense. Gary directed all this work. I'm just going to stick to the obvious. And it turned out to be right. Yeah, absolutely. And so, of course, spot Bitcoin ETFs were approved the following day, I guess, you know, officially, not by hackers. The way this was approved was interesting. So there were three commissioners, this is a total of five commissioners who, I believe, vote on these sorts of decisions.

Three were four and two were against. And I'm wondering, did you have a chance, Eric, to read some of those statements? So Gensler was in the four camp, okay? Hester Purst, and another commissioner were in the four camp. There were some other, two other commissioners who were in the against camp. Did you read those statements from Gensler? and purse, I mean, from my perspective on Gensler's statement was it felt like he was really dragged into this kicking and screaming, particularly because of the courts.

You mentioned kind of the grayscale court case. But what was your take on the statements coming out of the commissioners for their individual votes here? You know, they were all on brand. You know, purse was on brand. I happen to think like her. Give the people choice. And even Gensler, though, in the approval, hinted at, well, look, if you're going to do it, this is probably the best way, which is what we've been saying all along.

If they ban crypto, fine, like outright. But if you're going to let all these exchanges exist and like micro strategy stock and like GBT, an ETF would be a more pure deal for something that tracks the price. I mean, it's just a better option. So that's where as an ETF person, I knew that the whole time. So he kind of like discovered what we all knew for like eight years. and I went to the SEC first ever investment management

conference about four or five months ago I was invited there to speak and I remember him speaking at the beginning and he went through all these things like the advisor world, the broker world, crypto and he had all these ideas for like how to regulate them

and he got to ETFs and he didn't really have anything he's like good industry runs well he didn't have any problems with it so even he can't find anything wrong with the ETF So when it was my turn to speak, Gary had left. So I was just speaking to the other people at the SEC, and I pulled up GBT's percent premium, which is all over the place. And then I pulled up the percent premium of the ETFs in Europe, which is like, boom, because the arbitrage. And I said, just you guys should trust the ETF more than you don't trust crypto.

It sounds like he kind of arrived to that place with the court's nudging. And I'm happy he did. the two anti-votes, first of all, I didn't think there'd be a vote. I was slightly wrong. Well, it was wrong. I said there could be, but there could also not be. The two anti-votes is interesting. You'd think Gary would have met with them. I, there's a very strong possibility that Gary met with them, because they're all on the same team. They're all three Democrats. And they were like, Gere's like, we're doing this. We have to. But you guys write the anti. You can go full-throated with the anti. That way we're on record saying we hate this.

Okay. And then because we know the other two Republicans are going to vote. yes. So off of vote yes, I'll be the swing vote, but at least we'll have, it won't be like some majority thing like we lost our mind. You guys do the no. I don't know if that's true. That would not surprise me at all. Because at the end of the day, this was all baked in. Gary was going to have to vote yes, because he, again, he put everybody to work for like two months. Yeah, the statement that surprised me the most, like you said, Genslers was on brand, felt like his arm was being twisted. Hester Purse was just like, we should have done this 10 years ago. that we should be a merit-based regulator.

Crenshaw's statement actually kind of surprised me, took me back a little bit, because it was very anti-crypto. And I wonder what the future for some of these commissioners is. Obviously, at some point in time, Gary's going to vacate the chair. So it'll be interesting to see the dynamics play out because we've got maybe some more E-TF products that we want to get out there, Eric, if they'll allow it. I mean, we've got ether in the future. We'll talk about that in a second.

But one thing I want to talk to you about is, how are we doing so far? Tell me about volume. I know you've got some tweets out this morning, and this is emerging in real time. But at the time of recording here, what does volume look like? And benchmark this with historic volumes for other ETF. I'm about to refresh my spreadsheet just for you. I'm going to give a totally updated numbers here. There's a lot of numbers flying around.

So this is called the Spot Bitcoin ETF rates, correct? So if I include just the spot Bitcoin ETFs, if we include GBTC, we get to $2.7 billion traded so far. That is enormous. If we kill GBTC, because it came over with volume. Because I track new ETFs all the time. And when a new ETF launches has nothing going for it. It's like a little newborn being shoved into the Amazon. So to me, GBTC is not a real new ETF.

So I'm really looking at the other 10, and they have 1.5 billion. So they've already smashed as a group, the world record, which was held by Biddo at a billion, in the first day of trading volume. The world record for what, ETFs or just crypto ETFs? No, total. Wow. Biddo had the most volume in the first day, right, at $1 billion. So it's beating like gold, 2004 type ETFs?

Well, keep in mind, a billion wasn't the same back in 2004. If we adjusted for inflation, I still think it would be beating it, but gold would look a little stronger. Gold's big claim to fame, GLD, rather, was it was the fastest ETF to get to $1 billion. It did in three days. And that is impressive in 2004 numbers. But, and that was always like the Joe DiMaggio record of ETFs. That's the guy who had a 57 game hitting streak that no one has broken since the baseball player. It's like one of those sports record, like, nobody will break it.

and that was that DiMaggio record, but then Biddo got there two days. Now, we have, the group is probably going to beat all of those records. The question is, well, one of them beat those records, and I-Shares looks good. We're looking at $56,000, that's over half a billion. So the day's about half over. So we could have a bit of a, oh, I'm sorry, I bit, sorry about that, I'm looking at the wrong number. I bid is it's 713 million already. That's the winner so far.

That it's probably a near lock to pass a billion, probably by 2, 2.30 p.m. Once it passes a billion, it's broken the volume record. And in flows tonight, all of this will probably get converted to flows in the first two days. So my guess is I give 80% chance that I bit breaks Biddo's record alone. Throwing the group, you have like a doubling of the breaking of the record. So all good signs, the only caveat to all this is that this volume, I don't know how much of it is actually like this like unmet demand that was like, oh my God, I'm buying this versus these issuers lining up their clients and their investors saying, hey, buy our fund on the first day. We'll find the answer to that out over the next couple days and next week in particular.

But nothing wrong with lining people up and having a big splash. It's good for everybody. You know, the ether futures were also in my mind because they were total flop. They traded a million or two dollars in one in the all of them together. So a million or two, they traded in one day. And think about this, I shares alone is already at 700 million in a day. That's incredible. So this is a record smashing ETF launch then for Bitcoin.

I guess Wall Street and these issuers have got to be happy with this performance, right? And maybe it's so who's I shares? Who's behind I shares? And how are some of the big entrance like BlackRock doing, for instance? Well, BlackRock's the one at 713 million. So they are leading. It's Black. I shares is Black Rock?

Yeah, same thing. Ishares is like the brand name for their ETFs. BlackRock does other things besides ETFs, but the brand name for their ETFs is Ishares. They actually bought that. I shares from Barclays, so they didn't make the name. So that Barclays thought of the name, I shares. But if we go to a sword here, I'll tell you who's number two.

Number two on this is Fidelity at almost 500 million. So Fidelity could actually break the record of Biddo, but still lose to I shares who breaks all that. Do these first days matter at all? Does this kind of set the precedent usually with ETS about who's going to win? So is the winners of the first three days likely to kind of be the winners five years from now? Yes. Yeah, wow. You get a lot.

Oh, yeah. The first couple days are really important. The only thing I would say that's a caveat to that is that I shares, Black Rock, which is I shares, a couple times they put out ESG ETFs, and they totally loaded up those ETSs with like a billion or two in the first day. And although the member didn't grow gradually like this, it was more one chunk. And then those didn't do much after. And so I want to see volume the next couple days.

to really get an eye of this. But most of the time, I mean, again, there's an art to this. I would say that the way this day closes will be a great foreshadow for where they all are in a year. Wow. And how about Bitcoin price? So, you know, some have talked about this being as kind of a sell-the-news type of event. We saw spike up. Now, at the time of recording anyway, we're at, I believe, 46K for Bitcoin.

a little down from kind of the highs. I think I changed it. I opened up my screen today expecting to see some kind of huge sell-off because everybody was like the news selling the news, selling the news, selling the news. Well, the news was yesterday. So I don't know why it didn't sell. It's weird. So then I put that out and it immediately started selling, which is perfect.

I own that. But I was just a little surprised because after Biddo launch, there was somewhat of a selling in the news. Now, that was a really, that is still the top, actually. That was like top of the cycle. That was the top of the cycle. 2017? Maybe we'll be there now.

But what I've been asked a couple questions about this. The 1.5 billion that's in the spot Bitcoin ETFs today, all that's going to be buys. Like they have to buy Bitcoin with that money. But the GBTC volume is probably outflows only. Right. So they are kind of canceling each other out today. So even though the volume is really good because there's activity, you want volume. long term. It's a good healthy sign.

This is a situation where you are having outflows from GBT, inflows in all these, and it's netting out to probably zero. So the other parts of the price of Bitcoin are probably people doing other things. I don't know if the ETFs are going to move the price, given that cancelling out of those flows today. They're about even.

So anyway, all this is a little hard to totally read. Zooming out, are you a subscriber to the belief that this just opens up a big pipe, a big bandwidth of capital into Bitcoin and into crypto. If you look at sort of the next 12 months, let's say, because that's been part of the bullcase that we could see this. I don't know, what's the size of this? Do you think we get Bitcoin to tens of billions of dollars inside of an ETF?

Well, what's your time frame? Let's do the next year, 12 months. Yeah. I mean, Grayscale's got 30. already. Some of that will leave, but they'll probably be at least left but 10 by then. So let's just X-Gray scale out. They're a unique case. Will the rest have 10 billion? I'd say, yeah. I shares is already going to be over a billion and flows tonight. So, and it looks like Fidelity is going to be half a billion. Bitwise is it 56 million. Arct at 177.

Again, you add this up. You're looking at a billion or two tonight already. And so we have 11 months. and ETFs are the vehicle of choice for many investors. So I would say 10 billion in non-GBTC assets is totally possible. I wouldn't be surprised. You throw GVTC and I think you go to 20 or 25 because GBTC, again, remember, has 30 right now. Does GPTC just convert to an ETF? It did. It did.

That happened as well. It transitioned. Okay, so transition. But you're not counting that as the launch, even though it is still an ETF just because it's been existence for so long. It'd be like, I don't know, counting like, it's like steroids or something. I don't know. It's not, it's, I don't know.

I've just watched ETF launches my whole career. And a true ETF launch, again, you're starting out with nothing in this Terodome. And so I really discount how hard it is. So if, depending on the category, like if, I don't know, a cybersecurity, thematic ETF gets like like 10 million to trading in the first day. I'm like, wow, that's interesting because it's hard to get trading on the first day. This is hyped up. So I'm going to raise my bar for this, but it's already cleared it in my opinion. Do you think we could flip in gold? ETSs? What do you mean? Oh, you mean? Assets underdance. Yeah. Sure. I mean it would take a

couple years, I think. Gold ETFs are like 90 billion, I think. So if, if gray scale is 30 now, you're looking at another 20, but maybe gray scale sees some flows. Like I said, I would look at that as a five-year goal. Not a one-year though. So, Eric, last 60 seconds we have, I know you got to jump. Final question is we got to spot Bitcoin ETF, okay? How about the spot ether ETF? You know, markets are always forward looking. And so we're looking at the future. And I recall a time where you and James said maybe 70%, something like that, probability in 2024. How's your prediction now? Do you think we get this over under and what percentage? Well, James and I haven't put our full forces behind investigating this, but my logic, and it's probably pretty solid.

And from everything I've heard, if they were approved ether futures, they kind of have to approve spot or they get sued. They could get sued. And maybe Grayscale wants to convert their ether trust and is like, look, we don't want to, you know, just talk to them. Hey, we don't want to sue you. You have to approve these because the same rationale would apply. If you let Bitcoin futures out, you got sued, and then you have to do spot Bitcoin, you let Ether futures out. Well, it just seems like if so facto, they kind of have to do it at this point. Any coin beyond that, definitely way more up for debate.

But I would be optimistic, not like 95% at all or anything like that, maybe a little over half, maybe up to 70%, that they will approve this. Also, remember, who was the first one to file and whose final deadline is in May, BlackRock. Black Rock has filed for an Ethereum meeting. Yeah. So, and like, if it was some random, like, no name issue, or I'd be a little more pessimistic. But again, they're not dumb, you know, they got this done. You know, they're looking at the next one. So I would probably hitch my opinion a little bit to BlackRock in this case.

And they haven't filed any others. There was that fake XRP filing. But if they did that, I look at it more seriously. But for now, I'm just, I think this one and then the ether, and then I just don't see anything for a while. Amazing, Eric. Thank you so much. Congrats. And thank you so much for your coverage on the crypto ETFs.

We'll be bringing you on to speculate more about the Ethereum ETF in the future if you're willing. So it's been great. Thank you so much. Yeah. Thanks for having me. I'll talk to you later. Bye. All right.

Take care. Bankless Nation. Got to end with this. Of course. Risk and disclaimers. Crypto is risky. You guys know that. You could lose what you put in.

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