Unchained - How, in 7 Weeks, Bitcoin ETFs Reached Inflows That Took Gold ETFs 3 Years - Ep. 616

Starting point is 00:00:00 Bitcoin ETFs will always be around just like gold ETFs are. But you only get this sort of like shining, like welcome to ETFs moment once where you break through. You know, it's like an artist who has a first album that's a smash hit. You can definitely live on after that, but you only have that moment once. And we're in that moment. People should appreciate it. Hi, everyone. Welcome to Unchained.

Starting point is 00:00:27 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 meter porter to cover cryptocurrency full-time. This is the March 8th, 2024 episode of Unchained. Uniswap makes it easier and safer than ever to access defy seamlessly across desktop and mobile. No more clunky experiences, just clean, simple, and smart.

Starting point is 00:00:54 Visit smarter.uniswop.org to learn more. With I trust capital, you can buy and sell crypto in a digital and tax advantage retirement account. Enjoy significant tax advantages, 24-7 access, and the industry's lowest fees. Pocod is the original and leading layer zero blockchain with over 2,000 plus

Starting point is 00:01:13 developers, and the Pocodot 2.0 upgrade will be a massive accelerator for the ecosystem. Join the community at Pocodot.network slash ecosystem slash community. The scorebed app here with trusted stats in real-time

Starting point is 00:01:29 sports news. Yeah, hey, who should I do? in the Boston game? Well, statistically speaking. Nah, no more statistically speaking. I want hot takes. I want knee-jerk reactions. That's not really what I do. Is that because you don't have any knees? Or... The score bet. Trusted sports content, seamless sports betting. Download today. 19 plus, Ontario only. If you have questions or concerns about your gambling or the gambling of someone close to you, please go to conicsontera.ca. Today's guest is Eric Balchunis, senior ETHANLASTA.

Starting point is 00:02:01 Great to be here. How are you? Good. It's an exciting week for Bitcoin. Monday will mark two months since the start of trading for the spot Bitcoin ETFs. And at the time of that launch, Bitcoin was trading in about $47,000. And it's now around $67,000. What do you think of the spot Bitcoin ETF performance during that time? And how did it compare to your expectations? I thought it would take longer to have this sort of second wind. The second wind came faster. and was more intense that I thought, I think we all expected some hype early, like the first couple days. It's like, it was like a pressure valve that was built up for 11 years and it finally released.

Starting point is 00:02:41 Of course, there was going to be hoopla and some flows and some volume and there was. And then it kind of dipped down. And I thought, okay, we're going to get to this new normal of like maybe 50 to 75 million a day in flows, you know, and maybe an outflow here and there, a little more normal. and GBTC's flows had outflows had actually stabilized. So I thought, okay, we're going to enter this sort of more mild area. And then potentially down the road as advisors get more interested, there could be a run-up. Well, that happened in like two weeks after I thought that. There was this clear second wave that came in.

Starting point is 00:03:17 And not totally clear what caused it. I think it looked like I bit in particular really was able to get volume. And I don't know if BlackRock's wholesale. were out doing their thing. It looks like they got a lot of asset managers to buy in. Retail has been very present in the ETFs. And so you saw a big run-up in flows and volume, especially volume, in the past two weeks. And I, that's obviously caused an upward spiral. The flows come in. They have a nice impact on price. And they have a sentimental impact. I call it the, the ETF effect. If you know these flows are coming and you're not an ETF investor, you're probably going to go,

Starting point is 00:03:58 well, this is probably bullish, I'll buy. So it's not just the ETF's lifting the price. There's an effect around it. It's positive. And so I think that's what we're seeing. And so I've been in ETFs for about 20 years. And I call this the big come up. There's just certain times where something has its moment where it just rises quickly.

Starting point is 00:04:18 Sometimes it's almost like a mania. Arc was probably the last one where the flows. come fast and furious, the volume hits. And basically, you get some FOMO and then actually helps the price of the underlying go up too. And I think we're in that moment. I think it only happens once. After there's a long decline or a bear market, it's tough to have that feeling again. Bitcoin ETFs will always be around just like gold ETFs are. But you only get this sort of like shining like welcome to ETF's moment once where you break through. You know, it's like an artist who has a first album that's a smash hit. You can definitely live on after that, but you only have

Starting point is 00:05:00 that moment once. And we're in that moment. People should appreciate it. As an analyst, I love watching it. I think it's, you know, fascinating. I was glued to Arcmania when that happened. The Jets ETF was a little like that as well. And these ETFs don't make up a ton of the market share of the ETF pie. But they're so fascinating because they're punching way above their weight. You know, Vanguard goes along. I wrote a book about Vanguard because they are just so big. But, you know, what else can you say, right?

Starting point is 00:05:27 They take in a ton of money every day. They plot along. It's like the blob. And they take in the core of the portfolio. So these big companies, we know what they do. It's like old news. But when somebody comes from the outside and is able to go wild from like this far off area and sort of command the attention and a lot more.

Starting point is 00:05:45 flows than they're due. It's hard to take your eyes off of it. So I thought that I would be on to other things by now because I thought it's going to settle down and Bitcoin would be 10% of my life. But the second wind has me almost as engaged as during the approval because, again, just as the way I was engaged in other times, something broke through from the outside like this has. And so when you kind of compare that to other moments when, you know, you said that there have been a few other ETFs that had similar manias, but when you look at the Bitcoin one, like, is there anything that you would say is sort of particular to it or different about it?

Starting point is 00:06:22 Well, the big difference is it's all happening in funds that aren't even two months old. That's crazy. That's unprecedented. Like, Arc was around for four years and it invested in these sort of high growth, sort of future-y kind of companies. And that just happened to be in vogue, especially around the, the COVID lockdown, those companies were like, because everything was like digital, right? For a while, we thought Zoom was going to, you know, so these companies took over and Arc went,

Starting point is 00:06:51 so Arc's moment happened four years and other funds, uh, happen on a smaller scales, usually years and years after they launch. And so that's why one of my phrases to issuers is hang in there, because you never know when the stars are going to align on your area. What makes this unique is that it happened right off the bat. You know, the only possible precedent is gold. But gold ETFs took them three years, basically, to get where we're up, where we are now with the Bitcoin ETFs in seven weeks. Something like that.

Starting point is 00:07:26 It's something like that. It's ballpark three to seven weeks. And that is wild. And even if you extract take out GBT's outflows, that number is accurate, by the way. If you, if you add in GBTC, you get to 53 billion in assets. assets that I think gold probably took five, six years to get there. So in fact, the Bitcoin ETFs are already, I think, like 55% as much as gold. Right. So they're on a pace to pass gold like by July. This is crazy. I thought it would take three, four,

Starting point is 00:07:59 five years. So everything is interesting. The fee war that happened in the two days before they launched. I always said that was like two years of fee war in two days. I feel like this has been like a year or two of flows and volume smashed into like two months. And it's interesting because I do find that time is different in crypto. And I almost feel like ETFs are getting sucked into the crypto time thing, like that planet on interstellar where like one minute is like two years on Earth or whatever. I honestly feel like, so what is happening here is almost more consistent with the way crypto moves than the way a typical ETF moves.

Starting point is 00:08:42 So I think it's interesting, and that's another reason it's fascinating, is because these are these are two worlds colliding. It's tradfai and crypto, and they're each having an effect on each other. And I think one of the effects is everything's moving faster. And I think that one of the things that you see is the big platforms, we're going to take like six months to add them. But the fact that there's even rumors that they're going to add the ETFs on within two months, that's a good sign because it tells you that the gatekeepers are getting,

Starting point is 00:09:12 incoming phone calls from their advisors. And they don't want to look like idiots. You can't have an advisor in Kentucky who has a client saying, hey, can I buy Ibit? No. You know, it's like almost like, you know, and they're like, why? Well, daddy at the home office says I can't use it. It's just you look totally emasculated. It's just not good client service.

Starting point is 00:09:29 So the fact that they are going to maybe add them sooner is a good sign. So it looks like the demand was pretty grassroots. And we know that from the number of trades. The only thing that I'm a little surprised at is I think, there's more retail action than I thought. I thought it would take longer because the advisors are less of them, but they come in bigger. But we've seen a ton of retail interest here. But I don't think this is GameStop ape retail. This is probably a more sober, normal retail. The kind of people who probably would buy an arc or a thematic ETF. They're probably not first-time ETF users.

Starting point is 00:10:02 So to me, this is a different kind of retail than the crypto people may assume retail is. They may just assume it's like the GameStop people. I don't think that's, this is that crowd. I think this is a more heads up retail. And I think these are people who might have been interested in Bitcoin, but just didn't want to go to the hassle of like getting it in all these other ways they could. And the ETF is such a known, trusted, easy thing for them. Just click buy.

Starting point is 00:10:29 You got the trade on and you don't have to worry about it. So I think that the value proposition has really sort of carried the day for a lot of the flows. Yeah, yeah. And by the way, earlier, when you were talking about how the time here is more like crypto time, I just felt like welcome to my world. Yeah. If you ever take breaks and go into like regular Earth world and like not do anything crypto, do you notice a difference? Yeah, yeah. I mean, you know, sometimes I'll just be like hanging out with friends or whatever for like a good several hours. And yeah, you're right. Like things feel different when you're not just in crypto. mania, but I kind of really thrive on the pace and I love it. I did want to ask some more detailed, I guess, questions about this particular week because obviously Bitcoin fleetingly hit its previous all-time high around 69K. And you, I mean, you had a number of tweets. One of them

Starting point is 00:11:27 was you said that on that day, which was Tuesday, you said, wow, I bit took in a record smashing 78 million leading team effort for the newborn nine, as you've been calling them, with near $1 billion in gross flows despite the reverse God candle, which is how the price kind of corrupted after that is that the right phrase for that or is there another way to put that? Oh, God. I don't know because I'm not a trader. So you probably know better than I do. Everybody keeps on with a God candle. This was like the God candle, but it was red. I think, I mean, I understood what it meant. So. Anyway, well, regardless, sorry. I didn't mean side track it. Yeah. Well, I mean, there was that. And then you kind of also noted, um,

Starting point is 00:12:09 just records in both Biddo, the Bitcoin futures, Biddy, I guess, the Bitcoin short, the short Bitcoin ETF and then BidX, the leverage Bitcoin ETF. So I'm just curious for kind of what you're seeing when you're looking at the volumes and the trading and especially around that period where, you know, near the recent or the last all-time high. Yeah. So it's interesting the spillover effect to the futures ETFs. I kind of thought that those would start to go down in interest because you can get the real deal with. spot, why bother? I think what's going on here is that there's just when you have something that's going up like, what was it up 30% in two weeks? It was up like 6% a day. This stuff attracts all kinds

Starting point is 00:12:52 of traders. This is just a fascinating, you know, it's like bait. So you're going to get a lot of traders and a lot of ARB going on between the futures, the Bitcoin futures, the spot. So I think some of the volume in the futures ETFs is people arming between everything or using it to hedge. So it's not necessarily like somebody woke up and said, I want to go long Bitcoin, I'm going to buy Biddo. So I think a lot of the volume in the spot Bitcoin ETFs is just trading between them and maybe even trading between exchanges. And basically, if anything is out of whack, someone's going to ARB that now. So there's a lot of our volume, but that's okay. That keeps all the prices in line. So no matter where you are, futures ETFs in exchange, you're probably going to go to a good price for what Bitcoin

Starting point is 00:13:34 is trading at because someone would have arbed any gaps. So this is the power of ARB and the ETF market makers. And I think that's a good portion of the volume. So when you have something that's in play like this, because 30% in two weeks, I think the cues is flat and the S&P is flat. So stocks have been, you know, they've been great, but not like this, right? So when you have something, you're going to attract all kinds of people getting into it. So the volume numbers, I think show that. I don't think they'll sustain this kind of volume. I think over time, maybe one of them will, like Ibit could end up trading like a billion and a half a day forever. Fidelity probably comes down a little. Everybody else comes down a little when things

Starting point is 00:14:11 settled down. But notice on the day that it went from 69 and then down to like 59 or whatever in one day, the volume went was highest ever. When things are volatile, whether it's up or down, especially down, ETF volume goes up. So volatility actually creates more volume because traders get in there. people just really like I said this is something really attractive to the trading crowd now the fact that it went up to 69k I think is interesting it went down quickly as somebody who just watches prices you know it's weird how that happened personally because ETFs bought a billion that day and I guess somebody said some guy from like 13 years ago like just decided to dump all his Bitcoin savings on one day which I get like if you're if you hold a bunch of Bitcoin and you bought it a long time ago, I get the idea of like, you probably,

Starting point is 00:15:06 maybe you're married or something. And your wife's like, dude, you're sitting on like seven million dollars. Just we have to buy a house. Like at some point, I could see people cashing out at these highs. So I could see like this stunted like two steps forward, one step back, even if the ETFs are just consistent buyers. So that was an interesting thing for me to see. And the idea that it was this one person, this whale from way back when it's just an interesting phenomenon. But it probably didn't need to take a breather. I mean, it was going up too quickly. Even in stocks, you see this usually goes down for a quick day and then it regains its momentum.

Starting point is 00:15:41 But the ETF seemed to be consistent buyers for the time being. All right. And just two quick yes, no questions before we go to the ad break. Amongst these newborn nine, as you call them, do you think it's safe to say that BlackRock will be the winner? Yeah. I mean, yeah. I mean, Black Rock will be the one. It's going to trade the most for sure.

Starting point is 00:16:01 but the rest of them, like five of them are already in the what I would call upper middle class. And then even like I just saw Valkyrie took in 40 million yesterday. That is a lot. Like so no, but everybody's a winner here. But the one, the GLD of Bitcoin is going to be Ibit. And the second yes, no question is do you foresee any of those smaller issuers or the issues with smaller AOMs bowing out? No.

Starting point is 00:16:28 Because even I don't have the number. in front of you, I think wisdom tree is probably around 30, 40 million. I mean, you only need about 50 million here to be profitable. And wisdom tree is committed to this space. They got a bunch of ETFs in Europe. And then you start going up. Everybody's got over 100 million. So they're already in profit zone. Even if they had 10 million, it's only been two months. Normally you can be a year. So even if you extrapolate wisdom tree, they're going to be well over 100 million in a year. So I don't see any of these nine closing. What I do see happening is a bunch of spaghetti getting thrown at the wall, like 18 different forms of leverage Bitcoin ETFs, and maybe three

Starting point is 00:17:07 are successful, three are middle class, and like six get closed. So I do think there'll be spaghetti thrown at the wall outside of the nine. Some of those will come and go. The nine are here to stay. None of them are going to close. All right. So in a moment, we're going to talk about other types of spaghetti being thrown at the wall. But first, a quick word from the sponsors you see make this show possible. Pocodot is the original and largest layer zero blockchain with over two thousand-plus developers. The anticipated Pocodot 2.0 upgrade will be a massive accelerator for the ecosystem. Upgrading the infrastructure with eight times higher transaction throughput and twice as fast block times, tailored court time for the needs of every protocol, trustless bridges to multiple chains,

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Starting point is 00:18:26 Tap into Uniswop's market-leading liquidity from their world-famous web app, mobile wallet, and, coming soon, the Uniswap browser extension. No more clunky experiences. Just clean, simple, and smart. Visit smarter.uniswap.org to get started. Back to my conversation with Eric. So speaking of spaghetti being thrown at the wall, when do you think options might be approved? Yeah, so I'm fishing around for information on that, but I don't have any good sort of sourced material for you right now. What I do know is that when we look at the options, that September is the final deadline. Now, they typically wouldn't wait until the final deadline and something like this, but because it's Bitcoin, you never know. You also need OCC and CFTC approval, but they did approve gold, ETF options, but they didn't approve platinum

Starting point is 00:19:18 and plating, but I don't know if I would even get worried about it. My gut and all the information I have says they'll be approved sometime between now and September. You would hope sooner, but, you know, September would be like the final, the final deadline. And what about in-kind redemptions? Do you think those will ever be allowed? Not anytime soon. I think, you know, I just think for the time being, first of all, the cash is doing fine. It hasn't really done, it hasn't been that big of a deal.

Starting point is 00:19:47 You know, you notice the premiums are really low. Would they be a little tighter with in-kind? Probably a couple basis points, but they're good. So it's not like in-kind. It's not like there's this massive need for it. But I do think down the road they'll do it. I don't think it would be something that happens within a year, though. I think we have an election coming up.

Starting point is 00:20:04 We see who, what happens. If Gensel remains SEC chairman, let's assume that. We go, it could be two years before that happens. But if a new SEC chairman comes in and they have, they could be one way or the other on the pendulum, and that could change everything. So for now, though, I wouldn't look for in kind for over a year. Okay. And then obviously we've been seeing these states.

Starting point is 00:20:28 outflows from GBT. So do you think those outflows will ever reverse? And then, assuming not, do you think that that would ever cause GBT to cut their fee in order to stem that tide? Yeah, it's interesting. If you are a shopper, it's hard to, I mean, and I like the folks at Grayscale, they're all very nice. And they're why we're here. Let's salute them for, they took it to the SEC in one. But if you have choices of these products, let's say we're shopping for, I don't know, a new toaster. and one of them was $150 and the rest were 20. And they all kind of did the same thing. I mean, it's just, no normal shopper would pick the 150.

Starting point is 00:21:06 And at this point, the other ones are liquid enough. Like, one of the case you can make, well, is GBTC was more liquid. Well, the other ones are getting plenty of liquid. So you're losing a lot of any advantages. So I don't see a lot of new flows coming in. But what is going on is what I call the bull market subsidy. And this is kind of ingenious by gray scale to foresee this. And I didn't really even think about it, but it's something we see in active mutual funds.

Starting point is 00:21:30 If you have $25 billion, which they had and you see $10 billion in outflows, you'd think, okay, well, it would have $15 billion in assets. But if the Bitcoin price goes up 40%, you actually have the same amount of assets or more. And so if it goes up 100%, so if Grayscale, I'm sure they're all bullish on Bitcoin, they can afford to lose a ton of customers and assets, and they could still, be making a mint through just the fact that Bitcoin went up that much, it's a little miragey. The assets are more about just the price of Bitcoin at that point than having actual customers. You'd rather have the customers.

Starting point is 00:22:09 But hey, it's still the same revenue. It's the same dollar revenue. So in a way, Grayscale is probably going to be fine and benefit just from being starting the race with a big base. And so active mutual funds, when Vanguard came around, they all had hundreds of billions, tens of billions. So when Vanguard started to like take the customers away, the stock market went up to threefold.

Starting point is 00:22:31 So active mutual funds like stock picking mutual funds had three trillion 10 years ago. They've seen two and a half trillion of outflows yet they have five, six trillion today. And that isn't, it's probably the only business where you can lose customers and make more money. The key to that though is to come in with a big base and Grace Gill had a big base. So I, now that I, you know, know, I wouldn't worry about them, but I don't see anybody who's fresh shopping for a Bitcoin

Starting point is 00:23:00 ETF would pick GBTC. Yeah, of course. So now let's talk about ether ETFs. You tweeted, quote, to be honest and no offense to the Eve people, but this is such small potatoes versus spot Bitcoin ETFs. It's like the opening act coming on after the headliner using Gen X bands. I'm Gen X too. It's like Sister Hazel trying to follow Nirvana.

Starting point is 00:23:21 So, by the way, the East people definitely took offense to this. I can tell from following Twitter. So can you elaborate on what you meant by that? Yeah, it's no offense to ETH. I think it's a great concept. And obviously it's almost like Robin to Bitcoin's Batman. They seem to be like the two main ones, right? And then you go have this big leg down to the other ones.

Starting point is 00:23:44 But the issue is for normal people, this is me just talking as an ETF person. I'm not judging Bitcoin versus Ether. I don't really actually know enough to really distinct, not distinguish, but I don't, I can't make those judgments and I wouldn't. But I can tell you about the marketplace. And what I've seen is the futures ETFs have like, I don't know, 40 million, 50 million. And the Bitcoin futures ETFs have, I don't know, 50 fold that or 40 fold that. So it's more about, and when you think anecdotally and you think about an advisor or a regular retail person,

Starting point is 00:24:21 Bitcoin gets 90% of the press attention. Bitcoin was like the first, it's just bigger, badder. It's like more in your face. And it's been more of the digital gold brand, right? And people who are investing in this probably just need one thing. Like they're just looking for a little speculative hot sauce. They aren't going all in for the mission of ether or the mission of Bitcoin. So they're satisfied with their Bitcoin.

Starting point is 00:24:51 So I just see Ether getting less than 10% market share of the crypto ETF marketplace. That doesn't mean I'm judging it. It's just my call on how big I see it getting. Silver is very similar, palladium and platinum. So we've seen this in gold. So I'm just going on historical precedent and patterns. And I'm telling you, when I do this, it tends to work. ETF patterns really pay off when you extrapolate them.

Starting point is 00:25:19 And just let's just use common sense, like in logic. And somebody brought this up. I think an advisor could explain Bitcoin a little easier and better than explaining ether to a client. That's another biggie. So all these things, to me, speak to a very narrow area. And again, it's not my judging of that cryptocurrency. It's more, it's more, like I make calls, right?

Starting point is 00:25:45 So this is how we see it based on what we've seen in the marketplace. But yeah, they got kind of upset, but it wasn't anything personal. And I could be proven wrong. But what we will see is we'll see Bitcoin plus Ether ETFs. So we call it the crypto fund. But in that fund, ETH probably gets a small weighting because they're probably going to cap weight it. And so ETH could get a little bit of money from that. But if you put the money in that, most of it will go to Bitcoin.

Starting point is 00:26:11 So that would continue to make Bitcoin the dominant vehicle and the dominant crypto asset in among crypto ETFs. I just don't, I don't see that changing. Okay. Yeah. I mean, that makes sense to me. I'm just curious. Do you see any flaws in that?

Starting point is 00:26:28 Like, am I, is there something I'm missing there? The way I would explain it is just a little bit different. The market cap of Bitcoin right now is 1.3 billion. And for Ether, it's 463. So I guess that if you add them together, it would be like 1.78-ish. So then what is that? Like 25, 30%, I guess if we were to do a market cap allocation. Yeah, I would just explain it more like that the value proposition for ether is a little bit harder for everyday people to understand and also for financial advisors to understand because something like ether hasn't really existed before.

Starting point is 00:27:05 Whereas something like gold or Bitcoin people, you know, analogize to gold, which is something people can easily grasp just in a word or a phrase digital gold. Whereas, like, Ether, like, that's something that's really quite new and different and to really understand, yeah, the potential in there or, like, why it's valuable would take somebody a lot longer than just hearing a two-word phrase. So, but I did want to ask you about the potential for them to be approved because I am seeing conflicting things about this. For instance, Jake Chervinsky, a variant fund tweeted doubtfully saying, quote, the SEC got a ton of political blowback for approving BTC ETFs. If the SEC asks BlackRock and other ETH ETF sponsors to withdraw, which is a common practice, I bet they will. On the other hand, CFTC chair of Austin and Benham pointed out this week in testimony in front of the House Agricultural Committee that Ether Futures ETFs have been trading based on a classification

Starting point is 00:28:04 of ether as a commodity. But then he pointed out this potential inconsistency around Prometheum, which might custody ether as a security and how that would sort of upend this other decision that's been around for a few years. So what are your thoughts? Do you think ether ETS are likely to be approved or not? Yeah. So I was a little more optimistic a month ago. The reason James and I just talked about this morning, actually, before I came on, because I wanted to get on the same page as him, because he's a little deep. James Sefer, who's also been on the show, yes. My partner in crime in this. We're more like 50, 50%. We were a little higher. We might even go

Starting point is 00:28:41 a little lower because what you do have is the fact that ETH futures exists. So if you have an analogy. Bitcoin futures existed and they didn't approve Spots. They got sued. So Spot exists. ETH futures exists. You can just say, well, the SEC should just like approve them and not even waste the time of getting sued. Easy. And the fact that ETH futures exist kind of kills the whole security argument because you already approve future. So that's where we were 75%. But the reason we're ratcheting that down a little, people like Jake are very smart. So we do take stuff like that into account, but we have not heard a peep from the SEC to issuers. There's been no engagement whatsoever.

Starting point is 00:29:21 And we're well past when they engaged on Bitcoin. Now, there's obviously a template set up now because all the work they did on the Bitcoin's prospectuses, but you'd think they would reach out at some point because ETH does have its specifics that you have to work on. So until we see engagement, we're going to remain pretty mild on our odds. And the other thing is the lawsuit. There is no lawsuit. Now you can say, well, they could deny them and then get sued.

Starting point is 00:29:48 Okay. But does gray scale after getting all the Bitcoin ETFs out and seeing that all they did was help? Well, I mean, they benefited for sure, but BlackRock, like, they're going to start at the same time. And so they're going to spend all this money to sue the SEC just to start on the same time and see like BlackRock probably clean up. I think they might not be as motivated to spend that money now. And would anybody else sue the SEC? probably not. It's weird to sue the SEC. And like I said, how much money is actually available for ether ETFs? Not that much, in my opinion. Just look at the futures. And, you know, they would

Starting point is 00:30:23 give you some guide to the interest in that market. So for all these reasons, those variables are not here now, but we are still, you know, maybe around 50 because of the fact that ETH futures exist. And you'd think the SEC just want to get this off their plate. And then they can just officially move on with other things. Because if they deny this, this will sort of become a thing. It'll have them tangling with the industry again. I personally would just approve it and move on with my life. But there's also this idea that you said political. They got a lot of blowback for approving the spot. And if they approve ETH spot, or if they deny Easebott, it could be almost like throwing a bone to some of the people who were pissed off just to say, like, we're not, you know, just

Starting point is 00:31:09 to prove that we are not into this stuff. The other thing that somebody brought up, which is Scott Johnson, who was somebody who worked with us heavily on the Bitcoin spot approval process. He's an ex-lawyer is the correlation between ether and ether futures is not as great as Bitcoin and Bitcoin futures. And that is possibly what they're going to use in a rejection. That is a little thing they could drive through because what else could they possibly use? So that, but that does give them a little daylight, something to use in a rejection that is different than the spot. And so, do you have a number on that? Like what, you know, if it's not 99%, what is it?

Starting point is 00:31:50 I'll get it to you. I don't know. It's just, it's a little lower. I don't think it's crazy low, but it's, it's lower than that. And I think I don't even want to guess because I don't want someone to like come back. I mean, like, almost everything is lower than 99. So. Yeah, yeah.

Starting point is 00:32:06 But my point. And my point to him was it's high enough. Let's just face it. They're correlated. But he's like, yeah, but it could be used. Like, in other words, it's a difference. Like, in other words, if the SEC is searching for a reason to reject and they can't use security because the futures were approved, this could give them that opportunity.

Starting point is 00:32:25 So when you post this, I'll reply with the numbers just so I can not say anything wrong here. Okay. Yeah, I would be curious. Just when they were soliciting comments on the potential for the. ether ETFs, you know, one of the kind of prompts they gave was they said, are there particular features related to ether in its ecosystem, including its proof of state consensus mechanism and concentration of control or influence by a few individuals or entities that raise unique concerns about ether's susceptibility to fraud and manipulation? So that's a little delay.

Starting point is 00:32:58 I feel like that, yeah, hints as to maybe they're thinking. Yeah, but the problem with that is when they lean on fraud or manipulation, then they are totally vulnerable to the lawsuit again because they approved ETH futures. But then it comes down too well, but ETH futures aren't correlated. So that's where that could tie into what you're saying. You see what I'm saying. So fraud and manipulation is only going to work for them again if they can prove that it's not as correlated, in my opinion. But I could be wrong. Like I said, I haven't dove as hard core into this legally as I have into the spot. Because again, maybe James and I are not lawyers, but we definitely talk to them and engage with them.

Starting point is 00:33:37 But I haven't gone as far deep into it. I also just, again, am just not as interested. The spot Bitcoin ETFs in the marketplace to me are such a massive story. And who's using them? You know, the Arizona pension deciding to like add them in. The guy from Stanford, Stanford getting the student endowment to put 7% in, all of these little things and the flows and the, to me this is plenty. At the end of the day, this is where almost the bulk of the.

Starting point is 00:34:04 money's going to go. That's where you get this sister Hazel. You're asking me to stay after, you're asking me, it's like I've Nirvana and sister Hazel playing at the same time. I'm sorry, I'm just going to watch Nirvana for a while. Like, I'm just not going to, I just mentally can't get interested. I know that's that insults some people, but I'm not not interested in it. But there's also people filing ATFs for like weight loss, uh, theme, the themes or ultra short bond ETFs. I haven't also given those a ton of attention. either. In other words, I haven't, Ether just falls into other stuff that just isn't as interesting as what's going on with the Bitcoin ETFs in real time right now. Because all we're doing is

Starting point is 00:34:46 shattering every single precedent we've seen. Yeah. I mean, I understand the Heath people in the sense that if you understand the technology, then Ether definitely does represent kind of a leapfrog in terms of, you know, like people have always said, Bitcoin. scripting language is very limited in terms of what you can do with it. We are now seeing a flourishing of innovation on Bitcoin, which is basically people figuring out ways to get around that to make it more like Ethereum. But for years now, a lot of the innovation in crypto has happened first on Ethereum. It's just that, you know, as I said earlier, I think it's much harder for the lay person to understand. If you buy Bitcoin, I think a lot of people don't think

Starting point is 00:35:32 you get anything extra with ether in terms of price. I think most people find them to be correlated, sort of like if I bought SPY, do I really need to buy, I don't know, another large cap index, like, you know, another like the Russell. I already own the S&P. I don't need to also buy the Russell because I sort of got, have the same thing. So I think most people find that if they buy Bitcoin, they're sort of getting ether by, in a way, in that the price action typically moves somewhat in tandem, am I wrong? Yeah, no, you're right if you're in a zoomed-out, an everyday person who is accessing this wealth advisor, yes, from that perspective, that is true.

Starting point is 00:36:17 And so we're over time, but I just have to ask you, do you think if either EGFs get approved that any of them will offer yield from staking or, like, even if it's like not upon launch, but in the years after launch? So I don't know, because, you know, from what I know is staking reminds me of securities lending, and you can't do that in a 33 act, which means the holdings need to be with the custodian, 100% of them. So I just think that's going to carry the day. It just would be a break from that. If they did, that would be interesting, but I just think it's a 33 act. I'm just going to go on gold and Bitcoin not being able to

Starting point is 00:36:55 lend out any shares. That just feels like similar to me. So I think they probably will not allow it, but it could be wrong. Again, I would give that, like, I'm, you know, mildly expert on that. Okay. Well, last two quick questions. You know, just curious, this is sort of a short-term projection for Bitcoin. Now that we have these portfolio managers that could influence the Bitcoin price, do you think that we will see some kind of like quarterly rebalancing effect where for any quarter

Starting point is 00:37:24 where Bitcoin makes gains that suddenly there's like a little dump at the beginning of every quarter? It could be. Some PMs actually don't rebalance. They like to ride those winners. Like at Kathy Wood, she always rebalances. So she would sell ARCB. She wants to keep ARCB at like 10%, let's say. So if it guys have run up and says 14%, she got to sell some. So someone like her would sell. Retail, I think they got to let that run. I think people get greedy. Greed, I think is going to counteract that. I think you'll some rebalancing, but some people are going to be like, no way am I selling this. You know, so I wouldn't look for. too much of that. What I would look for is what I said earlier, which is these old heads, who have like sitting on a bunch of Bitcoin and who might be getting more obligations in life, like they have a mortgage, they have this. They kind of need to maybe turn that into dollars sometimes to pay for stuff. That seems what I saw on, was it two days ago? That was interesting to me. And I, because I, there was other times where ETS brought in money and the price went

Starting point is 00:38:26 down still. So I think I'm interested in finding out who these other players are and why they're selling. And it kind of is logical to me that some of these people who are sitting on a ton would actually use some of these price movements up to cash out a little because life gets complicated as you get older and you need you need money. And you can't pay with Bitcoin with a lot of stuff right now. So, you know, I can see more of that. Totally makes sense. And then last, which is slightly longer term, is now that you have seen these first two months of inflows, do you have a projection for how much money you think will come into Bitcoin by the end of the year and where the price might be at that time? Oh, man. So we said there'll be 10 to 15 billions in net flows after the first year. We are not even two months and they're at 9 billion. they're already a billion away from my like low point and only five billion away from my high point.

Starting point is 00:39:27 They're probably going to blow away my number. A lot can happen though because if they took in like 40 billion and let's just say there's some crazy correction in like August and 20 billion comes out. I doubt. I think there'll be stronger holders than people think. But in other words, there could be an outflow period somewhere in August, September. And actually could be right at 15. after everything, the dust settles between everything. But it does look like for now, I'm going to lose or be, I'm going to have underestimated. So if you ask me right now, what would I say?

Starting point is 00:39:59 If I could revise it, I'd probably just double it. I'd probably go to 30 from 15 as my high point. I don't think 500 million to a billion a day pace is going to be maintained. I think at some point that slows down a little bit. But, you know, who knows? Like I said, it depends on how much word of mouth happens because if you talk to people, a lot of people just don't even know any of this is going on. Or they just, after SBF, they have just mentally checked out from Bitcoin. They're like, I don't care. I'm not going to be FOMO this time. But at some point, they might be FOMOed, right? If it gets 100K or something. So I don't know. Does everybody have a FOMO point? And I don't know, but the higher the price goes, the more people's FOMO points will be, they'll break. And advisors,

Starting point is 00:40:49 in particular, if I'm an advisor and I'm managing money, there's two out roads you can go. You can go, look, I'm your consultant and this is a bad idea. I'm not doing it. Almost like a doctor would say, I cannot prescribe you some crazy drug or something. Or you're like, okay, look, let's put a little in there just so, you know, none of us have to regret it if it goes to like a million dollars. But let's just, just know it'll go down. I would do that one just because it's a small amount of money.

Starting point is 00:41:17 I would want to hear it later. And, you know, part of investing is speculating for some people. So I see no problem with it. So I think the question is how long does that, does people's hearts and minds have to shift a little from the normal world? And price is going to have a big impact on that shift. And also, but you see people like Matt Hogan, and you know there's a Matt Hogan at every one of these issuers, right? And many of them. But Matt and Hunter, I think, have done a good job sort of giving you.

Starting point is 00:41:47 insight into what they're doing all day. Hey, I'm in Colorado today. I saw three advisors. Here what they told me. And like, you know, multiply Matt by like a hundred. You've got all these wholesalers. That's going to matter too because these people have good relationships. They're trusted people with these advisors. So I guess I could see, you know, it's possible we get something higher than 30, 40 billion. But I would rather be wrong on the down. Like, I'd rather be wrong on the upside. I'd rather underestimate it than overestimate it. Right. I'll stick with 30 if I could redo my estimate today. Wow. I still find that conservative if we're only two months in and you're only willing to double your high. But I won't say. I'm plotting out a little bump in the road

Starting point is 00:42:36 somewhere where, okay, maybe we get to 30 by like April, May or let's say June, but August is a, but, you know, August is nasty. You know, something like that. And that shakes a few people out, maybe 10% of the money leaves. But then it starts to go back up again. But because August was so nasty, you don't find many people a little shy at that point. So that's something that is very possible. If what you're saying is this nice road up for 12 months straight, you will be right.

Starting point is 00:43:06 Well, no. If, well, I will be right. I mean, I didn't say a specific number. But yeah, yeah, then obviously it would be higher than there. be wrong, I would say. If it's a more, you know, if the path is sort of more one direction up, my number should be blown away. But if we see a big bump in the road somewhere, I think mine could be more likely to happen. That's why I'm planning that because, you know, I've seen, you know, I've seen Bitcoin. There's definitely stuff goes down, you know, stuff happens. People get

Starting point is 00:43:39 freaked out. It's volatile. As Gary Gensler said yesterday, it's a roller coaster. But overall, again, let's just leave it with it is crazy how fast they've grown and how fast the volume has grown. Not only shattered records, but really blew away my expectations. And I was probably one of the more bullish people. Yeah, yeah. Well, this is basically how Bitcoin usually operates. So I would say it was predictable. But anyway, Eric, this has been so fun.

Starting point is 00:44:08 I'm so glad we got to dissect this really wild and fun week in Bitcoin. Thank you so much for coming on Unchained. Yeah, thank you for having me. Don't forget, next up is the weekly news recap. Today, presented by Unchained contributor, Megan Christensen. Stick around for this week in crypto after this short break. Did you know you can buy and sell crypto with tax benefits in an individual retirement account? I trust capital makes this possible.

Starting point is 00:44:32 But what does this mean? When you buy crypto outside an IRA, like on an exchange, you face taxes on gains. But in an IRA, like a Roth IRA, gains can be taxed I trust capital also has some of the lowest fees in the industry and 24-7 accessibility. Start now and maximize your retirement savings with I-Trust Capital. With Amex Platinum, $400 in annual credits for travel and dining means you not only satisfy your travel bug, but your taste buds too. That's the powerful backing of Amex. Conditions apply. Welcome to this week's crypto roundup.

Starting point is 00:45:11 Today, we navigate through ShapeShifts SEC settlement, Binance.US's compliance struggles, doquan's extradition developments, DCG's legal counter, crypto's political clout, micro-strategy's Bitcoin bet, wormholes air drop debate, coinbase's technical glitch, tether's milestone market cap, and the surge and uniswap's unitokin. Thanks for tuning in. This episode is written by Wanda Rondovich and edited by Jeannie Kim. I'm Megan Christensen with Unchained. Let's get into it. ShapeShift, a firm founded by Eric Voorhees, has agreed to pay a $275,000 fine to the SEC

Starting point is 00:45:50 to resolve allegations that it operated as an unregistered securities dealer. The SEC's seasoned disdorder highlights that Shapeshift offered crypto assets that were deemed investment contracts and thus classified as securities, referencing the criteria established by the 1946 Howie Test. This settlement includes a commitment from Shapeshift to refrain from future violations. of securities regulations. The controversy stems from Shapeshift's operations between July 2017 and November 2019, before it sees its direct cryptoass exchange services in 2021. SEC commissioners Hester Pierce and Marcu-Ata criticized the vague nature of the Shapeshift settlement,

Starting point is 00:46:30 highlighting regulatory uncertainty in the crypto sector. Quote, in sum, Shapeshift is in trouble because the commission, nearly 10 years after Shapeshift's platform started trading, and more than three years after it changed its business model, now contends that some unidentified number of the 79 crypto assets it traded between 2014 and 2021 were investment contracts without explaining why, end quote, the two commissioners said. Speaking of settlements, BlockFi is on the verge of resolving its disputes with FTX and Alameda research through a, quote, in principle, end quote, settlement valued at $874.5 million.

Starting point is 00:47:09 The agreement, pending judicial approval, would allow BlockFi to recover claims against the two entities facilitating a second interim distribution to its creditors. FTX, in return, will retract its claims against BlockFi, mark in a significant step towards concluding the bankruptcy proceedings of these crypto giants. The SEC has raised concerns over Binance.U.S.'s compliance with the consent order, focusing on whether the U.S. customer funds are properly safeguarded from access by global employees. Despite Binance.U.S. asserting its adherence to regulations, the SEC question the sufficiency of their evidence regarding control over customer assets. This dispute unfolds, as Binance.U.S. reports severe operational setbacks, including a 75% revenue drop and over two-thirds

Starting point is 00:47:59 of staff layoffs following the SEC's lawsuit. This action has led to asset withdrawals and challenges in maintaining banking relationships, casting a shadow, over the company's future viability and missed ongoing legal scrutiny. Meanwhile, the Nigerian House of Representatives Committee on Financial Crimes summoned Binance CEO Richard Tang to appear before it amid a probe following the detention of two executives. Doquan, the co-founder of Terraform Labs, is set to be extradited to South Korea. This decision by the High Court of Montenegro comes after a nuanced legal battle between

Starting point is 00:48:36 the United States and South Korea over. Kwan's extradition, ultimately favoring his return to his native country. The Corps of Appeals recently overturned a prior ruling for extradition to the U.S., leading to this latest decision. Kwan faces serious charges in both countries, including securities fraud by the U.S. SEC and criminal charges by the Department of Justice, in addition to charges in South Korea related to the fallout of Terra, U.S.D., and Luna, a $45 billion collapse that led to the crypto winter beginning in 2022. Digital Currency Group and its CEO Barry Silbert have filed a motion to dismiss what they call a, quote, baseless lawsuit, end quote, brought by the New York Attorney General Letitia James. The lawsuit, initiated in October 23 and expanded last month, accuses DCG and its subsidiary Genesis Global Capital of defrauding investors of $3 billion, particularly in connection with the collapse of crypto firm Three Eras Capital and Crypto Exchange FTA.

Starting point is 00:49:39 The investors were tied to Gemini Earn, a partnership between Genesis and the Crypto Exchange Gemini, as well as those invested directly with Genesis. In its motion, DCG vehemently denied the fraud accusations, describing them as a quote, a thin web of baseless innuendo, blatant mischaracterizations, and unsupported conclusory statements. Cryptopolitical action committees, PACs, like Fairshake, have demonstrated some clout in recent congressional. primaries, particularly targeting and contributing to their defeat of U.S. Representative Katie Porter in California. Their strategic spending, exceeding 13 million across several key races, underscores the crypto industry's intent to shape political landscapes to favor the regulation of digital assets. Josh Velastow, a spokesperson for these PACs, declared, quote, the crypto voter is here, end quote, emphasizing the industry's intent to be a significant political player in the 2024 or

Starting point is 00:50:39 elections. Simultaneously, the market is buzzing with the rise of meme coins based on political figures, notably a token named G.O. Bowden, inspired by, and misspelling the name of U.S. President Joe Biden, which surged by 830% in trading volume on Wednesday. Political meme coins reflect the speculative and volatile nature of the crypto market and showcase the often whimsical side of crypto investments. In the week that Bitcoin hit all-time highs, Micro Strategy has increased its convertible debt offering to $700 million, aiming to acquire more Bitcoin. This move, announced by the company that was founded by staunch Bitcoin advocate Michael Saylor, indicates a strong belief in the future value of Bitcoin, despite recent market fluctuations.

Starting point is 00:51:26 The conversion price of these notes is set at a 42.5% premium to the stock's last close, reflecting confidence in the asset's value growth. Micro Strategy already has a stockpile of around 193,000 Bitcoin. This week, the market also absorbed the move of 69 million worth of Bitcoin, mined in 2010 to Coinbase, likely for sale. This action by one of the earliest Bitcoin miners coincided with Bitcoin reaching a new all-time high. Analyst suggests that this large-scale sell-off, indicative of long-term holders cashing out, contributed to an 8.5% market dip, and triggered over a billion dollars in leverage, position liquidations on platforms like finance.

Starting point is 00:52:08 Wormhole, a token bridging platform, is said to airdrop 617 million W tokens to 397,704 wallets, stirring debates over allocation fairness by its community. The distribution aimed at rewarding users of wormhole ecosystem applications and its discord in NFT communities has left some users dissatisfied, claiming discrepancies in the allocation process. While the platform has launched an eligibility tracker, issues with the Ethereum virtual machine wallet connections have been reported. Despite these challenges, some users have expressed frustration over perceived inequities, with concerns over the criteria used to determine allocations, leading to calls for greater transparency and fairness in future distributions. As Bitcoin reached a new

Starting point is 00:52:56 high, some coin-based users encountered a concerning issue for the second time in two weeks. Zero account balances displayed on the platform. This glitch, amid an increase in Bitcoin trading activity, prompted official response from Coinbase, assuring users of the safety of their funds despite the apparent account discrepancies. The company acknowledged the problems, including increased latency and intermittent display errors while working on improvements. Coinbase CEO, Brian Armstrong, previously linked similar disruptions to a, quote, large surge of traffic, end quote, reflecting the platform's struggle to handle spikes in user activity during bullish market conditions. Tether, the leading stablecoin globally, has reached a new milestone by surpassing a $100 billion

Starting point is 00:53:42 market cap for the first time. This growth, including an increase of $10 billion in market value since December, is attributed to rising optimism in the market, particularly the recent surge in Bitcoin prices. Unisweb's governance token, Uni, experienced a notable 20% increase in value as a decentralized finance platform's proposal for revenue-sharing mechanism for token holders near its approval. The anticipation has elevated uni's price to its highest in 26 months, outperforming broader market trends and showcasing strong investor confidence in the proposed governance overhaul. The initiative, poised for an on-chain vote, promises substantial annual dividends to uni holders, potentially citing a precedent for similar mechanisms across other DeFi

Starting point is 00:54:29 protocols while navigating regulatory considerations. And that's all. Thank you so much for joining us today. If you enjoyed this recap, go to Unchainedcrycrypto.substack.com. That is, Unchained crypto.com. And sign up for a free newsletter so that you can stay up to date with the latest in crypto. Unchained is produced by Laura Shin, with help from Nelson Wang, Matt Pilchard, Juan Aronovich, Megan Gavis, Cheshank, and Margaret Korea. Thanks for listening. Unchained is now a part of the Coin Desk Podcast Network. For the latest in digital assets, check out markets daily five days a week with host Noelle Atchison.

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Unchained - How, in 7 Weeks, Bitcoin ETFs Reached Inflows That Took Gold ETFs 3 Years - Ep. 616

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