Unchained - Does Grayscale’s Win Against the SEC Mean a Spot Bitcoin ETF Will Be Approved? - Ep. 539

Episode Date: September 1, 2023

This week’s emphatic ruling in favor of Grayscale in its suit against the SEC to convert its massive bitcoin trust into an ETF generated plenty of hopium among the bitcoin faithful that a spot bitcoin ETF will get approved soon and open a flood of investment in bitcoin. What are the odds of that truly happening now, though, and if it did, how much additional money could wind up being invested in bitcoin as a result? Also, which companies’ applications would get approved first and how would the various products compete with one other? Bloomberg’s senior ETF analyst Eric Balchunas separates the hype from the reality in answering these questions and more. Listen to the episode on Apple Podcasts, Spotify, Overcast, Podcast Addict, Pocket Casts, Stitcher, Castbox, Google Podcasts, Amazon Music, or on your favorite podcast platform. Show highlights: why Bloomberg increased the likelihood of a Bitcoin ETF being approved this year from 50% to 75% how the ruling exceeded the expectations of the legal analysts at Bloomberg why it's important that the ruling was a bipartisan decision whether, from a legal perspective, it's "weird" to deny a spot ETF but approve a futures one how a spot Bitcoin ETF would act as a bridge for Baby boomers to invest in crypto what the two most likely SEC responses to the ruling are what the likely timelines for an SEC spot Bitcoin ETF approval or disapproval would be whether Gary Gensler's agency will approve Ethereum futures ETFs in the U.S. why BlackRock's and Fidelity's ETFs are more likely to be approved first, according to Eric how the different ETFs would compete in the market why spot Bitcoin ETFs pose a serious threat to crypto exchanges' businesses Eric's estimate of how much additional money would pour into Bitcoin if a spot Bitcoin ETF is approved Thank you to our sponsors! Crypto.com Arbitrum Foundation Thales DAO Toku Guest Eric Balchunas, Senior ETF analyst at Bloomberg Intelligence Links Previous coverage of Unchained on Grayscale and ETFs: Why Grayscale Is Suing the SEC Over Its Denial of a Bitcoin ETF Bitwise’s Latest Plans to Get a Bitcoin ETF Approved DCG’s Dilemma: Should It Sell Its GBTC Holdings to Repay Gemini? Gemini vs. DCG Is Heating Up. Could Gemini Force Genesis Into Bankruptcy? ‘The Last Big Whale’: Why the Crypto Contagion of 2022 Eventually Hit Genesis Unchained:  Grayscale Wins Lawsuit Against SEC Over Denial of Bid to Convert GBTC Into a Bitcoin ETF Bitcoin ETFs Explained: What Are They & How Do They Work? Learn more about your ad choices. Visit megaphone.fm/adchoices

I see at the end of the day, three, four years from now, you're going to be able to buy a liquid cheap Bitcoin ETFs, and it's going to be powerful. And this is why we say, you know, to the crypto exchanges, you know, this will be a threat to their business. Because Coinbase and some of these exchanges charge a lot per trade. Hi, everyone. Welcome to Unchained. You're no-hype resource for all things crypto. I'm your host, Laura Shin. Author of The Cryptopians. I started covering crypto eight years ago and as a senior editor at Forbes was the first mainstream media reporter to cover cryptocurrency full-time. This is the September 1st, 2023 episode of Unchained. Toku makes implementing global token compensation and incentive awards simple. With Toku, you get unmatched legal and tax tech support to grant and administer your global team's tokens. Make it simple today with Toku. Arbitrum's leading layer two scaling solution offers you ultra-cheap and lightning-fast transactions, all with security rooted on Ethereum.

Visit arbitram.io today. Today's episode is brought to you by Overtime Markets, your premier Web3 sportsbook. The innovative protocol is changing the game one match at a time. Powered by Thales, explore more at Overtime Markets.XYZ. With the crypto.com app, you can buy, trade, and spend crypto in one place. Download and get $25 with the code Laura. Link in the description. Today's guest is Eric Balchunis, senior ETF analyst at Bloomberg Intelligence.

Welcome, Eric. Great to be here. Thank you. This week was a big week for a possible spot Bitcoin ETF. What happened? Well, Grayscale had sued the SEC a while back, and the ruling came out. And it was pretty, I think the word that one headline used is, stinging. It was a 3-0 decision in favor of gray scale against the SEC and basically vacated their

entire justification for denying all those spotty ETFs over the years. So we have had a 65% chance of Bitcoin ETFs being launched this year. But we upped to 75%. Now, we had factored in a gray scale win, but the language, the absoluteness of the way they vacated the SEC and the 30, decision was a little more than our expectations and some of our legal analyst friends had the same reaction. And the 3-0 is important because the main judge is a Trump appointee, but the other two are Obama and Carter appointee. So you had two Democrats agreeing with the Republican on the bench. That's important because, remember, Gensler is a Democrat. And so there's politics involved with all of this. And so one thing that we've been watching this whole time is the political tenableness of Gensler being able to

say to keep denying ETFs. At some point, the political pressure could move. It could change. And so we also looked at the public relations fallout. I mean, this stuff was covered in New York Times, Wall Street Journal, CNN, ABC, and then all the financial publications. Those are publications the Capitol Hill reads, right? And, you know, people in power, like, they're not, you know, as much as I love the

crypto trade publications, you know, they're probably not widespread read across Congress. But the New York Times is. Wall Street Journal is. So this was a big deal. And so it was the PR and the legal aspect together that we upped our eyes at this 75%. We also talked to, again, we lean on lawyers, legal experts, and our own senior litigation analyst, Elliot Stein, who was correct in calling the grayscale win. So he's been really good about this. And his phrase about the ruling was that this kind of gives the SEC very little wiggle room to sort of come back with some other reason to deny. And so again, we're still leaving 25% chance that it does not launch this year because we've been in this 10 years now.

And we know how stubborn the SEC has been on this issue. And we know Gensler. And so there's just always that possibility that they move the goalposts. You know, one thing they're talking about is custody. You know, that wasn't brought up in the fraud or manipulation denials. But they could say, well, now, okay, fine, that's not an issue. But, well, now we're worried about how you're going to custody it, whether it's safe. you know, it's possible they go there. You know, we just don't know, but again, we keep moving a little further in our optimism. Yeah, I mean, I agree with you that this unanimous decision was definitely pretty stinging, as you put it, for the SEC, particularly, you know, they keep using the the, the judges keep using the phrase arbitrary and capricious in the decision making and calling out the inconsistency. And there are many points in the decision where they will say, oh,

you know, the SEC gave this particular reasoning when they approved this Bitcoin futures ETF and then said the exact opposite thing when they, you know, denied the gray scale. So it was just really fascinating to watch it looked like, you know, they were saying the agency is overreached here. I think this is an important point because we, it feels as though, they, you know, by approving futures, they kind of opened up this, you know, can of worms because the futures are based on spot. So they're like, well, we don't think spot. We think it's a wild west. There's no way we can approve any. But the futures market is 99.9% correlated to spot. And that's how it's price. So in a way, it is weird not to approve spot

and improve futures, especially if you take the legal aspect, you just take a step back as a normal person looking at investment products. And if your goal is to protect investors and give them something like safe, well, by denying spot, which to me would be like a green light, you know, in our traffic light system, a green light safe ETF like GLD for gold. But yet you're going to approve futures ETFs, which have to roll. So like the Bitcoin futures ETF is lagging spot by I think 6, 7% this year because of that roll costs that most normal people don't understand. Then you also have GBTC, which is a broken product that was allowed to sort of get around and almost was mistaken for an ETF by a lot of people. That's a bad experience if you got into that. And then micro strategy

has become a ipso facto ETF by owning a lot of Bitcoin. And you could argue that's not a straight Bitcoin ETF either because there's other variables there. Whereas a spot ETF would just be easy, safe. It would track the price of Bitcoin very well because you can do arbitrage between Bitcoin and the ETF. And so it's just a little bit frustrating if you're looking to give investors something that's protecting them. And then all these other products come out that are in our view less safe and have other variables that are that you don't get in a spot Bitcoin ETF. And then they just approved the 2x Bitcoin futures ETF. He's like, again, that'd be a top 10 most volatile ETF from the planet. I mean, it's it's a confusing policy. So I think what they're doing is they're using

the ETF almost, I don't say hostage is a rough word, but to regulate crypto more and more. And I think, but these lawsuits are going to add up. And I think at some point, you know, perhaps they are going to just move on and approve them because we did think they were just using the ETF to do things in the crypto space that they wanted to in terms of bringing them more into like regulatory framework and having them be more regulated like equity markets. It's super interesting. Yeah. One thing I just wanted to ask you to explain because you said like the Bitcoin futures rolls and then it causes the price to lag by 6 to 7 percent, at least the ETF.

Because, you know, we had talked about how the futures price and the spot price has correlated 99.9%. Can you just talk a little bit about why it was that the ETF price would lag? Yeah. So Bitcoin Biddo, the Bitcoin features ETF holds one or two months futures. the ones closest to expiring. So, well, what's, you know, we're in August. It probably holds, I'm going to say September and October. And so as September approaches, it has to, it doesn't want to take delivery. So it has to sell September and go into October or sell October and go into November.

And if Bitcoin is rallying and in a good place, usually the futures curve goes up. So that because there's expectations that Bitcoin will be worth more in the future. And so when you sell September by October, it's a little more expensive. And this is called contango, which means that the curve is going up and you're buying it. You're selling lower and buying higher when you roll. And those little moves all year are called roll costs. And for something like oil futures, they can be massive, like 40%. But for gold, they're very minor.

Bitcoin, I would say, you know, 7% isn't that bad. The good news is when you have that contango, it usually means Bitcoin's in a good place. So I think biddows up like 65, 70% this year. But Bitcoin's spot is probably up 78%. So you're still, you're up a lot. So you're not like totally bummed. But the idea that you just can't get the look, at the end of the day, advisors in particular and just regular investors, they just want something that's close to the price that tracks it,

whether it goes up or down. And futures ETFs over the years, advisors, in particular, have just, they don't like them. They don't like that, that variable of contango and roll costs, and it's hard to, like, figure that out. And so they just wanted physical. So in the gold area, there were gold futures ETFs, but they went extinct because everybody gravitated towards the physical. So all $150 billion in gold ETFs are in the physically back ones. And so if there's a choice, everybody's going to go physical. People just don't like the derivative variable in their fund. And Bidow, I think, show that this year. But, again,

Again, Biddo is doing exactly what it's supposed to do. It's not like it's bad. It's just when you have a future's ETF rolling can cost, cost you return. And then just briefly for listeners who may not understand why there would be a demand for Spot Bitcoin ETF, given that we'll essentially track the price of Spot Bitcoin and people can just hold that even in their own wallets or on an exchange. So just explain why it is that this wrapper of the ETF is important for investors. Yeah, I mean, the ETF wrapper, again, I started covering ETFs in 2006. And I covered mutual funds before then. So I get asked this a lot, especially on Twitter. There's definitely a faction of the crypto people who are like, why do we even need an ETF, just hold this cold wallet storage, all this.

Again, look, a lot of regular people don't want to. bother with that. They don't want to write down 12 words. They got a member for their entire life. And especially the advisors, they just trust the ETF. They've used it. It shows up nice in their client statement. It's spy, GLD, biddo. It all trades like equities. It's got the safeguards of being a 1940 or 1933 act structure. It is tax efficient. There's a variety of things that ETFs have that are really, really advantageous for investors. I covered them in 2006. And when I started covering them, I noticed they were like five evolutionary steps ahead of the mutual fund. They were like mutual funds, but with benefits. And so this is why ETF's taking the lion's share of all the

money in terms of investment vehicles. And advisors in particular are probably 75% of the base of ETF investors. And advisors manage $30 trillion. So when you think of like all these like rich boomers golfing, most of them have an advisor who manages their money. And that is who this is going to appeal to. So yes, if you're a millennial crypto person, you go use the exchange. I get it. There's no harm in that. No, no ETF person would ever say, don't do that. But for the older, generally, you know, wealthier advisor and their clients, they're going to opt to use an ETF over going to the exchange, doing their own wallet, or even using a mutual fund. And so I think what the ETF is going to act as a bridge between the sort of old guard boomer money. Remember, boomers have

like, I don't know, 70, 80 percent of all the money in America. I mean, they are loaded. Wow. There's a lot of money there. And the interesting thing is demographic. So boomers are going to, as they get older, they're in their 70s and 80s, they're going to transfer that wealth. And so I think the advisor world, I don't think a lot of them naturally would want to plow into crypto, but I think some of them are younger and be like, this is a good hedge, and some of them might want to impress the kids of the boomers and be like, yeah, I'm going to get you some crypto. So even if 0.5% of that 30 trillion were allocated to the Bitcoin ETF, that's $150 billion. That's 0.5%. So I think that's why if you're looking for optimism, it is good.

Now, whether the ETF comes out and it's a sell the news kind of thing because the rumors that's looked at the price and the news, there's a sell-off, maybe, I don't know. The short-term price moves in Bitcoin are really hard to predict. But over the long term, if you create a bridge and make it easy for, you know, the wealthy boomers of America to allocate, that's obviously going to bring some bid orders in for this asset class. And so that's why this is major. And this is, again, it's not just an ETF.

Ridge. Yeah, and I would also add, I do think even millennials might be interested because they could get tax benefits and put it in their retirement accounts in a way that it's not quite possible with spot Bitcoin. So it could still be that long-term investment for them. So in a moment, we're going to talk about what this means for the Bitcoin ETF race, but first a quick word from the sponsors who make this show possible. Toku makes managing global token compensation and incentive Awards, simple. Are you designing your token compensation plan and grant templates with multiple law firms? Are you managing cliffs, vesting, and taxable events in a spreadsheet? Are you distributing tokens to your team manually? With Toku, you get unmatched legal and tax tech support to grant

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this is all just us speculating. You bring up a really good coin about GBTC. GBT is structured as a private placement and it's restricted. So it may have to refile as like a regular ETF. And it's possible, this is a theory that we've had for a while, that one of the reasons BlackRock filed out of the blue, was a little bit of a shock, was to put themselves as a option for the SEC to save face and kind of get back at Grayscale.

Because they could move Grayscale and have them file, approved Black Rock and Graysdale takes you know, months or whatever to get to come out after Black Rock and Fidelity and the others, it's possible. That you could see that as a you could see a row that that happens. In terms

of Grayscale immediately converting to an ETF, we don't know because there's never been anything like this. Mutual funds have converted to ETS. We've never really seen private, restricted or private placement do this. So that would be unprecedented, but I possible. The SEC now is 45 days to respond to the court ruling. You know, the spokesperson said,

yeah, we're reviewing this. Tomorrow they've got to a deadline on a couple of the ETSs. They have these like series of deadlines. We think they'll probably just punt and delay while they think about it because, you know, the ruling just happened. So my, my guess is probably one of two things is possible. They come back in 45 days. They could like appeal and go to like the Supreme Court or the next court up, but I don't know. I mean, if you lose 3-0 and two Democrats are on there, and the Supreme Court's got, you know, even more Republicans than Democrats, it's not looking good. So I doubt that'll happen. We think they'll either do one or two things. They'll either come out and, and often do this new thing where custody is our new issue, and we're going to

just have this long, drawn-out thing again. That's the 25% that it won't happen theory. The other thing they could do is sort of get together with these issuers and be like, look, we have a couple minor tweaks, you know, maybe we would like you to use Fidelity instead of Coinbase as a Custodian, you know, maybe you've got to put something here on how APs can deal with crypto. There's just like behind the scenes, they can tweak a little of the language and just to make it put a little more safeguards in. And then they can sort of line them up and then we might just get, you know, wake up one day in October. And we hear the SEC has decided to have released the ETFs and they're all launching in two weeks and eight are going to launch on the same day. And that's that. So,

that's probably the more likely road, given this, the little wiggle room they have. But again, those to me would be the two routes that could possibly happen. I guess there's other possibilities, but to me, those are the most likely. And for that October date, you're talking about the 45 days from the ruling? Yeah, but I'm more just talk, because I don't think timelines are going to, they might matter because they matter more if they're going to reject them. Usually when they reject an ETF, they wait until like the last day or two. In my opinion, this is such a unique situation and somewhat sensitive and you've got BlackRock involved.

And I just feel like this is one of those situations where they may not approve them all on like, say, the third date. You know, there's like four dates that they have to respond. If they're going to do it, they're probably going to get together, decide this thing. And then I don't know if the dates will matter that much. I think if they're going to approve them. If they're going to disapprove them, the dates could matter because on the final day, the first final deadline is in January. They could come out with ARC and say, here's why we denied it. Custody is our big issue.

And then boom, we're sort of back to the drawing board. You're talking about ARC invest? Yes. Okay. If they do that, they could get sued again, though. But, you know, like, so every time they make a new issue, they could go back to court. And again, this just, the optics are great, I think. If you go to court and you've said fraud or manipulation for 10 years, the court says that doesn't really apply.

You approve futures, therefore spot is the same thing. And then you have this new thing. I just, I don't know, your risk, the optics get worse and worse, I think, as you go down that road. But again, they've been pretty stubborn on this for 10 years. So, you know, they could continue to do that. But those dates, we have a table, James. I can, it's probably on James's Twitter feed. other crypto people are basically just stealing it and tweeting about it.

And it's a little annoying, but that's okay. So those are them tag us. We have a table with all the dates. You can keep track of the dates. The first one, again, is Friday. So we could hear today or tomorrow from the SEC. But again, I just think this is that the nature of this is going to be a little different. Because also, when you think about the SEC approving these, would they approve many at once or they go in the order of the dates?

If they win the order of the dates, Arc would be out two months ahead of BlackRock. And I think the SEC learned from Biddo that even one day head start is crucial. And you'd play Kingmaker. So they would make ARC the best biggest Bitcoin ETF. And it would take years for anyone to get into that. So I think what they probably do is approve many at once. Right now they're working on Ether Futures ETFs. And we hear they're going to let them all out at once, which by the way is also an important

issue that the SEC can change. Etherfutures ETFs were filed and withdrawn like four times in the past five years. Well, this time they filed and they did not get withdrawn. And they're probably going to approve them in October. So that's an interesting, that shows they can change. They can actually progress on this issue because they didn't want to do that before. So we will see those ETFs come out. And if we see like eight launch on the same day or all of them, that's a good sign that spot ETS are probably all launch

the same day as well, which would create a real demolition derby of marketing because they all offer the same thing. There's no differentiation. So they're all going to throw a bunch of advertising and marketing. It could get pretty wild. They might team up with celebrities. I don't know. But you're going to see just a wild race. And in a couple days, the race could be over. Like, you'll know who the GLD of this group is. And there can only be one stud, the one that has all the liquidity, that then there could be three or four successful ones. there can only be one like true because it's all about the volume and like glde still commands lion's share the volume of all gold ETS even though there's been many cheaper ones so that early

start is so crucial and that's a whole other sort of subplot of this story that will be fascinating well so when you're saying that you think multiple will be approved at once do you have any that you think probably won't be approved um and then so then the the you know complimentary question would be which ones are the ones you think would be approved? So my, again, if I'm just thinking about the conservative nature of the SEC, I have to give BlackRock and Fidelity good odds of coming out first. Because that's Tradfai. That's like these are gigantic establishment firms the SEC probably trusts.

They've also launched many ETFs over the years. So I think they'd be in the mix for sure. I think you have to put Arc in the mix because they were so early. look weird if they held arc back, given they were first. So I think what put those three in, and then you've got some like Global X, you know, maybe there's a couple they could hold back and launch five days later just to not maybe put too many out at once. I'm not exactly sure, but my bet is they're going to want to give the traditional finance ETF issuers the best shot at being the one. Because, again, part of, you know,

BlackRock is a powerful company, and they have, remember, when the March 2020 COVID, you know, sunk the stock market and the Treasury worked with BlackRock to buy ETS to provide liquidity. So BlackRock's work really directly with the government. And I just think that they probably secretly want BlackRock to be the one because they're a trusted company. Fidelity, same way. Other companies are definitely ETF issuers and they're valid, like a global X is a legit ETF issue, but they're just not on the same league as a black rock for fidelity. And so I think those would be in the early mix for sure. But again, just don't know. I mean, you know, it's really going to come down to whoever's

not in the first day is going to be pissed off. These are difficult decisions they're going to have to make, I think. If I were then, I'd probably just, I think there's 11. I'd probably just let them all launch it once. I mean, it's a little crazy, but at least you're, you could just be like, hey, look, we're letting competition happen and, you know, we're not going to pick any winners. And do you think that then the ones that do launch or get approved that they would compete on price? It's a great question. So, yes, I think what you're, yeah, so they're going to compete on a couple things. Like Black Rock is going to be like, hey, we're a brand name. You know, we're Black Rock. This is the way to do it. Fidelity, same deal. But then like a company like Global X or we just saw Roundhill.

you know, in all the ether ETSs. Roundhill updated their filing to say they're only going to charge, I think it was 25 basis points. So they already started a fee war in filings that haven't even launched yet. Like, so they're going to be people coming out and saying, okay, well, BlackRock's 50 basis points will be 30. So, yeah, there's going to be a lot of jockeying. Arc is probably going to say, hey, we're 21 shares. We do this in Europe all the time. We're close to the crypto community. Trust us. We're one of you. So there could be appealing to people as like, hey, we're a native, we're local to crypto,

we're not like BlackRock, we just came in to make money. There's going to be a lot of mud throwing around back and forth in terms of like the competitive landscape. And this is good for investors overall. You know, the fee wars have been a big part of the ETF industry for years. Vanguard has probably deserves credit for pioneering the fee wars. But now, look, you can get an entire portfolio of equity, stocks, international, really anything you want for all insurers.

of like six basis points. I mean, it's almost like free. It's like an investor utopia. And this is largely part to the ETFs industry brutality. I call it the Terodolph because it's just brutal. You're trying to compete with Vanguard at BlackRock and cost. This will be the same. I see at the end of the day, three, four years from now,

you're going to be able to buy a liquid cheap Bitcoin ETF and it's going to be powerful. And this is why we say, you know, to the crypto exchanges, you know, this will be a threat to their business because Coinbase and some of these exchanges charge a lot per trade. A Bitcoin ETF will trade for one basis point, right? That will be the bidass spread. And then the fee, let's just call it 35, 40 basis points. That's what GLD is. It's just going to, it's going to feel real appealing. And they do all the legwork of just storing the crypto for you. The tax efficiencies there. It's going to be a very, very high value proposition. for most investors. So to your point, the demolition derby at the fee war, I always say the

ETF industry is a hell so investors can have the habit. Anything's going to play out here. And, you know, again, one thing, I'm going to go back to FTX. I was watching a baseball game. This was like three weeks before SBF got found out. And I saw FTX on a baseball umpires. Like somehow the baseball empire had FTX on his jersey. This is after seeing Tom Brady. I was like, how much money does this company have? And who in the hell watching baseball is going to go to FTX? It's a bunch of 65-year-olds.

I was like, they just have way too much money. And so I would say that I remember tweeting, an ETF fixes this. And I wrote a piece saying, this will be the last crypto Super Bowl if they launch ETFs. Because ETFs are such a thin, like a rough industry. And some of these crypto exchanges were sort of like selling populism. but making a ton of money on these high fees. And so I really think is going to actually create more price competition in the crypto industry because ETFs are used to living in a teradome, but most of the rest of finance isn't.

So once you bring something into the ETF world, it can be a little bit of a belt tightening situation. We see it with mutual funds. They come into the ETF world and they're like, oh, it's like going from a country club into the jungle. And so I think you're going to find a little of that with the crypto world. And I just thought you never see, you never see that the kind of spending that you saw with FTX with the ETFish or they just don't have the money because the investors keep it. Yeah, not that FDX had the money either, but anyway.

Exactly. Well, I will agree that that was a red flag to me because I was just like, this is just, that's ridiculous ad spend. I get, you know, hiring Matt Damon or whatever, okay, fine, but like a base. ball umpire, that is just not even their market. Like, how much money do they have? Yeah, they did not have it. One last question, based on your knowledge of what happened when, you know, the gold ETF launched or the Bitcoin futures ETFs launched, how much money do you think would

pour in, I mean, you kind of gave a, you know, ballpark of like how much financial advisors might allocate. But I'm curious, how much money do you think would pour in initially, like, whether it's on the first day or the first week or first month? or whatever if Spot Bitcoin ETS were approved. Okay, so Biddo traded a billion dollars in the first day, and that's the greatest launch ever, right? So the Bitcoin futures, I remember, futures are less desirable than Spot.

So I'd have to imagine Spot breaks that record. Maybe it trades. The only issue is Biddle is if there's 10 launched at once, I would say the combined volume should beat Biddo easily. So I think as a group, it'll be the most successful. full launch of all time. Over time, how much money comes into them, you know, I've estimated maybe like $20 billion in the first couple months, because that's what GBTC has currently. And that's a broken product that isn't even traded on big exchanges. And it's still got $20 billion. It had $40 billion.

Yeah, well, you can't, you can't leave. You can't leave. That's true. But that's how many people went in, I guess I would say. So I would say that $20 billion is a good base for the first couple months. And then over time, we predict the $150 billion in the first, I don't know, say, year or two. And then at that point, I just don't know. We have to see other things that happen with crypto, but gold ETFs have $150 billion. And I put them in a similar bulkmark. I think ultimately they probably pass gold. But this is not, I don't see it being like trillions of dollars. Again, I see 0.5 to 1% of that advisor money allocating here. But again, that's $150 to $300 billion just for advisors. The other thing you're going to get with

with a liquid ETF is like GLD is used even by institutions. Institutions don't use ETFs a ton because they can get all this stuff privately and for cheaper because they have so much money, these asset managers roll up the red carpet and charge them almost nothing. But they will use GLD because it's liquid. They don't have to mess with the gold and they really like the liquidity. That's with something they can't get with their private stuff. Institutions love liquidity.

So the liquid ETF that is the most liquid one of the Bitcoin will probably get used by pensions, endowments, and the institutional money. And they have like $70 trillion. So even if they allocate a tiny portion, you're looking at some decent money. Like spy is a great example. That's also used by endowments and a lot of institutional investors, even hedge funds, if they need a quick short or a long, they just buy GLD. They don't bother with the gold. So I think the one that gets liquid will also attract some of the institutional money. So then that's why I say it could be a little bigger than gold, but gold ETF still make up, I don't know, one, two percent of all ETF assets.

So again, I've allocated so much time over the past like four months to something that's going to be 2% of ETF assets. But the reason this story is so fascinating is that it's a race. That's always interesting. There's a clock. It involves the highest rungs of Wall Street and asset management. You can't get bigger than BlackRock. The government's involved.

And then it's sort of this wild and, you know, underworld. of a bunch of characters in this crypto underworld, and all of this is being put into this story. So in terms of interest, it's off the charts. But the actual assets won't be, you know, it won't be ridiculous. One crypto trade publication saw me on a podcast like this, and they killed the headline saying 30 trillions coming for Bitcoin ETFs. I said, no, no, that's the total possible pool of advisors.

I said 0.5% or 1% of that. So there's definitely a lot of demand for hopium. And so I do want to sort of bring it down a little. Again, if you create a break. My show is the place to, yeah, to cut down the hopium. You're a opium killer? I mean, they really want, they want the hopium. Like sometimes I was like, 75%, what's wrong with you?

I'm like, that's pretty high. Anyway, again, though, a bridge to the wealthy boomers is the way to look at this. But they're not all going to buy it. But I just think that's ultimately going to be good. And again, the one that gets the most volume will probably be used by the institutional crowd as well. Again, in small doses, no big advisor or institution is going 100% of the client's portfolio. That is just something they're not going to do.

I'll be going to allocate like they do to gold, you know, a couple percent, maybe, something like that. Yeah. All right. Well, thank you so much, Eric. It's been great getting your actually realistic in this case, opium, actually. It's been very informative. Like a methadone. That's a weird reference, but it's like, it's like a minor form of opium. Yes, yes. But it's just factual opium, we can call it.

Diatopia. Yes. All right. Well, thanks again for coming on Unchained. You got it. Thanks for having me. Don't forget. Next up is the weekly news recap. Today, presented by veteran crypto reporter and Columbia University Knight Batchett Fellow, Michael Del Castillo. Stick around for this week in crypto after this short break. Join over 80 million people using crypto.com, one of the easiest places to buy, trade, and spend over 250 cryptocurrencies. Spend your crypto anywhere using the crypto.com visa card. Get up to 5% cash back instantly, plus 100% rebates for your Netflix and Spotify subscriptions, and zero annual fees. Download the crypto.com app now and get $25 with $25 with.

the code Laura. Link in the description. Happy Friday and thanks for tuning in to listen to this week's Unchained Weekly News Recap. I'm Michael Del Castillo and Knight Badget Fellow at Columbia University. This week, the legal woes have been battled former CEO of FTX, Sam Bankman-Fried, as the U.S. Department of Justice took multiple actions against him. On Monday, the DOJ attorney in charge of the investigation filed a motion to bar all seven of Bangman-Fried's proposed expert witnesses, citing, quote, an array of deficiencies, end quote. The witnesses include legal and business professionals whose testimonies, according to the DOJ, would, quote, serve no other purpose than to provide an expert patina to inadmissible hearsay

testimony about the defendant's supposed lack of criminal knowledge or intent, end quote, harsh words coming from the DOJ. But making matters worse, in a letter to the judge overseeing the case the following day, the same attorney questioned the adequacy of Sam Bankman-Freed's, quote, advice of counsel, end quote, defense strategy and his upcoming October trial, urging him to provide more details or face limitations on his defense. Bankman-Freed legal team has also been grappling with what they describe as, quote, inadequate, end quote, prison technology facilities. While he was granted limited computer access, his lawyers argue that the limitations hamper his ability to prepare for

trial. They have appealed for more extensive pre-trial release measures, stating that the current conditions violate his Sixth Amendment rights. However, the DOJ has argued that his access to technology in pretrial detention goes, quote, above and beyond, end quote, what other defendants have been offered. Adding to the complexity, Bankman-Fried lawyers objected to four million additional pages of discovery evidence introduced by the DOJ. They argue that the addition of so much evidence so close to the trial is, quote, plainly inadequate and hampers their client's right to defend himself. Bangman Fried, whose charges include fraud and money laundering, has appealed his jail term for alleged witness tampering when he shared the writings of former colleague Carolyn Ellison,

who is expected to testify against him. His lawyers claim he was merely exercising his First Amendment rights. The U.S. Securities and Exchange Commission has filed a sealed motion against cryptocurrency exchange Binance, raising eyebrows across the industry. The confidential filing, which includes over 30 exhibits, has led experts to speculate that the world-largest cryptocurrency exchange by trading volume, conducting more than $6 billion in trades over the past 24 hours, may be, under criminal investigation by the U.S. Department of Justice. Former SEC official John Reed-Stark proposed in a social media post that the sealed documents likely contain, quote, secret details, end quote, about a DOJ criminal probe, adding that those details could possibly involve money laundering allegations

against Binance and linking to a more detailed explanation in his personal LinkedIn profile. Stark, who left the SEC in 2009 and is now a cybersecurity consultant described the move as a, quote, rare tactic, claiming that the SEC usually operates with high transparency. He outlined two potential reasons for the sealed filing. First, to protect the integrity of a concurrent DOJ criminal investigation, or second, to safeguard a witness or company. Stark also noted that if Binance does not oppose the ceiling, it likely means the documents contains information the company would prefer to keep confidential. It is important to note, this is speculation by Stark. Elsewhere, Binance, still the world's largest cryptocurrency

exchange, is contemplating a full exit from the Russian market, according to a Wall Street Journal report. This comes after the exchange delisted five sanctioned Russian banks from Binance's peer-to-peer service. Signalling the gravity of the situation, a Binance spokesperson told the journal that, quote, all options are on the table, including a full exit, end quote. The exchange also has limited Russian users doing ruble transactions on the P2P platform to those who have been verified. Those outside Russia are also barred from trading in rubles. These changes follow reports that Binance facilitated P2P trades involving Russian banks sanctioned by the United States, including Tinkov Bank and Ross Bank.

The Wall Street Journal reported the Binance's P-to-P platform, which unlike Binance's decentralized exchange, custody's assets until a trade is confirmed, had seen $428 million in trades between October and March, which could add to its legal troubles with the DOJ. Additionally, Binance is rerouting its Belgian customers through a Polish entity to circumvent a ban imposed by Belgium's financial services and markets authority, which this June, order the crypto exchange to cease operations in the country. This week, we also learned the U.S. Department of Justice, in collaboration with the Internal Revenue Service, had released proposed regulations aimed at tightening tax reporting requirements for cryptocurrency transactions.

According to a document dated August 29, but discovered late last week, quote, these regulations align tax reporting on digital assets with tax reporting on other assets, end quote, and would apply to, quote, sales of such commodities on or after January 1st, 2025. It would appear the proposal is just the latest government action that while finally bringing some much-needed clarity to crypto isn't exactly the kind of clarity insiders we're hoping for. In response to the proposal, the CEO of advocacy firm Blockchain Association, Kristen Smith, warned that while such rules could help users comply with tax laws, they must be, quote, tailored accordingly and not capture ecosystem participants that don't have a pathway to compliance.

Tax expert Jashon Swartz commented on social media that the proposed regulations definition of digital assets middlemen could turn website developers into brokers if the websites facilitate digital asset sales. Quote, that's bad law and bad policy, he wrote. Last week, the U.S. bankruptcy judge Martin Glenn declined to classify Celsius's native cell token as a security. The decision came after investor Otis Davis urged the court to recognize the legal precedent set in the Ripple XRP case. Judge Glenn stated, nothing in the motions this order or announced at the hearing constitutes a finding under the federal securities laws as to whether crypto tokens or transactions involving crypto tokens are securities. end quote. Last week, the court rejected Celsius token holders bid to value sell at 80 cents, opting for a lower value of 25 cents. In what appears to be a huge victory for decentralized exchanges, generally speaking, U.S. District Judge Catherine Polk Fayea dismissed a class action lawsuit against the traders of decentralized exchange uniswap and high-profile investors and Driesen Horowitz, Union Square Ventures, and others, ruling that the platform

is not liable for losses related to scam tokens. The lawsuit initiated by six plaintiffs alleged that Uniswop operated as an unregistered broker and dealer. In an opinion and order filed Tuesday, Judge Fayette wrote, quote, due to the protocol's decentralized nature, the identities of the scam token issuers are basically unknown and unknowable, end quote. She further explained that federal securities laws shouldn't be stretched to cover such conduct,

suggesting that Congress might want to do a better job addressing the issue. Uniswop founder Hayden Adams described the decision on social media as a, quote, huge win, adding long-live defy. The U.S. Drug Enforcement Agency, known for its crackdowns on crypto-based dark web marketplaces, fell victim to a classic airdrop fishing scam, according to a Forbes report. The agency reportedly lost over $55,000 in confiscated Tether funds. The Samra exploited the public nature of blockchain transactions, noticing a test transfer of $45.36 in Tether from the DA to the U.S. Marshall's wallet. The fraudster then created a similar-looking wallet address and successfully tricked the

DEA into transferring the funds. The FBI has already filed a warrant and is leading the investigation. The stolen funds were converted into ether and transferred to a different wallet. Ben Armstrong, the face of the popular YouTube channel Bit Boy Crypto, has been removed from the brand by its parent company BJ Investment Holdings. The company cited, quote, substance abuse, end quote, and adding emotional, physical, and financial damage, end quote, as reasons for the separation. Armstrong, however, refuted these claims and vehemently, denied allegations of substance abuse, adding, quote, I have not relapsed. This is a lie. End quote, he told decrypt media. Three former Pepe coin team members have been accused of stealing

$16 trillion of the tokens worth around $15 million from the project's multi-sig wallet. Quote, yesterday these three ex-team members came back behind my back, logged onto the multi-sig, stole 16 trillion or 60% of the 26 trillion multisig tokens and sent them to exchanges to sell, end quote, according to a social media post from the widely followed account. The author or authors of the post claimed that the multi-sig wallet required three of the four signers to approve transactions. The fourth signer presumably wrote the post. The allegedly stolen funds were quickly sold on OKX and Binance, causing the Pepe token price, to plummet nearly 20%. Meanwhile, the hits just keep coming for decentralized finance protocol

balancer, which after seeing $200 million worth of deposits flee last week following reports of poorly written software, this week lost another $900,000. In a social media post, Web3 Audit Firm Hackin wrote, quote, to avoid potential losses with draw affected LPs immediately, end quote. And that's all. Thank you so much for joining us today. We know it's hard to keep up with the latest news in the crypto ecosystem. That's why Unchained has a daily newsletter to keep you covered. Sign up for free and receive the latest updates right in your inbox Monday through Friday. Check out the show notes and subscribe to our substack. Unchained is produced by Laura Shin with the help of Kevin Fuchs, Matt Pilchard, Juan Aronovic, Megan Gavis, Ginny Hogan, Shosh.

Shank and Margaret Curia. Thanks so much for listening.