Unchained - Bits + Bips: Ethereum and Solana ETFs and Why Crypto Is Poised for a Breakout - Ep. 668

Episode Date: July 3, 2024

Are Solana ETFs on the brink of approval? How might political outcomes influence this decision?  Join hosts James Seyffart, Alex Kruger, and Joe McCann as they delve into the latest buzz around Solana’s potential spot ETFs, dissect the SEC's puzzling delay on Ethereum ETFs, and debate why Bitcoin’s recent performance has diverged from the NASDAQ. They also discuss the U.S. presidential election, the event that Alex says was the “second most bizarre thing” he’s seen in his life, what the bond market seems to indicate about expectations for a Trump presidency, and how upcoming nonfarm payroll reports and potential rate might affect the markets.  Show highlights: 00:00 Intro 01:47 How political outcomes might influence the approval of spot Solana ETFs 04:16 Whether futures ETFs are 100% needed for an approval of spot crypto ETFs 09:26 The high premium on Grayscale's Solana Trust (GSOL) 13:50 How the outcome of the 2024 U.S. presidential election could impact the crypto industry 20:55 Why the SEC delayed the launch of the Ethereum ETF 24:53 How the upcoming nonfarm payroll report and potential rate cuts impact market volatility and the Federal Reserve's decisions 27:51 How the rise of populist candidates in France and changes in currency markets might affect the US dollar and the broader economic landscape 31:40 How Bitcoin, Ethereum, and Solana performed in Q2, and the surprising outperformance of BONK 34:45 Why Bitcoin's performance diverged from the Nasdaq's recent rally 45:48 How recent movements in long-term bond rates are linked to political changes, such as the rise of right-wing populism and concerns about fiscal responsibility 52:45 How FTX creditors could potentially influence market dynamics, and the irony in the US government using Coinbase as a custodian 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

I think it's very interesting what's happening on the long rates. Basically, long rates is bonds with very long, the longest maturity or duration. So basically right now, its rates are rallying quite, I mean, sorry, bonds are tanking. It's been very significant move today. We have, what is it? The third year futures down 1.6%.

That's a rather very large move. And do not think it's a coincidence. I think this is basically being driven by this is the Trump trade and the European trade on basically the right taking over politics. And the market is getting concerned about fiscal responsibility. Hi, everyone. Welcome to Bits and Bips, exploring how crypto and macro collide one basis point at a time. I'm your host, James Safert, Tradfai Archmaster, Lord of Bloomberg's End. I'm here with Joe McCann, Lord Commander of Asymmetric, and Master of Bonk.

We're here to discuss the latest stories in the worlds of crypto and macro news. Just remember nothing we say here is investment advice. Check unchained crypto.com slash bits and bips for more disclosures. Yeah, we're missing Alex this week. So it's a holiday week. It's July 4th week. It's going to be a relatively short podcast. But apparently Alex, our Argentinian friend, is celebrating July 4th a little early.

So we're going to have to do this one without him. Classic Argentinian. We love you, Alex. Just kidding. Yeah, I mean, so there's honestly, there really hasn't been much for us to discuss here. Everything kind of happened. We had a lot of stuff to talk about last time. I think we went.

That was our longest episode yet, and we probably could have kept going for another 30 minutes if we really wanted to. Well, you know, James, there is one thing. One thing that happened last week. Do you have any idea what that one was? that you said we were going to get a Salana ETF? I'm just taking a small victory lap again. Now, look, yeah, the Salon of ETF news. I mean, I think about a month ago when we were doing the pot,

I had this view that Salon would probably be next. Now, granted, to be clear, we were talking about the approval. We weren't talking about necessarily just the filing, but can you kind of give the back? story on what happened last week with Vanek at 21 shares and we can kind of dive in from there. So we're recording this on Monday, July 1st, just so we timestamp in case something changes by the time this goes out. But Vanek dropped a surprise filing, a prospectus document known as an S1 for a Salonah Trust ETF. So Vanek basically is throwing in their hat in the ring to

launch hopefully the first Salata ETF. That was Thursday. On Friday, the next day, 21 shares actually filed to launch their own Solana ETF. That said, there are some nuances here, right? So first of all, this, as far as I'm concerned, is a call option on Trump winning the election. Right. So this is a bet that if Trump wins the election, he's going to have somebody at the SEC, that's going to be much more favorable to crypto. We can talk about and go into the nitty gritty weeds of what that means down the line.

But the one thing I do want to say is these S1 documents do not start the So every time we talk with these ETS, we have these deadlines, these dates of when the SEC has to respond and ultimately to make a decision. This clock has not started with the S-1s. The S-1s is basically what those Ethereum ETS, which we'll talk to a bit, are going through right now. The 19B4 documents are what these issuers, they'll partner with in exchange, and they'll file those. Once those are filed, the SEC accepts them, that's when the clock starts. So assuming, like, even if they filed today, the final deadline for these salient of ETFs is going to be sometime

around March 17th, 18th-ish range. So we're still looking out of ways out before we even get a final deadline. That said, we haven't even had a filing for the 19B4s. So both of these guys, I believe we'll be listing with CBOE. So we'll see some sort of filing, most likely over the coming days or weeks, I guess, if they really think this is possible. But time will tell. Do you think there's an argument that's been made around any of these crypto ETS,

Bitcoin and Ethereum needing a futures market like on the CME. And I think Van X argument was that it's actually not actually necessary, but thus far, it feels like that's the clear path. And so although, and maybe you can share a little bit more about what this means, but although you may not necessarily need to have a futures market on the CME to launch a spot ETF, it feels like that's kind of what's necessary. Yeah, I mean, I tend to actually agree. So that was Matt Siegel at Van Eck, their head of research or digital asset research,

to be specific. And he basically said focusing on needing a regulated futures market is dumb, literally what he said on Twitter are stupid. He said, use the word stupid. There's plenty of examples of ETFs that don't have that type of situation that hold commodities and other types of assets. You don't have a regulated futures market. for them to surveil. So that's a good point to make. The problem is, as you said,

like the precedent that has been set over the last, over decade now, 11 years or so, the SEC has been denying these, first of it was Bitcoin ETFs, but they've been denying or accepting ETFs stating the need for an underlying regulated market. They were saying of significant size for a long time. When they approved the Bitcoin ETFs, they basically said the CME is not of significant size, but the courts are forcing them and the same reason they're approved the Ethereum, ETFs that there's enough correlation there for them to detect what's going on. So the CME is regulated by the CFTC, which is a SEC sister agency. So right now, the only way that we know of getting this through, at least this current SEC administration is, as you said, like the steps go,

launch a CME or launch a CFTC regulated futures market, allow that market to build up history, volume, open interest, all these things do you need to make sure that it has enough correlation and there's enough action going on there. Then you launch a futures ETF based on those futures. And then all of a sudden, the SEC is backed into the corner and they kind of have to approve of a spot ETF. That's what happened with Ethereum. That's what I would have Bitcoin.

But theoretically, you don't need that. We saw with BlackRock filing for the Bitcoin ETF last summer, the reason why we got basically bullish in the possibility was something that actually didn't even matter. They said they were going to have a surveillance share agreement with a North American crypto exchange. In that case, it ended up being Coinbased. And our view at the time was that should be enough to satisfy the SEC's concerns. If the futures market isn't enough, having the futures market in combination with the surveillance sharing agreement with Coinbase, that should be enough.

So in my mind, like if they can get surveillance sharing agreements with Coinbase, with Cracken, finance now that it's basically compliant of under control of the federal government, there's all these things that like, yeah, it makes sense. It should be able to get some more of these assets. The problem is, one, the SEC is actively claiming Salada to be a security. Just not one minor hang up. Yeah, they're also in active litigation against Coinbase and Cracken and now MetaMask, consensus via MetaMask. So they're still like not okay with all this stuff. So basically my view is like this ain't happening unless an act of Congress comes in and

gives us a market structure bill. Fit 21 isn't getting through the way it's currently structured as far as I understand. Or you get a completely new admin. Trump wins the election and puts somebody who's just so pro-crypto that they let this happen in March. So I'm I still think it's unlike even if Trump wins, I think it's unlikely to happen in March. But if Trump wins, I think 2025 is on the table, uh, depending on what he does at the SEC. That said, when Gary Gensler was going to the SEC, I was like, oh, we're definitely getting Bitcoin ETFs. This dude is teaching blockchain at MIT. So we'll be set. So I, I won't hold my

breath for anything. There's a lot of things that still need to happen. But obviously, I mean, a lot of people, I've seen a galaxy referred to Salon as the third chain. I think it's pretty evident that it's basically become Bitcoin, Ethereum, and then Salana is the third chain, as far as I'm concerned. I tend to agree with it. So it makes sense. This would be them trying to get another ETF for. And why not? Why not push the envelope? Why not try to have a conversation with the SEC about it? Well, look, I mean, I don't have to tell you the ETF pro how these asset managers and issuers make money, right? You know, continuing to launch new products is a very, very valuable business. And, you know, BlackRock has come out and said that they plan on tokenizing

everything. And so if the world's largest asset manager has that view, it's not a stretch to see the potential for slant on ETF, which is why I had this view back in May. And a lot of it has to do with what I'll repeat, which is that a lot of folks in Tradfai have kind of, they kind of either weren't able to invest in crypto last cycle and or just flat out missed Ethereum. And, whether people like it or not, people see Solana as a potential catch-up trade on a relative value basis. And so if you look at like G-Sol, which is Grayscale's Salana Trust, I mean, I don't know if you can pull that one up. The premium to nav on that instrument alone is, I got to, I mean, I'm not an ETF issue and probably never will be. But like, if I look at the G-Sol premium to nav and go, why don't we just try to launch our own ETF?

Yeah, I mean, look at this. 400%. Right. So do you think there's demand for this product? Right? So, you know, and granted, like a premium doesn't necessarily directly imply demand, but I mean, come on, right? You had Bitcoin and Ethereum, so, you know, GBTC and Eth E trading at significant discounts for quite some time. And yes, there was probably some basis trades involved in that. You don't really have that option just yet with Solana. I look at something like G-Soul and then the fact that, you know,

Vanek. Vanek has frankly been bullish on Salonah for quite some time. I mean, they had a bullish call of a price target of like $3,300 or something. And, you know, I'm not a huge fan of price targets because obviously they're just made up. But like, Vanek is not some tiny little startup putting this type of information out there. And the fact that they're putting wood behind the arrow of being first to market with trying to get a Salana spot ETF approved. I mean, it feels again like, I hate to say it. It seems like Solana is the obvious choice.

And to your point, you've got institutional shops like Galaxy and others who have likely made significant amounts of money off of Ethereum finally kind of coming around to the idea that, hey, like this chain isn't going away.

There's a lot of activity on it. It's fundamentally different in the way that it's designed and the types of use cases are very, very different than what you would end up with something on Ethereum or even Bitcoin with Bitcoin's Layer 2s as well. And I think that's also evident from folks like GCR.

I mean, the post that GCR put out was if a spot ETF gets approved, there's an 8.9x potential increase in Salonis price, right? Again, you start talking to the Raoul Pauls of the world, who are big Salonabals, have massive platforms with lots of people that are listening to him and his perspective. And you see things like GCR suggesting an 8.9x or Van X saying, $3,300 a token, it's not that difficult to see a world where people end up getting exposure to this just on the speculative nature of how high this thing could actually go.

Yeah, I mean, just to put the numbers in perspective on what's going on with G-Soul, that thing has like $70 million worth of soul inside of it. But right now it's trading as though it has $530 million of soul inside of it. That's what the premium means. So those numbers are a little crazy. But yeah, these issuers are. They're going to try to launch and they're going to push the envelope. And I mean, honestly, if you're Van Neck or 21 shares, like, you're up competing against BlackRock and Fidelity,

which are two of the biggest asset managers, not just in the U.S., but just flat out in the world with, like, massive reach. And you've got to kind of push the envelope if you want to compete with them. You've got to be first. Lately, the SEC has basically been forcing everyone to launch at the same time. I suspect at some point that's got to stop because that's not how they've handled other things. Otherwise, they've got to basically make it part of their initiative or make it. It's stated that that's the way they're going to handle things going forward. That'll be very interesting to see what they do.

I don't think that's the right way because you're basically, in one way, I understand why they didn't allow the Bitcoin Ethereum guys, like for the Bitcoin ETFs and the Ethereum ETF to launch separately. They run them all at the same time. Everyone had been trying to file. It makes complete sense, right? But at the same time, by making everyone go at the same time, yeah, you're not picking a winner in the sense that you're not letting some random person go first and get all the

money like they did with the pro shares futures ETF. But at the same time, if you're just letting black, Rock go at the same time as every other issue or like they have like that's just not fair in a white you're basically picking the winner that says you're picking Black Rock, which is no shade to Black Rock. I mean, good for them. But there's a lot of nuance here in the way they need to handle this. But I think 2025 it's a possibility with Trump winning. I mean, after that debate, I don't know if you want to say anything about debate, but I mean, Biden did not, did not give me any confidence in his ability to run the country. I think everyone's kind of in the same boat here. So

if Trump wins and hold his promises, right, to be. bullish crypto and take care of crypto, anything can happen in 2025. Who knows? I was on a podcast a couple of weeks ago talking about the election and I'll kind of reiterate my position on this. It's like from a from crypto's perspective, it almost doesn't matter who gets elected in my opinion because Trump has clearly come out gigab bullish on crypto and and all of the sudden has tapped into a, let's call it fervent online community of supporters. And by the in his reelection team, you know, and I think his administration as well has had to kind of 180 on this topic. Now, sadly, for all of us in crypto, that topic didn't come up on the debate.

However, I do want to remind folks that, you know, the job of a politician is to either is to get elected and stay elected. And so, you know, irrespective of your ethical views on Trump or Biden, like they will say anything to get elected. Like that is how it works. And in some cases, yes, they do need to follow through with certain aspects of what they ran on. And you saw this with Trump and his, you know, the folks that he got into the Supreme Court. You saw this with Biden with some of his, you know, it's called it social or identity

politics and policy, identity policies that he decided to run on and put into place. Does that mean they will follow through with that with crypto? who knows? To your point, like, when Gary Gensler became the head of the SEC, we're like, the dude literally taught blockchain at MIT, like, this is a slam dunk. And look what happened. The Beltway got a hold of him. And before you know it, you know, he becomes a full-blown politician. So I do think it is worth mentioning, you know, the betting markets as well as like the meme coins associated with Trump and Biden. Like, look, I'm not going to take any political sides here. but I think it's hard to argue that Biden did well during that debate.

I mean, I'm trying to be really diplomatic here, but and Trump is just a, you know, sociopathic liar. So like, those are kind of your options. He looked healthy and like he would survive for over years. He lied a lot. I was at a friend's house watching the debate and I was, you know, and we kind of created a drinking game whenever you know Trump does one of these of his hands got to drink but like we were we were drunk within like eight minutes just kidding um but uh no look we i was i was looking at the tv

going like so you have you know our options are like a lucid cogent sociopath and like a translucent cadaver like that's what it felt like and i know that's mean and aggressive you guys can beat me up in the comments or whatever i just couldn't believe what i was watching but that's where we're at. And so, well, what does this mean from like the markets perspective? Because that to me is kind of the ultimate arbiter of what matters, it matters in terms of like the potential outcome, right? So the betting markets now have Biden plummeting at a 19, 1,9% chance of winning. Trump is in the 50s. And you see folks like Gavin Newsom and even Michelle Obama rising in the ranks in terms of the potential for them to actually win the election. But what was also interesting to me is that

both the Bodin and Trump meme coins plummeted during the debate. It was kind of like a sell the news for both candidates. So I don't think the meme coins were actually a strong signal. The betting markets on the other hand, I mean, unless there is some unbelievable black magic that they've got cooked up with the Biden reelection team, it's hard to currently see him winning. That being said, there's a lot. there's a lot of time between now and November. And if you look back to the 2020, the 2016, specifically the 2016 election,

a lot of stuff changed in those, you know, even like the last weeks heading up until people went to the ballot. So I don't think this is a wrap for either candidate. I think the Biden administration has some work to do clearly. I do want to come out, and this might be somewhat contrarian because everything I've seen in the media, whether it's FinTwit, traditional media, political media, so many people are talking about Biden actually stepping down and having someone else come in. And I kind of like, I walk through the game theory of this.

And I'm like, if you step down and the Democrats lose, then they can blame the fact that, you know, oh, we should have stayed the course changing at the last minute was a bad idea. If they win after him dropping out, then, oh, you know, this was, we have a new Trump slayer and Biden put his country first. You could just see how they could spin this type of stuff. But I think what's more important is, is the idea that the folks that are in Biden's orbit, so whether that's his family, it's his staff, and his administration, et cetera, like, D.C. is about power. And they are closest to the most powerful person on the planet, and you tend to not tell that person to step out of a position of power.

So I don't actually believe, barring some, like, clear, you know, medical reason, I don't see Biden stepping down. And I could be dead wrong about this. There are obviously paths to him stepping down. But I just don't think that's how it's going to work. This is his legacy. This is what he's wanted his entire career. His wife is cheering him on.

his family and his administration are all still saying, you know, stick it out, you're going to win, et cetera, et cetera. What does that mean for crypto? I don't know. Again, I get back to the fact that politicians are just going to end up saying whatever they have to to get elected. Yeah, New York Times, I think came out like today that I saw and basically said that his family, he was with his family at Camp David over the weekend. And they were like encouraging him to stay in the race and still today. So, I mean, if his family's doing it, it's going to, who knows what's going to happen. But they have like, I think five weeks until Democratic Convention sometime in early August. So, I don't know.

I can't imagine being like Gavin Newsom being like, yeah, I'm going to jump in with like three months to put together a campaign. Like he's thinking I might have a shot in like 20. It's four years. Yeah, 228. Yeah, exactly. Why would I jump into a race where it's like I have, I don't know, who knows? Yes, exactly. I mean, yeah, imagine, imagine you're anybody that's going to potentially step into the role for Biden and you're going up against Trump who's who's leading in the majority.

of the polls, even though it's a thin margin, but you're going up against Trump. And now all of a sudden, like, you're going to put your political career at risk because you would be the guy or gal that got, you know, that lost to Trump when you were supposed to step in for Biden and be kind of like the cheerleader and the person that saves democracy in the country, right? That being said, there's still some ETF news that we have to discuss. And that's the, that's the, that's the Ethereum ETF update. So what happened, James? Yeah, I mean, maybe next time we record this in two weeks will have better news. Essentially, what happened is nothing happened. The SEC took forever to get back to issuers. They had the end of deadline. I remember exactly what the deadline was. And the SEC just

took forever to get back with comments. It sounds like there is going to be another round of comments on those S-1s, the same type of documents that we just saw for Solana. They're dealing with the division of corporate finance. And I wouldn't say they're like going really slow. It's just that there's no urgency. So this is probably going a little faster than it would normally go for a normal type of ETF launch like this. For the most part, you line up the 19B4 and S1s, the way we did with Bitcoin, which is

why there's an indication that this wasn't exactly planned. But nothing has happened. And they're not going to do it this week. There's no way. We haven't seen enough movement. They're not going to launch during a holiday week. even if you looked at the Bitcoin ETS, I don't think they wanted to launch them on a Friday or Monday. They want to launch a midweek.

So they launched them on Thursday. So the odds of it happening this week are slim to none. Honestly, I was thinking the week of the eighth, so that's next week. It might not even happen then. That might be when everything gets finalized. And then they launched the week immediately following. I'm very confident in saying these things are almost certainly going to launch in July. It's just a matter of when in July.

And I mean, Gensler came out and said, like, things are going smoothly with the things. theorem, ETF process and whatever that means. But I think it's just like things are just going according to plan. And they're likely to launch sometime. I'll say, I think they'll launch early the week of the 15th, I believe it is.

But there's a possibility they could launch in the 8th. Who knows exactly what's going to happen. It sounds like there's at least one more round of comments that the SEC, that these issuers are going to have to respond to from the SEC, update their docs, submit them again. And if these SEC takes another week and I have to get back to them, And then we're looking into the week of the 15th probably. But who knows?

I don't know if you, you seem to be like the ESPN sports center of ETF. So I'm going to ask you a tough one here. Has there been, or can you recall a relatively high profile ETF that launched on a holiday week? Or does that actually ever really matter? No, yeah. Sometimes they do. A lot of times, a lot of times you actually see a bunch of ETFs launch right between Christmas and New Year's, which seems like an awful time to launch.

But if you're not expecting like immense demand and worry about your first day, you kind of want to have that track record for year to date and stuff like that. So there's some benefits to doing that. So people try to game the system. And honestly, if they do give them the go ahead, they're going to launch this week. It's just not going to happen. So, but I mean, you can look at the markets today. It was pretty freaking sleepy as far as I'm concerned.

Yeah. So there's just no indication they're ready to go, though. And honestly, this situation is like unique. Like for the most part, like you get the 19 before order approval and then you go sometimes they're lined up. So for the Bitcoin ETFs, they were lined up in many cases they're lined up because the S1 isn't like super complex or a unique asset. In the case of like hashtags this product, it took months between getting the 19B4 approval and actually

listing. So there's a lot of nuance here and exactly what is it isn't going to happen. But I mean, who knows? We'll see what happens. It's not, it's not very exciting. It's not sexy. Well, I always thought it was a little bit of a stretch to launch it on, you know, ahead of a holiday week, especially with the holiday being on Thursday, July 4th.

Yet that doesn't stop the non-farm payrolls from coming out on July 5th. You know, we're pivoting into macro if you guys couldn't tell that very obvious segue. Why I'm bringing this up is, you know, as we talk a little bit about the macro, macro landscape. The non-form payrolls that comes out, you know, the first Friday of every month, just happens to be the day after the U.S. Independence Day, July 4th, which is on Thursday. And I've been chatting with, you know, my head of trading and other folks in the space that have a pulse on macro.

And there could be some pretty wild volatility on Friday across markets because, let's be honest, those guys and gals are not down on Wall Street. They're in Connecticut and out of the Hamptons on Friday. And so when the number comes out, if it's, you know, I think the, I think the estimate is like 191K or something to that effect. If that thing comes in light, meaning below estimates, I think you're going to see, you know, the potential for rate cuts to to come up significantly higher, potentially in July. I mean, I've gone on record saying I think there's a non-zero chance of July. It's a slim chance, but NFP could absolutely influence that decision,

especially if it's a huge miss. But I think more importantly, we were talking about this, James, like, we're starting to see a September rate cut, you know, move on up in terms of the odds of it actually happening. I think it's roughly like 60 to 61%. something to that effect. And this is important because, you know, obviously I've been pound on the table saying I think rate cuts are coming. I think there, I think there will be two this year, you know, potentially you end up getting a maintenance cut of 50 bips, which I don't think

anybody's really pricing right now. But at a minimum, you're going to get 25 and 25 September and December. And it has a lot to do with some of the, you know, the economic data that's been coming out, right? And employment is that, you know, the kind of the one-two punch of the Fed's mandate of, you know, taming inflation to target level and then employment, if that employment data continues to start to soften, as we've seen from employment data being revised lower. We talked about this last time with the last NFP print, the headline number was huge, but when you dig into the details, it's not as pretty as it may seem. And so I think the market is coming around to the idea that the Fed actually wants to cut.

And they're starting to get potentially economic data to support that sort of thing. And you're seeing it in the futures markets. Yeah, I mean, the futures markets right now in interest rates, I have the image up if anyone's watching on YouTube. There are like 60 to 69 percent chance of cuts in September, which honestly, it kind of makes sense. Like the, as you said, employment seems to be softening a little bit. Inflation is definitely softening.

And the way that these like monetary policy things work, I mean, what is it long and variable lags. Like this, the stuff that's causing the market to do what it's doing now is not like the current is not like anything the the Fed has done recently. It's like what the Fed did a year ago. So like if if the if the market, the economy is actually softening and slowing like I don't see any reason in waiting to cut like it's not like cutting 25 basis points is going to cause like the market to heat up and we're going to have inflation blow up. I'm not an economist. Obviously, I'm just an ETF analyst, but I try to pay attention to this stuff. And it just like I don't see any reason to wait. And honestly, it'd be, it'd be, I think you were one of the first people I know saying

that you thought you were going to see a cut in September and that July was off the table. So September obviously is becoming more and more and more likely. And obviously we'll see what the data shows over the next two to three months. But I'm in the camp that I think we might, we're probably likely to see a 25 basis point cut in in September. I think our rate strategist here at Bloomberg are expecting the first one to come in in November. So got it. But yeah, well, look, I mean, You know, kind of tacking on to that, we talked about the U.S. election, but there was an election across the pond in France that was actually pretty important. And it gave me a lot of, like, flashbacks to Brexit and what was happening in the UK years ago. So Emmanuel Macron ended up, I think, just getting decimated in this election by a populist candidate, Le Pen.

you know, you could kind of, I'm certainly not painting a one-for-one picture here of kind of a Trump-like character, but probably as close as you could get or at least aligned directionally with a Trump-like character in France. And what was interesting today on Monday, I guess in the overnight session as well, like you saw the Euro actually strengthened. It's pulled back a little bit as we're talking now. But this is kind of interesting that you're seeing the rise of a populist candidate winning. and the local, you know, call it the local currency, if you will, the euro, actually strengthening against the U.S. dollar. And so for folks that have been, you know, involved in crypto for a long time, it's always prudent to track the dollar index because there's a pretty strong inverse correlation

between, say, the price of Bitcoin and the U.S. dollar. And the dollar has been kind of hanging out, I should say the dollar index around this kind of 105-ish level for quite some time. The yen continues to weaken. I actually thought it had topped, or excuse me, yeah, I thought it had had bottomed the dollar yen. I was wrong. I don't get them all right, James, but I genuinely thought when the bank of, or when Japan's, I think it's the Ministry of Finance was intervening a month and a half or a month or so ago that this was kind of a done deal. Nope, we're now at like the lowest yen level since the 1980s. And it doesn't appear to be slowing down. So, I was dead wrong on that one.

That being said, the fact that the euro is strengthening, as well as the EU is cutting, or has recently cut, is like kind of interesting to me. And I think that this is something to pay attention to as it relates to the U.S. election. What does it mean for the dollar if Biden remains president? What does it mean for Trump if he was to gain the seat of the White House again? I don't have a clear view on it yet because I was a little surprised to see the euro strengthening against the dollar with a Le Pen victory. I don't know.

What are your thoughts, James? Yeah, I don't have a lot of complex thoughts on it. It's just I just view it as like a populist movement that's going on. And the right wing of the French politics, which hasn't been in power, had any semblance of power basically since World War II is all of a sudden rising again. So it's interesting. And obviously, anything that's going on in currency markets are impacting anything that we're paying attention. So it's fascinating. I don't have anything complex to add to what you said.

I agree with. I agree with everything you said, though. Yeah. Well, one thing I do want to add is that is the first day of Q3. Yay, we're halfway through the year. We've made it thus far. And global liquidity tends to increase in the summertime, which is Q3. I think summer officially kicked off June 21st. But it's probably worth, you know, since at the beginning of Q3 talking about Q2's performance. I can assure you, I've been paying attention to this. You know, a couple of things that stood out to me. You know, Q2, and I talked about this months ago on various podcasts, Q2 historically is the worst quarter for Bitcoin since its inception. And you know, you don't want to read too much into that, but it played out the same way this quarter. I think

Bitcoin was down 12 or 13%. Ethereum was the bright spot, only down single digits, I think five or six percent. But one thing that did kind of stand out to me as we were talking about Salon at the beginning of the episode is that they were down about 27.5% or so for Q2, which, you know, that includes the ETF announcement. That includes a lot of the FTX estate sale of locked Salon. So there's some concerns about that. But what also really struck me was the meme coin bunk actually outperformed Solana on a relative basis. The master of bonk, everyone. He's serious, bringing it up again.

I just, it was, I mean, look, last year I was on a, I guess it was, yeah, it was in November of last year. I was basically saying if I had to pick one as a trade for next year, it would be bonk over Solana, just because I thought it was going to be more beta to Solana. turns out is less so this past quarter. And I don't think Bonk is alone with that. I think there's other meme coins that outperforms Solano or some of the majors. The month of June, man, after the first week, it was down only. It was just that the entire market was offered. And because we kind of got back to, you know, roughly unchanged to slightly down at the end of May. And with the rally that happen, I think on the back of the Ethereum ETF news and that nice rip into month end and carried

over in the first week of June. But since then, I mean, sentiment on Twitter and the internet has been just in the absolute gutter. I think we saw the Fear and Greed Index for Bitcoin print a 30 handle twice last week. It's trading 63K. It's not like it's lost 50% off its all-time high. But there just hasn't really been a lot of flow, a lot of volume coming into the spot markets. and you can see that on the charts. There's just hardly any interest in buying. And the question is, people always ask me, is why. And I'm like, well, there's more sellers than buyers.

That's why the price went down to. But a lot of folks will look at, you know, the correlation between, say, crypto or, you know, total crypto market cap or whatever and the NASDAQ. And I think we would be remiss to not mention the absolute heater that the NASDAQ has been on, especially in Q2, after a ripping Q1, and Bitcoin has come. completely inversely or negatively correlated with that. Why, James? Why is that happening? I wish I knew. So I have a chart up here. That blue line is the is the NASDAQ. The orange line is Ethereum and the white line is Bitcoin. So it's the orange line is funny because it's spiked up like

crazy. We got the news that the Ethereum ETS are going to be proofs because no one was expecting that. But obviously it's given back a lot of those gains. I don't even think it's going out the limit. It's a good thing that we're not seeing Bitcoin and Ethereum of these crypto, digital assets correlated with the cues. Like, you want them to be uncorrelated. They should be uncorrelated. Yeah, they're a ton of growth plays. They're risk assets. But like one of the benefits of normal people investing in these things, adding it to a portfolio, they want uncorrelated assets with like different risk reward payoffs. And we're seeing it play out right here. There was a lot of correlation, but that kind of just fell off a cliff in June.

I mean, a lot of the Q's rally is Apple's done decently well in recent months, recent weeks, and it's all Nvidia. Invidia is just carrying that thing. It was the largest stock in the world for a little while here. But, yeah, I don't know why they're fully diverging. If you look at what I like to, I'm actually in the middle of writing a note about, I have like a chart pack looking at what's going on the Bitcoin ETFs. And no matter how you slice it, like they've just been range bound since March. Like you look at assets, you look at everything, they've been range bound.

And if you look at asset trading volume, like dollar volume, we're at like all time lows. We haven't been this low since like the middle of January, which there was like the Bitcoin ETFs went into a lull. So there's just a lot less interest in the space as far as the ETFs go. I think most people who really wanted to get in and dive in as quickly as possible have bought their ETFs. A lot of the money that came in over the last month or two has started to come out, which I think we told about this last time.

It was almost certainly a basis trade where people were basically shorting the futures ETFs because you got like a one, two percent premium, maybe. more to the price of Bitcoin, where it's currently trading at spot. And then you just buy the ETF and then you're net neutral and you're just earning that trade once that collapses, once the spot price of Bitcoin or the ETFs themselves join up with what's going on with the futures. We actually have a surprise guest here. And by surprise guests, I mean, the guest who is a little late and coming in here.

So I'm going to add you in, Alex. We're talking about the fact that the fact that the cryptocurrency digital asset markets have completely broken down in their correlation since the beginning of June roughly with tech stocks and growth stocks in general. I mean, you obviously probably have seen this breakdown of correlation, but I don't know if you have any thoughts on why it's happening. Actually, it started a little bit earlier. It started in May, I think. And it's quite remarkable. And unfortunately, I don't have the answer. And if you guys have the answer, we'll love to hear your thoughts.

I don't know why it broke down. Alex, that's before you joined, that's why I asked the guy who's the non-trader on the pod to explain why. I mean, look, James brought up a really good point, though, which is the basis trade is, you know, it's free money for the most part. As long as like, you know, you don't get. Yeah, it is. As long as you're not like having a post a significant amount of collateral or something of that effect, if the thing runs away from you. but the open interest that's net short, the CME futures is just incredibly high. I think it's at an all-time high.

And I think for folks that are probably not familiar with Tradify or that are just what I would consider crypto-natives, like, you know, earning one to two percent a month doesn't sound super interesting. But if you're a Tradify fund, like, that's awesome. So if you can earn 150, 200 bips, you know, relatively risk-free. I would say risk-free on this basis, like you're doing it. And the other thing is a lot of these funds will do this with leverage. And so, you know, I'm not convinced that that's why the open interest,

the net short open interest on the CME futures is as high as it is. But these folks definitely use leverage when they do these types of basis trades in other markets. And I could see a world where they actually do that now. Does that imply that the price of Bitcoin should be trading 63K? I don't know. I mean, to me, we're in a range. Like we absolutely ripped out of the gates from December and into January, pullback on the GBTC dumping and then just ripping into Feb and into March with the ETF flows and the

narrative there. And now, I mean, it's probably a good thing that we're consolidating a bit sideways. I mean, obviously everybody wants the price to go higher because you see your net worth increase. But, you know, from a technical perspective, we're painting like a massive bull flag on the daily time frame for Bitcoin. And the longer this flag goes sideways, typically the higher the extension is just from a technical perspective when you're trading it. So I don't see, you know, I haven't seen an invalidation of this bull flag. I haven't seen, you know, some absolutely massive amount of selling. And in fact,

I think the Mount Gox news from last week, I don't know the exact number, but I think it was, you know, in the billion plus in terms of total sales, like the market absorbed it in pretty thin books. And like, to me, that's pretty bullish. Like, yeah, we dip below 60K again, but pop back above it. Now we're trading 63. Who knows we're trading by the time this, this episode airs. But I don't think it is as bad as people think. I think people just got really excited in Q1. And we're expecting a continuation of that. I think you need some consolidation, some digestion of the moves so that hopefully as global liquidity ticks up over the summer, as well as the potential for rate cuts, which would be, you know, imply a weaker dollar.

These could be the potential, you know, call it macro catalyst that actually enable Bitcoin to break out to new highs. You know, guys, I'm not going to lie, I'm pretty disappointed by price action, but I fully agree. I don't see any reason to have my bullish views invalidated. We're in a range. Macro is doing good. Risk gases are performing actually extremely well. it makes sense for a price to, I think, consolidate for a while and start ticking up higher. And at the same time, all this selling pressure, what is setting up is, in a way, it's a very good setup for a breakout once we get closer to the top, assuming we do get closer to the top, which I do think is going to happen.

I would presume you guys already talked about Trump and Biden. Like the first thing, right? Like this being the biggest thing. And I firmly think that it's reasonable to believe that Trump winning is going to be very positive for crypto in general. And that debate was such a disaster that it's a guarantee that he wins, I think. I mean, it's a guarantee. Yeah. I mean, it's politics, right?

But I was already pretty bullish on Trump before. now it's that that that let me put it that way that that debate is the second most bizarre thing I've seen in my life after coronavirus

it was that crazy you didn't like the two potential presidents arguing about their golf handicaps you didn't think that was fun yeah like I think I'm 10 handicapped tomorrow I'm 1 24 right now but you know

Yeah, I mean, we did touch on it a bit, Alex, but I think one of the things to take into consideration, and I'll just kind of reiterate my point earlier, is that there's a lot of time between now and, you know, November. And people forget stuff in the news cycle all the time. And I do think to Trump's strength, he finds a way of constantly staying in the news cycle, unlike the Biden administration and real. election team, he has people that create memes. They're not looking to hire somebody, right? Like, they're all over this stuff. And I am convinced that the reelection team was looking at that, almost every minute of that debate as potential content and fodder to denigrate and discredit Biden as, you know, the potential leader of the free world. I don't think that that is an unfair argument based on their performance. But I do want folks to understand that there is a, you know, there is a,

a lot of time between now and then. And Alex, if you recall back in 2016, like Comey, the head of the FBI, released something like a week or two before the election. That was fun. Yeah. Like, I don't, what my point is is like, I don't think anybody saw that coming, right?

And it, you know, for better or worse, it definitely influenced and impacted the outcome of that election for Hillary Clinton versus Trump. There could be myriad things like that That could come in the next few months. That could swing the election one way or the other. But I think my point still remains like it almost doesn't matter who gets elected at this point. Crypto is front and center as a real issue.

It wasn't mentioned on the debate, but it sure does feel like both sides of the aisle are kind of forced at this point to acknowledge and have some point of view on. One thing, I start of crypto on the elections, I think is very interesting what's happening on the long. rates on basically long rates is bonds with very long the longest maturity or duration so basically right now its rates are rallying quite I mean sorry it's our our tanking has been very significant move today we have what is it the third year futures down 1.6% that's a rather very large move and do not think is a coincidence I think this is basically being driven by, this is the Trump trade and the European trade

on basically the right taking over politics and the market is getting concerned about fiscal responsibility. So that hits mostly the longer side of the yield curve. And what we are seeing basically is a bare steepening move. basically rates going up, prices going down, and the far end moving even further up. This is great, though, because I would like for you to kind of explain a couple things first, what a bare steepener is, and then second, you know, why a populist or a far right-right leading administration would affect the long end of the curve like this?

It's basically, how to put it, fiscal irresponsibility. It's an expectation that Trump is going to push forth higher spending. Or let's put it this way, let's say stable spending with tax cuts, increased deficits, increased deficits, increases the risk of inflation getting out of walk down further, very, very far out in the future. or so what we have is what in finance we call the bond vigilantes the bond vigilantes basically come in and when they see that the market, the

governments maybe behaving irresponsibly they start selling the long end of the curve, long bonds. And that, I think the Trump trade is basically precisely that is higher rates on the long end and at the same time higher equities and higher crypto as well.

And that eventually, that relationship breaks down. We cannot have that forever. This is very interesting. At some point, if this continues, the bonds win the battle. And it unleashes a risk of move on the equity side and basically everything just goes tumbling down.

That's my very long bigger picture left tail. And with Trump winning, he may accelerate this happening, I think. Yeah, we have a chart here showing. You know that rates basically went from 4-4 to over 4-6. So that is, I mean, in crypto, that's not a huge move. But when you're coming to government treasury bonds, that's pretty damn big. We talked about the fact that interest rates are likely going.

The odds of an interest rate coming in September have increased to 60, 69 percent. Alex, what are your thoughts there on interest rates in short-term rates and what the Fed's going to do? It just makes sense. We had some very good CPS, sorry, PC in numbers last week. I think it's in line with what we're seeing on the economy. Something else that I think is interesting to point out is that expectations in the market are that the U.S. economy is going to be slowing down into year-end. If you're looking at expectations from economists, they're getting very, very tame for the remainder

of the year. So that's another risk in the market. Basically, what happens if the U.S. economy does not slow down? slowing down is priced in. If the US economy does not slow down, that would be basically, that would mean that the Fed would not cut rates the way we're pricing it in. I think would be bad for crypto. I think it would be good for equities.

Why would not cutting rates be good for equities? I think growth matters most. Okay. In this case, so I think equities will be driven by growth. On the crypto side, we're kind of like hoping that rates are going to come in and kind of like unleash and bring back the correlation with risk. What do you think of that, Joe? I feel that way.

Yeah, I mean, you bring up a good point, which is stock prices keep going up as long as they continue to have earnings growth. And so if you start to see earnings get hit, then you'll see stock prices go down. It's not rocket science, right? I mean, to be clear, we did see Nike have the biggest downside move in its history as a stock. on their earnings report. And that was shocking. But also, you know, the market has been overheated for quite some time. I'm not suggesting Nike is some, you know, Invidia like growth stock.

But, you know, the correlation trades start to kick in with Nvidia pulling back, Nike pulling back. Does this imply that earnings growth has peaked? Probably not. I don't see enough evidence currently to support that. But it is an interesting thought exercise to say, hey, you know, if they don't don't cut rates, it's probably good for equities because the economy is likely chugging along just fine. And that means earnings continue to grow. Not a bad idea. I also think that, you know, historically, they've cut rates in election years. They've cut rates when the economy's been running

hot. The question is, does the Fed have the data to support and justify a rate cut? I think we'll find out more later this week. We talked earlier, Alex, about NFP on Friday. Maybe that thing comes in light and the revisions continue to revise lower. And that gives the Fed enough cover to start, you know, pounding the drum on rate cuts. If not, yeah, I think crypto and, you know, other, I'll call them rate sensitive risk assets are not going to be favorable in a continued and persistent high interest rate environment. It feels like with the economic data that's been coming out since April, as well as, the election year and how things tend to get juiced during election year, you know, I'm on the side and I still think there's two cuts coming for 2024. Yeah, I'm on the one to two camp.

Quite likely I think it's going to be one, to be honest. I'm also on the camp that it doesn't matter that much. What matters is the direction, not the actual number. What matters is what the Fed is going to be doing in 2025. If we get three or five or six in 2025, more than if we get one or two with this year. It's, yeah, I'm not very, very concerned about how many cuts we get this year. Yeah, I mean, that's another, that's a good point, though. Typically, when the Fed, you know, initiates a tightening or loosening cycle, they, they, it's like, it's kind of like getting this big engine started and then, you know, once it's moving, it keeps going until it reaches some sort of, you know, steady state and then they either pause, uh, and start to move it back.

up the other direction. And I think that that's, you know, to your point, like, if it's one cut this year and four to five next year, fine. Or two this year and three to four next year, that's fine, because the direction of where it's going is actually what's most important as it relates to their rate balls. Yep. On going back to crypto, two things. If you guys already discuss a list of one. I guess you already talked about the ATF, the ETH delay. Yeah. Yeah. Yep. Yeah, and the other one is something that in a way I think explains partially, only partially, because I hate trying to find an answer to all our questions. This is how markets don't work that way.

Oftentimes there's way too many variables. We're trying to guess really what's happening, but we don't really know. I think it's very important to acknowledge the flows from the German flows. They're sending money back into Krakken and Coinbase. The US, there's been a lot of commotion around the US, sending coins into Coinbase. There was a funny news today coming up talking about how basically the US is going to be using Coinbase as a custodian. And the joke there being like the US wants to sue Coinbase for being a custodian, yet at the same time. And other agency is using Coinbase as custodian, which is kind of ironic.

And the other thing is the FTX, there was an article from, from Jay, JP bringing this up, which I thought was very interesting. The fact that we haven't, the narrative has not been focusing on FTX and eventually, basically, FTC being the reverse Mount Gox, meaning there's been quite significant selling already, and they already cashed a very significant sum. I don't have the number handy, unfortunately. but those funds, a big chunk I think is reasonable to expect that they're going to be flowing back into crypto. So sometime starting between October to March, this October to March next year,

we should be seeing very significant inflows from FTX creditors. And almost nobody is talking about this. And that matters. I was not, I had not thought about that once, I must admit. I had thought about the Mount Gox coins a lot. We touched on a little bit, but yeah, there's a lot of coins there. And I know Galaxy Research, for example, has been saying there's not going to be as much selling as some people are worried about, but time will tell. And I love the fact that the SEC is suing Coinbase, saying their legal securities broker.

And then they're like, but us, the U.S. government, we're going to use them to sell all the coins we got from criminals. We trace down this untraceable money that we got. Yeah, that's basically what they've been saying. Yeah, this is the shortened week. We're probably going to have a guess next time to join the three of us. But thanks for joining us for this episode of Bits and Bips. We'll be back in two weeks to discuss more about how the worlds of crypto and macro are colliding. Until then, we'll see you soon.

Thank you, guys. Thanks, everyone. Bye-bye.