The Pomp Podcast - #1301 Hany Rashwan | Wall Street Will FOMO Into Bitcoin ETF

Episode Date: January 30, 2024

Hany Rashwan is the Co-Founder & CEO of 21Shares. In this conversation, we talk about the bitcoin ETF, historical bull markets, tokenization, institutional interest vs retail, regulation, altcoin ETFs, and more. ======================= This episode is brought to you by Frec — Just as easy as investing in an ETF, Frec Direct Indexing can help you earn more by unlocking tax savings, no matter the market. Done for you, automatically. Check them out at ⁠⁠⁠⁠⁠https://frec.com/ ======================= Base is making it their mission to bring a billion people onchain. But what exactly is Base? It's an Ethereum L2 offering a seamless experience for both builders and users. With near-zero gas fees and rapid transaction speeds, Base is shaping the future of the onchain world. Base is a canvas for everyone, with hundreds of apps in the Base ecosystem, whether you're an emerging creator, a seasoned developer, or someone exploring the onchain space for the first time, Base is designed to bring your ideas to life. So, if you're looking for a platform where the future of onchain is being built daily, Base is your destination. Join in and make onchain the next online. Learn more at ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠base.org and follow along on Twitter at @BuildOnBase to see cool things to do onchain, everyday. ======================= Pomp writes a daily letter to over 250,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/

What's up, everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Today's episode is with Hani Rashwan. He's the co-founder and CEO of 21Shares. In this conversation, we talked about the Bitcoin ETF, the bull market, tokenization, institutional interest

versus retail, what's going on in the regulation front, how altcoin ETFs are going to be a big thing in the future, what he is seeing with the difference between different geographies, and why is he and his company so obsessed with the number 21. This conversation is packed with Insights. I've been a big fan of Honey and 21 Shares for a while. I'm an investor and I'm a friend of the firm. I really enjoyed this because they unpack what's going on in the ETF race. So here is my conversation with Honey Rashwan. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a

specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. This episode is brought to you by Freck. Historically, the wealthy had a hidden secret in investing. They would spend a lot of money and use very big teams to conduct tax loss harvesting. Tax loss harvesting is the timely selling of securities at a loss to offset the amount of capital gains tax owed from selling the profitable assets later. But now FREC is bringing this incredible advantage to any investor. They'll literally lower your tax bill regardless of how much money you have. They use state-of-the-art technology through a product called direct

indexing to allow investors to invest in the S&P 500 while getting all the benefits of tax loss harvesting without the big bill. If you want to learn more, go check them out at FREC.com. That's F-R-E-C dot com. I'm a big fan of the product, and I even became an investor in the business. Freck dot com. Go check them out today. Today's episode is brought to you by BASE. BASE is making it their mission to bring a billion people on-chain.

What exactly is BASE? It's a layer two offering a seamless experience for both builders and users. With near zero gas fees and rapid transaction speeds, BASE is shaping the future of the on-chain world. BASE is a canvas for everyone with hundreds of apps in the ecosystem, whether you're an emerging creator, a seasoned developer, or someone exploring the on-chain space for the first time. BASE is designed to bring your ideas to life.

So if you're looking for a platform where the future of on-chain is being built daily, BASE is your destination. Join in and make on-chain the next online. Learn more at BASE.org or follow along on Twitter at BuildOnBASE. Again, that's at BuildOnBase to see cool things to do on-chain every single day. All right, guys. Bang, bang. Got Honey here.

You guys are one of the Bitcoin ETF issuers. You've partnered up with ARK and Cathie Wood and Fast Start out of the gate. How do you look at the first two weeks or so of ETF launch, inflows, GBTC selling? What's going on in the market? It's really exciting. Thank you for having me, Paul. It's going a lot better than I think anyone in the space would have thought or realized going into this. The inflows are very high, especially for a new ETF.

Inflows being high on day one or day two is one thing. Inflows being this high, I think we sold 60 million yesterday or so, almost two weeks in. This is sustained excitement, and it says something. um gptc's dynamics are super interesting we should continue to see outflows the outflows uh people may not realize are limited so the the market makers are only able to sell a certain portion on a daily basis which is why it's hovering around the 500 million mark per market maker and you'll start seeing again more sustained pressure there but it should stabilize at some point uh there are a lot of others that are selling out of gbtc for other reasons like the

ftx bankruptcy estate and that's part of the downward pressure on on bitcoin itself but aside from all of that we've collected over half a billion in uh in new bitcoin um in just a few days here so did um a number of other issuers uh as well and so the amount of excitement the level the speed and especially considering the institutional investors are not here yet is really, really exciting and blew out of the park completely anything that I thought this would be. Now, let's take inflows first, right? I think a lot of the investors who are putting capital in, everyone's like, oh, it's institutions. But to me, the institutions take a long time to kind of make decisions, wrap their head around this. Financial advisors,

they may even have to talk to their clients. So do you think that this is just retail flows Or do you think some of the institutions were kind of ready to go? And when the approval happened, then they could just go ahead and allocate. So when people say institutions, it could mean very different things. So far, this is just retail excitement, plus the kinds of institutions that can move very quickly. So it's family offices. It's maybe hedge funds or traders. But it's not who you think of as a long-term institutional investor, like a pension fund or an insurance company.

or even on the advisory side where you have advisors that are controlling a large amount of assets on behalf of a large number of customers. That is not here yet. This is not eligible for those guys yet because there are all these procedures that you have to go into that includes the product being up for a certain amount of time, then picking eligible products. There's a big due diligence process that they must do in order to come in. But this, again, adds to my excitement because what's really happening is we see this wall of money and we see it and we understand how large it must be considering that it hasn't yet hit us and these are the inflows uh but it will still take a few months three to six months from now is when you'll

start seeing significant institutional size checks and that's when people are coming in with single check sizes of 100 million, 500 million, 50 million. Whereas now it's excitement, it's family offices, and it's a bunch of traders. Now, when those institutions that are the really large pools of capital start to allocate, are you expecting half a percent, 1%? Do we think that they're going to be like, oh, we're all in on Bitcoin, let's go put 5% of our assets? How do you all anticipate this actual size that will move into the market? So the first thing is the inflection point here with the US allowing Bitcoin ETFs is that every institution now needs to have made a decision on Bitcoin. You're no longer able to say,

I can't do this. I can't think about it right now. Everyone needs to make a decision. And we're having a lot of these phone calls and discussions and meetings where they need to figure out, are we buying Bitcoin? Are we not? What is our Bitcoin decision? then past that is uh which and i think the answer is clearly going to be yes but how much an allocation uh and it varies it varies from family offices on one end that could be a little bit more aggressive to the pension funds or the insurance companies on the others but some of the largest institutional investors that we are speaking to that are actively engaged that are in active discussions that are very excited and making plans, I mean, even a 10 basis point or 20 basis

point allocation from them would completely shift the market, the sentiment, and I think be a sign of more to come. But probably nothing crazier. I think the 5% and 10% allocations is probably on the fund size, on the family office size, something starting lower than that probably. How do you think about the bull market playing into this? I got a lot of heat earlier this year when I wrote that the ETF approval probably would not bring us to an all-time high. We would still need the halving plus loose monetary policy. I don't want to call victory yet, but so far it looks like that may be true. We'll see once the selling pressure kind of goes away if that is true or not. But do you think that a lot of the interest will come after the halving and kind of

once people start to wrap their head around, you know, more of like what Bitcoin is as an ecosystem and as an actual system than just, oh, now an ETF has been approved, so I have to allocate to it. Yeah, I think I'm super comfortable with you waving the victory flag already. I agree with everything that you've just said. Look, most of the people that are buying this could have bought it in a number of other ways. We're the biggest global issuer of crypto ETPs, right? Before this. And so where additional buys can really have an impact on our space is when the institutions come in. And like we just said, they're not here for a few more months. So it's not that the Bitcoin ETF is not going to herald this new phase and be of incredible excitement.

It's that the institutional flows through the Bitcoin ETF will do that. That is still a ways out. In the meantime, I agree with you. There's a number of additional factors here. monetary policy being one of them um the world has not healed yet you're in the investment space i don't think we're back i don't think vc is back i think it's still quite fragile um we we now see light at the end of the tunnel but we're not so sure how far away it is and it could be a few months it could be another year and i think monetary policy will need to change in a positive

direction to give a more positive sentiment before we start even having a conversation about all-time highs and a new bull market and all of that i think we're sort of in no man's land it's clearly not a bear anymore but i wouldn't bet all of it um that this is a bull market and that um off to the races and have no worries uh the happening is a very important factor uh you of course know about it it will make it uh more scarce more difficult which if demand is higher then leads to some interesting um price appreciation and things like that but i think that's early as well so let's see what ends up happening with the happening and let's really see what ends up happening with the institutional flows in a few months with a background of sensible monetary

policy and a soft landing and um starting to reduce some of these interest rates not just in america but around the world and at that point we can talk about what does the next bull market look like and what is feeling when you think about um that bull market we historically have seen about 18 months post having we've historically seen hundreds of percent of appreciation um but now the holder base of bitcoin may be changing a little bit one they rebalance as assets increase uh to the introduction of derivatives um you know many different components are changing here do you expect us to just repeat past bull markets or do you think that there's a change positive or negative to what these bull markets could look like i think crypto is a very diverse

place it's not just bitcoin even though that's the only asset we've mentioned bitcoin has grown tremendously and still has room to grow but clearly it is no longer that seed stage or series a startup and so if you if you talk about percent gains um it should look very different from say a nascent growing area of crypto which for what it's worth is what we have been seeing with previous bull markets is that we're inventing something new we're adding something new to the crypto space whether that is nfts layer twos more smart contract um scalability uh solana summer what avalanche did what bnb or polygon have been able to do and so i do think that bitcoin is going to lead the charge here and there's a lot of attention to it and it's it's still it's still

very much a new asset but it is a more mature new asset so previous uh percent gains for some of the bigger assets are just not realistic i mean if you if you think about how much bitcoin has gone up in the last bull market or even crazier yet the one before the one before it um these are outrageous things uh to happen in the short term and i think my we we've talked a lot and my single biggest pet peeve on on this whole space is our lack of long-term thinking um the we do not need to see fifteen hundred percent gains for us to be excited about either the viability or the future of this asset class we need to see more users more customers so i'm comforted by um the on-chain metrics that we're seeing um 21co is uh the largest producer of

dashboards on dune.com and we display all the wallet addresses among other analysis but we display wallet addresses across a bunch of different networks and you can see it steadily going up and to the right more usability more wallets more unique customers not just in bitcoin but elsewhere um and if we continue to do that i'm not really that worried about the price too much um i'm sort of a unique crypto ceo and you've made fun of me uh for this a few times i don't really know what the price of bitcoin is on a daily basis nor do i care i'm really in this for uh the long term the long term and so i look at all these other factors and i find things that are incredibly comforting and exciting now we've been talking about the bitcoin etf there's also

a whole long tail of other assets and uh some of them are starting to get uh some etfs or ETP type coverage. How do you see the difference between like the king of the industry and Bitcoin and kind of dominance of market cap versus everything else and the interest that Wall Street may have in those assets? So again, it's different levels of development stage. We are the world's largest issuer of crypto ETPs and we have 50 or so ETPs around the world with assets that are small like Arbitrum, Optimism, Algorand and Bitcoin, Ethereum, solana etc there's a tremendous amount of interest across the board it takes a while though so bitcoin has come across the line um i can't talk too much about ethereum we have an active filing

there but we globally have have been very excited about ethereum and bringing the rest there are challenges once you um incorporate things like staking there are challenges when the regulatory uh rules have not been fully written uh there and so it may take a while but it's also inevitable um and i think we we should be able to see across the world um more acceptance so other countries that may have only allowed us to list say bitcoin and ethereum are now allowing us to list alts and so on and so across the board i think more regulatory clarity um dealing with the bad actors as we have and as we are continuing to do should allow us to open up more availabilities for everything across crypto not just bitcoin bitcoin's going to be very exciting at one point

if you look at specific industries at one point there has been a dominant company that sometimes has a disproportionate amount of influence or market share of that company and and so again i go back to usability as long as we're building applications that more people are using that are making people's lives better hopefully we get to a world where bitcoin is a small part of the crypto climate um and the crypto landscape not because bitcoin has has has shrunk or anything like that no it's growing and growing at a really nice pace but because everything else is being developed and growing as well when you think about regulation obviously bitcoin green light ethereum we'll see other assets don't seem to be yet up for debate what's changed in the united states on the

regulatory front and then is u.s uh taking inspiration from maybe other places on regulation or other places following the us like how do you see the relationship on the regulatory front so uh i've been in this for a while now and i do think the us is taking inspiration from other places. The amount of things we have been able to do at 21 shares around the globe, we're still not able to do in a lot of geographies, including America. Some of the products that we have on the European market are quite special and complex and will not be allowed in specific geographies for a while um that said i think there's um time has passed and a lot of interest has has been maintained and so in a way this has become way too big to ignore it's not going to go away

there's significant interest and at this moment it is far safer far more efficient far more institutionalized if you think about our service providers the market makers the custodians Now we're dealing with a very different caliber and a very different class of people than even what we were doing a few years ago around the globe that have entered this space. And clearly that has an influence on the regulatory view on this. Now, when you look at that geography, regulation is one piece of it, but also investor interest, asset interest, et cetera, can change geography to geography. What are some of the things maybe that you've seen in Europe versus the United States that would surprise people? We've seen a lot more interest in, for example, short or leverage, depending on geography and types of investors. I think we have the world's only short crypto ETPs.

We have a short Bitcoin and a short Ethereum. Very good hedging, different strategies, but they also appeal to different geographies. There are a lot of geographies that want to enter this space, but need aids in order to do that. I'll give you two examples very quickly. One is a significant amount of people that are interested in gold, that are gold bugs, would be interested in Bitcoin. And a lot of the early Bitcoiners were fans of gold. So one of the things that we've done is we've combined the two in various ways in specific geographies, and it's been quite successful. We've combined, for example, products that have mostly gold with a little bit of Bitcoin allocation or products that are mostly volatility reducing Bitcoin with a cap on the upside.

Again, to ensure that more conservative investors or more conservative geographies feel more comfortable going into such a volatile asset and learning more about it. That's one example. Another example is our efforts in the Middle East, where the largest issuer of crypto ETP is in the Middle East as well. we've listed in dubai we're working on a bunch of other geographies there are a number of for example more conservative islamic banks that cannot invest in non-sharia compliant assets so we've spent a lot of time uh ensuring that all of our products that are eligible to be sharia compliant are sharia compliant such that these very large places like saudi arabia the uae Qatar, etc., are able to buy these products and are able to buy it in large volumes across the

board. And so specific populations sometimes are looking for or need or are more comfortable with different things. And it is our job as a global player to think about that customer by customer and offer that to them at the end of the day. When you see geographies maybe that don't get much attention south america um africa compared to i'd say like north america europe and asia um is that just hey they'll get there eventually obviously we see bukele in south america right you know kind of really pushing stuff uh central america is a up and coming i think user of some of these technologies we also see places like the middle east who now seem to be leaning in much heavier so what about some of the geographies that don't get talked about that much so i think

this is um this is super super interesting and it's a core part of how we think about things at 21 co um i would put i would put the non-troubled middle east as part of europe and asia and so i actually think it's in the same bucket like asia on some financial regulations sometimes they're they catch up um and that's one bucket we do very very well there but this is an area where tokenization really plays a big role and what i mean by that is there's a significant interest um in some of these geographies in crypto but perhaps the way that they would like to get exposure to defy assets or the way that they are able to get exposure to defy assets um is an index not in etp form but in the erc20 form and that's that's why we have built a lot of our products

in tokenized formats as well so that you can buy access to an index or a basket or a strategy as an erc20 token as a solana token or as an etp etf or whatever and i think that's possibly how a lot of these geographies may end up participating here which i would argue um is going to leapfrog the whole industry and the whole world into a direction where actually they're using the newest wrappers tokens which will at some point replace all the old wrappers that you and i know and work with whether that's mutual funds etfs funds private funds in general and so it's a very interesting ground for experimentation and it's a very fertile ground that is full of excitement but the infrastructure just may not be there i'm egyptian it's a big

country big economy stable lots of interest in crypto but the financial markets the egyptian stock exchange is not something that is heavily used. People are not buying stocks as much, but the amount of wallets in that country per capita is probably higher than some other places. What about tokenization in terms of like these real world assets? That seems to be a topic that's becoming more popular. You're talking here about ETFs that can be tokenized. Where are we in that potential evolution and how do you see that evolving? The infrastructure is there to support The issue with real-world assets has always been the same, which is, what's the tradability? How do I exchange these things?

And it is unclear right now that there is a huge market that is ready to buy them in this form. And that's been the impediment historically, and that hasn't changed. I think there are hybrid approaches here. So I think stablecoins are a form of tokenization. It is tokenizing the US dollar or the euro or other currencies. I think the commodities that we have seen, gold especially with some gold stable coins, is tokenization. And so I think that before we get to real world apartment assets or real estate assets, or even sometimes I love how complex people are with the first examples of, you know, can we be trading sugar futures, prediction markets at some point? But can we just trade silver first in a scalable way?

And so I do think that when we talk about real world assets, things like commodities, things like ETFs, which already have trading, are far easier to ramp up and put in this new tech wrapper rather than something that even in the traditional world is highly illiquid today. Now, in that world, there's a governance component. There's also this idea of transparency, auditability, et cetera. We saw Bitwise publish their Bitcoin wallet address. I'm guessing now that everyone will do something similar to some degree. What are the pros and cons of this transparency coming? Because I think everyone's like, oh, it's awesome that we can go see. But then we also saw somebody send some sats to the wallet address, and now it's like an over-collateralized thing, which actually may be a bad thing.

And so talk a little bit about pros and cons. And as somebody who is an issuer, you can publish the wallet address, but how are you all thinking about it? Yeah, so Bitwise, I would say, is both a friend and a competitor, and we wish them the best. I think we're under the philosophy that a great tide will lift all boats, and we're not at war with each other. We disagree with this approach for a variety of reasons, and I can go through it. It is something that we could have done many years ago in Europe as well, but we've chosen not to due to some of the things that you brought up. I think transparency. Let me start with this. Transparency is absolutely vital. It is required. The concept of an audit double entry bookkeeping is so wonderful. And the issue that then comes up is, well, who is doing the audits?

Can they be trusted? Is it a manual process? So anything that automates that, anything that offers additional verification is absolutely vital. There are a number of reasons why a financial ETF issuer should not simply share a Bitcoin wallet address. as some people have have noticed and mentioned and been concerned by it's one wallet we don't have the same setup we have a dozens of wallets it's a segregated wallet multiple wallet structure that ensures clear separation of funds it's cute when someone sends sats to a product and makes it over collateralized it's a nightmare when someone sends something that you cannot identify that

could possibly be north korean or iranian that could then give pause to advisors that as we've mentioned on this uh on this chat already are key to the institutional demand and things like that and so there is a way of doing this we will soon publish our way of doing this with demonstrable real proven proof of reserves which we should be doing but without displaying a single bitcoin wallet address where everything is is located so overall i hope that crypto if anything brings more transparency to the markets we are actively pushing in this direction but uh i was reading your newsletter uh this morning you can have companies verify their financials without giving us access to their bank accounts and that's where crypto comes in that's where uh oracles come in

that's where a lot of interesting tech can enable that to happen and we will uh very soon talk about how we're going to do this uh but we absolutely want to share with everybody exactly how much crypto there is and have that be proven and have that be out of our control when you think about um attesting to financials, audits, etc. Is the world going to kind of coexist? Like we'll have an on-chain world or an off-chain world and the way that we've done things in finance for a long time will coexist now with this new like on-chain type verification? Or do you think actually the on-chain world maybe doesn't have as much legs as people hope it does? I think the best comparison is cash with our electronic forms of payments.

And I'm guessing that we mostly use our credit cards and bank accounts on this call, but you could go through the world operating in cash. So at some point, everyone will be pressured in a good way, I think, to become more transparent, to become more on chain, to be able to do all of these things in an automatic, programmatic way.

It's not that you can't do the other system and it's not that the other system won't exist and it won't exist for specific pockets of industry, specific pockets of geography, specific pockets of people. But by and large, I think the pressure will be on this system that we all agree is not corruptible, that we all agree is just computer code and mathematics that we can all verify and trust and of course i think they will both coexist the real question is which one will be bigger and my my prediction is that crypto and everything as it gets tokenized and therefore entered the crypto universe is going to overtake the world um much in the same way that most of us are paying with electronic forms of payments electronic banks rather than cash or barter even

though we still do that in some pockets what are you most excited about going through kind of this bull market what are the things that you're thinking about or you're looking forward to that maybe people aren't paying enough attention to yet institutional adoption institutional adoption we've been talking about it for as long as i've known you we've been talking about it for as long as i've known bitcoin and let me tell you they are finally here this is going to be more than just dipping their toes in. Institutional adoption is key for this industry to reach the stages and to be in the financial system at the level that we all want it to be, that we all think it should be. And that hasn't been the case for a very, very, very long time. The institutions

have been flirting with it, dipping their toes here or there. But really, there is a wall of institutional money and interest that will be a core part of bringing this to wide mass adoption across every stack. And we should remember that this is a very unique market where the retail was the one that led. Typically in financial history, it's almost always institutional money that leads, and then retail follows. As a result, I would argue retail reaped all of the biggest rewards. But institutions, given their size and given how large this is, still have a profound effect to make. And it will cause this industry to grow up. It will cause this industry to have staying power. It will cause more innovation and more competition. And for anyone

that cares about crypto, like you and I, that is the single most exciting thing that we could be working on this year. My last question for you is, there's an obsession with the number 21, 21 shares, 21 co, 21 in terms of fees. Where does the obsession with 21 come from? Do you know the answer to this? I do not. It's linked to Bitcoin. I do not. 21 million Bitcoin. That's the maximum that will ever be created. Well, I know that. I didn't know that was where you got the 21 from though. That's where we got the name from. That was the inspiration. It was an homage to Bitcoin because it is this thing that has, like you said, enabled the rest of crypto to function. It is the big gorilla in the room that is impossible to ignore. And we wanted to pay tribute to that in some way. a couple years ago we wanted to launch the world's cheapest bitcoin and ethereum etps and so we ended

up doing that in europe at 21 basis points and so when we came to the us we replicated that strategy and matched the pricing that we already had in europe at 21 basis points it's uh it's a little tongue-in-cheek with the company but we like it um and we're big fans of maintaining history and paying our respect to Bitcoin. I love it. Makes so much sense. Where can we send people to find you on the internet or find out more about 21Co and 21Shares? 21Shares.com. 21.co is the company site. But if you go to 21Shares.com from around the world, it will figure out where you are and it will give you the products that you are eligible to buy. Awesome. I appreciate it very much. I've enjoyed watching you build this business and I think that you're on the right

track. So we'll definitely do this again in the future. Thank you so much.