Unchained - Why Spot Ether ETFs Are Now Likely to Be Approved on Thursday - Ep. 648

Starting point is 00:00:00 You had Wall Street fighting crypto, and then BlackRock came in. The ETFs were a success. Tether is making more money than Goldman Sachs. And now you have Wall Street wanting to get in on that. And it's no coincidence that Schumer is located in New York, that the financial services industry is the number one donor to his campaign. I just think there's this unusual, uneasy alliance that emerged between crypto and traditional Wall Street that is going to lift the industry higher. and if we continue to see these sorts of winds, going to lift it to all-time highs.

Starting point is 00:00:36 Hi, everyone. Welcome to Unchained. You're no-hype resource for all things crypto. I'm your host, Lorishin, author of The Cryptopians. I started coming crypto nine years ago, and as a senior editor at Forbes, was the first May tree media reporters

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Starting point is 00:02:36 Today's topic is all things crypto spot ETFs. Here to discuss are Eric Balchunis, senior ETF analyst at Bloomberg Intelligence, and Matt Hogan, Chief Investment Officer at BitWise Asset Management. Welcome, Eric and Matt. Thanks for having us. Excited to be here. Yeah, likewise. Eric, we heard recently that the Spot Ether ETFs are actually going to be approved this

Starting point is 00:02:57 week on May 23rd, which is probably a big surprise to everybody. What gives people some confidence that this is likely to happen now? Yeah, I mean, I nearly flew out of my chair when I heard about it slightly before the news broke. And at first, I was like, how does it make sense? Because everybody you talked to said there was no comments from the SEC. And to me, silence is bad because remember, in all the Bitcoin cycles, they were silent, delayed, silent, delayed, and then denial. So silence is associated with like, we're not doing this. You know, communication is associated with we're doing this. So that's where our pessimism came in from. But I have to think that maybe some of this was political. Clearly, this issue is getting away from one party. And maybe

Starting point is 00:03:44 they were like, look, this is going to be a huge story. If it's denied, it'll have legs, big asset managers involved. And potentially they're thinking that we can't be seen as this anti-crypto. That's my thesis on, it's just everything else spoke to denial. And the people I talked to were also shocked. And these are people who have been working on this for a while. So, I will have to eat a lot of crow because I said I was pretty out there saying that credits of James Safer who kept this at 25% odds. I would have gone to 10, maybe five, to be honest. So he was like, no, just just keep it at 25. So at least we were only, we were only 25. Thanks, James. But I think I can rest assured. There were many articles that came out in the past month that said,

Starting point is 00:04:34 issuers were saying it doesn't look good. I mean, it wasn't just me. There were many voices and many sourcing. So shocked. That said, I'm pleasantly shocked. This would be, this is a much more fun shock than on the reverse if we were bullish on the spot Bitcoin. And they didn't approve. That would suck. So this is a, I was personally forward, I think ETFs are great. They could track anything pretty much. So I was like, this should happen. I was just trying to be right. And what we were, you know, all of the science pointed to know.

Starting point is 00:05:03 So it sounds like it was a last minute decision, to be honest, but I don't know. Yes, which. So first things, James is one of the hosts for Bits and Bits, our new show on Crypto and Macro. So people should check that out when it comes out later this week. But the other thing, too, is I think this last minute change might have something to do with the SAB 121 vote that happened last Friday, where the Senate surprisingly voted to repeal this. It's called a staff, what was the staff accounting bulletin, 121. And technically, it's supposed to be guidance, but the Republicans called it out as saying that it was

Starting point is 00:05:37 actually a rule change that sidestepped the normal rulemaking and the general accounting office agreed. And what ended up happening is that 12 Democrats, including Senate Majority Leader Chuck Schumer, which is a signal, crossed. party lines to repeal that. And so that sends a pretty strong signal, I believe, I guess, to the White House or to top leadership of the Democrats. So potentially that has something to do with it. Matt, I know you're obviously just also hearing this news. So what is your reaction or analysis? Yeah, absolutely. You know, Bitwise has a filing in front of the SEC for a spot of Ethereum ETF.

Starting point is 00:06:14 So I can't say much about that. But I'll build on the SAB-121 comment, which is I think there has been a complete sea change in Washington around crypto. I think the reason for it is that traditional Wall Street wants in on the money that crypto is making. If you remember shortly after the Bitcoin ETF launch, a panoply of Wall Street lobbying organizations, the ABA and others, put out a letter requesting the ability to enter the custody space. I think they saw the amount of money that could be made in custody and could be made in stable coins. And I think Wall Street is now pushing for crypto legislation and regulation that would allow them to compete in this marketplace. And I think that's the change that happens. You had Wall Street fighting crypto and then BlackRock

Starting point is 00:07:04 came in. The ETFs were a success. Tether is making more money than Goldman Sachs. And now you have Wall Street wanting to get in on that. And it's no coincidence that Schumer is located in New York. that the financial services industry is the number one donor to his campaign. I just think there's this unusual, uneasy alliance that emerged between crypto and traditional Wall Street that is going to lift the industry higher. And if we continue to see these sorts of wins, going to lift it to all time highs. So that's what I think is going on big picture. I'll leave the spot Ethereum comments to someone who doesn't have a filing at the FCC.

Starting point is 00:07:44 Oh, yeah. And I forgot to mention just about what the meat of SAB 2121 said, which is that for any institution that wanted to custody crypto assets, that they would have to keep that on their balance sheet. So that is something that would negatively impact like these banks that wanted it on this. So that was kind of, yeah, what were. I think, I mean, more than that, it made it impossible. Right. If they have it as a liability on their ballot sheet, they have to keep equal amounts of cash. So if they take a billion in crypto, they need a billion in cash.

Starting point is 00:08:15 And crypto custody fees are less than a percent. Cash costs five to seven percent tomorrow. So that's just not. It made it literally impossible. And that's why you saw State Street and Bonie step back from the custody space. So clearly they wanted in after they saw how big the Bitcoin ETFs were. And I think the same thing is happening on stablecoin legislation. This is not just Sab 121.

Starting point is 00:08:38 That's like the canary in the coal mine. This is a complete shift in favor of certain parts of, let's say, the emerging regulated parts of crypto, which seem to be Bitcoin, possibly Ethereum, certainly custody. And I would say stable coins. I think those are entering the mainstream. And I think it's a complete game changer for the industry. So, Eric, do you also agree that it's probably all this political activity that is what caused this reversal, like shocking. reversal? I do. Yeah. I mean, I remember in the previous cycle, we had talked about this phrase politically tenable or untenable. And I feel like we thought the Grayscale lawsuit made it politically untenable

Starting point is 00:09:25 increasingly so. But what Matt's mentioning is really powerful. And I can see it. I can see this issue slipping away from the current administration. So I think that they're worried in general. So like, you know, I recall Mark Cuban putting something out on like how they're losing this issue and it doesn't need to be this way. So it's, I don't know, it, it, it'll be interesting to see if the bill gets vetoed. If it doesn't, clearly, if it doesn't and the eighth spots out, that, that tells me there was a light, a switch was flipped on this issue and probably will be more accommodative going forward. I mean, um, Is it too late? Can you, you know, after being known as being anti? And then you will be seen as just political only? I don't know. But that's my read. I think. And the donors are interesting, too. If you look at donors, like it definitely is a lot of the same firms. They're big donors for everybody. Oh, you mean the donors who we're pushing to repeal it are also big donors of the Democrats? There's a great website called Open Secrets, which looks at donors, and there's just definitely a good representation of some of those Wall Street firms in the donations. Okay. Yeah, one other thing that I wanted to mention about whether or not Biden will veto it is that as far as I understand, you know, he has threatened to veto, right? But then I saw that Eleanor Territ, the Fox News reporter, she surmised that there was some, I'll have to look at it.

Starting point is 00:11:01 I don't remember the exact term for this, but that I guess there's a 10-day deadline or something. And if he doesn't either sign it or veto it, but then the 10 days passes, then it will automatically be vetoed because Congress will not be in session at that time. And so it actually sounds like if he wants this to be law now, then he actually has to actively sign it and reverse course in the veto. So that could be another signal on whether. or not, you know, we're releasing a change from the top. I think if he doesn't veto it, it's sort of game set and match, at least on on custody,

Starting point is 00:11:43 brokerages and stable coins. I think it would be a very clear signal that all of those things are moving into the fully accepted regulated format. Wait, but when you say that he doesn't veto it, do you mean that he doesn't actively veto it or even the passive one? If he signs it, if he signs it. Yeah, if he signs it. Then I think you know that we've, you know,

Starting point is 00:12:05 turn the page or indeed close the book on an entire chapter of crypto. That doesn't mean everything in crypto is now over the line, but it does mean these basic functions, like having low-cost ETFs, like having safe custody, like having regulated stable coins. It means that those are now part of the sort of mainstream financial firmament. And we'll see. I think there's a reasonable chance that he signs the best. Okay, yeah. I mean, honestly, given this news, I would definitely increase those odds.

Starting point is 00:12:37 One quick question is that ARCN21 shares recently removed staking from their ether ETF application. And I don't know, are there other issuers that have applications that would include staking? And if so, like, you know, do you think that those will be approved or how do you think that plays into the calculus? Yeah, I mean, you know, look, not speaking specifically to these applications, but you Usually, and I think Eric will back me up, that if you look over the history of the SEC over 30 years, they'll do sort of the first step first. Like on spot Bitcoin ETFs, we ended up with cash creates, not in-kind creates. Why? Because incriminate creates were just an incremental complication.

Starting point is 00:13:20 So let's get to the 90-yard line and not worry about like 90 to 99. And I suspect, I don't know, obviously I don't know, but I suspect I've always sustained. that the theory of that will be similar, that the first shot on goal will be, let's get to 90%, which is without staking. And then let's worry about the complications later and down the road. That's just sort of my historical read on what the SEC is done. I suspect that's what they'll do here. But, you know, if there is an approval, but obviously I don't know.

Starting point is 00:13:52 Okay. So just one question. So this deadline is coming up on May 23rd, which is three days from when we're recording. And obviously in the days leading up to the Bitcoin ETFs, we had all the different players that were identified, like all the different APs and all that. So right now, is there any of that for these Ethereum ETFs? If not, then how quickly can that come together? And is it just maybe striking deals with all the same players? Or what do you guys think?

Starting point is 00:14:18 Yeah, I think there's a lot of overlap in how you would architect these. You know, we've been running private spot Ethereum funds for accredited investors for a large number of. of years and certainly how we manage those funds is very similar to how we would manage any other funds. So there is a lot of, you know, once again, this is not the first time we did do the spot Bitcoin ETFs. They've proven in the market. They've traded exceptionally well. They've lowered costs. They've tracked in line. So I think, you know, from an industry side, there should be a lot of confidence in that. And many of the same systems would apply to ETH, the same custodians, the same trading counterparties, et cetera.

Starting point is 00:15:00 The real difference would be on baking, and that's, you know, as I mentioned, that's just a separate thing. If you look at the applications of the 19B4s, they tell a very similar story to the applications in 19B4s in the Bitcoin space. Okay. So if the approvals come on Thursday, we're heading into a holiday weekend, so there won't be trading Monday. And it was actually the same case, I think, last time.

Starting point is 00:15:27 And they, I mean, the days were quite, I think it was like Wednesday, the approvals happened. And Thursday they started trading to get ahead of the holiday weekend. So what's your guess? Would they start trading Friday for that one day or wait until next Tuesday? If this was done all last minute, I would assume that if the 19B4s were okayed, because they have to make a decision on those, I believe, by the 23rd. So the S-1s, they can take more time. Oh, right. But they can't go out until that's.

Starting point is 00:15:57 done. So it's possible that we've got weeks. But I don't know because I can't imagine you can clean up the S-1 to their liking if you have had no comments. So there has to be some time for that. I would think, again, normally this would have happened already. Like that's what we haven't had. There's been no communication. So this is all very weird. but my guess is, remember Matt, we were on a podcast together. It was with the guy from Dalcary, and he was saying that they might approve 19B4 and that take a month for the S-1s. It didn't turn out that way, but the mechanics of that could be what we see here. I mean, I'm going to keep saying this so many times because the compliance lawyer is sitting on my shoulder.

Starting point is 00:16:52 I can't speak to our application or any specific application, but it is true of ETFs. that it's a nuclear key scenario where you have to turn the 19B4 and you have to turn the S1. And those are two different divisions at the SEC and two different documents. So that is a true statement that Eric is throwing out there. Okay. Is there anything that I haven't asked about the potential ether ETFs being approved that we should let the audience know? You know, I think just the outlook in general for them, I'm mild on. Matt may have a great countertake to this, but I don't see them assuming they launch and they're out, they're trading.

Starting point is 00:17:34 I don't see them getting more than 10% of the assets that's in the spot Bitcoin. It's possible. Well, I would say that 10% is 50 billion is pretty good. That's 5 billion. That's it. I mean, all the numbers are so wild. Everybody's gotten so spoiled to these big numbers. But like even 5 billion would be a major.

Starting point is 00:17:52 deal. So, but I just see them as 10%, maybe 15%. So when it comes to this area, it's good, having choice, great. I don't know if it will be as exciting as their flows won't be as big. I think for the, there's a, for the normal person, one's enough, right? And this is the one they know. This is the one that is like the gold. And so I think that's going to satiate. most of the normal people. You'd have to really have a bull case for this other one to buy it, in my opinion, that would be specific to that. Whereas I think most just are satisfied with the one. Yeah, I would add, I mean, I've previously said that I thought spot Ethereum ETFs would gather more assets. And indeed, the ecosystem of crypto ETFs would gather more assets if

Starting point is 00:18:45 Ethereum ETFs were approved in, let's say, December or January. Because I think we need, you know, Bitcoin ETF still needs some time to cook. They're not yet approved on all national account platforms. They're not through the due diligence process. Adding a complication is adding a complication. So, you know, I think I think Ethereum ETFs, you know, if and when they're approved, are going to be a slower burn on asset gathering. And it's actually going to be more about the growth of the Ethereum ecosystem than the growth of the ETFs.

Starting point is 00:19:19 That's another point I would just make. to close. I don't know if this makes sense to Eric, but Bitcoin's primary utility in the world is as a non-sovereign store of value. It's literally primary utility as an investment. And therefore, an ETF is a major development in the Bitcoin ecosystem. Ethereum's primary utility is as gas to power eth-based apps. The investment angle is not as direct on Ethereum as it is on Bitcoin. And for that that I'm aligned with Eric. I still think an Ethereum ETF would be great. I think Ethereum is an exciting investment. It has non-corvalated characteristics. It has cash flow characteristics. I'm very excited about the Denkoon upgrade, what that means for user growth and adoption.

Starting point is 00:20:05 But it's not as clean as the Bitcoin ETF in terms of its impact on the actual use case. It's more, it's more separated. All right. So let's know just touch briefly on the ETFs, the Bitcoin ATF's first quarter because this is obviously, I think, why the banks, you know, were eager to, you know, get a piece of this action. So, you know, a lot of this news is already out. So maybe we just quickly cover it. But from the 13F filings, we saw Morgan Stanley had invested $270 million in Bitcoin spot ETS on behalf of clients, likely the state of Wisconsin Investment Board, Millennium Management, has nearly $2 billion in five different Bitcoin ETF, Susquehanna, 1.3 billion, 0.72, about 77 million. There's Hightower, which is the number two registered investment

Starting point is 00:20:56 advisor in the U.S. So I don't know if you just have quick thoughts on who we saw there or, you know, the amounts that we saw that these institutions invested. I was impressed or blown away by the number. You know, when you start to add these up, some were overlap, but let's just say it was in the ballpark of 700. I know if you had grace scale, you get bigger. But to me, I don't really count them because they were existing for well. It's newborns that, as you know, Matt, it's almost, it's so rare for them to have anybody in the first 13 I've seen anybody. If you have a couple, you're better than most. And I look through all the January 2024 launches. We'll call that the class of January in 2024. And like it was like zero one, two, zero, three. And like, I bit was four 14, right?

Starting point is 00:21:46 bid wise was, I think over 100. Like there were, the numbers were, it was like almost like look fake. So that's one. Number two, I think if you look at who it was, it was a pretty good cross-section. You've got investment advisors. And a lot of them from like the heartland, you know, like Minnesota, Kansas City, Pittsburgh. And you look at their websites, they look like, you know, normal people. And that's sort of the big deal is that, not that, not that the, this community doesn't. But you know what I mean. You look at their website and it's like, it's clearly a professional client oriented small RIA located in the city, right? They're not looking to, they're not glued to their screens.

Starting point is 00:22:28 They're not all in on this. That is the prototype of like the person that can we get the RIA and the advisor market involved. So even though those are small, those are interesting sample sizes for the bodewell for the future, because if you can get like an RAA with $10 million in Kansas, that's a good size, especially early. The hedge funds, they likely doing some arbitrage. They also know how ETA, they're very, they could, I'm not, although there was a few more than I thought would be there, but the hedge funds was pretty well represented. And then Wisconsin, I didn't think there'd be a pension that showed up this quickly. normally they're like they take a longer time to bite but some of these ETSs are liquid enough to actually check the institutional box for liquidity so I just think it's stunning how much came in

Starting point is 00:23:21 the first 13 F season if you extrapolate forward you're looking at you know over a thousand holders maybe by the end of the next one crazy yeah yeah I would just add on that I agree with it was a stunning success. And the thing I would add on to it, you know, Bitwise has been serving this audience of hedge funds, family offices, financial advisors for seven years. And what we've seen is that once someone invests a little, that tends to build over time. Usually these advisors invest on behalf of one client and then six to 12 months later on behalf of all their clients and then they slowly up their percentage allocation.

Starting point is 00:24:04 that's actually reflected in how we run our sales team for a long time. We focused on wins as opposed to assets. How many firms can we get in the door as opposed to how much assets can we raise? We'd rather raise a million from 50 firms than 50 million from one because we know that over time that builds. And so I think these numbers are just incredible. When you think about almost 1,000 professional firms out there that have allocations that collectively manage, I'm sure, trillions of dollars of assets, their average allocation is

Starting point is 00:24:39 going to go up to a percent and then 2 percent and 3 percent. And that's just a lot of money. So I think it was a huge success. All right. So in a moment, we're going to talk about a bunch of news regarding grayscale, but first a quick word from the sponsors who make this show possible. Deploy custom crypto strategies and boost your yield with perpetual options on VaultCraft, the universal defy adapter for supercharging your crypto. With version V1.5, these are can now earn options on optimism and arbitram while also rebalancing multi-strategy yield products all-in-one vault. You can also gamify your experience with Voltron, Volcraft's NFT reward optimizer,

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Starting point is 00:27:12 And digital currency group, the parent company of Grayskill announced that the new replacement will be coming in in August would be Peter Mintzburg, who is currently the global head of strategy for Goldman Sachs' asset and wealth management division. So what do you make of this? Like, what do you think spurred this decision? And what do you think of the choice of Minnsberg as the new CEO? I was shocked. I didn't really, I woke up today being like, really that I didn't really see that happening. Maybe shocked is the wrong word, but I wasn't looking for it. That said, I thought about it. I'm like, you know, seeing all those outflows, it's got to be

Starting point is 00:27:46 like losing game after game like in the NFL. And if you go like, if you lose all your games or most of them, the coach gets fired just the way it is. I think the outflows are probably really bad for spirit and culture. There could be other issues. I don't know, but the dots aren't that hard to connect. Everywhere you see things going bad, even if it's a corporation, it's just underwhelming on earnings quarter after quarter, the CEO's going to go. So the question is, who picked the 1.5% fee? Was it him?

Starting point is 00:28:21 And did he say, don't worry, this will be fine. And there was tons of outflows? Or was he told to do it? And they just needed a fall guy. I don't know the story to that. They say that this is all put into place last year. It's hard to believe that because, you know, we first say stuff to just make it go away and ease it.

Starting point is 00:28:41 But I don't know. It just seems like he was pretty happy and nothing was wrong until. Wait, I'm sorry. When you say put into place, I saw that they had started the search in late 2023, but I didn't. That's what I'm saying. No, no, sorry. Started the search.

Starting point is 00:28:55 I guess put in motion, right? Maybe that's a better word. Put in motion this. Well, I don't know what was really going on in late 2023 that was so bad. They were making a ton of money. No, the SEC verdict was out. They had just beat the SEC. They were about to have any. This is the good times.

Starting point is 00:29:10 It doesn't make sense to me. But, you know, it's possible that's just not the truth. Right. I mean, we could admit that sometimes, you know, because if you don't, if you say that, I think you take attention off of what was wrong now and the outflows, which they probably don't want any attention on. that might be true. I don't know because, but logically, does it really make sense they were looking last year when everything seemed to be going great? Here's my general take on them. I think they are not ETF Terradone natives. So they probably thought 1.5% was in the ballpark because if you go overseas, it's cheap or at least in the median, right? 1.5% as a hedge fund is pretty good. That's not a bad fee except until you get to the U.S. ETAT.

Starting point is 00:29:56 market where it's 20 to 30 bibs. That is why I call it the Terodrome. It's a special place. I don't think they anticipated it being that hardcore. So all of a sudden they come in and thinking they'd be average or maybe a little, but within the bell curve. And now they're way out here. And I think that was a shock.

Starting point is 00:30:14 And I think the ramifications from that are probably were really tough and probably overwhelmed them. They still have a good amount of assets like 18 billion. So they're making a lot of money on that ETF still. But $17 billion in outflows is the most ever. Like it's just, again, we talk about records. This is an unbelievable amount in four months, let alone eight years. I know, but they could have dropped the fee.

Starting point is 00:30:43 Here's the problem, though. This is the problem active managers has general in mutual funds. When you get assets, that's the time to lower the fee. So because if you get one percent of like, say, a billion dollars, whatever the math is, that's a certain amount of revenue. If you get one percent on 10 billion, your dollar revenue just went up 10fold, right? Well, you don't, do you really need 10fold more dollar revenue to run the same fund? Right there is when you should pass on a lot of that in a form of a lower fee. This is what Vanguard did and destroyed everybody with it.

Starting point is 00:31:18 had they given passed on economies a scale as they grew and when they converted they were already 80 bibs they might have cut to 60 or something. If you're used to making 2% on 40 billion, 30 billion, whatever, it is if you go to 20 bibs, you just destroyed your whole business because you're used to running a business on that 2%. So I just think it's it's too late or something. Like I don't know if you can go from 2% to 25. Think about that. that is it's just too brutal. Right. I see. You're saying they should have anticipated in advance and cut costs as they went. Right. Okay. They're not alone. This happens to a lot of people in the fund industry. Usually it's, again, in my opinion, Grace Gill is almost, GBTC is sort of playing the role of the active mutual fund where there's cheaper rivals and it slowly, you know, it's basically getting cannibalized by these cheaper companies. we've seen this movie before.

Starting point is 00:32:20 But the good news for Grayscale, like Active, is the price has gone up enough. They hardly lost any assets. I mean, there might be like, they must have lost maybe like eight or nine billion only. Like half of the outfils,

Starting point is 00:32:32 they made up in dollar, in US dollars, right. And market appreciation. So it's not, I don't, doesn't seem code red. It seems like they're still making tons of money,

Starting point is 00:32:40 but, um, that like active, you don't want to see your customers go. I mean, that's, I think only they know how many of those flows or percentage of how many customers they had. And it just, it's kind of deflating to see people

Starting point is 00:32:53 leaving. Yeah. But then what about the, I mean, they were going to launch this new, or they're going to launch this new trust BTC. It's like the mini trust. And they did automatically move 10% of all the assets in GPTC to that fund, which I guess, you know, it's a little gift, I think, to the holders of GBT where automatically 10% of their holdings are charged at that lower fee. But do you feel like that strategy wasn't enough or won't be enough? And by the way, it'll have a fee of 15 basis points. So it'll be the lowest in the market. We're pretty sure.

Starting point is 00:33:29 It's not rock solid, but let's just say it's 15. That's good. Those current investors in there, if they get a dividend with the new shares, I think if you merge that fee in with the 1.5, they're still paying like, what, 1.3%. But for new customers, I think now they have a, of a ETF they can go out and market and sell competitively to the likes of it be an ibit and stuff they'd be in the ballpark in fact a little cheaper but would will that be enough of a bone to satiate the current people maybe maybe not the bigger thing is the people who are in there now

Starting point is 00:34:05 are sitting on a huge tax gain so it's it's almost cheaper to stay um so i think but throwing them a bone is nice to do creates goodwill but We don't know when that ETF's coming out. And so much has happened already. We've gotten to a point where the other ETFs have grown so big or so liquid and it's training them. It's a tough situation. I don't envy them. And I do have to give them credit for making all this possible. I mean, if they hadn't sued the SEC, none of this would even exist. Right. And what do you two make of the choice of Mintzburg as the new CEO? Do either of you know him or have a read on on him. I think, are you just pleading the fist, Matt, because it's a competitor?

Starting point is 00:34:51 This is like a podcast about things I can't talk about. Okay. Well, okay, so Eric, if you, you have something they're saying, I will do that quickly and then we'll move to some of the other questions I have. Yeah, I don't know a lot about him. Sharnali was just on our show, talked about him a little bit. Sounds to me that he is going to perhaps bring some Tradfai Wall Street kind of running a tight ship or making. making a statement about where the direction they're going. But whether this person is really good at running a fund that charges 1.5%. I don't know.

Starting point is 00:35:26 And in the end, you know, it is like a football team when they change the head coach, but not the players. Do you really think the new coach is going to have that different result? I don't know if TBTC is going to get solved just by having a new person when the fee is six times more than the competitors. That's all. It's just common sense and how consumers operate. It's just tough to do that. So there are other things they can do. Maybe they can launch different products.

Starting point is 00:35:54 I don't know. We'll see. I don't know if just changing the coach is really going to do all that much. Right. All right. Well, let's talk about a similar situation with Vanguard, which named its new CEO, Salim Ramji. I don't know if I'm saying that right.

Starting point is 00:36:11 But, you know, he was pivotal to Black Rock's entry into Spotb. Bitcoin ETF. So there was a lot of speculation about whether or not he would reverse Vanguard's stance to not offer not only the spot Bitcoin ETFs, but also not the Bitcoin futures ETFs. They pulled those from their clients. So what do you think his appointment means for the future of Bitcoin investment products generally at Vanguard? Yeah. I mean, I'll jump in here because I've been quiet for a while. You know, Vanguard eventually always gets to the right decision. They were skeptical on ETFs for many, many, many years. They were reliance. lucked an entrance into the ETF market, even though they dominated the index fund space. Then they launched sort of like an orphan product that they nicknamed the Vipers to intentionally make them unappealing to everyone. And then eventually they realized that ETFs were going to be a big business and they got fully behind it and scaled that up.

Starting point is 00:37:03 I thought from the moment that Vanguard announced it was blocking people from accessing these, that they would eventually reverse course and then, of course, accept them as part of the investment program. That's the direction this industry is going. I think this probably accelerates it. It doesn't mean it's going to happen overnight. I can tell you with great certainty that the ability for retail people to access Bitcoin ETFs in a brokerage is not anywhere near the top of the priority list at Vanguard. But I do think it's indicative, like one thing that happens with these disruptive industries is that as leadership of large financial institutions change, things that were renegade ideas become mainstream. And this is going to happen

Starting point is 00:37:49 with Bitcoin ETFs. This is just an acute example, but we're actually going to see the same thing at every major financial institution in the world over the next 10 years, which is leadership will evolve more and more people who believe in crypto are going to move into more senior positions, and it will get gradually accepted everywhere. So I do think there is like a, a, a big picture story that this puts in focus, which is there is generational change in leadership over time. And as that happens, things that were once odd become mainstream.

Starting point is 00:38:22 We're going to see that in crypto, I think, over the next 10 years. Yeah, I would, I think the, it would be small increments at first, though. I don't think he's going to rush into anything. The platform, the ban, I see, I can see that being reversed. And so that's not that big of a deal. They already have gold ETS that trade on the, on the platform. So it's not like they're anti-commodity. They don't let inverse and leverage ETFs on there.

Starting point is 00:38:47 But to me, this is different. Those are actually like Wall Street, like Frankenstein things. This is just a long-only investment in something like gold. So I do see those as different. And if you look at Salim's LinkedIn page when they launched it, but he was pretty proud. And what he talked about was providing access to new frontiers. Now, at Vanguard, they have pushed the envelope in places Bogle would never go.

Starting point is 00:39:10 So they've already moved away from. Bogel. So it's not like you can't do anything on Boggley anymore. And in fact, Bogel hated almost everything they did since he left. I mean, he was very sort of krumungny about it. And he would drop bombs on them all day long, all the CEOs. Salim seems almost more like a regular Vanguard CEO. It's Bogel, who's the weird one. I mean, he's an anomaly in physics. But he didn't like them getting big. And I think if all of the board and Vanguard are sort of on this idea of like expanding, like, expanding, like in to the wealth management business and growing, I think they'll eventually come around. Because if you

Starting point is 00:39:47 are managing somebody's entire pot, not just offering one fund to them, which they could cobble together other funds, but if you're managing the whole enchilada of their finances, which is what an advisor does, you kind of have to be open to other things that aren't like, you know, cheap beta, because not everybody is going to want just three funds, right? So that, if they're going to grow the advisory business, which I think they will, that will, that'll push them into some different areas like private equity, which they've teamed up with the private equity, you know, Bogle would have hated that. So I'm with Matt, I think, just give it time. And it definitely opens the door, I think, a lot more than it was. Yeah. By the way, John Bogle is the founder of Vanguard for people

Starting point is 00:40:29 who didn't know that. So there also were filings recently for so-called Bitcoin Buffer ETFs, one by First Trust, which I guess is known for offering unique investment products. and another one by Calamos investments. Can you explain what a buffered ETF is and why these filings are significant? No, Heather. Look, buffer ETFs just, they use flex options, which are just basically somebody custom makes an option for you. And they put these options in a certain way so that over time you basically hedge yourself

Starting point is 00:41:05 from either the whole downside or maybe part of the downside. It's another word for this targeted outcome. So they're almost structuring the outcome for you that's going to happen. Like you'll get 10% of the upside, but then it's capped. You won't get any more than 10%, but you will get 100% downside protection. To me, buffer ETFs, we call it boomer candy. Because if you're older and your main thing is just not losing money, you love these. because you don't ever really have to worry that the hedges are built in there.

Starting point is 00:41:42 If you're younger, I don't see the point. I think you just time is your hedge. Like, just patience will take care of everything. But for older investors who might only have seven years, this could appeal. This could be like, it's almost like low-val Bitcoin or something, where you basically determine more of the outcome and you can say you're still exposed. Will it be a hit? I don't know because my theory,

Starting point is 00:42:06 is that the buffer ETFs are a hit because they take core parts of the portfolio like your equity and they give you some feeling of sleeping at night. I don't think a boomer who's a 60-40er is going to add Bitcoin at 1%. It doesn't want, like they want the full, the full enchilada there.

Starting point is 00:42:24 It's only 1%. So to me, it's the hot sauce part of Bitcoin is a feature, not a bug. Whereas in the core of the portfolio, where's the real money, for really important things, that's where volatility becomes a bug. And it's so annoying to some people that they get so nervous, they'd rather shift over to the buffer. So we'll see.

Starting point is 00:42:46 I would think that typically if you're putting it in on a small allocation and the whole point is to buy something speculative, you want it to be kind of like you're expecting it and you want to get the full return. Because I think people who are buying it now or 64 years are probably the kind of of people who are like, if this goes to like a million dollars, I don't want to miss out. Well, a buffer, you'd miss out on a lot of it. So that's the problem. So I'd say my, my prediction is muted. I will say you're going to see all kinds of stuff tried. And some will work, like the cover call one, I think is coming out or it already came out. You might see a gold Bitcoin combo, like short, gold, long Bitcoin or something. They're going to do all kinds of stuff. A couple will stick.

Starting point is 00:43:35 Some will just come and go. We'll see where this one is. Like you said, they're probably for boomers or people with a short investment time horizon. Matt, did you want to add anything on that? Yeah, I would just, I agree with what Eric was saying there. I would also note from like a traditional portfolio construction perspective, the volatility is a benefit, not a bug, right? A lot of the sort of risk-adjusted you return you get from adding crypto to a portfolio

Starting point is 00:44:03 comes from harvesting that volatility by rebalancing that position regularly. And so I think you give up on some of that. But we're going to see a mass financialization of Bitcoin exposure. You mentioned covered call. They're more in the pipeline. You're going to see people experiment with everything because that's what the ETF industry does. All right. So, Matt, this is a question for you, I imagine.

Starting point is 00:44:26 I have a feeling Eric won't want to answer this. But given the unusual situation of the Bitcoin price rising before, the having this time around. You know, we're about a month out from the halving. Does Bitwise have a projection on the impact that this particular having will have on the price given that unusual start? Yeah. I think the having, you know, look, I think we're heading towards all-time highs.

Starting point is 00:44:50 That's my base level of prediction. And I think the fact that we had the having will be beneficial to the price of Bitcoin. My reason for it maybe is a little more nuanced than what many people say. I believe that the halving is priced in generally, but based on the expectation of what future demand will be. And I think the market underestimates what future demand will be. And therefore, I think as there is excess demand, it will be chasing Bitcoin that's more scarce than it otherwise would be. And so, you know, I think that creates sort of an upside skew is what the halving does. if demand is higher than the market anticipates, then it has to buy from people who don't have to sell

Starting point is 00:45:38 because the halving removes people who have to sell. And as a result, you can get the price building on top of one another. I think that's actually what's driven the post-having booms historically is that the market is underestimated demand and that it interacts with this new market. I think the same thing will happen here. So I'm really optimistic for the next 18 months of Bitcoin. The halving is one piece of that. The ETF is the other piece. We have a demand shock and a supply shock at the same time. And I think the market just gets stretched. Okay. So last quick question. Is there anything else that's on your radar, either of you for crypto-related ETFs for the rest of the year? Well, I don't know about crypto-related ETFs. I think we're going to see a lot of

Starting point is 00:46:25 ETFs launch. I think the approval of spot Bitcoin ETFs on national account platforms and H2, like Morgan Stanley and Wells Fargo and others, he's actually probably the biggest ETF story left because I think that is a huge faucet that turns on. The other thing that I'm really watching, when do you think that will happen? I think it'll happen in the second half of the year. I don't know when in the second half of the year, maybe late Q3, early Q4, but I do think we're on track to see that happen. And I think that's going to unlock yet another wave of demand, which is going to be really

Starting point is 00:46:59 significant. The other policy thing I'm watching in Washington is I really think if we get stable coin legislation, you're going to see a significant boom in the sort of E-Solada D-Fi space, which are adjacent to that market that I think will be pretty significant. I'll go with something that I've been curious about is why nobody else has filed just for a straight-up spot one since. I mean, if you're a like State Street or Schwab, I'm just surprised they haven't come in because clearly even the least one, which is wisdom tree, like in terms of assets, has been pretty successful. I think it's over $100 million. 80 million. And you're talking about for Bitcoin spot ETS, right? Yes, yes. Because there's 10. And as salespeople go out and they start talking, if you don't have one, like if you're a State Street salesperson, you've got to sort of let them go to somebody else. So I'm just surprised there hasn't been more people just being like, okay, it's clearly a hit. Let's also have one too, just so we have a competitive product.

Starting point is 00:48:05 I don't know. That's just interesting to me. I do predict Schwab at some point will come in, but they've historically taken their time. They can afford to take their time. They're kind of vanguardy in that way. But I'm sort of looking at that as one thing, as well as the financial advisors and the wirehouses. because I'll get Matt's confirmation. At this point, almost everything is unsolicited, correct?

Starting point is 00:48:32 Meaning it's fish coming into the boat, whereas at some point, it's going to shift where they can actually solicit this. And that's pretty big. Okay, all right. Well, it's been a pleasure having you both on Unchained. Thanks so much. It's been fun. Thank you.

Starting point is 00:48:50 Thanks so much for joining us today to learn more about Eric and Matt and all the Bitcoin and Ether ETS. Check out the show notes for this episode. Unchained is produced by me, Laura Shin, both up from Matt Pilcher, Juan Aranovich, Megan Gavis, Pamma Jimdard and Market Korea. Thanks for listening.

Starting point is 00:49:10 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 Noel Atreson. Follow the Coin Desk Podcast Network for some of the best shows in crypto.

Unchained - Why Spot Ether ETFs Are Now Likely to Be Approved on Thursday - Ep. 648

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