On The Brink with Castle Island - Weekly Roundup 01/12/24 (BTC ETFs launch, more ETF, even more ETF) (EP.498)

Episode Date: January 12, 2024

Matt and Nic are back for a historic week in the history of Bitcoin. In this episode: Spot ETF approved and starts trading Why day 1 flows might disappoint but longer term flows could materialize Day 1 price action review The GBTC conversion effect ETF scoreboard after one day of launch The SEC's multiple SNAFUS in their ETF launch Gensler's grudging approval and his questionable logic Commissioner Crenshaw's dissent Gensler may have made a strategic mistake in his dissent Prospects for an ETH ETF What's next for the Bloomberg ETF boys Did Bitcoin change tradfi Fidelity is harvesting goodwill ETF fee review Sponsor notes Market Structure on the Cusp of Spot Bitcoin ETFs In Coin Metrics State of the Network Issue 241, we explore digital asset market structure on the cusp of spot Bitcoin ETFs

Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more to Britain's ailing economy with a new round of Conchurchase. You print a couple trillion dollars, and all of a sudden, people start to worry. So out of this worry, we have something called a Bitcoin. Bitcoin.

Welcome to On the Brink. I'm Matt Walsh. And I'm Nick Carter. And this episode is brought to by Coin Metrics. And here is the Metrics Minute. For the Metrics Minute, we're looking at the run-up to the spot Bitcoin ETFs. So following Grayscale's core victory, Coin-based stock surged 121% into the end of 2023. Anticipation around spot Bitcoin ETFs drove. daily Bitcoin spot volumes above $10 billion, but they're still below levels seen before the

collapse of FTX. Future's open interest on the CME has exceeded its 2021, all-time high, topping $6.3 billion. Bitcoin's 30-day volatility is trended down over time from a high of 700% in 2010 to 40% in 2024 as it matures into an asset class. This week, 2 billion tethers were minted bringing the total market cap of tether to 93 billion that's your metrics minute two billion tether was remitted this week i didn't even realize that tether just keeps cranking i mean it's at all-time highs it's going to 100 billion wow that's crazy um what a week huh i feel exhausted i'm completely exhausted by what's happened this week it's what a three-ring circus of a c c c c approval process that was. You just can't sleep in this industry. I like how crypto is like contagious

in terms of everything it touches becomes insane. So it's the SEC got dragged down into the muck with us. Oh my goodness. The two-factor authentication, I guess we'll talk about all this, but what a every six hours, there's another chaos situation. Yeah, I don't even know what like where do we start. So, busy week on the podcast. We did, yeah,

we had a busy podcast week. You sat down with Matthew Lemurrell and Mitch, Michigian, blockchain co-investors, talk about their 20-24 predictions. You also, we did an emergency podcast last night with Matt Hogan a bit-wise. A lot of podcasting this week.

So Matt Hogan got him last night at like 9, 9.30, something like that. That was an emergency. SEC has just approved a, an ETF podcast. Thanks for helping me get that one out right away. Matthew and Mitch from blockchain co-investors had some really good predictions, one of which was that we're going to see a Bitcoin ETF. So they're coming true. That was correct. So far, they're one for one.

Matt Hogan, is you number one guest now? I think he might be. We featured him on. Yeah, he's been on the podcast more than anyone, I think. He always has great insights. We'll get into the Eith side of this, but he had some interesting, comments about the eth etif he wasn't as uh as bullish as maybe i would have thought yeah i think uh i actually have a theory about this we'll get to it when we get to gensler's statement on the approval of the etf i think gensler made a key strategic mistake that uh lends itself to an eth approval that is my theory in the radio business we used to call that a tease get people to listen for an extra 15 minutes, get another, I think they call them quarter hours in the radio biz.

So, yeah, stay tuned for later in this episode, aka in about 10 minutes time when I discuss my conspiracy. Well, let's do the quick deals before we talk about the ETF. So it was a busy deal week. First one up is Fanoa. This is a crypto custodian and staking platform. They raised $15 million from Maven 11, Balderton, signature ventures, and others. actually pretty busy deal week.

So we have Bracket Labs. They're a D5 protocol. There is 2 million from Binance Labs and NGC. Then we have Argo blockchain. This is a crypto mining company, Bitcoin mining company. They raised $9.9 million. Next up we have Tadda, a data invalidation company. Or is it Tata?

I don't know. They raised $3.5 million from Morningstar Ventures and Genesis Block Ventures. Very good name. Very good name there. I have to give them. a shout out for that one. Next one up is Saros. This is a Solana Defi protocol.

They raised $3.75 million from Solana Ventures, hashed, and Spartan. Then we have Altitude, a defy-leaning platform. There is 6.1 million from Tioga, Newform Ventures, and GSR. Then we have Entangle. This is a data infrastructure company that raised $4 million from Big Brain Holdings and others. Next up is Pontum, a Web3 product development studio.

6 million from light speed light speed faction shima pentera and winter mute and the last one up is bitfinity this is an evm based bitcoin layer two they raised 6 million in a token sale to polychain paraffi and warburg series a lot of bitcoin l2s being raised these days exciting time bitcoin l2 markets hot yeah something's happening do you do you think that the public investors in these mining companies understand ordnals and bitcoin L2s and some of the fee pressure coming on the Bitcoin network? Yeah, I think there's a sense of it. I get questions about it, actually, from miners and analysts that cover miners.

But the fees are very cyclical, and they tend to be ephemeral as well. So I don't think it changes the economics fundamentally for the miners, as of right now, at least. It would be great to, I haven't seen any cell side research reports on minors. recently. I wonder if they're chirping about it. Going to be an interesting quarter for the miners with the having, of course. Not a lot of other industries like that where the revenue on the entire industry gets cut in half

programmatically. Kind of a tough one. What a crazy industry, right? I mean, you have a commodity where the supply is going to start to, well, I would not contract, but the new supply is going to start to contract. And then you have demand being influenced just by market structure. So the ability to actually buy these ETFs, kind of happening at the same time. Yeah, I mean, I've long been of the opinion that it's the demand side factors that matter much more. Controversial opinion, as it turns out. Oh, yeah, you're not a stock to flow guy. No, no. So I guess on the ETF, we did it.

You don't want to talk about the big story of the week. What's that? The biggest story, Belichick's leaving the Patriots. This is actually the first I'm hearing of this. Oh, was there an ETF? Yeah, no, I've just been, I've had at our office here just ESPN up. I didn't even know about the ETF. Tough season for the Pats.

Yeah, look, all good things kind of have to come to an end. And next year we'll probably be, you know, 14 win team. I'm not that worried about it. It was thank you for all the memories. I'm very happy. I wouldn't trade it for anything. Six ranks. The commanders of the second worst team in the league.

Which honestly flatters them. And you know it's always tough as a fan of a team when you look forward to the draft the most. That's the most important moment of our season. Oh yeah. I'm very much looking forward to this draft. We have the third pick. Well, I was about to say we'll probably trade it down

for five picks in the second and third round, but I don't know anymore. Yeah, it's a new era, new philosophy. So anyways, yeah, we can get to the real story. The SEC on Wednesday evening approved the listing of spot Bitcoin ETFs for the first time. So 11 issuers have been greenlit. So it's the 10 new ones and then its gray scale was allowed to convert their OTC trust into an ETF. And yeah, the market is more or less flat here. I guess that's the first thing.

Yeah, I mean, I think my prediction was something about either news selling or flat on the news. I mean, I'm going to have to go look at that. I mean, we made the prediction on this podcast like three weeks ago, so I should be easy enough to look it up. But this is consistent with what I thought would happen. We're pretty much flat from, you know, first of Jan, although we did wake up to 49 today. So I guess a bunch of things just on the price. And obviously we're not, you know, we're on the venture side of this, so we're not buying and selling Bitcoin. So I'll caveat that we're not the deepest market participants in terms of the trading of this thing.

But certainly this was a known event for a while here. So after the lawsuit, you did start to see the price of Bitcoin moving. I think there's a lot of front running flows here in anticipation that the SEC really had no grounds to deny this thing. Although the two dissenters seemed to try to find their ground. So this passed by three to two margin at the SEC. Just a lot of flows came into the Bitcoin ecosystem ahead of this. So that's one thing. The second thing is just access to these products.

So on a lot of these wirehouse bank private wealth platforms, you need to go through a seasoning process as an ETF for usually at least six months before a new ETF can be widely distributed on a solicited basis. So you can't have your sales force going out there. telling customers to go buy this thing for a little while. So they're going to want to see how these things trade. There's potentially going to be some of these that aren't around in six months too, or at least kind of zombies. This is 11 ETFs, all with a very similar product. And so they're not all going to make it two, three years out into the future.

So once these things become freely available on all of these platforms and you can actually sell them as opposed to just reacting to demand, that'll change the picture. type of construct on some of these big registered investment advisor platforms where you need to go through a listing process. So that's one thing. And then, of course, you have the impact of GBTC, which I think would probably spend a lot of time talking about how that's working. But those are my kind of initial thoughts on the price, which as we're recording this is a little bit over 46K. Yeah, I think people are disappointed by the day one price action. But, you know, this was messaged

by, you know, the Bloomberg analysts, for instance, it's probably the flows are going to be more medium, long term, the meaningful flows that are unlocked by this product because they're simply not available, day one. The day one flows mostly pertain to GPDC, people converting GPDC, for a number of reasons. And I think that's actually exerting some pressure on the price. to the downside. You know, remember the GBDC was trading at a 40% discount 12 months ago, give or take. So this is the first time it's been at par in, what, two years? It's not surprising that people are either closing that arbitrage or they're just glad

that it's back at 0% and they're getting out. Yeah, so a bunch of things on the GBTC. So GBT priced their ETF at 1.5%. So 150 basis points. A number of these things are 0% for the first six months with a fee waiver, including BITB, which is the Bitwise product, which then after six months and or a billion dollars converts to 20 basis points. So that's the lowest one in the clubhouse right now. So Bitwise is BITB. Now, obviously 1.5% versus 0.2% is a big difference.

So if you're in a rollover IRA, HSA, one of these tax-advantaged accounts, you probably, I mean, we'll have to see what the data comes in, but you'd have to think that there's a lot of selling out of GBT since you don't have to make a tax payment on that into some of these lower-cost ones. And obviously, if you're selling GBTC, there's a Bitcoin sale on the back end of that. And so you're probably having this rotation trade happen, and it could be that not all of the proceeds are being spent to buy BITB and these other ones, right? So you might have, for every dollar being sold of GBT, it looks like, you know, $0.9 is being spent to come back into the ecosystem. Now, there's other market participants here that were just sitting on a ton of GBT.

So some of these Chicago trading shops that had bought the Alameda, GBT, some of these other bankruptcies that happened, that those companies held GBT or they sold it, you know, ahead of the bankruptcy. Those were trading at massive discounts. And so you're sitting on a big gain there if you're one of these shops. And so there's likely been just a lot of selling in that product. And so that's having a downward impact on price that is being partially offset here. by the new flows into the Bitwise, Arc, Fidelity, you know, all these other products. So definitely a factor. Yeah, completely.

So people are a little bit confounded, I guess, by the contrast between the very high day one flows, which are, I think, in the already a couple billion dollars range. Is that right? Is that where that came in? As far as I can tell, yeah. But a big fraction of that, by far the biggest. flows product is GPDC, which is obviously an existing product. I have to imagine that's mostly flows out.

And so that, you know, that's not necessarily accretive to the price. But yeah, the scoreboard as of right now is GBDC number one, assuming a lot of that flows out. But you're going by volume right now? Yeah, by volume. Number two I'm seeing is Ibit, which is the BlackRock product. Number three, FDC. Number four appears to be Arc. Number five is Bitwise.

And then Franklin Templeton, Invesco Galaxy, Velkrie, Veneck. So I would say no huge surprises there. I think a lot of people thought BlackRock would be the number one. No, it'll be interesting because I think some of this seeding happened last night. Obviously, we mentioned the distribution is not fully open yet. So it'll be a little bit of a slow burn here, I think, in the first few weeks of this product. And potentially for the first couple of months before the big private wealth platforms are actually able to list it. Interestingly, Vanguard came out and said they just won't list these things, which I think is just catastrophic for them.

You have right now trending on X just for everyone is Boycott Vanguard. That's actually trending on X right now. Yeah, that's one of the underappreciated kind of factors here is I think the brokerages themselves, not just the ETF sponsors can distinguish themselves by allowing people to trade the Bitcoin ETF. I mean, a lot of people want to do it. And Fidelity is obviously a sponsor of themselves or also a brokerage with day one access to the ETF. I'm seeing them get a ton of hype around their kind of just more progressive stance. Yeah, a lot of people in this delete Vanguard or boycott Vanguard situation are saying hop over to Fidelity. I mean, they've been supporting the industry since 2014.

It's just kind of crazy. Vanguard has the BITO, which is the futures-based Bitcoin ETF on the platform. That's a terrible product. I mean, that has such a drag on fees with the rolling of the futures contracts, but they won't list the spot product. That actually makes no sense. Who's running that show? Yeah, it doesn't really make me sense. I mean, presumably they don't really care about what their clients are holding.

They just want AUM. This is going to be a huge AUM product. I think they'll change their minds. So let's talk about just the lead-up here. So this was approved on Wednesday, but on Tuesday, right around the market closed just after, the SEC tweeted from their official account that the Bitcoin ETF had been approved. And the market started to run. And then it was quickly corrected by a tweet from SEC chair again.

Gary Gensler saying the SEC's account has been compromised, the ETF is not approved. And according to this came out a couple hours after the X safety account, the Twitter safety account, it says someone accessed that SEC account via a phone number that they had access to. So I don't know if that was a SIM swap or some sort of a compromise, but the account was not protected by two-factor authentication, which, you know, that's a little bit surprising to me, given that Gensler has publicly tweeted that you need to get your accounts under 2FA. So it wasn't under 2FA. And now it's just a, it makes the SEC look really terrible.

So it got quick critiques from a number of members of Congress. Senators J.D. Vance and Tom Tillis sent a letter to Gensler demanding answers. House Financial Services Committee also sent Gensler a letter. So that was a whole, they totally fumbled that one. Yeah, I mean, this was the most touted launch of any financial product. in living memory. I mean, I mean,

probably the biggest other one was the gold ETF launch in, uh, what, 2004. And you would have had to think that the SEC would have been dialed in and prepared for this. And as it turns out,

they just weren't doing the most basic thing, which is two factor authentication, which everyone in crypto knows, use two FAA. I'd really, surprising that they didn't have it turned on. Yeah, that was not a good look. And then this was a little bit of a smaller deal, but they actually front ran their own announcement on Wednesday by having this file up that listed the approval. So the official kind of announcement was put on the website and then taken

down, but a bunch of people obviously were able to access the PDF. It happened before market closed. So the intention it appears was to have the official announcement come out after the equity market closed on Wednesday, but it actually came out like 20 minutes earlier and then was quickly deleted. Yeah, they bungled it twice. And you'd think that the SEC again would know how to disseminate market moving information at specific moments because this is what they already do with quarterly filings, right? And again, they mucked it up. Well, they also have this rule that they've started to impose, I think this year, maybe late last year in 2022, but that if you have a cybersecurity incident, you need to get out in front of it within four days and do a report to the market, basically,

on what happened. And you wonder if that's something that's even possible right now in the context of the SEC. And that was actually part of the letter that Tillis and Vance said. They said, look, if you had to do a report to Congress here within four days, would you be equipped to do it? Yeah. Are they going to report on themselves? I'm actually pretty curious to see what the investigation tells us. Yeah, I mean, how did they get access to that phone number, I guess, is the question.

Was someone sim swapped? Was this like a social media manager? Someone gets sim swapped or was it inside job? Someone did something incorrect. So there was a vote at the SEC about the spot ETF in the end, which is weird because they were compelled to do this by the court. So there was still some window dressing. I guess they held a vote. Gensler voted in favor, along with the two Republican commissioners, and then you'd two dissents,

including from Commissioner Crenshaw, which raised a lot of eyebrows in terms of the contents of her dissent. I mean, so I was totally wrong on this. So you remember back on the podcast months ago when BlackRock filed, I said, this just seems like why would BlackRock file unless they were almost positive that they were. were going to get this. And, you know, obviously the gray scale lawsuit and them winning factors into it to some degree. But I had this theory maybe that Crenshaw, who is kind of perceived as this middle of the road person at the SEC that is not known to be outwardly hostile towards

the industry. I was wondering if maybe she had signaled maybe that she was open-minded to this, because you have heard some murmurings that, you know, she's met with quite a few crypto startups and and whatnot. But turns out she put out this dissent where she disagreed with it. And it's, it's kind of hard to read because it doesn't make any sense. I mean, she's going into details trying to say that, you know, bitcoins are manipulated because of Tether. She's citing this paper by Griffin and Shams that has been disproven like 20 times. Other academic papers have said this thing's trash. You know, this doesn't reflect how the market actually works with Tether. She's saying that they should have disproven it, but she doesn't have any actual

law. It's almost like, look, I don't like Bitcoin, so we should not allow this. It was a truly terrible dissent. It was very bad. I mean, she questions the correlation analysis between the spot and the futures markets that was, I would say, the prime argument made in the Grayscale lawsuit that it would have been inconsistent to approve a futures ETF and not a spot ETF on the basis of, you know, the basis being that maybe there was something different about the spot markets as opposed to the futures markets. The judge found no, you know, price formation is very similar among the two markets. They're in fact inherently linked. And she just turns around and says, I don't agree with that. But the judge already found to the contrary. First of all,

she's wrong to not agree with that because it's basic sort of facts of financial markets that everyone should understand. Second of all, the judge already said, you know, you're wrong. So you can't just turn around and say, I don't think I'm wrong. Judge said. It's like she doesn't have an Excel spreadsheet. This is an actual math equation. They're correlated. It's, it's been proven. And so it was submitted by bitwise. It was submitted by Fidelity. There's been other sponsors that have done the work and shown their work to the SEC. Gensler's statement says, well, yeah, it turns out it's correlated. We've been saying it wasn't for forever, but it is. It's in Excel here. Yeah, I mean, that was the interesting thing. Gensler stated that the SEC did a correlation analysis, which I want to talk about more.

And then she's turned around to saying, I don't agree with the correlation analysis. Well, why don't you walk three desks over and ask your colleague, Gary, about the analysis? Because the SEC did one. I mean, you press the F2 key. You can audit the formula. It's really easy. There's got to be someone on her team that knows how to use Excel. You can't disagree with the correlation analysis. That's like disagreeing with the fundamentals of math. The other thing she says is that the order does not consider the broader public interest because apparently it's bad for the public for an exchange traded product to exist that contains Bitcoin,

which is very funny because that's the opposite of reality. I mean, I guess her argument is, you know, this legitimizes Bitcoin in a certain way, which it does, and we shouldn't do that because Bitcoin itself is bad because people use Bitcoin to do bad things. Obviously, that's a farcical argument because you could say that about any commodity. Did you know, for instance, I was listening to Odd Lots recently. The commodity that is most frequently comes up in cases of fraud is nickel, because nickel is hard to audit because apparently it's just traded and big. sacks, sacks of nickel that no one actually bothers to audits is fraudulent nickel floating around all the time. You say the same thing about nickel or gold or any other commodity that people do have done crimes with has been the subject of crime. So I think that's a stupid point. The other thing is it is not in the public interest to not have an ETF because it has cost

the public billions of dollars to not have efficient access with GBDC being the most honest mathematical answer there, 200 basis points, as opposed to 20 basis points, plus the variable discount. So it has cost the public a huge amount that the SEC has been so reluctant to approve this for 10 years. Yeah, I mean, you can quantify it that way. You can also quantify it in terms of people, individuals in the United States that have had to go offshore to some of these unregulated venues to actually get access to it. And so there's been countless losses as a result of that. I mean, she talks about some of these rogue exchanges. It's kind of like, yeah, there's a ton of them. It's there's a ton of bogus volume. All of the sponsors have shown this as

part of their way to say, look, there's a subset of these things that are regulated and price discovery is happening on those. But yeah, point taken, there's a lot of really shady ones. And the point is we're trying to get U.S. investors to not have to go to those. They want to go to, you know, BitRuiz and BlackRock and Fidelity in these regulated venues to actually do this. I want to talk about Gensler's statement too, so he begrudgingly, you know, said yes. But in his statement, he was very salty about it. So it's very funny. He had a sentence.

This is, I'm going to read you a sentence from Gensler's approval. Quote, though we're merit neutral, I note that the underlying assets in the metals, ETPs have consumer industrial uses. While in contrast, Bitcoin is primarily speculative, volatile asset that's also used for illicit activity, including ransomware, money laundering, sanctions evading, and terrorist financing, which is a very comical statement because the first clause states that they're merit neutral, and then he proceeds to not be merit neutral for the second half of the sentence. Also, if he's comparing this to metals, ETPs, is he suggesting that no one has ever done crime

with a metal commodity like gold? No one's ever done money laundering? with gold or terrorist, like, does he think that's the case? Do you think Bitcoin is uniquely an illicit asset and every other asset has only ever been used illicitly? Like, it's a crazy thing you say. It's crazy that you put that sentence in there. It basically says, we are not a merit regulator, but just so you know, these things have no merit and we weren't going to do anything until we got smacked by the courts. He also says Bitcoin is primarily a speculative, volatile asset that's used for illicit activity. That's not true. I mean, we quantify the illicit activity. Chain analysis does it. It's like in the single digit range. It's not primarily

used for illicit activity. It's just not a true statement, Gary. It's crazy. I mean, he's just incoherent. Yeah. I mean, I got a, I will say I got a great deal of satisfaction from imagining Gary Gensler writing this letter and being literally forced, dragged, kicking in screaming by a judge to approve this. That was very satisfying to me. I mean, the crazy thing is that he actually approved it where Crenshaw didn't. I mean, can you imagine what would have happened if he just didn't vote for this? So if it went up for another vote and it was just Uyeda and Perce, we need to talk about her

statement as well, which was fantastic. I don't know what would have happened here. I think he probably would have been dragged in front of Congress within a week. Yeah. The other thing I want to say on Gensler is, and this is my kind of conspiracy or my vague theory, is so the SEC did their own correlation analysis between spot and futures, and they agreed with the court and with grayscale that, you know, price formation between spot and futures is linked as anybody that actually trades in these markets knows.

I think that was a strategic mistake by the SEC slash Gary Gensler because the same is true for Ethereum, right? So if Gensler wants to not approve the Ethereum ETH, I think he's weakened his position by saying, hey, the SEC now has the ability to run this correlation analysis to determine whether the futures market and the spot market are linked. So they've now done the analysis for Bitcoin. So I think you can use that as evidence if it ends up being litigated about the Ethereum ETF to make the exact same point.

Hey, Ethereum futures ETFs exist. So why shouldn't a Spotland exist? That's an interesting point. I think it will come to a lawsuit. I'm not of the mind that this SEC with these commissioners is actually prepared to honor the law and allow an Ethereum ETF to come through, especially with Crenshaw's views on this, which just appear to be completely incomprehensible. So, you know, I don't know how they're going to thread that needle, though, because as you point out, the correlation analysis would support that Ethereum should get approved. There's a CME rate on this. You know, they could go down the fact of trying to say that this is a security, I suppose. And so the SEC has never been very clear around whether or not Ethereum is a security or not. But it's clearly not now. And so they'll have to take a stance on that as part of this. And, you know, the other thing is that when CME futures were initially listed,

staking did not exist. And so that's something maybe they can try to look at and say, look, this might have been a commodity, but maybe now it's back to being a security. So they'll try something. You know they're not going to just make it easy. But you can have an ETF for security, for sure. But they may, of course, ETFs themselves with securities.

They may try and say the underlying is a security. And I guess isn't traded on any registered exchanges as a security. I agree that the staking will likely be the sticking point. So stay tuned on that one. I think that's coming up in, what, April, May time period? Yeah, I can't wait to do it all again with Eith. Well, it's good for these Bloomberg guys. You know, James and Eric are going to have to dive into this Eith.

Maybe they can take like two days off now and just get ready for the Ethereum. What are they going to call that one? Kentucky Derby's already taken. Yeah, I mean, what's the quote around Alexander? You know, he wept because he, no more lands left to conquer. I guess, you know, with the Bloomberg boys, they can look forward to the ETHETF chatter.

But I was a little worried for them. I mean, you know, this was the catalytic moment of their careers. You know, what are they going to do now? Oh, there's always something else. Just wait until the CME makes an attempt to list CME futures on Solana. That's going to be the big one. So if you were to get Salana CME futures, all of a sudden you have two years worth of chatter on when the ETF is coming for Solana. Yeah, there will be more battles to fight.

I was reflecting on this and trying to write a blog post last night. And it does feel like the end of the beginning for me. I mean, it feels like when the history of Bitcoin is written, yesterday will be a demarcation line between the adolescence of Bitcoin. and it's maturation. And I think it's an adult now. It's grown up. And I was a little bit wistful because I don't think we're ever going to see a market emerge like that ever again.

I mean, there are obviously other coins and things like that. But I think this is the end in some ways of that first crazy phase of Bitcoin's growth. I don't think we'll ever see a capital market story like that again in our lives. It's a little bittersweet for me. Yeah, it's just crazy to reflect. back on it, you know, since I started working in this industry, it's been, you know, nine years, almost 10 years now. And if you had told me that it would take this long, I would have been

surprised. But at the same time, back in 2014, early 2014, I thought a Bitcoin ETF was kind of crazy. So I'm of two minds of this. It's just, it's incredible how fast this all developed. And to have Black Rock hop in at the end here and really just put their stake in the ground was just, I did not have that one on the bingo card. Yeah, and you know, people thought that TradFi would change Bitcoin, you know, that these big banks, financial institutions, asset managers were trying to interfere with Bitcoin. That doesn't seem to be happening as far as I can tell. Bitcoin is changing them, you know?

Look at Fidelity becoming super crypto-native over the years. Look at Franklin Templeton. I mean, they have multiple business lines now relating to crypto. Franklin Templeton is wearing the laser eyes. So they're adopting the crypto vernacular. There's something about the crypto culture that is also changing these institutions. I mean, look at BlackRock. They anyhow have to see things from our perspective from the ESG front, for instance.

So I think we have a lot to be proud of in terms of being able to retain this culture that has been built. I mean, it's kind of a crazy culture. And also, it seems to be influencing some of the largest financial institutions in the world. It's kind of cool to see. So I didn't even tell you this. So this morning I get up, I'm getting ready to go to work, and I get a text that says, go check your front door. And on the front step of my door, actually in the mailbox, was an FBT mug.

So a kind soul at Fidelity, I'm not going to docks him, said, happy Bitcoin ETF Day. It's awesome. I wish I had it in front of me. It said downstairs, but dropped off a nice Yeti. So I had my coffee in a Fidelity Bitcoin ETF Yeti this morning. As the market opened. I didn't get one. So that's very troubling.

Well, I mean, it was literally a doorstop delivery at like 7 a.m. It's, I mean, he would have had to go all the way to Miami to give it to you. It's like at my house, not even my office. I'm really happy to see Fidelity harvesting so much goodwill. They deserve it. I mean, since 24, 10 years now, they've been doing Bitcoin stuff. So they deserve every cent of the acclaim they're getting. Oh, yeah.

And it's great to see. The other thing is just the business model with having the custodian is just such a competitive advantage in this fee market. So I guess we haven't talked about the fees. We mentioned that we would probably have some visibility on it this week. But they're kind of all over the place, but they're cheap. It's a great product for customers. So Fidelity came in at 0.25, so 25 BIPs, but they're waiving the fee until July of 2024.

I already mentioned bitwise is at zero for six months or a billion and then going to 20 Bips, which is the cheapest. What else do we have here? I shares, 25 basis points. They're actually not doing it free out of the gate. So there are 12 Bips out of the gate. It kind of spans the gamut. Hashtex is at 90 basis points. and then, of course, gray scale at 150, which that's a tough fee.

I mean, you understand why they're doing it. They've got to preserve what they have there. But that is a very off-market fee in this fee paradigm here. But it'll be interesting to see because I think a large portion of GPDC holders are people that just passively hold it and check their brokerage account once a year and may not be particularly a sophisticated on fees or may not care. I mean, when it's rallying, you know, 300% a year, you might not care about the fees. So I actually think they're going to retain a good portion of their AUM.

It's just, you know, people that might be deceased or, you know, never check their brokerage account. Well, or just sitting on a huge tax gain, right? So if you had bought GBTC, you know, five, six years ago, you're sitting on this monster tax bill if you sell this thing. And so then they throw the 1.5 and you're just like, oh, this is brutal. I just don't want to sell and do taxes on this. I need to lose a bunch of Bitcoin. It would just be much better if the fee came down over time. No, if you're in like a rollover IRA, it's like you're probably already out of this thing, right?

Yeah, no, it's strategic. I think it's actually kind of smart from Grayscale. But, you know, looking at the fees, it actually fills me with anger because we were deprived of an efficient brokerage traded instrument on the most liquid venues for so long, so unreasonably long. I mean, the market structure is probably ready for this in, say, 2017, 2018, wouldn't you say? Like, we're probably ready at that point. If it had been any other asset class, it would have been an ETF approved for sure, no question.

Instead, we face seven additional unnecessarily grueling long years of massive extraction before we got to this highly, highly efficient status quo. And it's just very annoying that this happened is wrong. Totally. All right. So other kind of quick news before we wrap. here. Circle has filed a confidential S-1 draft to go public. So that is on the day of the ETF. So

a very strategic placement. I think the view must be, how are these guys going to stop us now? We'll take you to court if you don't let us go public. So I really hope that that works out for Circle. Obviously, they've been at it for a long time, doing things the right way over there. And fascinated to see how long that's going to take to get it done. They obviously were trying to do the SPAC thing, which the SEC did not allow that one to go through. So hopefully Circle can be an IPO story here in 2024. Other piece of news, Bickgo, the crypto custodian,

they're the custodian for the hashtags Bitcoin ETF. They gained in principle approval to operate in Singapore under the major payments institution licensing framework. Then the last one, so the CFTC has this technology advisory committee. So they met this week. they voted to advance some recommendations around the progression of defy so not sure if that is actually a big story or not it did get a lot of press but we'll see what happens with the cfTC taking a deeper look at defy so that's it i can't wait to see what the day one and the week one flows are who

pulls ahead here it'll be a long race actually i think you know i think check back in six months and we'll have a much clearer picture of who's is going to win. Yeah, this will be a power law, right? This will be, you know, three, four of these sponsors will have 80 to 90 percent of the market share. I also just, it's interesting to see what this will do during market hours versus non-market hours. Obviously, the ETFs are a little bit of a different financial wrapper than the underlying. So you're going to see these kind of wicks up and down. And it'll highlight, I think, that the in-kind model needs to prevail. I don't think we'll have cash creates in perpetuity on these products eventually things will get more efficient you'll

probably get more custodians entering this market too so this is truly just the the day one of the etf from a you know a market plumbing perspective as well well good job everyone we did it you know we got there i mean especially good job to the actual humans that made this happen actually you know specifically the sponsors and specifically the ones that sued the SEC. Yeah, shout out Grayscale. Yeah, no, we're all grateful to you. All right, everyone, have a safe and healthy weekend, and we will see you on Monday.