1 00:00:10,160 --> 00:00:14,280 Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast. 2 00:00:14,400 --> 00:00:18,919 Speaker 1: I'm Joe Wisenthal and I'm Tracy Alloway. Tracy UM, A 3 00:00:19,040 --> 00:00:22,400 Speaker 1: lot has gone wrong for crypto in the last year 4 00:00:22,560 --> 00:00:25,119 Speaker 1: or so. I think let's start there. I think that 5 00:00:25,280 --> 00:00:28,880 Speaker 1: is safe to say that. There are many different scandals, 6 00:00:29,000 --> 00:00:33,080 Speaker 1: blow up, disasters, etcetera. So the background to that intro 7 00:00:33,400 --> 00:00:35,760 Speaker 1: was right before Joe said it, he was going, how 8 00:00:35,760 --> 00:00:37,600 Speaker 1: am I going to start this one? And he just 9 00:00:37,640 --> 00:00:40,199 Speaker 1: went with bad things have been happening, right, Like, we 10 00:00:40,240 --> 00:00:41,800 Speaker 1: could go for a lot, we could just list him. 11 00:00:41,800 --> 00:00:44,559 Speaker 1: We don't need to do that, Okay. So one of 12 00:00:44,600 --> 00:00:46,920 Speaker 1: the bad things that has been happening in the crypto 13 00:00:47,000 --> 00:00:51,519 Speaker 1: industry has to do with several high profile entities, and 14 00:00:51,560 --> 00:00:54,200 Speaker 1: I'm still trying to wrap my head around the relationships 15 00:00:54,240 --> 00:00:57,040 Speaker 1: between all of them. But we need to talk about 16 00:00:57,040 --> 00:01:01,200 Speaker 1: what's going on with Grayscale, Genesis and Jeff and I. Right, so, 17 00:01:01,240 --> 00:01:03,320 Speaker 1: for a long time, you know, there's no bitcoin e 18 00:01:03,400 --> 00:01:06,280 Speaker 1: t F in the United States for a long time, 19 00:01:06,319 --> 00:01:09,640 Speaker 1: Like buying bitcoin might have been a little tricky. Maybe 20 00:01:09,640 --> 00:01:12,919 Speaker 1: people didn't want to trust like some of these online exchanges, 21 00:01:12,959 --> 00:01:15,520 Speaker 1: some of them for good reasons. If you were some 22 00:01:15,600 --> 00:01:18,600 Speaker 1: sort of regulated entity like a fund or something, or 23 00:01:18,600 --> 00:01:20,520 Speaker 1: an advisor, you might not be able to get your 24 00:01:20,560 --> 00:01:24,199 Speaker 1: client money into bitcoin itself. But for a long time, 25 00:01:24,600 --> 00:01:28,240 Speaker 1: so GBTC, which is this entity owned by Gray Scale, 26 00:01:28,760 --> 00:01:32,360 Speaker 1: was like one of the regulated vehicles that one could 27 00:01:32,360 --> 00:01:37,000 Speaker 1: get exposure to bitcoin, right but not an exchange traded fund. Importantly, 28 00:01:37,200 --> 00:01:40,560 Speaker 1: it was well the Gray Scale Bitcoin Trust I think 29 00:01:40,600 --> 00:01:44,119 Speaker 1: it's called. And because of its existence, we saw this 30 00:01:44,360 --> 00:01:47,000 Speaker 1: trade that it really seems like a lot of people 31 00:01:47,120 --> 00:01:50,040 Speaker 1: in the crypto world we're doing where they would basically 32 00:01:50,200 --> 00:01:55,320 Speaker 1: borrow bitcoin, deposit those with Gray Scale in exchange for 33 00:01:55,480 --> 00:01:59,520 Speaker 1: GBTC shares, and then eventually they would sort of offload 34 00:01:59,520 --> 00:02:03,760 Speaker 1: those shares to retail investors. But that only works as 35 00:02:03,840 --> 00:02:07,320 Speaker 1: long as there's interest in bitcoin and the price is 36 00:02:07,440 --> 00:02:10,320 Speaker 1: kind of going up, and now that everything seems to 37 00:02:10,400 --> 00:02:15,280 Speaker 1: be going backwards or exploding in various ways, it's become problematic. 38 00:02:15,400 --> 00:02:19,840 Speaker 1: And now we have this huge discrepancy between the value 39 00:02:19,840 --> 00:02:22,760 Speaker 1: of Gray Scales bitcoin and where the shares are actually trading. 40 00:02:22,880 --> 00:02:26,200 Speaker 1: So this is really interesting. For a while, the Gray 41 00:02:26,240 --> 00:02:30,760 Speaker 1: Scale Bitcoin Trust GBTC and it's traded quotes all day. 42 00:02:30,919 --> 00:02:33,960 Speaker 1: It was a large premium to the underlying bitcoin that 43 00:02:34,040 --> 00:02:37,000 Speaker 1: it held, and now there is a big discount. And 44 00:02:37,040 --> 00:02:40,359 Speaker 1: the key thing is is that all of these entities 45 00:02:40,400 --> 00:02:43,160 Speaker 1: that were in some way trying to areb the spread 46 00:02:43,320 --> 00:02:47,880 Speaker 1: or trading bitcoin veras GBTC, etcetera, they've now lost a 47 00:02:47,880 --> 00:02:50,440 Speaker 1: lot of money. And I think, you know, I mentioned 48 00:02:50,480 --> 00:02:52,240 Speaker 1: at the very beginning there have been a lot of 49 00:02:52,280 --> 00:02:56,080 Speaker 1: disasters on crypto, but I think GBTC is at the 50 00:02:56,080 --> 00:02:59,440 Speaker 1: center of many of them. Yes, everyone seems upset about this. 51 00:03:00,200 --> 00:03:02,320 Speaker 1: You know, I've kind of been following it a little bit, 52 00:03:02,360 --> 00:03:04,919 Speaker 1: but not that much, and so I am very interested 53 00:03:05,000 --> 00:03:09,520 Speaker 1: to pick apart the relationships between these various entities, like 54 00:03:09,600 --> 00:03:13,120 Speaker 1: why is Gemini that involved with Genesis and how does 55 00:03:13,160 --> 00:03:16,639 Speaker 1: it involve Gray Scale as well? You know, superficially this 56 00:03:16,720 --> 00:03:19,240 Speaker 1: is a going to be a crypto episode, but really 57 00:03:19,320 --> 00:03:23,560 Speaker 1: it's like a fund structure episode more than anything else. 58 00:03:23,600 --> 00:03:26,079 Speaker 1: It could be anything, but it happens to be a 59 00:03:26,120 --> 00:03:28,799 Speaker 1: trust that owns a lot of bitcoin. Anyway, we need 60 00:03:28,800 --> 00:03:32,400 Speaker 1: an expert here who's going to explain what was the 61 00:03:32,480 --> 00:03:35,840 Speaker 1: g BTC trade that so many different entities get into, 62 00:03:36,040 --> 00:03:38,840 Speaker 1: why it gets so much trouble all these new disputes. 63 00:03:38,920 --> 00:03:41,800 Speaker 1: I'm very excited we're gonna be speaking to Rama Lawalia. 64 00:03:41,920 --> 00:03:45,240 Speaker 1: Here's the founder of Lumeda, which is a private wealth advisor. 65 00:03:45,680 --> 00:03:48,040 Speaker 1: You knows a lot about this stuff. So rong, thank 66 00:03:48,080 --> 00:03:50,320 Speaker 1: you so much for coming out odd lots, thank you 67 00:03:50,320 --> 00:03:55,040 Speaker 1: for having me. What is GBTC. So, g BTC is 68 00:03:55,080 --> 00:03:59,600 Speaker 1: the security issued by gray Scale. It is a security 69 00:03:59,720 --> 00:04:03,200 Speaker 1: that trades on the market, and right now it has 70 00:04:03,240 --> 00:04:05,880 Speaker 1: a discount to the net asset value and that net 71 00:04:05,960 --> 00:04:09,720 Speaker 1: SA values based on the value that bitcoin held by 72 00:04:09,840 --> 00:04:15,160 Speaker 1: the trust. GBTC is issued by gray Scale, which is 73 00:04:15,160 --> 00:04:19,640 Speaker 1: a wholly owned subsidiary of Digital Currency Group. And what's 74 00:04:19,680 --> 00:04:24,040 Speaker 1: the relationship between gray Scale and Genesis and Gemini. Let's 75 00:04:24,040 --> 00:04:26,440 Speaker 1: just do the whole like, let's name all the players 76 00:04:26,480 --> 00:04:28,800 Speaker 1: at the beginning, we'll introduce the cast of character. So, 77 00:04:28,920 --> 00:04:31,960 Speaker 1: first off, you've got Digital Currency Group, founded by Barry 78 00:04:32,000 --> 00:04:35,920 Speaker 1: Silber a was and is a storied institution, really one 79 00:04:35,920 --> 00:04:39,080 Speaker 1: of the blue chip firms that also seed and invested 80 00:04:39,080 --> 00:04:42,120 Speaker 1: in quite a few companies in the category. So DCG 81 00:04:42,920 --> 00:04:46,600 Speaker 1: created a business called gray Scale, and gray Scale was 82 00:04:46,640 --> 00:04:52,120 Speaker 1: the first to issue a publicly exchange traded a security 83 00:04:52,160 --> 00:04:57,719 Speaker 1: that represented access to bitcoin was wildly successful. Also, DCG 84 00:04:58,440 --> 00:05:02,440 Speaker 1: created the first prime brokerage for the category, and that 85 00:05:02,520 --> 00:05:05,200 Speaker 1: prime brokerage is called Genesis. So what does Genesis do? 86 00:05:05,839 --> 00:05:10,039 Speaker 1: It performs custody, enables trading, and also provides financing for 87 00:05:10,160 --> 00:05:14,720 Speaker 1: digital assets, including GBTC. What is GBTC. So it's not 88 00:05:14,800 --> 00:05:17,320 Speaker 1: an e t F. It's an entity that owns a 89 00:05:17,360 --> 00:05:19,800 Speaker 1: bunch of bitcoin and there are shares that want what 90 00:05:20,000 --> 00:05:21,960 Speaker 1: is it? What is it? That's correct, it's not an 91 00:05:21,960 --> 00:05:24,839 Speaker 1: e t F. You can analogize it to a closed 92 00:05:24,920 --> 00:05:27,120 Speaker 1: end fund, although that's not what it is either. But 93 00:05:27,279 --> 00:05:30,600 Speaker 1: essentially it's a security that trades in the market. It's 94 00:05:30,640 --> 00:05:34,240 Speaker 1: issued by a trust and the value of that security, 95 00:05:34,279 --> 00:05:36,760 Speaker 1: in principle should be based on the value of the 96 00:05:36,760 --> 00:05:39,880 Speaker 1: collateral backing the trust, which is about ten billion dollars 97 00:05:39,880 --> 00:05:42,159 Speaker 1: worth the bitcoin. It's not an e t F because 98 00:05:42,160 --> 00:05:47,480 Speaker 1: there's no dynamic, instantaneous what's called the creation redemption mechanism, 99 00:05:47,680 --> 00:05:51,440 Speaker 1: whereby market makers perform open operations to ensure that any 100 00:05:51,520 --> 00:05:53,160 Speaker 1: of you is close to the value of the GBTC. 101 00:05:54,800 --> 00:05:57,360 Speaker 1: So maybe talk to us a little bit more about 102 00:05:57,400 --> 00:06:00,719 Speaker 1: the differences between e t F s and a TRY structure, 103 00:06:00,960 --> 00:06:03,080 Speaker 1: Like what are the key differences and what is it 104 00:06:03,160 --> 00:06:06,440 Speaker 1: that seems to be problematic with a bitcoin based e 105 00:06:06,560 --> 00:06:09,919 Speaker 1: t F but is allowed to happen with a bitcoin 106 00:06:10,080 --> 00:06:12,920 Speaker 1: based trust. Sure, So in an e t F, you 107 00:06:12,960 --> 00:06:15,800 Speaker 1: have market makers that are ensuring that the value, the 108 00:06:15,920 --> 00:06:20,960 Speaker 1: net asset value of the fund matches the tradeable value 109 00:06:21,040 --> 00:06:24,840 Speaker 1: of the security, and arbitrage enforces that the authorized participants, 110 00:06:24,880 --> 00:06:28,440 Speaker 1: so typically banks who are incentivized if they spot a 111 00:06:28,480 --> 00:06:32,640 Speaker 1: discrepancy between the value of the underlying basket of whatever 112 00:06:32,720 --> 00:06:35,360 Speaker 1: in this case bitcoin and the shares, they would buy 113 00:06:35,400 --> 00:06:38,080 Speaker 1: a basket or sell a basket and take it to 114 00:06:38,320 --> 00:06:42,159 Speaker 1: the e t F issuer. Exactly right. Okay, Now the 115 00:06:42,320 --> 00:06:46,680 Speaker 1: SEC was not authorizing e t f s backed by bitcoin. 116 00:06:47,360 --> 00:06:51,640 Speaker 1: So what Gray Scale did was they issued GBTC in 117 00:06:51,720 --> 00:06:53,800 Speaker 1: a trust format. So you can think about a closed 118 00:06:53,880 --> 00:06:56,119 Speaker 1: end fund, which are which are out there, and closed 119 00:06:56,200 --> 00:06:59,279 Speaker 1: end funds generally traded a discount of the net asset value, 120 00:07:00,200 --> 00:07:02,520 Speaker 1: So you have all these antiity everyone. There's been a 121 00:07:02,560 --> 00:07:05,640 Speaker 1: million filings for e t f s and they tend 122 00:07:05,640 --> 00:07:08,360 Speaker 1: to go in waves, it seems like, and then every 123 00:07:08,400 --> 00:07:11,480 Speaker 1: six months or something you get a bunch of denials. Meanwhile, 124 00:07:11,720 --> 00:07:16,760 Speaker 1: GBTC has existed since it looks like early this thing 125 00:07:16,800 --> 00:07:19,160 Speaker 1: has just been like a huge money maker because as 126 00:07:19,200 --> 00:07:23,480 Speaker 1: the one sort of like traded vehicle that's bitcoin ish 127 00:07:23,600 --> 00:07:26,960 Speaker 1: that offers bitcoin exposure almost a monopoly. Like how much 128 00:07:26,960 --> 00:07:30,320 Speaker 1: of a money maker was this business. Yes, GBTC was 129 00:07:30,360 --> 00:07:33,760 Speaker 1: the ultimate carry trade and it generated hundreds of millions 130 00:07:33,760 --> 00:07:37,440 Speaker 1: of dollars over billions of dollars for the issuers and 131 00:07:37,600 --> 00:07:40,160 Speaker 1: parties have participated in the trade. So at the time 132 00:07:40,200 --> 00:07:44,880 Speaker 1: when GBTC launched, it's premium above the value of the 133 00:07:44,960 --> 00:07:49,080 Speaker 1: underlying bitcoin hell in the trust. The premium fluctuated between 134 00:07:49,160 --> 00:07:54,120 Speaker 1: thirty for several years. So if you engage in this 135 00:07:54,160 --> 00:07:58,080 Speaker 1: carry trade like Tracy outline, meaning you buy bitcoin, you 136 00:07:58,560 --> 00:08:01,840 Speaker 1: convey and deliver it to Gray scale in six months, 137 00:08:01,920 --> 00:08:05,400 Speaker 1: but you're wearing the price risk at the time of delivery. 138 00:08:05,480 --> 00:08:08,440 Speaker 1: So if that premium has held firm, then you capture 139 00:08:08,480 --> 00:08:10,960 Speaker 1: the value of the premium relative to the spot price 140 00:08:11,400 --> 00:08:16,120 Speaker 1: of bitcoin. That discount started to appear. Really, the premium 141 00:08:16,160 --> 00:08:20,280 Speaker 1: went to a discount with coin based going public around 142 00:08:20,280 --> 00:08:23,160 Speaker 1: that time. But so just to go back for a second, 143 00:08:23,160 --> 00:08:26,160 Speaker 1: you say, there's there's no like unlike an e T F. 144 00:08:26,200 --> 00:08:30,960 Speaker 1: There's no like automatic redemption back and forth. But traders 145 00:08:31,000 --> 00:08:35,000 Speaker 1: were able to create by bitcoin and then create GBTC, 146 00:08:35,280 --> 00:08:37,920 Speaker 1: so it was like is it it was allowed? There 147 00:08:37,960 --> 00:08:39,640 Speaker 1: was one direction you could take it, but not the 148 00:08:39,640 --> 00:08:41,560 Speaker 1: other way, like this is why I don't get So 149 00:08:41,679 --> 00:08:46,680 Speaker 1: you could create GBTC shares but they can't be destroyed. Correct, 150 00:08:46,720 --> 00:08:50,360 Speaker 1: So GBTC. Gray Scale has this kind of Hotel California dynamic. 151 00:08:50,800 --> 00:08:52,160 Speaker 1: The way it works is you've got to go through 152 00:08:52,160 --> 00:08:55,880 Speaker 1: a deliberate set of procedures to acquire bitcoin, create a 153 00:08:55,960 --> 00:08:59,520 Speaker 1: legal entity, notify gray Scale, and go through a set 154 00:08:59,520 --> 00:09:03,600 Speaker 1: of mechanic X two, then capture the premium on the 155 00:09:03,600 --> 00:09:06,640 Speaker 1: other side and hope it's there. On the redemption side. 156 00:09:07,640 --> 00:09:12,400 Speaker 1: There is a mechanism to redeemount of trusts. It's called REGAM. 157 00:09:12,440 --> 00:09:16,840 Speaker 1: It's one of the statutes in securities laws, and trusts 158 00:09:16,920 --> 00:09:21,440 Speaker 1: have offered liquidity to investors. However, gray Scale received a 159 00:09:21,600 --> 00:09:25,079 Speaker 1: letter from the SEC saying that they cannot engage in 160 00:09:25,160 --> 00:09:28,360 Speaker 1: E t F like practices, and gray Scale interpreter that 161 00:09:28,400 --> 00:09:30,960 Speaker 1: and said, oh, the SEC is telling us we cannot 162 00:09:31,120 --> 00:09:34,520 Speaker 1: utilize REGAM to create liquidity, and then they modified their 163 00:09:34,520 --> 00:09:39,080 Speaker 1: trust to expressly prohibit themselves from invoking REGAM, although other 164 00:09:39,080 --> 00:09:41,960 Speaker 1: parties are saying in don't know, you can actually use REGAM. 165 00:09:42,000 --> 00:09:45,640 Speaker 1: They're reading too much into the sec action and accusing 166 00:09:46,160 --> 00:09:48,560 Speaker 1: Gray Scale of self dealing trying to keep this cash 167 00:09:48,559 --> 00:09:51,280 Speaker 1: cow right. So this is part of the controversy that 168 00:09:51,320 --> 00:09:54,920 Speaker 1: we're seeing unfold now. But setting the controversy aside for 169 00:09:54,960 --> 00:09:57,920 Speaker 1: one second, and who's mad at who? What was the 170 00:09:58,040 --> 00:10:02,280 Speaker 1: exit plan here from a scale itself, Like what exactly 171 00:10:02,320 --> 00:10:06,360 Speaker 1: did they expect to be the outlet for redemptions? If 172 00:10:06,400 --> 00:10:09,240 Speaker 1: there was a bunch of selling pressure, the paths liquidity 173 00:10:09,320 --> 00:10:13,199 Speaker 1: would simply be selling the g PTC, so the secondary 174 00:10:13,200 --> 00:10:17,280 Speaker 1: market would provide the liquidity. There's no mechanism to enforce 175 00:10:18,080 --> 00:10:23,720 Speaker 1: the discount to close because reagam is not utilized. That's it. 176 00:10:23,840 --> 00:10:27,199 Speaker 1: So you're betting that this will trade at some correlation 177 00:10:27,240 --> 00:10:48,120 Speaker 1: to the underlying collateral. You mentioned the perception out there 178 00:10:48,160 --> 00:10:51,040 Speaker 1: of self dealing or reading too much into the SEC 179 00:10:51,160 --> 00:10:53,760 Speaker 1: and I'm not gonna ask you to render a legal judgment, 180 00:10:54,080 --> 00:10:59,320 Speaker 1: but can you clarify when these counterparties are concerned that 181 00:10:59,520 --> 00:11:04,120 Speaker 1: grace L is too conservative about it, and the claim 182 00:11:04,280 --> 00:11:06,480 Speaker 1: is that it's just that this is a huge fee 183 00:11:06,520 --> 00:11:09,319 Speaker 1: collection entity for them, right, Like, what are like the 184 00:11:09,520 --> 00:11:11,839 Speaker 1: I don't know does it have fees in the same 185 00:11:11,880 --> 00:11:14,600 Speaker 1: way a typical fund is? Like how much does gray 186 00:11:14,640 --> 00:11:17,280 Speaker 1: scale get every year from the amount of big Climate. 187 00:11:18,520 --> 00:11:20,880 Speaker 1: Let me walk you through that. So gray Scale files 188 00:11:21,000 --> 00:11:23,920 Speaker 1: quarterly public ten cues and you can see the revenues 189 00:11:23,960 --> 00:11:28,240 Speaker 1: that they generate. And today gray Scale is generating probably 190 00:11:28,280 --> 00:11:30,960 Speaker 1: around three million in run rate revenue based on the 191 00:11:30,960 --> 00:11:34,280 Speaker 1: prevailing price of bitcoin. If you assume a sixty five 192 00:11:34,320 --> 00:11:37,839 Speaker 1: profit margin seems reasonable. They could be clocking it around 193 00:11:38,080 --> 00:11:40,679 Speaker 1: ND seventy million, give or chain, give or take in 194 00:11:40,760 --> 00:11:43,319 Speaker 1: terms of net income. I should also point out that 195 00:11:43,880 --> 00:11:47,960 Speaker 1: the revenue that gray Scale generates is proportional one for 196 00:11:48,120 --> 00:11:53,640 Speaker 1: one with the price of bitcoin. So DCG raised through 197 00:11:53,760 --> 00:11:58,640 Speaker 1: private financing in November at a ten billion dollar valuation. 198 00:11:59,080 --> 00:12:02,200 Speaker 1: They top take the market that was exact month that 199 00:12:02,280 --> 00:12:06,280 Speaker 1: bitcoin hit their peak value as well. And the way 200 00:12:06,360 --> 00:12:09,840 Speaker 1: gray Scale generates revenue is they have a two percent 201 00:12:09,920 --> 00:12:13,080 Speaker 1: management fee, So it's two percent times of value the 202 00:12:13,200 --> 00:12:17,120 Speaker 1: underlying bitcoin collateral, not times the traded value of the 203 00:12:17,200 --> 00:12:21,160 Speaker 1: g BTC right, So I mean they were basically printing 204 00:12:21,200 --> 00:12:23,480 Speaker 1: money when bitcoin was going up, which is kind of 205 00:12:23,480 --> 00:12:26,200 Speaker 1: funny because all the bitcoin purists complain about the FED 206 00:12:26,240 --> 00:12:30,160 Speaker 1: printing money, but they're still printy money. Right, Yes, they 207 00:12:30,160 --> 00:12:33,240 Speaker 1: are making money. Absolutely, it is the cash cow. However, 208 00:12:33,280 --> 00:12:35,240 Speaker 1: than other parts of the d c G business are 209 00:12:35,240 --> 00:12:38,480 Speaker 1: feeling stressed. Right, I think this is the cue maybe 210 00:12:38,480 --> 00:12:41,240 Speaker 1: to talk about Genesis and the relationship with gray Scale, 211 00:12:41,240 --> 00:12:44,240 Speaker 1: because my understanding was that a lot of these market 212 00:12:44,280 --> 00:12:49,280 Speaker 1: participants who were borrowing bitcoin were often doing it through Genesis. 213 00:12:49,320 --> 00:12:53,959 Speaker 1: Absolutely right. So Genesis was the world's leading crypto prime brokerage. 214 00:12:54,080 --> 00:12:57,120 Speaker 1: And what does a prime broker do. They enable lending, 215 00:12:57,320 --> 00:13:02,079 Speaker 1: custody and trading in an institutional man So Genesis enabled 216 00:13:02,840 --> 00:13:06,760 Speaker 1: hedge funds like three RS Capital to borrow bitcoin and 217 00:13:06,920 --> 00:13:11,440 Speaker 1: GBTC and other tokens in size, and Genesis also enabled 218 00:13:11,480 --> 00:13:15,040 Speaker 1: other non banks to participate in the gray scale trade 219 00:13:16,240 --> 00:13:19,839 Speaker 1: was blocked. So Block five one of the entities that 220 00:13:19,960 --> 00:13:22,720 Speaker 1: sort of, I guess, blew up over last year. How 221 00:13:22,840 --> 00:13:26,920 Speaker 1: much was the gray scale trade the business of Block five, 222 00:13:27,800 --> 00:13:31,600 Speaker 1: gray Scale made over a hundred million dollars in revenue, 223 00:13:31,679 --> 00:13:35,160 Speaker 1: and perhaps a lot more than that through the GBTC trade. 224 00:13:35,200 --> 00:13:38,080 Speaker 1: What's really interesting about block fives that on the surface 225 00:13:38,679 --> 00:13:43,280 Speaker 1: it looks like a crypto neo bank, a slick app 226 00:13:43,360 --> 00:13:48,320 Speaker 1: Behind that surface, it's actually capital markets in trading business 227 00:13:48,880 --> 00:13:54,560 Speaker 1: with skillful individuals that were participating in this GBTC trade 228 00:13:55,280 --> 00:14:00,520 Speaker 1: using their client funds, and that revenue generating machine of 229 00:14:00,600 --> 00:14:06,000 Speaker 1: g BTC enable the growth of the crypto ci fi 230 00:14:06,160 --> 00:14:10,440 Speaker 1: sector celsie. It was a major driver of revenue. And 231 00:14:10,520 --> 00:14:14,080 Speaker 1: when that premium flip to negative, it's similar to the 232 00:14:14,080 --> 00:14:17,880 Speaker 1: idea of like the yield curve going inverted, a key 233 00:14:17,960 --> 00:14:23,720 Speaker 1: leg or prop supporting these business models was kicked away 234 00:14:23,760 --> 00:14:26,480 Speaker 1: and these businesses had to pivot to find other sources 235 00:14:26,480 --> 00:14:29,960 Speaker 1: to generate revenue, including lending. I think this is really 236 00:14:30,000 --> 00:14:32,520 Speaker 1: important here because in the beginning, when you talked about 237 00:14:32,720 --> 00:14:38,000 Speaker 1: the creation of GBTC shares, there was a full legal process, 238 00:14:38,080 --> 00:14:39,880 Speaker 1: and this I guess I hadn't appreciated that there was 239 00:14:39,920 --> 00:14:41,960 Speaker 1: a whole process. You had to set up, set up 240 00:14:41,960 --> 00:14:45,720 Speaker 1: a relationship, set up a corporate entity, etcetera. So one 241 00:14:45,760 --> 00:14:48,840 Speaker 1: way to think about these sort of like crypto ci 242 00:14:49,000 --> 00:14:52,680 Speaker 1: fi entities, whether it's block Fire or Celsius, etcetera, was 243 00:14:53,080 --> 00:14:55,560 Speaker 1: they did that, they set up that entity and then 244 00:14:55,560 --> 00:14:58,240 Speaker 1: as long as the way was that premium doesn't really 245 00:14:58,280 --> 00:15:00,280 Speaker 1: matter the price of bitcoin as long as the some 246 00:15:00,360 --> 00:15:04,920 Speaker 1: premium that existed between GBTC and BTC, they could use 247 00:15:05,040 --> 00:15:07,800 Speaker 1: that legal structure that they had made to take in 248 00:15:07,840 --> 00:15:11,040 Speaker 1: money by bitcoin and attempt I don't know, arb isn't 249 00:15:11,080 --> 00:15:14,480 Speaker 1: the right word, but exploit, That's that's exactly right. They're 250 00:15:14,520 --> 00:15:19,360 Speaker 1: wearing the risk of whether that premium will maintain at 251 00:15:19,360 --> 00:15:23,800 Speaker 1: the time of delivery. So how does Gemini play into 252 00:15:23,840 --> 00:15:26,200 Speaker 1: all of this? Because you know, we mentioned people being 253 00:15:26,280 --> 00:15:30,240 Speaker 1: upset about various things here, and the Winklevos twins certainly 254 00:15:30,680 --> 00:15:33,320 Speaker 1: seem to be upset, right. So the Geminis, of course 255 00:15:33,400 --> 00:15:36,200 Speaker 1: is one of the United States the largest crypto exchanges, 256 00:15:36,200 --> 00:15:39,760 Speaker 1: competing with the coin base. People in crypto want yield. 257 00:15:40,080 --> 00:15:42,320 Speaker 1: That's what the lesson is from Celsius is the lesson 258 00:15:42,360 --> 00:15:45,040 Speaker 1: from block fights listening from Voyager. People want to earn 259 00:15:45,520 --> 00:15:50,120 Speaker 1: high yield in a then zer rate interest environment. And 260 00:15:50,200 --> 00:15:53,320 Speaker 1: Gemini spotted the opportunity and they created a program called 261 00:15:53,720 --> 00:15:59,560 Speaker 1: Gemini Earn and in that program, the creditors face off 262 00:15:59,600 --> 00:16:02,480 Speaker 1: with jen So gem and I offered a the ability 263 00:16:02,640 --> 00:16:06,840 Speaker 1: for retail investors, a credit investors and institutions to make 264 00:16:07,000 --> 00:16:10,960 Speaker 1: direct loans to Genesis gem and I was acting as 265 00:16:10,960 --> 00:16:14,200 Speaker 1: an agent. They weren't taking credit risk themselves. They didn't 266 00:16:14,200 --> 00:16:16,360 Speaker 1: put Genesis loans on their balance sheet. They were really 267 00:16:16,440 --> 00:16:20,800 Speaker 1: like an offerer of this program. Marketing agent was coin 268 00:16:21,040 --> 00:16:23,160 Speaker 1: you know, there was at one point coin Base had 269 00:16:23,160 --> 00:16:24,560 Speaker 1: this thing. They were going to do an earned thing, 270 00:16:24,560 --> 00:16:26,840 Speaker 1: and then they're like, I got a letter from the SEC. 271 00:16:26,960 --> 00:16:29,120 Speaker 1: They're not gonna let us do it. Was there going 272 00:16:29,160 --> 00:16:32,600 Speaker 1: to be roughly the same style business similar? Yes, So 273 00:16:32,640 --> 00:16:37,000 Speaker 1: the SEC it's been reported threatened to wells notice and 274 00:16:37,040 --> 00:16:41,520 Speaker 1: coin Base stopped. Also recalled. The SEC did find Block 275 00:16:41,600 --> 00:16:45,480 Speaker 1: five for similar program Hunter million dollars. Again, what was 276 00:16:45,520 --> 00:16:49,160 Speaker 1: Block five doing. Block Fire was paying out interest and 277 00:16:49,200 --> 00:16:51,040 Speaker 1: there was no retied securities offering. If you want to 278 00:16:51,080 --> 00:16:53,280 Speaker 1: pay out interest or you want to have poth cake deposit, 279 00:16:53,720 --> 00:16:56,360 Speaker 1: you have to be a bank. Only banks have exemptions 280 00:16:56,360 --> 00:17:00,120 Speaker 1: from securities laws. So on this note, another bad thing 281 00:17:00,200 --> 00:17:02,720 Speaker 1: that has happened in the crypto space recently is that 282 00:17:02,920 --> 00:17:05,879 Speaker 1: Gemini as well as Genesis happened sued by the SEC 283 00:17:06,560 --> 00:17:09,720 Speaker 1: over this earned program that you just described, basically for 284 00:17:09,840 --> 00:17:13,360 Speaker 1: breaking securities rules. And one of the criticisms that we've 285 00:17:13,400 --> 00:17:17,439 Speaker 1: seen online, you know from I guess investors who are 286 00:17:17,480 --> 00:17:21,000 Speaker 1: probably burned by some crypto things. Is, well, why didn't 287 00:17:20,960 --> 00:17:24,280 Speaker 1: the SEC say something sooner? You know, they knew that 288 00:17:24,359 --> 00:17:27,240 Speaker 1: these companies were doing this program, they'd may be issued 289 00:17:27,280 --> 00:17:31,720 Speaker 1: warnings to Block five things like that. What's the rationale 290 00:17:31,760 --> 00:17:34,240 Speaker 1: for that? Why wouldn't they have moved sooner? Sure, so, first, 291 00:17:34,280 --> 00:17:36,400 Speaker 1: Tracy is going to put me in the uncomfortable position 292 00:17:36,640 --> 00:17:39,160 Speaker 1: of defending the SEC. Here. I only asked the tough 293 00:17:39,240 --> 00:17:44,320 Speaker 1: questions Twitter. Let me do my my best here. So 294 00:17:45,240 --> 00:17:50,240 Speaker 1: the SEC has indicated through public statements and enforcement actions, 295 00:17:50,280 --> 00:17:54,800 Speaker 1: including on Block five, that they perceive exchanges offering unregied 296 00:17:54,840 --> 00:17:57,920 Speaker 1: securities to the public. So they're trying to say, hey, 297 00:17:58,040 --> 00:18:00,960 Speaker 1: guys and gals, clean up otherwise is we're going to 298 00:18:01,200 --> 00:18:06,800 Speaker 1: have enforcement actions. That's one second. Is the way to 299 00:18:06,800 --> 00:18:09,000 Speaker 1: think about the regulators. A metaphor to use here is 300 00:18:09,000 --> 00:18:12,080 Speaker 1: like the fireman. Okay, so there's a fire in the house, 301 00:18:12,400 --> 00:18:15,560 Speaker 1: you call the regulators, you file a complaint, you say, hey, 302 00:18:15,600 --> 00:18:18,120 Speaker 1: protect me. The fireman show up. House already burned down, 303 00:18:18,560 --> 00:18:21,600 Speaker 1: but there's probably a safe with some assets in the basement. 304 00:18:22,080 --> 00:18:23,920 Speaker 1: And then then what does the firemen do. They'll say, 305 00:18:24,040 --> 00:18:27,040 Speaker 1: did you adhere to your building code standards? For example, 306 00:18:27,040 --> 00:18:29,720 Speaker 1: that would be did you have sufficient disclosure? Did you 307 00:18:29,760 --> 00:18:32,920 Speaker 1: say may lose value in bold old cats and that's 308 00:18:32,920 --> 00:18:37,600 Speaker 1: not on the loan agreement for instance. The sec will say, Okay, 309 00:18:38,000 --> 00:18:42,159 Speaker 1: if you complied with the building code standards, then you 310 00:18:42,200 --> 00:18:45,880 Speaker 1: probably aren't gonna get a penalty because bad things happen. Also, 311 00:18:45,920 --> 00:18:48,159 Speaker 1: if you had a legal opinion, meaning you had an 312 00:18:48,160 --> 00:18:50,720 Speaker 1: inspector show up and said you're you're doing things by 313 00:18:50,720 --> 00:18:53,520 Speaker 1: the code, you're gonna have less liability. But that's what 314 00:18:53,560 --> 00:18:55,159 Speaker 1: happens to you you and the reason why that's the cases 315 00:18:55,960 --> 00:19:00,960 Speaker 1: the SEC regulations. American securities laws are rounded on a 316 00:19:01,119 --> 00:19:06,359 Speaker 1: disclosure framework. It's not a licensing regime like banks. If 317 00:19:06,359 --> 00:19:09,399 Speaker 1: you're at JP Morgan, there are dozens of regulators that 318 00:19:09,440 --> 00:19:11,600 Speaker 1: are on site that can access books and records. They 319 00:19:11,600 --> 00:19:15,280 Speaker 1: have to prove new products, they're sufficient, they're stringent controls. 320 00:19:15,760 --> 00:19:19,560 Speaker 1: Whereas in the American capital markets, what drives entrepreneurship is 321 00:19:19,840 --> 00:19:22,919 Speaker 1: you don't need a chief compliance officer or a lawyer 322 00:19:23,000 --> 00:19:28,240 Speaker 1: on staff to raise capital or be in business. That 323 00:19:28,359 --> 00:19:31,960 Speaker 1: is the trade off of the American approach to capital formation, 324 00:19:32,560 --> 00:19:35,919 Speaker 1: there's just an expectation of disclosure. There's an expectation of 325 00:19:35,920 --> 00:19:40,240 Speaker 1: compliance with the law. So the SEC will show up 326 00:19:40,280 --> 00:19:43,840 Speaker 1: after usually a mistakes happened, and they'll start to take 327 00:19:43,920 --> 00:19:46,200 Speaker 1: names and take actions and try to send an example 328 00:19:46,880 --> 00:19:48,760 Speaker 1: for others in the industry. And that's why they put 329 00:19:48,760 --> 00:19:52,040 Speaker 1: these public releases out saying we took action, here's a fine, 330 00:19:52,080 --> 00:19:55,199 Speaker 1: and everybody else better claim. Because the SEC can't truly 331 00:19:55,200 --> 00:19:58,919 Speaker 1: please the category, They've got to find examples. Remind me, 332 00:19:58,960 --> 00:20:01,320 Speaker 1: what was the peak of the premium the g BTC 333 00:20:01,640 --> 00:20:05,760 Speaker 1: was to the bigco and I think again, then it 334 00:20:05,840 --> 00:20:08,600 Speaker 1: got recently down to like a fifty discount or pretty 335 00:20:08,640 --> 00:20:10,680 Speaker 1: close to that. Correct, it's bounced back a little bit. 336 00:20:10,720 --> 00:20:13,879 Speaker 1: We've had this rally. Are there steps that d c 337 00:20:14,080 --> 00:20:17,080 Speaker 1: G could take right now to close that nav but 338 00:20:17,400 --> 00:20:21,280 Speaker 1: that would come at the expense of feed generation. Yes, 339 00:20:21,560 --> 00:20:25,280 Speaker 1: Gray Scale could utilize the Ragam redemption. First they have 340 00:20:25,320 --> 00:20:27,960 Speaker 1: to modify the provisions of the trust to enable them 341 00:20:28,000 --> 00:20:31,600 Speaker 1: to do that, and then they could redeem out bitcoin 342 00:20:31,720 --> 00:20:34,800 Speaker 1: and that would close the gap dramatically. Here's a trade off. 343 00:20:34,800 --> 00:20:40,320 Speaker 1: Though d c G has ten million, we're on ten 344 00:20:40,359 --> 00:20:43,320 Speaker 1: percent of the GBTC issued excuse me, sixty one million 345 00:20:43,840 --> 00:20:47,520 Speaker 1: g BTC on their balance sheet as of September reporting. 346 00:20:47,600 --> 00:20:49,760 Speaker 1: Now they might have sold some since that time that 347 00:20:49,800 --> 00:20:53,240 Speaker 1: could have caused the discount to widen. So it would 348 00:20:53,280 --> 00:20:58,400 Speaker 1: help d CGS holdings of g BTC because they would 349 00:20:58,440 --> 00:21:01,960 Speaker 1: also double in value if that closes, but they will 350 00:21:02,040 --> 00:21:06,960 Speaker 1: lose the fee generating potential from owning the bitcoin. And 351 00:21:07,359 --> 00:21:10,480 Speaker 1: the right move if your DCG in a self interested 352 00:21:10,520 --> 00:21:14,919 Speaker 1: capacity is not to permit that you're better off taking 353 00:21:14,960 --> 00:21:18,760 Speaker 1: the unrealized loss on the GBTC held and maintain the 354 00:21:18,800 --> 00:21:23,359 Speaker 1: fee generation. What does it mean for gray Scale and 355 00:21:23,400 --> 00:21:28,240 Speaker 1: the Bitcoin trust that Genesis has experienced so many problems 356 00:21:28,280 --> 00:21:31,960 Speaker 1: because I think, didn't they suspend withdrawals at some point? 357 00:21:32,640 --> 00:21:36,800 Speaker 1: That's right, Genesis a few weeks after the FTX collapse, 358 00:21:37,600 --> 00:21:41,399 Speaker 1: after reassurances to investors, including repping to the solvency of 359 00:21:41,400 --> 00:21:45,920 Speaker 1: their business, suspended withdrawals and if you take a step back, 360 00:21:45,960 --> 00:21:48,840 Speaker 1: this is another common theme in the category, is this 361 00:21:48,920 --> 00:21:54,280 Speaker 1: pattern of non banks acting like banks, and of course Tracy, 362 00:21:54,320 --> 00:21:56,440 Speaker 1: we saw this in the fintech lending category as well. 363 00:21:56,760 --> 00:21:58,760 Speaker 1: But what do I mean by that? Yes, for for 364 00:21:58,800 --> 00:22:01,879 Speaker 1: our listeners, ROM and I go way back to fintech 365 00:22:02,040 --> 00:22:04,120 Speaker 1: and peer to peer lending, which is when we first 366 00:22:04,119 --> 00:22:07,560 Speaker 1: started talking. Maybe there's a lot of overlap actually with crypto. 367 00:22:07,600 --> 00:22:10,760 Speaker 1: Maybe one day we'll have ROM back for my dream 368 00:22:10,800 --> 00:22:14,120 Speaker 1: episode or the what is fintech? That? Because I still 369 00:22:14,119 --> 00:22:17,440 Speaker 1: don't know what fintech means, But that's another that's it's funny. 370 00:22:18,080 --> 00:22:19,840 Speaker 1: So what is a non bank doing here? Non bank 371 00:22:19,960 --> 00:22:23,159 Speaker 1: is taking short term liquid deposits. That's what we call 372 00:22:23,200 --> 00:22:25,400 Speaker 1: a demand deposit. You can go to your bank and say, hey, 373 00:22:25,400 --> 00:22:27,520 Speaker 1: I want my funds back. When you go to your 374 00:22:27,640 --> 00:22:30,000 Speaker 1: JP Morgan checking account and says you've got ten thousand 375 00:22:30,040 --> 00:22:32,640 Speaker 1: dollars there, those dollars aren't actually there. They're being lent 376 00:22:32,720 --> 00:22:35,960 Speaker 1: out on the other side. And banks can pull that 377 00:22:36,040 --> 00:22:38,159 Speaker 1: off because they have two things f d i C 378 00:22:38,320 --> 00:22:41,680 Speaker 1: insurance to guard against a bank run and a lender 379 00:22:41,680 --> 00:22:44,439 Speaker 1: of last resort. So but it's a great business to 380 00:22:44,520 --> 00:22:46,800 Speaker 1: borrow short and lend long. That's what banks do, and 381 00:22:46,800 --> 00:22:49,679 Speaker 1: that's what these non banks, including Block fives, Celsius, Voyager 382 00:22:49,760 --> 00:22:52,840 Speaker 1: and now Genesis have done. They're borrowing short term liquid 383 00:22:52,840 --> 00:22:55,680 Speaker 1: deposits that are callable. They can be redeemed whenever client 384 00:22:55,720 --> 00:22:59,960 Speaker 1: wants what they're lending against long term, long duration asked 385 00:23:00,040 --> 00:23:04,280 Speaker 1: us that are ill liquid, not marketable securities. So when 386 00:23:04,320 --> 00:23:06,680 Speaker 1: you get a run on the bank, then you can 387 00:23:06,720 --> 00:23:28,200 Speaker 1: be caught offsides. All right, So we mentioned block five Celsius, 388 00:23:28,640 --> 00:23:32,200 Speaker 1: who else, like, how many anti three A C were 389 00:23:32,240 --> 00:23:35,160 Speaker 1: they doing the g BTC trade in some version? Yes, 390 00:23:35,240 --> 00:23:39,280 Speaker 1: three a C was a maybe the biggest better on 391 00:23:39,320 --> 00:23:43,240 Speaker 1: this g BTC carry trade. Voyager were they doing It's 392 00:23:43,240 --> 00:23:45,919 Speaker 1: not clear whether Voyager or Celsius was black Fire was 393 00:23:46,359 --> 00:23:49,400 Speaker 1: just on three A C specifically because they were not 394 00:23:49,640 --> 00:23:52,880 Speaker 1: like one of these c FI fintech things. So what 395 00:23:52,960 --> 00:23:55,080 Speaker 1: was how did how were they going about the g 396 00:23:55,200 --> 00:24:02,120 Speaker 1: BTC trade? So they were borrowing leverage from Genesis and so, 397 00:24:02,640 --> 00:24:05,240 Speaker 1: and of course d CG was was doing the same trade. 398 00:24:05,280 --> 00:24:07,159 Speaker 1: We can circle back to that as well, and that's 399 00:24:07,200 --> 00:24:09,399 Speaker 1: what's created issues of the DCG balance. But essentially, with 400 00:24:09,400 --> 00:24:12,679 Speaker 1: three years Capital as a hedge fund, they were buying 401 00:24:12,880 --> 00:24:18,560 Speaker 1: GBTC on leverage when the discount was around, betting that 402 00:24:18,560 --> 00:24:23,639 Speaker 1: that discount would close. I have an existential question based 403 00:24:23,720 --> 00:24:26,119 Speaker 1: on all of this, which is you talked about how 404 00:24:26,480 --> 00:24:28,840 Speaker 1: you know the people in this space really cared about 405 00:24:28,960 --> 00:24:31,840 Speaker 1: yield at a time when interest rates were very low. 406 00:24:32,320 --> 00:24:34,080 Speaker 1: And this is a theme that's come up on the 407 00:24:34,080 --> 00:24:36,880 Speaker 1: show quite a lot, which is in crypto, there are 408 00:24:37,080 --> 00:24:40,840 Speaker 1: lots of very creative and at times ingenious ways to 409 00:24:40,920 --> 00:24:45,080 Speaker 1: manufacture yield, but it all seems to come from, you know, 410 00:24:45,320 --> 00:24:50,000 Speaker 1: some form of self dealing within the crypto space. Is 411 00:24:50,200 --> 00:24:55,080 Speaker 1: crypto going to be able to maintain those yields going forward? 412 00:24:55,160 --> 00:24:57,280 Speaker 1: You know, in a world where there is now a 413 00:24:57,280 --> 00:25:01,639 Speaker 1: lot of doubt and cynicism about the space and still 414 00:25:01,680 --> 00:25:04,040 Speaker 1: a big question mark over whether or not there is 415 00:25:04,119 --> 00:25:08,080 Speaker 1: an actual use case for the underlying technology. Great questions. 416 00:25:08,080 --> 00:25:09,920 Speaker 1: So first off, in crypto, if you don't know where 417 00:25:09,920 --> 00:25:13,000 Speaker 1: the yield is coming from, you are the yield. The 418 00:25:13,119 --> 00:25:16,920 Speaker 1: yields and crypto have dropped dramatically because the primary driver 419 00:25:17,040 --> 00:25:20,640 Speaker 1: of yield generation was the demand for leverage. So if 420 00:25:20,680 --> 00:25:23,960 Speaker 1: you are on tokens and protocols like A and compound 421 00:25:24,480 --> 00:25:28,760 Speaker 1: during the heyday, the yields generations were relatively attractive as 422 00:25:28,760 --> 00:25:31,520 Speaker 1: compared to zero percent interest rates in your bank. What 423 00:25:31,560 --> 00:25:35,120 Speaker 1: you're seeing now though, is the crypto ecosystem and entrepreneurs 424 00:25:35,119 --> 00:25:38,440 Speaker 1: are adapting. For example, you're starting to see tokenize the 425 00:25:38,520 --> 00:25:41,280 Speaker 1: real world assets on chain, which I'm very excited about. 426 00:25:41,600 --> 00:25:45,800 Speaker 1: You're seeing t bills on chain, So crypto natives that 427 00:25:45,920 --> 00:25:48,919 Speaker 1: want to have a a non constilled, a non banking 428 00:25:49,000 --> 00:25:54,119 Speaker 1: bankless experience can access yields on chain. I'm not endorsing that, 429 00:25:54,160 --> 00:25:56,359 Speaker 1: by the way. Still early days, i've seen some of 430 00:25:56,359 --> 00:25:58,560 Speaker 1: these tokens offer greater yield than t bills. I don't 431 00:25:58,560 --> 00:26:02,840 Speaker 1: know how they do that, but that's trouble that it 432 00:26:02,840 --> 00:26:07,359 Speaker 1: sounds like trouble. I have another question about the premium 433 00:26:07,480 --> 00:26:12,239 Speaker 1: or the lack of premium for GBTC relative to BTC. So, 434 00:26:12,680 --> 00:26:16,640 Speaker 1: as we mentioned, you know, GBTC launched in tw it 435 00:26:16,720 --> 00:26:20,359 Speaker 1: was very difficult in those days to get bitcoin price exposure. 436 00:26:20,680 --> 00:26:24,920 Speaker 1: It's become a lot easier going forward. Like let's say 437 00:26:25,000 --> 00:26:30,040 Speaker 1: there's another like sustained bitcoin bowl market. Like I don't 438 00:26:30,040 --> 00:26:33,520 Speaker 1: know like if GBTC would ever go back into premium again, 439 00:26:33,840 --> 00:26:36,320 Speaker 1: but there's a it is much easier to buy bitcoin 440 00:26:36,480 --> 00:26:40,320 Speaker 1: or get bitcoin exposure I would think in than it 441 00:26:40,359 --> 00:26:44,600 Speaker 1: was in or even ten or maybe even one. How 442 00:26:44,680 --> 00:26:49,119 Speaker 1: much does that influence potential deviation from pricing Just the 443 00:26:49,160 --> 00:26:52,000 Speaker 1: fact that like it's kind of getting less special We 444 00:26:52,080 --> 00:26:57,000 Speaker 1: will never, in my opinion, see a premium on GBTC again. 445 00:26:57,320 --> 00:27:00,480 Speaker 1: It was a short lived premium, and what drove the 446 00:27:00,520 --> 00:27:05,520 Speaker 1: premium was the fact that GBTC enabled you to access 447 00:27:06,240 --> 00:27:09,600 Speaker 1: bitcoin through the convenience of your brokerage account. And you know, 448 00:27:09,680 --> 00:27:12,160 Speaker 1: as we know, the coupital markets are tens and tens 449 00:27:12,200 --> 00:27:14,560 Speaker 1: of trillions of dollars you put in a ticker, you 450 00:27:14,680 --> 00:27:18,880 Speaker 1: hit by, and not many retail investors read the prospectives 451 00:27:18,920 --> 00:27:21,919 Speaker 1: understand all their dynamics behind it. You know, when you 452 00:27:21,960 --> 00:27:26,359 Speaker 1: were describing the trust, you were talking about basically liquidity 453 00:27:26,400 --> 00:27:30,320 Speaker 1: and maturity transformation by non banks, which to me makes 454 00:27:30,600 --> 00:27:34,600 Speaker 1: something like the GBTC the sort of ultimate shadow bank. 455 00:27:35,200 --> 00:27:38,040 Speaker 1: And I guess my question is should we have just 456 00:27:38,200 --> 00:27:42,119 Speaker 1: had an e t F instead, Like it seems like 457 00:27:42,320 --> 00:27:45,600 Speaker 1: we ended up with maybe a closed end structure. Well, 458 00:27:45,760 --> 00:27:47,320 Speaker 1: I mean I could argue it both ways. I guess 459 00:27:47,320 --> 00:27:49,439 Speaker 1: maybe a closed down structure is better for an liquid 460 00:27:49,480 --> 00:27:53,439 Speaker 1: asset like bitcoin. But tell me your thoughts. So Genesis 461 00:27:54,080 --> 00:27:58,320 Speaker 1: was the ultimate shadow bank gray Scale. The issues around 462 00:27:58,359 --> 00:28:01,359 Speaker 1: gray Scille aren't so much that they took bitcoin and 463 00:28:01,440 --> 00:28:04,200 Speaker 1: listed in a token format on the public markets. It's 464 00:28:04,240 --> 00:28:08,520 Speaker 1: the allegation of the perception that they're not offering liquidity 465 00:28:08,560 --> 00:28:11,520 Speaker 1: to their investors through rag M to enable to access that. 466 00:28:12,359 --> 00:28:16,840 Speaker 1: You know, the SEC chair Gensler denied the application for 467 00:28:17,280 --> 00:28:19,119 Speaker 1: Gray Skill to convert to an e t F in 468 00:28:19,160 --> 00:28:23,760 Speaker 1: November of one, again around the peak of the bitcoin 469 00:28:24,240 --> 00:28:27,119 Speaker 1: market and just before the FED started to raise rates. 470 00:28:27,359 --> 00:28:30,600 Speaker 1: This is a really a speculative question. Certainly, if there 471 00:28:30,640 --> 00:28:34,040 Speaker 1: was an e t F offered, investors would utilize e 472 00:28:34,119 --> 00:28:37,520 Speaker 1: t F. It's got lower fees. It's also convenient, there's 473 00:28:37,520 --> 00:28:39,400 Speaker 1: not going to be a discount to n a V. 474 00:28:39,960 --> 00:28:42,120 Speaker 1: But GBTC would still be out there because it still 475 00:28:42,120 --> 00:28:46,720 Speaker 1: has that Hotel California dynamic. That issue of bitcoin being 476 00:28:46,760 --> 00:28:51,840 Speaker 1: trapped in this trust would still remain. But so but 477 00:28:52,000 --> 00:28:55,240 Speaker 1: g b they did apply to turn to turn GBTC 478 00:28:55,480 --> 00:28:57,040 Speaker 1: into an e t F, and so it was the 479 00:28:57,080 --> 00:29:00,480 Speaker 1: basic bet then that like, okay, we'll fees are going 480 00:29:00,520 --> 00:29:03,320 Speaker 1: to collapse presumably in an e t F structure, but 481 00:29:03,600 --> 00:29:06,360 Speaker 1: the NAV would be so much bigger in an ETF structure. 482 00:29:06,720 --> 00:29:09,160 Speaker 1: That is a worthwhile trade off, right, it's a rate 483 00:29:09,240 --> 00:29:12,240 Speaker 1: volume trade off. There are competitors to g BTC today. 484 00:29:12,360 --> 00:29:16,000 Speaker 1: G BTC was the first and only game in town 485 00:29:16,120 --> 00:29:20,200 Speaker 1: for several years, and their competitors and other offerings. For example, 486 00:29:20,280 --> 00:29:22,880 Speaker 1: Valkyrie has published a letters saying we're happy to be 487 00:29:22,920 --> 00:29:25,760 Speaker 1: the program sponsor. Hey, gray Scale, let us manage that 488 00:29:25,800 --> 00:29:29,520 Speaker 1: for you, which is really a gray Scale committing corporate 489 00:29:29,560 --> 00:29:33,080 Speaker 1: suicide have to terminate themselves. So you're right, you would 490 00:29:33,120 --> 00:29:37,880 Speaker 1: see fee compression and you probably would see volumes grow. Well, 491 00:29:37,920 --> 00:29:41,480 Speaker 1: I just have we're recording this one, so who knows 492 00:29:41,480 --> 00:29:43,960 Speaker 1: what's going to happen between now people here. It which 493 00:29:44,000 --> 00:29:46,400 Speaker 1: a couple of days. But what are you watching for here? 494 00:29:46,560 --> 00:29:48,640 Speaker 1: And what should we be watching this development? Because they're 495 00:29:48,640 --> 00:29:52,800 Speaker 1: all kinds of moving part looking for one, is there 496 00:29:52,960 --> 00:29:58,240 Speaker 1: an involuntary petition for chapter eleven that creditors two Genesis 497 00:29:58,320 --> 00:30:01,320 Speaker 1: get together and say, hey, we're tired of the fact 498 00:30:01,360 --> 00:30:07,880 Speaker 1: that there's no resolution and forcing Genesis into bankruptcy if 499 00:30:07,880 --> 00:30:09,920 Speaker 1: that happens, and the other things you need to look for. 500 00:30:09,920 --> 00:30:14,360 Speaker 1: For example, D c G attempted to kind of quasi 501 00:30:14,400 --> 00:30:17,400 Speaker 1: bailout Genesis, not through cash, but by creating this one 502 00:30:17,400 --> 00:30:20,040 Speaker 1: point one billion dollar a loon. They swapped out this 503 00:30:20,080 --> 00:30:23,360 Speaker 1: bad loan three hours capital for this good loan back 504 00:30:23,440 --> 00:30:27,160 Speaker 1: by d CG. I would love to see the terms 505 00:30:27,240 --> 00:30:31,840 Speaker 1: of that promissory note. And if that note there's getting 506 00:30:31,840 --> 00:30:33,800 Speaker 1: a little technically, But if that note is callable in 507 00:30:33,880 --> 00:30:38,080 Speaker 1: the event that Genesis goes through chapter eleven, which Barry 508 00:30:38,160 --> 00:30:40,920 Speaker 1: claims it's not callable, but there may be other provisions 509 00:30:40,960 --> 00:30:45,120 Speaker 1: that would force d CG to pay it, then that 510 00:30:45,560 --> 00:30:48,520 Speaker 1: note is really like a noose around the neck of DCG. 511 00:30:49,080 --> 00:30:53,200 Speaker 1: A Genesis chapter eleven can drag DCG over. So we 512 00:30:53,240 --> 00:30:56,560 Speaker 1: have to assess that promisoring note in what I think 513 00:30:56,640 --> 00:31:00,440 Speaker 1: is an increasingly inevitable chapter eleven for Genesis. Where are 514 00:31:00,440 --> 00:31:03,280 Speaker 1: Genesis claims trading at the moment, because they are out 515 00:31:03,320 --> 00:31:07,040 Speaker 1: there right there their trading It's been reported on Twitter. 516 00:31:07,120 --> 00:31:09,920 Speaker 1: Take what you Want is in the low twenty cents, 517 00:31:09,960 --> 00:31:12,880 Speaker 1: which by the way, is lower than the claims for 518 00:31:13,080 --> 00:31:17,840 Speaker 1: Voyager Block Fine Celsius, which is an indication that markets 519 00:31:18,200 --> 00:31:23,680 Speaker 1: do not believe Genesis is solvent. Now. Barry, through his 520 00:31:23,800 --> 00:31:27,840 Speaker 1: public letters, has said and reinsisted multiple times, including over 521 00:31:27,840 --> 00:31:31,360 Speaker 1: the last eight weeks, that the issues at Genesis are 522 00:31:31,400 --> 00:31:35,440 Speaker 1: around liquidity in duration mismatch, not solvency, and he has 523 00:31:35,480 --> 00:31:39,360 Speaker 1: to keep saying that because the loan agreements state there's 524 00:31:39,400 --> 00:31:44,280 Speaker 1: a representation from Genesis attesting to their solvency. So if 525 00:31:44,280 --> 00:31:47,760 Speaker 1: they took in customer funds after three hours capital, which 526 00:31:47,800 --> 00:31:49,640 Speaker 1: they did, or after the ft X blew up, which 527 00:31:49,640 --> 00:31:52,240 Speaker 1: they did, and in fact they were insolvent, they would 528 00:31:52,240 --> 00:31:54,880 Speaker 1: have violated the law. And that brings you why you 529 00:31:54,920 --> 00:31:57,560 Speaker 1: have this SEC and d o J investigation. Honestly, I 530 00:31:57,600 --> 00:32:00,880 Speaker 1: feel like in crypto liquidity is almost anonymous with salt. 531 00:32:01,440 --> 00:32:06,400 Speaker 1: Absolutely not in traditional banking for totally, and partly is 532 00:32:06,440 --> 00:32:11,440 Speaker 1: because there's so like, so so internal and so convex. 533 00:32:11,640 --> 00:32:15,080 Speaker 1: I would say, Uh, you've you've hinted that there's all 534 00:32:15,240 --> 00:32:18,040 Speaker 1: what's the what's shakespeare play? You've hinted that there's like 535 00:32:18,080 --> 00:32:20,800 Speaker 1: a Shakespearean element to all this. What should we how 536 00:32:20,840 --> 00:32:22,280 Speaker 1: should we think about this? So this is a big 537 00:32:22,280 --> 00:32:26,680 Speaker 1: Shakespearean drama with intra company, intra family relationships, related parties. Yeah, 538 00:32:28,720 --> 00:32:32,880 Speaker 1: that's crypt vary ancestors exactly. So here's my take. Julius 539 00:32:32,920 --> 00:32:36,920 Speaker 1: Caesar is Verry Silber. He had the DCG Empire, Julius 540 00:32:36,920 --> 00:32:41,800 Speaker 1: Caesar across the Rubicon. That's when Genesis suspended withdrawals and 541 00:32:42,640 --> 00:32:45,640 Speaker 1: of course gray skills run by his Lieutenant Michael Shanna Segan. 542 00:32:45,720 --> 00:32:50,320 Speaker 1: That's Mark Anthony, his trusted lieutenant. Mark and Julius Caesar 543 00:32:50,360 --> 00:32:53,680 Speaker 1: have a shared love interest. Of course, that's Cleopatra. We'll 544 00:32:53,680 --> 00:32:57,840 Speaker 1: call that Genesis. We gotta anthropomorphize so you can keep going. 545 00:32:57,960 --> 00:32:59,720 Speaker 1: But yeah, there's a it is a it is a 546 00:33:00,040 --> 00:33:03,680 Speaker 1: grand drama Romalia. Thank you so much for coming on, 547 00:33:03,720 --> 00:33:07,280 Speaker 1: odd Lodds. I actually kind of get it. You know, 548 00:33:07,400 --> 00:33:10,600 Speaker 1: it's a really complicated, but you you explained this really well, 549 00:33:10,640 --> 00:33:12,960 Speaker 1: and it really is extraordinary the degree to which this 550 00:33:13,160 --> 00:33:15,920 Speaker 1: one vehicle seems to have created so many headaches. So 551 00:33:16,000 --> 00:33:18,719 Speaker 1: appreciate you explaining it to us on today show. Thank you, 552 00:33:19,040 --> 00:33:20,880 Speaker 1: thanks so much. From that was great, and you even 553 00:33:20,880 --> 00:33:24,560 Speaker 1: defended the SEC a little bit. Don't worry, we want, 554 00:33:25,160 --> 00:33:45,520 Speaker 1: we want, we'll tweet out that, Tracy. That really was 555 00:33:45,680 --> 00:33:48,000 Speaker 1: helpful to me because I understand, you know, there's so like, 556 00:33:48,120 --> 00:33:51,120 Speaker 1: first of all, just back over, there's so many things 557 00:33:51,120 --> 00:33:54,240 Speaker 1: in crypto that start with G. So it's why it's confusing. 558 00:33:54,920 --> 00:33:59,320 Speaker 1: It's like the three of the Crypto APOCALYPSI, Gemini Galaxy. 559 00:34:00,120 --> 00:34:05,760 Speaker 1: The galaxy wasn't part of this story. Seminar GC is 560 00:34:05,960 --> 00:34:08,799 Speaker 1: like d C G I honestly think this is they 561 00:34:08,880 --> 00:34:10,600 Speaker 1: gotta come up with some new names or they all 562 00:34:10,680 --> 00:34:12,279 Speaker 1: have to merge, because I really think this is part 563 00:34:12,320 --> 00:34:15,280 Speaker 1: of why it's so confusing. Well, I think everything should 564 00:34:15,320 --> 00:34:17,880 Speaker 1: move away from like three or four letter acronyms for 565 00:34:17,920 --> 00:34:20,920 Speaker 1: a start, That would help. But I do think you're right. 566 00:34:21,000 --> 00:34:23,640 Speaker 1: That was totally a market structure episode, not necessarily a 567 00:34:23,680 --> 00:34:27,480 Speaker 1: crypto episode. But it does throw up the usual questions 568 00:34:27,600 --> 00:34:29,960 Speaker 1: I think for crypto, which is, what does the space 569 00:34:30,040 --> 00:34:33,240 Speaker 1: actually look like when all these sort of money making 570 00:34:33,400 --> 00:34:39,320 Speaker 1: ecosystems start to fall apart. I hidn't appreciated the degree 571 00:34:39,440 --> 00:34:43,240 Speaker 1: to which, and I don't want to say their entire existence, 572 00:34:43,600 --> 00:34:46,040 Speaker 1: but they had a big sort of like value prop 573 00:34:46,160 --> 00:34:48,160 Speaker 1: to the extent that that is a useful term for 574 00:34:48,239 --> 00:34:51,400 Speaker 1: some of these sort of c FI neo banks. Was 575 00:34:51,560 --> 00:34:56,360 Speaker 1: essentially just having established that relationship in order to pledge 576 00:34:56,400 --> 00:35:00,640 Speaker 1: bitcoin for GBTC and how like, okay, you have that 577 00:35:00,880 --> 00:35:03,680 Speaker 1: and as long as there's some sort of premium because 578 00:35:03,680 --> 00:35:06,400 Speaker 1: there's a scarcity because there it's difficult to get bitcoin 579 00:35:06,440 --> 00:35:09,040 Speaker 1: the exposure that's just a money printer. But then once 580 00:35:09,080 --> 00:35:11,800 Speaker 1: that goes away, then like all of these business models, 581 00:35:11,840 --> 00:35:14,120 Speaker 1: just like don't really work any well. Absolutely, And Rom's 582 00:35:14,160 --> 00:35:18,120 Speaker 1: point about sort of resemblance to the yield curve, yeah, 583 00:35:18,400 --> 00:35:21,880 Speaker 1: is fascinating. And when you think about crypto, like the 584 00:35:21,920 --> 00:35:25,040 Speaker 1: way it's recreated certain aspects of the financial system. I 585 00:35:25,120 --> 00:35:26,680 Speaker 1: know it's become a bit of a cliche at this 586 00:35:26,719 --> 00:35:28,680 Speaker 1: point to mention this, but the idea of you know, 587 00:35:28,719 --> 00:35:30,840 Speaker 1: tether breaking the book is sort of like a money 588 00:35:30,880 --> 00:35:32,920 Speaker 1: market fund, and then this is sort of like the 589 00:35:33,000 --> 00:35:35,480 Speaker 1: yield curve. Those examples come up a lot, well, you know, 590 00:35:35,560 --> 00:35:37,960 Speaker 1: and we didn't actually talk about this at all, but 591 00:35:38,000 --> 00:35:41,320 Speaker 1: there was apt even more specific like sort of curve, 592 00:35:41,680 --> 00:35:45,719 Speaker 1: which was the The other regulated way that entities could 593 00:35:45,719 --> 00:35:49,480 Speaker 1: get bitcoin exposure was those SMI bitcoin futures, which for 594 00:35:49,520 --> 00:35:52,720 Speaker 1: a long time traded with a huge premium to spot 595 00:35:52,840 --> 00:35:55,120 Speaker 1: and so there was like for a while a theoretically 596 00:35:55,200 --> 00:35:57,880 Speaker 1: riskless trade that you actually could are where it's like 597 00:35:57,920 --> 00:36:02,040 Speaker 1: you pledge bitcoin or you know whatever, go go along 598 00:36:02,080 --> 00:36:03,799 Speaker 1: one of them, go short the other one, et cetera. 599 00:36:03,920 --> 00:36:06,200 Speaker 1: There guides to how to do it. But all of these, 600 00:36:06,600 --> 00:36:08,960 Speaker 1: all of these trades were predicated on a sort of 601 00:36:09,080 --> 00:36:12,520 Speaker 1: scarcity of access to bitcoin. It's now going away absolutely 602 00:36:12,920 --> 00:36:14,839 Speaker 1: all right, Shall we leave it there? Let's leave it there. 603 00:36:15,000 --> 00:36:17,800 Speaker 1: This has been another episode of the All Thoughts podcast. 604 00:36:17,840 --> 00:36:20,239 Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at 605 00:36:20,239 --> 00:36:22,560 Speaker 1: Tracy Alloway and I'm Joe wi Isn't All. You can 606 00:36:22,640 --> 00:36:25,880 Speaker 1: follow me on Twitter at the Stalwart. Follow our guest 607 00:36:26,080 --> 00:36:30,360 Speaker 1: rom Alawalia. He's at ram Alla Walia. Follow our producers 608 00:36:30,440 --> 00:36:35,040 Speaker 1: Carmen Rodriguez at Carmen Arman and Dash Bennett at Dashbot. 609 00:36:35,200 --> 00:36:38,120 Speaker 1: And check out all of our podcasts at Bloomberg under 610 00:36:38,120 --> 00:36:42,040 Speaker 1: the handle at podcasts. And for more Odd Lots content, 611 00:36:42,120 --> 00:36:45,919 Speaker 1: go to Bloomberg dot com slash odd Lots. We post transcripts, 612 00:36:46,040 --> 00:36:48,919 Speaker 1: we blog, We even have bloo weekly newsletter. Go there 613 00:36:48,960 --> 00:37:05,520 Speaker 1: and subscribe to Thanks for listening to