The Breakdown - Massive Trading Volume for ProShares Bitcoin Futures ETF as NYAG Targets Crypto Lenders

Starting point is 00:00:00 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 Tuesday, October 19th, and today we are doing something that we are way overdue for here. An extended brief episode, a grab bag episode. There have been a ton of things that we haven't had a chance to cover over the last week or so. So today, instead of one big banner topic, we're going to be covering a bunch of things, but in smaller form. Let's start with some follow-up on the ETF. Of course, as you know,

Starting point is 00:00:48 from yesterday's show, today, for the first time a Bitcoin Futures ETF is trading on a U.S. Stock Exchange. ProShares has begun trading today on the NYSC, and yesterday we got a little bit of info about how some of the competing ETFs are responding. First, there is the proposal from the $1.5 trillion asset manager in Vesco. It had appeared to be days away from listing, but decided yesterday not to pursue its ETF. In a statement the company wrote, we have determined not to pursue the launch of a Bitcoin futures ETF in the immediate near term. However, we will continue to work in partnership with Galaxy Digital to offer investors full shelf of products with exposure to this transformative asset class, including pursuing a physically backed digital asset ETF. Bloomberg's Eric Bacuna said

Starting point is 00:01:35 shocker, Investco is dropping out of the race. We'll not pursue Bitcoin futures ETF, focus on blockchain stocks ETF, and spot Bitcoin ETF instead. Not sure why, especially because they were next in line. Now, as Eric said, it's not clear precisely why Investco is dropping out, but one possible reason that some are speculating on is that their prospectus had said that their fund would invest in futures, but also might invest in other Bitcoin-related assets, including Canadian ETFs, which are spot ETFs, the grayscale Bitcoin. trust and or spot Bitcoin directly. Maybe the SEC was saying behind the scenes that those sort of investments are just not going to fly, and Invesco decided they just didn't want to pursue the

Starting point is 00:02:15 future's only product. Meanwhile, Valkyrie is still slated to compete with pro shares, but also made one update. They've changed their ticker from BTF to BTFD, which of course, if you've been hanging around Bitcoin Twitter means, by the fucking dip. As Belcunas again said, top. about an instant classic. Still, that's not really the most exciting thing from today. As I'm recording this show, we are seeing big numbers right out of the gate for the pro-share's ETF. BITO traded $280 million worth of shares in the first 20 minutes. Again, according to Eric Belcunis, that puts it in the top 15 opening day launches of all time. He also said it has a legitimate shot at $1 billion and the top spot ever.

Starting point is 00:03:03 The other interesting note in this ETF day story is a follow-up on converting the Greyscale Bitcoin Trust, which is the world's largest Bitcoin fund into a Bitcoin Spot ETF. This is officially happening. From their press release, Grayscale investments, the world's largest digital currency asset manager announced today that NYSEC ARCA has filed Form 19B4 with the Securities and Exchange Commission to convert Grayscale's flagship product, Grayscale Bitcoin Trust, into a Bitcoin Spot ETF.

Starting point is 00:03:31 David Lavell, the global head of ETFs at Grayscale, said at Grayscale, we believe that if regulators are comfortable with ETFs that hold futures of a given asset, they should also be comfortable with ETFs that offer exposure to the spot price of that same asset. Barry Silbert, the founder and CEO of Digital Currency Group, which is the parent company of Grayscale writes, Grayscale and NYSEE formally kicked off the process this morning to convert GBT into the first spot-based Bitcoin ETF. Upon conversion, the grayscale Bitcoin Trust will trade under the ticket symbol BTC. Now, there are still many out there who are pretty skeptical and don't really see how a Bitcoin

Starting point is 00:04:08 futures ETF means that the SEC will all of a sudden be open for a spot ETF. Joe Wisenthal said exactly that, responding to Barry, asking, is there any reason to think that regulators are now more open to a spot ETF? Some think it's basically a political play. Masari's Ryan Selkis writes, It's a brilliant business in PR move by Grayscale to immediately push for the real Bitcoin ETF this morning. Ramps up pressure on the SEC who has no good reason

Starting point is 00:04:33 to impede the progress of the spot ETF, given its superiority to the futures ETF. Let the games begin. All right, but with that, let's move over to the regulatory sphere with kind of a weird little event that happened yesterday. The New York Attorney General Letitia James made a big announcement about sending a C. and desist to two crypto lending companies, along with three inquiries and request for information

Starting point is 00:04:57 to other crypto companies. And it came with a bunch of tough talk as usual as we've seen from the New York Attorney General's office. In a statement, Attorney General James said, Cryptocurrency platforms must follow the law, just like everyone else, which is why we are now directing two crypto companies to shut down and forcing three more to answer questions immediately. My office is responsible for ensuring industry players do not take advantage of unsuspecting investors. We've already taken action against the number of crypto platforms and coins that engaged in fraud or that illegally operated in New York. Today's actions build on that work and send a message that we will not hesitate to take

Starting point is 00:05:30 whatever actions are necessary against any company that thinks they are above the law. Now, they didn't say who these companies were, and of course the crypto industry was very interested in figuring out, in particular who was the subject of the cease and desist letters. Nera Jagrawal from Coin Center tweeted the announcement saying that they were trying to figure out but weren't sure who had actually received these letters. Until in the comments, Andre Cronier, the founder of Yerne Finance, pointed out that it was in the file name of the redacted letters. Yes, the New York Attorney General's office published two letters that were carefully redacted except for the file name, the Microsoft Word file name up top in the left-hand corner,

Starting point is 00:06:12 and one was called Nexo letter, and the other was called Celsius letter. Look, I know that this is actually a surprisingly easy human error that doesn't necessarily say anything about the NYU's technological capacity. But good Lord, does it just drip of irony that a regulator that makes a mistake with this basic technology from decades ago is in charge of the future of these fast iterating startups? But, as I said, that's really neither here nor there. Anyway, to the substance of the thing, the NXO letter says that the OAG considers the firm's failure to register as a broker-dealer as a violation of the Martin Act. They have given them 10 days to, quote, cease any and all such activity and confirm to the OAG the activity has ceased, or explain why

Starting point is 00:06:57 the OAG should not take further action, including seeking all relief permitted by law. Nexo wrote to the block and then tweeted something very similar, quote, Nexo is not offering its earned product in exchange in New York, so it makes little sense to be receiving a C&D for something we are not offering in New York anyway. But we will engage with the NYAG, as this is a clear case of mixing up the recipients of the letter. We use IP-based geo-blocking. Now, you guys will know that NXO were sponsors of this show for a long time, so consider whatever bias that may mean for me, but I kind of agree that it seems weird that they're being targeted when they already block that product from this particular jurisdiction. The other letter to Celsius

Starting point is 00:07:35 gives that company until November 1st to provide info including around ownership structure, investment strategy, and their mechanism for custody in crypto assets. And of course, as I said, another three letters to firms that we didn't really get any more info on. Now, in many ways, this is just in line with everything that we've seen. Securities regulators at the state and federal level clearly have an issue with crypto lending products. BlockFi has been beset by state-level attorneys general, going after them for unregistered securities offerings. Coinbase has had a very public spat with the SEC around their lend product, which eventually led Coinbase to, after a big thread from Brian Armstrong and an open letter from their general counsel, to decide to

Starting point is 00:08:14 not launch that product. Zerox Sisyphist tweets, in my opinion, the C-D-Fi thesis, i.e. the centralized defy thesis, at least in the U.S., is dead. It's clear now the regulatory regime, which was supposed to become more doveish post-manutcheon, has only gotten more draconian. Bullish defy in a roundabout way, but really more bearish for the U.S. Now, another interesting regulatory headline from the block, apparently the quote, U.S. Treasury wants to get crypto industry on board with sanctions programs. Basically yesterday, the Treasury Department published a review of their sanctions program from 2021. And crypto has kind of a dual place. On the one hand, crypto is bad. Quote, technological innovations such as digital currencies, alternative payment platforms, and new ways

Starting point is 00:08:58 of hiding cross-border transactions, all potentially reduce the efficacy of American sanctions. These technologies offer malign actors, opportunities to hold and transfer funds outside of the traditional dollar-based financial system. They also empower our adversarial. seeking to build new financial and payment systems intended to diminish the dollar's global role. We are mindful of the risk that if left unchecked, these digital assets and payment systems could harm the efficacy of our sanctions. On the other hand, as the block puts it, quote, despite viewing crypto as a risk, the Treasury referred to existing outreach and engagement capabilities rather than criminalization as a solution, highlighting new

Starting point is 00:09:34 constituencies, particularly in the digital asset space. The review reads, Treasury should invest in deepening its institutional knowledge and capabilities in the evolving digital asset and services space to support the full sanctions life cycle of activities. Now, there is a ton that we could get into around the viability of sanctions in a cryptophy digital asset world, but it strikes me as a wise move from the Treasury Department to go the partner with you route rather than the demonize all of you route with the emergent crypto industry. There are plenty of players who want to be in the U.S. public policy framework who don't want the tools that they're supporting, especially as centralized companies, to be tools for people

Starting point is 00:10:14 that the U.S. would want to sanction. By going a proactive engagement route rather than a demonize everyone route, there's a lot more space to collaborate. NIDIG sponsors this podcast, and they also put out a really good newsletter, focused purely on Bitcoin. If you want insights into what's driving market moves, regulatory changes, and the metrics that deserve your attention, sign up at NIDIG.com slash NLW. That's NYDIG forward slash NLW. Let's leave regulation now and move over to big tech. And if you've stopped being able to follow the names of the Facebook crypto things, I don't blame you. But the TLDR is that Libra, the global stable coin that was originally supposed to be backed by a basket of currencies,

Starting point is 00:11:07 eventually became DM and the Calibra wallet, Facebook's centralized digital asset wallet product became Novi. On August 16th, Frank Chaparro from the block wrote a piece called future of DM hangs in the balance as Novi looks for an alternative. A monsold partnership between Silvergate and the DM Association has apparently hit regulatory headwinds. Now Novi, Facebook's crypto wallet subsidiary, is looking for a different stablecoin. So basically, you've got this centralized digital wallet that was supposed to be the way that Facebook interacted with the stable coin project that they initiated that is now going in a totally different direction. David Marcus, who leads the Novi Project at Facebook, tweeted today,

Starting point is 00:11:48 Remedances are a critical way to achieve financial inclusion. Today we're rolling out a small pilot of the Novi Digital Wallet app in two countries, the U.S. and Guatemala. People can send and receive money instantly, securely, and with no fees. We're doing a pilot to test core feature functions and our operational capabilities in customer care and compliance. We're also hopeful this will demonstrate a new stablecoin use case as a payments instrument beyond how they are typically used today.

Starting point is 00:12:11 The U.S. to Guatemala remittance corridor is an important one. In Guatemala, 56% of people lack access to financial services despite nearly 100% having mobile phones. Money sent from family and friends abroad contributes more than 14% of GDP and 90% of those remittances come from the U.S. The Novi Pilot uses USDP, the Pax dollar, through partnerships with Paxos and Coinbase. USDP is a well-designed stable coin that's been operating successfully for over three years and has important regulatory and consumer protection attributes. I do want to be clear that our support for DM hasn't changed, and we intend to launch Novi with DM once it receives regulatory approval and goes live. We care about interoperability and we want to do it right. He then goes on and on, but I think you get the point here, is that he's saying, yes, we're going to support DM, but first we're going to go with Paxos. And I think that this is interesting for a few reasons.

Starting point is 00:12:58 First of all, of course, is the fact that they're not launching with DM first. They're using a different stable coin, which really calls into question the relevance or importance of adding another Facebook-backed stable coin to the mix. Second, this is kind of a big nod to the Paxos dollar over its competitors like USDC from the center consortium. It may be that recent regulatory intrigue around USDC, which has been quickly working to be even more transparent and even more clearly dollar-backed and not backed by things like commercial paper, has Novi looking to something even more clean, regulatory speaking. Finally, I think that the most interesting thing is that we now get to watch the experiment of the El Salvador Bitcoin, remittance corridor versus the Facebook-backed Novi-G Guatemala Paxos-Dolar remittance corridor. I have to stay, my starting position is to be more excited about the permissionless,

Starting point is 00:13:49 totally peer-to-peer disintermediated network, but I like the competition happening at the same time. Also in big tech at the end of last week, Jack announced that Square's Bitcoin support is now potentially extending to mining. The threat is short, so let's read it. Jack writes, Square is considering building a Bitcoin mining system based on custom silicon and open source for individuals and businesses worldwide. If we do this, we'll follow our hardware wallet model. Build in the open in collaboration with the community. First, some thoughts and questions. One, mining needs to be more distributed. The core job of a miner is to securely settle transactions

Starting point is 00:14:25 without the need for trusted third parties. This is critical well after the last Bitcoin is mined. The more decentralized this is, the more resilient the Bitcoin network becomes. True? Two, mining needs to be more efficient. Driving towards clean and efficient energy use is great for Bitcoin's economics, impact, and scalability. Energy is a system-level problem that requires innovation in silicon, software, and integration. What are the largest opportunities here? Three, silicon design is too concentrated into a few companies. This means supply is likely overly constrained. Silicon development is very expensive, requires long-term investment, and is being coupled tightly with software and system design. Why aren't more companies doing this work? Four, there isn't

Starting point is 00:15:02 enough focus on vertical integration. Considering hardware, software, productization, and distribution requires accountability for delivering to an end consumer versus improving at single technology in the chain. Does seeing this as a single system improve accessibility? Five, mining isn't accessible to everyone. Bitcoin mining should be as easy as plugging a rig into a power source. There isn't enough incentive today for individuals to overcome the complexity of running a miner for themselves. What are the biggest barriers for people running minors? Now, mostly, as you can imagine, people were very excited about this. There was some squabbling about point two having to do with energy efficiency.

Starting point is 00:15:40 Willie Wu tweeted, point two is untrue. If hardware is more efficient, more hardware needs to be used to burn electricity. The network incentivizes a set dollar level of electricity burn for a given price level of Bitcoin. Best to optimize for longevity of hardware cycles to reduce waste. Now, that's said and specific nuances said, like I said, people are pretty excited about this, and Jack has certainly built credibility for people to be stoked. on this process. The two exciting things that stand out to me are, one, this fourth notion of having Bitcoin mining be accessible for everyone. That's something that startups like

Starting point is 00:16:09 Compass Mining are proving is a really valuable addition to this marketplace, so I'd love to see that. Second, from the standpoint of geopolitics, the U.S. has sort of suddenly found itself in the role of being a Bitcoin and crypto superpower based on the actions that China has taken this year. Having big public companies like Square getting deeper into that game seems to be especially relevant for this moment that we're in now based on those Chinese actions. I would love to see some of the new allies in Congress and the Senate pick up on this and start championing it. Either way, exciting stuff to see. Last one, a little day new ma on a situation I've been watching for nearly a year now. Scott Miner, the CEO of Guggenheim, has made himself an absolute meme when it comes to Bitcoin

Starting point is 00:16:54 price predictions. In December, he said that Bitcoin could get to $400,000, just before announcing that Guggenheim was entering the market in approximately two months. Now, what do you think happens if a giant asset manager in the midst of a growing bull market based on institutional interest dropped some big highfalutin number like $400,000? The price goes up. That means he just made it more expensive for his firm to buy in in a couple months when they got that clearance to do so. Perhaps it wasn't surprising then that in January, a month later, he said actually on second thought it probably should be closer to $20,000. Right. Your opinion changed by that much in that period of time. Uh-huh. Well, on February 1st, Guggenheim seemed to buy in. And then, lo and

Starting point is 00:17:39 behold, on February 3rd, Scott Minard said that Bitcoin could go to $600,000. Then by June, when it was at 30,000, he said it should go to 15,000. And at that point, anyone who is still paying attention would probably have been better off doing just about anything. The end of the story is that Minerd has said in an interview on CNBC that he is just fully out of the market now. He said, one thing I learned is a bond trader years ago. When you don't understand what's happening, get out of the market. So discipline tells me now I don't fully understand this. Look, Bitcoin is open to everyone. It is an open, permissionless network, and we welcome anyone who wants to get in. But I got to tell you, it doesn't bother me to see someone who is so clearly

Starting point is 00:18:19 invested in either, A, trying to manipulate the price to suit his needs, or B, so. focused on keeping up his own hype cycle that he keeps saying ridiculous numbers just for the sake of the press he gets, decide to leave the market. But don't worry, Scott, when you're ready again, Bitcoin will be here waiting for you. Until tomorrow, guys, be safe and take care of each other. Peace.

The Breakdown - Massive Trading Volume for ProShares Bitcoin Futures ETF as NYAG Targets Crypto Lenders

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