The Breakdown - How Successful Was the First Day of BTC ETF Trading?

Episode Date: January 13, 2024

Ask two people and you'll get three answers. NLW explores the facts of the first day of trading and what it suggests about what happens next. Today's Sponsor: Kraken Kraken: See what crypto can be - https://kraken.com/TheBreakdown Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

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. What's going on, guys? It is Friday, January 12th, and today we are following up on the first day of ETF trading, plus covering everything we missed this week. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Well, friends, like I said today, we are starting with the follow-up on the first day of trading, and the first day was, let's call it open to interpretation. As you might expect, different people with different access to grind had a lot of different interpretations.

You'll hear my full, more subjective take on tomorrow's show, which is, of course, the live show I do with Scott Melker. But early morning price action for Bitcoin was positive, building a 5.4% gain before the stock market opened. and once trading went live for the ETFs, there was a burst of liquidity, sending Bitcoin to two-year highs above $49,000. Then after the first 15 minutes were over, Bitcoin plunge, reaching a low of $45,600 for the morning session. Bitcoin recovered a little in the afternoon, but end of the day trading at around $46,000, essentially a round-trip. As I'm recording this now on Friday, we're down under $44,000, putting a little bit more evidence

in the Selvin news camp. Now, when it comes to the ETFs themselves, all 11 made their debut with some impressive volumes across the cohort. Volume hit 500 million in the first 20 minutes excluding GBTC. BlackRock and Fidelity both got out to an early lead, outperforming the other products by an order of magnitude. By the end of the day, the new spot ETFs had traded more than $2.2 billion in volume. An additional $2.3 billion of GBTC changed hands, with the pro-shares Bitcoin Futures ETF, BITO moving $1.8 billion in volume.

BITO smashed its prior largest trading day, with analysts suspecting that the high volume was related to marketmaker hedging, alongside retail exiting longer-term positions. Bloomberg's senior ETF analyst Eric Balcunis wrote, All told, there were 700,000 individual trades today in and out of the 11 spot ETFs. For context, that is double the number of trades for the NASDAQ index ETF QQ, although it sees much bigger dollar volume because bigger fish use it. So a lot more grassroots action versus big seed buys than I expected, which is good. Balcunis noted that the large volume on GBTC was mainly in small trade sizes,

and the GBT discount didn't fully close. He speculated that these were indications of a retail stampede out of GBTC, but we'll come back to that in just a few minutes. Now, BlackRock led the pack for new entrants, achieving just over $1 billion in volume, which is similar to the BITO debut in 2021, the previous launch day record. Fidelity also performed strongly seeing $712 million worth of trading. GBTC is now technically the highest volume ETF launch in history, but of course it came in with pre-existing volume. Balcunas also noted that there was a strong middle class in the works. R-121 shares and BitWise each recorded more than 100 million in volume,

with Franklin Templeton and Vesco Galaxy and Vanek all notching volumes above 25 million. BitWise was particularly noteworthy for achieving the tightest bid-ask spread as of 1 p.m., slightly beating out the fidelity in BlackRock products. We don't yet have full data on net fund flows, so it's a little hard to gauge how successful the launch was in attracting new capital. But some of that has started to come in, and it seems like we got inflows of more than 700 million. The leader ended up being bitwise, at around 238 million, followed closely by Fidelity with 227 million, followed in third place by BlackRock with 112 million, and Arc at 65.

Now, the biggest point of speculation was around Grayscale. Did a huge amount of volume flow out of Grayscale, was the question on everyone's minds? However, as of just a few minutes before I started recording this, it appears that only $95 million $1 left grayscale. As James Safart put it, a fraction of what I and many were thinking. This means yesterday was a huge success in my opinion. Nick Carter summed it up, the fact that there is 28 billion of boomer cash sitting in GPTC, and only 100 million or three basis points of this was redeemed for identical products that are 90% cheaper is the most boomer thing of all time. Now, in many ways, the bigger story yesterday wasn't just the fund flows,

but who was blocked out? Many traders signed into their brokerage accounts yesterday morning to be met with disappointment, finding they were barred from trading the new Bitcoin ETFs. City, Merrill Lynch, UBS, and Vanguard had all prohibited customers from trading the products, while J.P. Morgan presented an additional risk disclosure before allowing access. City and UBS said they planned to grant some customers access after evaluating the products. Merrill Lynch said they decided to wait and see as they are unsure the ETFs will trade efficiently. The most scandalous decision came from Vanguard, who were unambiguous in their decision not to list the products on their platform.

Their official statement said, Our perspective is that these products do not align with our offer focused on asset classes such as equities, bonds, and cash, which Vanguard views as the building blocks of a well-balanced long-term investment portfolio. Apparently, customer service was even more direct, with a client named Tony Spencer posting that he was told, quote, currently we aren't allowing those to be purchased as it doesn't fit with Vanguard's investment philosophy. Now, adding insult to injury, Vanguard had previously allowed clients to purchase GBTC in their accounts. They disabled purchasing of GBTC alongside the rest of the business.

the products, but still allowed clients to sell. This meant that many GBTC holders were left stranded after exiting their positions, hoping to switch to a lower cost ETF. They found themselves unable to repurchase Bitcoin exposure other than BITO, which was still able to be purchased in Vanguard accounts for some inexplicable reason. Still outdoing Vanguard in terms of outrage over the Bitcoin ETFs, Senator Elizabeth Warren Wade in tweeting, the SEC is wrong on the law and wrong on the policy with respect to the Bitcoin ETF decision. The SEC is going to let Crypto Burrow even deeper into our financial system than it's more urgent than ever that crypto follow basic anti-money laundering rules. Indeed, this idea that the SEC should have simply ignored the court's judgment in the

gray scale case and deny the ETFs anyway was a common theme from critics over the past week. It showed up in the last minute Better Markets public comment letter, as well as in the dissent from Democrat SEC Commissioner Caroline Crenshaw. Preston Byrne commented on Warren's take saying, wrong on the law is not something you get to say when the SEC's ETF denials were characterized as arbitrary and capricious by the D.C. Court. Today's episode is brought to you by Cracken. For far too long, the whole financial system has been standing still, too slow, only on for certain hours, overly designed for some types of people, but not for others.

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Now, some other prominent crypto-sceptics took the view that as a merit-neutral regulator, the SEC should have clearly rejected the Bitcoin ETFs due to their lack of merit. Professor Hillary Allen, who has made several appearances in congressional crypto hearings, tweeted, I was very disappointed to see the SEC approve exchange traded Bitcoin products for retail investors. Everyday investors will be harmed. Crypto will be brought closer to the core of our financial system, and for what? Bitcoin and other crypto are at best a means of gambling.

They will never be able to deliver on promises of financial inclusion, efficiency, decentralization and privacy. And yet, folks, I think the best sum up of all of this, while it was specifically about Elizabeth Warren's tweet, it could be said for any of the shrill chorus of critics screaming into the void. Belcunis wrote, I saw her tweet, and my immediate reaction was to appreciate. How nice it is that it doesn't matter anymore what she says or thinks on this topic. The train has left the station. War is over. And that, my friends, it is. Now, let's rip through some of the other stuff that we have missed or that just came up. One big one, stable coin issuer, Circle has filed for an IPO.

The firm announced on Thursday that they've lodged a draft version of their paperwork confidentially with the SEC. Financial details of the public offering have not been finalized with Circle stating the IPO is expected to take place after the SEC completes its review process, subject to market and other conditions. Now, Circle had previously hoped to go public via SPAC at a valuation of $9 billion. The deal fell apart in late 2022, in part due to hostile conditions for new companies entering public markets. Ryan Selkis from Masari tweeted,

Circle's IPO filing is confidential, but they're killing it. 22, 800 million in revenue, 150 million in profits. Twenty-23 estimated $1.5 billion in revenue and 300 million in profits. Jason Yanowitz from Blockworks wrote, can't overstate the importance of Circle's IPO. There are six to ten companies waiting to see how Circle does. If they're successful, everyone else will push to IPO. Having several public crypto companies other than just Coinbase and miners would be a huge huge unlock. When pushed to discuss who he was referring to, Yannowitz responded, Cracken in 2024, then some cohort of chain analysis, consensus, fireblocks, anchorage, alchemy, Bitgo, Gemini, E. Toro, and Ripple in 2025 in 2025 in 2025, in 2025, in 2025, in 2025,

DCG wrote in a statement, DCG is pleased to announce that we have completed a payoff of all short-term loans from Genesis. In total, DCG has paid off more than one billion of debt to its creditors in just over a year, including nearly 700 million to Genesis, satisfying all obligations currently due. With this milestone behind us, we're looking forward to the next chapter of DCG and the future growth of our industry. Barry Silbert also posted to his now blank Twitter timeline that, quote, I'm happy to share that DCG completed a full paydown of the money borrowed from Genesis. Now, DCG, of course, went through the ringer last year on account of these loans. The use of loans rather than cash to backstop losses at Genesis appears to have been a major

reason the firm ran out of liquidity in early 2022. Gemini, the largest creditor of Genesis, has called out the use of these loans as fraudulent and designed to make the company appear solvent long after it was in trouble. Just prior to the DCG statement, Gemini had released their own latest update for customer creditors. They advised that earned customers should vote yes for the current bankruptcy plan, stating, Gemini still believes the plan needs to be improved, but the best way to improve the plan is through the negotiation and litigation process. Voting to reject the plan will not improve it. Ram Alawalia, the CEO of Lumida Wealth said, quick take on DCG Genesis.

DCG and Barry Silbert timed the drop for Friday after hours. That's when you drop news you don't want in the up cycle. The bet is that a weekend development will take front cover. Also, this dropped after Gemini released their last blog update on the Jan 10 vote. Barrier was reserving the right to see what Gemini would say ahead of the vote in case he needed to tweak the message. Fundamentally, this is good for creditors. Creditors still have remedies against alleged fraud and a court of law, and that action will still play out. Barry is signaling he will not go down. He will use the cash cow from Grayscale to fund a litigation defense. Barry's strategy is delay, delay, delay. Harvest the cash flow from Grayscale as much as possible, but courts have timelines

and dates. Justice runs on a clock. When the clock rings, I expect it is going to sound like a painful rude awakening for Barry Silbert. Speaking of 2022 cleanup, the legal team representing Terraform Labs in its lawsuit against the SEC has requested that the trial be delayed to allow Doe Kwan to appear in person. The last we heard from Kwan, he was in prison in Montenegro, appealing his extradition to the U.S. Kwan was originally ordered to be returned to the U.S. in order to face criminal charges related to the collapse of the Luna ecosystem, which was a decision that was set aside in December, but with no clear timeline for a new extradition hearing. Lawyers in the Terraform case wrote, it now appears that Mr. Kwan is not

likely to be extradited until February or March at the earliest, an adjournment until mid-March would provide a realistic possibility for Mr. Kwan to attend. Should this delay be denied, Kwan intends to request a jury instruction, which details his absence and inability to testify, in a way that is, quote, not unduly prejudicial. Currently, the Terraform trial is set to begin on January 29th. Lastly, today, a quick and not-so-wonderful macro update. Thursday also saw the publication of CPI inflation data for December, showing an alarming uptick. Headline inflation rose to 3.4 percent, up from 3.1 percent in November. Core inflation, which excludes food and energy, dropped slightly to 3.9% down from 4% in the previous

month. Increases in energy and gas costs drove the rise in headline inflation, while a surge in insurance costs kept core inflation high. Scott Anderson, chief U.S. economist at BMO Capital Market said, the concern that must be growing in the Fed's mind at this point is that we are now getting less deflation and disinflation from goods and energy prices, and we have still yet to see a measurable reduction in inflation in housing or most service components. This suggests the Fed's journey to sustainable 2.0 inflation is still not complete. Bloomberg economist led by Anna Wong said, the surprisingly strong CPI print for December shows the road to a durable return to 2% inflation is bumpy, and the last mile could be difficult. Some of the disinflationary impulse

for core goods, a key driver of easing price pressures over the last few months, has faded. It will likely take more than the much-anticipated disinflation and rents for inflation to get to the Fed's 2% target. Now, while the non-farm payroll report from last week showed strong growth for the labor market in the headline data, the cracks were beginning to show below the surface. Full-time employment fell by the most since April 2020. Three million full-time positions have been removed in the past six months. Yet despite rising inflation, the bond market is still pricing in Fed moderation as the base case. Six inflation rate cuts are priced in for the year, one per Fed meeting beginning in March.

However, the certainty that the Fed will begin a cutting cycle in March has dropped slightly since the inflation data was released. What's more, geopolitical upheaval in the Middle East, has the clear potential to drive another surge in inflation. How the attacks in the Red Sea have already diverted shipping lanes while low water levels in the Panama Canal are beginning to close that route to larger ships. Conflict escalation in the region could also put pressure on oil prices. For the moment, there isn't enough data to warrant a reversal at the Fed, and yet still there are enough problems on the horizon to place that vaunted self-landing in jeopardy.

Anyways, guys, that is going to do it for today. A little quick episode. I hope you are headed into a wonderful weekend. One more big thank you to my sponsor, Crackin for today's show. go to crackin.com slash the breakdown and see what crypto can be. Until next time, be safe and take care of each other. Peace.