The Breakdown - Bitcoin Wraps the First Week of the ETF Era

Starting point is 00:00:04 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by Nidig and produced and distributed by CoinDesk. What's going on, guys? It is Saturday, October 23rd, and that means it's time for the weekly recap. And as always, the weekly recap is always one of sort of two different things. It's either a deep dive on a topic that just didn't have time for, the week, or it is a true weekly recap looking at a bunch of different topics and summing them up.

Starting point is 00:00:41 And this is that type of recap. So let's start with the main topic, what this week will be remembered for. It was Bitcoin ETF week number one, ground zero, the beginning of potentially a new era in the Bitcoin market history. ProShare's BITO Bitcoin Futures ETF launched Tuesday, and it was a hit. It reached a billion dollars in volume and $570 million in inflows on Tuesday. That made it the second most traded first day for any ETF in history. By the end of trading Wednesday, the ETF had $1.1 billion in assets under management. This made it the fastest to $1 billion AUM in history beating GLD, the gold ETF's record of three days. Day three still saw a ton of volume $850 million, but way less inflows to product, only

Starting point is 00:01:36 around $100 million. Eric Balcunas from Bloomberg blamed the creation fee, which rose from one basis point to 10 basis points, but he also noted that pro shares was lowering that creation fee again on Friday because a new ETF, the Valkyrie Bitcoin Futures ETF, which is trading under the symbol BTF on NASDAQ was entering the market on Friday. So what is the net of all of this? Well, as I've been saying all week, it really was always going to be about performance relative to expectations and BITO crushed expectations. This is given new juice, new fuel, new energy to another leg of the bull run. Now, of course, that's not to say that that fuel couldn't run out. Big starts can, of course, lead to diminished second weeks, and in fact, that's what some, like J.P. Morgan Chase's

Starting point is 00:02:22 analysts, are expecting. If you remember from my show a couple days ago, that J.P. Morgan's analysts think that actually this rally in Bitcoin is being driven more by inflation concerns than the ETF itself. Either way, we are heading now into another new phase of Bitcoin ETF land. First of all, BITO, the ProShare's ETF, has some competition. As I said, Valkyri launched on Friday, BFD, and next week the Van Eck ETF is also slated to go live. The question is, of course, how will the market respond to these multiple choices? Will there be exciting arbitrage opportunities that make the market thrilled to have multiple options, or will it just fragment demand across them? Can any catch up to BITO. Bocunis again is skeptical around the catch-up saying,

Starting point is 00:03:08 the unprecedented early volume in BITO makes it like a snowball rolling downhill, as liquidity and assets begets more liquidity in assets. The new ones will have selling points such as only holding the front month or being cheaper, and that will help, but it is nearly impossible to steal volume in the short or medium term. Another interesting wrinkle here, the success has created a structural issue with the CME product that lies underneath. The Chicago Mercantile Exchange caps the number of front-month contracts any one entity can own to 2,000, and after two days of trading, BITO already owned 1,900 shares of the October contract. Because of that, they switched and started amassing November contracts. However, even with that, they're coming up against the limits of the maximum

Starting point is 00:03:49 total position of 5,000 Bitcoin futures contracts that anyone entity is allowed to hold. In the short-term, pro-shares could move to longer-dated contracts, but that further removes the fund from tracking current Bitcoin performance. Nate Garassi, who's the president of advisory firm, the ETF store said, the end result is the ETF will start taking on potentially significant tracking error versus the spot price of Bitcoin. The ATF is forced to obtain Bitcoin price exposure at higher and higher prices as it goes further out on the futures curve. Now, many are expecting some sort of workaround announced by the CME, but you have to make the point that this seems a lot less consumer-friendly than just allowing an ETF to invest in the underlying instrument, which is literally connected to

Starting point is 00:04:30 the spot price of Bitcoin. But that's a fight we're going to continue to have for some time to come. This podcast is sponsored by Nidig, a firm that's making Bitcoin accessible to banking customers on Main Street and Wall Street alike, as part of their mission to bring Bitcoin to the people. Find out more at Nidig.com slash NLW. That's NYDIG forward slash NLW. With that, let's move to another part of the crypto market's capital formation. It was another absolutely monster week for crypto fundraising. NFTs saw some pretty big activity. Candy, who is the official NFT partner of Major League Baseball, announced a nine-figure $100 million round. Galaxy Digital's Entertainment Division raised an additional $325 million. This is their fund that focuses on gaming and

Starting point is 00:05:29 arts and has poured something like $150 million in the last few months into projects such as ArtBlocks NFTs. Coindex writes, quote, if non-fungible tokens and other crypto tech are to form the backbone of this coming Metaverse, then Galaxy wants its share of the spine. The same goes for gaming, blockchain or no. Speaking of Metaverse and Web3, a lot of the funding news was actually about venture funds raising. This was a major theme. Two X Riot, i.e. League of Legends, folks raised a $90 million seed round focused on what they called the spectrum of play. The fund is called patron and co-founder Jason Yee writes, it's our conviction that games will shape the future. We believe the biggest opportunities in games will

Starting point is 00:06:09 converge into Web 3, Play-to-Earn, NFTs, etc. And consumer categories like education, fitness, personal finance, and more. It will be built for the gaming natives who not only grew up with games such as Roblox and RuneScape, but also consumer apps like Discord, TikTok, Robin Hood, and digital assets like NFTs and crypto. Multi-coin raised $250 million for its third fund, at least according to a scoop by the information. This is notable because it comes less than six months after they raised the $100 million for their second fund, but they have not confirmed yet, so for now we don't really know much more. Finally, there is Variant. Variant is former Andresen Horowitz investor, Jesse Walden, who teamed up last year with longtime crypto investor

Starting point is 00:06:49 Spencer Noon for a debut $22.5 million fund. This new fund, sized at $110 million, sees them merging with another ex-A-16-Z partner Lee Jin, who is bringing her Atle-A-Ventures firm under the fold. Jin said, I raised my fund really as a traditional consumer Web2 fund. As I started deploying and spending more time in the ecosystem, I realized that crypto actually offered this really powerful tool set for aligning incentives between platforms and their participants. Then, of course, there was the latest round from FTX, and my normal disclosure goes, I work on marketing with FTX. I had nothing to do with this round, but still I work there, so there you go. FTCS has raised $420,690,000 from 69 investors in a series B1 round that

Starting point is 00:07:32 values the company at $25 billion. I'm sure that these numbers are totally coincidental. As I always say, regardless of who's round it is, the most interesting thing is who is actually in it. And notables from this one were BlackRock, Temasek, which is the Singapore Sovereign Wealth Fund, and the Ontario Teachers Pension Plan Board. The Ontario Pension Plan invested through their Teachers Innovation Platform and said, Teachers' Innovation Platform invests in innovative companies that use technology to help shape new categories. As a global technology-driven innovator in the financial sector, FTX fits well within our mandate. Speaking of adoption, a third topic for today is all the new places crypto is showing up.

Starting point is 00:08:09 Keeping on the pension train, the Houston Firefighters Public Pension Fund have purchased $25 million in Bitcoin with Nidig, this show's sponsor, as the custodian. They're the first U.S. public pension fund to buy digital assets, and the fund's chief investment officer, Arjit Singh, stated, quote, I see this as another tool to manage my risk. It is a positive, expected return and it manages my risk. It has a low correlation to every other asset class. Nate Conrad, whose NIDIC's head of global investments, said, this investment represents a watershed moment for Bitcoin and its place in public pensions. fiduciaries are increasingly aware of how even a small allocation to digital assets can make a big impact over time.

Starting point is 00:08:46 Here's another big one. PIMCO is a massive global investment firm, aka a $2.2 trillion firm, one of the 12 biggest in the world. CIO Daniel Iveson confirmed on CNBC that they could begin spot trading cryptos. They're looking at, quote, trading certain cryptocurrencies as part of our trend following strategies or quant-oriented strategies than doing more work on the fundamental side. So this will be a gradual process where we spend a lot more time on the internal diligence side speaking to investors, and we'll take baby steps in an area that's rapidly growing. Now, Pimco is already investing in securities that are linked to crypto markets, and they really articulate the inevitability of this market. They are, quote, thinking about scenarios where this could

Starting point is 00:09:25 take us to ensure that we are competitively prepared to deal with what's a rapidly changing environment that offers a pretty significant value proposition, particularly for younger generations, or the new generation of the investment community. Now, if you remember my show on Paul Tudor Jones a couple days ago, he talked about how terrible fixed income is in the context of growing inflation. This was a real theme from Twitter following the Pimco news. Preston Pish said, hey, Pimco, are you sure you don't want to keep buying these Fiat denominated 30-year fixed-rate debt contracts that guarantee the loss of your future buying power? What's gotten into you guys? Alex Kruger says Pimco is literally buying your bags. Pimco, a well-known fixed income asset manager with $2.2 trillion in assets under

Starting point is 00:10:04 management. Travis Kling writes, imagine calling yourself a sophisticated investor, but having no exposure to crypto and getting beat to the punch by Pimco. Finally, one more on the total opposite end of the adoption spectrum, Walmart has been quietly putting CoinStar Bitcoin ETMs into their stores. So far, 200 Bitcoin ATMs have been installed, and this is supported by CoinMe. So really the question is when balance sheet Walmart? Anyways, guys, I hope you're having a great weekend, and this was an easy, fun little wrap-up. Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - Bitcoin Wraps the First Week of the ETF Era

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.