The Wolf Of All Streets - Gensler Steps Down! A New Era for Crypto Regulation? | Crypto Town Hall

Episode Date: November 22, 2024

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Welcome to Crypto Town Hall. It is Friday morning, 10.18 a.m. Eastern Standard Time. And we once again have a lot to talk about. Obviously, we have the title, Gensler Steps Down, A New Era for Crypto Regulation? I think it's fair to say the answer to that is yes. Many, many, many of us were waiting to finally see Gary Gensler suck it up and quit. I would have preferred to see him fired, whether that was logistically possible or not. But I will take the win that Gary Gensler will be gone on January 20th. I think it's absolutely hilarious that he posted this on X to make his announcement where likely nobody likes him and said he was quitting.

And then it said a thread. And I'm pretty sure that 99% of the people who saw his tweet did not bother to read his silly thread because all we wanted to know was that he will be gone. Obviously, this leaves some question and we knew that it was coming but who will be the next chair of the sec i don't think there's any question that that person will be far more bullish for the crypto industry we've seen the appointments that trump has made so far uh obviously also waiting on the treasury secretary which i think will be very very very pivotal in the way that things move forward. Hard to keep up with this news cycle, but we know now that Trump did actually have a meeting with Brian Armstrong, the CEO of Coinbase, which was theoretically going to happen. They did not sit down in person, but they did have a meeting on the phone. And the main topic was who will be

the head of the SEC and the CFTC. You have to give Trump a lot of credit for doing exactly what he said that he would do, which is interacting directly with the industry, asking leaders of the industry who he should appoint and looking to their advice. I think a lot of people feared that he wouldn't follow through, but right now he's definitely going to the industry and putting together a council of advisors and even potentially a crypto czar, someone, a actual cabinet position in the White House that would oversee all of these agencies and all of crypto policy, which I think is absolutely huge because even with pro crypto people potentially in these positions, you need somebody to make sure that these inefficient agencies are talking to one another. We have a cohesive policy, and I think it's much more likely that that is

going to happen, assuming they appoint someone. It was broken that one of the leading people for that position is Chris Giancarlo, crypto dad, you may remember. We all love him. He was the head of the CFTC and would likely be a perfect person for the job. So all things looking bullish for the crypto industry and the government as we see Bitcoin cross $99,000 before slightly retracing 1%, less than 1% actually from hitting $100,000, which many people thought was impossible. So much to unpack here. A lot of this being driven, obviously, by institutions and specifically by ETFs, seeing crazy, crazy inflows into the ETFs, but maybe more compelling, the launch of options trading on some of these ETFs this week. iBit first for BlackRock, of course, but then Bitwise, ARK, Grayscale,

getting it just a day later. We have Jeff here from Bitwise. I'm putting you on the spot. Tell us what's going on with the options, just how successful have they been? How are people using them? Just what's your view as to what's happened with this options launch this week

and how much that's affecting this push to 99,000? Yeah, what a time to be living this week with the advent of the options, which I had anticipated we might get early next year. And I am really just overwhelmingly surprised by how quickly the CFTC and OCC moved to even target pre-Thanksgiving. So as you said, it's been a really amazing week

to see these flows come to life. No doubt options, I think, played some role in the marginal demand. I think there's a lot of interesting things that I'm monitoring. The first is how is the vol surface of these ETF options compared to the derivate vol surface? And are there notable differences in the ways that crypto native participants are behaving differently than TradFi investors? The other thing that is interesting to keep watching is actually the volatility surface of the same essentially underlying Bitcoin ETF amongst the variant issuers. As you said, we've had BlackRock's

come on Tuesday. We've had ours come on Wednesday amongst our peers. And there's some notable differences as I'm observing in the kinds of flows, actually, even the bid offer that the designated market makers are participating across where the liquidity is being provisioned for. I think it's early days. Of course, we haven't even hit a week in firming up these markets. But I do think there's a lot of interesting things going on for those who are watching carefully. From a directional perspective, it's quite obvious that most of the open interest and demand from day one and continued is coming from calls relative to puts. It's something that I've been monitoring across Exprey from the near-dated all the way to the Jan 27 leaps. And it's actually even more pronounced

the further you go up the curve. I think on day one for iBid options, the put-call ratio was less than 0.1 on the Jan 27 contracts, which I think confirms one thing that I had believed would be the initial drivers of a trading activity. People want leverage. People want capital efficient ways to access Bitcoin today, at least more so than maybe seeking downside protection. And actually, there's a really good reason for this. One of my jobs at Bitwise is to talk to investors every single day to enthuse this mission. I talk to lots of advisors, endowments, family offices. And when they come to the conclusion of investing in Bitcoin, they ask, what's the right size? And generally, the conversation narrows to this 1% to 5% range.

But the reason they go for that number is because that's the number where if it goes to zero, it's not going to make a huge difference in their overall portfolio. Now, if it goes 10x, it actually does matter. And it will be a meaningful marginal contribution to the total return. And so, when you unwrap that thought process, essentially, they're underwriting a call option, right? That's exactly what an allocation that goes to zero or 10x could feel like. And so, if you told the same person, hey, you could buy Bitcoin at 3% of your portfolio, or you can get much more notional leverage and have the same premium outlay that you're potentially underwriting that

it will go to zero anyway, I mean, the math is pretty clear. There are people who are going to rather express it in a capital efficient way. And I continue to believe that is singularly where a lot of the most interests arise. I think in the future, we will definitely have people who want protection, who wants principal protected structured notes. They'll want buffered calls. They'll want to do more exotic things in the realm of wealth management product distribution. But the reality is that takes time. That market takes a long time to develop. And we've seen some filings come through this week.

We saw the 100% principal protected Bitcoin note, the 90% downside, 80% downside. So they're coming. And those things will create flows on the put side as well. But as I see for the time being, it's really sophisticated professional retail investors trying to maximize their capital usage to make directional bets on Bitcoin. And right now, the sentiment is higher. Yeah, I had James Stafert on my show. And then he was here.

He said basically that first day was like 88% options. So literally just people betting on a future higher price of Bitcoin. I think there was a lot of conversation about how these would be used for the cash and carry trade, obviously, you know, shorting futures, buying spot and taking advantage of the yield. But he pointed out that actually, as amazing as this launch is, the max allowed is 25,000 contracts, right? And for something this size and volume, you would normally see 200,000 contracts. So actually, institutions really can't do this in size enough to use those for those opportunities right now. I guess they could spread it out among five or six issuers and get 25 000 on each right but but so it this really is right now the way they're structured and have been launched if they don't change it is just better for making your directional bets yeah yeah i think actually based on the trading volume of ibit and and its AOM, it should have qualified for 400,000 contracts versus 25. Even the rough equivalence to CFTC CME futures equates to the open interest maxing out at about 280 futures contract, which is less than 10 times what's permitted on the CFTC. So

James is absolutely correct. You're absolutely correct. The lower bound is conservative. That being said, I also think this is the reason why we are going to see diversified volume across these multiple issuers. In a way, I think it is the chance for Bitwise to compete for some of these flows, despite relatively having smaller AUMs than iBit. But really, I think, and I'm a little surprised by the slowness of it, this is like a feast for market makers. And I think about like in the 70s when people would have said, hey, Black Scholes wasn't common knowledge, and those who knew about it were printing money.

Now, everyone knows about it. So it's not as easy to arbitrage and play vol. Literally, this moment right now feels like that for somebody who can look across bitb's wall surface ibid's ball surface grayscales arc b and just look at the implied vol spread and the moneyness which takes a little effort right because all these etfs have different denominators the strex won't perfectly align to the exact moneyness uh because they're unit based rather than percentage-based. But there are ways I think people have started to quantitatively finesse these things.

And some of the things I'm seeing, like the surfaces are not the same. You're right. There's not a volume here maybe for institutions to really arbitrage it away. But for that reason, I also think it's a great time for retail to participate before the institutions come and take this market. Carlo? Good morning, Scott. I got to give you props for being the instigator of the fire, Gary Gensler hashtag. I think it's definitely a day where we have to recognize that you were a pretty big driving force behind this movement. But I want to talk about, if I could pivot to Gensler and the reverse Gensler effect that we're just starting to see right now. I think that we're only just beginning to understand the impact that Gensler's anti-crypto agenda had on stifling growth among all digital asset classes. And it doesn't,

it doesn't escape me that we had Bitcoin break all time high and nearly touch 100,000. Solana hit and break its all time high yesterday on the same day that he announced that he's going to resign. And I think as this and the ramifications and the reverberations of this continue to push on through the sector, this is something we're going to be studying. We're going to be studying the before and after Gensler effect. And we're going to see definitively that this kind of regulatory overreach simply cannot exist and thrive in a free market society. And when we see the exponential growth of this sector, we're going to look back and understand that it always had the potential to do this, but for what was going on at the SEC. And I

think that's something we'll be studying and talking about for a long time. Dave. Sorry, I had to grab the phone. Two things. First, you know, I don't think we're underestimating the growth effect, Carlos. I mean, certainly not in my company. I've had a front row seat towards being pushing towards Dubai as opposed to the United States. I think it's also extremely relevant with the option conversation because the fact is perpetual swaps are dramatically better for retail investors that are looking to get leverage than options are. The bid-offer spreads are way lighter.

Most individual investors do not understand volatility and don't know how much money they're pissing away to options market makers. And this is just a simple reality that one of the reasons the options market on Darabit has never really taken off to the extent that it has in the United States, is because perpetual swaps are a better way, cheaper way to get the same kind of leverage, in fact, too much, arguably. I mean, it's something I talk about all the time. But to get that same sort of leverage

with dramatically lower bid-offer spreads and you're not paying for volatility that you don't really understand. In the U.S., in equity markets and the other markets, that is going to be a huge hot potato. Why? Because options market makers make an absolute fortune. Look, I was at Citigroup when we bought Arbitrade to become Citigroup options market making. And I know how much options market makers made every time there's a big incident of volatility. We've had some unbelievable years. But the reason that options market makers pay for order flow via the exchanges, it's not hidden, it's all public, is because retail order flow is so juicy to make money on. And that is

threatened if we ever get perpetual swaps or perpetual futures in the United States, which I suspect this administration is going to have. So there's a lot going on, a lot of moving parts with that. The other point I wanted to point out is to Jeff said, I mean, I love listening to Jeff because everything he said, I agree with what everyone needs to understand. However, most of the people who are buying calls don't understand what put call parity is. And we could get into details. I think it's probably worth the spaces or even Scott, a direct interview to talk about what's going on in the options market. But there are many, many uses for options that go beyond pure leverage. And right

now, those because of the restrictions that you've mentioned are more or less the small hedge funds and individuals only. But it will and it is being done by institutions, but they're using OTC options to do it. And so you have a little bit of slippage cost in doing so, but you have Josh Lim on your show often. Josh could talk about this chapter and verse. There is a fairly substantive institutional market using options for building principal protected products and all things like that. And it's worth the conversation, but it's so far down the rabbit hole. I don't want to do it now, but I just wanted to point it out. Jeff, anything there you need to unpack? I knew you were going to raise your hand. Yeah, I was going to do it. There's a lot

that I would agree here and also maybe share a few points of counter. I agree that retail generally don't always have the financial sophistication to understand options trading. I do agree with this. Implied volatility does take a little more conceptual learning than trading leverage Delta one on a purpose basis. No doubt. That being said, the question of whether one is safer or more dangerous to the retail audience is one for debate, right? I mean, you may make the claim that the bid offers are why and they certainly are today. Because again, I think the market makers need to find ways to build their inventory and ways to know where the axes are going to be to underwrite certain pins. And that'll take time. But I think overall, the thing that I am not so confident on this is that perps are ultimately leverage that is non-deterministic in the way liquidation will be thrust upon you.

You can't be in control of your own destiny by trading that kind of leverage. Even if you look at today, MicroStrategy, right? And you look at the 2X levered ETF, the MSTX, right? You will see today is one of the days that this broke, right? It's, I don't know if you guys are in front of your screen, but MicroStrategy is up more than the 2x levered MicroStrategy ETF. That is the kind of things that I don't think even retail understand when they're trading these types of levered products that claim they're offering perpetual leverage.

So I'm not saying that 2x levered MSTX ETF is the same thing as trading perps, but I do think it's a complicated discussion. It's a nuanced discussion. But the thing about options that I genuinely believe in is if you know how to make long, smart bets on it, the way that gives you leverage where you have more control of your destiny is an incredibly powerful thing. If you trade, for instance, the very long dated iBit call option, I think I was looking at some that had the most amount of open interest. There's a bunch trading for Jan 26, the 100 call, that's obviously 100% out of the money. You would think that option has no delta

because it's so out of the money, but it's not true. It has 50 delta because vol is so high for Bitcoin. And you can trade this 100 call strike option with 50 delta for the next two years where I would guarantee the decay on this is not going to be nearly as fast as the way that perps are going to cut against you because it's still a two year option. So all I'm saying is yes, there is some learning. But I think retail will get smarter. That's part of what I'm hoping I can do to bring more knowledge to the space and help

people make better decisions. And in the long term, I think options will give investors the chance to control their path dependent outcomes in the ways they can structure that that purpose simply cannot. It will that just gives you leverage day one in ways that you can't control your own destiny. That's it. I just want to add a little color to my own thoughts there. Yeah, we don't disagree, Jeff. I just want to point out, I did not say better. I said cheaper if you're only looking for pure beta. If you're looking for pure delta, people interchangeably

use beta and delta. That's a mistake because beta is related to the correlation of unrelated assets. Delta is literally the same asset. And your point, you actually made my point for me by with that example of the 50 delta, what you didn't say is as the price moves, that delta could go from 50 to 100 as it goes higher, or from 50 down to 25 as it goes lower. And tracking that is hard for individual retail. But my point isn't that there's no value in options, God forbid that I think there's huge value in the options market. Huge. And I think that you're providing the market a service by what you're doing. Please don't. I just want to make sure you understand that. What I'm saying is for those traders who are literally looking to just get leverage to go long,

it's more expensive and buy a lot. And that's why we've seen the markets devaluate. But Scott, I do think this would be an interesting topic for a more in-depth conversation. For sure. Yeah. Tom, go ahead. Sorry, I'm trying to find the off mute button. Just one minor point here is Jeff mentioned this is primarily retail traders today, which makes sense given the size involved. And retail actually is having trouble participating still. They're still constrained. So I have a

Merrill account. I can't even trade iBit. Nonetheless, iBit options. Same thing with Vanguard account holders and I think a few other majors. So basically like three or four out of the top 10, you can't even trade the ETF. So you can't even think about options yet. So we still have more retail to come in once these things are unlocked. I mean, I think Charles Schwab, CEO, said the other day that he was an idiot for not buying Bitcoin in their products.

I think he said, I feel silly. I feel silly, I think was the quote. Yeah, I guess I editorialized a bit there. So there's going to be more coming online like them in the future. I think he also alluded to the fact that they will be purchasing SpotBitcoin. I don't know if it was him specifically or talking about Schwab, but it was a very interesting comment to say the least. But your point is well taken that a lot of wirehouses haven't even approved these. And I think, Jeff, I think I spoke with Matt Hogan last week, and he said,

if you had to put a number on it, probably 50% of retail still doesn't even have access to the actual ETFs themselves, much less options. Does that sound about right to you? I think that's fair. I think it is incredibly paternalistic and ridiculous that retail can trade these 2x levered microstrategy ETFs, and yet we cannot trade the underlying spot commodity. I find that amazing that in this world that this is being permitted. I mean, again, today, MSTX broke, and no one's going to probably cover it to the extent that there's such unfairness in not allowing Bitcoin ETF options to thrive versus a product like that. So fighting the good fight here is all that we can.

Yeah, exactly. You mentioned microstrategy here, obviously. So the move has been absolutely astounding. We've talked about it here very regularly. But, you know, it only broke 400 this week before a day or two later breaking 500. It only broke 300 a week ago on Monday, and it was already at 400 eight days after that. This has been a meteoric rise. But if you look at the chart yesterday, obviously, it, you know, popped all the way up to about $544, ended up closing sub 400. So quite a move, 15%, 16% up and down yesterday. But what was notable, obviously, was that there was massive volume.

In general, it had been over the last few days, the highest volume and traded stock on Wall Street period on the exchange. But yesterday was massive volume and a big dump, which many, I think, would view technically as a potential blow off top, or at least a top signal for now. I mean, Jeff, looking at it, but anyone else like watching MicroStrategy here, do you think this is a time for caution potentially? I'd love to comment on this a little bit. And also, I see in the audience grain of salt, and I don't know how easy it is. Scott, to maybe permission on the spot. He's already on stage.

Go. Oh, perfect. You know what? I will let Grain take over because he has been looking at this with me. And he is also focused on so many things here that is worth bringing attention to. I've had it, Grain. Hey, folks. Good morning.

How are you folks doing? So it's 742. I'm in San Francisco. So I deployed a shade under about 376,000 on the 1080 strikes for February and March. I bought a shade under 12 million of the 990 strikes yesterday on MicroStrategy. Pretty bullish. I'm not worried about the bid-ask spread. I can't get long enough. So while that might be interesting that there's a bid-ask spread that may be out of whack, if you truly believe in conviction, what MicroStrategy is doing and what Michael

Saylor is doing, not really worried about half a point or like pennies. This was the same argument that happened in 2017 on GBTC. They're charging a 2% fee. I made 11X from May into December in my total account. I didn't care about the 2%, even if it's one 10th now and it's 20 bips. So worrying about a fee and something that goes up 30, 40, 50, 60% per day in a position, I'm not worried about pennies. So, you know, if somebody, but you're worried about the two to three X on Bitcoin though, the premium essentially that you're paying for the actual holdings that MicroStrategy has in Bitcoin?

Absolutely not. That means that you have not watched his videos and understand what's going on. Absolutely not. But so you're betting effectively that this stock's still 2, 2.5x in the next 2 to 3 months? I'm betting that it goes way up from here. I bet that it gets triple Q inclusion because the rank day is next Friday. And so what happens is he'll probably make some form of announcement that he's done anywhere from six to eight ATM. He'll do the converts over the weekend. Once Bitcoin hits 100,000, we all know that's a six digit number.

I think that it runs maybe another 20% very quickly. And I think we're off to the races. Guys, it's a six-digit number. What do you think CNBC is going to do with $100,000 Bitcoin? It's going to be on nonstop. We're coming into Thanksgiving. So this is for Americans. They're going to talk about some dude wearing a white helmet that's got a $50 million exposure in straight options on MicroStrategy. I've gone from 3,000 followers

to almost 11,000 followers in two months, but I've been on Twitter now for, I don't know, 12 years, whatever my profile says. So I'm bullish. I don't know what you guys, I hope, hopefully you guys are bullish. Are you? The thing that I think Grain is bringing attention to that all of us would intuit and know is that micro strategy is a technical market today. There's no way to appreciate the dynamics outside of that lens for the time being. And there's a lot of ways to appreciate the long-term vision of Saylor's execution, but no doubt it's a technical market, right? As Grain said, the NASDAQ inclusion is a big catalyst. Indexing is a technical liquidity transformation mechanism, right? The other thing

was yesterday, the converts were coming to market and pricing. Today, I believe it settles. That's essentially hedging activities that is entering at a size that is somewhat unbelievable, if you ask me, for a convert market. This convert at zero coupon priced the delta as I backed it out at 90. Basically, it's not a credit note, it's stock. And to have converts like that come to the market is a technical event. The other thing that I will mention is it's not getting as much attention, but I believe it's really important. And maybe this goes back to the value of options for leverage.

MSTX part of, I think why it's breaking today is because the margin changed overnight. So because it's volatility, the banks do have some flexibility and the kinds of margins they ask their customers to front. And it increased quite meaningfully. So again, this goes back to the question of like, are you in control of your destiny when you trade these lever products, where these exogenous variables change against you, and that creates problems. I think that also was a determinant yesterday for some of the things that was

happening with these 2x lever products. I would argue perps have a similar issue, which is these are not termed financing. Perps reset almost every eight hours for most contracts. And depending on what the market gives you, I mean, who knows how you're able to hold on to your position, right? But here's the beautiful thing about options. You pay the premium outlay and that is it. No one can F around with that in a way that's going to create problems for you because you're long an option for which you paid the premium. There's no unencumbered margining on that engine. So I think about that as another missing piece in the dialogue of why there's safety in the comfort of being able to take leverage in that particular way that is manifesting itself right now in some of these trading dynamics around micro strategy. Yeah. So I'll speak from my experience.

What my bigger concern is, I'm not worried about something less than 1%. I'm worried about the total percentage gain on my portfolio. I'm sorry to interrupt, but than 1%. I'm worried about the total percentage gain on my portfolio. I'm sorry to interrupt, but we got to remember that we have 5,000 people here, probably 99% who are not deeply into the options market. So we, I think, keep it more directional than the- I'll leave out the options.

That's fine. And I've been listening to you folks for a long time. I'll leave out the options. My bigger concern is it's not a 1% on a trade or the cost to actually do that. And people tend to talk about that. When you make a large gain, what a bigger drag is, is that if you don't have long-term capital gains, that your taxes on something will be bigger than 20%, 25%. So if I have a gain on something and I make, let's say make more than a hundred thousand dollars a year, that my taxes are 25%. That is a bigger drag on the overall return on a portfolio than worrying about what the price is on the trade. I think the focus should be on what's your rate of return on your trade

or your investment in your total portfolio. Yeah, it's a valid question. I think the gist for everyone is that options being available on Bitcoin is massively bullish and that generally people hear even more massively bullish on MicroStrategy as the leverage play on the upside price of Bitcoin. Right, right. But let's just leave out the options and MicroStrategy. Just in general, I think that when people talk about something like a Sharpe ratio and they say, how efficient is something of a trade? What I've said back to them is what I care about is what is my total return on an investment in one year? And one year is really important because once you go over a year, if you're an American, there's 5,000 people on the call, you want to get long-term

capital gains, and that could drop your taxable rate from over 20%. It's over 20% to 20%. And that's the bigger, that's the more important thing to be concerned about, in my view. Agreed. I want to go back to Gensler, obviously, stepping down, which I think leads to a wider conversation about everything happening with the Trump administration, the appointments that we're seeing, the gaps that are still to be filled, I think are majorly impactful for the crypto industry. But regardless, who gets

them are a huge upgrade. Matt, you're sort of watching all this. I know in real time, you guys have your head down. These products are successful. It's not going to impact you so massively. But still, I think it's almost like we're in a fever dream here with pro Bitcoin and crypto people being largely appointed to every single cabinet position, even ones that have nothing to do with finance. It is a little wild. I like the fever dream description. And while it's important who gets these last few posts, I really think we're now toggling

at the edges. It's 98, it's 99, it's 100. It may be important from a short-term trading perspective, but from a long-term perspective, the administration is so pro-crypto and Congress is so pro-crypto that I think, you know, the long-term trend is in. So we're watching those appointments, but more we're working on the product side to innovate and going out and talking, you know, with increasingly large sort of institutional clients about why it's finally time to get off zero. So, yeah, we're definitely watching.

It definitely matters from a short-term perspective. It'll influence whether we peak our head above 100 or not. But we're fiddling at the edges now. Like the 99% of the news is in. It's obviously, though, impacting what kind of products you're going to consider offering and the odds of those getting approved, right? So, I mean, I think there were a lot of people throwing things at the wall, hopefully. But now I think that there's a very good chance things like the Solana ETF that you just applied for. Didn't you guys have Aptos, ETP in Europe?

You guys are doing a lot, right? And you're going to be able to get much more creative, I would imagine, with products. And I saw Ryan from Bitwise, obviously, one of your team members, tweeting yesterday about this sort of increased interest in Ethereum and the conversations he's having on that side. Yeah, that's absolutely right. I mean, you and I discussed this previously. in Ethereum and the conversations he's having on that side. Yeah, that's absolutely right. I mean, you and I discussed this previously. We've sort of entered the golden era of crypto ETPs.

And you're going to see issuers like Bitwise and others apply for them across the board, I believe, as market legislation comes out. I also think you're going to see people trying to innovate on existing ETPs. There are definitely going to be conversations around staking. There are definitely going to be conversations around in-kind creations and redemptions. People are probably underestimating the scale of effort that companies will put into developing new ETPs. I think it's going to be a little wild. What do you think will be directionally or just generally the winners i mean we know that the bitcoin spot etf will win i think we both agree that the ethereum spot etf will eventually be very successful especially if staking comes which is happening in etps in europe i saw 21 shares

but do you think it's going to be individual asset etfs i mean mean, see, we saw an HBAR ETF filed for cool, but like, you know, how much interest has there been in trading spot HBAR that it needs an ETF? I don't know. Maybe that changes or is it going to be these indexed product products, you know, a metaverse ETF or a top 10 ETF? Because we know that's how people really invest. Yeah, that I think you're exactly right on that latter point. If you think the marginal net buyer over the next 12 months is either an institution, or someone who's crypto curious and not crypto expert, there's no way they're going down the chain picking out one asset from you know, the 20th largest asset in crypto to add

to their portfolio, they're going to want to make, you know, index 20th largest asset in crypto to add to their portfolio, they're going to want to make, you know, index based bets or theme based bets. I tell people this all the time, it's a little bit talking our book, we run the largest crypto index fund in the world, it's about a billion and a half dollars. That's ridiculous in a industry that's three plus trillion dollars, right? So I think the, the index and theme space is going to be significant. I would look at broad based indexes, you know, I would expect, you know, things like the Coinbase 50 that people are talking about. And then thematic indexes, I think would be a big deal right now, if I could buy a index basket of sort of Gen 3 highly performant blockchains from Sol to Sui to, you know,

Aptos and on down, I think that would be a very popular product right now. So you're going to see all that kind of innovation. Yeah, that would be a very popular. I would buy that in a second, personally, because it's just easier than going out and choosing them all and let the professionals balance it for you and get it in one product. I think that those would be absolutely incredible. Yep. That's going to keep, uh, keep me busy. Uh, so, you know,

don't tell any of my competitors. Uh, if any of the competitors are listening, these are trade secrets. And we did not say this publicly. Yeah. I was going to say, I'm obviously not on the financial product side. I'm on the building side. But over the last couple weeks, and especially I was at an event earlier this week with a bunch of folks from across the spectrum, the index products and yield-bearing products are where I heard all of the discussion and interest from people.

Because I think there's obviously, when the, like when the ETH ETFs came out, they couldn't be yield bearing in the US. There are some yield bearing products and like hybrid products out in other countries and jurisdictions. And so what I was really hearing was a lot of excitement, both from like the folks building products, building financial products, but also folks who want to buy them on. Yeah, I think it'll be all indexes and all stuff of how do we bring yield into both like the big ETH and Bitcoin type ETPs and things that are already out there. Since, you know, who doesn't love nice dividend flows as something super accessible and understandable to like the fixed income market. But is this one of those situations now where there's an expectation because we're getting a new administration and new regulators that we will be able to do things like staking inside ETFs? I think we have this sort of sentiment that everything we want to do, we're going to be

able to do. Maybe, Ron, this is a question for for you you're here and you understand the political landscape but we still need laws right i mean we can't just all of a sudden say i can that coinbase can list every single coin that exists because as of right now we don't have clarity still as to what those are right we can assume that trump or his administration or whoever is in power won't go after us but can't be sure right ron yeah no 100 and you're right that i think a lot of the stuff at least when it comes to the token clarity we'll probably see most that come from the sec uh that's gonna take some time uh and then congress is gonna take just as long uh if not maybe like a year and a half or a year to year and a half for a for fit 21 or a market structure kind of like bill just because what Congress has in front of it is

a whole slate of other issues to try and get to- but some will touch crypto like tax like we're gonna have a huge tax fight in about six eight months. And a lot of crypto provisions there that we're working on- getting included

there so- it by no means like on the token clarity stuff. You know it's kind of a. Great area at this point but- you know we've been having talks the SEC- post-election as well as obviously the administration coming in. And it seems like we're seeing a lot of potential rulemaking from the

SEC or requests for information, but they're going to hit the ground running. So I think just get ready for that. So I think, I would say, I think part of the reason I was hearing the excitement on the yield side too is because that is products we've seen in other jurisdictions already and if i recall and run correct me if i'm wrong here that was purely an sec decision of them not wanting to allow any yield on the etps not um not a legal not a not a like congressional one. Correct. Matt, do you have your hand up?

Yeah, I was just going to say, I think it's important to remember that it's not going to be a free-for-all, right? If the playbook in all season is to keep going down and down the spectrum to the smaller and smaller coin, there will be a bright line. Even in the most open, optimistic scenario, there will be a line between what's allowed and what's not allowed. I think people could do well to read the FIT 21 bill,

which talked about where that line led. There are going to be assets that are on the wrong side of the regulatory line wherever it's drawn. It's not just going to be completely wide open. So we'll do a lot more, but we're not going to do everything, you know, from one to a thousand. I don't think that will be allowed. I mean, FIT21 kind of reminded me of MECA, right, in Europe, where people said, I'm really glad we're getting some sort of regulation. It's great that we have clarity, but not all of it's that great.

Is that accurate? I mean, FIT21, people were excited that we were seeing a bill passed, but most of it is not crafted that well for the industry. Yeah, that's right. Or at least for some parts of the industry, like any piece of regulation, there are elements of regulatory capture in FIT21, right? There's like a 20% internal ownership line and there are differences between individual ownership and treasury ownership, and there'll be lots of gamesmanship around there i do think it's better than nothing and i suspect we'll get a more liberal eventual bill but again it's not

a free-for-all i think if people interpret it as a free-for-all they'll be uh they'll be sad in six months time when they realize they're still they're still a bright line at some point in the spectrum. Yeah, I actually am somewhat worried for, I mean, I'm all for financial inclusion and I think it's great. We get naive diversification in buying these index products, like the Coinbase 50 index is really cool. But the issue is, and we see this in traditional finance, is passive products don't lead to discretion and actually the underlying purchases of these assets. So we already see this problem today with these huge layer ones that have no utility, that have ridiculous treasuries that incentivize projects to build on them just by grants. You know, Phantom, I would even put Aptos and Sui in that, XRP, others. And you have these new ETFs that are

going to have diversification allocations to each one of these. So there's in the Coinbase 50 is 3% XRP, 2% Cardano. I think these are just going to give longer and longer runways to these projects that I think have really minimal utility in the ecosystem and just become a bit of a challenge for us as an industry. And I think that's something we really have to watch out for. So what does that mean? It means we need more discretion and we need folks who are calling these things out. And we can't just have these zombie assets that live around forever and really fracture mindshare or fracture investor attention when they really aren't developing underlying projects that could be really successful. And we're seeing that in the pre-seed stage. Hey, folks, can I chime in on this for a second? Look, I realize that we're

talking a lot about these bills, disclosures, what's going on with these things. But I remember SBF talking in front of Congress and went through something as a very respected person less than four years ago. And the guy's now doing 20 years in jail. So I think with talking about these disclosures and so forth, I think a very, very small percentage of retail actually reads these documents, much less understands them. In my situation, when I talk to investment professionals, they barely understand just Bitcoin in general. And so I think that I love talking about this on this space. But I think with 5000 people, I think that a lot of them or maybe just

run a survey, you could ask that question, how many people actually read these actual documents and even understand them? If I come across regular people for the past seven years that don't even understand Bitcoin. And even if somebody does talk about it from a position of running an exchange, he ends up in jail that, that actually shows that he was following, trying to follow these rules,

which didn't make sense because he's in the Bahamas. So I think that you're saying that your, your argument is that SPF was trying to follow the rules and ended up in jail. No, what I'm arguing is that he was a respected person four years ago, presented in Congress, was offshore in the Bahamas, and he was given a free pass when he did that. But then it ended horribly. So I get that we're talking about this right now. But do the actual retail traders read this and understand this? If even sophisticated people did not understand what FTX was doing? Yeah, they understood that they were getting

huge donations from him and that he could go talk to them because he was giving them tens of millions of dollars. I think it's a wildly different situation personally. Ron, go ahead. I mean, yeah, as someone whose entire job is to be on the lobbying side here, I've been doing it for five years. We were lobbying towards the end when SVF was trying to get regulatory capture for just centralized exchanges at the expense of screwing over DeFi. It ended up being like a Coinbase, Blockchain Association, Ripple, and all these other folks against FTX. But that dynamic, I will stress, that is going to be what a lot of the lobbying battles are going to be. And that's what eventually and likely will delay things like FIT 21, with a lot of infighting between, to Matt's point, some areas get a lot better or more favorable regulation under some of these bills. And in some cases, some of the sectors get either screwed over or it's more difficult to say

where they exactly land. And we have to also remember that TradFi, and I've been having numerous meetings with TradFi folks even more before the election, but it has ramped up significantly. I'm just more curious about what's going to happen on the regulatory and legislative front. So we're going to have a lot more new players in D.C. who are going to try to use this time to get regulatory capture.

And our job is going to make sure, hey, we've got to make sure it hey, we got to make sure it's a benefit of the whole ecosystem. But like, let's get this legislation moving and regulation moving, because this could be the most sweet spot for two years.

And after that, it could really, you know, be a split Congress and things grind to a halt. So we're in a really pivotal time. But I'm telling you right now, I've already seen a little bit behind the scenes of a couple of companies,

but it's going to be a lot of infighting within the industry. And we remember to be more about the whole ecosystem. It's not a unified lobby. I've already seen a little bit behind the scenes with a couple of companies, but it's gonna be a lot of infighting within the industry. And we had remembered to be more about the whole ecosystem. It's not a unified lobby. Certainly not a unified lobby. As a trade association, yeah, I'm telling you, there's a lot of people to manage

and the tent's gotten really big. So it's gonna be exciting, but interesting. Dave. Yeah, a couple of things. I mean, first, you know to the notion of what retail investors look at, I mean, that is true. of a law firm that thinks that the current way IPOs work, as expensive as they are with all the disclosures that are based upon a paper system, literal based on a paper system, makes sense. I think anyone who's followed Ryan Selkis before and after for years has been talking about Edgar and how you need to do a better job. I mean, we have examples in every other industry where the

internet has revolutionized disclosures and made it accessible to people. And we've not done that for investments in any form. So there's clearly scope for human readable, human understandable, standardized disclosures that make sense that people would read, as well as potentially review sites and other sorts of it'll spawn whole other businesses when this is opened up and make the investing landscape make more sense. So you already see this, by the way, in various places, whether it's nerds or others that evaluate other financial products online for people using public information, but distilling it. And I think that is a meaningful trend that the next SEC chair will probably push forward because it's one of the things you can do to normalize it with crypto. But push that to the side. The most important thing that Ron is saying,

and he's absolutely right, is because I've been involved in this, I've sat on so many industry committees in the traditional world, and it always devolves into incredibly detailed things. And what really needs to happen here is get the base policy right. Things like, you call it a sandbox, call it whatever you want to call it. I think it's a safe harbor to allow projects to move forward within defined guidelines, to clarify what a crypto exchange is and what their legal status is, so that you're not constantly worrying about it. All those things are within reach. If someone like Cristian Carlo becomes a CRISPR czar, it becomes within reach.

If it's a more technical person or a legal person, you're going to end up bogged down into the details. And so a large part of what's going on now is and why the market is finally starting to pick up, but still so bifurcated. Scott, you mentioned on your show this morning how Bitcoin's market cap of $3 trillion, you would expect to look down and see altcoins, at least some of them, really flying. And outside of Solana, we really haven't seen that. And so a large part of that has to do with the uncertainty of whether or not this is going to focus on the big boys or whether or not there's going to be a broad-based approach to innovation. And I think once you get those

people in the seats, that's when you're going to see a rally. Guys, I love this conversation, and I would love to keep it going, but I have a very important Thanksgiving show to go to at my kids' preschool. And since I'm the only host, that means that space has to end for the day, unfortunately. So I'm going to head out. I hope all of you have a great weekend. We will be back, obviously, Monday, 10, 15 a.m. Eastern Standard Time. Have a good one, everybody. See you on Monday. Bye.