The Wolf Of All Streets - Everything You Need To Know About The Bitcoin ETF | Dave Nadig, ETF Trends

Episode Date: November 18, 2021

Dave Nadig is an ETF industry pioneer with over 25 years of experience in the business. He came on the show to break down the popular products we all love to talk about, yet barely understand - ETFs. This episode takes a fun twist into the metaverse, the state of future regulation, the bridging of old and new finance, and interesting ETF variants we will likely see in the future.  -- Arculus: Arculus is the new crypto cold storage wallet that combines the world’s strongest security protocols with an easy-to-manage app. Store, swap, and send your crypto all with a simple tap of your Arculus Key™ card.                                     Order the safer, simpler, smarter crypto cold storage solution today at: https://thewolfofallstreets.link/arculus  -- Kava: Kava connects the world's largest cryptocurrencies, ecosystems and financial applications on DeFi’s most trusted, scalable and secure earning platform. Kava lets you mint stablecoins, lend, borrow, earn and swap safely and efficiently across the world’s biggest crypto assets. To learn more visit https://thewolfofallstreets.link/kava  --- If you enjoyed this conversation, share it with your colleagues & friends, rate, review, and subscribe. This podcast is presented by Blockworks. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at: https://www.blockworks.co ーーー Join the Wolf Den newsletter: ►►https://www.getrevue.co/profile/TheWolfDen/members

This podcast is sponsored by Kava and Arculus. Stay tuned for more information about both of them later in this episode. What's up, everybody? I'm Scott Melker, and this is the Wolf of All Streets podcast, where two times every single week, we talk to your favorite personalities

from the worlds of Bitcoin, finance, music, trading, art, sports, basically anyone with a good story to tell. Now, one of the hottest topics in crypto and beyond, of course, has been the Bitcoin futures ETF that was recently approved. We've been talking about the pending approval for months, but finally saw an actual product come to market. And a few of those, to say the least, will probably have quite a few more coming. Well, the ETF is a very important instrument in general, not just in Bitcoin, but we're going to talk about the history of why it is so important and what it means for

the crypto market and whether we can eventually see a Bitcoin spot ETF or other crypto-based ETFs. I have someone perfect to discuss that with today. It's the Director of Research at ETF Trends, Dave Nodding. Dave, thank you so much for joining and for taking the time to speak with me. Hey, I'm looking forward to jumping onto your side of the pool here. So thanks for having me. So listen, everybody's talking about ETFs, but I have a feeling that most people in crypto don't really understand what they are or why they're important. Can you just give even just a little bit of background on the ETF, what it is, when it

came about, and why they are essential to the market? Sure. So an ETF is basically just a mutual fund. A mutual fund is just a pile of money that a bunch of people get together and decide they want to co-invest together. And there's a structure for that that was codified in law back in 1940. So that structure has been around forever. Most people sort of think they understand what mutual funds are. ETFs are just sort of a natural evolution of that. They were established by loopholes back in the early 90s. The first one was SPY, which most people

probably know and trade to this day. The second batch of them were called the webs, which eventually became iShares. That's where I got started in ETFs back in 94. And over time, what they've done is taken the idea of a pool of investments and make that pool itself tradable the same way you trade a stock right now. So you can margin against it. You can short it. You can go long it. You can day trade it. You can trade one share. You can trade a million shares just like and started including a lot of really interesting asset classes that were difficult to get access to otherwise. Things like gold with GLD, even things like bonds were surprisingly difficult to get any kind of liquidity in until we started getting bond ETFs out there trading on the sort of millisecond basis the same way we trade everything else. Now, if you fast forward to where we are now, we have an actual piece of regulation called the ETF rule 6011, which actually allows us to do all the things we do in ETFs before it was just a giant game of mother may I and a lot of very unintended consequences from who got mom to say yes and who got mom to say no. Now we have it all

by rule. So we have a pretty even playing field. And now we're trying to extend that into things like crypto, right? Trying to wrap other kinds of more interesting, sometimes less liquid, sometimes less regulated assets into this regulated package, which is currently sitting at about $7 trillion and has essentially sucked all of the retail and advised flows out of the market for the last 15 years. So what has been the effect of ETFs on the market as a whole? Has it increased efficiency? Is it the fact that, as you said, it allows people to basically actively invest in things that maybe they had trouble getting exposure to in the first place? Does it make markets more efficient?

Especially we start talking about a Bitcoin futures ETF. We know that obviously futures contracts in general help with price discovery and determining what the price will be in the future. Do ETFs have that same function? Yeah, absolutely. I think there are enormous misunderstandings about ETFs, but fundamentally, in most markets, the ETF is actually the price discovery mechanism and the most liquid security. So for instance, take something like junk bonds at the most extreme. If you want to start trading garbage paper out there on your own as an individual investor, it's virtually impossible. You don't even have the phone number of the guy to call to get the bond that you want that has that juicy 5% yield in it, which right now would be like crazy great junk paper, right?

So you can't even get it. So what do you do? You go find something like HYG or JNK, which are two of the biggest junk ETFs out there. Those things trade like water all day, one basis or penny spreads all day long, billions of dollars notional trading. When something happens in junk bonds, it happens in HYG and JNK first. And often what will happen is there'll be some sort of exogenous shock. Somebody says they're going to default or the Fed says something squirrely or, I don't know, Elon Musk decides to buy a new brand of toilet or something and all the market decides that everything has to be upside down. The underlying market disappears. Nobody trades junk bonds when that happens. Everybody trades the ETF. The ETF drives that market. A lot of headlines get written about how ETFs have broken the junk bond market. And in fact, what's actually

happening is the opposite. The ETF in that case is saving the junk bond market from itself by consolidating liquidity on an exchange that otherwise would be a bunch of people hitting speed dial on their phones with 45 speed dial buttons on it, because that's still how the traditional bond market works all these years later. So it really does democratize and open up these corners of the market. It provides enormous efficiency. And I think even more importantly and relevant to this discussion, it provides bridging between markets, right? The ETFs live in this incredibly liquid market of the stock exchange world, NYSE, NASDAQ, SIBO. That's a really well-regulated, well-run, well-understood market with derivatives that trade on it, with overnight markets that trade against it, super well-understood. Anytime you can bring these slightly less coordinated markets

like junk bonds or real estate or wine or Bitcoin or anything else into that regulated environment, it creates opportunity. Yeah, that makes perfect sense. Thank you for that explanation. So then the next question I think anyone would reasonably ask is, how much trust trust you have to have in the person that's managing the ETF? A lot, right? But the good news is, and this is slightly a field for a lot of crypto investors, the good news is regulation is your friend here, right? This entire ecosystem that really is built on this 1940 piece of legislation is actually designed in a very sort of New Deal way to protect the individual. So there are a number of legal and regulatory sort of bulwarks, if you will, that protect you as an investor from anything nefarious happening in the underlying eventually. So in the case of BITO, the big

Bitcoin futures ETF, that is really a pretty traditional fund. It looks like it's doing a lot of really complex stuff. It invests in the Cayman Islands, that Cayman sub then buys all these futures contracts. Following the money flow can be challenging. But at the end of the day, you as an investor have a legal claim on a portfolio that includes those futures, right? You have a fractional legal claim. You can go to court, a judge will nod his head and he will hand you money if there's some sort of hiccup. And you have a board at the fund who's in charge of making sure that all of the participants, the custodians, the market makers, everybody is doing their job well. And if they're not, you get to sue them and get your money back, right? So we have this legal and

regulatory infrastructure that just plain works. And that's one of the reasons you don't have to worry so much about, well, is it ProShares running this fund or is it Valkyrie? Because neither one of them can rug pull you. Right. The old rug pull in the crypto space. We all know that term, certainly, if we've been around for a while. What's interesting, obviously, is we saw the approval of a Bitcoin futures ETF rather than a spot ETF. I think in a little while we'll discuss the nuance there and what the difference is. But the approval of a Bitcoin futures ETF rather than a spot ETF. I think in a little while, we'll discuss the nuance there and what the difference is. But the approval of the futures ETF, interestingly, was so popular that ProShares started running out of futures contracts to buy. Right? Yeah. Isn't that slightly problematic if the idea is that the futures ETF is going to at least roughly track spot price in the spot market. The further out

that you have to buy futures just to be able to service the demand, the further you're going to be from spot price, right? Yep. And this wasn't unexpected for any of us who've been following futures-based ETFs. We've been to this party before. This has happened in oil. It will probably happen in oil again someday. Whenever investors turn their eye of SORON towards one of these less liquid markets, it tends to overwhelm that underlying market. So we know this happens. We know how this works. The CME, the reason they ran out of the contract, if you will, is not because there's nobody out there who wants to write that risk and give pro shares more of that front month risk, they'd be happy to do so. The CME sets rules about how much any one player is allowed to have. This goes all the way back to the Hunt Brothers cornering the silver market. I mean, this is a part of the commodity space. And for better or worse, Bitcoin is a commodity in the US regulatory system as of today. We'll see tomorrow. And that means that there are these position limits that keep anyone from cornering the futures market. Because of that, it's going to take a while as that market

gets more liquid to increase that capacity. So it creates this weird situation where the mutual fund, which nobody wants to really own because you can only get in and out at four o'clock, will probably track much better than any of the futures-based products, the ETFs products, because it's small. It'll just be able to own all the front month it wants. So why do you think a Bitcoin futures ETF was approved rather than a spot ETF? Mostly because of things like this, right? Because there are these limits, because there are these structures in place, because they can track the participants, right? The futures market is one of those sort of last bastions of sort of old school markets where you have sort of these members on the exchanges who sort of do all

of the work. You know, it's a very arcane system, you know, and a lot of these folks are, you know, they're not like the FCMs, as they're called, the ones who are members of the futures exchange. Most of these guys aren't like hardcore crypto guys. They don't necessarily have billions of dollars of capital to apply over in crypto, buying actual Bitcoin to hedge themselves so that they can then go write a ton of futures contracts. That's actually a good thing in the eyes of the SEC because it means they can keep track of it. The spot version of this, their main concerns are that it's a pretty untrackable market by design and that they're worried about things like market manipulation. They're worried about things like cold storage. Now, I and you, I'm sure, believe those are largely solved problems

at this point. 10 years ago, those were eight years ago or four years ago, they were less solved problems. But from the SEC's perspective, which moves at the pace of a dinosaur in molasses, those are still huge problems because they were huge problems five years ago. So they're not quite ready to get there yet. I don't really see an easy path forward. I think this market, meaning the crypto market, is going to expand so much faster than the capacity of regulators to respond that I just don't think we end up in a world where they get comfortable with a spot Bitcoin ETF. I think this is all going to get overwhelmed by things like arguments about stable coins, arguments about KYC. I mean, we could go through just the bill that just got signed by Biden, which has two giant poison pills for the crypto industry. And we haven't even talked about those yet.

So there's a lot to do before we get to a spot Bitcoin ETF. Let's talk about those. Can you talk about the two poison pills and what they mean? Because I think that it seemed like hyperbole when it was first proposed. And we had a few senators, Lummis, Toomey, et cetera, who obviously fought back. But in the end, they sort of capitulated.

It became a non-news event to some degree. Went back to the House, came back to the Senate, passed, and will be signed. It was a huge news event when it was going through the Senate the first time, right? I mean, crypto effectively froze the entire process for three or four days. But now it's hit. It's going to be made law. And nothing was changed. Yeah.

And I'm sorry, I shouldn't laugh. Like there are a lot of people who this is laughable problem for. But this is this is a bit of, I think, a canary in the coal mine for all of the stuff we're going to talk about, which is crypto, because by its very nature is so decentralized. It also makes a terrible lobbyist. Right. Crypto doesn't have a lobbyist that can go and sit there. The best thing we've got is a couple of senators who maybe understand 20% of what they're talking about, who seem to be on the side of the sort of decentralized finance folks, but they don't have enough power, right? They don't have enough voice. They don't have enough authority. So consequently, what we've ended up with is these two provisions, which frankly are completely unenforceable. I don't

even know how we end up at the end of it. One of which basically turns everybody into a broker dealer who has KYC requirements. I mean, I've got two Axies breeding right now. If I sell those on the market, I will be a broker dealer according to this new law. And I will have to file tax returns as a broker dealer because I sold an Axie for 23.23 Ethereum or something like that. The other part of it's even worse, which is that if I have some Axie that I really think is hot and you buy it from me just because you're an NFT nut and you buy it from me for $10,001, you have 15 days to get my social security number and report it to the IRS, or you have committed a felony, whether you meant to or not. That is just at the letter of the law. So congratulations, you're probably a felon. Right. We're all felons. We're all felons a

thousand times over at this point, right? But obviously, this won't be enforced for a few years, even if it goes into law, I think, as the worst version of itself. And I believe we're still waiting for some clarity from Treasury as to how they will actually interpret it and move forward, which maybe I'm not saying we should have hope because having hope in our regulators has been a has been a pretty, pretty poor strategy thus far, but maybe they'll give at least a bit of clarification that says, listen, you're an average person who, you know, you're going to report it on your taxes anyways, right? So to me, that's the laughable part. It's like, I'm a felon because I didn't tell you within 15 days and get your social security number, but I'm reporting it as part of my taxes and I'm paying my taxes on that transaction. Yeah. The issue tends to be, they really want to know both sides, right? That's how money laundering AML stuff works.

And I actually, I've been deep down this rabbit hole. I have talked to guys who are in the business of old school AML work, like tobacco and firearms folks, right? Which is where a lot of this stuff used to go through. They have tools in their toolbox and they know how to use them. They just haven't been updated for this.

So the idea that somehow, well, because it's an individual and one side of the trade is reporting their taxes doesn't cut it. Like, you know, the worst case scenario here is not so much that the IRS gets mad at you. The worst case scenario here is you get things like the ATF involved, right?

Right? I mean, the financial crimes unit at the ATFE is going to start getting involved in crypto and it's going to get insane. Right. But they can't, like you said, they're, I mean, woefully understaffed. The IRS can barely like get through our taxes, right? And the government is not exactly scaled up to go after everyone. But sadly, that does mean that a few people will

probably be made example of, and you don't want to be that person. That's the problem, is this is going to become a selective enforcement issue, right? Because you've now created a law that effectively anybody who's playing a crypto in size is already violating, right? Certainly anybody in the NFT space who's actually trying to do anything there is probably going to violate this law 100 times before the end of the year if this thing gets signed this week. So what do you do about that? It's tough because what you're effectively doing is saying, look, the speed limit is five miles an hour, but we're only going to pull over people we really want to pull over. That's problematic. Yeah, it's massively problematic. Interestingly, you sort of alluded earlier to how the futures market works and how it's

basically the old school style of brokers. It kind of harkens back to Randolph and Mortimer Duke from trading places, right? That's the sort of the image that I get in my mind when you talk about it in the stock pit. Why do we still have legacy financial processes and institutions that function like it's the 1970s? So I have a slightly less popular answer to this question, which is, I think it's really easy to forget how quickly things change, right? And how much has already changed. So in 2010, we passed some pretty big market structure changes in terms of just

fundamentally how money moves around in the ecosystem. Prior to that, we passed some pretty big market structure changes in terms of just fundamentally how money moves around in the ecosystem. Prior to that, we had Reg NMS, which completely blew up and rebuilt the entire stock market effectively and how everything connects. Those have all happened in the last 20 years. The idea that we haven't done any modernization is just wrong. The problem is the regulatory environment hasn't caught up. The technology has now advanced to the point where anybody who's sitting in an office trying to figure out like, okay, I work at the DTC or the NSCC, I'm trying Clearing Corp. They can't do anything without laws. And there's just, you know, DC is so dysfunctional right now that what's in the way

is not tech. It is just regulation. It's interesting because what you just described is probably how you feel if you're a crypto entrepreneur innovator in this space in the United States too. It's not even like you're necessarily fearing bad laws. You just want some law so that you have clarity and know that you can even operate and that you're not going to be punished retroactively for something you did. Was it Polonius that got a $10 million fine for a violation in 2017 that still isn't against any official law? Yeah, I mean, and that's going to drive everyone offshore. Why would you operate in this country if everything you've said so far is true? We saw what you said about, obviously, the infrastructure bill.

We know that regulation will never keep up and it will be outpaced. So they'll just do something heavy handed. Why would you even try in the United States? Well, that's what's going to happen. I think that what we're going to see is there are going to be a few, and they're not even necessarily going to be tax havens. They're just going to be regulatory green zones. And those regulatory green zones are going to be where sophisticated people put their money. And it may be entirely above board, right? Every

one of those transactions may end up in some IRS 1040. It's not a getting away from the US government. It's just allowing people to invest in a sensible way. Like if I was a US investor and I could open an FTX Europe account so that I could trade there, I would move all of my money over there and just do that because I can trade a Tesla token so much more easily and so much more interestingly than I can trade Tesla. Well, we saw that actually as we're recording this, people know it's November 9th, but we saw that last weekend. Elon Musk tweeted, should I sell 10% of my Tesla stock? Because obviously of the rumor of unrealized capital gains, I will abide by this poll. FTX is trading tokenized Tesla stock. And the stock and the token, I should say, dumped days before the market opened and saw the same reaction afterwards.

Which also means that if you were a smart investor who could play in all of these markets, sure, you had the opportunity to get out of the way. To me, the more interesting thing is you had the opportunity to call the bottom, right? You had the opportunity to manage a hedge against it. You had the opportunity to negotiate a swap with somebody for, I'll give you Tesla four days from now in exchange for Tesla eight days from now. Like, because of the way DeFi works, simply having this beta exposure trading as a token enables this just incredible blossom of risk management. And as you said, all of that happened in between the close and the open in the traditional market. So it's just ludicrous to me. I think we are going to end up with these regulatory green zones and smart and wealthy

investors will figure out how to use them. And good financial advisors and institutions will figure out how to do it in a legal way. So we're going to tokenize everything. Yeah. The ETF isn't going away anymore than the mutual fund is going to go away because the regulatory structure has value. But in terms of how are $5 million investors going to be managing their portfolios or their advisor going to be managing those portfolios in five or 10 years, it's just going to be tokenized IP. There's going to be no reason for a formal legal structure. It's just going to be smart contract-based funds. Which means you'll be able to basically manage all of your investments in every single asset in a single wallet. Yeah. You'll just have a MetaMask wallet and you'll look in there and it'll say,

oh, here's my Tesla. Here's my Meta. Here's my whatever. And those will be tokens that are in your wallet. And you can choose to just simply use that wallet like you can today with anything else to log into a different service to do something with those assets. So you're not in that world. You're not trapped at FTX. You're not trapped at Schwab. You're not trapped at iBroker. So it's again, it seems obvious on the face of it. If you were designing this from first principles, now that we know that the tech works, but the regulatory issues are a bear, man. So obviously you said the ETF doesn't go anywhere, right? We can talk about tokenizing everything until we're blue in the face,

but these legacy structures are still going to exist. So do you see it as a potential eventual replacement, tokenizing everything and crypto decentralization, or do you see it as a parallel rail where certain people will choose to opt into that parallel rail, or obviously people in foreign countries who don't even have access to United States stocks or things like that will utilize it? Yeah, I think it's more the latter. I think to use the rails metaphor, which I think is actually useful here, the ETF track will exist in perpetuity until it gets regulated out of existence. So until something changes in the law, it serves a really fantastic function for most investors. It serves a function in the market itself as a tool. So that's not going to go anywhere. What you're going to see is the rails that are being built on DeFi will get more and more useful bridges to that part of the economy,

to what I call the security notional economy. So the more bridges we get between the crypto notional economy and the security notional economy, the more money will move over into the crypto notional economy because they'll be able to do things they used to be able to do on the security side. So it's just a matter of time more than anything. And then how good those bridges are. The very first bridge we have here, honestly, is this Bitcoin futures ETF. It's the first time we've directly connected the market structures in the US at least. If you look at what's happened in Toronto and in Europe, we know what the end game looks like when you keep connecting those bridges, those ecosystems develop more quickly, they develop in a more interesting

way. And I think there's more opportunity for investors that way. Right. So we'll be able to do this in a MetaMask wallet, as you said, which hopefully will be a much more advanced version of the MetaMask wallet that we currently have. Will you be doing this in your Schwab account? Yeah. Well, both, right? I think that that's the idea is to like, I personally, I mean, I'm a Schwab user. I've been a Schwab user since the 80s because I'm that old.

And I don't like the fact that so much of my money is sitting with one institution. Like that feels like a risk to me. And yeah, there's insurance and all that stuff. And I keep some paper records, but there's this group out in the cloud that is fundamentally owning all of my wealth on my behalf. Not that I have that much of it. Would I rather have a system that I felt I had more control over so that if I decide I wanted to trade out of a fund tomorrow, I could just choose to do that at iBroker as opposed to going through the painful seven-day process of how all that works, right? Of trying to actually move significant amounts of money and the friction that's involved there. So the idea of walleting, I think, makes a ton of sense. And I think it will be natural for certainly sort of Gen Xers on down.

I think over time, we'll get very comfortable with this idea that they wallet things that are of value to them and that those digital wallets are manageable and controllable. Right now, that infrastructure isn't there. I wouldn't put a ton of my wealth on the MetaMask wallet sitting on my desk because for all right, I'll get hit by lightning and I'll never recover it. I don't know. Yeah, too many question marks for sure. You talk about sort of walletization, right, of the world. And I definitely do think that that's where the trend is heading.

And for all of the negative things about central bank digital currencies, which we obviously know are coming, privacy violations, central bank monetary policy and control. Maybe the one good thing that comes out of all of that is forced adoption of the idea of a wallet by anyone in the countries that has a central bank digital currency, right? The United States has central bank digital currency. Everybody opens a wallet. They go, wow, this sucks. I have no privacy, but now I know how to use a wallet, which was a huge barrier to entry, which was a huge barrier to entry for me to ever buy Bitcoin or participate in DeFi. Maybe I'm an eternal optimist, but I think that at the end of the day, the Novi wallet, Facebook and central bank digital currencies and private currencies is all going to drive people towards wallets.

Yeah, absolutely. And then the question becomes, then what? How does that get managed? What does that ecosystem look like? Where I sometimes run up against some sort of crypto maximalists here is that's when trusted third parties become most important. Because if you actually want mass adoption, you cannot expect people to manage the trust of their own assets. That's why people buy house insurance. Can you buy a house without house insurance? Sure. As long as you want nobody else involved in the transaction, you can buy a house with a cashier's check and not insure it. None of the houses in the United States effectively are uninsured because that's not the way the system works. People want some level of trust

that this giant asset they own has some sort of a backstop. So I feel like wallets are going to be the same thing. As soon as people realize they have real value and that there's a real risk of loss if they screw it up, trusted third parties are going to be incredibly important. Who those trusted third parties are, to me, is the game. Is Facebook going to own that? Is Google going to own that? Is Amazon going to own that? Is it going to be basically some third party like LastPass that nobody really knows, but everybody decides they want to trust? Those are really the fundamental issues here. That's where I'm actually most concerned because I look at the likely winners in that, and they're either the federal government, which I'm not a big fan of that being the solution, or one of the FANG stocks,

like one of these giant companies that already has a social network. I don't want either one of those solutions. Yeah, that's true. But I think it's funny because I have zero trust in Facebook, but I might trust Facebook with my money more than I do. I think states fit. Certainly not with my information or with privacy, but I think that maybe they manage money better than the government. Yeah, I think what you might end up with is actually sort of, if you look at people's brand trust things, this is like marketing people score this and they pull people. It's going to end up being big, boring financial institutions,

which also gives me back to your Schwab wallet. It's back. It's Schwab. It's Vanguard. It's one of those guys. Right. And I've been sitting here for the last six or seven years, just waiting for the other shoe to drop for somebody like Google to merge with Schwab or Amazon to merge with Fidelity. These are incomprehensibly large things, except that we seem to be doing incomprehensible things every Tuesday these days. So at some point, somebody is going to bridge that gap. And it will be Fidelity, if I had to guess, just judging on how far ahead of the curve

they've always been. Well, they're private, so they can make some noise and then have to worry about shareholders. Talk about trusted third parties. And I think it's interesting because I think they all sort of get bundled together conceptually and people confuse the idea of a trusted third party that owns the wallet that secures your asset with the third party that we all hate

and want decentralization from, which is the toll collector in between, right? So maybe there's a place for a third party that secures our assets, insures our assets, but no place for the third party that's the toll collector between me sending you a money, ACH, Swift, obviously,

all these ridiculous banking processing payments. I have a hard time with that argument, honestly. Right now, you want to get in and out of Bitcoin exposure in the next 20 minutes. The cheapest, fastest way to do it would be to buy and sell Biddo. Almost guaranteed. We could go through the math on it, but if you've got an iBroker account right now, you can basically get in and out of Biddo with a basis point of slippage for the rest of the day. Now, you want to hold it for a month or two.

You want to deal with Contango. You'll have to deal with the management fee. But if you're day trading right now, it is much easier and faster and more efficient to day trade Biddo on a regulated U.S. brokerage platform, you're going to lose so much money in the process of trying to participate directly in crypto that you're just going to have to cede your authority to somebody, right? You're going to either have to trade on exchange with somebody and just let that money sit there and not actually own your coins. You're going to have to make some sort of compromise. I mean, but why not go market buy on Coinbase, immediately send your coins off exchange and call it a day. You can do that quickly. Guys, unless you've been living underneath a rock for the past few months, then you've definitely heard me talk about one of my favorite platforms, which is Kava. Kava

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Secure your future with Arculus. Yeah, but you look at the fees, right? What Coinbase Pro is, what, 50 bips right now? How many basis points are you paying on iBroker right now? Answer, none. You're paying the spread. That's it. And the spread on Biddo is a penny.

You literally cannot do any better at it. So that's the thing I think people miss. For all of the vaunted efficiency of the DeFi protocols, they're just not efficient right now. They're theoretically efficient. Right, right. I'll give you like, I can make the argument that you can go trade.

Like you said, I said on an decentralized exchange, but that's a defy is amazing, but go pay a gas fee. Yeah, no, exactly. Right. Like I just went to go register a dot ETH address and I was like, yeah, except that's $490 in gas fees. Yeah. And you know, that was, it's, it's interesting because when we saw the

NFT space really starting to bubble gas fees were still very low. Yeah. And you know, that was, it's, it's interesting because when we saw the NFT space really starting to bubble gas fees were still very low. Yeah. And what was so interesting to me about it originally, especially, you know, I listen, I was a musician, I was a music producer. I've put things out as like an artist, the ability of someone who basically has no way to monetize their art to go put out a NFT that they sell for $30 was amazing and compelling to me. Yeah.

And then gas fees went up and it cost them $300 to sell for $30 was amazing and compelling to me. And then gas fees went up and it cost them $300 to sell that $30 NFT and basically eliminated probably my favorite use case from the entire space was like the way that the little guy can monetize. You can't do that in DeFi. Well, you can do it on Solana, obviously, and others, but can't do it on Ethereum. Well, wait, wait three weeks, right? I mean, that's the other thing is I feel like we get caught up in this for good reason, right? There are guys like you who are out there at the face of the coal mine working in this space every single day. You guys are in it. For those of us who are a little bit more on the outside of it, thinking about like regulatory issues and lobbying,

I tend not to get too hung up on the fact that, gosh, it's $300 in gas fees to mint something on OpenSea. That seems like a, you know, a rareable. That seems like a ripoff because I know that I could like take a nap and go for a two week vacation and come back and somebody will have invented a way to solve that problem. And that's part of what's so exciting. Yeah. And I mean, and that's already the case. Like if you're, I think if you're deep enough down the rabbit hole, you find some layer two solution, you do it on a different protocol and. And nobody will have heard about it. And then eight weeks later, 25% of the volume will be there. And eight months later, it'll be the entire ecosystem until it gets disrupted by the next guy. And that's what's great. 11 months later, we see a rug pull and 13 months later, all the liquidity magically comes back from a hacker who's dressed as a pirate.

Right. I know it's unbelievable. That happens. No happens. No, no. Like we just had another DeFi scam like three days ago. Right. I mean, we are in the wild west and, and that is both exciting and terrifying. And I'm, my goal in this is just to make sure that this evolves in a way where we capture as much of the good stuff as possible before the heavy hand of regulation comes down and turns us all into criminals. Yeah. It's terrifying. So what I find so interesting about you, obviously, you touched on, you've been in this since the 1990s, right? The ETF space, obviously. But clearly, you're a crypto

guy, right? So what got you? Oh, come on. You're talking about your axes. Give me a break. Give me a break, right? Regardless of whether you consider yourself one or not, I have dubbed you one of us. One of us. So what got you into it? You know, obviously coming from a background in the legacy financial markets, as we call them. I don't even know if legacy is the appropriate term unless you're in crypto. But, you know, coming from these financial markets, doing it for decades. What was the appeal of crypto for you personally? So my, so I mean, I'm not

a hardcore finance guy. I was a creative writing major in college, right? So I've always sort of approached finance and investing primarily from a systems interrogation perspective. Like these are big complex systems. They connect in really interesting ways. For 30 years, I built a career pointing out the interesting places where stuff overlaps. And ETFs were one of the places where interesting stuff overlapped, the stock market and mutual funds. And, you know, that was a good 20-year run. But about, I want to say about a decade ago, one of my analysts, who's now a trader at Jane Street, a guy named Ugo Abunike, bought like a couple of Bitcoin, like for, you know, dollars. Very, very, very, very early. I had never heard of it at all. I told him

he was an idiot and he sent me the white paper and then I read it and then I started figuring it out. And so I'm one of these guys that just really loves getting my hands dirty on this stuff. I'll never be a programmer. I'll never be a trader again. I've tried that. I'll never be a fund manager, but I've tried my hand at these things because I don't feel you can learn what the future is going to do unless you've been in it. So blockchain, I sort of got up to speed on that when Bitcoin was rolling along and started thinking about some of the use cases. Honestly, when I first saw, I think it was, I saw my first primer on programming and solidity, which is the contract language for Ethereum, that that was my aha moment. I spent a lot of time in the 90s on standards committees, which is as boring as it sounds.

But I got to see a lot of what now we're looking at, all the various ERC protocols, like let's build this standard so that we have a non-fungible token. I've been in the room for a lot of those kinds of conversations. And I have this slightly odd belief that everything interesting happens because of those kinds of conversations. And I have this slightly odd belief that everything interesting happens because of those standards. And if you're not in the room understanding and participating and complaining and cajoling in the process of those standards evolving, then you don't really have a hand in the future at all. Because if you weren't there when that happened, you've got to live with the results. I feel like we're at this incredibly interesting position again, where we're doing exactly that. All this conversation about the metaverse to me is just a lot of big paintbrushes over the issue of standards. And I think we have this opportunity

to sort of rebuild a future that's going to live long past me, because we, again, are at this point of establishing what the standards are going to be just like we were 30 years ago. And the trust of third parties, which you mentioned before. Obviously, you're talking about the metaverse. Do you want to live in Mark Zuckerberg's metaverse or do you want to live in a decentralized metaverse? And what do those two look like and how do they intersect? Do you have thoughts on what the metaverse is going to look like? Oh, God. Yeah. How many hours do we have? So look, my version of what I think the metaverse is or should be is probably not different enough from Matthew Ball's to justify a lot of me flapping my gums about it. If people haven't read his stuff, just go read all that stuff to start there.

I think, you know, people get hung up on VR. I'm a huge VR fan. I'm a huge gamer. So I love all that stuff. I understand why people get hung up on that, because it's the flashy, sexy stuff. To me, the really interesting stuff is interoperability, like being able to take my wallet from point A to point B and have that wallet serve as both assets and identification and membership card and entitlements and legal entity. Like that's super interesting to me. And that's a huge part of what any version of

the metaverse is going to require. Even people like Mark Zuckerberg are at least talking the talk around interoperability and standards. Now, I don't believe a dang word out of that guy's mouth. So I'm very skeptical that that is a world that I will want to live in. But there's no question that that world is coming. And I don't like not knowing what's coming. I'm not one of these guys who's going to be seven years old and still listening to the golden oldies, right? I want to know what culture is doing. And to my mind, we saw it in the pandemic. This is where culture is going to go. Right. Yeah, that makes perfect sense. So you don't view the metaverse as one parallel universe

to our physical reality. You view it as these pockets and different games and different protocols, and you want to be able to take your wallet or passport with you from one to the other. Here's one. I literally just had this idea driving this morning. I was driving on the highway, and I was looking at the heads-up display in my car, which just shows the speed, right? So it's overlaying my speed on a piece of asphalt in front of me. It's

the simplest alternative reality, augmented reality thing you can possibly do. And it's probably the most endemic, probably more people have that than any other form of augmented reality, just that little heads up thing. So it's super easy to imagine a world where, okay, I've got a camera, it's identifying that the speed sign is going by. Why isn't it telling me who the manufacturer of that is? That's a knowable thing. I can find out who the mass department of whatever the transportation buys signs from. So shouldn't I be able to just simply look at that speed sign and look at it a little bit harder and have it tell me the company that produced it, what their profit margins are, whether or not they've got a warrant offering going next week, and whether that's in a place

that I can buy it. So the entire world is actually investable because that information is completely available. To me, that's what's interesting about the metaverse is actually bridging between this sort of digital nativism, which drove most of the pandemic and the very real need for physical real world stuff, right? I mean, I talked to a lot of kids who are in, you know, Gen Z and coming up because my kids are, you know, that twenties-ish age group. They don't want to live in the metaverse. They want the metaverse to be the place they get some shit done, pardon my French, or that they go have some fun with their friends. And then they want to go outside and go for a walk and go to a great Indian restaurant. Like this idea that somehow this generation does not want to be in the real world is just

completely fictitious. So it's Pokemon Go for everything, right? Yeah, exactly. Why should Niantic show them the world? You're aiming at something. The metaverse, I do actually like that reality better, right? Instead of being, you know, fat people with our sodas and WALL-E that can't walk and, you know, looking at our screens like in that movie, you know, the metaverse just becomes

a part of our actual reality where, you know, you point your phone at something and it tells you all that information you said. And there it is. Can I rant about one more thing? I can't tell whether you're trying to get me off the phone or not. I'm definitely not trying to get you off the phone. I'm having a great time, please. So I'll tell one little anecdotal story here.

I'm good friends with Dan Egan, who's the head of behavioral finance at Betterment. And he was over this weekend and he had not put on an Oculus helmet in like the last year or two. And so I was sort of explaining to him how the tech works. And, you know, we don't need little things to point at it anymore. You can just go stand anywhere in the house and it works. And he's like, oh, gosh, you know, I worry about bumping into stuff. And he just had not processed that when you put the helmet on, you define the part that's safe.

And the second you're not in the safe zone, you're in augmented reality. You're walking around your house with a helmet on, seeing the world through the cameras. And once he got that, a whole bunch of light bulbs went off. And I think there's an experiential component of this that can't be communicated without doing it, right? If you haven't put that helmet on and realized that, oh, I could walk around my entire house, but have my Bloomberg screens on both sides of me

everywhere in the house at all times. Now that could be terrifying or wonderful, depending on your perspective. Iron Man. I know some traders who have turned that into a very high powerful productivity tool. Yeah, Iron Man. You know, like you got your helmet,

you see everything that's going on, kind of a little minority report in there. But these people all saw the future. That's obviously what it's gonna look like. Yeah, it actually works. For me, I can't handle it. I get claustrophobic after a while, just the physical device, but I know like, it's just going to be in my glasses in two years. Yeah. Also there's that like, uh, information or

sensory overload aspect of it too. Human beings are notoriously poor for policing their own needs. Right. So like, when do you turn it off? Do you sleep with, uh, do you, do you sleep with ads running through your, in your brain and your helmet? Do you sleep with ads running through your brain in your helmet? You know, it's going to be very hard for a lot of people to turn off. Yeah, the irony is the traders that I know who have actually started working under helmet,

which is a non-zero number of them, their answer is actually the exact opposite. When they're under the helmet, the only thing they see is their Bloomberg screens. They don't see, they're not, they're not checking their email. It's more hyper-focused. Yeah. Right. So it offers hyper-focus. Exactly. Because it's, once you've done that, you basically have put yourself in a sensory deprivation tank. What you do with that is then up to you. Man, it's a crazy future to contemplate. I had Raul Paul, you know, and I was kind of joking like, oh, in 10, 20 years, like 10, 20 years.

It's like two years. I'm on my fourth generation VR headset. It's like we're fully metaverse in two years. Who are you kidding? You know, it's like, yeah, crazy. But then, you know, it's very hard to sort of have that exponential thinking and timeframe for people. Because 10 years ago, you would have said it would take 10 years to develop this. But what took 10 years 10 years ago takes a week now.

And I think, again, much like regulation takes forever to catch up, I actually think mass culture takes a really long time to catch up. I mean, I'm just looking over your shoulder, right? You've got an Ableton Push right there. there. Absolutely transforms the idea of music theory. I taught both my kids music on an Ableton push. Fundamental different level than anybody who learned how to play on a piano or guitar. I learned music on a guitar and then taught myself music theory using an Ableton push. You ask 99% of musicians if they've ever even seen one in the wild, and the answer is no. It is still such this rarefied device that exists only for a certain class

of either EDM or producer-type musician that is, in fact, a transformative way of thinking about sound. It's great. Everything in crypto is doing exactly the same thing, right? There are these tools, there's these pieces of the metaverse that those people who are using them, the reason they sound like absolute lunatics is because they have seen something you have not seen. It's so true. I'm like you. I grew up playing the piano. So I started playing the piano when I was five. So everything I always did, but then you turn on one of these things.

It's like, what scale do you want? Minor. But then you turn on one of these things. It's like, what scale do you want? Minor, major, you know, like harmonic, whatever. It's all just right there. It requires no knowledge of music. It just plays everything perfectly in key. Why not for every industry? So true.

But at the same time, I think it rewired your brain. Like I know it rewired mine on how it made me a better musician because it changed how I think about music. The metaverse is going to do it changed how I think about music. The metaverse is going to do that for how we think about information. And I think the DeFi is going to do that for how we think about money. Right. And when you merge the two, that's, I think that's really, you just made the core point, right? We sort of have this web to existence and these, and these separate universes, but when you bring in Web3 and everything the internet can do, it can do for value. That's the sort of final boss, right? Everything that you can do on the internet with

decentralized exchange of information, all of a sudden you can do transacting as a part of that process. Just think about the connection between Substack and Twitter, right? For a certain group of people out there who like to consume long form content, the day that I realized that I could just click on something in Substack and connect it to my Twitter and I never had to think about it again was like, and this is dumb. This is single sign on. The protocols for this were written in 95. Yet when approached with an implementation of single sign on that is truly seamless and allows us to keep our identity and trust where we want it, in this case, Twitter, God forbid, it's revelatory. You're like, oh my God, this is amazing. And all you've done is something that we decided we wanted to do 25 years ago. Now imagine being able to do that with all of these more exciting things we're

talking about. I use Review, another platform similar to Substack for Newsletter, and they were bought about six months ago by Twitter. And seeing the ways that they've integrated is absolutely incredible. And it really is life-changing for the person running the business. And you just apply these ideas, like you just said, to everything. And it'll melt your mind, I think. Yeah. Yeah. Well, I mean, just what you were doing right before we got online, you were doing a broadcast through Twitter's relatively new broadcast system, which is sort

of an add-on to their relatively new spaces system, all of which are just stealing or co-opting ideas from podcasts originally and Twitch now and what they're doing with broadcasts. And the more you connect these things, the more you make them fungible across platforms, the more value gets created. Absolutely. Before we finish, I want to just circle back to ETFs because we touched on one concept that I think is really important. We talked about, obviously, the approval of the futures ETF. You talked about why a physical ETF is unlikely to be approved.

And then you talked about how the velocity of the market will probably leave it in their tracks regardless. Does that mean that the futures ETF is somewhat the end of the line for quite a while here and we shouldn't really expect any more products? So we may get a couple more futures-based products and there'll be different ways to skin that, Kat. There'll be some people doing a contango killer version. And there's some room to go here. Obviously, pricing will come down. Leverage. Yeah. Yeah, exactly.

And, you know, I think we probably will get a mild leverage version eventually. We'll get an inverse version eventually, which would be a great tool for folks to have. Again, just raw risk management. I don't think we're going to see much more interesting than that. I don't think we're going to see an ETH futures product launched anytime real soon. I'd love to be wrong on that. I think we'd see an ETH futures product before a Bitcoin physical product. Oh, 100%. Absolutely 100%. Because then we know that at least the structure can be approved.

Yeah. The challenge with ETH is that I think there's a real difference between something that is fundamentally a utility token and a utility platform versus Bitcoin, which is a store of value platform, which looks much more like something that the SEC understands, right? It looks enough like gold that they can shorthand it in their head and say, oh, it's this limited quantity commodity. We know what to do with that. It's much trickier to try to convince somebody who's 68 years old in Washington what ETH is doing, right? And honestly, until I sat down and taught myself how to program a smart contract, I didn't get it either. So I think there is a real issue there. So because of that, I'm not super bullish on that. But yeah, I don't think that the spot product is really in the near

future at all. I think we'll be in a different administration before that happens. I tend to agree. So people don't realize, but I say to my guests at the beginning, listen, theoretically, we're talking about ETFs today, but I have no idea because I like to just have a conversation. And I have to say, I love where this conversation went. And I think it was super compelling and interesting. And that you have quite more depth than being just the director of research at ETF companies. Where can everybody follow you and find you after this conversation? Twitter's probably the easiest place, at Dave Nodig. I tend to live on Twitter. I'm one of those guys that uses that as my office, which I know is just so stereotypically Gen X, it's

nauseating, but that's where I am. Well, thank you once again. I would love to catch up on this conversation, but with our helmets on next time. Absolutely. Next time in the metaverse. Let's do it.