Unchained - Bits + Bips: Does Macroeconomics Point to a Potential Crypto Supercycle? - Ep. 642

Episode Date: May 8, 2024

In this first episode of Bits + Bips, hosts James Seyffart, Alex Kruger, and Joe McCann explain why the macroeconomics could point to the markets actually being in a crypto supercycle. They discuss the recent Federal Reserve meeting and its impact on the markets, as well as the irony that leveraged Ethereum futures ETFs will likely be approved while spot Ethereum ETFs will likely not. James also reveals his pet theory on where the SEC is going with its investigation into ETH. They cover why the bottoming of emerging market currencies in Asia is good for Bitcoin, dismiss the recent Wells notice issued to Robinhood, and speculate that Tether may be the most profitable company per employee in the world.  Agreeing that the current market cycle is different, Seyffart and McCann suggest that there is still a long way to go, and assert that the market may be underweighting the possibility that crypto goes to a $10 trillion market cap in the next few years.  Show highlights: The Fed's recent decisions and how they lower the chances of more rate hikes The importance of global liquidity in the performance of risk assets like Bitcoin and crypto assets Why a bottoming in the value of the yen, yuan and other emerging markets currencies is good for Bitcoin and crypto, according to Joe The irony that leveraged Ethereum futures ETFs are likely to be approved but spot ETFs are not James’s pet theory about how the SEC will rule on whether ETH is a security  Whether trading in Hong Kong's crypto ETFs shows how little interest there would be in an ETH ETF compared to spot BTC ETFs Grayscale’s Bitcoin Mini Trust ETF Whether people are underweight on a “crazy bonkers rise” in crypto Why Robinhood's Wells Notice is a "minor story," according to Alex Whether Tether is the most profitable business per employee in the world  Why James believes that it's not a good idea for the US Congress to be against stablecoins CZ's sentence and whether it's a "good ending for the story" Hosts: James Seyffart, Research Analyst at Bloomberg Intelligence Alex Kruger, Founder of Asgard Joe McCann, Founder, CEO, and CIO of Asymmetric Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, all. I'm excited to launch our new crypto and macro podcast, Bits and Bips today. It's in the fun conversational style that I know many of you enjoy, and we have a great set of hosts with different backgrounds across both crypto and TradFi. It'll come out every other week on Wednesdays to give the scoop on the latest news and how crypto and macro are coming together. Let us know what you think of the show. Alex, what do you think we are in the cycle right now? You know, like we had a ripper of a Q1. We had a pretty big draw in April. May seems to be some recovery.

Like, where's your head at as it relates to the cycle right now? I think it's a different kind of cycle, to be honest. I'm on the super cycle boat. So, you know, people like to hate about that, but it just makes sense. Like, on one hand, the thing is on the macro side of things, on macroeconomics, it economy the global economy is what what you could call early stage this could be something like the 90s and we're like 1997 hi everyone welcome to bits and bibs exploring how crypto and macro collide one basis point at a time i'm your host james saffert tradfi archmaister lord of blenbergsend here with

alex kruger kre kruger macro of house asgard protector of the realm and joe mccann lord commander of asymmetric and master of bonk we're here discussed the latest stories in the worlds of crypto and macro news. Just remember that nothing we say here is investment advice. Check on Craynecropto.com for more disclosures. Let's get into it. Alex and Joe, you guys are both portfolio managers, traders. This last week, we had a Fed meeting. We had some other economic reports, non-farm payrolls. What were your takeaways? I guess we'll start with you, Joe, and then go over to Alex. Yeah, sure. So, I mean, Wednesday I thought was pretty clear what Jerome Powell was articulated and communicating to you directly.

He's literally saying, you know, more or less, there's no stagflation. There's no chance of more hikes. I don't want to say no chance. There's very few slim chance of hikes going forward. And, you know, because what they did with their actions of moving the balance sheet tapering down from $60 billion to $25 billion a month, that's a net improvement of $35 billion of liquidity on a monthly basis. It just doesn't make any sense for him to be hawkish at his press conference if they're

tapering their balance sheet reduction. So, you know, our view and my view, I guess, has been for quite some time that employment data is actually the most important thing for determining if and when the Fed, you know, will have coverage to actually start cutting rates. and this kind of leads into the NFP report that came out early Friday. Well, lo and behold, you saw a tick up of the unemployment rate and a miss on NFP. And almost instantaneously, you saw two rate cuts get priced into the Fed Funds futures curve. Right.

So from my perspective, this is kind of what I've been expecting for quite some time is that, yes, inflation is important and if the Fed has a dual mandate, right, but the employment data has just been so strong for so long that the Fed has literally signals that the FMC more broadly has literally signaled that we want to cut rates at some point. This kind of gives them, I guess, a reason to. And so, you know, I think that what you saw also in price action on Friday was indicative of that. Like, you know, the day of the Fed, Bitcoin finally cracked 59K and a brutal washout, if you will, that had followed from the last day of April, which appears to effectively be the bottom based on what happened with the macro last week, particularly with the Fed.

And so I think that there's probably a good chance based on what happened with the price action on Friday, which is a full more or less reversal in risk. But also more importantly, the dollar is topping out, has topped out, started to reverse pretty heavily, started to see fixed income get bid. This all suggests, at least from my perspective, the end of the end of the feds tightening and also a strong U.S. dollar cycle. Yeah, I mean, you said NFP there a few times, just so anyone who doesn't know, that's just non-farm payrolls. It's basically just looking at employment data that we're getting from here. And you also talk about tapering. The thing there was that they're, the heat to he said that

basically they were going to decrease the amount of bonds that they were, or debt assets that they were unloading onto the market. So that should be more liquidity, I guess, which we all all know Bitcoin and Crypto loves anything that pumps liquidity. So, Alex, anything different from Joe in your point of view or anything bad? No, I actually see things, unfortunately, very, very similarly. I say unfortunately because it would be fun to disagree and are you here. But yeah, it's pretty much the same view. The bottom is very likely in.

Powell has signaled very, very effectively and clearly that he's not concerned with inflation the way some people in the market want to be concerned about. I personally, something else I would like to add is that more important than actually we get one cat or two cats or three or whatever. More important is two things. One is the direction, the fact that the direction is down. And secondly, the fact that we have a Fed put, basically something that's been in place since December. basically the moment back in December was the moment in which the Fed, the FOMC, via Powell, told us very, very clearly that they are equally concerned about employment and inflation,

which was not the case for basically since January of 2022. So that basically means that if things go bad, there is a put. The put business basically means the head is going to cover our losses. sure that markets don't implode. Real quick, I just pulled up to echo what you're saying. This is showing, like, what Joe and you were hinting at that basically the markets now are expecting one to two cuts. You can see these orange lines are just basically the number of cuts that we're expecting.

So you can see by January, pretty much the market is expecting at least two, 25 basis point cuts. And the other thing I like to add is that it's all one trade now. This is something new that we just started saying now. it's a Bitcoin for actually all of 23, or most of 23, did its own thing. Kind of like correlated on a very summed up basis, but you zoom in and it's doing entirely its own thing. And this started changing recently with Israel and Iran.

And we saw it very clearly last week, FOMC and payrolls. It traded hand-in-hand with equities, which in my humble opinion, and many people disagree, but if you're bullish on equities and risk assets, this is very good because it means that, and if you think that there is a Fed put, this is very good because it means equities won't collapse, therefore the probability, always talking in probabilities of Bitcoin actually doing its own thing and imploding 80 percent becomes very dim. Yeah. Yeah, I agree. I mean, another thing to point out as it relates to some of the macro stuff, over the course of the entire month of April, actually heading into the end of March,

we started to see global liquidity actually pull back. And this is not just, say, the Fed or just the Bank of China. This is the shadow monetary system. This is the volatility index associated with Treasury as known as the Move Index. All these things come together with the various central banks. We're kind of restricting and reversing the Q1 advance, if you will, of global liquidity. And for, you know, those who may not necessarily understand the value or the purpose behind

why global equity is so important is that when you have more liquidity in a system, it tends to juice risk assets. Now, when you have a strong dollar, you know, sometimes those risk assets will not sort of rise as high as they possibly could. However, one of the things that's happened in the past kind of week plus, certainly last week, was the Japanese yen, the dollar yen trade, got up to 160, which was the 1990 high. So we're talking whatever, I don't know, however many years that is a lot. I am not a mathematician.

It's a long time ago, right? 33 years or something to that effect, right? And at that moment, the Ministry of Finance intervened and smashed the yen shorts from 160 down to 153, which is a major move in foreign exchange. Like, this isn't crypto. This is a market trades $4 trillion a day. And it move the yen like that is remarkable. And more importantly, on April 29th, we actually had the second highest net short interest

in the yen ever. So it was almost perfect time to squeeze the shorts. And the Ministry of Finance in Japan certainly did that. And they also did it again a couple days later. And the reason that this is important to Alex's point, at least from my perspective, is it being all one trade, is that we have actually seen, you know, emerging market effects, certainly Asia effects, EM effects. So these are like, you know, your India rupee, the Thai bot, the South Korean one, et cetera, et cetera.

These kind of like, call them smaller, developed or developing economies currencies. They've just gotten decimated by the U.S. dollar, including the Chinese Yuan. And all of that is reversing post-FOMC and certainly post-NFP. And this is, I think, very, very, very important because we have some precedence of this that occurred back in 2016. Janet Yellen was the head of the Fed at the time. She flew out to Shanghai in late February. And the same sort of thing was happening. You had sort of EM effects getting kind of unfairly affected by the U.S. dollar.

She was talking about hiking rates. Rates were zero then. Remember the glory days. And China basically nuked the U.S. stock market by devaluing the currency. And so she had to go back there and kind of like, let's all get together and figure out something. Now, you can't find anything official about this. It's called the Shanghai Accord. But it happened one way or the other because it actually marked the tick lows in the S&P.

And the dollar weakened. Well, she was in Southeast Asia, a few weeks. weeks ago, about a month ago. And since then, what we've noticed is a pretty dramatic shift, certainly in the past couple of weeks of Asia effects currencies and their values relative to the US dollar. So the long story short here is from my perspective, you're kind of getting a repeat of the Shanghai Accord again, whether or not that actually took place. The market is suggesting that. And when you have, you know, basically a bottom in the yen and you have a bottom in the Chinese yuan and other sort of emerging market currencies, that means that tends to imply a weaker dollar. And when you have a weaker dollar, to Alex's point, you have a better chance of things all being one trade because people are going to have less, you know, holding the dollar is less desirable, at least from a short term to intermediate trading perspective.

And so what's the furthest thing out on the risk curve? Well, it's crypto. So, you know, Bitcoin should do well in this type of an environment, assuming that, you know, the dollar strength has actually kind of come to its end. And I think it has, especially given what the Fed has stated. Going forward, I think you have to be looking at, you know, how the dollar trades towards these other currencies and use that as a proxy for how to evaluate how much money will flow into risk assets. Oh, two more really quick things. one, there's actually flows now heading into Asia, Hong Kong and China, particularly for the first time in months. So we have net flows into investment dollars into those areas. And then last

night, so it's Monday today, so late Sunday night, early Monday, I guess China time, it had a 300 pits move in the yuan, which is an enormous move for foreign exchange currency, especially something like the yuan. So there appears to be the market sniffing this out that, you know, the dollars reign, at least in the intermediate to immediate term, has kind of paused. And this is, in my opinion, incredibly bullish for risk assets. For those of us who are not fully in the macro world, what was that? Did you say PITS trade? What was that number you used? Oh, Pitts. So PIP, it's like the, it's kind of like how a Satoshi is the unit of a Bitcoin. It's kind of like that for foreign exchange when you're trading it.

So even smaller than BIPs. Yeah. Yeah. All right. Well, one, I hope you're right because I do have a trip this fall going to Europe. So I'd appreciate some of that to be quite honest. This honestly echoes things for me from like 2013 when I first joined the industry. The number one ETF in the world back then was Wisdom Trees, Japan equity hedge DTF,

which basically shorted the yen and went long yen companies, Japanese companies. And it was on fire. It absolutely took over the ETF world. So kind of giving me a flashback to that. Before we move on, Alex, you have anything else left on macro on that side of things? On the yen, I just wanted to add one thing that I think is maybe interesting for people, is the fact that when the yen was basically plummeting, dollar yen going up, right, there's this tendency among trader circles and the media to basically find a reason to just panic about any.

anything in this case of the yen, right? And the thing is actually dollar yen, the yen weakening is actually in the benefit of Japan because weaker yen basically means that Japan is importing inflation, wages go higher, eventually inflation expectations go higher, which is actually happening.

And this is exactly what Japan has been trying to achieve for over two decades. So it's kind of like they want this. What they don't want is volatility. and the depreciation or appreciation of the currency. That's what they care about a lot is keeping Vol rather subdued.

But it's not really the yen plummeting that hasn't, you know, getting concerned. It's actually, they actually wanted. Or maybe not wanted, but it's beneficial for them. That's, that's, that's, that's, it makes, it makes things that we get as Americans and others from Japan a lot cheaper for us to get exposure to those assets, helps us any companies that export. So I guess we'll move on a little bit to a little bit more my area of specialty. Real quickly, on Ethereum ETFs, levered, future Ethereum ETFs, there's been a bunch that have

been filed. We're almost a month in since they were filed. Typically, when these futures ETFs, they go through a different process than Spot Bitcoin ATFs. When these levered futures ETFs are filed, it's this other process. And usually when the SEC isn't going to allow something under this process, Rule 6C11, which we don't really need to get into, it's just specifically. special ETF rule. But usually what the SEC will do is they'll be like, all right, you have to

withdraw this. We're not allowing this through. This isn't going to happen. And you just see people just withdraw in mass. What happened with the first Ethereum futures ETFs is volatility shares and others basically said they were going to run the red light. And if the SEC wanted to stop them, they were going to have to sue them. And the SEC likely knew that they didn't, they were going to lose because they were already at that time they were going to lose the gray scale. So that means to us that we're a month in, it seems likely that we're going to see levered Ethereum futures ETFs. And the question I've been getting like all week and the week before is like, well, if those are going to be approved and we're going to call the Hong Kong ETS and that's happening,

doesn't that mean that like the Spot Ethereum ETFs are going to get approved here? So you're going to see delays for other ETFs here for Spot Ethereum. The deadline, the only deadline that matters is May 23rd, 24th for Van Eck and Arc. That's the equivalent of the spot Bitcoin ETF rate, which was the Jan 10th deadline. We're like 10, 15% odds of these things going through. It's just not going to happen. There's been no movement. We just think that these things are likely to be denied. I don't know if you guys have a different view there.

You just wanted to interrupt and ask you, what do you think? If you had to say what is the most likely high for an ETH ETF to be approved, spot one, right? When would that be? Sometime 25, like would it require new applications, that kind of thing? Yeah, so I mean, what we saw with the spot Bitcoin ETFs and what we're going to see here is they're going to get, as I said, I think they're going to be denied. And just like this by Bitcoin ETFs, everyone just refiles. We have some that aren't due until November. Like Bitwise is one of the last ones to enter and they're not due until the end of November for a decision.

I mean, you have to take a set. I don't think these things are going to get through until 2025. I'd say by the end of 2025, I think it could happen. That said, if the SEC goes out and like as the, we can talk about the consensus lawsuit real quick, if we want, but basically consensus is suing, going out and proactively suing the SEC on trying to get clarity on the fact that they believe the SEC thinks Ethereum as a security. So basically, the SEC has three options here coming up on May 23rd. They either approve, which, as I just said, not unlikely to happen, right? Or they find some other reason to deny these things or kick the can

down the road further. I think that's what they're going to do. I think that's what they're going to do. I think they might use correlations to do that, but there's no way to know for sure. I think there it's basically going to be a word salad legal jargon might be something that they like specifically if it's correlation it's fact-based like i don't think anyone can bring a lawsuit the way that gray scale did on bitcoin so then all of a sudden you just need the data to prove that the cc's argument then doesn't matter which i think the data if you look at the correlation data by this time next year by early 2025 the correlation will be strong enough even stronger than the bitcoin ets when they were proof so that falls to the wayside the third option is just denying saying

it's a security. I got to say it's crazy. The emphasis on correlation that it's been placed. I mean, it's absolutely insane. The year is 2024, and we're talking about this thing. It's insane that it was such a big driver

for the Bitcoin and TF. And I'm saying this because the futures and spot series are co-integrated. They're kind of like the same series driven by the same thing. So of course, the correlation is going to be almost perfect almost all the time.

Yeah, so like, I've gone in the weeds pretty deep on this correlation stuff. What you need to realize is Gensler and the SSC were backed into a corner as far as I'm concerned. Even the Democratic commissioners, Caroline Crenshaw, and I'm blank on the other one, they still dissented. They didn't want to approve Bitcoin ETFs. But Gary had to like, all right, we need to find a way that we can approve this. And they came up with this correlation analysis in their approval letter.

And like the last three years has been sufficiently correlated between futures markets and spot markets. But as you said, Alex, like anyone in this markets know, like, that's just kind of bonkers in a way. because the futures price is determined off of the underlying spot price based on a bunch of exchanges. So it's literally like an index that's based off underlying spot markets that determine the price of futures. So they're co-integrated, as you said, like this argument is wild. The problem is the futures themselves didn't really trade enough. You go back three years, they weren't trading enough. So if you look by minute my minute correlations or every five minute and like five-minute candles,

the correlation's all wonky. It's not great because there just weren't trades. But anytime there is trades, there's like a near 99% correlation between futures and spot. The argument the SEC would make is like, well, if they're not trading, then we can't detect any manipulations that happen in the spot market. But anytime there is trade, so like my recommendation would be just make sure every time there's a minute that goes by in a future contract doesn't trade, just trade it. And all of a sudden, the SEC loses the argument. So I think they're going to lean on something like that. It might not necessarily be exactly that.

I think they're just going to look forward to kick the can down the road a little bit further. And consensus is trying to force them into a corner. there's a lot of people trying to push them into a corner on declaring whether eth is security or not. One of my pet theories is I think the SECC, I don't think they'll be able to call ethos security in many ways that would put them at odds with the CFTC. They have a complete opposite stance. So I wonder if they're going to try to like thread some needle and basically say that state ETH specifically is a security and regularly ethism, which again, I'm not saying that's a logical way to look at things. But I think that's something that they're trying to do.

And I also think that Genzo and the SEC likely know they're going to lose some of these lawsuits. Do you think that there's, do you think the lack of kind of institutional interest in Ethereum is having an effect here? I mean, let me kind of like walk you through my hypothesis here, right? Like, GBDC was more or less the way to kind of get exposure to Bitcoin from an exchange trade and product sense for the most part. Yes, I know there's futures and all that kind of thing, right? But there's also ETH-E, and if you look at the AUMs of each of those, you know, call it free spot approval, Bitcoin ETF spot approval. It's like a fraction of Bitcoin.

And, you know, like if you talk to a lot of folks in Tradify, which I'm sure you do, James, I know Alex and I do as well. Like, you know, when they think of crypto, they think there's interest in Bitcoin. There has been interest in Bitcoin, right? And that's the stuff that you see folks like Tom Lee at Fundstrat have been talking about for a long time. Yes, they start, Fundstrat covers other cryptocurrencies as well. But it just feels like there was this sort of obvious pent up demand institutionally for this product. And yes, you have BlackRock.

And yes, you have all of these other, you know, calm conspiracy theories or not as to why the Bitcoin ECF would get approved. But from my anecdotal experience, speaking with folks, in Tradfai, particularly asset managers or PM or portfolio managers, like, there just isn't a ton of interest as it relates to Ethereum. And do you think this is true or is this, does this have any influence on like part of the reason why you guys have like a 10% approval chance in late May? It doesn't have much of an impact, to be honest, actually. I think no matter what, even if there was immense demand, I don't think it would matter. Gensler basically is only going to do it when he's forced to, it seems like. And basically

that's what happened with the gray scale and the Bitcoin ETFs. That said, I wholeheartedly agree with you. I mean, you don't even need to look at just ETH. You can look at the ETH futures ETFs launch. Like, you probably don't even remember it happening. Like, it happened in early October. And we thought our argument was that it was going to be a dud. So I thought it was going to be a dud. And it was even more of a dud than I expected. Right. So basically, no one really even cared. And I thought maybe it was because they're expecting spot to come because we think spot Bitcoin. and no one really likes futures. ETS, for the most part, they're inefficient.

They have to roll. There's a lot of inefficiencies there, right? But no matter how you slice it, when you talk to people, I talk to advisors at these different conferences, they just get the idea of like a digital alternative to gold. That makes more sense, even if it's like a five million times more volatile than gold and what have you. There's just this overwhelming, like, understanding there of,

they're just, I don't see the same interest for true defy on the Ethereum world. Could you imagine trying to explain? to a baby boomer, the Ethereum roadmap and why you should buy the futures ETF? It's the world's supercomputer, right? Yeah. I have another stat for you, though. Ironically, so like, go into the Hong Kong ETFs, the Hong Kong just launched spot Bitcoin, and spot Ethereum ETFs.

They're allowing in-kind and cash. U.S. we only have cash. But in Hong Kong, you're going to be allowed to exchange the underlying asset, Ethereum, Bitcoin, four shares at the ETF, which is huge. Everyone was so on how this was going to be a massive launch. it honestly wasn't that big of a dud. It kind of was on a trading side of things. It didn't trade all that much.

But to give you some numbers, so I've argued, so I think, do you know the number? What's Ethereum's market cap as a percentage of Bitcoin? 30-something percent, right? Right around 30. Is that about right? You guys know? I think mid-20s. You're somewhere in that ballpark, yeah.

So, like, my view is like, I think whatever the interest is in Spot Bitcoin, I think the interest for SpotEth will be like less. So when I last looked, it was 30%. So I was arguing we'd see. 15 to 20% of the demand for Heath. My boss, Eric Boutchionis thinks it's going to be 10% of less because he's not paying attention to this space really much at all unless it's in the ETF world,

and he's just not hearing any interest. But if you look at the Hong Kong one, so they launched on the same day, so far they've been trading, there was a holiday last week, so it was a bit of a dud, so you can't pay attention too much to the volume, but as a percent of trading,

the Ethereum ETFs in Hong Kong are about 15 to 16% of the total trading volume, but the assets are about 20%. So we have about $267 million dollars in the Bitcoin ETFs there and about 55 million in the Ethereum ETF. So it's not a complete wash. It's not completely nothing. It's just the people thinking that this was going to be a massive multi-billion dollar market immediately in the way that the U.S. was just didn't really understand the size of the markets here. I mean, the U.S. Spot Bitcoin ETFs are about 50 billion

in assets. The entire Hong Kong market is less than that. Every ETF, not just these crypto ones. That said, these things are trading heavily compared to their to their market. They're doing exceptionally well for their market. It's just like you can't control, you can't compare a market that's 47 billion dollars in size to a US ETF market that is nearly nine trillion in size. Like it's literally all the orders of magnitude. It's not really comparable. You mean you mean to tell me that the people on crypto Twitter sometimes get ahead of their skis on things? No, that's insane, dude. Yeah. Yeah. Well, the other problem is these things aren't going to be available to mainland Chinese investors. There are stock connects out there and different things like that. There are a few ETFs that are on there,

but it's hard to get on there. I think there's only six or seven ETS on the Stock Connect program. So one, it takes a long time for that to happen. And two, it just said from what my colleagues in Asia who are covering this, a lot more closely than I am, they're literally based in Hong Kong. They see like, no, there's no timeline for when they think these things could even be available to mainland Chinese investors. The one difference is, like, I guess if Xi Jinping decides that he wants mainland Chinese investors that have access to these things, it'll happen immediately. Alex, weren't you, I thought, I feel like you were way out in front of the Hong Kong thing

being like a total nothing burger and it wasn't going to affect anything. Was that, you were, you were out on, you were way out in front of this, right? Why did you have that? By speaking to people from Hong Kong, basically in Beijing, that working crypto there and the view that I got that it made total sense for me was that couple of things. One is the two, two things. The first one is Hong Kong investor zero. already have access to US ETFs. In fact, I think we checked the other day. We saw the other day that if we look at the top holders of iBit, like number one guy or the number two guy is a Hong Kong counterparty. So they already have access to USETs. So why Hong Kong ETFs, and as you need to have it denominated in Hong Kong dollars. And the other one was the 401k industry or the 401k's and pensions in Hong Kong is tiny.

So that is not there anymore. But anyhow, it's something I wanted to add here. It's just an interesting data point. It's not precise, but I recall looking at ETFs, launching an ETF and what it would take to basically break-even. And the number was about 30 million in AUM dollars to basically break-even. So, you know, at 50 mil, you're doing very well, and all the US ones, they're all doing extremely well, the managers.

Yeah. Yeah, they're all doing just fine. I mean, it depends on the fee that you're charging and like who your partners are and stuff like that. But for the most part, our rule of thumb is if you're over 50, you're probably doing at least okay. And if you're over 100, you're almost certainly making money unless you're in some, like, something that's costing you a real ton of money.

Like GBTC? Well, actually, James, that brings up a good point. I mean, I think Grayscale recently announced some, like, lower fee option, you know, Bitcoin ETF through Grayscale. Have you guys looked into that at all and what the difference is there? They're going to launch a GBC miniatrust. And actually, I have proof from three years ago arguing that this is what Gray Scale should do. They're doing a little differently. My argument was they should cut the fee a little bit when they launch GBT and then just keep it relatively high. Like, keep it way above the market and then launch a compete. mini product, which is something we've seen ETFs issuers do a bunch in the past.

So basically, they become these liquidity kings. Everyone uses them. There's people that are trapped in them for capital gains reasons if they're in taxable accounts. And the money will just stay there and they can milk those fees. But then what they'll do, rather than letting other people cannibalize their own assets, they'll be like, all right, we're just going to launch a very similar product at literally a fraction of the cost. And then we'll let people, if they're going to leave our stuff, hopefully they'll

stay with us and they'll go to other product. And we can attract flows so that other cheaper product can still compete. What they're doing is unique in something I have never seen before in this way, is they're launching a GBTC minitrust. It's going to be ticker BTC. I think the fee they said is 0.15%. Don't quote me on them exactly. And like 10% of GBDC's assets are just going to spin off directly into that thing.

So that's a way to basically, they're funding this mini trust. They're giving people who have stuck with them a long time. What will be the lowest cost ETF product for Bitcoin in the world. Actually, I guess there's technically zero fee ones, but they're lending out Bitcoin and stuff in Europe. the lowest cost one in the U.S. at the very least. So it's a very unique strategy. They're trying to keep people, and then we'll see how it plays out for them long term. But I think it's a smart move.

Long term, I mean, the way to think about everyone's like they need to lower the fees. One, they do. They've seen a lot of, I'm going to show a chart of their outflows. But it's been brutal for them. This chart is just absolutely insane. But at the same time, if you're used to making so 2% fees and you cut to 150 bips or 1.5%, that's a lot to like cut. Like that's going from 200k year to 150k year, let alone going down to 15,000 a year, which is what 15 Bips is, which is what they're doing with this GBTC mini trust. So they're

basically just trying to make sure they keep the revenue up without coming belly up. And as you see, that's been brutal for them. But on the end there, you can see a little green blips. So in the bottom chart of those bars, that's GBTC finally saw an inflow on Friday. We saw basically every ETF across the board see inflows on Friday. Even despite that, you were talking. about the outflows and things getting hammered midweek. The ETFs saw over 400 million in outflows last week, even with the Friday inflows. So last week was brutal for the Bitcoin ETFs, but they operated exactly as they're supposed to. They basically gave you exposure to the underlying asset. And anytime demand and supply were outstripped in one way or the other, we end up

with inflows and outflows. And they've been operating very smoothly. Yeah, I love this like one green blip here on the histogram. Everybody I know in Bitcoin and Crypto has just been hating on Grayscale for so long because of how punishing they have been to the bid side of the order book. And here we go, right? The week that we have, you know, a break of 59K, they run the stops down to 56.5. And I think it was like 500 million plus in outflows on May 1st, the day of the Fed. on Friday, you have the NFP print cuts get priced back into the market and GBTC actually has inflows.

I mean, you can't make this stuff up. This is only possible in a place like crypto where the kind of villain forever is now seen as almost a hero right when the bottom is in. I will say bottom and air quotes just because where we're trading today as opposed to on Wednesday last week at May 1st. Yeah, I would also add that I was talking about how efficient. they were operating, there is this one unique thing, Bloomberg actually wrote about at Bloomberg News, and they got, it's kind of got things wrong. You can see these, there was this massive discount when all that selling was happening, but the way that, that only really happened because of the way that these ETFs and their nav is calculated. So the underlying value of the Bitcoin

is calculated over a time weighted average from 3 p.m. to 4 p.m. because that's how the CME Bitcoin futures market works, the CF benchmarks, Bitcoin rate. So what happened is Bitcoin was just tanking every single day. So basically it was starting 3 o'clock at one price and ending 4 o'clock at another price. And it made it look like there was these discounts and all these ETS for mispricing. And people were latching onto that. But really, it was just like, no, the underlying value of the Bitcoin is taken out an average of over that hour. And those two days, both days, we saw massive selling into the close of equity markets.

So that's one unique thing I would point out to people that were concerned about issues with these ETS. They're still operating exactly as they're supposed to. And if you look at the underlying value of the Bitcoin, the ETSs are tracking them neck and neck very, very, very closely. Yeah. I mean, for me, it seems like flows continue to drive the story here. I mean, Alex, what do you think? Where do you think we are in the cycle right now? You know, like we had a ripper of a Q1.

We had a pretty big draw in April. May seems to be some recovery. Like, where's your head at as it relates to the cycle right now? I think it's a different kind of cycle, to be honest. time on the super cycle boat. So if people like to hate about that, but it just makes sense. Like on one hand,

the thing is on the macro side of things, on macroeconomics, the economy, the global economy is what you could call early stage. And you could see this by basically industrials and manufacturing for the first time in years. And it just started a few months ago,

starting to grow and not just grow. This is happening across, the world. It's not just the US. And you can also see this and basically the price of copper wrapping ramping up. So on the econ side of things, it's early cycle. On the risk as a side of things, we get got ahead of ourselves as we always do. I mean, that's how markets operate. So it kind of makes sense for the slope of things to be shadower with like periods of volatility coming in and every now and then, like we just happened, making people panic about the end of things. I think Bitcoin has a long way to go, and I think equities have a long way to go.

This could be something like the 90s, and we're in like 1997. The bursting of the bubble is, I don't see it at all. What do you think? Yeah, I mean, depending on how you define super cycle is whether or not I agree with you, but I think you're bang on with the kind of the commodity cycle. even like manufacturing in the United States is just ripping right now. The price of lumber is collapsing. The price of oil is collapsing.

I saw a stat that blew my mind today that there's only two states in the United States where home inventory is dropping. So you have inventory rising in every single state except Nevada, which I think is minus 12 percent. And the state of New York, which is minus one. So call it flat, if you will. 48 states are seeing rise as an inventory of, homes. So they're just, I don't know, to me, it doesn't feel like from a macro perspective, we're anywhere close to this sort of, you know, cycle top, if you always chatting with a friend

over the weekend, he's like, you think S&P goes to 6,000? I was like, minimum. Like, look at what just happened with the Fed this past week. The Treasury's adding liquidity in the system. You know, if, if Jenny Elegon can buy off the run bonds in the market, particularly the long end of the curve, like 30 year. It's not YCC. It's not yield curve control, but kind of looks like it. If she can kind of keep a lid on that interest expense 30 years out, it's great. The Fed can handle the front end of the curve, right, if they end up cutting rates as well. So to me, it feels like just looking at it from that perspective, suggests we've got a pretty long way to go. And I was chatting with Raoul Paul last week, and he had an idea that I tend to agree with.

I'd love to get your guys' thoughts on this, that I think a lot of people are underweight the right tail of the distribution of outcomes, meaning, you know, just crazy bonkers rise, particularly in crypto, to say something like, you know, 10 trillion total market cap or something to that effect. I see a lot of chatter. Some folks I completely discount saying that the top is in for Bitcoin. That's nonsense, in my opinion. Other folks saying that They're, you know, that were probably getting to like 100K Bitcoin, maybe 110, 110, 115. I don't see hardly anybody really beyond like Kathy Wood, right? Like anyone's suggesting that, that, you know, Bitcoin could be traded in 250, 300K,

that, you know, Ethereum's trading 10,000, Salon is trading 1,000. Like, I don't really see a lot of that. And that actually makes me even more bullish and increasing the probability of the right tail actually occurring over the course of the next, call it 12, 18, 24 months, something for that effect. So are people actually, from your perspective, James or Alex, like, underweight the right tail here as it relates to, you know, a potential super cycle or bubble? Yeah. All right.

Well, you guys are getting ready to start up the second three hours capital with all this super cycle talk. I'm going to throw out there. Just to be clear, Kathy, I think, said 3.8 million was the number, like, over some extended time period and 1.5 million by 2030. So, yeah, she's definitely not, she's definitely not underweight the right tail. But I'll let Alex answer the question first. Oh, I think it's a matter of, I mean, we keep on repeating this,

but it's simple PTSD. I mean, when you suffered such an insane drawdown and crashed as we did in 22, it's very hard to trust what comes afterwards, especially when actually things don't look that great and you're always concerned about inflation, you're concerned about housing, and you're concerned about everything, geopolitics, is there's so many things going on to keep people that overthink it very concerned.

Now, back into where we're in the cycle, it's like we are at $5,200 on the S&P, and the Fed hasn't even started to cut rates. Exactly. That's the point. And they will. 100%. They will. Okay, maybe not 100%, maybe 90%.

Maybe something really bad happens. and inflation starts spiking up again. I haven't seen, I don't know of you guys, I haven't seen a single solid analysis justifying for inflation to basically reverse trend start going up. I haven't seen it. Well, I mean, yeah, look at,

look at lumber and oil, all of these things that went, you know, limit up seemingly every day. Those are all crashing, collapsing now, right? Yeah, it's the services stuff that's going up right now, right? I think that's what's keeping everything and housing. Ironically enough, the high rates are almost keeping housing high

because the building is almost completely stopped in certain areas, which is ironic enough. I mean, the flip side of this, I would say, is like we're at record levels of assets and money market funds. So there's a lot of cash on there. So I guess, yeah, maybe you're right. There is a lot of people that still haven't fully bought in. On the same side, like, I talk to plenty of people.

And it really, like, particularly in this space, when I talk to people at different, these crypto type events, It doesn't seem like anyone's underweight the right tail. It seems like people are very risk-seeking in this space. So I guess due with that information with you, that's completely anecdotal. But yeah, there definitely seems to be a lot of tepidness from like the data that I look at in the Tradify world.

I mean, rates are so high. If you can get over 5% in a money market fund right now, and like, yeah, maybe you could earn like double that or maybe more in like equities or something else, but there's plenty of people that are just fine sitting on that. Um, so yeah. Your point about the, the money market funds is,

is super, super important because, you know, Janie Ellen said she's going to continue to issue T bills, right? She's basically going to continue to fund, uh, the government by issuing short dated paper.

And if you can still earn five and a half percent annualized for a four week T bill, I mean, that's pretty good, right? But at some point, at some point, you know,

um, I think folks are going to end up, you know, emptying the coffers are certainly starting to slowly drain it out of there because they're going to see the mag seven ripping again s and p makes new all-time highs and you know five and a half percent you know if you're if you're a pension fund and you need to hit your seven eight percent annual target sure right like yeah i'm they have loads of fixed income already in their portfolios but other folks retail uh portfolio managers etc like you're going to end up seeing that cash chase risk especially at

the dollar actually starts to drop in value, which it's, in my opinion, has, has topped. And as that continues to decline in value, like, people are less likely going to just be parking their cash in a five or five and a half percent money market fund, which also, you know, if you look at real rates right now, like for the, for the Fed to be running real rate, a tightening policy as high as they, as they have for this long with real rates as high as they are, um, something. something's got to give there. And when when the cycle turns, the real rates tend to not stay as high as they have been for this long. So that's another thing I think is an important indicator to kind of keep track of is how real rates actually respond to, you know, a weakening dollar,

potentially rate cuts, as well as, you know, I would say lower volatility in the bond market. If they can kind of do this, you know, kind of think of yelling and Powell as like, Kobe and Shaq, one controlling the front end of the curve, the other just controlling the back. Yeah, I mean, talking about real rates, I guess we should explain to make sure people understand. Basically, he's talking about the difference in the fact that I know there's probably a lot of to be able to listen to this, don't trust the government data on inflation, but essentially the interest rates that the Fed is offering right now is above what the official inflation rates are. So it's technically, what's the word, restrictive, if you will.

So by cutting rates, that would be less restrictive or doveish or what have you. So that's what Joe was speaking about there for those of you who weren't able to follow. We're finishing up here. We only got a couple of things left. Robin Hood just got a Wells notice. Does anyone have any strong opinions on seeing Robin Hood getting Wells notice here relation to some of their crypto movements? Not really.

I mean, it was kind of like prime for a little correction, tiny correction. If you're looking at intraday charts, it's like the news hits right after Bitcoin does a little stops around on the upside and reverses, so you have a lot of trapped lungs. And then you get the news, and it kind of like makes sense to have a correction here. But that aside, it looks like a minor story. Yeah, I feel like these things are going to continue.

It's almost like are they kind of politically jockeying themselves because they know they kind of, the cat is out of the bag, so to speak, or the genie is out of the box. however you want to look at it. Because almost to the tick, the headline hits and these momentum ignition algorithms, which are market abuse algorithms, just hammered Bitcoin. But other assets, you know, they pulled back to from a kind of correlation trade.

But pretty much, you know, as we sit here now, Bitcoin's down 90 bips on the day. And it was down quite a bit more when after the headline came out and during, U.S. stock trading hours, some of these other alts are brushing it off. I think that that is actually pretty, pretty telling. And also, you know, we saw this last week when all coins and Bitcoin specifically plunged to the depths that they did, there was kind of like bad news, if you will, and the market was kind of started bottom on bad news. And so it feels like we're in one of these scenarios now where bad news is good news and good news is bad news, like everything is good news. Because, I mean, let's be honest, if this would have been, you know, the second

week of April, I think, I think the market would have reacted very differently to the, to the Wells notice for Robin Hood. Yeah. I mean, it's just kind of like, I think everyone's kind of respecting it, like, Coinbase, Cracken. Robin Hood's also, like, publicly traded and doing this stuff. It's like, oh, yeah, it kind of makes sense. I mean, I'm of the opinion that, one, this stuff isn't going to stop anytime soon. It's evident that this is the desire of the left wing in the Democratic Party specifically. It looks like this is what this SEC administration is going to keep doing. And the only way some of this stuff might change, even then there's no guarantee, as if we get a different administration in the White House come to fall. So, yeah, in my view,

I was like, oh, just fitting. Like, everyone's just kind of like, okay, we know the government isn't a fan of this stuff. It kind of is what it is. And we know they have problems with broker dealers touching this stuff. And they don't really have any rules that anyone can abide. by, but what's that one company that was able to get the special purpose broker dealer? I'm blanking on it. He's been on a bunch of podcasts. Yeah, yeah, exactly. They're the only ones. They don't even have a business and they're the only ones that were able to qualify for this. So I don't know. It's kind of crazy to me. It's kind of crazy to me that this is the world we live in, but here we are. They don't even have a business and they were able to get approved. Yeah. Perfect.

Yeah. And everyone who does have a business says it's unworkable and can't make it work. And here we are. That's exactly. All right. Next one, tether earnings real quick. I feel like we have to look at, can we talk about the fact that tether, like, reported earning $4.5 billion in Q1 with, I don't, does anyone know how many employees they have? It's got to be like less than 20.

I don't even know what it is. Tiny. It's supposed to be 20. Is it 20? Okay. There you go. I mean, that is, that has to be the most profitable per employee company in the entire world. I mean, I mean, maybe, no, even then.

I was going to say some oil company in the Middle East, but that's a well fun. They have a lot of workers. Yeah, yeah, they have too many workers for them to take over. But yeah, this is, I mean, that's after earning 2.9 in Q4 of last year. I mean, I mean, that's one use case. Like, everyone's like, where is the use case for blockchain and crypto in this world? And it's like, well, Heather's found it. However, whatever sketchiness you might view and look at that space for, it's definitely found a product market fit.

And the way things work by the time, everybody has their own stable coins, rates going to go down, the yield is going to compress, and basically it's going to still remain to be better. You see what I mean? It's like right now it's so profitable to be running your own stable coin.

Oh my gosh. And if you're not offering yield? Yeah. Yeah, look, I mean, the two killer use cases for crypto thus far are speculation and stable coins. So I'm not surprised. I'm not surprised if you have,

if you have as much, you know, Tether issued as Tether does, and they go by short-dated paper from the federal government earning 5% on it, I mean, that's a pretty good business, especially when you don't have to share any of the interest that you're earning, right? I mean, Circle has a very similar business, right? But they're running towards regulators, whereas Tether is clearly not, at least from my understanding. They're working with them a little more now than they used to, for sure. But it's still not in the same way that USDC and Circle have gone about things. Yeah, but I mean, it's a similar business, certainly unlike the net interest income.

You know, Circle makes money off of the USC that is issued by taking that cash and parking in their BlackRock Money Market Fund that earns whatever, call it roughly 5%, something that effect. That's a great business. I think Circle has a much bigger business, especially what they're doing with Web3 services, to kind of make USC permeated as sort of the dollar. protocol, if you will, within the internet and Web3 more broadly. Tether, on the other hand, just has an enormous reach. They were first and they're seemingly everywhere. And you can go

to certain parts of the world where merchants, like I think in Dubai, people just transact with tether. There's lots of the places where you can actually just, you know, at a coffee shop, some merchant, et cetera, accepts tether. And that is actually very sticky. So, you know, hats off to the tether team for, you know, printing as much money, pardon the pun, in what they're doing. Because, man, what an unbelievable story, especially given how so many people have been forever trying to, you know, poo-poo this business. The number of people that have been trying to short tether for so long and just not

happening. I mean, at some point, you just got to throw in the towel and say, all right, They're either here to stay. There's going to be competition in the space. But those numbers just, they don't lie. I mean, imagine if they were to short the equity of tether the company or whatever the actual company name is for shorting. I mean, they just pumped out a $4.5 billion quarter.

Those people would be into oblivion. Exactly. Sorry, go ahead, Alex. You were going to say something. I was just going to say, yeah, it's people being hating on, especially macro people and tried by people being hating on debtor for so. long to the point that many fans would even not even get into crypto just because of Tether and it's it's quite remarkable how we've gone from from absolute heart rate towards

Tether to acceptance to now kind of like an incipient admiration from from people from the outside right so yeah what what they've done is incredible hats off and and it's going to be very hard to displace them because they have network effects now they are everywhere it's yeah yeah the one thing i would add here is like all the stuff we talked about one i there's obviously a lot of other things that tether's done in the past that is part of the reason why everyone's scared of them which we don't need to get into but one thing i just don't understand is why the u.s. government and congress like they just get a stable coin bill it sounds like it's likely to happen actually potentially this year but like it just makes so much sense like people want your dollars

around the world it will help keep dollar hegemony which we already have in the world i just don't know why they're so against, like, promoting this and setting up rules and regulations around it. It's basically like another euro dollar market. I'm put nowhere near the first person to say this, but, like, you're, you're exporting dollars around the world. Like, I don't understand the argument here against why you think this is a bad thing, as long as, like, you know how it works. The thing is, the problem is that you're making sense. You can't make sense. This is Washington, D.C., right? It's all, there's all this, like, force trading that goes on, right? I mean, you know, I heard from a source of mine who works in DC that, and this is, I mean, this is now after the fact that,

you know, Chuck Schumer was looking at getting cannabis legalized at a federal level as, you know, kind of this bargaining chip as it relates to getting a Stamblecoy bill passed, but which Stablecoin bill or the version of it, would it be the Republicans version or, you know, a bipartisan one, et cetera, et cetera. Well, so far the the same little coin bill hasn't been passed. he got his cannabis legalization, right? Or at least it's, I don't know where the process is right now. But that's what's so frustrating, certainly as an American taxpayer and voting citizen, to see something that is so clearly beneficial to the United States be horse traded back and forth while the rest of the world is kind of moving on without us. It's just, it's so frustrating.

I think we will eventually get there as well. know if it will happen in the election year, but I do feel like there's a path in some way, shape, or form that a stablecoin bill is going to get passed. And look, like PayPal is involved, obviously circles involved. There's going to be other folks that are going to be trying to go down this path. And, you know, when PayPal kind of put their hat in the ring, you know, this is a publicly traded company of material size and they're willing to take the risk to go down this path. It's, it's hard for me to see a scenario that PayPal makes that decision if they feel that, you know, they're going to get slapped by the SEC for something or that a stable coin bill

isn't going to actually pass. Yeah. I mean, my colleagues down in DC, I have a colleague Nathan D. who kind of covers this and he thinks there's, he basically said there's almost no shot of a market structure bill for crypto getting through, but he does think there's a decent chance that we get some sort of clarity for the first time in this space on what's for. going to be required and happen to stable coins or crypto dollars, as I like to call them sometimes. Anything to add, Alex?

No, no, no. I'd be hearing the same. Same thing. Yeah. And then last thing before we go, last week, CZ got sentenced to four months in prison right after, yeah, hold on the number four, right after he also paid $4 billion in fines. I guess quick thoughts, Alex, what was the way you were looking at that? And his net worth is 44 billion Singapore dollars.

Nothing. I don't know ZC. I'm just happy for him. He's been an incredible figure for the industry. Everybody who knows him speaks so well of him and Binance is still out there. Fans have been saffo, as he says. And clearly they have had so many chances to run away with the money and still there. So it's, I think it's a good ending for.

for the story and then hopefully the industry can use that to move forward to the next stage which is a very welcome increase regulation right across the world yeah I mean only in crypto could CZ

tweet years ago four to end up making $4 billion in fines and get four months in jail it's just you know I have this running joke with friends of mine, especially people that work with me in asymmetric,

I'm like, once you work in crypto, can you possibly work in any other industry? You cannot get this level of entertainment anywhere. And the fact that it was four months, I mean, at first, I thought it was fake news. And then I was like, no, no, it's actually real. He's getting four months. Unbelievable. Yeah, the headline that I saw initially said five months, because I think people were saying he was thinking about five months and then the judge changed it to four months. So like, they got it wrong. And then I was like, Mike got the guy sitting next to me. It was like, do you hear you got four months? He's like, no, he didn't. I just saw five months, 30 seconds ago. And I sure enough went back. I was like, this, you cannot make this shit up. But I mean, honestly, he blatantly broke the law. And, you know, he needed, they weren't just going to let him go without serving any time whatsoever. But it's basically a slap on the rest. So he definitely gave somebody a lot of information and obviously kept people's assets safe. So, um, yeah, I'm sure. This won't be the last we hear of him or of it. So he'll still be around. I mean, he's, I think they said he's going to be the, he's going to be the richest person ever in U.S. history to be in prison, which is. It's just fitting for this industry, honestly.

Yeah, totally. I can't wait for the Netflix series. I wouldn't be surprised if there is one. Four seasons. All right, I think that's about it for this week. Thanks for joining us for this episode of Bits and Bips. We'll be back in two weeks to discuss more about how the world of crypto and macro or collide. Until then, talk soon.

Thank you, guys. Thanks. Hey, guys.