Bankless - What the ETH Futures Approvals Mean for Crypto with Eric Balchunas

Episode Date: October 10, 2023

Last week was unprecedented, to say the least. Several, yes that’s right, not 1, not 2, but several ETH Futures ETFs launched last week for the first time in the U.S.!  What does this mean for crypto? Volumes have been surprisingly low. Is it a surprise? Will volumes pick up? Regardless, of whether they do or don't, what do all of these ETH ETFs mean for crypto? Are Bitcoin ETFs next?  We brought on Eric Balchunas to help us answer the above and much more.  is an analyst at Bloomberg Intelligence focused on exchange-traded funds. Eric is an analyst at Bloomberg Intelligence focused on exchange-traded funds.  ----- 🏹 Airdrop Hunter is HERE, join your first HUNT today https://bankless.cc/JoinYourFirstHUNT  ------ 📣 a16z Startup School | Apply Before Oct. 20th https://bankless.cc/a16z-startup-school  ------ 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 7:12 Why ETF Week Was Unprecedented  11:15 Magnitude of Many Launches  16:40 Futures Less Than Spot?  18:25 ETHE vs. Futures  23:43 Is ETH a Security? 28:28 Why Do We Care About ETH ETFs? 32:40 Spot Approval Interpretation  37:23 Scope of the Opportunity  46:50 Timing Predictions of Spot Approvals 51:00 Gensler Preventing Spot Approval?  55:30 Eric’s Twitter 57:00 Closing & Disclaimers  ----- RESOURCES Eric Balchunas https://twitter.com/EricBalchunas  ----- Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures 

Bankless Nation, it's time for the ETH Futures Derby. It just began last week, and the past week has been unprecedented, to say the least. That's a word we used in today's episode, several, not just one, but several Ethereum Futures ETF launched for the first time in the U.S., the first time ever. So what does this mean for crypto? Volumes have been surprisingly low? Is that a surprise? Is that bearish?

Will volumes pick up? And regardless, if they don't, what do all of these ethereum? the ETFs mean for crypto? Are Bitcoin spot ETFs next? And after that, maybe do we get ether spot ETFs? David, who do we have on the show today to explain all of this and walk us through these questions? Mr. E.T.F himself, Eric Balchunis, he is a commentator on Bloomberg on Twitter and just knows perhaps everything there is to know about these ETF products, the ins and the outs. Eric's going to tell you all the reasons why these particular ether future ETF products are dumb and bad and are just simply a means to an end of a much better, brighter future, which

we definitely talk about, that Eric thinks is coming very soon this calendar year, which of course is the spot Bitcoin ETF and a much sooner than expected spot ether ETF than I think Ryan and I were ready for in this show. So, there's a bullish episode, guys. There's been a bunch of conversations around crypto Twitter is like, why are people so excited about this futures product? This show will answer that question. It's a means to an end, and that end is much closer than what people think.

Meanwhile, while you are getting educated about the spot Bitcoin and Ether futures, ETF, and all that shenanigans, there's another way to get educated, which is the A16Z startup school. Just drop out of wherever school. If you're in college, you're getting MBA, just drop out and apply to the A16Z startup school. You get some real experience. What is the A16Z startup school? It is a place for crypto founders to become founders. It is an accelerator program to get your idea, your crypto idea.

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Deadline to apply, October 20th. That is soon. You do not have too much time after hearing this message. So click the link in the show notes. I should specify, you guys don't actually have to drop out of school. That's a, you know, not necessary. Be pretty cool. This is probably a more useful school than the school you're going to now if you are in school. David, why is this episode so significant? Why are we spending the time on bankless, which is a program about crypto? I thought we were escaping the banks here, David. Why are we spending time talking about an Ether futures ETF and the broader implications of that? Eric really said it well. These products are a bridge, a bridge from the crypto protocols to the world of TradFi. Why do we want that? Well, in my mind, this is a winning of a thumb war for the crypto side of things. The Tradfi gets to have their ETFs, which is their composable unit money Lego for their world. But really all the value inevitably flows into our world, into ether, into Bitcoin through the ETF. This is a win for crypto. It is a stepping stone towards legitimacy. It is a is the biggest pipes between multiple trillions of dollars of capital and the cryptocurrency market

cap, which is just one trillion, and it's really just Bitcoin and Ether, which combined is something like $7 to $800 billion. So, like, think of a pipe. It's the biggest pipe that's ever been constructed. On one end of the pipe is $30 plus trillion dollars of capital management by Tradfri. That's what he said. $30 trillion. And then the $800 billion meager market caps that are the combined ether and Bitcoin

market caps. When a pipe that's very large opens up in ways that Trad, FI is only going to be ever comfortable with buying crypto, which is in their ETF formats. That is bullish. And like I said, it's not necessarily going to be these products, but these products are the necessary prerequisite towards the bigger ones. Eric explains that it's all in this show that we're about to have right now. So let's go ahead and get right into that conversation with Eric Balacunis, Mr. ETFs. But first, a moment to talk about these fantastic sponsors that make this show possible, especially Cracken. a preferred crypto exchange for 2023.

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Protocol Labs, Hedera, Gitcoin, and many more. So transform your employment and token payroll operations with Toku. You can reach out to Toku at Toku.com slash bankless or click the link in the show notes. Bankless Nation, we are very excited to introduce you to Eric Balachunas. He's an analyst at Bloomberg Intelligence. He's focused on ETFs. That is exchange traded funds. Eric knows ETFs.

This last week, actually last week by the time you listened to this. Nine ETH future ETFs all launched on last Monday, and Eric is going to help us unpack it this week. Eric, welcome to Bankless. How you doing? Hey, good. Nice to be here. It's great to have you. You've been covering ETF, specifically crypto ETFs with a lot of rigor. You are one of the main accounts I go to when I want up-to-date information, and you had this fantastic hype tweet last Monday. An unprecedented day today with multiple ETFs all launching at the same time. No clear winner has emerged. All of them were pretty average, lower than I would have predicted, but it's a long run. And remember, these hold futures. ETF investors much prefer physical to derivatives. Okay,

so the ETH futures launched last Monday. Tell us, use the words unprecedented. Why is that unprecedented? Right. So there's been many ETF. There's 3,200 ETFs and change, something like that. And there's been many launches. There was a gold launch. There's been oil futures ETFs. So it's not so much that it's an ether or futures that's unprecedented. What's unprecedented is the SEC approving many at the same time. Normally in the ETF world, when you file, determines when you get out. There's like a protocol to that. And the SEC, for the first time ever, broke from that. And we have heard Backchannel that the reason they did this is because remember the pro shares, Bitcoin Futures ETF launched two years ago. It had like a three-day

head start on the rest, and it has like 97% of all the volume of its peers and 94% of the assets. So I think the SEC wanted to eliminate that what we call first mover advantage because they didn't want to sort of like give one ETF that sort of, I don't know, it's almost like playing Kingmaker, although in the EF futures category, there's not a ton of assets, so it's not like you're going to become a king. But obviously, having them all out at the same time is interesting to us because it is unprecedented and a foreshadow for the main event, which would be the spot Bitcoin race, where we do think they'll also let many issuers out at once. When you have many issuers out at once, it puts a lot of pressure on marketing and maybe

fee and other variables when you're not first out. So that's why we've seen a little jockeying from like Banek, who has a lower fee. Also, they've said they're going to donate 10% of the profits to charity. they've had some commercials, bitwise, kind of coming out and saying, you know, we're more crypto-native, that's our thing. And then pro-share's, you know, probably saying, I haven't seen them do too much marketing yet, but obviously, my guess is they're trying to tap their current biddo clients because they've already got that as a major hit product.

So all of them are trying to play to their advantages. And it's just interesting to see who will win because generally in an ETF category, there's really only one stud liquid. you know, ETF that has the majority of the volume. And when you have the majority of the volume, it's a good place to be because you have pricing power. When other ones come out that are lower fee,

it's harder for them to penetrate your liquidity. And for the people who like to trade, they value liquidity. So that's why to this day, GLD is still the most traded gold ETF, even though there's dozens and many more cheaper. And something like EEM, which is the I shares emerging markets,

there's been many cheaper, four times cheaper, and EEM still trades a couple billion a day because there's definitely a crowd who just loves liquidity and prefers it. So those are the dynamics in this race that as an analyst, it's interesting to look at. Although I've got to say there's really not been enough volume overall to really make anyone a winner yet. It's going to take a while.

Normally, you know in a couple days, I think this one will take a couple weeks. I think bankless listeners are certainly familiar with the idea that liquidity is this black hole. The network effects lead to a single dominant winner. Eric, I want to ask about this signal that nine different products are all launching at once. You call this unprecedented. What should we know about the significance of so many suppliers coming into the market all at once to serve this product? Yeah, so it's actually not nine.

It was nine ready to launch. One of them withdrew, just like any horse race where, you know, like in the Kentucky Derrick, There's a few scratches. Volatility shares dropped out. Kelly, I think, was late to launch. I'm missing one. And then Valkyrie was more of a name change. But anyway, just to make a long story short, there's seven or eight on the market.

And remember, a couple of them have Bitcoin and Ether together. So I wouldn't call those exact replicas, but there's definitely, without a doubt, three straight Ether ETFs. And then three or four Bitcoin plus Ether, all of those launching at the same time. And so I think if you're in this community, and I try to tell people this, you know, ether and futures, in my opinion, are not, like you have spot Bitcoin. That's always been the holy grail. So this is neither of those. This is not Bitcoin, it's ether, which to me, from my point of view, you guys may differ in the crypto world. And Matt Hogan thinks ether is going to be bigger than Bitcoin.

But to me, it's like the no-name opening ban before the headliner. You know, you go to see a band. Like, you're like, uh, you know. I'm sure it's like that for a lot of institutions, too, to be fair right now, right? Yeah, this is the band you just talk to your friend through and just, you know, you just, okay, let's get through it and let, okay. And then when your band, the regular band comes on that you came to see, you go crazy. And I think that's what this feels like. It's just like a, nah, opening event.

And the other thing is, not only is Bitcoin, I think, way more interesting to casual. people, but the idea that it's spot, there's something about derivatives that's like spraying advisor repellent on the ETF. They don't like ETFs that hold futures contracts. It came, it really comes from a history of ETFs when there was like natural gas and oil futures ETFs. There's certain commodities where you can't do spot because like if you did an oil, an oil spot ETF would require the ETF that you were storing barrels of oil in a warehouse. And the oil goes bad. It's dangerous. It stinks. You can't do it. Just like you can't do spot corn. You could do spot gold. You have to think to yourself, could I actually store this in a warehouse? How hard is that? And if it, you know, gold, silver, palladium, platinum, you can do that. But not with oil, natural gas. And the case of oil, going from one month futures contract and then selling it and buying the next month out before that one expires, that's called rolling. that can cost you 20, 30% in the oil market.

So USO and UNG have burned advisors. So they have this once bitten, twice bitten three times shy kind of thing with using futures ETS. So that's why I don't put, I was, you know, I had already sort of lowered my expectations because they're futures. That said, I just think you should, the crypto world should look at all of these as bridges to the advisory world and traditional finance. and it's going to facilitate some traffic because Bitwise has salespeople, ProShares has salespeople. Who's the other one?

Vanek has salespeople. When they go out and talk to somebody, a client and advisor, they're going to have in their toolbox an Ether Futures ETF now. So if the advisor has a client is just really into this particular cryptocurrency, bam, hey, well, we have that.

So over time, just the fact that this is one of the ETFs in the menu, things they're selling to advisors is probably overall good. Like I said, it's like a bridge to this whole other world. It's just that the natural interest right now for it is pretty weak. But it's a long game. It's a long run. This is a bridge that just opened. I think compared to Biddo. When Biddo launched, it was at October 2021, which was the height of a mania. It was like Bitcoin fever, you know? And so it launched, bam, right into that. And it tapped into this.

immediate unmet demand. But what's interesting is it took in a billion in the first week. It still has a billion. So it's almost the reciprocal where everything came in like three days to Biddo. Clearly there had been some pent up demand. It got that. But then after that, it was just more traded. It wasn't like there was a ton of demand.

Part of it is because the crypto, Bitcoin fell a lot. Biddle was kind of the top. And then Bitcoin fell. The mania kind of died down. Then you had FTX. So Biddo's been at the same asset level as the first three days it launched. I think this is the reverse, and I think this bot Bitcoin will be the reverse, where it won't have this really quick day one, day two,

a bonanza where it breaks records and whatnot. But over time, as the sort of slow penetration of these products gets into the advisor community, you know, they're going to nibble here and there. And I think over the long haul you're looking at a very vibrant category. But I will say one thing. let's just say there's an ether spot and a Bitcoin spot. These futures ETS will go extinct. Really?

I was going to ask you about this. So these are basically inferior. You were talking about an opening ban versus kind of the main act, right? Yeah. The futures are basically kind of the opener for the main act, which is spot, right? Because futures are an inferior product. Is that correct? And that's due to primarily slippage fees from a kind of investor perspective?

Yeah, it's from that process of rolling from one month. month to the next. So this year, like, for example, Biddo is probably trailing Bitcoin returns by 7, 8%. Now, you're up 65%, so you're not that pissed off. But still, if I told you biddo charge 6% fee, you'd be like, that's outrageous. So is outrageous. Yeah, roll costs don't show up in the expense ratio, but they are real. And again, advisors have had a history of learning this the hard way through these other commodities. So when the spot comes out, you're going to find a over to spot. So these futures are almost like placeholders. But again, it's getting the, as long as these issuers are out having conversations with people, that's probably good. But over time, the spot will

render the futures probably almost useless. For example, there was a gold futures ETF, DGL. It just closed up shop about a year ago. It had, I think at its peak, 500 million, and then just went down and down, and the issuers like, what's the point? So gold spot ETFs have 100,000, 100% of the assets in the gold category. So, I'm a fan of patterns. I would assume something similar would happen with both Ether and Bitcoin, where the spot would just take over and the futures would slowly go extinct. Well, I want to ask you about another product.

So we talked about Futures. We talked about Spot. There's already these trust type products, which are, I don't know what you'd classify them as, but something like GBDC on the Bitcoin side. And on Ether, the only way I could previously purchase Ether. inside of my Fidelity account or something like this, or Charles Schwab, was to buy ETHE is the product, and this is a trust. How do Ether Futures compare to ETHE?

Yeah, so I would say compared to GBTC and ETHE, the futures are a step up. Okay. Because here's why. Day to day, the Ether Futures and the Bitcoin Future CTF are going to track spot pretty damn well, day to day. Over a year, you may have roll cost creep in. But if you're trading it, there really is, it's not that bad. The bigger issue, but still, if you bought Ether Futures or Bitcoin Futures,

let's say you made a call and you said, you know what, I think Ether's going to go up 20%. And you bought Ether Futures ETFs. And let's say it went up 20% over a year. You might get 18%, right, or 17%. So you made a bet and you got. most of the money, right? You're not like, you're not, you're a little pissed, but it's, you know, it's, you can live with that. The problem with EFE and GBT is you can actually make that bet and lose money. That's insane to me. That is going to leave a real nasty taste

in investors now. It's a stupid product, right? It's like, yes, it doesn't make sense. It's broken. It's essentially the reason ETS rule and have really swept the country is not just that they're low costs and they're liquid. It's that they're arbitrageable. So because you have creations of shares and redemptions of shares every day, all day, there's like a two-way street. If the price of the ETF creeps up above or below the underlying, someone can arm that and make risk-free profit.

So that natural incentive to arbitrage is amazing. That's the secret sauce of ETFs. And you don't have that in ETH and GBTC. These are simply a fixed amount of shares that was issued in a private trust that they allowed to trade over the counter. So you cannot go and create new shares or destroy them in the same way you can with an ETF. And this is part of why ETFs have sort of kicked to the side other fund vehicles, one of them being closed-in funds, which have the same problem, which is the price is unhinged from the value of the underlying. And I always tell people like, you know, when the SEC didn't approve it,

I was like, this is dumb. They should approve it immediately because even if Bitcoin goes down or up or sideways, people are okay with that. They just want to, when they make a bet, they want the bet to be with their bet, not some other variable. And so in the case of GBT, I could point out of time where you had the bet right, but you lost money because of that discount. count that formed a GVTC, or you lost or a Bitcoin was down and you were down double.

And that is really nasty, nasty surprise. And so that's why I am a proponent and dedicated my career to ETS is because they have a great track record and they're just a good technology that just allows people to get a fair deal. Doesn't mean it's going to go up, obviously, can go down, but at least you go down the same. And there's no, like, there's nothing else. there. Now, the future's ETFs, I could say, you do have that third element of role costs, which is why we do consider those red light ETFs. To me, ETFs need movie ratings, and there are

some R-rated ETFs, and I do put anything that rolls futures is rated R, which is so ironic, because a spot Bitcoin ETF would be a green light rated PG ETF to me. Isn't that ironic? The SEC approved all these R-rated ETFs, in our system, at least, and they even approved a double-leverage Bitcoin futures, which is like, that's almost like NC17, right? And yet they won't approve the spot. So the whole thing is so silly, in my opinion. And so this is why the ETF is so coveted and desired. And I think, you know, even for a crypto person, and you can use your own wallet and stuff,

and that's great. You should use it. But for a good, you know, giant massive investors, especially, you know, boomers and even young people, but anybody uses an advisor in particular, ETFs are the preferred vehicle because this amazing track record of tracking the underlying well, having very good tax efficiency and being low cost and I'll get that instant liquidity whenever you want it on exchanges. So that's why this is such a big deal to us is because you're sort of your marriage of

two worlds, which is the sort of traditional finance, boomer advisors and the crypto world, the ETF is something like the bridge that will unite them. And it's a good bridge. It's a sturdy bridge. And that's why I would have a proponent of it since it's really the Winkle Boss filing. I mean, we like it and we're fans of it. And I think it's great. And what's more I will emphasize, I think it's a kind of a retail crime that it wasn't approved earlier. When you got products like DBDC and ETHE that are trading either, you know, two, three X of NAV or like below that. And right now, ETHI is like 25% below that. And I don't even, you know, even, know what we're betting on. That has to be beyond an NC17 rating. I don't even know what that is.

It's just a silly. It's silly that we have those products. Well, let me ask one last question on this whole idea of this being unprecedented. Okay, so it was unprecedented because so many were launched at kind of the same time. The other, and I don't want to lose sight of this. I think this is important. You tell us, Eric, the other reason I think this is unprecedented is because, look, crypto has a lot of different assets. You know, go look at our long tail of assets beyond Bitcoin and ether, all right? We could name a whole bunch for you, some of which you may have heard of, some of which, you know, no one's heard of. But this is the first time that an ETH futures ETF was approved in the United States. And I'm wondering what that says about ether as an asset

relative to the long tail of other crypto assets, if anything. Is that unprecedented? Is that significant to have an ether's futures? Are we saying effectively that the SEC is saying, oh, it's not really a security, but we can't say it's not a security. I get this a lot. I can't say I'm, this is my wheelhouse. And I get that you would read into that. But let me give you some background that's a little not yet known or isn't that known, which is that the reason Ether futures ETS came out,

I don't think is more the SEC changing its opinion of it being a security or not, but more of the fact that EFutures are trading. on the CME, which just means they're regulated by the CTFC, CFTC, whatever. Which is the C is commodities in CFTC. Yes, true. But that's a whole other issue. I will let the regulating analysts debate that. But I don't think this was approved because of a change in whether ETH's security.

I think this was approved simply because A, that is the ETH futures are regulated in a way. and B, there's a company named Volshares who ran the stop side the SEC had said don't file these and there was a filing they'd tell them withdrawal

this happened like four or five times over the last eight years and then Volshares came in with this Bitcoin Leveraged Futures ETF SEC said please don't do this but Volshares is like I'm just a small company I don't really care

you're going to have to send me a cease and desist or I'm launching and they called their they basically called the SEC's bluff, and the SEC did not do that, and they launched. And so Volchairs is like, all right, well, that worked, let's do EFutures. And so in a way, Volshares, that's why we call him the Dark Knight. He's sort of like vigilante justice, this guy named Stu. He really forced the issue on the SEC.

And I think because of the Grey Scale suit and some other things, although the SEC had the strength or even character, I think they just back down. And so in a way, I don't think they love that these are launching, but this one issuer kind of pushed the issue. And so I don't think it's them changing their mind on, but I will say the fact they didn't fight this issue or tooth and nail shows that maybe there is some softening overall in their whole thing.

And again, we have heard back channel, you know, you heard it here first. Now others are reporting it that the SEC is engaging with the issuers on their spot filing. So even though they were all delayed until January, they're sending emails to the spot filers saying, hey, could you please address the comments we have about your S1 filing? That is a really good sign. They never did that. Is this for Bitcoin only spot filing, Eric, or Bitcoin and Ether? I have not heard anything on the ether front. My guess is whatever they fix for the spot Bitcoin will carry over. But my guess also is the SEC is probably going to

be like, let's get Bitcoin done first and then we'll look to Ether after. Just do us a favor. Let's put this off to the next run. So my guess is you'd probably have a batch of Bitcoin and then Ether. But the good news is if you can get it, all the SEC's comments answered in this S1 for Bitcoin, all of that would apply to the Ether situation as far as I know. So I would just sort of leave it there in terms of that. So I just, I don't think there was a change in there.

view. It was more of those other reasons. Yeah. So let's zoom out then and try and place the significance of this week in just the arc that is the story of crypto being accepted and legitimized in the traditional finance world. So like why do we care about an ether futures ETF when we know like what you said is like these are all just going to be considered defunct once we get a spot ether's ETF in the future. So is this just meant to be like a stepping stone to get to that point? Does this account? for why some of the volume was maybe on the lower side? Like, what is the real significance of this week

if we're not truly excited about the actual products being released here? Yes, I think so it's a good word for it. I think, you know, it's all progress. And the more this becomes just a familiar thing to the SEC regulators and advisors, it's probably going to be good for the overall acceptance of this by that, again, more conservative, conservative boomer crowd. I guess that's how I'd look at it.

But to your point, you know, to my point at the beginning, this is, again, the equivalent of, it's not like, this isn't like Lollapalooza where I'm going to be Gen X here, where you have like, you know, smashing pumpkins opening for Primus and like both bands are good. Okay, this is like the band you never heard of, nobody's ever heard of, and they will go nowhere. opening for smashing pumpkins or rage against the machine or something like this

Allison Chains If you asked me to do like millennial Lollapalooza, I can't do it so I'm just going to stick to that but like I said I would look at this not just as it

it's a minor stepping stone right. Yes. How much of this is how much of that is true because of the futures element and how much of that is true because of the ether element like me and Ryan we live

like in Ethereum every single day so it's a very big deal for us. Yeah, honestly The boomers should be a lot more bullish on Ether than they probably are. Yeah. You guys, have you guys, you know Matt Hogan? Of course. Yeah, we've had him on a podcast a handful of times.

He thinks Ether should and will be bigger. Yeah, he's right. I think Matt might have gotten. Matt, I'm sure as a listener of bankless. Yeah, I mean, Matt is a, I trust Matt. He's a very smart guy. One of the best communicators and presenters I've ever seen. And that's a big statement from him.

So I definitely feel you. I think it's probably a little more of the futures element. Okay. Like if Biddo launched today, they would not have a billion dollars in three days. Again, the mania in 2021 was off the chart. And remember, Bitcoin was mostly still unvarnished or unblemished. Yes, yeah. FTX was a gigantic black eye.

Right. So it is slow, it's going to be a real slow ability. up to get people won over. At that time, the FOMO was through the roof to buy at that price. I know because that's when my wife was like, we should buy this stuff. $68,000 or whatever. So, you know, when your friends and family and your college friends are like, how can I get this Bitcoin thing? That's when Vito launched right there. Then it was a sell-off. It was October 2021, like top of the market. Literally the peak. Literally the peak. So that's So you got to just look at that as like a zeitgeisty kind of moment.

Right. You don't have that now. And so if Biddle launched now, it would be probably more popular than the Ether futures ETF, but not that popular as when it launched. Number two, Ether ETFs amongst all crypto funds in the world have 20% of the assets. That's pretty good. So over time, I would think, in the U.S., an Ether spot would get one-fifth of the assets of the Bitcoin ETFs, again, based on the patterns of where we're at globally.

Because remember, these things exist in other countries. So I would think you're shooting for there. If Matt Hogan's right, maybe it grows beyond 20. But that's sort of where it's landed in the equilibrium currently with crypto funds globally. Okay, so really I think the way that I interpret the significance of this whole thing is this is just an important stepping stone to get to the spot Bitcoin ETF and hopefully eventually the spot ether ETF, which notably Grayscale, file to convert their trust into an ETF in the future. Assuming that these things happen,

and I think one of the indications here is with the approval of a spot ether's ETF, the eventual spot, excuse me, yeah, with the approval of an ether futures ETF, the spot ether ETF is inevitable in the fullness of time at some point, along with the spot Bitcoin ETF. And this is happening in the bear market, in the crypto bear market. Meanwhile, SBF is currently going on trial. And so we're kind of like cleaning our. passed up a little bit. The significance for all of this, I think, will eventually culminate when crypto has some resurgence in price action, retained, regained some favor in the zeitgeist, and all of a sudden, the price action of crypto assets now has bigger, much bigger pipes

to actually paint some big green candles when that inevitable favor is regained by the crypto world in the future. That's kind of how I'm interpreting this. Yeah, I would say that. I mean, again, let's say, like, if you have a store and somebody builds a bridge from your island with your stores on to like the mainland, clearly the store is probably going to get more business, maybe not on day one or day two, but over a couple years, there should be more traffic, more foot traffic in your store, right? Just simply because there's a bridge and now you can drive instead of taking a boat. I would just, it's the same thing.

You know, the inverse relationship I used to this is iTunes. I don't know if I'm probably dating myself at this point, or I could date myself even more with my band name. Remember on iTunes, like the Beatles held out for a while? And when they finally went on iTunes, all their albums went to number one, right? Because there was a lot of people there, namely younger people, who were like, oh, okay, I'll check the Beatles out now,

simply because they're in the format I listen to. Whereas they're not going to go buy a new Beatles, CD or album. And it's almost the inverse where there's a lot of older investors, advisors in particular, where once you put it in the format they love and know, they're much more likely to take a nibble at it or use it as an asset allocation. Like, I don't think advisors would use gold at all if it weren't for GLD. They're not going to go buy gold bars and store them. Just be like, I had to hell with it. We'll find something correlated. So this is similar to that. There's a lot to be said for putting something

where the people want it. And the bridge is the best thing I can think of. But, you know, I would look for three, four years to get to this, you know, big boy asset place that gold is where you've got tens of billions. GBTC has 20 billion. So I think a lot of that's over grabs. That's 20. And then you have maybe some new assets. And I do think over time, boomer advisors are undergoing a real.

issue that concerns them, which is the generational transfer. So, like, they have a lot of clients who are 7580. And remember, boomers have, like, almost all the money in America. I think they have, like, 80% of all the wealth. But they're getting older, and they're going to pass it on to their Gen X, millennial, Gen Z kids. And the advisor is worried that the kids are going to take their money somewhere else. So the advisor may actually want to get ahead of this by say, hey, look, I'm cool.

I'm going to give you a little crypto. So, you know, there may be that kind of motive for the advisor or when it does get passed on the younger investor who's now using the same advisor as like, I want this. So I think that there's going to be some motive from the advisor just to impress their younger kids of their clients. And the kids themselves could be like, I want this. Sort of like, you know, I, you know, grassroots style. But again, this is stuff that's going to take years and years to play out. But as I said, I think there'd be $100 billion less invested in gold if it wasn't for GLD. How big is gold?

How big is gold, Eric? ETS. You mean of the how much gold is above ground or how much is in GLD? No, I think I know that like how much gold is above ground. It's like $8 trillion or something like this. Is this approximately right the total market cap of gold? Because I think gold ETFs make up about 1% of the gold above ground, which would put them $10 trillion, $8 trillion.

billion, but yeah. So 100 billion is in gold ATFs. Okay. And what's the, what's, what's, um, so, you know, I'm bankless, yeah, a lot of people listening are kind of like their own independent researchers, financial advisors, like they, you know, they kind of do it themselves. Um, what, can you give us a scope of how much money are we talking about in financial advisor world? Are we talking about in the trillions? And is that the main liquidity source that we've tapped? into it's all of kind of the you know chuck schwab advisors and the independent financial advisors who have you know baby boomers with you know the retirement funds and that kind of thing is that what we've unlocked here or are we also unlocking like a big pool of institutional capital will like

big pension funds be like oh you know what we want some exposure to bitcoin ether we'll allocate x percent we'll just buy the ETF is that another source get you know pay us the size here because I don't think we often look outside of our crypto bubble and see how much capital there is in these other areas. Sure. These are some rough numbers, but they're ballpark. Okay, so first of all, if you look at the who owns ETFs, advisors probably make up 70, 75% of the ETF investors.

Okay. Like they're the main player that uses ETFs. Institution's probably 10% and do it yourself retail 15%, something like that. So I would say that's what you're opening up. So advisors have 30 trillion in assets. And they love ETS. 30 trillion in assets that they manage on behalf of primarily America, right?

So this is U.S. That's in America. Advisors. 30 trillion? Yeah, because once you get money in this life, I'm not sure where you guys are at, but once you get like a bunch of stuff, you kind of have to go. Less than last year. Yeah, probably.

You know, these rich boomers have like they want to do estate planning. They hate taxes. How can I pay less taxes? They have all this stuff going on, right? So that, and they have all the money. So the advisors are managing their money. So that's massive, right? That's why, although the crypto trade publication, one of them sort of mutated my words and said,

$30 trillion is coming for Bitcoin. And I was like, no, no, maybe 0.5% of the 30 trillion is coming, which is. about $150 billion. That's still $150 billion, yeah. So that is a lot. Now, if there's one spot Bitcoin ETF that gets liquid, that will attract institutions. Institutions can get a lot of this on their own. They'll call up like Black Rock and just be like, hey, just make me a Bitcoin account or whatever.

But the one thing that institutions cannot get anywhere else is liquidity. And so institutions love really liquid ETFs, like GLD, SPY, because, they don't have to call anybody. They can get in and out without impacting the market. ETF trading is anonymous. Nobody knows they're there. And you don't have to call anybody. There's no contracts.

It's just very easy, free. And in a crisis, they know the ETF will be liquid. They can get out. And so there will be institutions who will use the number one or number two, top two, most liquid ones. And if you look at the holders of spy and GLD, it's full of pensions, endowments, insurance companies, high-level hedge funds.

Bridgewater is the biggest hedge fund of the world. It famously uses EEM, SPY, even dabbles and stuff like some of the sectors. So that is the institutional element will be in the biggest traded one. And then the retail investors, I think what they're going to come into is they may like to trade this, but they like adrenaline. So when this 2X spot comes out,

that's probably what they're going to. going to hit up. Retail loves, leveraged. They want to feel something and Bitcoin probably wanted to be volatile enough for them. So they're going to wait until the 2X comes out and be like, okay, yeah, this is good. 10, 20% in a day. That's what I'm looking for. I can't believe I didn't know that there are 2x crypto ETFs that are on the potential menu here. Yeah, I mean, BitX, by the way, BitX has 50 million already. So that's a good sign. No, 30 million, sorry. But it charges 1.8%, which is a lot.

But if you look at the volatility on it, I mean, I'll just give you a few with the vol. So it's 77% volatility so far. For context, the S&P 500 is less than that. Probably 20? 12, 12. So SMP 500 is 12%. Biddle is 77. That essentially means that there's a two-thirds chance that in one year,

the S&P will be up or down 12%. What BidX is saying is there's a two-thirds chance to be up 77% or down 77%. I can see that. And that kind of volatility is very attractive to the retail crowd, the sort of Robin Hood types, which is why like the triple leverage Q's TQQQQQ and SQQQQ are frequently in the top five most traded ETFs every day.

They trade as much as like Microsoft stock. So I think a spot, a double leveraged spot Bitcoin ETF probably will have this other appeal So those are typically how those different player types invest. The advisor will go for the BlackRock and the cheap, right, long term. The institution will want the most liquid one regardless of fee. And the retail crowd will probably wait for the one that has the most jacked up ball. Really good insight.

Wow. Love it. Looking back at my previous self when I was buying equities, I can definitely resonate with the people playing with the two. I think I had like the two X semiconductor ETF. Yeah, that one was a wild ride. Right, like semis aren't enough. Like, that's pretty, it's like, semis alone are double-tripled of all the S&P, but you need double. See, I call this the hot sauce bucket.

Most people these days have a hot sauce bucket, even conservative people. They have like their retirement account, which is like, okay, just leave that over there. It's good. It compounds, but it's boring as hell. Now, let me take 10, 15% and go absolutely wild. And that's where I think this crypto ETF would live for the retail crowd. Oh, my God. there's got to be so much product market fit with the retail crowd.

Yeah, that's so fun. Because, yeah, as crypto investors, Bitcoin and Ether are like our most boring assets. Yeah, they're real boring. And then we have a hot sauce bucket with some pretty wild stuff. That is hilarious. It's all relative, I guess. Yeah. It's all relative.

It's fractals. Yeah. Eric, this has all just been super informative. There are a few more things that we need to tie off this conversation about, just mainly the predictions, I would say, the predictions about Bitcoin ETF, the spot Bitcoin ETF. look. What about the spot ether? ETF? Can we start being, can we start anticipating that? So we're going to ask these questions and more in the second half of the show. But first, a moment to talk

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with the Uniswot mobile wallet, safe, simple custody from the most trusted team in Defi. Download the Uniswap wallet today on iOS. There is a link in the show notes. Eric, I want to talk about some timing predictions. if we can get that out of view, what does this mean for the timing or probability of the incoming

spot Bitcoin ETF? Should we start holding our breath for a spot ether ETF or is that too far out? What does this know? What can we glean from the future of these approvals? Okay, so

we are still, James and I are still holding the line at 75% odds of approval this year. Of a spot Bitcoin ETF? Of a spot Bitcoin. This year, 2020. This year. calendar year.

No, 2020. Yeah, 2023 calendar year, sorry. 2023. Yeah. And look,

we've held this line when it was not cool. When they, when the SEC delayed about six of them, mm-hmm.

We got dunked on even by crypto people. They're like, look at these guys. Right. But we like to do that in the crypto world do a podcast.

I know. By the way, the whole ether, it's funny because when the ether future is launched, there's a couple times in my replies,

there'd be a fight between a Bitcoin Maxi and an ether person. Yeah, I know. Sorry for that to you. Yeah, sorry. The Maxi was like, why should these even exist? The government's going to ban it.

And I was like, really? And then the other guy's like, no, this guy is out of his mind. Yes. Yeah, there's some very far as saying people on crypto Twitter. Oh, yeah. It's fun, though. It's fun. The memes, the argument.

There's a lot of spirit. And I like that. So it's okay. But yeah, there was a lot of, there's a couple ether haters who, who, when these came out and they didn't have the volume of they thought there was a lot of dunking on that too. But anyway. It's the arena,

that's what we call it. So the odds are still 75%. And not only did we hear the SEC is for multiple sources that the SEC is working with the issuers, which again is it breaks the pattern. It shows they're willing. Gensler also had two moments where we thought they showed signs of weakness

where he said we had our anchor from Bloomberg TV asked him about this. And he said, well, the spot ETFs, look, they're in register. I can't comment, but look, I'm only one of five commissioners. Little old me. So he's starting to hedge a little. Yeah, little me. And then, little old me, you know, if they approve him, hey, it's not on me. And then the other one was he said something like, oh, when he was asking Congress about this, he said, well, look, they're active filings. I look forward to seeing what the staff comes back with. Well, that's the same

exact phrasing he used with Biddo. I look forward to seeing what the staff comes back with. So you can see he's almost trying to like diffuse that it's all on him, which I think is a good sign. Them reaching out is a good sign. And we've had two of the things that I

thought were interesting. Vanek, Jan Vanek, who is, when I've met with him, he's like, you guys are crazy. It's not happening. It could be years. He's now was on CNBC saying it's going to happen pretty soon. Wow. And Matt Hogan who was firmly in the 2024 camp.

It was on CNBC a couple days ago and said, this calendar year. So I've seen two people shift forward. Kathy Wood just said yesterday, and a quote, odds are rising. And she was firmly in the 2024 camp. So it makes sense. All those people are issuers who got the email from the SEC. And the comments they're asking for are doable. They're fixable.

They're not like anything crazy I've asked. So I think this is all very good. That's why we're going to hold this year. That said, there's something in the back of my mind that thinks because of the holidays, it could roll into like mid-January. I almost still think we deserve credit given how much we went on a limb and how much we hung there because we're within a couple weeks. I'll still give us credit if it's by January 31st. But as we roll into the next year, our eyes just go up and up. So that's sort of where we're at.

Ether, in my opinion, I would expect that to be a month or two after Bitcoin based on logic and the feel for how the SEC operates. A month or two after Bitcoin? You think we could have an Ether spot ETF? Well, remember, they're already filed and there's been no withdrawals. The difference, though, here is, Eric, is Gensler himself has very much prevented himself and he's been given ample opportunity to say that ether is not a security

and he has not taken that opportunity. He's deferred. And he's conceded that Bitcoin is not a security, but he won't get there with ether, which feels at least to crypto people kind of watching this that he's got something in for ether, his reluctance to say that, and that might put a wrench in the works here.

well fine again remember this whole thing of like whether it's security is is i can't say i'm in the weeds as much on that in terms of i've heard that congress ask them the pokey man car question and stuff and i can see that there's a lot of uh people who who are debating this but you have to understand that the the grayscale ruling said that your your main your main premise on declining Bitcoin spot was that it was manipulation and fraud.

And so they threw that out. That was their main reason for etherfewed. It wasn't like their problem with it was security or not. It was that. So that's gone. So if they approve Spod, to me it's sort of saying that, okay, well, the court said we had to

use a different reason and there are none. Yeah, maybe it's possible that he says, look, we're about to go crazy on ether. just don't feel comfortable approving an ether spot. I guess it's possible. I probably want to talk to James a little more about it. He's a little more in the weeds on this. But based on the fact that you now have ether futures,

it would be a bit silly to not approve spot after you've approved ether futures and Bitcoin spot to me. It would be like odd. Because there's a pattern to this and a cadence, and that would just break from that. I don't see it, but it's possible, I guess. I think what I'm just hearing is that you just think it's going to be a fast follow.

Like once the flood gates open of approvals, then approvals will be approved. Yeah, because think about it. Now, at this case, they've already been sued and lost. Let's say they decline the ether. Someone could sue them and say, well, you accrue a spot on the same premise. What's your, what ground are you standing on here?

So there isn't a boldness with the issuers lately. After Sval shares running the stop sign and getting the bid X and the ether futures out. It's funny. And also the gray scale loss. there's a lot of like the issues are getting more emboldened. I don't think any of them are afraid to sue anymore. And so this is how we feel on the crypto side of things. We feel like we are racking up wins,

not just against Gary Gensler and the SEC, but generally in the court. And if we accept that that vibe is collectively happening across many different respects, that would be in line with that. We've also run a few stop signs, I think here or there. So that's happening to our benefit without getting the ticket. It's better to have.

ask for forgiveness and permission sometimes. That's crypto's motto, I think. I tell my team that all the time. I'm like, could we write research notes? I'm like, if you're not getting, like, if you're not getting called out or an email from the editors every six months, you're not doing it right.

Yeah, absolutely. You need to take chances and push the envelope. And that's sort of what Ballshares did. And in a way, I respect it because the SEC has made this so difficult in everybody. But other issuers just didn't have the stomach to fight or to, to do that because they had all these other product lines.

And so you don't want to mess with the SEC, but when you have very little going on, Valshares only had a couple of really exotic VIX type stuff. They're like, eh, you know, what do I have to lose? So sometimes it takes someone with nothing to lose to, like, you know, shake things off. Yeah, to sort of pioneer something. Absolutely.

In this case, it was messing with the SEC, and they won. And Gracie L. Obviously, in this case, they had the money, and they won. And so, yeah, it's been a year where it shouldn't have come to this. No. I really think all this could have been hammered out a couple years ago. And none of this would have had to happen. Thanks, Gary.

Well, we certainly agree. And this has been fantastic coverage. And you and James do fantastic work on this. Eric, can you give a shout out for your Twitter handle, which is where people can go get the latest? If I listen to anyone about what's happening with crypto ETFs, I connect with you, Eric, and I connect with James. So what's your Twitter handle so people can follow?

Sure. It's at Eric Balchunis. So if you're watching, that's my name right there. Yes. That's it. Believe it or not, it was available in 2010.

There were no other at Eric Valchonis. Are you shot? You got into it. No, no, I've been on Twitter. That's a good thing

that's my name. My email, by the way, my email is also at Eric Valchunis, both Bloomberg and Gmail. So I've never had to use a one,

a two, or anything like, like real or anything. So, oh, wow. Very easy to find. What, one morning, though, I sometimes tweet about like, I'm an ETF analyst. So there's a JPMorgan equity ETF. And sometimes people are like, dude, I don't give a shit.

I don't care about this. What's going on with Bitcoin? So I've noticed there's a crypto follower that isn't in love with the other ETF tweets, but you'll have to just wade through those to get to the- You know why? You guys need to get to keep going down the stack here. And I'm looking forward to that Pokemon card ETF that you guys can roll out. If you don't, if you don't put in an ETF, crypto will just tokenize it.

Okay, we'll front run you guys. We'll do it ourselves. So you better put in an ETF. I used to say that like, you know, ETFs are so good. You could put like baseball cards in there and people get a good deal. I get with Pokemon cards. But yeah, I don't think we'll see that, but who knows. Who knows?

Who knows? Indeed. Well, Eric, it's been an absolute pleasure. Thanks you so much for having us on and talking about the Ethereum ETF Derby. It's been a great week for that. Thank you. Thanks for having me. on. Great talking to you and see you later.

Wrista disclaimers, Bankless Nation, of course, none of this has been financial advice. Doesn't matter what generation you're in. Millennial, Gen Z, Boomer, Gen X, crypto is risky. You could lose what you put in, but we are headed west.

This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.