Unchained - Why Spot Bitcoin ETFs Are Likely to Finally Start Trading on Thursday - Ep. 592

Episode Date: January 9, 2024

It’s set to be a historic week in crypto, with the SEC widely expected to finally approve a spot Bitcoin ETF, although it’s not a 100% certainty. Two Bloomberg analysts who have followed all the developments closely since the beginning, James Seyffart and Eric Balchunas, join Unchained to discuss the final filings, the likely schedule, and whether all the applications are likely be approved on the same day. Then they dive into the real action: the cutthroat wars that have already begun, why Grayscale might be keeping its fees on the Grayscale Bitcoin Trust so high, and who the likely winners in what has traditionally been a “winner take most” category will be.  Listen to the episode on Apple Podcasts, Spotify, Fountain, Overcast, Podcast Addict, Pocket Casts, Pandora, Castbox, Google Podcasts, Amazon Music, or on your favorite podcast platform. Show highlights: What the recent 19b-4 and S-1 filings say about how close the ETFs are to approval Whether Hashdex's existing futures ETF impacts its treatment in the spot Bitcoin ETF process The likely timeline for trading to start post-ETF approval The possibility of simultaneous launches for all approved ETF issuers The SEC's concerns about ensuring a fair launch, informed by the BITO experience Eric’s surprise at JP Morgan's involvement as an Authorized Participant Why the SEC is approving the ETF despite Gensler’s stance against crypto What extreme cases Eric believes might cause the ETF not to be approved  How BlackRock's low fees set a challenging benchmark for competitors The potential for an issuer to offer even lower fees than current players How issuer margins are thin due to marketing fees, and the impact of waivers James’ theory about why Grayscale might be keeping the fee on GBTC so high Predictions about which issuer(s) will gain the bulk of assets under management The rumor about BlackRock introducing substantial liquidity on the ETF's first day Eric and James's expectations for ETF inflows and market dynamics Thank you to our sponsors! Arbitrum Foundation Popcorn Network Guest: James Seyffart, Research analyst at Bloomberg Intelligence Previous appearances on Unchained: Why the SEC May Want Cash Creation of Spot Bitcoin ETFs Why It Looks Like BlackRock Could Win America’s First Spot Bitcoin ETF Why a Spot Bitcoin ETF Will Probably Launch No Later Than January 10 Eric Balchunas, Senior ETF analyst at Bloomberg Intelligence Previous appearances on Unchained: Will a Spot Bitcoin ETF Finally Get Approved? Links Previous coverage of Unchained on spot Bitcoin ETFs: The 4 Factors That Will Determine Which Spot Bitcoin ETFs Win Market Share How Much Money Will Flow Into Bitcoin ETFs? Here’s One Projection The Chopping Block: Are We Back? The ‘Low IQ’ Response to the Potential Spot Bitcoin ETF Fees  Unchained: Fee Competition Heats Up Among BlackRock and Other Spot Bitcoin ETF Applicants Caitlin Long’s tweet warning about no fees Fidelity set their fee to .39% Invesco/Galaxy chose to waive fees Market participants: Unchained: Goldman Sachs Could Take Vital Role in BlackRock, Grayscale Spot Bitcoin ETFs: Report The Block: Nasdaq to meet with SEC today to discuss spot bitcoin ETFs: Source Reuters: BlackRock, VanEck among asset managers that submitted updated filings for spot bitcoin ETF CoinDesk: BlackRock, Valkyrie Name Authorized Participants Including JPMorgan for Bitcoin ETF Others: Better Markets’ letter: The SEC Must Follow the Law and Reject Spot Bitcoin ETPs Which Will Inflict Massive Investor Harm FXSTREET: BlackRock might be on track to create history with $2 billion inflows in spot Bitcoin ETF in a week Eleanor Terrett of Fox News’ tweet on Better Markets’ letter Scott Johnson of Van Buren Capital’s estimate Learn more:  Unchained:  Bitcoin ETFs Explained: What Are They & How Do They Work? Why The Spot Bitcoin ETF Is a Big Deal Deciding on Bitcoin: Should New Investors Jump In Now or Wait for an ETF? Learn more about your ad choices. Visit megaphone.fm/adchoices

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Follow the link in the show notes or visit Fountain.fm to learn more. There is this rumor that BlackRock has $2 billion lined up to put into its ETF right away. How likely do you think it is that that's true? Okay, so I was able to corroborate that piece of information. First of all, came from Vanek. That guy's very reputable. I know, but he doesn't want to say that. And the fact that he would volunteer that tells me it's probably true because he would

rather not that be true, right? So it's not like he has anything to gain from that. And then I corroborate it with somebody who's very inside this industry. So I've got two people saying that it's true. Hi, everyone. Welcome to Unchained, your 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 of Forbes was the first matriameter porter to cover cryptocurrency full-time.

This is the January 9th, 2024 episode of Unchained. Arbitrum's leading layer-to-scaling solution offers you ultra-cheap and lightning-fast transactions, all with security rooted on Ethereum. Visit arbitram.io today. VaultCraft is your no-code defy toolkit for customizing non-custodial automated yield products on any EVM chain. Join the referral program today and start earning rewards. Learn more at volcraft.io. Today's topic is the imminent launch of Spot Bitcoin ETFs.

Here to discuss are Eric Balchunis, senior ETF analyst at Bloomberg Intelligence, and James Seifert. Research analyst at Bloomberg Intelligence. Welcome, Eric and James. Good to be here. Hi, Laura. Thanks for having me. This is going to be a historic week for Bitcoin. Either the SEC is going to approve spot Bitcoin ETFs,

and they'll start trading soonish, or the SEC won't. And the industry and the SEC will enter into a new battle in their ongoing war. That's unlikely, but need to mention this. So I just want listeners to know before we start that we're recording at 11 a.m. on Monday. but let's start by quickly recapping the main events of last week. I'll just name a few highlights. You guys can throw in anything else that you think is worth noting. Goldman Sachs was named as a possible authorized participant.

The SEC Division of Trading and Markets met with exchange officials. Friday night, we saw a bunch of amendments to findings come in. So tell us kind of what you felt all these steps meant and how far they took us to this finish line. The main thing that we saw was these 19 before filings that came in on Friday after market close. And that was what Eric and I have essentially been waiting for for weeks, because we were told by multiple people that, like, once those are in, I would say the one yard line. Eric was saying the one inch line last week. So, yeah, we view that as like, that was essentially months or weeks of hard work from these issuers in the SEC to like get on this final terms and the same terms to get here. Right. So I think that's the most critical step. And then this morning we saw a whole bunch of S1 filings, just dictating fees and other things. And that was also the other step. So in order for these things to list, we need two things to happen. We did the 19B4s to be approved, which came in on Friday after market closed. Again, those weren't approvals, but those were the amended filings. And we needed the last most recent updated S1 amendments, and we need that to be approved as well.

So we have both of the theoretically final amendments to these documents. And once both of those get approved, that's when they can begin listing. And let me just jump in. The reason the 19B4s were really important was that we had heard that unlike the S1s, where every time they came with comments, the issues are refile. So as you know, we had up to four or five amendments on each S1, which we were, you know, obviously reported on as they came in. But 19B4s went away for a while. And that's because the staff had asked the issuers to just make updates as they went. And if they made updates, send them the

file like offline. And they'll work all this out behind the scenes. And what we had heard, the reason for that was is that the staff was making sure that its approval was in line with the 19B4. So they were completely in tune. So they said, well, when we're ready, we'll tell you when you can file you're in a final 19B4s. So that's why we had thought, as soon as the final 19B4s, so that's why we had thought, as soon as the final 19B4s come in, which they did on Friday, that would be as close as possible to a formal approval as we've ever been, hence the one inch yard line. The S-1s today, gravy or icing on the cake, because they were told to come in by 8 a.m. The other good thing about the S-1s is there was this theory that the 19B-4s would get approved on Wednesday, which was the deadline for R, and that the S-1s

could actually drag us into like February or something or later because that's a different group. So you could have had approval on the 19-B-4s and then a delay before launch because of the S-1s. the fact the S-1s were due this morning and in such final shape with the fees and everything, T's crossed, eyes dotted, that means that group is also ready to party, right? So that's good, and that also tunes in with our intel that they're looking at lining everybody up for a Thursday launch. Again, things can change, as you said, but that's all this sort of makes, the stars are aligning for Thursday. And just quickly explain the difference between the 19B4 and the S-1. And am I understanding correctly that you were saying that some issuers had to submit one but not the other? Or I'm not following.

Yeah. So the 19B4s are like, those are the ones that like if anyone who's been following this from the get go, those are the ones that would have those deadlines where the SEC delays, delays, delays, and then denies over the last few years, right? That's that process. So that process is for a rule change. And the rule change in this case without getting two in the weeds is basically saying the exchanges are allowed to list spot Bitcoin ETFs. That's one process. That needs to happen before these things can begin trading. Right. So that's the first. step in the process. That's what we've been talking about. Everyone needs to file one of those that's trying to list a spot Bitcoin ETF. And everyone also needs to file this S1. So those 19B4s are through a division in the SEC called the Division of Trading and Markets. And they are specifically worried about fraud, manipulation, fair practices in the actual trading markets, right?

The S-1s are the prospectuses, the offering documents, the things with risk disclosures, how the trust is going to operate, the fees, saying who they're authorized participants and all these other third parties involved in the trust are going to operate. That also needs approval. it's through another division called the Division of Corporate Finance. So you can't trade until both of those things have the okay. But everyone needs to have the okay on both of those things in order to begin trading at a spot Bitcoin ETF. All right.

And then hashtags did not submit its updated S1. So what does that mean for them? That's a good question. I'm not going to look into it too much because they're the only one that's already an actively trading ETF. Right now it's just futures. Their whole process is trying to change things so they can also hold spot. It could mean something.

we might found on the Thursday that it actually means something. I'm going to guess that the SEC is treating them somewhat differently for some reason, but I'm assuming that they are going to be allowed to hold spot on the same day. But I actually don't, we don't know, we don't have any insight to exactly what's going on there. But that said, unlike everyone else, they are already a trading enlisted ETF, and they're just trying to change the investment objective to not just hold futures to also hold spot. So they're completely different from everyone else. So is Grayscale.

Gray scale is also a little different, but they're not an ETF, but they are already already trading. and they're just trying to change to actually become an ETF. Those are the two that are sort of morphing. The rest are fresh. Okay. And then both of you have mentioned a Thursday launch, but I saw that Scott Johnson of Van Buren Capital, his estimated timeline for trading would be that trading starts next Tuesday.

The timeline he gave was, you know, the final S-1s or S-3s file today. The 19B4 approval comes on Wednesday. then he wrote Thursday, requests for acceleration from issuers, Friday, notice of effectiveness filed from the SEC, and then he wrote, you know, Monday's a holiday. So then he wrote Tuesday, trading starts.

So it sounds like you don't agree with that timeline. So talk about that. First of all, all hail Scott. This guy has, we've never met him in person, although we're planning to have lunch at some point to just after all this is over,

and just like basically sit on our rocking chairs and be like, wasn't that crazy? Trade war stories. And or isn't that person crazy? Yeah. Anyway, yeah, we're, he's exactly right. And he knows more than us in the technical workings of this, no doubt. That said, when you just said the request for acceleration Thursday, what I heard was that would be Wednesday at 5 p.m.

So what I'm hearing is everything he says is right. I would just shove it up one day. Now. And what does that mean the request for acceleration from issuers? That means literally they just want to speed up when they can launch? Yeah, request to launch basically. Request to go effective. And remember, SEC's telling them to do this.

That's what I heard is they were advised to do the request for acceleration at Wednesday at 5 p.m., which would put them on Thursday launch. I normally, when ETFs launch, this is not absolute, but they're normally launched Tuesday through Thursday, typically. You know, occasionally you get one on a Monday, but after a long weekend, everybody's coming in kind of groggy. I don't know. Tuesday, if anything, I would think Wednesday would be the launch. day in that scenario, but I can see why they went Thursday. Get them out Thursday, let them go one more day Friday, and then we can all take the weekend off knowing we're good to go. That makes logical sense to me rather than a Tuesday. But if we do go to the next week, I would almost think

Wednesday, that way we're not coming in off MLK weekend into all this logistical, like, process. Until this weekend and until like talking with the reporters at Bloomberg who have additional sources in addition to who we're talking to, because we're two separate entities, They're the ones that have got a lot of this. Eric has also gotten stuff. So until like the last few days, I was 100% in Scots Camp. I thought we were going to go right after. So Monday is Martin Luther King Day. So it's a holiday. So I thought we're going to go to 16th, 17th. But everything we've heard, like Eric has said, is that this thing is being accelerated up faster than most people think, including that I thought specifically. So we're going off of like a bunch of different sources and who we're hearing from. And obviously, reporters are also hearing the same because they're writing stories about it. Katie Reifeld from our news department and a bunch of other people at Bloomberg News have are. have their own sources that are saying the same thing. Yeah, and it honestly reminds you of the SPF trial where they were going to have to take the Friday off and people were saying, oh, the jury never decides in one day. But I thought they're not going to want to come back after three days off and finish it.

So, yeah, they decide in one day. And then is it also the same situation as you've been saying that it looks like every issuer will launch on the same day or does it look like there might be any variation there? Well, you know, you look at something like hashtags, where's there S1, I still think I'm still holding out a small percentage of chance that GBTC doesn't make it. But theoretically, yes, I think you see them all launched in the same day. But do we get 11 out of 11? I don't know. Maybe we get 10 out of 11.

We're 9 out of 11. But it looks like they're all ready. So yeah, we could have, again, this is historic because nothing like this has ever happened. We haven't really ever had more than like three or four launch on the same day. And that just happened with the ether future. So having 10 or 11 is a lot. Even, you know, the term derby to me is so apropos. It really is like a giant horse race.

Yeah. And you were the one who coined the phrase coined tuckie derby, right? Yes. That said, somebody in my replies, like a month ago, dropped it. So whoever that person was, I'll try to find it later and give him proper credit. But I ran with it for sure. To me, that's the, it works better than the other stuff we were looking at. We batted around a whole bunch of terms to use and we never really settled on one.

And then he came back with that one and we were like, all right, that's the one we're going to use. That for sure applies. But then also when you said there, you know, you're still holding out a chance that Grace Kill might not launch on the same day. What would be the reason for that? So again, I'll let James rebut my take. My take is this, is that I have heard that the SEC is very concerned about having a fair play. They do not want to play Kingmaker because of the experience they had with Beto. Beto still has like almost all the assets and volume of all the Bitcoin futures. So if that is their goal, you kind of are stacking the deck if you let GBTC convert on day one. They're bringing a gun to a knife fight with all that assets and liquidity. Now, with their potentially high fee, that's almost like a investor repellent. They just sprayed all over it. So it may not matter as much as I originally thought. I thought they'd be at least below 70. So taking the fee aside,

when you come over with $300, $400 million a day in volume, that is massive. And it's not a fair fight. And so I thought the SEC would, was more locked into the not playing Kingmaker and would say, well, just wait a week. So it's fair. And so these other issuers can get out and do some volume on their own. That would be my reasoning for why I still think that could happen. Now, my sources and people I've talked to said it looks good for them. So I don't know. I have two sushi lunch bets on this. So I'm probably going to owe people money, but I don't think I'm, I haven't lost yet. Well, we'll have to see. Yeah. I'm on the other side. of this, so I'm on the other side of one of those sushi lunch bets with Eric, just because I can't

see the SEC, they'd end up back in court potentially with Grayskill, and I don't think they want that. And I just, level playing field, they have to let them go, in my opinion. I am shocked at how high the fee is. I will say that all these documents, they're still red herring documents, which I've there's red writing that say not completed. So theoretically, they could drop it again, but I'm shocked that they went at 1.5 when they did. I have a few theories on why that may be or what they're doing. But yeah, I think they are going to list on the same day.

I think they're operationally ready and I think they're going to treat them all the same. And the one thing we kept saying for the last few months is like if they're operational and ready, they're not sure everyone was going to be ready. We know for a fact people are scrambling at the last minute, get authorized participation agreement signed with a bunch of these banks and brokers and traders. But it looks that they all got them. We have a whole bunch of new APs in here. And I'll just list them off. These are some of the names that I saw in these documents. We have Jane Street.

We have Virtue, ABN Amro, J.P. Morgan, Macquarie, Marix Capital, Canter Fitzgerald. I mean, these are all names that are listed throughout all of these different documents that we just got this morning. So everyone has their APs lined up. Everyone seems to have pretty much everything lined up and ready to go. But proof is in the pudding. So we'll see when these things list if they do indeed start listing on Thursday, if there's 11 of them. Yeah. And I definitely want to talk about the fees in a moment.

But I just want to get through a few just brief things first. So first of all, about the APs. Is there anything notable that you're seeing there or is it all just as expected? Pretty much as expected. J.P. Morgan surprised me. A, because of what Jamie Diamond said about crypto, only like a month ago. I mean, that was pretty fresh language and there they pop up. Right. And at that point, he said something like he thought the government should shut it down or something like that. He has pretty strong words. And then here

they are involved in the ecosystem to facilitate selling of Bitcoin to Americans. That said, the idea that you're in business and the CEO can say some things that are counter is not completely unheard of. That surprised me. But also, I had heard the big Wall Street banks where we're not going to get in, at least initially. So I was expecting to see Jane Street and Virtue almost on everyone across the board. So the fact that we saw Wall Street in there, and then James just mentioned a couple other. And then your Goldman news that you alluded to earlier, that's good news. Because the more of these big financial institutions that are in this, the better the competition will be, which means the tighter the spreads will be. So the idea, and again, these are also very

trustworthy, secure companies. You want to have AP diversification, in my opinion. So to have it all on Jane Street's shoulders or virtue. I think this is good news. So I'm happy to see that. Although, again, because of Jamie Diamond, J.P. Morgan did surprise me a tad. But the Golden one was a rumor. It hasn't actually been named. So what do you make? But I think here's, because everybody isn't a herd mentality in this industry. So if Goldman sees J.P. Morgan doing it, they're like, well, we want a piece of that. Some managers like, why aren't we doing this too? So that's what got Goldman interested in my opinion. So that's what's going to get other big Wall Street banks interested. So J.P. Morgan, in a weird way,

I think has acted as a magnet for other big Wall Street banks to get involved with this. Whereas I had heard early, they were going to wait and see for a while because they didn't want to be anywhere near this because they knew that the SEC and some people in the government were not into this. Do you think we might see Goldman as an AP before launch? You know, we haven't yet. Tough to say, you know, this was involved with Grayscale. And you have to ask a question about Grayscale.

We still haven't seen their APs, right? James, they're not in the new docs. We have. We have seen them for a Grayscale. Yeah. It's Jane Street, Virtue, and ABN Amro. Okay. So at some point, Gellman may jump in.

I don't know why they weren't in the first round with Grayscale. That was the company they were associated with. But like I said, they can come into this fray whenever they want, really. So we'll watch for that. But just the rumor that they were interested is, I think, good news. Okay. And while we're on the subject of the big banks, Eric, I saw you tweeting last week about how certain issuers that are very active in the ETF space have not participated.

like you mentioned Vanguard, State Street. Do you have any comments on that and how it might kind of shake up the competition? Yeah, so Vanguard is a special company, and they're just not into this. And their DNA is not, they just don't look at commodities like this. They much more into stocks and bonds,

which they would argue have investment return and intrinsic value. Commodity is just worth what someone else will pay for it. It's just not in their DNA. Now, down the line, would they maybe launch one? Maybe. But I would say five, 10 years, not like this year or next year.

So Vanguard, I would say, is out for a while. State Street's interesting. I don't know why they didn't do it. They have gold. To me, this is just like gold all over again. Why wouldn't they do that? And we had Matt Bartolini from State Street on our show last week. He said they're involved in the ecosystem in a variety of ways, I believe, administrator, et cetera.

So they're making money or part of this, but they're not issuing. But honestly, you know that you see here, this thing's like, you're not in the horse and buggy business. You're in the transportation business. You should start selling cars. if you're selling a GLD, ETF, aren't you in the alternative commodity type asset business? So that's a head scratcher. But historically, State Street has been a little late. They were late to cut their fees to fight I shares.

Like I said, I think they'll regret not jumping in early. I can see them filing in like six months or a year and then just having to compete on fees. And like they could have because if you already have all these people in GLD, those would be, again, people who might add some of this. because it's a very similar type investment. So shocker for me. All right. So let's just now briefly touch on this outside chance that the ETFs won't be approved. I think both of you view this as less than 5% chance. But if that were to happen, what do you think their reason or reasons would be? First, let me just say one quick thing. I see some people throwing out this,

oh, unpopular opinion, Gary Rugpoles, yada yada, yada. I think these people who say that, it's a cowardly way to exist in my opinion. Here's why. He said it's six months. Once ago, I get it, right? We didn't know a lot. But some guy just put one out saying, oh, they're going to use custody as an issue because, oh, we're suing to Coinbase. Don't you think this stuff would have been hammered out already through six, seven amendments and filings? It makes no sense. What people do, and I see it in the stock market all the time, they throw out these crazy doomsday scenarios. And just in the off chance they're right, they get to look like geniuses. When the regular thing happens, no one comes back and says, hey, you said it wasn't going to happen. On the flip side,

If you're long stocks and you have to make it through like a tough period, it's hard. People are like, well, you told me you were optimistic about the stock market. This is where advisors have a tough job. They've got to constantly fend off worried investors. Here we are long approval the whole time and really putting our necks out there because if it doesn't happen, we're going to get eviscerated. We're making the riskier, harder, less safe choice. We obviously think we'll be right.

We've gone through everything intensely sourcing, documents, everything. And then here comes some people who are. We're like, yeah, it's not going to happen. And who are you? Who told you this? What are you talking about? So I give that almost, first of all, I have no respect for people like that. But we are leaving a 5% window for, you know, it's just like ESPN.

If you've ever seen the game percentage, it could be 20 to nothing with a minute left. It's still not 100. It's 99. So we're going to wait to go to 100 until they're approved. But the 5% would be likely a possible delay. We just have some issue with one of the issuers or something is snagged. We need a week or a month. I don't know.

That would be like 4% of that 5%. The 1% would be the unthinkable. Joe Biden calls up Gensler and Warren and they say, we just can't do this. And it's like presidential intervention or something. Those would me, the two things that make up that 5%. James may have another take, but I think he's in agreement. But one question before we go to James is when you said,

like if there's an issue with one of the issuers, then are you saying that the SEC is so dedicated to launching everybody at the same time? No. No. It would probably be an issue. were an issue that affected everybody. Because if one of the issuers didn't get their AP in time, the SEC, their typical MO is, well, tough luck.

You're either ready or you're not. So that's why we thought some people might not make it because of the lack of APs. It would be something that might affect everybody that they just need like another a couple days on or something. That would be the scenario, I think. Or again, they might be longer. I don't know. But given the things we're seeing them updating, I don't know what that would be.

Like I said, and we've heard the staff literally said we're trying to line you guys are for January 11th, do this, that and that. Eleanor from Fox calls it their homework. And they did. Eleanor Territ. Yeah. For those of you who aren't following her. Yeah.

So like I said, I think it's possible, but this idea of just randomly throwing this out. It's like a cowardly way to maybe get like look like you called something, especially if you just come into this right now. That's why the guy from Matrix report, he did it because he's like buying put options just in case. Okay, I get that. But what he said, I thought made sense five months ago. But we've gone through all of this stuff in painstaking fashion.

And if you've been involved with it, I think you're like, yeah, they're doing it. Yeah, I had another guest on my show who pointed out that there was nothing, there was no new information, which is why it shouldn't have moved the market. So, James, what's your less than 5% chance that it doesn't get approved? Yeah, I literally have like pretty much nothing to add to what Eric said. I guess the one thing I would say is like if they do need to delay for some of those issues I talked about, they basically would need to, as far as I'm concerned, they would have to have Kathy Woods all. Arc and Ophelia's 21 shares withdraw their application. And basically that would give them till March. But if I'm Arc or 21 shares, like there's almost no chance that I'm doing that, right? Like, I need some serious guarantees that I'm going to get an approval order on the same

day in March when everyone else is due because that's when BlackRock filed months after them. So that's when the next deadline would be. But as far as we're concerned, I'm 95% plus chance that these things are going to get approved by Wednesday. And look, we've been in this January 8th to January 10th window saying that this is when it was going to happen for a long time now. There's been a lot of news reports that are trying to push it up to last week and saying other things. And we stuck there. So obviously, we're hoping that that call is going to be correct. But yeah, we're pretty staunchly in the camp that it's going to happen in the next two days. Yeah, no, you guys have been very vindicated.

Like I said, three, four months ago, this was like an actual debate. And James and I were even like, well, how can they approve if they're suing Coinbase or what about the custodian issue? But then we started hearing from people working with the SEC that they were moving this along. And it was a 10th floor issue. And then you hear Gary talk about how sometimes the courts tell them what their authority is. And to me, that was like Genslish for what the courts making us do this. We don't want to, but we're doing it. But explain 10th floor issue.

10th floor is where the commissioner said. So what I had heard early on was that this got moved to the 10th floor. A lot of times when a filing comes in, it doesn't need to go up to the big bosses. like the corporate finance team just like deals with the filing there's a process it's like the DMV but this went straight up to the 10th floor and when it's 10th floor that means Gary's directing both groups to work with the issuers that's why even if there is a vote which I don't even think there'd be a vote I think it's going to happen through direct um the house is called delegated authority but Gary would be a yes because he directed this whole thing and we know we have two person what's the other guy's name James you Ada you aid it they already were for approval the last cycle so there's three. The only, so then you think, like, well, you're saying Gary would be a no. Well, that means that he would have directed this whole thing, thousands of man hours for the staff working through the holidays just to do this. I mean, that is like, a phrase I'm using is spectacularly sadistic. And it's almost beyond the realm of even entertaining it. Yeah, yeah. No, that makes sense. But, you know, the irony after he's been very, you know, critical of the crypto space. And so the irony of him being the third vote. which obviously the first one would be Hester Purse. I'm sure everybody knows that that one is in the bag. But, you know, last thing I will mention about this less than 5%

was another kind of news event from last week was this letter that was filed by Better Markets. And the letter was titled, the SEC must follow the law and reject Spot Bitcoin ETPs, which will inflict massive investor harm. And Eleanor Territ of Fox News, she tweeted, it's definitely worth noting that the SEC chairman, Gary Gensler and the president and CEO of Better Markets

Dennis Kelleher are tight. They served on Biden's presidential transition team together and Kelleher himself doesn't like Krofto at all. So, you know, I guess even if Gary is forced to vote yes, you know, somebody that's kind of in his corner. Again, this is all public relations. Gary might have even told him to do it because I think this whole thing is all the signs from him are, I'm going to do it because this dumb court told me to. But I want no part of this. This industry sucks. Everything sucks. It's awful. Fraud, manipulation, Hux which is like a 1940s term for, you know, like I like his, the Wild West. So I just think this is his way of like sort of washing his hands of this in a way in a public relations fashion.

That's what I think this is. So in a way, you could argue it's, it actually makes perfect sense. And you can tell from the document, it wasn't dated right. They didn't like actually put it into a correct comment. It's like almost somebody said, hey, just throw this out there. So like everybody knows that we hate this. Yeah. The other thing is like they've put these letters out there in pretty much every application, right? So better markets, this is. is not the first time. There's been many others. They are vehemently anti-crypto. They've been against the ETF. They're tight with Elizabeth Warren and Gary Gensler. This is a political move, like what it comes down to, what Eric was saying, right? So there's a lot of people,

even in Tradfai that don't agree with the things that Better Markets believes and says. So it's not surprising that they would like throw this letter out there. But again, it's political. And this is not the first time they've done it. It was just wild to me that I saw. That's why I tweeted about it because they dropped it on the fifth, like at the very end of the closing, period for hashtags and Franklin. And then when you look closer, like Eric said, the date was wrong. And the comments, the places where they posted the comment weren't actually on the actual filings that were open for comment. So they posted on everything else aside from the two that were still open for comment. So it was 100% just for show. Done in haste. Yeah. And the other thing

about that letter that pisses me off is there's nothing in there on actual reality in terms of relativism. Like, in other words, they don't address why you should be able to use a crypto exchange at a 2% fee. They don't address how you can still use GBTC. There are multitude of ways to get exposure to this that are less good or efficient or cheap than an ETF. If they address that and said, I get it, you know, we still hate it because of this. It should be an all-encompassing letter that says none of this should be. So what they really want is the whole thing shut down. The reason we have been supportive of all of the efforts of the issuers is that we know from covering ETFs it gives the investors the best possible deal at a good deal. It's a very, very, very

very harsh industry, which means because investors love it so much, it's a brutal industry. It's like hell for issuers, heaven for investors. And we know once this got put into the ETF format, it would be much better than the current choice is out there. And that is what they don't touch on at all. And that's why I don't respect that letter or what they're saying at all. Yeah. So in a moment, we're going to talk about why this is a brutal industry. We're going to get into the fee wars, which is really the big story here. But first, a quick word from the sponsors who make this show possible. Defi just got way easier with Valkraft, your no-code toolkit for building, deploying, and monetizing automated yield strategies in a few clicks. Forget spending months of R&D and capital when you can instantly launch your crypto fund with Valkraft on any EVM chain.

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So as we've alluded to during the show, we are already starting to see a massive price war. So talk about what we're seeing on that front. We have just seen a lot of undercutting, even changes in pricing. So James, do you want to start? Yeah. So the first thing that we have to look at here is gray scales, GBTC. They did lower the fee like they've been saying they were going to do. So the fee used to be 2%. It's now 1.5%, which is not remotely competitive with any of the other ones who've seen here. Honestly, shocking to me, I thought they would be much lower.

I didn't think they'd be with the low guys, but I thought they would go way lower than that. I have some theories on what they're planning to do here, but we can get into that in a bit. But we have a bunch of other issuers that have waived the fee to 0%. So ARC in 21 shares are at 0%, but after that it's six month or a billion dollars. They're going to go to 25 basis points or 0.25%.

You have iShares, which is waiving the fee down to 20 basis points for 12 months or $5 billion. And then after that, it's going to go to 30 basis points. So even still, they're going to raise the fee to 30 basis points. But that's still, I mean, I can comment, but that's way lower than I thought it was going to be. Bitwise, also 0%, but then they're going to go to 24. The 24 basis points that they are offering is the lowest one we have for long-term fee,

but they're waiving for six months and the first billion. And you have Vanek at 25 basis points, which is only one basis point behind bitwise here. Wisdomtree at 50 basis points. You have Invesco, which we knew about, which was way. waiving the fee completely to 0%, and then going to 59 basis points. That's still what the document says. And they're waiving for six months in the first $5 billion. Then we have Fidelity at 39 basis points.

Valkyry is still at 80 basis points, which is rather high now. So I wouldn't be surprised to see them lower potentially. Hashtex, we haven't seen anything updated, but they're at 90 basis points. And then Franklin is pretty low as well at 29 basis points. They're below BlackRock's long-term number still, too. So, I mean, we were thinking the fees would get below 50 basis points. I know what Eric, I think we were thinking like maybe 40 bips. And these even blew our thoughts out of the water.

And we can get into the end benefits, but really the beneficiaries here are the end investors, right? This is going to drive down costs, not just for the ETF investments in this asset, but also like it's going to leak out into brokerages. You watch. This is going to drive down fees across the board. I was going to say BlackRock to me is the key one here. Because you notice everybody kind of like use them as a new sort of like a thing to orbit around. When BlackRock came at 30, I guess they'd be 47.

So they were a lot lower than I. I thought they would come out of 47 and maybe over time lower or maybe match Fidelity at 39. So 30 to me is that's the new thing you've got to orbit around because if you're too much higher than 30, you're dead. So now you've got to be around 30 and that's where everybody's now between like 25 and 35, 40. But I thought we'd be in a range of 40 to 70 more than say 20 to 40. So it's almost like we just saw a year's worth of fewer and condensed into like a couple days. Well, one thing that I wanted to note about that was that ARC started at 80 basis points and then went down to 20 plus the sweetener of zero fees for some time period. So do you think that we might even see more price changes between now and launch?

I think it's possible that we could see more price changes between now and launch. I mean, I don't understand why you wouldn't, yeah, at the fringes. Like I mentioned, like Valkyrie is at 80, the hash text still at 90. I wouldn't be surprised. You got to remember all these documents if you look at them. They all have this red writing at the top that say it's subject to completion. and the date on it. When that writing is no longer read, that's when it's official. That's when it's actually effective and completed. So technically, anything in these documents can still change,

though theoretically Goldman can be added before they actually list. So those documents will no longer be what are referred to as red herrings, like right before they launch. So if what we're hearing is right, we'll see these completed documents on Wednesday night after 5 p.m. most likely, and then they'll list on Thursday. Or we've said that could stretch out a little bit, but then that's when we could see potentially more changes. Okay. And, you know, as you mentioned, the fees might change more over time. So then would you expect that they'll go even lower in the coming years? Or like, how do you think this whole fee war will play out? Yeah. Once we get into this range of, say, 25 to 30, what will happen is

someone will come in at like, I don't know, 10 or something. But it depends on who it is. What we've seen over the years is that like if you come in and you like really undercut people, if you're like a no-name brand, nobody cares. But if like a State Street were to come into 10, that would matter. So my guess is we might see some cheaper ones down the road. I don't think we'll see much more now. I think a lot of the crazy bombing is over and a lot of the dust is going to settle at this 20 to 35, 40 range.

And the waivers are all like zero for a while. But I don't, it's possible one of them just throws out like a five basis point fee. But you can't make money that way. So I don't know. I just think for now we're good. I think over time, though, we could see BlackRock probably will keep 30 forever. Like, that's probably going to be the fee forever. But other people will come in and try to steal some market share from them at cheaper prices,

depending on what kind of arrangement they have in order to pull that off. So I could see an ETF that's 10 or lower in a year or two from now. That person would have to try to figure out how to make money on some other angle of this, though, unless the custodial fees came down a lot, which they probably will some to some degree. But I will say, I think if you're out there, There, again, we're already where I thought we'd be in like 2025, 2026 in terms of being down to the 2530 range. That's really solid. That's right around where gold ETS are already.

And then for the temporary fee waivers, do you see that moving the needle and helping some of these issuers get to that kind of winner take most position? I don't know. I think those waivers have not worked in the past, usually because they're done by firms that are a little desperate, not the big firms. Like BlackRock's never done a waiver, I don't think. And it's really out of character for them. it's possible their waiver was a way to get some of that early C capital in, because I heard they have two billion lined up. They might have told those people, the fee is nothing. If you come in, if you're one of the first five billion in, we're going to charge you nothing for six months. So maybe that was a way to entice some of the early people to come in, that they, like their friends and family type investors.

But outside of that, at the end of the day, even advisors who are cost obsessed, they're okay paying a little bit. They sometimes even look at free as like suspicious. So I think anything under 40 to them, especially for an exotic asset glass like this, is going to be, looked at is low cost. For S&P 500 stocks, 30 is expensive. But for exotic areas like this, they're going to look at 30 is cheap. So the waiver, though, I don't know how much it'll move the needle. I would underrate the waiver and it overrate the base fee. So BlackRock is, they don't have a waiver, but you know, they have this discount for the first 12 months or until they reach $5 billion in assets. Ark has a full waiver for six months or until $1 billion in assets. Bitwise also has a waiver for six months or up to the first.

first $1 billion in assets. So are you classifying ARC in BitWise? Sorry, Galaxy is another one. They have a waiver. Are you classifying those as like desperate amongst the 11? No, no. We're talking like when someone comes into like, I remember there was one ETF with a low vol ETF. There already been 40 low voli ETFs for years. And low vol was getting some flows, but there was 40 on the market. I mean, so they came in. They said, we're actually going to pay you 10 basis points a year to invest in our fund. And if we get a billion dollars, we're then going move to a 35 basis point rate expense ratio. So they literally, short of sending you free psych knives, said, we'll pay you to be in it.

That is a desperation move probably, but you're also one of the later people to go in. In this case, I don't know if desperate's the word word. I think it's more just like a sweetener. I would use desperate more for, again, somebody coming into a category that's already been had and doing this as a sort of gimmicky move to get just, remember, magazines used to sell you, send you free watches and clocks and stuff if you would subscribe to their magazine. Same deal. I think over time, though, the waiver, we're going to look back and go, it was the base fee mattered more. I think it also met because so many of them are doing it.

So it's more just like, you can almost view it as a marketing expense in a way. That's the first thing I would say. Instead of like doing a bunch of commercials, which some of these people that are offering waivers are still doing it, it's almost a marketing expense. Hey, our fee is zero percent if you come in now. Like you can view that like they're taking on the cost of doing. The other thing I would say is These fees are so low, like, these guys are probably not going to make much money unless they have many billions of dollars in these funds. Like, these are already driven down. These are going to cost them money up to a certain point because there's so many, the fixed costs are just at such a level, right? So I saw a lot of people tweeting about things saying, like, there's a lot of risk in doing this and they're like doing something to get these fees so low. This is the ETF Terodome.

Like, there's a reason that there are ETS out there that charge three basis points. They basically operate them at cost. And in many cases, they operate them as lost leaders. They view it as almost marketing. So you can probably bet that a lot of these fund companies probably aren't expecting to make much money in launching these things. They're just driving fees down. The margins are probably razor thin if they are even positive. Okay. And this term, Terodone, which you guys keep tweeting, it's just about this cutthroat competition. Is that what that means? Yeah, like it's based on a public enemy song, Welcome to the Terodome, which was, if you haven't heard it, go listen to it.

That song, to me, is the sound of somebody coming into the ETF industry. It just, this, fits on many levels. Some people mistake it for Thunderdome, but it's really Terodome. But anyway, the reason I say this is because having covered the mutual fund world and the ETF world, night and day, mutual fund world's like a country club, hedge funds too. ETFs are just a different breed. It's a lot of Vanguard effect in there. And we've seen cases like, for example, in the municipal bond category, Vanguard came in at, I think, a 10 basis point municipal bond ETF. And BlackRock had the big one called Mub at 30. Vanguard started getting all the flows. And Mub was still the biggest and most liquid, but it chose because it had Vanguard coming on to cut its fee to I think nine basis

points. It went from 30 to nine, and it was the number one ATF in the category. But since then, it has bended off Vanguard to a degree. And that kind of cutting off of your own limbs to survive is what happens in this space. And so you saw a taste of it this morning. We're going to see more of it. And that's why I call it that because nothing like this happens in any of the other industries that are in sort of like the funds area, private equity hedge funds, it's just not like this. ETFs are special, but it's this brutality that helps attract more and more investors. So this is where all the fish are biting. And that's why the fish are biting here is because the competition is so brutal.

So one other thing that I wanted to ask about this, no-feas sweetener, is that Caitlin Long mentioned that if the issuer is not charging fees, it could mean that they're creating risks in the sense that they're trying to make money other ways. What did you make of her comments? And do you agree that that might happen? I mean, I kind of see the logic, but 30 is still a decent amount, especially with BlackRock. You start to get to $5, $10, $15 billion. That's a decent profit. Remember, gold is $40. GLD is $40, bit, bips, right? And it's still in the top five most highest revenue generating ETFs. So if BlackRock's playing the long game here, they're thinking this can get like $50 billion. And if so, if it gets to a GLD size, they're going to have a top 10 revenue generating

ETF on their hands. They're just looking at the long game. Second, she brought up securities lending in equities, but that already happens. You can only lend up a third of securities and equity ETFs, but I don't know if that's totally linked. You cannot lend out the Bitcoin. It's just not allowed in the 33 Act. So that's not a factor. And we're talking about BlackRock here. Now, they have many diversified businesses to sort of help subsidize, maybe not making a ton of money on this early. The smaller issue is probably going to hurt more. I think BlackRock is so big, they can handle us. Also, the other thing is look at the industry, right? It's 31 years old. There really hasn't been issues. It's a very squeaky clean industry. We've been through

several sell-offs. And the securities lending of equities hasn't ever been a problem. Again, I like it. It means they sell if you own a total market ETF. Vanguard or BlackRock will lend out a portion of the holdings that are with the custodian to hedge funds who want to short those stocks. Hedge funds pay the fund for that because those stocks are hard to get. That's little bit of payment, almost all of it goes back into the NAV. So I get that. So therefore, I get a little discount. My expense ratio gets smaller because of that reimbursement. So in a way, the little guy's making money off of hedge fund. So I'm all four securities lending on equities. And it, again, only up to a third can be lent out. And so we really haven't really ever seen

any issues there. So I get her logic. I just think as somebody who's been part of this industry for so long, she's barking up the wrong tree with that logic. This is not that industry. Other, this skepticism for the crypto intermediaries is totally warranted. You got to watch them. This is a very above board industry. Yeah, I'm a huge fan of Caitlin, but she's like, again, like Eric said, she's barking at the wrong tree. Like those documents, like these ETFs, I mean, first of all, these are not some random companies incorporated in the Bahamas, right there registered with the U.S. These are big-name firms. And if they're going to, if they are ultimately going to do securities lending, which I'm not even sure they can do in the current wrapper, there's probably, I think, I think ultimately

some of these ETS will figure out a way to do that. But it will be part of the pitch, right? It will be in the documents saying that they're doing this. These are not going to be companies that are going to doing, like they're opening themselves to massive lawsuits and criminality, essentially, if they're doing things that are not disclosed in their documents. So the documents do not disclose them doing this. These companies are just not going to be doing that, not in the U.S., at least, not these big asset management firms. So that's the one thing I would add on. Okay. So at this point, let's also now talk about Grayskill. We touched on it briefly. I do have to mention, okay, so, we had along back and forth, me and James, in a discussion about the SEC's push to have all of these

ETFs be cash of redemption and creation instead of in-kind, which means, you know, that it has to be like bought and sold in dollars or bought and created with dollars rather than just with Bitcoin. And I had thought from that discussion that what it meant was that I thought the reason that Gray-Scale was pushing so hard to have it be in-kind, like to have all the transactions in Bitcoin was because there was going to be a taxable event upon the moment of conversion from, you know, of GBTC to an ETF. Turns out that I was wrong about that. So James, can you explain that? And then let's at that point talk about the fact that, you know, if their fee is only 1.5%, which is, you know, well above everybody else is like, do you see a mass exodus or, you know,

what do you think will happen there? Yeah. So on the tax front, yeah. You issued the correction after I spoke to you, but basically that tax concerns. I realize now my correction, well, I don't know exactly. I don't remember the wording of it, but my understanding was like that it would create a taxable event for the investors, not for grace guilt, but for the investors. And I think I might have said that in the correction, which is, so anyway. So the taxable event is really only if you sell, right, because of the way a grant trust structure is set up. And something that I actually didn't fully comprehend or understand. So some of the tax concerns that we had and many other people had are not really there, essentially.

And I've heard this other idea that once they convert to an ETF, that is a taxable event. As far as I'm concerned and as far as I'm aware, that is also not the case. This thing, it's not like you're not moving the Bitcoin from one trust to another trust. You're simply wrapping the ETF technology around the current trust offering. So the Bitcoin doesn't need to leave. Right. So anyone's selling will potentially have to deal with those gains taxes, right? I mean, consult your tax specialist before this, but you shouldn't, there shouldn't be any

huge disadvantage for gray scale on a tax front. Now, there might be other reasons, and I have theories on why so many of these issues were concerned with making sure in kind, I mean, aside from the fact that it's the most efficient standard way of operating these things, but you asked the question about 1.5 percent, and I have my theories. My first theory is... Well, okay, actually, no, before, okay, sorry. Let's talk about that. So what I thought was that upon the conversion, they would have to do the cash creation of the ETF. So that's what I thought created the taxable invent for investors, but you're saying they just get to stay in there. So then why was Grayscale pushing so hard for Inkind if that's not going to happen? So it wasn't just Grayscale.

It was Fidelity. It was I shares or BlackRock. Basically everyone wanted to do Inkind, aside from a few people that had kind of just accepted the SEC wasn't going to do this. But a lot of the big players were like, no, we're going to push hard for this. I mean, at the end of the day, it's the most efficient way. Like rather than handing over cash and then the fund company having to buy the Bitcoin, it's way easier if these APs that we spoke about just handed over the Bitcoin, you got shares back, right? That's the most efficient way. That's the way most ETFs work. That said, the arbitrage will still work in the cash process. Things are not going to be different at all. But if you have the in-kind process, you can take Bitcoin from elsewhere and put it

into the trust without having to worry about a taxable event and in return get the shares, or vice versa, you can hand over the shares and get Bitcoin back. So in the case of Grayscale, DCG owns a massive chunk of GBTC. So if they are allowed to do in kind, they could hand over the GBT shares, take delivery of Bitcoin, which we know they have issues with debt and other things that are actually denominated in Bitcoin and things along those lines. So it probably would have been way more efficient for them to actually get the actual Bitcoin at the end of the day. Now, if they want to get out, it's probably going to be a taxable event if they do indeed need to sell the GPD shares. BlackRock's perspective, we've talked about this before.

BlackRock has a private trust that holds a bunch of Bitcoin. We don't know how much is in there. We've heard it's in the hundreds of millions. My theory was from the get-go was they were going to take those assets and port them into the ETF as a sort of way to just bump up the assets and liquidity and volume in that thing. We're still hearing that BlackRock and others are still going to be putting a ton of money in there. But essentially, all you need to know is that Inkind is the most efficient, simplest way. Going cash for 95% of investors in 99% of situations isn't going to affect the vast majority of people. Okay. So now let's talk about the 1.5%, which is so high. do you think a lot of GPDC investors will leave?

Yeah, so I do think a lot of GBC investors are going to leave. We always thought, I always thought there was going to be billions and outflows from GPDC just because people are, you can see it online. A lot of people are upset with Grayscale, despite the fact that they are honestly the number one reason why we are going to get these things because of the lawsuit, but people are not happy with the way they've operated. And also a lot of people have access to this thing that are just playing the discount, right?

They don't actually want Bitcoin exposure. They're viewing a special situation. That said, this 1.5% fee is probably going to cause even more money to flow out than I was expecting. But I think one, as we talked about, I think they could technically still lower the fee, which maybe I don't see why they would have gone at 1.5 and then I're playing the lower. But I do have a theory, which is something I was talking about in 2020 and 2021, which is what I would do if I was great scale. And we were talking about gold ETS. So we talked about GLD.

That's the big one that charges 40 bibs. State Street also has another ETF they launch called GLDM that does the same thing as GLD, which charges 10 basis points. But the reason GLD still exists as the largest and most liquid is because once you're that liquid, as Eric was saying, traders like to use that, right? If you're going in a short term, you don't really care about the fee. So GLD is still the dominant player in the space. But State Treat also offers GLDM for people who want long-term buy and hold investing at the cheapest exposure.

I think my theory here is that Grayscale is going to launch another ETF using that, they have the ticker. So GPDC is one. They also own the ticker rights for BTC. So they have the ticker rights for BTC. My theory is they're going to launch a much cheaper sibling that will compete with all these low-fee products and leave GPC at 1.5 or potentially maybe go a little lower. But they're going to milk out those high returns. That's my theory on what they're planning to do. Wow.

Okay. So for people who are a bit lazy or whatever, gray skills, happy to skim the high fees. And then for the cost conscious people, they have a separate product. Wow, that's. So, yeah. So just so you know, like Black Rock has been doing this for a while. They create like a sort of poor man series for the ETF. I'm guessing Grayscale looked at 2% fees on $20 billion and looked at the dollars and cents.

And they were basically like, if we cut this to like 30 basis points, all of our margins gone. Like we have no money. So they're at a real, this is the same thing that's happening with active mutual funds right now today. They have been used to charging 1% on holding like Apple and Amazon stocks and passive came along, Vanguard came along, offers the same stocks in an index for five basis points. So they're now 20 times more expensive. What do they do? If they go down to 20, they're dead. It's over anyway. So I think a lot of them are choosing just to ride it out until it's over because it'll take a while and then just milk it like a cash cow for a while. I imagine gray scale is in the same dilemma.

So James's point on offering a separate ETF that's cheaper would be completely in parallel to what we've seen in the ETF market. So, and honestly, probably smart. That said, it is a bit of a middle finger to your current investors. And would there be any difference in the two products other than the fee? Or are you saying it's literally the same product? No. And in fact, if GBT doesn't, James, in your scenario, does it convert or no? Yeah, it converts. Yeah, yeah, I think they're going to convert. Same thing. Just one would be way more expensive. And what they would be doing is they'd be saying, we know you're sitting on massive capital gains taxes. And we know that if you do the math, it's actually sometimes works out to just pay the 1.5% rather than switch to the new product. And like I said,

we've seen some firms do this. They have to live with that decision. I would chime in and say, like I was saying, this is what I would do if I were them. To be clear, I would have gone lower than 1.5. Like Eric said, I think this is a little bit of too much of a screw you to the people who might be trapped in there to capital gains. I probably would have gone lower under one specifically, but I mean, we're not there. We don't know exactly what's going on behind the scenes. And again, like I said, they technically could still lower the fee. But we'll see what happens over the coming days and weeks. That's my guess as to what's going to happen. They're in a real dilemma. I don't envy them. This is tough. So it's easy to talk about for them to do the math. They're like, what can we do?

Like, we simply can't go to 50. We have no money. Our margins gone. I'm not sure how much else they have that can even subsidize a move like that. Like BlackRock has tons of departments and revenue sources. And same with the big Wall Street banks like a JP Morgan. Like the bigger you are, the more you can subsidize your fight in the tarotome. The smaller you are, it's all you have, and it becomes harder. And so with them, it's almost like they don't have a ton of diversifying revenue sources. And so it's, that makes it even harder to have a tarotome mindset. You almost, it's very, again, it's a complete conundrum. I'm not sure what will happen with that. But all I do know that if the advisors of the world who are the target of this, see, wants something that

charged at 1.5% or something charges 30 from BlackRock or others that are popular with them, it's pretty much a no-brainer. That just means that you're looking at a melting ice cube, and that's all. All right. So this leads us to our next question. Which one or ones of these ETSD you project will be the winners, and the winner take most race? It's funny, we haven't discussed this.

We should have odds of the horses. I don't know if we want to go that far, but I certainly would have to give BlackRock the favorite. Even if Grayscale converts, if they convert at 1.5, I'm going BlackRock favorite. But if Grayscale converted at 30, I'd actually maybe tip my needle to gray scale. But if we're consuming 1.5 is the conversion fee for Grayscale, I'm going to say in two years, this is my outlook, my two-year time frame, BlackRock has to be the favorite. I like ARC because they're going to use it in their own funds, and they're very good at marketing. Investco, others, they also have their own clients.

So what I can see happening is the BlackRock one becoming like the liquid one that most people use in trade. and then a nice solid middle class. A lot of them have between 50 million and like a billion. And those are serving their own clients and they can make a living. It's not a, you know, it's not like they're set for life, but it's a profit-making fund. And there's probably one or two or even three that will probably have to liquidate. I don't want to predict who that will be right now. All I know is that when BlackRock went to 30, it really made it, it makes it much tougher for the smaller issues.

I feel for them. That's a blow to them. The ones I'm looking at aside from the obvious ones in BlackRock, and then Fidelity also has like end to end distribution to the end advisors and their platform, so you can't count them out at 39 bits. But the people that you have to look at now are, as far as I'm concerned, Ark in 21 shares, they're doing the fee waiver at zero. Their full-time fee is going to be 25 bibs, which is very low. Bitwise is the low stick here. They're also doing the fee waiver, and they are the lowest long-term fee at 24 bibs. So Bitwise has been saying they want to be the vanguard of the crypto investing world.

And I think with this, they are the lowest provider here, right? So you can't count them out. And they're going to be targeting crypto-native audiences, specifically. They've been doing a lot of good advisors. You also have Vanek at 25 bits. I mean, they are as low as can be pretty much. Everyone, the lowest ones, there's three at 24 bibs and 25 bibs. So those are the guys that are really in there, essentially trying to get things as low as they can possibly go.

everyone else I think is going to have a hard time. And then honestly, I'm shocked that Franklin went to 29 basis points from a legacy active mutual fund manager to go this low on something and actually be under BlackRock's long term fee is thoroughly impressive. But the other thing about BlackRock is their fee waivers for 12 months, not just six months. So they're doubling up on the fee waiver down to 20 pips rather than going all the way to zero. So everyone's trying to figure out what this cost is going to be for these waivers that they're doing and how much marketing and benefitable generate. So it'll be interesting to see. But I mean, I wouldn't count anyone. out here because like Eric said, everyone has their end clients. There's a lot of relationship, it's a lot of

relationship management here. And they're all relatively close. Like if, if, if I had a relationship with gray scale and I had to decide between investing in one of these zero fee or whatever, 25 basis point fees, I'm going with the 25 basis point no matter what my relationship is, right? But if my relationship is with somebody that's charging 39 basis points or 50 basis points versus 25, that's a lot. I might just stick with the guy that I have a good close relationship with that I can call and talk to. So you can't discount any of these guys who have a good distribution system. And then there's this rumor that BlackRock has $2 billion lined up to put into its ETF right away. How likely do you think it is that that's true? Okay, so I was able to corroborate

that piece of information. First of all, came from Vanek. That guy's very reputable. I know, but he doesn't want to say that. And the fact that he would volunteer that tells me it's probably true because he would rather not that be true. Right. So it's not like he has anything to gain from that. And then I corroborated it with somebody who's very inside this industry. So I've got two people saying that it's true. Now, BlackRock also has a history of doing this. When they launched some of their ESG ETF, they lined up some institutional investors. So when it launched, they didn't put it in a seed.

They actually had it come in the first day as if it were a big flow. So when you look at the top successful day one and week one ETFs ever, I think BlackRock six or seven out of the top 10, simply because of this lining up of money thing. It's a way to sort of game the system in a way. It's totally fine. I mean, honestly, if you're going to put $2 billion in, you'd rather put it in on day one. So it shows up as flowed volume versus before. It's smart PR because when you have $2 billion in a fund and the volume's big and the flows look good,

also looks like there's a party going on. It's like, well, I want to be part of that party. So volume and assets are the strongest marketing out there. And so it makes total sense for them to do this. They are very shrewd and they've done it before. So it lines up with their history, and I've got two sources. So I also know a couple issuers who are planning something similar, although I don't think the funds are nearly that big. But if we have BlackRock a two, and we have, let's say, two other issuers at like 300 million, something like that, you're already looking right there at a record day one or week one of all time.

Again, if we combine them, the BlackRock alone could actually break the record with Ibit if they get more than $2 billion. The record right now, I think, is $2.1 billion, which is, of course, a BlackRock ESG fund that. they totally like stuff money into. The organic record is biddo at a billion. So likely BlackRock will break its own record with this and biddows. And as a group, they could double the record if all this is true. So Nate was right here. I actually thought it would be more underwhelming than he thought. But hearing that, he's probably going to be right. It should smash records for the first day in the first week. Eric, you're talking about Nate Jeracy when he says that because Nate's been saying this was going to blow all the records out of the water. And that was my camp like a few months back.

And then I kind of changed camp and I was like, nah, I think we'll, I think we'll be, if, if we see a couple hundred million, it will be a very successful day. But now, based on everything we're hearing and seeing, and I've also talked to some people, but I don't know if they're first sources, but I've also talked to people that said that they thought the $2 billion comment was real, too. So this isn't like just uncorroborated rumors that people are throwing around. This is like this might be true. And like Eric said, the one thing I would caveat is that the ESG ETFs, it was like one pension fund

or they were using their model portfolios to put money into. So if BlackRock, ultimately, I don't think they're going to do this day one or even week one, but BlackRock has a massive distribution to what I've known. as ETF model portfolios. So if you're an advisor, you just say, oh, I'm going to put this in this BlackRock model portfolio. And it goes in there. And then BlackRock has a set, like, list of ETF that they're investing for the advisor based on like the end client's risk metrics or whatever risk appetite, what have you and goals. And if they put their ETF into one of those like models or big models, there's a whole, there's a whole slew of them. That's also just more money

that's automatically going to flow into this thing. So like I said, I don't think this going to happen like day one or week one. But I think based on the comments from Lairfink and other stuff, that is eventually going to happen for the higher risk end of their model portfolio. So don't count that out either. So it's going to be fascinating. Yeah. And it's a big deal because the Biddle launch was at the height of the crypto market. And obviously now we're not quite there. Yes, we've just typed this up and I get it. But the one thing that we do, if we carve out, we call BIOA, that is when you bring your own assets. If we carve that out, the organic grassroots volume and flows. will be interesting and we'll be able to suss that out to a degree. And I think that's where we might

find it a little underwhelming in the first week if we carve out the BYOA and look at all natural. So I just want to, I don't want to like right on the parade here, but that is something to consider. So you have seen a ton of ETF launches. How would you say the launch of the spot Bitcoin ETFs compared to the launch of other ETFs? I mean, this is like, this is a spectacle. I mean, this is like a giant show or something. It's a one-of-one situation. I never see anything close to this. When GLD launched, it was a big deal. Every time ETS break into a new asset class, like when the first bond ETF launched, the first gold ETF, it's a big deal. And obviously, Biddo is a big deal. But what makes this a big deal, in my opinion, is the 10-year buildup and

the 11 horses, which includes some of the big issuers. Never, ever have we seen them all get to launch on the same day. So that's why I spend so much of my sort of time and brain on this is because it's it's just so unusual. It's an experiment in a way. So it's not like anything else. It's highly unusual. There's a multitude of reasons why it's interesting. One thing that I'm curious about is both of you have been just barraged on social media with questions and retweets, likes. I mean, you're just in a constant conversation on X, it seems like. So, you know, is that something that you've seen before with any other ETF launch? No, no, not at all. Yeah. Yeah. Yeah. This is a one of one situation. This is a one of one situation, right? I mean, like, this has never happened before. But part of it is because of like everything that's happened leading up to this. Like, I don't think there would have been nearly as much fanfare if this thing was approved three, four years ago, right? Like, there would have been some of it, but not to this extent because it's been delayed for so long. The SEC overstepped their boundaries as far as I'm concerned. And that's what I was saying years ago. And that's what Eric was saying. You have politics involved. You have these deadlines. I mean, billions of dollars. There's a lot of people interested in this. So, yeah, it's a.

It's absolutely fascinating. And there's a reason so many people care about it. People are acting like Eric and I are the ones like hyping this up. But like we're really just answering questions and everyone has a bajillion questions. And we're just doing it. Honestly, everything up to this point has been like training for this situation because we've learned and know how all these processes work. And honestly, we've gotten more in the weeds on the actual listing and launching of these things on the back end than we ever have had to before. We kind of knew how this worked from a higher level.

But now we've gotten to the real nuts and bolts talking to people. And we're not even sharing everything that we're learning here, right? We're sharing the cliff notes, if you will, so that people can understand what's going on. But yeah, this is one of one. And the hype and surrounding this has been absolutely insane as far as I'm concerned. Okay. Last quick question. Do you have a projection for the first year in assets under management for all the Bitcoin ETFs? Are we including GBTC's $20 billion? Yeah, I would go 50 to 70 after two years, including their 26. Oh, okay, including. Yeah, $50 to $7 billion. So $26, double that. Okay, after two years, you said?

After two years, yeah. So that would mean that, and then we go five years, I'll say $100 billion. Somewhere in that ballpark, that puts a rate of gold. So gold ETFs have $100 billion. So I say it slowly creeps up and becomes like a sort of brother to gold. I can see that happening. You could also see it doing a little better or a little worse. But that would be my pick.

James? Yeah, I mean, I'm going to guess it'll get near 50 with it a year, I think, including the GPDC 26. That's my guess. So two years. I'm with Eric, I think. So we think it could get to 1 to 2% of the overall ETF asset level. So right now, around $8 trillion.

So if it gets to that level longer term, that'd be $80 billion. Right. So if we're talking about that in two, three years, I think that would be very successful for these products. So some of the numbers you're hearing out from other people, I guess technically they're possible. But I mean, like Eric said, and I've said before, gold ETFs, they're just under $100 billion.

So these numbers of like $200 billion coming into these things, like in year one, just people just don't understand the marketplace, I don't think. But I mean, I could be wrong. Well, there's one thing to note here. And the two worlds are sometimes in a gap here. 100 billion is wildly successful for something that would be a small portion of your portfolio. I think some Bitcoin people think that, oh, people are going to put all their money in this. That will never happen.

The 6040 portfolio rules because stocks work for your money and bonds give you a coupon. The Bitcoin will never eat in to that 6040. That said, people have a 10% slice for weird stuff, speculative. stuff, alternatives, it will go in there. So that's why it probably won't ever go beyond $100 billion or it'll move proportionally to like 1, 2% of all ETF assets. I don't see it going to 10, 20%. I think that's sometimes a shocker when you tell someone. They just assume everybody feels like them and they'll get like orange-pilled and put all their money in it. It will never happen with the advisor world. So these ETFs are aimed at people who love 60, 40, but are looking

for a little excitement now and then. So they might put 1% in. That's my take. And that's why there will be somewhat of a roof on this. And while we couldn't have an extreme move to the upside where I don't see it. Yeah. And I was just even thinking like if the Bitcoin price goes up, then obviously the kind of units change. But it could just be that the investor community is going to keep rebalancing to keep it at a certain percentage, which is why even in dollar amounts. Like, yeah, even as the Bitcoin price goes up, it would still be $100 billion, you know, five years from now. Right, because they trim it to keep it at 1%.

Yes, Arc does that all the time. Yeah, I think, but don't be wrong, a hundred billion category out of thin air is amazing feat, especially for something that isn't a core part of most portfolios. The other thing I would add is what you just kind of talked about, the rebalancing, I have a theory that I think this is actually ultimately going to decrease the ball in Bitcoin because these advisors, like you mentioned, they're going to rebalance.

They have a set allocation where there's 2%, 5% on the higher end, maybe even 10%. It doesn't matter. These advisors, they're going to be pitching to their clients that will take care of rebalancing for you, right? So we're going to keep you at that set allocation. So as it runs up, they'll sell into that run up. And as it sinks, they'll probably buy into that, which is exactly like Eric said, that's what Kathy does with the ETFs and gets coverage a lot. But that's likely to what these advisors are going to be doing from a high level. If it brings in that community more broadly, that's what I think will end up happening. All right. Well, you guys,

this was an amazing conversation. Thank you so much for breaking it all down for unchained listeners. Where can people learn more about each of you, Andrew, work? If you have a Bloomberg terminal, B-I-E-T-F, if not find me on Twitter at Eric or we have a buy of a podcast called Trillions, which you can get anywhere, you know, that you can download podcasts, which is all about ETS, very educational if you're looking to learn more. Yeah. I'm sometimes on that show with Eric, but he's a host.

Really, for most people, it's going to be on Twitter at J, S, EY, F, but we do do more than just covering this situation here, right? Despite what many people may think, we cover the broader asset management industry, mutual funds, ETFs, all of that. So if you're interested in that, that's all we'd write about on the terminal. Obviously, a lot of our time has been sucked into this in the last few weeks and months, but over the long term, it will settle down and we'll be covering the rest of stuff. But yeah, Twitter, J-S-E-Y-F-F is where you can find me.

Great. Well, it's been a pleasure having you both on Unchained. Thanks very much. Thanks so much for joining us today to learn more about Eric and James and the launch of spot Bitcoin ATS. Check out the show notes for this episode. Unchained is produced by me with help from Kevin Fuchs, Matt Peltcher, Juan Aranovich, Megan Gavis, Nelson Wong, Shish, and MarketCuria. Thanks for listening. Unchained is now a part of the CoinDesk Podcast Network.

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