The Wolf Of All Streets - The Race for a Bitcoin ETF with Steven McClurg, Co-Founder of Valkyrie Investments

Episode Date: January 26, 2021

Steven McClurg is leading the race towards mainstream adoption of Bitcoin and the acceptance of an ETF. According to Steven, once an ETF is approved, institutional players will finally have a chance to put their reserves, investments, cash, and balance sheets into Bitcoin. This episode contains everything you need to know about the race for an ETF and institutional adoption. Scott Melker and Steven McClurg further discuss esoteric money management, emerging markets, structured credits, close-knit mutual funds, asset-backed securities, Tesla as a proxy to oil trading, the GBTC premium, family offices, endowments, insurance companies, and pensions exploring Bitcoin, the degradation of the dollar, 500k Bitcoin and more. ––– MONEY ON CHAIN Money On Chain brings Bitcoin to mass adoption with solutions to meet the needs of different types of users: a fully bitcoin-collateralized stablecoin (DoC), a bitcoin on steroids (BPro), and a dizzying bitcoiner option for lovers of leveraged trading (BTCx). All this, without requiring the delivery of private keys. Money On Chain - Bringing bitcoin into the mainstream. Visit moneyonchain.com/wolf to learn more --- VOYAGER This episode is brought to you by Voyager, your new favorite crypto broker. Trade crypto fast and commission-free the easy way. Earn up to 9.5% interest on top coins with no lockups and no limits. Download the Voyager app and use code “SCOTT25” to get $25 in free Bitcoin when you create your account. --- 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

What is up, everybody? I'm Scott Melker, and this is the Wolf of All Streets podcast. Today's guest is the CIO and co-founder of Valkyrie Investments. One of the most talked about subjects in the crypto space is the possibility of a Bitcoin ETF. As of now, an ETF has yet to be approved, but that hasn't stopped numerous organizations and firms from submitting their own proposals. In the race to be the first to get it done right, Valkyrie is a major contender. I can't wait to learn more about what an ETF would mean for the crypto market and overall institutional involvement. And there's nobody better to answer this question than Stephen McLaren. Stephen, thanks so much for coming on the show. Hey, Scott, thanks for having me.

So once again, you're listening to the Wolf of Wall Street's podcast where twice a week, I talk to your favorite personalities from the worlds of Bitcoin, finance, trading, art, music, sports, and politics. This show is powered by Blockworks Group, a media company with over 20 podcasts in their network. You can check them out at blockworksgroup.io. And if you like the podcast, follow me on Twitter and check out my website, join my newsletter. You can do both of those things at thewolfofallstreets.io. This episode is sponsored by Voyager and Sovereign. Stay tuned for more information on both later in the episode. So as I touched on in the introduction, obviously, the ETF has become the holy grail of crypto. Why is an ETF so important

at the most basic level? Yeah, an ETF really, what it does is get more institutional involvement in the asset of Bitcoin. So there's a lot of restrictions on many institutions on what they can and can't own, whether it's a pension fund, a insurance company, or even hedge funds that service many institutional clients. Most of them have to have a qualified custodian that's holding its assets and a structure that they're both familiar with and can invest in from a regulatory perspective. So basically, it's a gateway to big money. That's exactly right. Gateway to big money. That's the way to put it. All right. So we all know why it's important. Why haven't we seen one yet? Obviously, we've seen ETFs for everything except

for crypto, right? Exactly. Well, maybe what I'll do, if you don't mind, Scott, is kind of rewind back in time. And this is more of my timeline. And when I was building and launching and managing ETFs in my previous life in financial services, I was involved in a firm that did very esoteric type of money management. I was managing, you know, emerging markets, structured credits, you know, different types of securities that not the average investor was dealing with. Not too different than Bitcoin now and over the last few years. But let's take aircraft bonds, for instance, aircraft receivables. That's something that a lot of people actually haven't heard of. When you look at Delta Airlines, you think, okay, I'm going to buy

a Delta Airlines bond. And if something goes wrong, then there's all these airplanes and engines and shops and materials out there that I get access to. Well, it's actually not true. And a lot of people don't understand that. What companies like Delta and American Airlines and United do is they take their aircraft and they put it into a banquet remote vehicle and then issue bonds against that, that's completely backed by the aircraft itself, removing it from the inventory of Delta, and then they lease it back to say Delta Airlines. And those bonds are called aircraft receivables or asset-backed securities. They're actually very highly rated. They're very good. But I want to say about eight years ago, I was involved in trying to put those particular asset-backed securities into an ETF structure. And you think, oh, okay, these are high quality assets. It's easy to do. Well,

it took five years for the SEC to tell us that we could do it, but we had to limit our exposure to up to 15%. And granted, these are AAA or in some cases, single A bonds that we only had a limited access to. So given that kind of background and history, when people started first finding coin ETFs, I thought it'll never happen. I mean, just dealing with trying to get AAAs and other investment grade bonds into an ETF was nearly impossible. But things have changed. It took five years. We finally got it done. There's a lot of other type of esoteric structures that have gone in there. If you asked me two years ago, I would have said the SEC would never approve a Bitcoin ETF.

I think things have changed a lot in the last year. What are those things that have changed? Well, number one is custody. You know, the SEC was extremely concerned about security and potential fraud at exchanges and at custodians for Bitcoin. And with good reason. In 2017, we saw a big run up in this asset class. But then we also saw money disappearing. Almost every week, there was news of some exchange in Canada or Korea or China or somewhere else, or even in the U.S. where people have their money in it. And then all of a sudden, it's gone. We forgot our keys or the founder died and he had all the keys and maybe he's still alive, but it's back and gone somewhere

else. So there was a lot of concerns there. Fortunately, a few really big players have stepped up their game and have gotten into this asset class. And really in the last year, I would call it a renaissance of these crypto exchanges becoming very similar to what we're used to in the institutional side of third parties holding things like bonds and equities. You know, Coinbase is a really good example. They've, they've become very institutionalized and have really focused on their institutional business. Anchorage has done a great job of, you know, first class security. You know, Gemini has done a great job. Fidelity has gotten into the space and it's a name that people are familiar with. So yeah, the institutionalization of a custody has gotten regulators a lot more comfortable.

So it's largely about security. They just basically can't back something unless they know that the funds can't be stolen and that investors are safe. At the end of the day. It's their job to protect us from ourselves and bad actors, right? But it's interesting, you said it was so difficult in the past, even in your experience with less nascent assets and things that obviously had already been raided and were more understood. So we have the custody now, you've gone full circle, right? I mean, you're now trying to do it yourself. So what changed for you besides just obviously the custody? Yeah. I mean, custody and security was really a big factor. It's one of three things that I was really looking for. The second one is really the liquidity. Even though we had quite a run up in 2017,

we, you know, Bitcoin hit 20,000 back then or January of 2018, and then came down quite a bit. The liquidity still wasn't quite there. You know, a lot of it was traded OTC, which is what I'm familiar with trading bonds in my past life. But there wasn't a whole lot of supply for the amount of demand that's actually a really good thing. The more exchanges that are high quality, the liquidity has increased significantly, as well as great institutional players stepping in and making OTC trades, whether it's, you know, Sesquhanna or jump or DRW or consolidated trading. These are all high quality traders in various asset classes that are that are trading Bitcoin. So it's really created a lot more liquidity. And then of course, the growth of market cap just in the last six months or really in the last two months.

But we finally got to a market cap to where there's enough market cap for liquidity. In an ETF, for instance, you don't see a whole lot of ETFs that hold micro cap equities because of the liquidity constraints. And as a matter of fact, the SEC has a restriction on the amount of illiquid securities that can be in an ETF. So it's a restriction at 15%. And I would actually argue that Bitcoin would have fallen under that level two liquidity type structure as well, even a year ago. I feel like Bitcoin may have surpassed that and is really now very much more of a liquid asset. Yeah, that makes a lot of sense. So it begs the question, because even in 2017, we were already hearing about rejections of ETF applications. Was it just a pipe dream for people that were trying to do it then? Because it seems like they were way too early and anyone with a background in structuring these products would have understood that. Yeah, I think so. You know, a few people

were just early. And by the way, it's good to be early. It's helped people like us. It's helped. It's, it's, it's, it's going to help others that are, that are trying to do this as well to at least start the conversation. So I certainly applaud the people that tried, you know, Gemini is a good example. SolidX. VanEck has really been a trailblazer in trying to get this done. And VanEck, by the way, you know, Jan has a lot of experience in commodities, right? You know, is really an expert when it comes to gold and putting structures like gold into an ETF. So these guys have been trailblazers. But no, I think now is really the time. I don't think that we're going to get one approved tomorrow, but I definitely feel like it's under three years, if not better than that.

I'd like to think 2021, but maybe I'm a bit overly ambitious. I'm a former bond trader. I'm always very negative on everything. Set the bar low and always be pleased rather than disappointed, I guess. So that begs the question, we've seen other products emerge in the absence of an ETF, obviously, none more notable than GBTC, the Grayscale Trust. Can you talk about why those trusts are attractive in the absence of an ETF? Yeah. Well, really what's great about this trust until an ETF arrives in the scene is that it's at least closer to a structure that a lot of institutional players are used to.

It feels a lot more like a closed-end fund structure. And I'll talk a little bit about closed-end funds. There's two different types. Most people in private equity or venture when they hear closed-end fund, they think of a closed-end private fund. I'm talking about a closed-end mutual fund. So a mutual fund that's closed-ended that you can actually list on New York Stock Exchange, NASDAQ, etc. And a trust feels a lot more like a closed-end fund, which is actually a structure that a lot of pensions invest in. Pensions are very familiar with the structure. They can get behind it. You hold all your assets in a third-party custody, just like you do in any kind of mutual fund.

It trades OTC. And by the way, one of the reasons why it doesn't trade on a national exchange is because one of the restrictions is the liquidity restriction from the SEC, which is why it can't. And SEC regulates national exchange or FINRA regulates OTC. So that's why they trade OTC. But it is very familiar. You have the trust structure that you invest in so that you can hold the sponsor of the trust liable if anything happens. And then you can also hold the third party custody liable in case anything happens, right? That could be losing keys or transferring money to the wrong account or any of those things, right? And a couple of these guys like, you know, Coinbase and Gemini, you know, they have insurance on their custody holdings on the institutional side. So if there was a problem, they do have a backing in insurance. So you have to be careful there,

though. Yeah, that makes sense. So obviously it's just a familiar way for a lot of people to purchase something, right? And even you're talking about on the institutional side, for your average retail person who says, maybe I want some exposure to Bitcoin. I want to put it in my IRA, something like that. They see GBDC ticker.

They don't need to even understand what a trust is or what it is. They think they're kind of buying Bitcoin and putting it in their IRA and moving on with their life, right? Yeah, that's exactly right. And by the way, I've done it too. I mean, a third of my IRA is in GBTC, still is today. Which is interesting because both of us know how to buy Bitcoin. We know how to secure Bitcoin. And we know that we're paying a premium to hold GBTC. So the idea of the trust is one thing, but the actual structure of that product or any other product is very different. And there's been a lot of criticism of GBTC, of course, by people who understand that you are paying this huge premium for the right

to buy it and hold it in a manner that you're familiar with. So can you talk about that premium, why it trades so high over NAV and what's going on there? Yeah. And maybe what I'll do is back up to, again, you know, I love it when you back up, you know, relate it back to what I'm familiar with and what a lot of investors are familiar with, and that's the closed-end fund structure. So when you have a closed-ended mutual fund, and I've managed a few of these in the past, you typically trade at either a premium or a discount because it is closed-ended. And what that means is you can sometimes create new units. And in the case of GBTC, you can always create new units as long as the window's GBTC, you can always create new units as long as the windows

open, but you can't always redeem. So if you have an asset class that's sitting in a trust that actually has more demand than supply or a yield in terms of bond that's really hard to get anymore, then it'll trade at a premium. If it's something that is the opposite, a yield that's really low or something that's a little bit less desirable or something that has ample supply, it often trades at a discount. And maybe I'll give a good example of this. There was a closed-end fund that I was involved in 10 years ago. And during 2009, 2010, we bought up a ton of asset-backed securities and other high-yielding assets that were yielding very high at the time at very low discounted prices. And then when the markets turned around after the Great Recession, we were getting yields that were well above what the market yields were because interest rates have

dropped. So the fund itself was trading at 9% to sometimes 12% premiums just because it had a very highly desirable asset, high quality, high yield. Typically, closed-end funds that hold straight equities or even lower yielding bonds like munis will trade it anywhere between a three to call it 10% discount. In the case of the grayscale trust, Bitcoin, in my opinion, it feels a little bit more like a bond, but a hard to get bond. It's something that the average person just can't, you can't just go and buy them. You have to buy an ETF that holds bonds, but you're not going to call up Morgan Stanley, someone on their bond desk and say, hey, I've got a hundred dollars to spend. Will you sell me a bomb? Right. It's, it's not going to happen, you know? So, so Bitcoin is kind of the same thing. You know,

you're not going to call up one of the OTC desk and say, Hey, you know, I want to trade, you know, a thousand, $10,000, you know, you're going to have to log into a Coinbase or Gemini account and trade it yourself. And, and we're, it's slightly thinner markets than OTC. So there's a lot more demand for the supply. And if you want to buy it in your IRA, it's your only option. Right. And so it's always going to trade at a premium because people are constantly wanting it in

their IRA because it really is the only thing available. Will you give an example of like this excessive 9% to 12% premium that you've seen in the past, but we've seen their products go hundreds of percent premium. Yeah, that's right. That's right. Why does that happen? I don't know where it is today. I mean, it's surely- Right. But certainly with the Litecoin product and the, I mean, you know, now they're dissolving, I guess, the Ripple product, the Ethereum product. We've seen some pretty insane premiums.

So, I mean, how does that happen? And it's funny because you think of this as the safe and regulated instrument. Yeah, that's right. That's right. Well, and it does go with market cap too. If you notice, the premium goes up as the market cap goes down. So that just explains this supply-demand dynamic, right? Bitcoin is going to be a lot

less of a premium than, say, Litecoin or Ethereum is going to be somewhere in the middle. But it is, it's all supply and demand. And I mean, I've never seen a closed-end mutual fund product, no matter how good it is, trade at the kind of premiums that the Grayscale products trade up. It's really unbelievable. Is that because they're the only one and they can do it? I mean, I know that you're going to compete and I know that others are as well. I guess we could talk specifically more about what Valkyrie is looking to do, obviously, because I know it's a blend of both ETF and trust products. How can that premium be somewhat fixed?

I know that obviously you can't always have it trading at zero, but how can you at least make it manageable, especially when you're seeing 100% premiums? Yeah, I mean, really the way to offer, well, discounts are very easily solvable by giving redemptions, right? So if you're ever trading at a discount, you've got an arbitrage play anytime you offer redemptions. The best way actually to solve for high premiums is to do more creations or sell more units. And as you can see it at certain times, Grayscale has shut off its

creation time and let that premium get back up again. And then it, then it sells back into it. So, so really I think the best way to manage it is just to offer constant, you know, constant availability of the, of the underlying, but you know, that's going to be kind of restricted by the supply. I don't know if you saw the Morgan Stanley, was it the Morgan Stanley report that came out this morning that said, they basically said that Bitcoin is at the peak of the supply-demand curve, meaning it's one of the most overbought assets at the moment. Well, true. It is.

Yeah. Actually, I read today that long Bitcoin is the most crowded trade on Wall Street now, even more so than long tech, which is absurd when you think about the FANG stocks run that we've seen this year, basically, I mean, Facebook, Apple, Google carrying the entire market up through this recession. And it's even a more crowded trade now on Bitcoin, which means there really just is a lack of supply at this point, clearly. And to speak to Grayscale, it also just came out that this month they have

bought 1.9 times, I believe what's being mined. So we know that everybody who can get their hands on supplies is trying to do that. I think that happened in a day actually. But it's interesting, they're doing this, but the ETF, if we believe that's going to be approved, in my mind, would effectively end their trust, right? I mean, like an ETF is the trust destroyer. It is. Yeah, that's exactly right. And the reason why is because the way that ETFs work, you have to work through a third party authorized participant, a third party designated market maker. And what these third parties do is they're constantly trading and finding arbitrage. And the arbitrage that they're finding is by either redeeming or creating baskets and creating shares or redeeming shares,

depending on what the supply demand curve is. And that essentially keeps ETFs very, very close to NAV without trading it too much of a premium or discount on either side. The only way that that doesn't work is when you have underlying assets that are extremely illiquid, which by the way, that's why the SEC limits it to 15. Right. Which they're not going to allow anyways. But so what happens to, you know, your basic person is holding GPTC and, you know, an ETF is created and they have this entire,

you know, exploding ballooning business. What does that look like? It means that the premium is going to collapse right um plain and simple um it may not collapse all the way to zero but it'll get it'll get it'll stay under 10 um and by the way uh you know anybody that has has has come in at a very high premium the eath product let's let's let's talk about that for a moment. The ETH product was trading at 100% premium. So if you had bought that, and then there was an ETF that came along, you'd lose half your money. Just getting back to the correct price. Yeah. By the way, you could do that anyway. I mean, at any time, a premium like that could collapse. And it did, right?

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account so you never miss a trading opportunity. Even better, you can now automatically earn interest on crypto holdings. Currently, they're offering up to 6.5 APR on Bitcoin and up to 9.5% on USDC. Yes, you heard that correctly, up to 9.5%. And there are no limits or lockups, which means your funds always stay liquid. Find out why so many people are making the switch to Voyager. Visit investvoyager.com or search for Voyager on the Apple App Store or Google Play Store and get $25 in free Bitcoin when you use the promo code Scott25. That's S-C-O-T-T-2-5. The existence of that premium and that arbitrage opportunity has been one of the biggest trades in crypto, right? I mean, there's an incentive to maintain that

crazy premium because your accredited investors come in, they wait their lockup time, and then they sell on the open market for a huge premium. I mean, someone was telling me that recently they were an accredited investor and they were doing the Litecoin, participating in the Litecoin trust. And basically, I believe it was a six-month lockup. But as long as Litecoin didn't go down 90% in six months, they were guaranteed not to lose their money just because of the structure of it in the premium. So who wouldn't take that trade? No, nobody would. I mean, it's, well, and let's take a look at the ETF for a minute, right? When I said a Bitcoin ETF might be very soon, right? In under three years, probably one and a half. It's going to be a long time

before you're going to see a Litecoin in an Ethereum ETF. You know, there's a lot more wood to chop to get there. So yeah, it's still a good trade. Yeah, it's just a matter. I mean, at that point, the market cap is so far from being sizable enough, sort of, as you said. And I think there's a lot of other products that we're seeing being talked about. I know that, you know, they're talking about a basket index for the S&P of like top 10 or top 50 currencies. currencies, where do you think those sort of fall in the institutional interest? And, you know, as far as people having something that they're more familiar, comfortable trading? I actually think that products like that are for people that have no idea what they're buying.

I agree because like, I mean, why would I want XRP in my index right now? Yeah. Why would I buy that? Right. And then once you get past the first five or six, it becomes really the wild west in crypto. Yeah. Yeah. That's exactly right. I mean, I wouldn't recommend any of the existing index products to anybody. One of my biggest issues with all of the index products that are more prominent, that are out there, is that it holds something like, it'll hold Bitcoin, it'll hold Ethereum, it'll hold XRP, Litecoin. And when you start looking at what all of those are, I mean, really, we just described in four tickers, we just described really three different types of crypto assets that have nothing to do with each other, in my opinion.

You know, Bitcoin is a cryptocurrency. Litecoin, that's a cryptocurrency, as is Dash or Zcash. They're meant for global peer-to-peer transactions, right? Ethereum and other, you know, layer one protocols are really meant for, you know, self-contained DApps. And they're used in very different ways. They're actually more similar to data charges on a network than anything else. And then you have XRP. I mean, who even knows what that is?

You know, I just call it Ripple, which upsets a lot of people. I think it's a security. I think we're going to find out. But it does, I don't know. But I think we're going to find out that it's a security. Yeah. It doesn't say anything until, you know, we find out exactly what it does, I don't know, but I think we're going to find out that it's a security. As it did say anything until, you know, we, we, we found out exactly what it is. Sure. I've never, I've never owned it. I've, I've never touched it. Which makes sense. So you guys sort of have a novel approach, which is to focus on both ETFs

and trusts, knowing that if you just did a trust, the ATF could ruin your business. And if you just do an ETF and it doesn't get approved, you don't have anything, right? That's exactly right. That's exactly right. So brilliant. Is anyone else doing that? I just haven't seen that elsewhere. Seems like people are all in one direction. Yeah, I haven't really seen that either. So I'm not aware of anybody else doing that. And I guess we're just a little bit more pragmatic. But by the way, I also like diversifying the types of wrappers, right? So in my past, I've done the exact same strategies in an ETF, in a closed-end fund, in a mutual fund, in a USITS, in a private hedge fund. And, you know, there's all these great wrappers that you can put it in that different types of people can and can't buy. It's like, okay, you create a strategy that's scalable and you throw it in 7-in for wrappers. Who cares about the wrapper?

Let's focus on the strategy itself. So I think that's really our approach is, you know, just putting it in various wrappers and we have a singular approach in managing it, as opposed to most people that specialize in a wrapper and know that wrapper really well. And that's where they're going to focus and do several different strategies in that. So then I have to assume that the name of the game is just raising funds, right? I mean, obviously we're seeing each week that goes by, you see another person announcing some sort of fund or some sort of ETF. So it becomes, in my mind, sort of a race to who can create a decent product, but then raise the most money. I mean, is that accurate?

Yeah. Yeah, that's exactly right. And look, previously in the crypto space, whether you have a hedge fund or any other type of fund, you know, single asset fund, what most people have done is pursue individuals and family offices. And that's a great strategy when you're getting an asset class off the ground. But really what we're focused on is the true institutional space, you know, not family offices, not individuals, even though we're taking them, obviously. But we're really focused on, you know, setting up something that is usable for, you know, insurance, pensions, trust, endowments, and even large wirehouses to go on that platform. That really is the goal for us.

Yeah, it's funny because we hear about institutional adoption in crypto, certainly have been for like three years. It was always like, oh, the institutions are here, 2016. The institutions are here. But it's sort of what you're talking about. Crypto-focused hedge funds, family offices, those count as institutions, but they're really not the institutional adoption that people are talking about. It's interesting you talked about the ETF becoming possible because the market cap has reached a certain point and there's more liquidity. How big does the market cap have to become to see the Apples and the Googles and the Facebooks start talking about Bitcoin as a treasury asset and not just the micro strategies and squares? That's a really good question. And by the way,

we keep a portion of our treasury in Bitcoin as well, FYI. We think it's very important and we believe in the asset class and we believe in the, you know, the degradation of the dollar and other currencies. I think a lot of I think a lot of other companies are really going to catch on, especially global companies. You know, I think I think MicroStrategy was a bit of an anomaly. They they kind of, you know, saw the light like, oh, OK, this is this is really interesting and the trade worked for them. I actually think that Tesla is going to be one of the next ones to accept Bitcoin for cars and to start holding it on the balance sheet.

By the way, I'll say this publicly right now. If Tesla decides to allow you to buy a Tesla with Bitcoin, I will buy a new Tesla. Just, you know, I'll put that out there. And I think a lot of other people would too. I bought one last week and they did not accept Bitcoin. I'm waiting. It hasn't arrived yet, but it was actually a point of conversation. It's hard though, because then you have the taxable transaction of selling your Bitcoin to buy it. So it becomes a lot more aggressive than it sounds. But if we lived in a reasonable place in a vacuum where you didn't have to pay taxes on the Bitcoin for buying a car, I would have done the same. Yeah. And by the way, there's a lot of other companies that are taking Bitcoin right now. You know, open up your your backed app, your Gemini app.

And there's like 10 places where you can, where you can buy, you know, buy Bitcoin. And, and by the way, when Bitcoin is trading sideways, that's typically when people start thinking about that. Right. They're like, Oh, it's going straight up. They don't want to buy something with it. It's like, I'm going to pay twice as much for that car in one month. Yeah, that's exactly right. Yeah. That is the feeling there. But so it was

interesting because MicroStrategy, I mean, it's such an anomaly, like you said, as amazing as it is. I mean, we're talking about someone who spent hundreds of millions of dollars with a market cap of the whole company of a few billion. I think then you see Square, which I'm not sure right now, but that's like a 90 or 100 billion market cap company. And they bought 50 million worth for their treasury, right? So they bought a 10th as much and their company's 20 times as big, or roughly. I think that's more in line of what we'll likely see

from companies that wanna start gaining exposure as a treasury asset. Yeah, I actually, I agree with that. I don't think there's gonna be many people out there like Micro MicroStrategy. They're good, but it's really shocking. Really shocking. Well, I don't know, there might be other cases. And if you look at it, you know, when the market is like it is, where all asset prices are going straight up, right? Any kind of equities and tech companies are earning money hand over fist. You have to do something with that cash and you either invest it in further operations or you invest it in bonds over here that yields you nothing or you invest in something, but nobody wants to just sit on cash. So I think as certain tech companies are bringing in dollars,

their stock prices are going straight up. They really don't want to buy back their own stock. Oddly, Bitcoin makes a lot of sense. It does. MicroStrategy has made that case. I mean, Michael Saylor's made that case. Yeah. I mean, that's exactly what you

should be doing. And by the way, issuing convertible notes that yield nothing, that means you have to pay nothing in order to leverage that position. I mean, it's the most brilliant thing you could do right now. Yeah. And that's why I asked for 450 and got 650. Right. Because insurance companies and people like that are trying to put money to work in bonds. And a convertible note is a bond like instrument that yields you something that they need. Like there's a star for yield, anything that yields something. The institutional markets are picking up. Even if they know that they're going to turn around and put it in Bitcoin, they're going to buy. I mean, it's interesting. You've seen people calling basically MicroStrategy stock a proxy ETF because they are so exposed. I mean, I don't know that today it stocks up on three times since they did it or something. It's incredible. And he's been very quick to say, no, that we're a software company. We're not a Bitcoin ETF as much as I love this. But I mean, we're talking about all the ways that people might want to gain exposure because they're

afraid of the underlying asset or an ETF doesn't exist or the proper. And that's been one way that people have arguably been gaining exposure to Bitcoins by buying MicroStrategy stock. Yeah. Yeah. Absolutely. Absolutely. But yeah, I don't know. If I was to speculate, I don't think Apple would. Yeah, I could imagine, maybe I could imagine Intuit being next to Tesla.

But who knows? Who knows who's going to pop up next? Frankly, I never heard of MicroStrategy before they bought Bitcoin. Yeah, nobody, right bitcoin yeah nobody right you know what they do yeah business software not nearly as exciting as buying a ton of bitcoin so and actually now you obviously your background we didn't even talk about it but you were at guggenheim for years right um and today the they i saw some news maybe it was yesterday that guggenheim has already been buying bitcoin for clients so yeah um i mean that wasn't happening when i was there but uh but yeah

uh it certainly has been happening uh in at least the last few months if not longer so that begs the question that all these people that are sort of talking about it, do you think they're talking their book like they already own it? And obviously, so now they're willing to come out of the, you know, come out from the shadows and talk about this thing as if they're going to buy it, but really they're already there. Look, I got to tell you, I own Bitcoin for a lot longer than I talked about it. And I guess just, you know, there was there was a certain period of time where you just didn't talk about it. Right. It was sort of like Fight Club. You bought it.

You didn't know anybody else owned it and you were kind of scared to admit it. And but but that was that was certainly the case for a long period of time. And look, and I'm sure there's a lot of people at Guggenheim and other places that are that are portfolio managers that that have owned it as well. Not a lot. I would say some people, you know. Frankly, a lot of the people that I worked with on the desk, you know, when when anytime Bitcoin came up on CNBC or, you know, when, when anytime Bitcoin came up on CNBC or, you know, back in 2013 or 2014, or even as late as 2016, they all made fun of it. Right. They're like, oh yeah, that's, you know, that's, that's not going to go anywhere. And then you can tell maybe out of the, out of the 10 people on the desk, two were really quiet and they're like, okay, maybe me and that other guy

own it, but we're definitely not going to say anything. It's hilarious. So actually Mark Cuban recently, totally separate topic, tweeted something, which is hilarious because he called it the cryptos, right? He said the cryptos are trading just like the dot-com bubble, something to that effect. We have sort of the Amazon, Google as the Bitcoin and Ethereum and everything else will disappear. I mean, do you think that we are in a bubble here and that, you know, people should be focused on the, you know, the safest and obviously the most proven assets here or do not think this is a bubble? What's your, what's your opinion on that? You know, the great thing about bubbles is they can actually last for a really long time. They can get bigger and bigger. And so I would actually agree that a lot of crypto assets are in a bubble. And there's something that I like to call the greed trade where

Bitcoin has run up and then people are like, okay, well, you know, Bitcoin just quadrupled. Where can I get the next Bitcoin? And they're, you know, they're, they're, they're pulling up their Coinbase app and like, okay, Bitcoin was up, you know, X percent in the last year, but, oh, this other one, Ripple was only up, you know, 40%. So I'm going to, I'm going to trade out of my Bitcoin and buy Ripple, or I'm going to trade out of Bitcoin and buy Ethereum or, you know, you know, just, just name the asset and you just kind of go down the list. And that's really the psychology of a lot of people that, you know, that's really the psychology of a lot of people that, you know, that really haven't focused and understood what it is. And they're just looking at the list and looking at when your results saying, okay, I'm going to trade out of the one

that's done the most and trade into the one that's done the least. And it's, it's, it's really interesting market psychology when that happens, but it's, it's the greed trade. You know, you make a little bit here and then you're, then you get greedy and you sell it and you try to make a little bit here and then you get greedy and sell it and try to make a little bit here again. And, and look, a lot of these, a lot of these assets can and will keep running despite them being, or people not even understanding what it is. And so, you know, I hate to say, yeah, you should sell it right now because frankly, like that's probably an opportunity to make a lot of money. But I'm a little bit more risk adverse than that. I'm only going to buy something I understand that

I think that three to five years from now is actually going to have some kind of benefit, right? So I'm looking at it from a fundamental perspective saying, okay, which one of these are actual usable assets? You know, if it's a layer one, I try to think about, okay, which layer ones are going to be, you know, readily adoptable. And by the way, different industries will adopt it in different ways, right? Ethereum is actually a great layer one that a lot of people are building on. There might be better ones. It might be outdated technology versus some newer ones. But when you already have adoption and use, it's hard to get rid of it. So it takes something that is marketed really, really well, that's good enough to surpass the technology that people want to pay for and buy and build on.

So look, I think despite the fact that there might be better layer ones out there, they may not surpass Ethereum. By the way, Ethereum very well could be kind of fall into the cryptocurrency bucket. I don't, like, I personally don't think it will, but I'm not going to rule it out. I definitely think it's probable. But then there's some other really good protocols out there. Like, you know, Algorand is a really good example.

Algorand is probably the most superior blockchain to put securities on, right? And I think that, you know, they're really pushing to be adopted by Wall Street. So there's going to be some really interesting things come out in Algorand just because it's just, it's a very simple process just to use their blockchain directly.

NIM and Cardano are also working on things that are a little bit similar and working on adoption. And marketing is important too, right? So you might be slightly worse, but you could, you know, if you spend the right money. Much better marketing. That's why Ripple was so big, right? Yeah. They spent a lot of money on marketing.

You're on CNBC with them telling you how to buy shares of the Ripples. You definitely have gotten out there. That's interesting though. You talk about the Algorands and these other layer one protocols. Do you think that eventually we see basically all securities tokenized? I do. I mean, look, in a lot of ways, a lot of securities are already electronic, right? And, but I am seeing a really interesting trend where, you know, once they become, you know, you know, tokenized, so to speak, it allows you to bypass intermediaries, which I think is, is really, really important. Just, just dealing with the whole mutual fund and ETF industry myself in the past,

and all the layers of people that you had to go through and pay. And by the time you pay everybody, it eats into your returns, it eats into what you make as a money manager. If you can start bypassing a lot of that, I think it gets really interesting really fast right so but yeah circling back around our cubans comment you know i mean we went on a long rabbit trail there i think in a lot of ways he's right you know people are just buying things to buy them you know they're buying oh look stamps.com okay really how big is stamps.com ever gonna be right but it's shooting up in value because people think it's something, it's in the same category as any other thing that has the dot-com after it. And then when the market comes back down to earth and stamps.com crashes again, but it's still business, right? It still

exists. It doesn't mean that the business is any less viable. It's just the asset price has come down from where it was before. There's a lot of companies like that, the dot dot dot com bubble, you know, and then there were a few really big ones that came out of it and dominated. Right. I mean, look at Amazon, you know. Right. You know, so I mean, I think I think Bitcoin is going to be a lot more like Amazon. By the way, 2017, I think, was the bubble that burst for that stage. You know, things like Bitcoin. I don't think, I mean, look, we're overbought, but it's because people want it right now.

Yeah, it's simple supply and demand. It's overbought. This isn't like, yeah. And people are not buying to speculate. They're buying to hold it. Right. And that's a very different situation. Bitcoin was beanie babies, right?

It's like, oh, I got to get some. Yeah, it's really cool. Get those tulips. Right. Now it's like, I better buy Bitcoin because my dollar is going to be worth nothing one day. You know, I'm going to be, you know, rolling around in wheelbarrows full of dollars just to buy a loaf of bread. So hopefully that never happens. Gosh, I hope not.

That is like the Bitcoin maximalist wet dream, but I don't necessarily see that never happens. But gosh, I hope not. That is like the Bitcoin maximalist wet dream. But I don't necessarily see that future here. But we see it all around the world. I just don't see it necessarily with the dollar. But the reason that everything is going up is because the dollar is going down. There's no make no illusions that, you know, when the dollar is devaluing, that's why stocks are going up. And that's why gold and silver, even Bitcoin to some degree are going up. I'm curious though. So we didn't really talk about like your very long and

distinguished history, but well, you would have to be doing it since you were 10, if we were in diapers when the mini disc came out, but I know you've been doing this for a good, you know, couple of decades, these kinds of products. When did you actually find out about Bitcoin and what made you give up sort of all of these other things that you were passionate about, all these other businesses to focus specifically on this? Yeah. So I actually discovered Bitcoin in 2009. I discovered that it existed. And it was way later that I bought it. So don't think that, well, you couldn't even buy it in 2009 or 2010 if you wanted to. You had to have mined it. But I remember back then, and by the way, in 2009, 2010, I was a sovereign credit analyst. So what I was doing was analyzing various, you know, the credit quality of various countries, their currency, and, you know, a lot of other things that go along with it, emerging market debt. That's what I was doing then. So I came across it as a potential currency

and began analyzing it. And my first thought was, you know, this is kind of cool. It's like a, sounds like a really fun kind of money to be used by, you know, developers. No different than, you know, playing World of Warcraft and mining or, you know, other types of, you know, I was like, that's really cool. But like, this will never be used as money. You know, the Fed will never allow it. And that was my thought back then. But I still followed it

because it was super cool. But yeah, you know, I kind of got started getting passionate about it a little bit later and actually left the traditional finance world behind in 2016 to, you know, I joined a, you know, an early stage fintech company, just so that I could kind of go, you know, dive into Bitcoin and blockchain in general. It wasn't really until, you know, almost a year and a half later that I decided that, you know, I don't want to be part of a fintech company. I want to, you know, my roots are asset management. I should really build an asset management company that focuses in on blockchain. So, you know, as you said,

sort of as we're recording Bitcoin to 36,000. Obviously, as you started thinking about this business, Bitcoin was probably like $6,000 to $10,000. How big do. And I really base that number on, when I say triple, I think within a year, 18 months, we could see 500,000. And this isn't just some number I'm just throwing out there because I'm like, oh, you know, I just, you know, I want to put a number out there. Throw them out there. Go bigger. Come on. But it's really because I'm seeing what the demand side looks like. And if you do the math on how much supply there is to actually sell and the availability of putting this asset class on the balance sheets of institutional investors that are highly interested right now

and the asset managers that I know that will be coming into it even bigger, that's really where the price has to be just to absorb the demand. So yeah, a 10X in 18 months isn't out of the question. We just did it from March. I mean, it's, I what year it was. But so I also covered energy and focused there. And when oil prices were going up towards 100, I was basically trading Tesla and my own PA as like a hedge against oil. Because actually, oil is very hard to trade. I don't know. Yeah, because yeah, it's impossible. I've been on that unfortunate road myself before. Tesla is an interesting proxy to, hundred. Okay. In a very, very short period

of time. So I actually sold my Tesla shares and just got out of that trade entirely at that period of time and went and bought a Tesla. Right. So with my, with my, with my proceeds, it was great. I would have never imagined Tesla 10 X thing again. Right. I was like, okay, well, it might double from here, but that's it. That's, that's, that's all it's doing. No, I mean, I have the same story. And Tesla is like very, just very underutilized as a, as a car and a car company. I mean, I've had mine for over eight years and it still runs great. Right. Like I have no desire to get a new car because it's such a good car. Bitcoin's adoption is,

well, it's so much bigger than what Tesla's adoption was over that same period. So, um, absolutely true. Yeah. I did the same thing. So- This is absolutely true. Yeah. I did the same thing. Can you imagine it? Just imagine it. I can imagine it because I saw it. I did the same thing.

I was buying Tesla in the $30 range. Not enough to buy a car, unfortunately. I sold it like 300 and something. I bought it again at 180. But then when it went absolutely nuts, I sold it between like 500 and 750, kept a little, sold the rest of a thousand. It went over 2000 and split. Now it's higher after the split than where I sold it. So it's insane. I was happy with my game. Nobody ever went broke taking profit,

but they didn't buy a fleet of Teslas with their profit either. So as they say, so I'm curious then where are you guys at in the process? You know, obviously, I know that you think an ETF could be three years out. And it's my understanding that you basically have three years, right, to get approved. Yeah, there is a time period to where it hasn't been approved by then. You do have to withdraw. And then we saw that happen with several other ETF applications that had gone out there. It didn't get approved.

It had to withdraw. And so, look, I think we'll be well within that. I think we'll be well within that frame. So we'll see what happens. You know, hoping for the best. But I do think it's a really, really strong possibility. And I really think it's going to be pretty important for a lot of the adoption that we want in Bitcoin on the speculative end, right?

What I really want to see Bitcoin become is a true currency, a true borderless currency between people that disrupt intermediaries. And we really can't, we're really not there yet. It's going to be a long time before we get there. We got to see that speculative phase play out because nobody's actively buying a lot of things with the currency if it's 10xing, right? Right. It's got to slow down. It's got to level out. And it's got to be well held.

And then once that happens, we'll probably see a lot more transactions happen. But that's what I want to see. Right. So if you believe that ETF is a year or three years out, you guys have started a business, you have the trust. What's the advantage of someone investing in a trust as opposed to going at it on their own at this point? Because obviously you have a client whose whole career is based on cybersecurity, who has transferred his Bitcoin to us because he doesn't want to deal with the security. Anything could happen. You can lose your ledger. It can be corrupted. It can be hacked, as we recently found out. There's a lot of things that happen with just keeping your money in an exchange. But keeping your money in a product that is a security. It's a Reg D security that's regulated, puts the manager on the hook, which is us. And it's held in a third party custody whose assets are bifurcated from the rest of the company's assets. So if something happens to that company, nothing happens to

the custody over here that has insurance on top of that, that's running their own security and it's big enough to hold their security. It's like you don't have to sweat the security side of it anymore. Huge. Right? Yeah. I mean, yeah, that's exactly right. And then you might make the argument, it's like, okay, well, I can just trade Bitcoin and move it over to a private wallet and move it back. And it's like, okay, well,

you enter in one number or letter that's wrong and it's gone forever. Or you forget your private keys. A lot of people have forgotten their private keys. Yeah, we see there's two stories right now. One guy has like two password attempts left to get 230 million or 270 million or something. And another guy is trying to convince his town to like dig up their landfill to find his $70 million in a wallet. Yeah.

It's not like these aren't theoreticals. I mean, these are real things that happen. And is there an advantage, you know, with these trust structures, as we kind of talked about with GBTC, like buying through you, is there a discount or, you know, a way to sort of have that ARB trade, but not to that same degree? Yeah. I mean, look, that's something that you can never guarantee or speculate on, but, but like we discussed earlier, you know, people that are, that are buying through, through Grayscale and then, and then selling it on the open market once their lockup period's over, uh, you know, they're,

they're, they're selling it, um, if it's Bitcoin at a, at a small premium, I say small premium, because 12% is small, small relative to 200% unlike when, yeah. So look, that's definitely an advantage to some people. Um, but it's definitely not something that you can ever promise. Right. Or, or, or even state, but right. So after this, where can people check you guys out and also follow you? Yeah. So that's a good question. What is my Twitter? I can look it up for you. I follow you, you know,

what is my Twitter name? It's not anything. Yeah. Yeah. Isn't that funny? I mean, wow. That's, that was a long time ago that I created a Twitter account. 20 2009 maybe. I don't know. Wow. Yeah. I mean, I was, yeah, I was the same. I think you're Steven McClurg, two C's right. S T E V E N M C C L U-G for those who are following along in the audience. Yeah. And then our website is, that's a really good question too.

What is my website? You put me on the spot all right man make sure people can follow you yeah no exactly um uh you know what i think it's valkyriefunds.io yeah you're right valkyriefunds.io you you you found the people's champion you know being a high frequency trader I have the super fast internet over here. Well, you can see how much of a nerd I am. I'm so busy, like, you know, digging into filing ETFs and stuff that I... Who cares about a website?

We even have a website? Okay, great. I'm sure somebody's taking care of that. That's why we have people for things that we don't do our best. Well, man, this is an awesome conversation. I think I finally had a chance to really get some understanding to some degree for myself, but for other people and the importance of the ETF, what that looks like and how sort of all these other products play into that. So thank you for giving us that insight. I'm really looking forward to seeing what you guys come up with yeah no i really appreciate it thanks thanks for having

having me on and uh had an amazing discussion this was this was a lot of fun and i'm not even going to mention the fact that we're wearing matching t-shirts here to end the entire thing there's a v-neck though now mine's not quite V-neck. Okay, so they're slightly different. I can go get my V-neck. Great minds think alike, right? Especially in fashion. Thanks, man. All right.

Have a good one. you