Unchained - Bits + Bips: Why Hasn't This Macro Cycle Boosted the Crypto Markets? - Ep. 702

Episode Date: September 11, 2024

As crypto markets continue to struggle, experts weigh in on whether the capitulation phase is finally over and what lies ahead. In this episode, hosts James Seyffart and Joe McCann, along with guest Noelle Acheson, delve into the recent market downturn, the potential for a recession in 2025, and why Bitcoin's divergence from gold is puzzling analysts. They also explore the impacts of upcoming rate cuts, the lingering effects of fiscal dominance, and whether Ethereum ETFs are living up to the hype. Show highlights: Why crypto has been down so bad recently despite the macro cycle The three factors weighing on the bitcoin price for the moment, according to Noelle The chances of a recession in the U.S. in 2025 and how much the Fed might cut rates Why the current rate-cutting cycle is unusual, with markets expecting far more cuts than usual, and how a potential spike in inflation could complicate the Fed's response Why the K-shaped economy endures, driven by the U.S. government's reliance on capital gains taxes Why fiscal dominance is a growing concern and why bitcoin's recent divergence from gold is puzzling, as they typically move together during crises Whether retail has been a buyer of the spot Bitcoin ETFs or it’s just onchain traders who are now buying them Why James says the Ethereum ETFs “have been an absolute flop" Sponsors: Gemini Stellar Hosts: James Seyffart, Research Analyst at Bloomberg Intelligence Joe McCann, Founder, CEO, and CIO of Asymmetric Guest: Noelle Acheson, Author of the “Crypto Is Macro Now” Newsletter  Timestamps:  00:00 Introduction 03:35 Why crypto is struggling recently 09:16 Three key factors weighing on Bitcoin's price 15:12 Chances of a 2025 U.S. recession and potential Fed rate cuts 25:55 Unusual rate-cutting cycle and inflation risks 32:06 Enduring K-shaped economy and capital gains tax impact 34:37 Concerns about fiscal dominance and Bitcoin’s divergence from gold 54:57 Retail vs. onchain traders in spot Bitcoin ETFs 1:01:43 Whether Ethereum ETFs have been a "flop" Learn more about your ad choices. Visit megaphone.fm/adchoices

With this kind of uncertainty, cash is actually a pretty good option, especially at these yields. And we also have to take into account for the fact that there are plenty of undervalued equities out there that could seem like safer high return possibilities than crypto at this moment. Crypto is actually competing with equities even for the macro investors. Hi, everyone. Welcome to bits and bips, exploring how crypto and macro collide, one basis point at a time. I'm your host, James Safer, Tradfai, Archmaister, Lord of Bloomberg's End. with Joe McCann, or commander of asymmetric and master of Vank.

Unfortunately, this week's Alex couldn't join us, but we're still here to discuss the latest stories in the worlds of crypto and macro news. Just remember that nothing we say here is investment advice. Please check unchained crypto.com slash bips and bips for more disclosuresures. Also joining us today is Noel Atchison. Highseer and keeper of the crypto is Macro Now newsletter.

Today's episode is brought to you by Gemini, a U.S.-based crypto exchange built for new and advanced traders. Gemini is offering new customers $15 in BTC when they trade. Sign up today to earn your Bitcoin. If you're envisioning ways to make an impact on transforming global systems through blockchain, the Stellar Meridian 2024 conference is for you. Get $50 off your ticket now at meridian.steller.org by using the code unchained pod. Noelle, before we get into this, why don't you give a little bit of background about who you are

and then we'll dive into some of these topics for this week. Thanks so much, James. So great to be here with you and Job. I've been a fan of the show for a while. Hi, everyone. I'm Noah Acheson. Many of you probably know me from the column I used to write years ago, but I'll go even further back. I come from the world of TradFi. I was in Traddai for 10 years, corporate finance, research, fund management. Then I went into, I then ran an e-commerce company. I founded for 13 years, sold that in 2013. And then looking around for what to do next, I stumbled across Bitcoin. I remember watching a video on a video on a, Khan Academy. Do you remember that on how Bitcoin works and I got goosebumps? I grew up in the middle, in Central Africa, in Zambia and just thinking about what permissionless payments could do in that part of the world. They just dove head first. And the more I researched, the more I wrote, because that's how I learned, the more I realized that British nationalist payments was probably

not going to be the initial use case, especially given the fragmented regulation, especially in that part of the world. But the more I study, the more I realized what I was actually looking at was a new type of marketplace. And since I'm a total market nerd, no one invites me to parties anymore, I felt, it's when I decided that this was what I was going to do for my next career. And it has been so much more interesting than I imagined. After a couple of years, researching, writing, teaching at a couple of business schools here in Madrid where I live, I decided it was time to actually get a job. I sent an email to Coin Desk and gave them a long list of reasons why they should hire me. And they did. I was there for five years, setting up their research, ended up

setting up their research team left there in 21, to move to Genesis trading, to set up their research team left there in 22 to focus on what I really care about, which is the impact that crypto is having and will continue to have on the macro landscape. Yeah, I mean, that's perfect. That's literally why this podcast was started, because we all believe here that crypto is macro now. So no better than your newsletter title. I will say I'm still in Tradfai.

And before we transitioned to talking about what's going on in the markets right now, I had no idea you were from Africa. I had zero clue. And I've heard you talk a bazillion times. But yeah, let's get into what's going on in the markets right now. Obviously, things have been pretty not great for crypto recently, particularly over the weekend. I'm not going to lie, I was actually at a wedding way way in upstate New York, Vermont on the Canadian border. and had no signal to anything. And until like 30 minutes ago,

I didn't even realize Bitcoin got down to like 53K. So I was completely out of touch a little bit. I've obviously caught up here. But Joe, let's go to you here. Like, why, what's going on in your point of view for why crypto has been down so much the past two weeks and why I got hit hard this weekend? Yeah, I mean, obviously my standard answer is there's more sellers than buyers.

That's why the price won't. You lie. Yeah. But, you know, look, it's weird how consistent this past August and even the first week of September was like last August in the first week of September. You basically had like anemic volumes across the spot markets minus the Varshock on August 5th, of course. The order books are paper thin. There's very little trading activity happening. But also, if you look at a lot of the on-chain metrics, activity is plummeting, too.

So in our recent market update that went out over the weekend, you know, we highlighted the kind of drop in not only things like open interest and volumes for things like Ethereum and Bitcoin, but also, you know, on chain activity on Ethereum. And even Solana is starting to see activity drop. That's somewhat consistent with what you see in the summer. People are outside. They're on holiday or vacation, et cetera, et cetera. but when we kind of bounced back from the Varshock, we have effectively been in this regime of, I almost put my tinfoil hat on and say,

this is just kind of like algorithms running the show. You can kind of look at the stock market over the past, you know, a couple of weeks. And when the stock market opens at 9.30 Eastern time in New York, whatever the direction the S&P futures are headed, that's basically where Bitcoin's going. And it almost trades in lockstep. Now, I'm not suggesting that, you know, it's just one shop like a Jane Street or a Citadel or somebody like that just running the show as it relates to crypto.

But the consistency of the flow is exactly the same. And then over the weekends, it's just a little bit of like choppiness and, you know, liquidity hunting. There's not really much going on. And, you know, structurally, things look bearish. It's not that difficult to look at the charts and go, well, we're kind of like in this. broadening, you know, sort of megaphone pattern or flag channel, whatever he'd want to call it, at the end of the day, Bitcoin continues to make lower highs and lower lows. And that's not what you want to see, right? Especially after six months, you know, we basically had a huge run-up in

February to the all-time highs, and we've just been kind of chopping since then. And furthermore, and I'm really looking forward to debating Noel on this, the macro has been lining up such that my hypothesis and I think a number of others people share this view that, you know, assets like crypto should be benefiting from some of the forward-looking forecasts of easing policies, liquidity, hitting all-time highs, global liquidity, et cetera, et cetera. It's not bleeding over. And the question is why. And we've dug into this and we don't have a great answer.

What we can see is on the institutional side, you have Ethereum, ECF, net outflows at this point. I know James, you're on top of this. We've seen Bitcoin ETFs have huge outflows. They're still positive for the year, of course. But then last week or the last week of August, we saw, I think, the largest outflow of crypto products ever. And this includes the pullback in 2022 at near the lows. So yeah, it's tough out there. I do think that, you know, there's some folks that look at September and say seasonally, it's the worst month for Bitcoin. seasonally, it's the worst month for S&P 500. Those both are things that those are true, but everybody knows that.

So I don't really see like a lot of edge in focusing on seasonals at this point. I will say, I think that the big shift in my perspective has a little less to do with what's happening in the price action or the on-chain activity and more to do with what's happening with the presidential election. I do think that initially my view was Trump talking about crypto. forced Biden to talk about crypto. In theory, should be forcing Harris to talk about crypto. But it almost feels like it's become more of a headwind than a tailwind at this point. And we do have the debate this week, which we'll have commenced by the time that this airs. And we'll see

what happens as it relates to the price impact. Because in short, I think the consensus view really is if Trump does really well in the debate, that crypto should do well. And if he does not, crypto will likely suffer even further. And given the fact that we're still consistently under 60,000, at least as we sit here today, that's not a good place for Bitcoin Bulls. I had one of my proprietary models in-house over the past few days trigger that, hey, if we go below 55K, we're probably going back to 50. We went down to 52 and change. We bounced back since then. But this does not look like a market that's structurally bullish.

It's structurally bullish. It actually looks like a market that's structurally bearers right now. No, I'll let you go next. Do you disagree with anything Joe said talking about that? Do you have different views or mostly agree? Different views, but I totally agree with his emphasis on the politics. For me, there are three weights at the moment on the Bitcoin price. The number one is the politics tied up with a regulatory outlook,

because that's been the main headwind for crypto for the past two years, practically now. but it's getting much harsher over the past few months, especially because our expectations have been changing, and the reality hasn't changed along with it, which is why the debate tomorrow night will be so important. I think Joe is totally right that if Trump comes out positive and he starts doing better in the polls, that will be a very strong tailwind for crypto,

but it's neck and neck and it's the swing states, and the lot can happen between now and November. So while I'm hoping that we get at least some clarity from the Democratic Party tomorrow, Who knows, maybe Trump will actually corner her into saying, cornered candidate Harris into saying something about crypto. Some sort of clarity would be very welcome here. But right now, yeah, politics is the number one thing,

keeping crypto, especially Bitcoin, pretty much at bay. On the macro side, yes, totally right. Also, there is so much in place to move it forward. We have what looks like monetary easing just around the corner. I mean, next week maybe. And there's the basement of currencies around the world. is a very big factor as well. But, and this is a very big but, the correlation with equities that we've mentioned before. Look at history and pretty much every single time when rates start coming down,

the stock market corrects sharply. And we've had such a run-up. Valuations are incredibly stretched. It is due for a sharp correction. We've seen some hints of that already. We had a glimpse of what it could look like back in early August. And that's, I think, there's more ahead of that. And crypto will get hit. So traders, investors are waiting for that other shoe to drop before feeling that there are no more sharks in the water. And then the third is the self-fulfilling expectations. September, we think September will be bad. Therefore, September will be bad. It would take a very brave investor to pile into this stage. And why? One, probably have some tax payments coming up. And two, might as well wait until October when the coast is slightly clearer, hopefully, or maybe even

just wait until November and see what happens there. And I will, I'll, I'll, wrap this up by saying that I think we should all take a leaf out of James's book. Unless you're a trader, just go off the grid for a few days. I will add something to what Noel is saying here. I spoke with a handful of kind of Tradfai portfolio managers that are running pretty low nets right now, mostly because they just don't see a reason to play the game until post-election. And they think that there's decent upside after the election. I think that that view may start to permeate most traders and investors going forward of saying, like,

you've got this digital outcome with, you know, historically high volatility months, September and October. Why not degross a little bit here? Sit back and wait for a fat pitch after the election is done. I kind of agree with that view. It doesn't mean that you should, you know, I'm not suggesting anybody go 100% into cash or anything to that effect. But at the same time, I just, I see less and left, particularly on the. crypto side, catalyst that could potentially be beneficial to crypto beyond, you know, Trump really taking away, a runaway in the polls where it is really well with the debate. There's only going to be

one debate. So that's also, you know, it's a lot of time between September and November post-debate as to what could actually happen. On the equity side, man, to your point, well, like, things ran up And there's clearly a repricing happening with high tech, obviously with the semiconductor sector. But what's interesting about the volatility that we had for the first week of September is just the week prior, the equal weighted S&P 500 hit a new all-time high. So we're starting to see, you know, even over the past week and even today on Monday, some of the buying that's actually taking place underneath the surface of the stock market are quality names. These are, it's just a repricing or kind of a rotation out of the market leaders from the beginning of the year into these other assets. And we've seen this historically when you start to see like a fan out from like the leaders into the rest of the market, which can stimulate a further bull market move. I don't want to suggest that that's what we're seeing right now.

But the fact that like the equal weighted index is actually hitting new all time highs with with, you know, tech getting absolutely smoked. the first week of September, like there is some, I would say, silver lining to the pull that's happening in equities right now. Not to mention the questioning that we're starting to see finally, refreshingly about the impact of AI. I mean, sure, the potential could be absolutely huge, but does it warrant these kind of valuations? And when we say huge, what impact would that actually mean for the bottom line? Right now we know that AI is going to reduce the cost of producing, well, content, basically, but that just means there's going to be a lot more content, not necessarily gains for the bottom line. When we are seeing gains for the bottom line,

it will also mean an increase in unemployment. And that, again, is something we have to be careful about wishing for. So I'm skeptical about the claims of AI on the bottom line in the time frame that the valuations are suggesting. It comes down to the usual adage of we're underestimating what it can do in 10 years overestimating, it can do in one year. And as those questions start to get asked, and as the market starts to get more jittery for many other reasons, there is plenty of justification for those kind of valuations to come down. You're totally right, Joe. We'll see rotation into some of the smaller cap stocks. We're already starting to see that. But the headline numbers are what people are going to freak out

about. Yeah, it's, I immediately go back to, like, the dot-com bubble. Like, everyone was acting like all the things that we have now are going to happen in a couple years. And it just took a decade or more before we got like chewy.com instead of pets.com and things like that. The other thing I'd say with what you guys were talking about, like let's talk about this. Right. So rate cuts are coming. And you said usually that leads to softening equity markets.

But it also typically that's because rate cuts happen because we're going to recession. And I guess it brings up the question like, are we actually going to recession? Are these rate cuts just like trying to dampen things down, get less restrictive? Do they manage to do a soft landing? then I think it's probably net positive for equities, definitely net positive for crypto. But if we are actually heading towards a recession and there's definitely some soft and economic data, we're going to get some more CPI data this week. I guess that's really the big question.

So Joe, we'll go back to you real quick. Like, is that what's going to happen right now in the markets? Are the rate cuts going to be positive for equities? Are you worried that's going to say this recession? Like how likely is it that you think we're going to be in a recession in 2025? I mean, I'm probably. probably with Goldman Sachs on this, probably like a 20% chance for recession, 2025. The economy is strong.

I mean, whether you like it or not, or call it somewhere in the range of two to three percent GDP. And my dog clearly has an opinion about that as well. Yeah, so I think we're in the range. You can look at the range two to three percent GDP. That's fine, right? Like, that's solid growth. I do think that part of the bizarerness of this. cycle, particularly the tightening cycle right now, is that we've had an inverted yield curve,

we've triggered the SOM roll, we've had all of these recessionary indicators, and yet somehow we're still cranking along with this higher GDP number, which also suggests to me that rate cuts aren't going to immediately be bearish, right? Like, I just don't, it's hard for me to see a scenario where people are like, oh, look what happened with COVID and the GFC. I'm like, right, you mean like a global pandemic and like a collapse of the financial system? Yeah, those are probably good times for you to point to and say, hey, there was a recession when they cut rates. In this scenario, and I talked about this at length, like, you know, depending on how you slice it, you have a 3% real rate right now.

And that is very, very high on a historical basis. So the Fed could quite literally cut 200 bits off of that. And if inflation stays the same, you're still at effectively a historical neutral rate. That's 200 basis points from here, right? And so part of the reason why I think the CPI has so. significance, not a ton of significance on whether we do 50 bips or 25 bips in the coming week is because the Fed has basically said after the NFP print, hey, we're kind of in line with what the futures markets say. Well, on Friday, the futures markets flip-flop between 50 and 25

bips like six or seven times. So as we sit here today, it's roughly a stronger chance that there's going to be a 25 basis point cut. If CPI comes in really soft, I could see a case made for 50. That being said, the Fed is very much focused on employment at this point. And so, you know, are they going to try to thread the needle by doing 25 bits from here on out, kind of just stare, stepping down like they typically would? Or do they go ahead and kick things off because they missed July, which I, you know, I'm of the view that they should have cut 25 then and just go with 50 and maybe do another 50 or 25 after that. Our view at asymmetric is, if they do 25 Bips next week, you're going to see equities get smoked.

And the reason that's the case is if you look at what happened in the first week of September, you basically had positive macro news, but only 25 bibs price is a cut. And all of a sudden, VIX closes near 23. You don't want that. Equity is down almost 5% for the week. Russell got smoked. Semis got smoked. I think the market is sending a signal that, hey, if we don't get what we want with this large rate cut that we're expecting,

equities are probably going to get torched in the short term. Longer term, I don't think that there's going to be a case that these rate cuts are somehow, you know, cause and effect relationship with some sort of a recession. Now, remember, the stock market is not the economy, but it does matter. And I think that this is what the market is trying to tell the Fed, or at least the Fed market participants, saying, hey, we want our 50 bits. If we're going to get 25, we're going to crash markets. And by the way, whether you believe, you know, the Fed rate cuts are political or not, or the Federal Reserve is political or not, the Fed only has one meeting until the election, and that's next week. And so if they get one bad data print or, you know, they crash the stock market, does it look

political? Potentially. So I think that there's this kind of, you know, I don't want to say like the unwritten rule here of how the Fed operates, but if you look at the fact that they went from July to mid-September and have all this time go by and they only do 25, that means there's another six weeks and do they do another meeting, unless they do an emergency cut, but that almost certainly won't happen. So my view really is, if the CPI comes in soft, they have to do 50 because also they've talked about front loading. And more importantly, there's this huge window of time between now and their next meeting, which is right around the election. And all it takes is one bad data print and the markets could absolutely collapse. I will say if there is

an emergency Fed meeting to cut rates, we, have a lot of other bigger problems to do with you. Yeah, very good point. I do have some alternative ways of looking at that and I'll respectfully push back on a couple of those points. And one is that this morning, actually, I was looking at the times the Fed has cut by 50 base points or more when we're not in a recession. There have been a few incidences over the past 50 years when it's done that. But it has every single time ended up raising rates. less than a year later by quite a lot. So I think that is something the Fed is going to bear in mind, especially we have to remember that this Fed has erred sometimes egregiously on the side of caution.

It's as far back as I can remember. It is a cautious Fed, and I think it's going to take a lot to move them out of that. And as for the politics, I know the Fed is not political, but Trump's policies are, and this is not a political statement, I have no affiliation, I'm not American. They are inflationary. I mean, The tariffs are inflationary. Deporting immigrants is inflationary. It's inflationary. And so perhaps the Fed, perhaps, will choose to wait to see what the fiscal policies of whoever wins in November are going to do to inflation because I'm pretty sure Jerome Powell probably

has nightmares about having to raise rates again. His reputation, the reputation of his Federal Reserve rests on not having to do that. And there's a third factor to keep in mind here, and that is what Japan does. If we are going to lower 50 basis points, then we have to think, okay, and Japan raises before the end of the year, which is looking increasingly likely, then what does that do to the unwinding of the carry trade, which I actually don't think has started yet. I think what we saw in August was not the carry trade unwinding. It was just some very leveraged positions being unwound, but it gave us a taste of the size of the positions and the market impact that we could start to see when the carry trade does start to make. move. So there's, I think that the bottom line from what I'm getting, though, is there's just a lot of uncertainty. And with this kind of uncertainty, cash is actually a pretty good option, especially

at these yields. And we also have to take into account of the fact that there are plenty of undervalued equities out there that could seem like safer high return possibilities than crypto at this moment. Crypto is actually competing with equities, even for the macro investors. and this is different. That's one of the many different things about this cycle. That last piece I absolutely agree with. I want to debate a little bit some of the points that you made. So first, I mean, I don't know if this is true, or I'm certainly not going to put you on the spot, but for those times that they cut 50 bips when it wasn't in a recession, I would be curious to see what real yields were at that point. because I think one of the key things that I keep leaning on is when you have a 3% real rate,

you're in a restrictive environment. It doesn't mean that you can't have a Goldilocks economy. It just means that, like, you know, you got quite a bit to ease up on. And if you, you know, part of the, I think the benefit to, say, the housing and mortgage industry by cutting rates is that that will ultimately be stimulative. It is it going to be long-term inflationary potentially, but it will absolutely be stimulative to consumption and GDP, people refinancing their mortgages, people buy. buying homes, et cetera, that happens with rate cuts. I think we got the 30-year fixed down to like six and a quarter or six and a half, not too long ago.

I think closer towards five and a half, you start to see real stimulative change as in relation to the housing market. With the Trump trade, this is an interesting that you mentioned about him being inflation. I actually agree with that. And I think Alex and I chatted about this a couple months or a month or a month or two ago about this. If you look at the long end of the curve, 30-year bond yields actually rose significantly when Trump was the kind of assumed shoe-in winner.

And it's why, because that's what happens when people are fearful of inflation or huge deficit spending, these types of things. I think that that's a real possibility as well. Yellen's done a pretty good job of, you know, kind of force-feeding duration at like the four to 13 week window, your T-bills up in the front and basically, you know, reducing duration towards the long end of the curve. Kind of keeping, I don't want to say, we're not going to call it yield curve. control, but to the extent that there is some sort of, you know, a release valve, so to speak,

on the long end of the curve, Trump could completely upend that. Now, the other point that I'll make, if you look at the two-year bond, it's recently traded down about 3.65, which is a key level for me. That's almost 200 basis points below the mid-quarter of the Fed funds rate right now. The bond market is assuming the Fed is going to be cutting way more and way faster than I think most people think. And so that's one of the signals that I look for, right? Like all these markets are somewhat prediction markets. They're forecasts of traders that are assuming that the Fed and or fiscal is going to be going a particular direction. But seeing the two year down near 3.6, 3.6 and a half, to me, that was like a clear sign that the fixed income market is assuming that the Fed is going to be

much more aggressive in their cuts. Could it be 25, you know, for the next eight meetings? Sure. My view is that it's probably a bit more aggressive than that. I saw a fascinating chart in one of your colleagues' newsletters. I think it was earlier this week, or maybe it was Friday, James. John Authors, he shared a chart which plotted the expected number of rate cuts by the market at the beginning of every rate cutting cycle going back to, I think it was the 60s. And every single time, except for one, every single time traders were vastly underestiming, the number of cuts that eventually were delivered.

This particular cycle isn't anomaly because the number of rate cuts expected at the beginning of this cutting cycle is multiples higher than the number of rate cuts expected at the beginning of the previous cycles. And what doesn't even bear thinking about is what if this time we are also underestimating just how many are delivered?

Yeah, I mean, look, also, you could have the scenario where you have a re-acceleration of inflation. I'm not really in that camp, to be totally honest, again, this could be totally different under a Trump administration. But yeah, I mean, what happens if they start cutting and there's a huge spike in inflation? And they can't they can't call it transitory this time. Right. So what is their policy tool they're going to use?

Well, they've got QT and they've got, you know, tightening. So quantitative tightening and then the monetary policy tightening itself. Yeah. And the yield curve control that you were talking about, which again, it's a whole, it's a fascinating part cycle we live in now. It's not just about these new technologies coming in and changing how we invest and how we think about value. It's also how orthodox economics is out the window. I mean, modern monetary theory. That's what it was called. Wasn't you remember when that was labeled a crazy idea before the pandemic and suddenly we're all living it and you could argue we're still living in it?

I mean, have you heard either of the candidates mentioned the deficit even? There's no, it's just going to keep on heading up. And Alden has a newsletter out, I think it was published today, in which she talks about how, you know, something that she's been saying often social media, that nothing stops this train. This is a fiscal economy. This ties back into what you were saying, Joe, about, you know, whether or not the monetary policy even matters that much these days. Yes, it matters for sentiment. Yes, it certainly matters if you're going to buy a house. That's a really good point to raise. Housing is key. And, you know, the structure of the market is very different from 2000. So again, the impact of the rate moves will be slightly different this time also. But it's the fiscal spending that we know is coming what whoever wins in November, that is probably going to have a much bigger impact on how loose, and I'm using air quotes here, how loose financial conditions end up being and how confident the market feels that stock valuations are going to continue to go up.

And that's actually kind of terrifying and a very good reason to hold. old and crypto, in my opinion. Gemini is a crypto exchange with tools for all traders. Cameron and Tyler Winklevoss founded Gemini in 2014 and have been pioneers for the crypto industry for over a decade. Fun fact, they submitted the first spot Bitcoin ETF application and were one of the first exchanges to receive a trust license in New York. Gemini operates with a security first mentality.

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I want to get into Lynn Alden's newsletter in a minute, but I also want to comment real quick. I feel like no matter who I talk to and what I talk to about in this economy and markets, it's like everything feels like it's K-shaped. Like everything feels like it's the story of the haves and have-nots. Like, yes, so over the last few years since COVID, the people who have seen the biggest wage gains are the people in the lowest decile or quintile. And you look at that, they've seen the biggest wage gains. The problem is they tend to not own assets. And it's basically if you owned assets, you did really well.

So inflation is kind of the same way, right? Like everything that you really need is the stuff that's inflating away, whether it's a home, real estate, health care. And but on the same time, like, I can get a phone that's more powerful than a computer I could have gotten a few years ago for $5,000 and I can get it for like a couple hundred bucks. Right. So like, I feel like there's this huge bifurcation. Everything I look at is case shaped. And then talking about rates, we touched around. what's being priced right now. But I'll just say out there, as of markets today, right now,

it looks like the markets are leaning towards that 25 bibs cut at the end of September. I'm in Joe's camp. I think they should just go 50. I think the Fed usually goes slower than they should, whether it's hiking or cutting, and then they have to catch up. And I feel like we're so restricted at this point when it comes to real rates. It should be more. We should front load it. But maybe we'll see what actually happens. I guess the debate is what is the Fed going to do versus what do we think the Fed should do. But also, we're pricing still four and a half cuts right now. Obviously, you can't do four and a half. But we're pricing for about four and a half before the end of year. It's pricing for about six by the end of Jan. So they really do think they're going to they're going to height things

up. And then we're pricing for 10 cuts, full cuts from now until the end of 2025. So and each cut is 25 basis points. So there's a lot going on here that we're pricing for. So as Noel was saying, if we get more than what the market is pricing for, that's going to be an insane amount of cuts. But then again, we went through, I think, was it two or three back-to-back meetings of 75 rate cuts or rate hikes over the last few years when inflation was getting really hot? So obviously the Fed's going to be careful about that. But as you guys were talking about, they seem to be more focused on employment, which is trending in the wrong direction, but we're not seeing anything that looks super bad just yet.

There's a couple things on there. I want to point out that you brought up, James, that's actually quite important. You mentioned the K-shaped economy. We call it the bimodal distribution. We've written about this for a while. I've been sharing some information. In fact, in our latest market update, we included in the macro section, there's a chart in our latest update that shows the stock price of evaluation of Ferrari

and Dollar General. And the second that the tightening cycle begun, the Dollar General is straight down and Ferrari is straight up, like the letter K. And that is all throughout the economy right now. And it keeps rearing its head where, you know, to your point, if you own assets or, hey, if you've got cash sitting in T-bills and you're earning 3% real rate, you're doing great. If you're seeing your wages go up, but you live check to check or you just live in a cash-based economy, you're being inflated away at 8% per year. It's mathematically almost impossible for you to keep up unless wage growth surpasses 8% per year. So unfortunately, the wealth divide continues and will lower.

likely continue in this fashion until there is some other way for people to, quote, get ahead without owning assets, which at this point I don't think is actually possible. I mean, this might be a bit controversial to say, but the United States government has a handful of ways of making money. The majority of them are based on tax revenue. Yes, there's tariffs and those could dramatically increase under Trump, but as Noel said, that could be inflationary. If the tax revenue, okay, that's the major driver of income. What's the biggest form of income that you get from tax. You get it from capital gains tax revenue. You inflate assets. How do you inflate the assets? Well, you either do deficit spending to keep the economy going along or you have a loose monetary

policy or you have both. And so the structure is actually set up in a way such that the case-shaped economy or the bimodal distribution of the economy is going to persist for a long time because the business model incentives of the U.S. government is to capture revenue through capital gains tax. And the only way you can do that is to inflate assets. And if you don't own assets, it's almost mathematically impossible to get ahead. Yeah, and including houses in that if we don't own a home, not only is it impossible to get ahead, but this has big social implications as well, which does come back to the whole fiscal argument. If there's no chance you're going to own a home, there's, you know, probably less likely you're going to have many children. And this is part of

the fiscal narrative looking ahead, which influences monetary policy as well. Interesting. Yeah, Noel, why don't you get into that a little bit? Let's talk about Lynn Alden's post. I mean, I've listened to her talk about this on numerous podcasts, whether it's what Bitcoin did or bankless or coin stories and there's probably a bunch of others that I have been out there. She's been harping on this before anyone else I ever heard talking about this exact topic. And I'm seeing it more and more of the Tratified world from banks and different people kind of talking about this fiscal dominance. There's all these different terms that are thrown out there. But why don't you get into what it is, what it means and like what Lynn is saying in her most recent newsletter about this exact topic. I will. I'll do it in broad brush jokes because I have a terrible memory. I wish I could remember all the points that actually had. But there were many things that leapt out of me and a lot of them actually kind of picture philosophical and going back to the not having children kind of thing. It's the current social welfare structure in the US and around the world, basically, was created at a time when it was just inconceivable that the native population would start declining. Well, we seem to be heading into that now and that combined with the, likely reduction of immigration to supplant the workforce that are not actually, you know, going through the U.S. education system, does mean there's going to be an increasing strain on the social welfare payments of the U.S. government going forward because the equation is for every retired person, you need at least two workers to help, you know, pay for their pension. Well, that's going to change, and you can't let grandma go hungry.

so that means increased social spending from the government in coming years. You've also got increased defense spending coming through. This is something that we are seeing pretty much every day in our headlines. Japan is increasing its military spending. Germany is increasing its military spending. The United States has to keep up and has to revamp how it spends. China is racing ahead to build a Navy. And all of this is not a question of nice to have.

These are a must-have. I mean, it's not even just in the United States. This morning, Mario Draghi released a report on how Europe, could finally become a bit more competitive. Finally, they've realized that they do have a very bad problem here. And one of the things he's suggesting is that the Europe, and this is a concrete suggestion, that Europe should spend at least 800 billion euros a year on energy and defense.

So, again, it's not just the United States that is going to be boosting its spending here. It's pretty much every single country around the world, that especially in this landscape of fragmenting alliances. Then there's also interest payments, increasing debt, even if interest rates come down, there's going to be increasing interest payments. And those are three things you just cannot not spend on. There's also spending, the military, the defense spending, and the interest payments. And all of the other stuff, the highways and the education, they're sort of nice to have,

but they are political hot rails that no one wants to say they're going to be cutting. So there's really no way that the U.S. government and other governments around the world can rein in spending. Things have to get as bad as Argentina for people to. to vote in a government that is willing to take the necessary moves, and we can fervently hope that the United States does not get quite that bad. And obviously, the more authoritarian regimes have it easier. They don't actually need to win elections.

It's like that cartoon. I don't remember if you're seeing it. No, it wasn't even a cartoon. It was a European politician who said, if we campaigned on doing what we know we have to do, no one would vote for us. And that's the world we're in right now, which means what we're looking at is money printing from here on in.

It means what we're looking at is currency debasement from here on in. And that is a case. That's one of the reasons why gold is telling us what it is telling us. Gold is sending a signal and its digital peer once the headwinds are removed that we've talked about already. That will probably also start to reflect the growing interest, not just from individual sabres and not just from corporations worrying about their treasury, but also from governments interested in figuring out how to present. deserve the value of their reserves while maintaining access to dollars 24-7. But one thing that Lynn says often, which is very catchy, very easy to remember, and very

appropriate is that there's nothing that stops this train. I'm going to push back on that. It's the only thing I actually disagree with her on. There is eventually going to have to be something that stops the train. Eventually, the train will run out of tracks. Eventually, the engine will hurtle into the ocean. And that's what we sort of need to try and think about how to avoid that. eventually something will have to break. Yeah, I'll comment quickly on the gold piece because this is something that has absolutely

mystified me over the past, my goodness, six months at this point. If you look at the performance of Bitcoin and the performance of gold on a relative basis, effectively from like March 1 until today, there's almost like a 1,000 basis point delta between the two. And in, you know, I would say a year and a half or so ago during the regional bank crisis, they traded in lockstep. And in fact, Bitcoin, you know, was the digital version, which ran even significantly more on a percentage basis of gold. We just haven't seen that happen this year. And so I think, you know, Noel brings up a good point with some of the, when some of these headwinds get removed, there should be some mean reversion there, right? Like either gold stays where it's at and Bitcoin.

catches up and or surpasses it, or if gold does start to pull back a little bit, maybe Bitcoin does mean revert back to a level that makes a lot more sense. I mean, year-to-date basis, Bitcoin is up on a relative basis more than gold. But since March, it's been down significantly, which I don't think historically that's the case. Certainly it's not helping the narrative that it's digital gold. But what could be affecting that? Well, you have the institutionalization of crypto through ETFs and the like. And so I know James, you could probably talk a little bit about the ETF floats as of late because I know they haven't been great. But maybe that is actually having some sort of an impact where, you know, allocators are finally and advisors are finally like

dipping their toe in the water or jumping head first, but have kind of come to a grinding halt for whatever reason. Meanwhile, gold is flirting with all time high seemingly every other day and Bitcoin is still sort of dragging behind it, which ultimately drags broader crypto with it. I think one of the charts that we pulled up in our update that was just fascinating to me is there's a group called Capricol investments. They have this chart called like it's kind of like the breadth of crypto. And what they do is they take the 50 day and the 200 day moving averages of all of the coins on Binance. and what percentage of them are above or below their 50 day or 200 day. And for both the 50 day and 200 day at the end of August, they were both single digits.

That is deeply undersold, oversold state for a lot of altcoins, but it is a symptom of the bigger issue that comes from King Bitcoin. So when the King is actually catches a cold, everybody else is really sick. And I think that's what you're seeing with the Altcoin market as well. I agree with that. And also you've no doubt heard the narratives going around that there's nothing new in this cycle, nothing to get excited about further down the cap. I mean, fair. But at the same time, there is so much new in the crypto market, beyond rents that you mentioned. That's a very big new thing. And that is part as a sign of a maturing market structure. And I personally think that we're very much undervaluing the work going on in Bitcoin Defi and Bitcoin scaling, which will lead to a revaluation of, of Bitcoin block space, which is not something that's priced in yet. So yes, there is plenty new going on, but it doesn't have the same buzz feel as previous because of the poor sentiment, as you point out, Joe. And it doesn't necessarily have any catchy headlines and flashy cartoon figures

that are going to grab the mainstream attention. Yeah, I mean, I would say, like in my mind, the fiscal dominance thing this came into play really clearly during COVID. I mean, I started covering, not covering, I started paying attention to financial markets in college for the first time, aside from like, looking at a few stocks. And all I remember hearing about was QE is going to cause this massive inflation. And we had QE for like a decade plus. Japan's been doing it forever. And what caused inflation? Massive stimulus checks going out, which obviously, I'm not saying they were the

sole cause of this, but they definitely played a role in what the government did during COVID and their spending. Obviously, some percentage of that inflation was also caused by supply shocks, which I don't know how to break out like what percentage of what's caused. But that shows me like more clearly than anything, but what Lynn is talking about, how dominant fiscal policy can be. And also, I think monetary policy, like, part of it is like, I just think that I don't think the rate hikes really had as much of an impact as anyone really thought. And part of it has to do with the current way the housing market is set up. Pretty much everyone who has a mortgage, has a fixed rate mortgage. They're not really impacted by rate hikes in the way they used to be.

And also, like, housing market went up. You hiked rates like that. I mean, if you would ask somebody six years ago, if the Fed's going to hike as many times as they did, and housing is still going to go up. I don't think that most people would agree with that. And that has to do with supply demand issues and other issues with that case-shaped economy we were just talking about. And then the last thing I want to say is, like, gold and Bitcoin, right? Like, it's everyone, like a lot of people like to say gold is like a hedge against like the equity markets going down. And the thing I've always argued with people, because I used to cover commodities with our commodity strategies here at Bloomberg, Mike McLeod, is like gold is not a hedge against equity

risk or anything like that. It's just a hedge against currency debasement. Really, that's the one thing you can look at as gold over the long term, what it actually does. And Bitcoin, yes, obviously, the performance has been there, but over time, it's just super equated to like what's going on equities as we were talking about before. So yes, I actually called Bitcoin a risk gasket. I still say I'd view it as a risk asset. But actually, when I was on stage with BlackRock, a few different times and multiple people at Brockwick have said this, they refuse like, it's like obviously in their the way that they talk about these things is they don't want to call it a risk asset. They think it's a safe,

that asset. It's just not being viewed properly by the market. Do you hear that coming from BlackRock is obviously a huge deal? It's an interesting twist. I mean, it's a risk asset, short-term, safe haven long-term. I mean, calling Bitcoin safe is obviously strange for those of us who have lived with some very bruising market moves. But longer term, especially given what could end up being ahead. I like to say not so much that gold and Bitcoin are hedges against currency debasement,

although, of course, I think that's one of the main narratives driving the moment. They're a hedge against crazy, and things are getting crazy. All right. Let's go back to politics real quick, because we've been talking with this every week, and I know some people just don't want to hear it. But as Noel has said repeatedly, she think that's the biggest driver right now. I think Joe and I are pretty much in the same camp there. But on Polly Market now, Trump is back ahead.

even under the current polling situations, it's actually rather close. I think the current like national average polls have Harris ahead by like one point. Polymarket has Trump ahead by like five points. So I guess like my view on this is I thought that like Trump getting coming way back. Like this is basically a comeback. I think that's because Trump has gone out a little more on the offensive and trying to define what Kamala is. Whereas like what she came into the race, she was just a generic Democrat. And I hear all the stuff like when you do polling, right?

Like one of the things they like to ask is like, would you vote for this person or a Democrat? And that's what they refer to as like a generic Democrat. And she was basically polling exactly in line with the way that polling would show a generic Democrat. And now it's kind of coming out like I need to know more about what she actually wants and all these different things that she hasn't really truly defined that. The other thing I would say related to all this is I always viewed like Trump is definitely going to be a net positive for crypto. I think. I think it's a net positive view wins. he talks about doing all these things.

I'm not a huge fan of, this is a side note. I'm not a huge fan of the stuff that it sounds like they're tried to do in defy with the defiant ones and things like that. We don't need to get into that. I also don't think Kamala is going to be,

I've said this on this podcast before. A lot of people are acting like she's going to be the end of crypto and defy. Like, I just view it like if she ends up in office, she's going to be neutral at work. Like it can't get much worse for this space than it has been under the Biden admin with Gary Gensler and the people at the Fed

and people, the FDIC and all these different things. Like, it has not been good for crypto. And I just feel like if Kamala gets in, it's a neutral thing. Whereas if Trump gets in, it's a potentially net positive. So I guess one, what do you guys think about the polling and polymarket? And how do you think that is going to impact the actual crypto markets? I mean, James, this is crypto. This is crypto. It can always get worse. Same as last words, right? Last words, James. Actually, I'm going to make a quick point about Polymarket, though, which I'm a huge fan of.

I have it always open on my tabs here. And I think it's actually amazing that now it's on the Bloomberg terminal. I mean, his substack allows you to embed Polymarket. So strange that you're still not allowed to use it in the U.S., but maybe you're the Kau-Shil ruling, that will change. Anyway, it's all very strange. But one thing to bear in mind is that Polymarket asks a very different question than the polls ask. Polymarket asks, who do you think will win?

And that's a very different question from who are you going to vote for. That's a great point. Yeah, I mean, I think the issue that I have with your, it can't get worse statement, James, it's because I've been, I've been cheap. Let me be clear. Let me be clear. It doesn't get worse. If it continues on the path that's on right now, things are likely to get worse for crypto as a whole. I guess is the way I'm saying it. Like, I don't think it's going to be this huge shift and they're going to outwall everything in the U.S. But go ahead. I think the vector is the same. It's what is the speed, right? With Trump, I mean, it appears to be full throttle.

With the Harris administration, it's likely more of the same status quo. There is chatter that some billionaire massive donors, the Democratic Party, don't want Gary Gunster as the head of the SEC anymore for whatever reason. So there's always that kind of potential that we can move away from enforcement actions as a way of enforcing regulations that we just clearly don't know exist to something else. right so i yeah i think it's like neutral to marginally better ish the same under a harris administration um and and and with trump uh much better now the one thing i i do want to kind of underscore here is is that with trump potentially winning you have to also ensure that he follows through on what he's saying he's going to do right that being said and we've talked about this before on on on previous episodes the fact that this is a topic of conversations now shifted into the Overton window of political discourse, I think is still a massive win for the industry.

Some would argue right now it's not the right time for regulations. Other folks would argue the opposite of that. But the point is, is it's coming up. Unfortunately, the great reset from the Harris election team that they've been talking about has been anything but that. And furthermore, I think in one of the latest pieces that came out about some of their policies around technology, a lot of stuff around artificial intelligence, nothing around crypto. And so, you know, the absence of that, I don't, we in this industry are going to look at that with, you know, under like a microscope as why it's being omitted. It could just literally be that they have something coming out sooner or they're going to discuss it at some later time. But at the end of the day, it doesn't look as bullish, I would say, as it was a couple of months ago when the Biden administration had done a full 180 on their view with crypto. Yeah, I think, I mean, the crypto reset, obviously, as far as I'm concerned, isn't really happening. I think that until something changes, I don't want to hear other people.

There's a lot of people on Twitter, particularly Democrats that are like saying there's this crypto reset and all this stuff. And I think it's kind of disingenuous to talk about it like it's happening when nothing is really happening. for like a few people in the Democratic Party and Senate and the House and things like that that are obviously a little bit more pro, but it doesn't seem to be happening from the Kamala point of view, particularly with some of the people that she's talked about putting in her admin. And then before we move on, I do really want to quickly want to throw the actual numbers out there because I pulled them up on my Bloomberg terminals, Noel said. So yeah, the most recent national polling average has Harris leading by 1% roughly.

Polymarket is Trump leading by 6%, 6%. I will say, I've said this before. I think part of that has to be discounted a little bit. I think the market, the people that are actually able to trade and use polymarket are much more likely to be conservative libertarian minded being the fact that it's crypto world. So I think you need to discount at some point. I don't know how much. But also predict it, which is not have that problem. Anyone can pretty much use that also has now a one point spread in favor of Trump. So I just want to throw those out there because we threw out numbers. And this is Monday afternoon. So obviously, that could change very quickly by the time this comes out after.

to debate, but it's still quite relevant. That's why the debate is the event of the week. I mean, we sort of, CPI, be very surprised if there's a surprise, which I know is a tautology, but you know what I mean, right? And we have the University of Michigan Consumer Surveys, which arguably are even more important than CPIs because expectations of inflation are actually probably more important than rearview inflation, but it's the debate. And the numbers that you're throwing out, James, are interesting.

I hadn't seen them, but they remind us just how close this is still. Yeah, I will say I listened to a podcast this morning and it said basically this is closer than any of the, right now, as far as polling goes, as more as everything that people are looking at, this is going to be closer than any other presidential race we've had in the last like 16 years or something. And that's kind of scary. That's kind of scary, isn't it? Because imagine it is really close in November. Will the other side accept the result? The answer is no. It's going to be, yeah. It's going to be. I've exactly. I have a friend of mine who works in D.C. And it's relatively well connected. He used to work for one of the representatives of Congress and his perspective, which he's a pretty positive guy. I will say that in general. But he's very nervous about a constitutional crisis if this thing is like a kind of runaway for either errors or Trump.

Because neither side is going to accept the results. And then you end up with a lot of volatility heading into January because if, hey, we're doing. the year 2000 all over again with these counting of votes or even in the case that we were to go through that process of manually counting votes in these various states, half the country is probably not going to believe it. And that is a major problem. And what does that mean for markets? I mean, a part of me thinks equities would actually get trounced. But I also think that crypto may and Bitcoin may actually benefit from that level of stress. I'm not hoping scenario, right? But ultimately, right, like to your point,

Noel, it's like, it's a hedge against chaos, right? Like, that is ultimately what, I think, whether you like the guy or not, Shemoth said he bought Bitcoin a long time ago, is schmuck insurance, right? It's the same. Insurance, that's very good. And so that's what I do think that there's a non-zero chance. And maybe we will see on Polly Market if there's a market that pops up, will there be a constitutional crisis after the election?

because I would argue that there's a non-zero chance that that is very much a likely scenario, irrespective of who ultimately ends up winning the number of electoral college votes to win the presidency. And what does that do to the treasury market? Exactly. I mean, one thing we all know is that the markets do not like uncertainty. So that will not be a fun time. Anything else on politics or macro before we jump into ETFs a little bit? We could.

We could, of course, talk until next week about this. but that we probably should move on you. Yeah, all of our political takes are going to be like cold in the next couple of days potentially. Let's hope not, but we'll see. Yeah, so Jim Bianco did a thread yesterday on the ETFs, the Bitcoin ETF specifically. For the record, I did not say to put this in here, but the unshained people said this needed to be discussed on here. So here we are. Jim Bianco and I are actually going to be on stage debating some of these points in person at

permission lists, which is a conference in Utah in early October. So if you're going to be there, you'll hear this live. But he wrote a thread on Twitter. His basic takes are inflows are now outflowers for the spot Bitcoin ETFs. Holders have record losses. Advisors are less than 10% of the holdings and boomers are never coming. And that the average trade size is now less than 12,000. The first thing I would say is like he kind of points to this and says the total assets

in the spot Bitcoin ETFs are now only $46 billion when they used to be 62. Almost all of that is due to price, like the vast, vast majority of it. the way ETFs work, successful ETFs, they're going to see their assets rise with inflows in the market. And then there's going to be bouts of outflows. So really strong products tend to see weeks, if not months, of outflows. Like, that's just the way it works. But the trendline over the long term, hopefully is net inflows, right? Even products that are built to be currency hedges or different delta hedges that are built to go down over time, you look at that net flow number. It's constantly going up because people are constantly rebuying it.

And theoretically, that's what we're seeing right now. Granted, the last two weeks, he goes on to talk about outflows and saying there's been a billion outflows over the last eight days, which I don't see that on the terminal. We look at the last two weeks. There's a combined over the last two weeks, 170-ish million out and 170-ish million out in the last two weeks. So you're just, you're about 350 million out, which obviously is big. But when you're talking about products that have taken in over $17 billion, I mean, that's bound to happen over different time frames. I'll stop there before we get to some of his other points. Do you guys have any views like on on those particular two points?

You've somewhat the flows and the assets before we get into some of the other stuff. Okay, but I just say that I totally agree with your take on this, James. It's also only $46 billion. That's a lot. I mean, it's done really real. I don't think anyone can say that the Bitcoin ETF has not been one of these successes in ETFs. I mean, you would know more about this than the rest of us put together. What I took away from the thread that was really interesting was the average trade side.

And that just said, that was positive. I thought, yes, obviously retail is buying the Bitcoin ETF. And this is even before the big wirehouses are all on there. So this shows that there is a diversity of interest. We know that the institutions, many of them are in there, hedge funds, etc. And they're using this as part of trades, perhaps. But that this is open to all kinds of investors. That was the premise on the very beginning.

That is the upside right there. Yeah, I mean, I agree with Noel and I also say that Bianco has been like horrendously bearish Bitcoin ETFs and Bitcoin for a long time. And this was a very cringe victory lap, which I am, I am, you know, not above by the way, clearly. But look, like he he got his victory lap in. But, you know, it's interesting. when I see a thread like that, I know that the data matters heavily to you, James, considering you cover the space so intimately.

But I look at that as almost like a bottom signal or some form of capitulation where somebody is finally getting their opportunity to prove that they were right when the price has been depressed significantly. And frankly, since that thread came out, Bitcoin's bounced like 5,000 points. Right now, correlation is not causation, but part of the piece that I wrote over this past weekend that went out was about capitulation and trying to see where you would see signs of this. And this thread to me is a clear case of some form of capitulation in the market of someone

effectively saying like, see, see, I told you so. This is a boomers aren't going to come say your save your little internet money, you Bitcoiners, right? And since then, you know, like I said, idiosyncratically, we saw some activity today in Bitcoin. It's up 5,000 points off the lows in the past couple of days. you start to see more signs of this type of capitulation. I mean, we may actually be close to a market bottom. Yeah.

The other things I would point out here is like, obviously this is retail triven. Like, no matter how you looked at it, it takes time for these platforms where institutions are going to buy these products. In many cases, they require three years of history. They require a huge level of due diligence. As Noel said, like there's only one big wirehouse, which is where most of these wealth managers sit at Morgan Stanley that has approved this. And it's only approved for accounts over $1.5 million in assets.

and only accounts with people have like a very high level of risk tolerance. So even if there's all these different levels and barriers before you get into it, the other thing I would say is like the real thing that shows here, like as far as I'm looking at it, that shows it's not being adopted, isn't like those numbers of who holds it. We only know 18% of the holders on these things on average. And that's for BlackRock's I bit. We can see like 18% of the holders because they're large enough to hold it. If you have an advisor that's buying these things for the client, that's not going to pop up

in the 13F. Like there's no way to know it. That's the way most ETS work, right? And the one thing that does show is like there's a whole bunch of head funds on here. There are a lot of the 18%. There are some institutions. There's some pension funds in there. But there's a lot of hedge funds on there.

And they're not actually buying it for long-term uses. They're just doing it for the basis trade, right? They're going along the spot ETS and shorting the futures market and earning that big in the difference there. So they're using it for those products. I just view it as it's becoming institutionalized, whether or not this is being bought by like everyone's grandmother. and it's going to lead them onto defy. Like, I've never thought that was going to be a case. I think it's just a unique use case.

I don't think anything should stop them from using these things, right? Like, are you going to create a protocol where, like, an ETF can't hold these things? Then you're going to restrict on who can and cannot hold these things. That's not very capitalist, not very defy. So I don't know, I get some of the arguments. And then the other thing I'd say, he points to, like, average trade side and then compares to the most liquid products in the world, like Spy and LQD and HYG, which are literally used for trading by institutions around the world

and then compares with the average of the 10 ETFs on their size, their trade size, which is like just, that's almost, that's basically a chart prime. Like you should have done it against Ibit or some others there. Maybe even GBTC, like if you wanted to do an apples to apples comparison, even then,

even if Ibit was the most institutionally used product for Bitcoin in the ETF world, I would not expect its trade size to be anywhere near the level of spy or the cues. Like that's just, we're nowhere near that yet. So, I mean, we're eight months in, right, to the launch of these things. And I don't know, we'll see. I think we need to give it more time. The one thing I will say that is true is the Ethereum ETFs have been an absolute flop.

There's very little trading there. I was pretty bearish and got ripped apart by the dot east for saying that we thought we were going to see 20% of the flows. Everyone was ripping us apart. I was not bearish enough. These things have not only seen not 20% the net inflows the Bitcoin ETS all over the time period. They're just shy of $600 million in outflows. And that's just because ETH unlocked. We saw the same thing with the Bitcoin side of things.

GPC unlocked. The benefit of the Bitcoin side of things is there was enough money pouring into the other nine spot Bitcoin ETS. The same is not happening for the new spot Ethereum ETF. So there's a lot of money coming out of ETH, Grey Scales product. Not enough is coming in to overwhelm that. We have net outflows. The one part I would say there is one, I think it was. would benefit, Ethereum ETS would have benefited if they launched a little later. I think just

launching five, six months after the Bitcoin ETS, when people are like, I'm putting a one to two percent allocation in my portfolio to Bitcoin, do they need to diversify it with Ethereum? Have they had time to figure out what Ethereum is? Probably not. I think, I think it's going to be a slower burn that I've been saying that on here even before they launched. And the other part of it is it's August, September, July. Like, I would argue that's the worst time possible of the year for these things to have launched. So I'm not going to, I'll give it six months before I say it's a complete flop and take the full L on saying 20% of flows. But yeah, it's really not looking good over there.

That said, SpotBickon ETF's most successful launches of all time, not even comparable. So from a Tradfai perspective, smashing absolute smashing success. Even the Ethereum ETS, the products other than ETHI, I mean, they have over, the I shares product is done exceptionally well. It's just not enough to offset. Like these are these, the Ethereum products, the new ones, aside from ETHE, are some are the most successful launches of the year aside from the Bitcoin ETF. So yes, it's a flopping aggregate, but for the most part, for these issuers

and for these products specifically, they're extremely good launches for a typical ETF. And I'll get off my soapbox there. This is very consistent with a view that I've had for quite some time, which is

what is Ethereum? From an identity perspective, it feels like there's still an identity crisis for Ethereum. Now, you mentioned some of the procedural things or structural things of like, you know, the summer is in the doldrums anyway. And maybe they had a little bit more time. They would do better, et cetera, et cetera. And it has been six months.

All these things are totally fair. And frankly, like, I wanted the Ethereum ETF to be very successful because that's net positive for crypto in general. But the challenge still remains is that what is it? Is it ultrasound money? Is it the world's like decentralized supercomputer? Is it both? you know, because both of those ends are being eaten up by other protocols, namely Bitcoin and Slana.

So that's one aspect. The other aspect, when I was in Jackson Hole, I met with one of the ETF issuers talking about Ethereum. And a lot of the RIAs are starting to dip their toes in the water. But to your point, James, they've mostly sold their clients on Bitcoin. And now, actually, I think this week, Stonex is actually coming out with a, a webinar on how to sell Ethereum to institutions. And so I don't know if that's another sign of capitulation

or if it's actually going to be net positive for the Ethereum ETFs. But it's very difficult to communicate the value of this thing. I mean, especially when you're having Nvidia run like it's running and these other, you know, the Mag 7 throughout the entire year, like the attention is elsewhere. And I don't think there's a lot of folks who are saying, I just got some Bitcoin, let me get some beta to it, this other thing that I don't fundamentally understand. These are solvable problems. And I think this is what's all so fair to your point,

James, about giving it at least six months to see if it has as an actual flop. Obviously, the data right now is not great. And the price sure has been absolutely hammered this year. I think actually over the weekend, it was down year to date. It's probably up a little bit as we sit here today. But those are all major headwinds, unfortunately, of your Ethereum, which again, contrarian in me says, man, this kind of feels like capitulation. So maybe we're getting close. That would be a big relief for all of the holders who have been waiting for the ETFs to actually do there a bit. Back in the day, I used to talk to a lot of institutional investors about the differences between Bitcoin and ETH. And Bitcoin was a store of value with some, with a veneer of a new

technology. And ETH was new technology with a veneer of a store of value. And so the combination of the made sense. I would talk to many tradfai investors who just preferred ETH because they understood it. It was, oh, yield, I get yield. The store of value, some decentralial, I don't get that. I understand yield. I understand market structure. I understand new technologies. And so they didn't have a problem with that. But they are probably holding ETH in their self-custody because they get the yield. If they care about the yield, they're not going to hold the ETS because it doesn't distribute the yield. That's a very big headwit against the

the adoption from the beginning. Sure, you can have some institution, you know more about this, James, some institutions can only hold the assets that are listed on a regulated exchange, so there might be some demand there, but why when they've got so many other tech opportunities? And retail just may find it more convenient. Four percent is like a convenience fee, but it's a bad product from that point of view. It doesn't distribute the staking rewards, which are one of right now the key reasons for holding it in the first place. because the scaling gains are happening on the layer twos. Yeah, Noel, that's actually a very compelling, and I would say fresh perspective,

because one of the issues that I think, and James, you can fact check me on this, is that the spot ETF issuers can't benefit from the staking, right? Now, I met a startup out of Europe that's trying to solve for this, and I think they're working with some of the Canadian ETF issuers now, but I looked at kind of the underlying process here and I'm like, wait a second. So if you have a T plus one settlement date when you need to be able to, you know, people be able to redeem and get their money back or their ether back, depending on if it's cash or in kind, and you're going to provide the staking yield. Well, the staking queue is nondeterministic as to when you're going to get your Ethereum out of the stake. And then there's also the withdrawal wallet queue, which adds a nondeterministic amount of time.

So then I was like, well, then they're just going to need like a massive credit revolver to handle like all the set. And so I think it's, I'm stoked that a startup is attempting to solve for this because I do think it, it alludes to the problem that you're identifying O. That the folks that understand yield don't get it from the ETF. And so I do think if someone, if it's this startup or it's somebody else or some of the issuers figure out a way to do it, I do think that that will actually be a bullish catalyst for Ethereum. And it's likely should the regulatory chill start to thaw. It is likely because it doesn't make a lot of sense to not allow it to be distributed. There are many safeguards you can put in place. And what are some of the funds that you're referring to, Joe, here in Europe?

Yes, there are some funds that do distribute staking. They don't distribute all of it because they don't stake all of the ether they have in backing the fund. They stake enough of it to have as much liquidity as they would need should there be strong redemptions on any given. day. So it's better than not having any staking yield, but it's not the full thing that you would get if you held it on your own. I checked the other day, actually, because I was wondering about maybe one of the reasons is that people prefer the liquidity risk of putting it in staking. Maybe they are happy to give up the 4% because of liquidity. It was actually, no, it's only a few minutes now to unstate. There's such little activity that it really doesn't take any time. But of course,

as you point out, Joe, if there was a market crisis that could change in the heartbeat. Yeah, and just to be fair to this startup, I don't want to go on record naming who they're working with, but they are issuers that currently don't offer anything as it relates to the staking yield, mostly because the T plus one settlement requirements for the ETF itself. Yeah, so like Noel said, there's a couple staking ETFs in Europe. There's two in Canada as well. And it's the way they're doing it now is like it's a subset. They also have credit facilities if they need to tap it. Because like you said, if there's a long queue, you need to be able to meet redemptions because ETFs need to be able to make redemptions virtually instantaneously. But there's a lot of TradFi overlap with that. Like I just wrote a bunch of research about our bank loan ETFs. Some of those settlements are like 10 plus days to trade bank loans.

So like there's a lot of different ways that TradFi has figured out how to do this. And they're going to put it over into the crypto ETF world when the SEC gets comfortable with it, which we know the SEC is not remotely comfortable. with staking in any way whatsoever. They view to security. This SEC, anyway. Yeah, at least this SEC admin. Again, it goes back to politics.

We get a new head of the SEC, a new admin in the White House. Maybe that changes rather quickly. One can hope. I think that's everything. Does anyone have anything else to add real quick before we wrap up? All right, guys. 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.