Speaker 1: Welcome to trillions. I'm Joel Webber and I'm Eric Belchier.
Speaker 1: Is Eric. We're gonna talk about something that's not actually
Speaker 1: an easy f today yet yet that's that's the key word,
Speaker 1: and that's the word everybody is hinging on yet. And
Speaker 1: the what we're talking about is bitcoin and cryptocurrencies and uh,
Speaker 1: this intense and that's with the Capital I race to
Speaker 1: come out with the first Bitcoin et F which may
Speaker 1: or may not happen, and we've had some rejections already. Yeah,
Speaker 1: it looks pretty pessimistic right now, but the energy and
Speaker 1: excite message, you know, I've equated it to the Cannonball Run,
Speaker 1: which was this is a movie where they whoever could
Speaker 1: get to New York to l A the fastest got
Speaker 1: a million dollars. So some people tried to go in ambulances,
Speaker 1: some people took Lamborghini's, some people dressed up as priests
Speaker 1: just to get through the cops and whatnot. The filings
Speaker 1: for Bitcoin and remind me of that. You see all
Speaker 1: kinds of deviations and tricks and ways that they're trying
Speaker 1: to appeal to the SEC's concern and so far there's
Speaker 1: been twenty six filings eleven alive today, But it's been
Speaker 1: just a crazy sort of derby to try to get
Speaker 1: out to be first. Then if you are first, it's
Speaker 1: probably going to be uh at least the billion dollar
Speaker 1: e t F, if not a ten billion dollar fund.
Speaker 1: And one of the guys in the cannonball run is
Speaker 1: actually here with us today, one of the newest entrants
Speaker 1: who has a very clever and interesting way to try
Speaker 1: to get through the sec His name is Matt Hogan.
Speaker 1: He's at bit Wise Asset Management. How do you know, Matt.
Speaker 1: Matt is kind of an e t F analyst pioneer.
Speaker 1: When I was started covering ETFs in two thousand and six,
Speaker 1: there really was no model for being an e t
Speaker 1: F analyst except for Matt Hogan, Dave Nateigg, and a
Speaker 1: couple of guys who kind of aren't around anymore. Um.
Speaker 1: But Matt and Dave in particular had an e t
Speaker 1: F podcast and I listened to it religiously. They were
Speaker 1: talking about flow in and out of junk bond ETFs
Speaker 1: ten years before anyone else cared, and I learned a
Speaker 1: lot from them. And so Matt has also went off
Speaker 1: to basically run the inside et F conference which is
Speaker 1: that we've been there. Yeah, that's the way I went
Speaker 1: and recorded all the people and you found you got
Speaker 1: obsessed in the ice cream truck from Deutsche Bank. I mean, yeah,
Speaker 1: not um, some of the marketing is getting really crazy there.
Speaker 1: But Matt essentially is one of the most well known
Speaker 1: E t F analysts and thought leaders in the space,
Speaker 1: and boom about I don't know, six months to a
Speaker 1: year ago, dude went crypto. He went crypto soccer. Let's
Speaker 1: talk to him on this week's episode. Matt Hogan, who
Speaker 1: went crypto? Okay, so, just in case you've never heard
Speaker 1: of the bitcoin, it's this thing. It went up really
Speaker 1: really high and then it came down. And that was
Speaker 1: when Matt was like, this seems like a good idea. Yeah, yeah,
Speaker 1: you literally went in when bitcoin came down in what January?
Speaker 1: I think I'm largely responsible for the fall, at least
Speaker 1: at least responsible. Now. There's nothing like jumping in trying
Speaker 1: to catch a falling knife. So so, what what did
Speaker 1: you see? What did I see? It's I'll answer that
Speaker 1: in two ways because there are two sides to it.
Speaker 1: So on the one hand, it's not like I had
Speaker 1: just jumped into the crypto space. I had been following
Speaker 1: it for a long time. We had actually had the
Speaker 1: Winkelvy Twins at our conference. I think in twenty you
Speaker 1: can't talk about bitcoin without talking about that. You have
Speaker 1: to talk about They're always, they're always both. The's never
Speaker 1: one that's well, you always have to see one but
Speaker 1: and then you can just factor it. But um, so
Speaker 1: I had been I've been interested in the technology. I
Speaker 1: think there's a legitimate case for a non sovereign store value.
Speaker 1: I think some of the smart contracting technology is interesting,
Speaker 1: important and possibly transformative. But I had gotten sort of
Speaker 1: to the end of what I wanted to accomplish for
Speaker 1: the core of what I was doing in E t
Speaker 1: F s right, as Eric said, when I got into
Speaker 1: E t F, there was no framework for analyzing E
Speaker 1: t F, there was no one following flows. Dave Nodding
Speaker 1: and I built the first et rating system. I probably
Speaker 1: gave an E t F one on one presentation. You're
Speaker 1: like Eric, Eric, I'm pri Eric. That's right. He's a better, younger,
Speaker 1: more handsome version of him. He's the Woody Guthrie to
Speaker 1: my Bob, kind of generous, all supportive. Um But but
Speaker 1: I was looking at what to do next, and what
Speaker 1: I wanted to do. What I love to do is
Speaker 1: I love taking things that are complex and opaque and
Speaker 1: that people don't understand and trying to help make them simple,
Speaker 1: easy and digestible for investors, particularly when I think it
Speaker 1: can have a positive impact on investor portfolios. So I
Speaker 1: looked at all the things that were out there. Actually
Speaker 1: ended up with two things I was really considering. One
Speaker 1: was crypto. The other were options strategies, both of which
Speaker 1: I think can be additive to portfolios. But Crypto had
Speaker 1: the most potential for sort of transformative effect, the most
Speaker 1: interesting disruptive potential, and also the worst existing analytics and
Speaker 1: educational material reals surrounding it. And I thought I could
Speaker 1: help explain crypto to UH, to investors, to advisors, to institutions,
Speaker 1: to family offices, and that's what I've been doing for
Speaker 1: the last six months. I'm guessing you have had a
Speaker 1: lot of meetings. I have had a lot of one
Speaker 1: understands what's going on, and everyone wants to learn. Everyone
Speaker 1: will take your meeting to talk about crypto. That's absolutely true, UH,
Speaker 1: and you get you get from people who love it,
Speaker 1: and I just want to talk about how great it
Speaker 1: is to people who think it's actually worth less than zero,
Speaker 1: which is an interesting perspective. So that that spread that
Speaker 1: margin between those two sides, you could say that there's
Speaker 1: um full crypto, maybe a little half crypto, and then
Speaker 1: just anti crypto. Let me jump in on this um
Speaker 1: to go full crypto, I think is when you see
Speaker 1: somebody sit down and try and say something like your
Speaker 1: mind is like in the horse in the Age of Horses,
Speaker 1: and I'm talking about cars, like kind of weird stuff
Speaker 1: like that, like evangelism, hardcore, the kind of stuff that
Speaker 1: I think sort of scares the sec especially when you
Speaker 1: bring in like monetary policy and all kinds of stuff
Speaker 1: like that. Right, yea overthrow, absolutely absolutely so. And people
Speaker 1: who are predicting bitcoin prices will be a million dollars
Speaker 1: and six months are how bigcoin? Where are you on zero?
Speaker 1: How crypto? How crypto? Give us a rating? Well, I'm
Speaker 1: probably middle crypto. I'm probably middle crypto, probably probably crypto,
Speaker 1: which is to say, I believe that it has the
Speaker 1: potential to have transformative effects on various parts of the
Speaker 1: financial ecosystem, and I believe it has the potential to
Speaker 1: be a legitimate store value, but those aren't proven, and
Speaker 1: there's a potential that those don't pan out. And let
Speaker 1: me ask one question about this. I think that the
Speaker 1: energy and the resilience of bitcoin is really what has
Speaker 1: gotten me to be someone of a believer. Every time
Speaker 1: it should be dead, it comes back to life and
Speaker 1: you meet people. It's got such a underworld that's enthusiastic.
Speaker 1: It does remind me of ets in a way, or
Speaker 1: passive investing. Here's the one problem I have, Like say,
Speaker 1: marijuana is on the rise in terms of investing, I
Speaker 1: literally smell more pot on the streets lately. I can
Speaker 1: literally smell it or see it, like when these things
Speaker 1: emerge from the underground. Normally you can like see them
Speaker 1: around you in your life. I'm still yet to meet
Speaker 1: anybody or know anybody that's used bitcoin as a currency,
Speaker 1: and I thought I would. Yeah, I don't think it
Speaker 1: is a currency. I think I think you're expecting the
Speaker 1: wrong thing, Eric, because there are various reasons it's not
Speaker 1: a currency. The transaction rate is slow. It's actually a
Speaker 1: taxable event every time you buy something with bitcoin. So
Speaker 1: if you went to buy a cup of coffee with bitcoin,
Speaker 1: that would be a capital gains taxable event. That's not
Speaker 1: an experience anyone wants to have, So you're never if
Speaker 1: you're expecting to see it in your daily life and
Speaker 1: you live outside of South Park in San Francisco, uh,
Speaker 1: you will not have that experience. Now, if you want
Speaker 1: to come out to my office and go out and
Speaker 1: buy a latte with ethereum, you can do it. But
Speaker 1: that's a unique bubble situation. So what what you should
Speaker 1: expect to see is you should expect to see it
Speaker 1: fulfilling the role that gold has an investors portfolio as
Speaker 1: a non sovereign store value. You should expect to see
Speaker 1: it start to chip away at the parts of the
Speaker 1: financial ecosystem that are so grossly overpriced and indulgent, like
Speaker 1: like international transfers of money and remittances where Western Union
Speaker 1: is charging eight or nine percent and you can do
Speaker 1: that with crypto for pennies and instantaneous settlement. It's always
Speaker 1: the case that new technologies disrupt the fattest part of
Speaker 1: the ecosystem where they can have a ten x reduction
Speaker 1: in costs. That that starts at international remittances. It might
Speaker 1: start at international trade transfer, it might start things like
Speaker 1: s grow for smart contracts, all of which are wildly overpriced.
Speaker 1: So you're gonna see it in a professional setting long
Speaker 1: before you see it in a sort of retail setting.
Speaker 1: I think retail settings could be ten years from now.
Speaker 1: But let's take this investing now. Okay, so let's say
Speaker 1: it's used as a commodity. I want in. I read
Speaker 1: a book on cryptocurrencies on on a plane ride or
Speaker 1: bitcoin rather and the details to get a wallet and
Speaker 1: set it up. We're pretty numbing. They turned me off.
Speaker 1: It was too complicated. So I get the need for
Speaker 1: a fund? What is that? What you do? Now? You
Speaker 1: have a fund? It's not an e t F for
Speaker 1: a mutual fund, obviously, it said, what a private fund
Speaker 1: that offers a convenient way for people to get exposure?
Speaker 1: Key talk about that. Yeah. Sure, So we launched the
Speaker 1: first cryptocurrency index fund. It's called the Hold ten Private
Speaker 1: Index Fund. It's available to all accredited investors, anyone with
Speaker 1: two hundred thousand dollars a year and income or a
Speaker 1: million dollars in assets. It holds importantly, not just bitcoin,
Speaker 1: but the top ten cryptocurrencies weighted by market cap. Uh.
Speaker 1: Those capture about eight to eighty five percent of the market.
Speaker 1: What are those ten. What are those ten? They are bitcoin, ethereum, blight, cooin,
Speaker 1: bitcoin cash, MA, narrow Dash. I'm leaving out a few. Ripple.
Speaker 1: Ripple is in there, absolutely, and they change that proves
Speaker 1: only when you can rattle all those off. I think
Speaker 1: it might through. Yeah intentionally. Yeah, the seven was waiting
Speaker 1: for you to suggest ripple and then agreeing that it
Speaker 1: was in um No. But I think that's really important, right,
Speaker 1: Like buying just bitcoin would be like buying just a
Speaker 1: o L during the start of the tech boom. This
Speaker 1: is an early stage technology. We don't know who the
Speaker 1: winners would be. It could be that the first move
Speaker 1: like Amazon dominates. It could be that bitcoin is my
Speaker 1: space and there's a Facebook that you have to emerge.
Speaker 1: So having a diversified exposure is I think a better
Speaker 1: outcome for investors. And we make it easy, relatively cheap
Speaker 1: in the crypto space and convenient for people to do
Speaker 1: that by investing in our fund. And we have hundreds
Speaker 1: of investors and millions of dollars in assets. How similar
Speaker 1: do you think what we just lived through with the
Speaker 1: bitcoin going to twenty thousand and last December and then
Speaker 1: coming down and you know who knows where it is
Speaker 1: and where it will go. How similar do you think
Speaker 1: that was to to I don't think it was similar
Speaker 1: to in that in everyone had an overweight to technology
Speaker 1: and their portfolios, and today, um, almost no one has
Speaker 1: an overweight to crypto and their portfolios. There are the
Speaker 1: dent crypto people that do, but our estimate it in
Speaker 1: our fund as people have but about two point three
Speaker 1: percent of their liquid net worth invested in the crypto markets,
Speaker 1: which is not the same case as it was in technology.
Speaker 1: So look, crypto has had I think it's six or
Speaker 1: more draw downs. This is actually not abnormal. Even if
Speaker 1: you look back at some other sort of speculative assets
Speaker 1: that were reborn, like gold after we went off the
Speaker 1: gold standard, it had large ups and downs. Um, I
Speaker 1: don't think that was. I think we're actually a long
Speaker 1: way from that sort of hysteria. I think that was
Speaker 1: maybe you just described what sounds like a good as
Speaker 1: a class for a hedge fund. Right. It goes up
Speaker 1: and down, It's very volatile. There's some concerns. This is
Speaker 1: what the SEC is concerned about. Should what you just
Speaker 1: describe be democratized via the et F? Oh? Absolutely absolutely, yeah,
Speaker 1: But let let me let me let me, let me
Speaker 1: let pretend on the se C commissioner. Sure, yeah, okay,
Speaker 1: it's just got really interested in, Mr SEC commission I
Speaker 1: don't know what my lawyers would say about this, UM
Speaker 1: I would say two things, right. So, so first, on
Speaker 1: the one hand, people already are getting access to crypto
Speaker 1: and bitcoin, not just through funds like ours, but there
Speaker 1: are more accounts at coin based than there are at
Speaker 1: Charles Schwap. So people are accessing this space with limited
Speaker 1: education in unregulated vehicles at an expanding rate, and if
Speaker 1: we wait long enough, that number is just going to
Speaker 1: get bigger and bigger. All of those people would be
Speaker 1: better in a vehicle that have been vetted and approved
Speaker 1: by the SEC, with requirements around disclosure, with clarity around
Speaker 1: trading costs, all the other factors that come with that.
Speaker 1: So that's that's that's one big piece of it. The
Speaker 1: other big piece of it is why should investors want
Speaker 1: this in the first place? And the answer to that
Speaker 1: is just math. If you take away the emotion from crypto,
Speaker 1: if you stop thinking about it as this asset, that's
Speaker 1: people are a pent in or down the rabbit hole
Speaker 1: or whatever, and you just look at the data. It
Speaker 1: is a highly liquid, high return, high potential risk, low
Speaker 1: correlated asset. That's a magic combination. And even a one
Speaker 1: percent allocation to crypto in your portfolio if you rebalanced
Speaker 1: it the way an institution would since would have boosted
Speaker 1: your sharp ratio by on a portfolio. So historically it's
Speaker 1: been a great portfolio, diverse fire at very low levels,
Speaker 1: and we think all investors, not just rich investors who
Speaker 1: qualify for our funds, should have have the ability to
Speaker 1: access that. Mistress Easy, what do you say to that, Well,
Speaker 1: I personally agree. I'm very liberal with this. I just
Speaker 1: think that it's going to be called a bitcoin fund
Speaker 1: that you're totally not, Mistress ec I know which is good. Now,
Speaker 1: I'm Hester Pierce here. Hester Pierce is the commissioner that
Speaker 1: has dissented from the rest of the commission on this,
Speaker 1: and I agree, and I called a wolf and wolf's clothing.
Speaker 1: It's literally called a bitcoin fund. People know at this point, No,
Speaker 1: it's kind of uh, look, it's not large cap stocks,
Speaker 1: it's e t f s like the oil fund. I
Speaker 1: know you work at John hilland now that to me
Speaker 1: are a wolf in sheep's clothing. Um. I also think
Speaker 1: that there's triple leveraged e t F that are more
Speaker 1: volatile than a bitcoin et F would be. And I
Speaker 1: think that it's in the best interest of the providers
Speaker 1: of these e t F to make it work. And
Speaker 1: if you and Matt as you know, when the e
Speaker 1: t F structure rocks, you can throw anything in there
Speaker 1: and it will be the best deal possible because it's
Speaker 1: going to bring in the richest, deepest liquidity from these
Speaker 1: market makers who will just figure out the best way
Speaker 1: to arbitrage. They will bring liquidity to those exchanges. In fact,
Speaker 1: the e t F you could argue, will will help
Speaker 1: clean up and add more liquidity to the exchanges. So
Speaker 1: it's almost like a build it and and the e
Speaker 1: t F is actually what should be the proactive thing here,
Speaker 1: not the reactive ten years down the road. I mean,
Speaker 1: I will add I will just say in the SEC's defense,
Speaker 1: they are being very thoughtful about it, very cautious about
Speaker 1: the questions that they're raising. Right, so they recently rejected
Speaker 1: the winklevoss Is application for crypto et F. The questions
Speaker 1: that they raised in those objections are legitimate questions that
Speaker 1: deserve very clear answers. I've actually been hugely impressed how
Speaker 1: fast they've come up to speed on the crypto space
Speaker 1: from say a year ago. They're dedicating real resources to it. So, um,
Speaker 1: I think they will get there. I think it is
Speaker 1: a matter of when and not if. But they're actually
Speaker 1: doing a good job asking good questions distill their reservations
Speaker 1: down to a few points. Well, so you have to
Speaker 1: think about that. There's probably two sets of reservations that
Speaker 1: are worth talking about. There's the rejection of the Winklevoss
Speaker 1: application as one, and then there's the earlier letter from
Speaker 1: Dahlia as another. So the rejection of the Winklevoss application
Speaker 1: had to do largely with the integrity of the underlying
Speaker 1: markets and the ability to prove that crypto or bitcoin
Speaker 1: in that case trades cleanly and with no market manipulation. Remember,
Speaker 1: crypto exchanges are largely lightly regulated or not regulated at all,
Speaker 1: and the SEC is concerned that those markets may be manipulated.
Speaker 1: And the way to overcome those concerns is through greater
Speaker 1: data and analysis of of of pricing across different markets,
Speaker 1: of of volume trends, etcetera. And so what what they
Speaker 1: sort of hinted was, if this stuff comes into the
Speaker 1: light that might change it, but the way it stands now, no,
Speaker 1: that's that's correct. They want to see more trading on
Speaker 1: more highly regulated exchanges. That's the direction the industry is going.
Speaker 1: I also think additional data analysis around the trading that's
Speaker 1: going on in those exchanges. That particular application also is
Speaker 1: focused on a single exchange. There's actually a broad ecosystem
Speaker 1: of crypto exchanges, so um, I think I think that
Speaker 1: will overcome. The earlier letter that the SEC wrote in
Speaker 1: January or December of this year also looked at things
Speaker 1: like custody, like accurately striking a NAV, like pricing in
Speaker 1: the crypto space, all of which our questions, I will say,
Speaker 1: and one of the things we're excited to talk to
Speaker 1: the SEC about. Those are questions that we deal with
Speaker 1: in our own fund on a daily basis. UM, So
Speaker 1: we have some experience with that, but but they're legitimate questions. UM.
Speaker 1: You know. One of the reasons I am also in
Speaker 1: favor of an e t F is that the current
Speaker 1: product out there that people are using in place of
Speaker 1: an e t F. In fact, Schwab even puts it
Speaker 1: in their et F category is g BTC, which is
Speaker 1: a I think it's called the Bitcoin Investment Trust. It's
Speaker 1: a private trust traded over the counter, and last time
Speaker 1: I checked, the premiums were between fift and it's sort
Speaker 1: of like a closed then fund in a way. So
Speaker 1: in other words, bitcoin could go up and you could
Speaker 1: go down simply because people sell out of the fund.
Speaker 1: Because there's a fixed amount of shares trading. It seems
Speaker 1: to me that that should factor in because you're gonna
Speaker 1: get more and more people piling into something that is
Speaker 1: really flawed, and an e t F would probably i've
Speaker 1: heard maybe traded a premium of one to two with
Speaker 1: the kind of market makers that would be involved. What
Speaker 1: do you think of that? I couldn't agree more. Uh,
Speaker 1: And our analysis of the arbitrage possibility in the depth
Speaker 1: of market in the crypto space, not just for bitcoin,
Speaker 1: but but across the largest assets in the crypto space
Speaker 1: suggest it will trade at spreads that are around the
Speaker 1: average for the e t F industry, which is somewhere
Speaker 1: between ten and twenty basis points, and that premiums will
Speaker 1: depend on the direction of of of trading and interest. Um.
Speaker 1: It's absolutely true. GBTC proves that people want to buy
Speaker 1: exchange traded crypto. They are buying a flawed vehicle in
Speaker 1: that it trades at a large premium and discount. We
Speaker 1: know from the closed end funds, the history of closed
Speaker 1: end funds that buying closed end funds when they're trading
Speaker 1: at large premium is not a winning strategy, and so
Speaker 1: it would be better if investors could buy at a
Speaker 1: fair price. And there's two Bitcoin e t n s
Speaker 1: in Sweden which I've covered a lot. They do find
Speaker 1: they trade it pretty small premiums. They've seen flows in
Speaker 1: and out. They've been around for a couple of years.
Speaker 1: They made it through that huge spike up and the
Speaker 1: draw down. Um is that not enough of an incubator
Speaker 1: for the SEC? I think it's a great proofpoint of
Speaker 1: what crypto can do. But remember the SEC doesn't care
Speaker 1: what's going on in other markets. They're concerned about protecting
Speaker 1: US investors. And again they're asking good questions. So what
Speaker 1: I think people are making a mistake when they see
Speaker 1: these rejections is assuming that this is the end of
Speaker 1: the road, that there is no way around these objections.
Speaker 1: I don't think that's true at all. The crypto space
Speaker 1: moves at an extraordinary pace, the pace that which market
Speaker 1: makers are entering crypto. Six months ago, there were very
Speaker 1: few major market makers. Now we have Jane Street, we
Speaker 1: have Susquehannah Goldman, saxes in Um. The spaces evolving very rapidly.
Speaker 1: I think these objections will be overcome quickly and not
Speaker 1: at the slow pace that some people project. So let's
Speaker 1: talk about that. Because there's outstanding applications that will be
Speaker 1: discussed in the near future. What do you think their
Speaker 1: opportunities are? Where? And where's the white space that the
Speaker 1: SEC hasn't addressed yet? And if I could, I'll just
Speaker 1: read a couple them off, right. So there's the Van
Speaker 1: Eck solid x bitcoin trust, which could be decided on
Speaker 1: in a month or less. There's yours, there's Granite Shares Bitcoin,
Speaker 1: Granite Share short bitcoin, and then Direct has a couple
Speaker 1: one time and two times which are leveraged, which obviously
Speaker 1: probably stand a snowball's chance of hell unless one of
Speaker 1: the other ones get US approved first. Uh who's the favorite? Well, well,
Speaker 1: I can't. I can't talk about any particular filing. I'm
Speaker 1: not going to handicap any particular filing, including our own,
Speaker 1: so I can't. I'm not gonna make a singular prediction.
Speaker 1: What I'll say is that we believe and the reason
Speaker 1: that we filed for a product, that the preconditions to
Speaker 1: allow an e t F to trade UM exists today. Right,
Speaker 1: So we think we can strike a nav accurately. We
Speaker 1: think we can price crypto accurately. We think the underlying
Speaker 1: markets are sound. Otherwise we wouldn't have filed for an
Speaker 1: e t F. I think it's just a matter of
Speaker 1: how long and how much data the SEC requires to
Speaker 1: support that to get that launched. So I don't know, Uh,
Speaker 1: I don't know which of those applications will be filed first.
Speaker 1: We're broadly supportive of any crypto et F getting launched
Speaker 1: into the market. We think that an index based product
Speaker 1: can make sense for some investors. UM. But I think
Speaker 1: the preconditions to allow crypto et f s to function
Speaker 1: exist today. So I gave odds this morning on this
Speaker 1: and on average, I'd say I I give seven percent
Speaker 1: chance this year and maybe thirty chance by the end
Speaker 1: of twenty nine. Am I in the ballpark in your opinion? Oh,
Speaker 1: I'm obviously more bullish than that. We wouldn't have filed
Speaker 1: any t F if we didn't think it could be
Speaker 1: approved in the near term. So, um, we're excited to
Speaker 1: talk to the SEC and uh and we're we're hopeful
Speaker 1: for that dialogue. Your lawyer will love the answer to
Speaker 1: that question. That was really good. How do you lawyer up?
Speaker 1: I feel my lawyers getting on my shoulders right now.
Speaker 1: We saw him. I saw him, he's right there, he's
Speaker 1: having a coffee. Yeah. These aren't billable hour How do
Speaker 1: you layer up for this? Yeah? So so they're they're
Speaker 1: a wide variety of good of good lawyers. We filed
Speaker 1: our our et F with better price, but really it's
Speaker 1: about just getting involved well with the SEC and talking
Speaker 1: with them, you know. As as we mentioned earlier John
Speaker 1: Highland as part of our team. John launched the first
Speaker 1: Crude Oil Future zt F, the first natural gas ETF.
Speaker 1: He has a lot of experience going first in the
Speaker 1: crypto space. Um, but we just filed. We we haven't
Speaker 1: engaged with them. We're we're looking forward to that. And
Speaker 1: what kind of dialogue do you expect now that you're
Speaker 1: on the other side of the WINKLEFI hearing? Like, what
Speaker 1: what what kind of questions are you preparing for? Yeah? So,
Speaker 1: so the thing that we can do that we hope
Speaker 1: will be helpful. Uh, And I don't know because I
Speaker 1: haven't sat down with the SEC. We have an extensive
Speaker 1: amount of data, you know, we pulled data from all
Speaker 1: major crypto exchanges around the world, so we have a
Speaker 1: lot of analysis about pricing in crypto and how true
Speaker 1: the sort of law of one prices and with the
Speaker 1: crypto So I think I think analysis on around the
Speaker 1: quality of the crypto markets is something that we can
Speaker 1: add value to. And we also have this experience running
Speaker 1: a fund and striking and have and serving investors in
Speaker 1: pricing crypto that we can talk about. Again, I don't
Speaker 1: know how helpful those things will be, but I think
Speaker 1: they're informative to us. Your fund, right, which you have said,
Speaker 1: has been called the vanguard of crypto currency, right, Okay,
Speaker 1: and it does charge two point five Yeah, that's that's
Speaker 1: not very vanguardian. What do you say to that. I
Speaker 1: don't know, that seems pretty um. Hedge fund, well, a
Speaker 1: hedge fund with yeah, yeah, let's be clear, hedge fund
Speaker 1: would charge two in twenty last year, are are our
Speaker 1: fund was up? I think over the last twelve months
Speaker 1: the index that is behind our funds some of this
Speaker 1: is back tested data sum is live is up a
Speaker 1: thousand percent, so that would be a two expense ratio,
Speaker 1: which is a lot more than two word in a
Speaker 1: hedge fund structure. So why is it two and a
Speaker 1: half percent for regular accounts and two percent for counts
Speaker 1: of a million dollars or up. The answer is that
Speaker 1: the crypto market is a nascent market, so the costs
Speaker 1: and crypto are substantially higher. Custoding crypto on an institutional
Speaker 1: basis is really not cheap. All the audit tax, et
Speaker 1: cetera is not cheap. It is expensive VSA v A.
Speaker 1: You know an smpt F obviously, but in the crypto space,
Speaker 1: two percent is or two and a half percent is
Speaker 1: actually on the lower side of average. Speaking of Vanguard,
Speaker 1: I know one of your idols and somebody who's been
Speaker 1: very influential in her career is John Bogel, Vanguard's founder.
Speaker 1: He was asked about bitcoin. He's been asked a few times.
Speaker 1: I think reporters just do it to troll him to
Speaker 1: see how how far he'll go with his answer. One
Speaker 1: of the ones that stuck out with me is he
Speaker 1: said avoid it like the plague, and he said some
Speaker 1: other ones we asked him if Vanguard whatever launched a
Speaker 1: bitcoin fund, and he said, over my dead body. So
Speaker 1: he's got these colorful, hardcore answers, how do you marry
Speaker 1: those two things? Somebody who's been so strong in the
Speaker 1: passive world completely kind of crapping on your It's the
Speaker 1: Matt Hogan paradox, mat paradox. Well, I'd start by saying,
Speaker 1: didn't he say the same thing about e t f s.
Speaker 1: He was extremely negative about e t f s, and
Speaker 1: I maybe called them weapons of mass destruction or there
Speaker 1: were other fantastic terms. He is a hero of mine,
Speaker 1: and we've seen similar negative comments from Warren Buffett and
Speaker 1: other investment heroes that we all look up to. Look,
Speaker 1: it is a disruptive technology. It is divisive, it is new.
Speaker 1: Often when disruptive technologies come into uh come into being,
Speaker 1: they're dismissed by a large portion of the population. If
Speaker 1: they were immediately embraced by everyone, it wouldn't have the
Speaker 1: risk reward payoff that it has today. So I'm not
Speaker 1: all that surprised. He also, I would add, and this
Speaker 1: is directly relevant, he's not a fan of commodity investing either.
Speaker 1: He likes assets that have cash flows and returns and crypto.
Speaker 1: Unless you're talking about staking rewards and emissions and air drops,
Speaker 1: it doesn't have those same cash flows in return. So
Speaker 1: I think a lot of where he trips up on
Speaker 1: is the same place he trips up on commodities. But
Speaker 1: but you know, I think, I don't know, five ten
Speaker 1: years from now, maybe he'll come around. Um, I gotta
Speaker 1: ask about the filing. Do you have a ticker in mine?
Speaker 1: Because I know it's you know, it's the biggest thing
Speaker 1: in this. Also, somebody said yours is called the hold index.
Speaker 1: Why isn't it h O D l Yeah, So I
Speaker 1: can't talk about our filing. Here's a little lawyer. I
Speaker 1: can't talk specifically about our filing. We have talked about
Speaker 1: how much fun we are going to have selecting the
Speaker 1: ticker for it. We are going to get all available
Speaker 1: tickers and put them on a wall and run through
Speaker 1: them until we find the exact right one. I do
Speaker 1: know who has reserved the whole h O d l
Speaker 1: uh ticker, and so I hope to have a conversation
Speaker 1: with him. That would be a nice one. But um,
Speaker 1: I don't know, do you guys have one in mind?
Speaker 1: No comment, my lawyer says, I can't say you're the
Speaker 1: king of tickers, Eric, I'd have to think coin is
Speaker 1: good and it's the the blockchain et f used coin
Speaker 1: with a K. That's kind of a cool one um
Speaker 1: try and kind of hard in my opinion, Eric, change
Speaker 1: that letter. We could go with, Eric, just put it
Speaker 1: out there, celebrity adorsement. So let's play this out. Say
Speaker 1: there is say you get approved first, right, good for you.
Speaker 1: You're in there for your ticker is h O, d L.
Speaker 1: How much room for other crypto or bitcoin or or
Speaker 1: etcetera products? Et products? Do you think there is? Yeah?
Speaker 1: So I think there will be a lot of single
Speaker 1: coin products, at least because I think there's obvious demand
Speaker 1: for Bitcoin and ethereum and a few other single coins.
Speaker 1: We think there are other indexes that are interesting and valuable.
Speaker 1: We're just about to launch mid caps, small cap, and
Speaker 1: total market indexes covering up to a hundred coins. There
Speaker 1: are also strategies that we think will be valuable. Look,
Speaker 1: this is a three billion dollar market today. We think
Speaker 1: it could be many many multiples of that if it
Speaker 1: becomes a couple of trillion dollar market. Will there be
Speaker 1: space for equal weighted crypto? Absolutely? Will there be space
Speaker 1: for actively managed crypto funds absolutely? Will there be space
Speaker 1: for momentum crypto funds? Absolutely? And I'm not giving away
Speaker 1: the store. Everyone is thinking about this. These trends are obvious,
Speaker 1: and I think there'll be a lot of products out there.
Speaker 1: So do you ever think about if if all this
Speaker 1: were to go sideways? Yeah, what does that do to
Speaker 1: the et F landscape? If if it were approved? If
Speaker 1: what do you mean by go sideways? Unforeseen events and
Speaker 1: investor confidence wins? Uh So, So I think that's an
Speaker 1: extraordinarily unlikely scenario if it's approved. Rent, If it's approved
Speaker 1: that the two black swan potential negatives that are out
Speaker 1: there that we think about a little bit are regulatory
Speaker 1: bands of owning particular crypto assets. Right, so, there is
Speaker 1: a history. It was once made illegal to own gold
Speaker 1: in the US many many years ago. You could imagine
Speaker 1: that scenario. In that case, the fund will just divest
Speaker 1: of that particular crypto asset. There will be no harm
Speaker 1: to investors. UM. The other possible thing people talk about
Speaker 1: is a hacking of something like the bitcoin network. UM.
Speaker 1: I would say that it's been out there for ten years.
Speaker 1: It's the most obvious honeypot for hackers in the world
Speaker 1: with hundreds of billions of dollars in value, uh and
Speaker 1: and and bearer instruments. It hasn't been hacked, so we
Speaker 1: feel confident that it will stay that way. But obviously
Speaker 1: that would be a negative for the market. UM, let's
Speaker 1: talk quickly about et s. You've done a couple pieces
Speaker 1: of work that I have just found great. The world's
Speaker 1: Cheapest portfolio. You you came up with this. Uh, this
Speaker 1: is where you take the cheapest TTF and every asset
Speaker 1: class like a legit portfolio, and you give the the
Speaker 1: asset weighted fee. Right now, I think it's six basis
Speaker 1: points five, it's down to five. Uh, it kind of
Speaker 1: goes down about a basis point Yere are we headed
Speaker 1: towards a free portfolio in a couple of years or
Speaker 1: is it? Is it going to top out at four
Speaker 1: or five? I think it will top out at a
Speaker 1: couple of basis points because I don't think people trust
Speaker 1: free in asset management. I think people if you're giving
Speaker 1: them free asset management, they wonder how you're taking Yeah,
Speaker 1: exactly like like the robin Hood exchange. People know that
Speaker 1: there's some way that they are making money. People would
Speaker 1: rather be stabbed in the chest than stabbed in the back. UM,
Speaker 1: and that's awesome. So and we discussed this a lot.
Speaker 1: Right now, Passive is about thirty of fund assets, which
Speaker 1: means it's six percent ownership of the stock market. So
Speaker 1: thirty Where will it be in ten years? I think
Speaker 1: it'll be fund assets and whatever the stock market. Absolutely, UM,
Speaker 1: Vanguard and black Rock are a duopoly. They're they're not
Speaker 1: taking in almost all the money out of seven asset managers.
Speaker 1: Will this continue or do you think, uh, there will
Speaker 1: be some kind of consolidation or something that like what
Speaker 1: could stop them? I think what could stop them is
Speaker 1: networks that have distribution enforcing that distribution like Charles Schwab
Speaker 1: raising the price of other asset managers to to to
Speaker 1: access ETFs on their platform and keeping more assets for themselves.
Speaker 1: So I think all assets will default or most assets
Speaker 1: will default to extremely low cost beta vehicles as the
Speaker 1: core of their portfolio. But they might be captive within
Speaker 1: distribution networks. Morgan Stanley might launch its own products instead
Speaker 1: of outsourcing them to others. That's the only possible way
Speaker 1: that that trend, that that trend could could be reversed
Speaker 1: or at least slowed. Bogol told us in our interview
Speaker 1: that what's he's running in his new book is that
Speaker 1: there's going to be mass mutualization of the big financial companies.
Speaker 1: In other words, they're all going to have to convert
Speaker 1: to Vanguard's mutual ownership structre or UH consolidating and lowering
Speaker 1: fees will not be enough. It's too late. What do
Speaker 1: you say to that. I love that vision. Um, I
Speaker 1: don't know. That's an interesting question. Look, I think Black
Speaker 1: Rock has shown you can be very profitable even with
Speaker 1: an extraordinary amount of low cost assets. I think you're
Speaker 1: gonna see more people follow the Black right Rock paradigm
Speaker 1: of Barbell strategies with an extremely low cost core that
Speaker 1: they use them essentially as a marketing expense to attract investors,
Speaker 1: and then some high cost UH special sauce that they
Speaker 1: throw on top. When does Crypto make it into the
Speaker 1: world's cheapest portfolio, It's going to raise the price a
Speaker 1: little bit. Look, uh, once once we once we launch
Speaker 1: an e t F. Look, the thing about crypto is,
Speaker 1: even as much as I love it and as much
Speaker 1: as I think it's important and additive to her portfolio.
Speaker 1: It should be uh, you know, one to three of
Speaker 1: your portfolio, no more, and you should diligently rebalance it
Speaker 1: if it ever exceeds that target band. So will it
Speaker 1: come into the world's cheapest portfolio? Absolutely once a diversified
Speaker 1: crypto product is launched, but the allocation will be appropriate
Speaker 1: for investors, which is to say, about one whatever E
Speaker 1: t F gets approved in the crypto space, what do
Speaker 1: you think the first day inflow will be. That's a
Speaker 1: good question. Let me add on to that while you think,
Speaker 1: which is that the record to the fastest to a
Speaker 1: billion is g l D took three days. Uh, b
Speaker 1: b JP just came in second in about a month,
Speaker 1: and then bond is third two and a half months.
Speaker 1: So that's just to tell you how hard it is
Speaker 1: to get to a billion takes a long time. Would
Speaker 1: crypto what a what a physically backed or coin based
Speaker 1: back crypto et F be able to get to a
Speaker 1: billion in less than three days? I don't think so.
Speaker 1: I don't think so. I think uh, there is significant
Speaker 1: pent up demand for regulated exchange traded crypto exposure, but
Speaker 1: I think most of the money is still in the
Speaker 1: learning phase about crypto. The advisors, family offices and institutions
Speaker 1: were talking to right now are either in the dip
Speaker 1: their toe phase or they are still in the learning
Speaker 1: an education phase. So depending on how long it takes,
Speaker 1: how much pent up demand there is, that'll answer that question.
Speaker 1: But if it were soon or right now, I think
Speaker 1: people are still investigating and learning more than they're all
Speaker 1: the way in. I want I want to do a
Speaker 1: quick speed run. Um, how many people are in your
Speaker 1: fun how many uh six plus LPs? And how much
Speaker 1: money in dollars was not in dollars? We've had over
Speaker 1: forty million dollars in influence. Do you get paid in crypto? No?
Speaker 1: Why not? You have too much basis risk versus your
Speaker 1: daily expenditures. How many people do you employ now? We
Speaker 1: have fifteen people on our team and we're hiring a
Speaker 1: few more. How do you talk to your kids about
Speaker 1: what you do? My kids love three kids, right, yeah, yeah, yeah,
Speaker 1: so they how did you describe this when you left
Speaker 1: et F and went crypto? They were very suspected first,
Speaker 1: but they have come to realize that I'm now the
Speaker 1: cool dad in the family, a cryptocurrency asset manager. My
Speaker 1: my daughter Magnolia talks about digital money. That's what she gets.
Speaker 1: And they fully like the idea of digital money. It
Speaker 1: seems native to them and obvious. And you're one of
Speaker 1: I counted six people this year alone. That's that's gone
Speaker 1: from the e t F world to the crypto world.
Speaker 1: What do you make of this and are there similarities
Speaker 1: that would attract somebody? Absolutely, there are two huge similarities
Speaker 1: that are really important to understand. One disruptive to the
Speaker 1: status quo and the financial ecosystem. E t f s
Speaker 1: were that, and they have disrupted mutual funds and other
Speaker 1: parts of asset management. Crypto is that too broad swas
Speaker 1: of the ecosystem? And Two, at their core, a lot
Speaker 1: of what they're about is disintermediation. The reason e t
Speaker 1: f are low cost was they disintermediate a lot of
Speaker 1: distribution cost. That's the primary advantage of e t f s.
Speaker 1: They cut out a lot of junk. Part of what
Speaker 1: crypto does is it disintermediates huge parts of the financial
Speaker 1: ecosystem that our rents seeking and just distracting money from
Speaker 1: the population. Okay, So closing question, I want to ask
Speaker 1: on Eric's behalf. He goes to some conferences sometimes and
Speaker 1: you guys, do the et F smackdowns. Eric doesn't win. Yeah,
Speaker 1: he actually doesn't even come in first or second. Um,
Speaker 1: you've you've seen, uh, you've won, I've heard I have one.
Speaker 1: Eric doesn't mean you win. I have one on Eric's behalf.
Speaker 1: How can Eric improve his game? Yeah, so the first
Speaker 1: is got to be fund selection, Eric, fund selection. You
Speaker 1: went with the marijuana e t F. You get you
Speaker 1: get attracted by these that seems like it could have.
Speaker 1: You get attracted by these sexy, exciting, shiny objects. Shiny
Speaker 1: objects and not things that can fundamentally improve people's portfolio
Speaker 1: in the way. Let's say a crypto a t F
Speaker 1: you just got smacked down. Let me smack him down.
Speaker 1: In January. The one you won with was by, which
Speaker 1: is a sort of private equity fund that just looks
Speaker 1: for public stocks that look private equity issue. I mean,
Speaker 1: come on basis points, this drove Todd rosen Booth crazy
Speaker 1: that you won with this. That's why I think it's
Speaker 1: more show to tell that Eric has still been out
Speaker 1: of shape over this. You still seem a little He
Speaker 1: did have a cheering section. I'll tell you what, Eric.
Speaker 1: Before next inside E t S, we'll do a two
Speaker 1: day offsite teach you on how to pitch these e
Speaker 1: t f s in front of a large You're gonna
Speaker 1: be by Mr Miyagi. I will be, I will be. Okay,
Speaker 1: I'm here, all right, it's a deal. Finally, can't wait
Speaker 1: to see you try and do a crane kick. Alright,
Speaker 1: Matt Hogan, thanks so much for joining us in Trillians,
Speaker 1: Thanks for having me, Thanks for listening to Trillions Until
Speaker 1: next time. You can find us on the Bloomberg Terminal,
Speaker 1: Bloomberg dot com, Apple Podcast, and anywhere else you want
Speaker 1: to listen to fas we'd love to hear from you.
Speaker 1: We're on Twitter, I'm at Jewel Webber Show, He's at
Speaker 1: Eric Caltunist, and you can find Matt Hogan at Matt
Speaker 1: Underscore Hogan with a You or at bit wise Invest.
Speaker 1: Trillions is produced by Magnus Hendrickson for Jessica Levi is
Speaker 1: the head of Bloomberg Pockets. Bye.