Speaker 1: Welko Onchrillions.
Speaker 2: I'm Joel Webber and I'm Eric Belchunas.
Speaker 1: Eric, you've been busy lately, Yeah, Joel a little bit. Yeah,
Speaker 1: what happened?
Speaker 2: The word is obsessed.
Speaker 1: What happened?
Speaker 2: Yeah, So spot Bitcoin ETFs were approved after ten and
Speaker 2: a half long years, and it was really intense the
Speaker 2: past month, you know, and James and myself were all over,
Speaker 2: the rest of the team did other things, but James
Speaker 2: and I dove in, you know, headfirst, basically and deep,
Speaker 2: and if anything, we almost need some time to like
Speaker 2: like wash it off. But I'm still in it because
Speaker 2: they just launched and now it's like the first couple
Speaker 2: weeks of the race are pretty intense. At some point
Speaker 2: we will move on to other things. But this is
Speaker 2: all we can talk about right now.
Speaker 1: What's been the most exciting part since the SEC's x
Speaker 1: account got hacked, which happened like the day before, or
Speaker 1: they actually authorized everything to start treating.
Speaker 2: From that fake tweet to the approval was twenty four hours.
Speaker 2: A lot of people came in with Gary's now going
Speaker 2: to disapprove or he actually planned it all just so
Speaker 2: we can say he can disapprove because bitcoin fell and
Speaker 2: it's like, oh see, it's it's so easy to manipulate
Speaker 2: I did it. Like there was all kinds of conspiracy theories,
Speaker 2: and James and I had a quick call where like,
Speaker 2: let's just hold the line. We're still ninety five percent
Speaker 2: approval odds. And even at the last minute, there was
Speaker 2: some filing that said withdrawal and it turned out to
Speaker 2: be a complete technical issue, but people saw the word withdrawal,
Speaker 2: thought arc with withdrawing. So that whole twenty four hours
Speaker 2: was very wild and emotional because there was always that
Speaker 2: little chance that yeah, they could not approve them, and
Speaker 2: we put a lot of career risk on the line,
Speaker 2: James and myself, and we ended up vindicated. So but
Speaker 2: the last day was really intense. I mean little sleep
Speaker 2: that week. Once they were approved, though, the only thing
Speaker 2: I could think of. I don't know if it's because
Speaker 2: I'm watching a World War two documentary, but I just
Speaker 2: I just thought, war is over. So I went and
Speaker 2: posted a picture of the Pittsburgh Gazette from like nineteen
Speaker 2: forty four or whatever, war is over. And then no
Speaker 2: matter what he says or Elizabeth Warren says, it's over,
Speaker 2: they're out.
Speaker 1: It's done.
Speaker 2: And that felt so good.
Speaker 1: So here we are. They're out of the bag.
Speaker 2: They're out.
Speaker 1: We've we've we've many questions that people on X and
Speaker 1: elsewhere have been asking you and James Safer, the Bloomberg
Speaker 1: intelligence analyst who's going to be joining us on this episode.
Speaker 1: So we're going to do an episode that we haven't
Speaker 1: done for a very long time. Mail bag, lots of
Speaker 1: questions and we have maybe a few answers who asked
Speaker 1: the most questions.
Speaker 2: We got a lot of questions about like three hundred
Speaker 2: respondents to my tweet. A lot of them are are overlaps,
Speaker 2: really about like how does it work?
Speaker 1: You know?
Speaker 2: And we'll get into that. There's also a guy two
Speaker 2: people want to give a shout out to Fred Krueger.
Speaker 2: I mean, I assume that's his real name, but it
Speaker 2: is the same name as the you know nine news
Speaker 2: it is, so you never know.
Speaker 1: I don't know.
Speaker 2: But anyway, he did a Q and A and it
Speaker 2: was beautiful and that was part of where we got
Speaker 2: the idea. But we've been my inbox has been flooded
Speaker 2: with questions, but we pulled some from his cues. We
Speaker 2: also nature Acy did a Q and A with Matt Hogan.
Speaker 2: There's some overlap with that, but generally speaking, a lot
Speaker 2: of them came from people who hit our DA. My
Speaker 2: dms are open, so I get all kinds of questions
Speaker 2: and in the replies and so I've never had this
Speaker 2: many questions ever, so I thought we would address a
Speaker 2: lot of them right now and just be done with it.
Speaker 1: Okay, here we go, this time on Trillions Bitcoin ETF mailbag. James,
Speaker 1: welcome back to trillions.
Speaker 3: Yeah, thanks for having me. I'm happy to be back.
Speaker 1: Okay, so have you gone full bitcoin yet or are
Speaker 1: you like cyborg half bitcoin half ETF.
Speaker 3: Definitely the cyborg around. Eric can tell you I've built.
Speaker 4: I've been building a tool that I'm very, very proud
Speaker 4: of and excited to show off the clients that is
Speaker 4: pretty much completely unrelated to anything happening with bitcoin ets
Speaker 4: but largely a huge chunk of my time over the
Speaker 4: last month or two has been spent and focused on
Speaker 4: nothing but talking about these ETFs and also tired of
Speaker 4: it a little bit.
Speaker 2: Honestly, just props to James. If we're going on crypto
Speaker 2: knowledge or fluency, he's better than me for sure. I mean,
Speaker 2: he was interested in this a long time ago. I'm
Speaker 2: much more focused on the ETF and the positioning in
Speaker 2: the marketplace. But he really knows this industry, I think
Speaker 2: better than anyone on our team for sure.
Speaker 1: Okay, James, I'm gonna start these questions off going to you.
Speaker 1: Some of them have I'm gonna call it like a
Speaker 1: like a little bit of a tinfoil vibe. So we're
Speaker 1: gonna maybe unpack that as we go there, as we go.
Speaker 1: Here are the ETFs backed by actual bitcoin or are
Speaker 1: they paper bitcoin? That was question number one?
Speaker 4: Ja, Yeah, so I actually, I mean the answer is yes,
Speaker 4: they're backed by actual bitcoin. Theoretically, you could argue that
Speaker 4: it's not that dissimilar from people who are used in
Speaker 4: the crypto markets to trading bitcoin on in exchange like
Speaker 4: coinbas or Gemini, in the sense they're sitting.
Speaker 3: On a wallet.
Speaker 4: But all of these shares are going to be backed
Speaker 4: proportionately by some number of bitcoin. So yes, they are
Speaker 4: physically backed. And that's all you really need to know.
Speaker 4: If you're buying a share of this ETF, you should
Speaker 4: know that you're going to be backed by bitcoin.
Speaker 2: And this came up with gold back in the day, Jrol,
Speaker 2: This is a repetitive question. They said paper gold, So
Speaker 2: they actually took people into the gold vault, took pictures
Speaker 2: in there in London and showed them the bars. These
Speaker 2: issuers do not want the risk of being short bitcoin. Okay,
Speaker 2: they want to do a one for one. The way
Speaker 2: they make their money is the small vig or the
Speaker 2: fee they get for this service. They're not into the
Speaker 2: trading business. So I would say yes. The only reason
Speaker 2: the answer is not yes is if you're a hardcore
Speaker 2: crypto person and you believe bitcoin is literally a currency
Speaker 2: that is there for when the system collapses. No, this
Speaker 2: is not the same as direct ownership, and you should
Speaker 2: buy it direct, get your own wallet, God bless you.
Speaker 2: This is more indirect ownership, but it's still ownership. ETF
Speaker 2: shares are receipts. That's what the word spider stands for,
Speaker 2: SMP depository receipts. So think of the shares as a
Speaker 2: receipt too, the bitcoin storre with the custodian.
Speaker 4: Yeah, if we're putting tinfoil hats on, I'll say, like,
Speaker 4: there's a lot of takes out there about why ETFs
Speaker 4: aren't great or bad, and like the one take that
Speaker 4: I was out there that I was like, yeah, that's
Speaker 4: actually value like fair. It was like, this is centralizing.
Speaker 4: So if the government wants to confiscate your bitcoin, they
Speaker 4: can do it. And it's like, well, honestly, if we
Speaker 4: get to that point, you're you're probably correct. The government
Speaker 4: could confiscate your bitcoin if it's in this ETF.
Speaker 1: Okay, question number two, Can I get the bitcoin back
Speaker 1: when I sell the ETF? James No.
Speaker 4: So part of the reason, part of the reason, part
Speaker 4: of the way that the SEC approved these ETFs is
Speaker 4: they did not allow the standard in kind creation redemption.
Speaker 4: So in a normal ETF, the way you create shares
Speaker 4: you hand over the underlying asset or securities and in
Speaker 4: return you get the shares of the ETF. In this case,
Speaker 4: the SEC said they were uncomfortable within kind, so they
Speaker 4: force them to only be cash create. So that means
Speaker 4: the only way that money can go in or out
Speaker 4: of these funds for now, until there's further regulatory approval
Speaker 4: or changes for now is cash in, cash out. So no,
Speaker 4: there is no real way right now to get the
Speaker 4: bitcoin that you have de facto ownership of the ETF itself.
Speaker 4: Will have to sell the bitcoin to generate cash if
Speaker 4: you are redeeming.
Speaker 2: Now, fund investors like, there's how many thirty trillion dollars
Speaker 2: in funds and ETFs and equity stock everything? Right, Nobody
Speaker 2: wants the stuff back. That's the whole point of outsourcing.
Speaker 2: This is the whole thing to explain to crypto people.
Speaker 2: Fund investors want no part of this. They want USD back.
Speaker 2: That's a feature, not a bug. So part of that
Speaker 2: question is, as a true coiner person, most people happy
Speaker 2: to get USD. Let Blackrock deal with it. I'm just
Speaker 2: here to get a little piece of the action.
Speaker 1: Okay. Is it possible Eric that if I, you know,
Speaker 1: buy this ETF, that the money that I'm giving to
Speaker 1: one of these issuers uses the money that I was
Speaker 1: going to give to them for something other than bitcoin.
Speaker 4: No.
Speaker 2: Here's one thing though. If you sell a bitcoin ETF
Speaker 2: on the market, or buy one, let's say you buy one,
Speaker 2: you may be buying it from somebody else on the
Speaker 2: stock is change. That's called a natural there's no reason
Speaker 2: to do flows. But if there's way more people buying
Speaker 2: than selling, it creates a premium in the price that
Speaker 2: triggers an ap to do a creation. That's where the
Speaker 2: flows come from. And again these issuers don't want to
Speaker 2: in the market makers and aps. Nobody wants to be
Speaker 2: long or short the underlying thing, whether it's S and
Speaker 2: P stocks or bitcoin, they want to be flat. They're
Speaker 2: not in the trading business. And so no, the answer
Speaker 2: is or yes, the answer is your flows would go
Speaker 2: directly towards that. They wouldn't go SBF and buy like
Speaker 2: a bunch of apartments in Bahamas and give the money
Speaker 2: to all kinds of celebrities and politicians. They wouldn't do that.
Speaker 1: Eric next question was this launch, let's call it. I
Speaker 1: guess it's a series of launches really successful.
Speaker 2: So yes, by any measure we're talking, I'll give the numbers.
Speaker 2: If you talk about organic, there's a couple of tfs
Speaker 2: that were launched where someone just stuffed two billion in
Speaker 2: and no one traded it after that. I would call
Speaker 2: that like total like sea capital, and that's it and
Speaker 2: remove those Easily the most successful launch organically of all time,
Speaker 2: ten billion dollars of trading in the first couple of days.
Speaker 2: The flows are already up to about two billion. Now
Speaker 2: you have to subtract GBTC. Okay, so that's what makes
Speaker 2: it weird.
Speaker 1: James, I was saving this one for you because of GPTC,
Speaker 1: and you can unpack that one. There were outflows there,
Speaker 1: So does that make this these launches a failure? So
Speaker 1: talk to a saisho between GBTC and also these newer entrants.
Speaker 3: Yeah, I'll add a little nuanced to what Eric was saying.
Speaker 4: I'm with Eric one hundred percent, like this was a
Speaker 4: successful launch for these ETF fissuers, for ETFs in general.
Speaker 4: I think some people are saying it's a failure because
Speaker 4: it didn't send them bitcoin price skyrocketing.
Speaker 3: That said, I do think some of the volume numbers
Speaker 3: were seeing.
Speaker 4: There was almost about ten billion that traded in these
Speaker 4: things and the first three days of trading, which is insane.
Speaker 4: But I think part of that is you got to
Speaker 4: look at GBDC is over fifty percent of that volume.
Speaker 4: I think a lot of this is pair trading from
Speaker 4: these market makers. And you also got to look at
Speaker 4: what was happening with the premiums and discounts. So a
Speaker 4: lot of these new ets were trading at premiums while
Speaker 4: GBDC was trading at a discounts. So there's a lot
Speaker 4: of r being happening between these things. So it's like
Speaker 4: basically facilitating more trading. That said, trading is a very
Speaker 4: good thing for a new product. Whether it's whether it's
Speaker 4: partially because of the underlying structure of the market or not,
Speaker 4: it doesn't matter. But yeah, GBDC, we expect it outflows.
Speaker 4: I've written notes where I was saying I'm expecting billions
Speaker 4: of dollars to flow out of GBTC, and I think
Speaker 4: a lot of that money, who knows how much, at
Speaker 4: least the third maybe half, is going to flow into
Speaker 4: probably other.
Speaker 3: Spot, bitcoin ETFs.
Speaker 4: But people are also fixated so much on like the
Speaker 4: near term, day to day, what's going on with these flows.
Speaker 4: Just take a step back, give us a little bit
Speaker 4: so we can see what's going on with these flows
Speaker 4: over a week.
Speaker 2: Yeah, and let me add this. I get a lot
Speaker 2: of people replying because the price of bitcoin has been
Speaker 2: like flat, went down a couple of days. These guys
Speaker 2: are like when moon, which is like when am I
Speaker 2: going to the moon? I'm like, dude, you just went there.
Speaker 2: It went up eighty percent in anticipation of this event.
Speaker 2: Of course, there's going to be some profit taking and
Speaker 2: some selling of the news. That's just the way it works.
Speaker 1: With anything. How about the FED.
Speaker 2: The FED gets front run right, FED announcements. This is
Speaker 2: normal stuff. Some of these people expect like one hundred
Speaker 2: percent return every day when they wake up in the morning,
Speaker 2: and if they don't get it, they're like cry babies.
Speaker 2: I'm a sixty forty person, I expect six seven percent
Speaker 2: a year. Joal, that's how low my expectations are. So
Speaker 2: everybody's people are going to get more miserable the higher
Speaker 2: their expectations are, and so there's misery out there somehow,
Speaker 2: even though this was successful. Other thing, the ETFs traded.
Speaker 2: There was seven hundred thousand individual trades in the first day,
Speaker 2: so the number of trades is gigantic. That is a lot.
Speaker 2: That's more than the q's trades every day. And the
Speaker 2: other thing is if you take the volume, the average
Speaker 2: volume of the newborn nine, let's take GBTC outboard nine.
Speaker 1: Yes, is everything except GBTC, which is, by the way,
Speaker 1: Greyscale Bitcoin Trust. If you're not familiar with what we're
Speaker 1: talking about with GBTC, go back to previous episodes of
Speaker 1: Trillions and you'll learn all about it.
Speaker 2: Right, So GBTC separated because it came over with volume
Speaker 2: and assets like a fully grown adult. The newborn nine
Speaker 2: is newborn, and that's why I use it, use it.
Speaker 2: Launching a fresh ETF is hard, So those are on
Speaker 2: a different standard. Those nine, right, if you take their
Speaker 2: average volume just totally obliterates a normal situation. So consider
Speaker 2: this last year, there was five hundreds launched on Tuesday,
Speaker 2: they traded four hundred and fifty million total. The spot
Speaker 2: bitcoin ETFs traded two to threefold that on day three, right,
Speaker 2: and that's five hundred combined. I bit alone traded more
Speaker 2: than the five hundred. Yeah, so yes, there will be
Speaker 2: some tapering off of the volume. But the other thing is,
Speaker 2: remember who's in this. This isn't like some random I
Speaker 2: don't know, like global x fund that had had a
Speaker 2: good day and is being used as an our blackrock fidelity.
Speaker 1: Right.
Speaker 2: These are investco These are gigantic companies with huge marketing
Speaker 2: divisions and sales sales forces. So I think the short
Speaker 2: termism is annoying, and I think I just tell people
Speaker 2: out there, if this is bringing you down, they get
Speaker 2: despite all these numbers, just because it didn't go up
Speaker 2: another fifty percent on top of eighty. You have to
Speaker 2: get outside. You have to read a book, you have
Speaker 2: to find a girlfriend, you have to do something, because
Speaker 2: your expectations will never be met.
Speaker 1: Not it's not twenty twenty James. Question number five, If
Speaker 1: I buy a bitcoin ETF, does it cause an immediate
Speaker 1: buy of bitcoin? And how does the settlement cycle work?
Speaker 4: Yeah, so it's it's sent from your perspective, the answer
Speaker 4: is yes. Right at the end of the day, that
Speaker 4: share is going to have exposure to bitcoin. But there's
Speaker 4: a creation process that has to happen. There's a there's
Speaker 4: what we call a creation cutoff times. So different ETFs
Speaker 4: have different cutoff times. So to create new shares, there
Speaker 4: needs to be essentially in order from the aps to
Speaker 4: to these fun saying we're going to create this many shares.
Speaker 3: And wire the money over.
Speaker 4: But you've got to realize once that money is wired
Speaker 4: over and those shares are created, which what only only
Speaker 4: happens with net new demand and the ETF once that
Speaker 4: money is wired over, all these issuers, as Eric was
Speaker 4: hinting at before, they are not They're they're trading trying
Speaker 4: to get good execution, but they make their money by making.
Speaker 3: Sure they're exposed one to one with bitcoin. The last
Speaker 3: thing they want.
Speaker 4: Is to have cash drag in their portfolio where their
Speaker 4: portfolio is significantly exposed to cash and then bitcoin goes
Speaker 4: on a run and all of a sudden they're underperforming.
Speaker 4: That is borderline worst case scenarios of the ETF fissure.
Speaker 4: So at the end of the day, the plumbing can
Speaker 4: get confusing because there's a lot of offsetting trades in
Speaker 4: the back end. People are trying to look at what's
Speaker 4: going on with the on chain metrics. Well, do you
Speaker 4: look at coinbase and GBTC or grey scales on coinbas
Speaker 4: sortm in these other ETFs. There's money coming into the
Speaker 4: other ets and money coming out of GBTC, and it's
Speaker 4: hard to know exactly what's going on in the back
Speaker 4: end because there's offsetting positions that don't necessarily show up
Speaker 4: on chain that we are seeing.
Speaker 3: In flow data.
Speaker 4: So I'm just going to go back to the beginning
Speaker 4: and say, yes, eventually you will have exposure to bitcoin.
Speaker 3: If there is a share outstanding, you have exposure to bitcoin.
Speaker 1: But yeah, okay, you mentioned coinbase. What role do they
Speaker 1: play in this and how safe is the bitcoin that
Speaker 1: they're holding, and what happens if they lose it? You know,
Speaker 1: if you followed crypto at all, you know that, you
Speaker 1: know the cryptos bass in general is sort of then
Speaker 1: rife with thefts at times.
Speaker 3: Yeah, So there's two.
Speaker 4: The primary way that most people think of Coinbase playing
Speaker 4: here is they're the custodian. They're the ones that are
Speaker 4: storing these assets in cold storage. Right, they're on these
Speaker 4: hardware wallets or multi sig wallets, whatever they're using. They
Speaker 4: don't exactly tell you exactly how they're doing it. The
Speaker 4: other part of what coinbase is doing is they're also
Speaker 4: execution agents for a lot of these As I said,
Speaker 4: cash comes in and then the issuers need to execute
Speaker 4: and get exposure to the big bitcoin. So they're working
Speaker 4: with the coinbase over the counter desks and the execution
Speaker 4: desk to make sure they're getting exposure to bitcoin. As
Speaker 4: far as your question about what if they lose it
Speaker 4: or it gets hacked, the coinbase does have like an
Speaker 4: insurance policy for one.
Speaker 3: Hundred and something million.
Speaker 4: I should have looked it up before again this podcast,
Speaker 4: but coinbase has an insurance policy in the event that
Speaker 4: they do get hacked. Obviously that would be a bad situation.
Speaker 4: But one thing I will plug here is I think
Speaker 4: we'll see some of these ETF fissuers likely sign up
Speaker 4: to have multiple custodians, which is in something and we
Speaker 4: have in the US. So I think we'll see Gemini
Speaker 4: and Bicco as custodians of some of these ones that
Speaker 4: have only goin base listed now.
Speaker 3: But time will tell if I'm right on that front.
Speaker 1: Okay, Eric, I'm gonna kick this one to you. When
Speaker 1: will the SEC approve an ether ETF now that Bitcoin's
Speaker 1: been approved?
Speaker 2: Yeah, this is a tricky one. James and I haven't
Speaker 2: fully dove into this and given odds like we thought,
Speaker 2: but we're kind of in agreement that maybe a two
Speaker 2: thirds chance sixty five percent is by may and our
Speaker 2: rationale the pros are that they've already approved ether futures
Speaker 2: and if they approve bitcoin futures, didn't approve spot, got
Speaker 2: sued how to do spot, and they approved ether futures,
Speaker 2: remember the SAT questions, Well, then they got to approve
Speaker 2: ether spot where they gonna get sued. That's the general
Speaker 2: like sort of you know Bell curve meme, like even
Speaker 2: the like the not so smart person and the super
Speaker 2: smart person come to the same conclusion there. But Gary
Speaker 2: did kind of say some things that were like he
Speaker 2: was really lashing out in his you know, after the approval,
Speaker 2: he was saying like he didn't like it. All the
Speaker 2: risks and he didn't he said, don't expect anything soon.
Speaker 2: But I would blow that off. I just think that
Speaker 2: you've got Blackrock with a filing too, and remember Blackrocks
Speaker 2: Blackrock Gray Scale who sued them. So you have those
Speaker 2: two main companies with filings for spot. I think they
Speaker 2: probably do it. But you know, we were ninety percent
Speaker 2: on this, we're only sixty five percent. So take with
Speaker 2: that which you will. I'm not sure if James has
Speaker 2: anything to add.
Speaker 4: Yeah, I'll just I agree with one hundred percent of
Speaker 4: what Eric said. I will just add the other side
Speaker 4: what the other thirty five percent is. And that's basically
Speaker 4: that Gendler might know everything that Eric just said. All
Speaker 4: the facts are pointing to that they should be approving
Speaker 4: these things. But he could say I don't care, I'm
Speaker 4: denying them because of XYZ reason and then waits till
Speaker 4: a court forces him to approve them again. That's my
Speaker 4: most of my other thirty five percent that basically he says, fine,
Speaker 4: we'll go back to court over this one and maybe
Speaker 4: he learned a thing or two from what they did
Speaker 4: wrong on bitcoin futures, if he indeed did not want
Speaker 4: bitcoin futures and spoty bitcoin ets, and he'll use that
Speaker 4: in the theorem. The other thing is the other part
Speaker 4: of that is etheroem is different from bitcoin, right, it's
Speaker 4: proof of steak, not proof of work, which means there's
Speaker 4: yields and other things, and there's some very mind, there's
Speaker 4: a lot of minutia and the differences here that the
Speaker 4: sec is gonna have to get comfortable.
Speaker 1: I'm gonna go out on a limb here and say
Speaker 1: that he's gonna he's gonna uh punt on that he'll
Speaker 1: find a way not to do it. Okay, Uh, James
Speaker 1: doesn't spot bitcoin ETFs defeat the purpose of bitcoin as
Speaker 1: a currency quote outside the system end quote by Tinfoil Cap.
Speaker 3: Yeah.
Speaker 4: I mean it is arguably against the ethos of bitcoin,
Speaker 4: but it is in the ethos of bitcoin that bitcoin
Speaker 4: is all for free markets and libertarian ideals for the
Speaker 4: most part. And basically, these ETFs are not changing anything
Speaker 4: about bitcoin itself, aside from maybe storing some of the
Speaker 4: bitcoin in cold stores where no one's gonna fucking play
Speaker 4: method to get.
Speaker 3: Exposure to that.
Speaker 4: That said, obviously, as we talked about, this is not
Speaker 4: gonna help you if if society collapses, you're don't you
Speaker 4: don't actually own your bitcoin, not your keys, not your coins.
Speaker 4: But if you want exposure to the asset, in my opinion,
Speaker 4: this is the best way to get exposure to it
Speaker 4: in the traditional financial rails.
Speaker 1: James, one more for you, kind of related does the
Speaker 1: does the bitcoin held by these ETFs count as on
Speaker 1: exchange or off exchange?
Speaker 4: Yeah, I mean I guess, I guess it depends how
Speaker 4: you're going to define that, right, So for the most part,
Speaker 4: I would say it's it's not on exchange in the
Speaker 4: sense that the any bitcoin that's held by these ETFs.
Speaker 3: Needs to be in cold storage.
Speaker 4: That said, in the same way that bitcoin is on exchange.
Speaker 4: Bitcoin it can be moved at any point just because
Speaker 4: of flows in or out of ANYTF. Right, So it's
Speaker 4: not it's more cold storage than anything.
Speaker 1: Eric, you mentioned the gold etf uh, and there were
Speaker 1: conspiracy theories when those products launched that the gold wasn't
Speaker 1: actually in the vaults. So this next one's for you,
Speaker 1: which is, are any of these issuers going to show
Speaker 1: us the wallet addresses for the bitcoin.
Speaker 2: I think so I do. I just don't think of.
Speaker 1: The similar thing because the gold bars they eventually showed
Speaker 1: the serial numbers or whatever. Yeah, some of them.
Speaker 2: James is going to go a little deeper on this
Speaker 2: than I am, because I also I think this should
Speaker 2: be pivoted to how does a bitcoin actually get stored
Speaker 2: at coinbase? Like, how does that work? Where do they
Speaker 2: source it? That's what I want to hear him answer.
Speaker 2: But I will say one thing, Nobody who would buy
Speaker 2: an ETF care stroll. The only people who cared about
Speaker 2: the gold were a couple like quacky Gold people who
Speaker 2: were like really really paranoid. Even goldbugs don't care they
Speaker 2: traded it. They were like, it's fine. Remember these are
Speaker 2: also big companies. Do you think blackrock after like forty
Speaker 2: years on the market once it's reputation damage because it
Speaker 2: blew the money on something else or didn't. It's just
Speaker 2: this is serious business. These people are not are going
Speaker 2: to mess around for a one billion, two billion dollar
Speaker 2: kind on behalf.
Speaker 1: Of the tinfoil crowd? James, are they going to show
Speaker 1: us the wallet addresses?
Speaker 4: So I think some of them will. I think some
Speaker 4: of them are going to share their addresses. But the
Speaker 4: problem is, if you're using coinbase and some of these
Speaker 4: other ones, they might not want to show you exactly
Speaker 4: what the addresses are for operational security purposes. That said,
Speaker 4: I think some of these smaller shops might say, all right,
Speaker 4: these huge funds might not want to release their addresses
Speaker 4: and show where the money is.
Speaker 3: But if you're a.
Speaker 4: Smaller shop, you might feel a lot more comfortable and
Speaker 4: use it as a marketing ploy to be like, if
Speaker 4: you're questioning it, you can use our ets. But like
Speaker 4: Eric said, for the most part, the people that will
Speaker 4: be using this and really care about that are going
Speaker 4: to be more cryptonative type people, and they might be
Speaker 4: just using this in like an IRA or something like
Speaker 4: that they have a money in some sort of account
Speaker 4: that they can't actually buy physical or spot bitcoin itself
Speaker 4: with it.
Speaker 1: Yeah.
Speaker 2: Remember there's there is a gold ETF that stores the
Speaker 2: gold in Switzerland, and there's another one that promises to
Speaker 2: give you send you goal coins your front door, even
Speaker 2: as a retail redemption. And those two have maybe one
Speaker 2: percent of all the assets in gold ETF. So I
Speaker 2: think we'll see something similar. Someone will come out with
Speaker 2: a we're literally going to make sure it stored a
Speaker 2: company that's in Europe, and we'll show you the address
Speaker 2: and we'll figure out a way to sort of get
Speaker 2: you bitcoin. I could see that kind of thing coming out,
Speaker 2: but don't look for that to be a big hit
Speaker 2: or anything. This is a very fringe sort of concern.
Speaker 1: Okay, I think this is question eleven, James. I love
Speaker 1: this one. Actually, how come the ETFs have different prices
Speaker 1: and different discounts. That makes no sense to me. It's
Speaker 1: all they're all holding the same underlying.
Speaker 3: Yeah, that's actually a good question.
Speaker 4: So some of them went with the idea of, like
Speaker 4: we're going to do one one thousands of a bitcoin,
Speaker 4: so if bitcoin's trading at forty thousand or fifty thousand,
Speaker 4: will trade at forty dollars.
Speaker 3: Or fifty dollars.
Speaker 4: But for the most part, most CTFs just launch around
Speaker 4: twenty five dollars, which it looks like what a bunch
Speaker 4: of these guys did as far as the premium and
Speaker 4: discount go. That's just a part of like fine tuning
Speaker 4: this process. I've put out charts in a note that
Speaker 4: shows like all those nine ETFs, the newborn nine, which
Speaker 4: I've never heard Eric.
Speaker 3: Say before this, and I love that phrase. It's so good.
Speaker 2: I say it on Twitter all the time. You do
Speaker 2: you not follow me?
Speaker 3: I guess I don't follow you well enough. I never,
Speaker 3: I never. The alliteration didn't click until I heard it aloud.
Speaker 3: I guess they were trading at big premiums.
Speaker 4: But what you've got to realize is, I think that's
Speaker 4: also part of the reason why the volume is up,
Speaker 4: because people are basically trying to r of those premiums
Speaker 4: in the Newborn nine and the discount and GBTC.
Speaker 3: But it's it's just a it's gonna take time.
Speaker 4: Like these authorized participants, these market makers, they're going to
Speaker 4: get more and more efficient as time goes on and
Speaker 4: making these things, and we're not going to see these
Speaker 4: same differences in premiums and discounts and prices. But while
Speaker 4: we will see the difference in prices but not in
Speaker 4: premiums and discounts over time.
Speaker 1: James, I'm gonna ask this one of you because I
Speaker 1: think it's a little technical. How do these ETFs match
Speaker 1: up with the biggest holders of bitcoin to the best
Speaker 1: of our knowledge?
Speaker 4: Yeah, So the problem with this question is, like it's
Speaker 4: what a lot of regulators get don't understand about bitcoin,
Speaker 4: Like if you use an exchange wallet, that wallet is
Speaker 4: not a wallet for one person, that's for an exchange
Speaker 4: that's representative a whole bunch of people, which goes back
Speaker 4: to like tradfy looking at ETFs and who owns the
Speaker 4: who actually owns the ETFs. It's not black rockets the
Speaker 4: end investors in those funds. And that's the same way
Speaker 4: to look at some of these bitcoin addresses. And the
Speaker 4: other part of it is is the exact opposite. I
Speaker 4: could have ten different bitcoin addresses and you would never
Speaker 4: know that. Said GBTC is like the largest known holder
Speaker 4: of bitcoin in the world as far as i'mwhere, aside
Speaker 4: from something like Satoshi and some of these other people.
Speaker 4: But we don't exactly know how many of those wallets
Speaker 4: or actually Satoshi and things like that. So the real answer,
Speaker 4: the easy answer, is Satoshi Nakamoto, the inventor of bitcoin.
Speaker 4: But those coins haven't moved since basically the invention of bitcoin.
Speaker 4: But yeah, GBTE is the largest holder. When it came over,
Speaker 4: it had over six hundred thousand bitcoin. A lot of
Speaker 4: that's leaving and coming to other ETFs likely, but it's
Speaker 4: it's basically the largest holder right now.
Speaker 2: And how much this Michael Sailor or micro Strategy hold again, James.
Speaker 3: In dollars?
Speaker 2: Eight billion?
Speaker 3: Yeah, it's eight billion dollars.
Speaker 4: It's one hundred and thirty nine thousand bitcoin.
Speaker 2: What to watch in the next twelve months? I BIT
Speaker 2: passing micro Strategy at eight billion. I'm not sure i
Speaker 2: BIT will go that fast. We'll call it one to
Speaker 2: two years, but I'm calling it now. I guarantee that
Speaker 2: will happen.
Speaker 4: Trol.
Speaker 2: I don't the timeframe will see. It depends on the
Speaker 2: price and stuff. But that's something that you could probably
Speaker 2: take to the bank. Not all of them will pass him.
Speaker 2: That said, owning that much as a stock is one
Speaker 2: person interested a lot, But I could see that happening.
Speaker 1: Okay, okay, James, I'm curious about this one. What percent
Speaker 1: of bitcoin is already owned by the ETFs and how
Speaker 1: high could it get. I'm picturing a conversation in a
Speaker 1: couple of years. Maybe it could be more than a
Speaker 1: couple of years where suddenly it's like you look at
Speaker 1: who owns what and it's like black Rock and Vanguard
Speaker 1: own ten percent of all public trade in companies or something. Right,
Speaker 1: we're gonna get to a world where ETF's own vast
Speaker 1: quantities of the bitcoin available.
Speaker 4: Yeah, they already if you include all international ETFs and gBGC,
Speaker 4: I mean it's somewhere around flourish percent. I think it's
Speaker 4: under five percent, but it's a pretty healthy chunk of
Speaker 4: the out standing bitcoin. And that's out of like the
Speaker 4: outstanding bitcoin. It doesn't take into account the fact that
Speaker 4: a lot of this bitcoin is just hasn't moved in
Speaker 4: as untouched.
Speaker 3: It might be in a hard drives that were lost.
Speaker 4: So the number as far as like actual float, if
Speaker 4: you want to think about it that way, might even
Speaker 4: be higher. I'd have to go back and crunch the
Speaker 4: exact numbers. But things are changing very quickly, pretty much
Speaker 4: every single day.
Speaker 1: How does that compare with like equities and fixed income
Speaker 1: or this.
Speaker 2: Is another thing I hear people kind of I wouldn't
Speaker 2: say moaning about, but like fear mongering over which is, hey,
Speaker 2: there's only a limited supply, how how could this work? Scarcity?
Speaker 2: And I'm like, well, there's only a limited supply of
Speaker 2: float for a stock shares too, that this is normal.
Speaker 2: It just means the price would go up if there's
Speaker 2: if there's a limited supply and more demand, the price
Speaker 2: would go up. So I'm not too worried about it.
Speaker 2: I do think, you know, maybe we'll settle in it
Speaker 2: like fifteen percent, that's where I could see this going
Speaker 2: from four. But remember ETFs are headed for fifteen percent
Speaker 2: of the stock market too, so I think ETFs overall
Speaker 2: will end up, you know, under twenty percent of just
Speaker 2: about everything. Every now and then they own a lot
Speaker 2: of us like a mid cap, but that's like a
Speaker 2: quirky situation. They usually rebounce out of it, so I
Speaker 2: would see that. I wouldn't see them owning like, you know,
Speaker 2: eighty percent or anything. But it's certainly the more they own,
Speaker 2: or the less limited supply there is, the more volatility
Speaker 2: there should be, which, by the way, is in my
Speaker 2: in my theory, the volatility this is a feature, not
Speaker 2: a bug. I think there's gonna be leverage. ETFs is
Speaker 2: gonna be fun for traders and what I call hot sauce.
Speaker 2: So I see it's sort of fitting in as a
Speaker 2: hot sauce. So that volatility, I think would be desired,
Speaker 2: and the scarcity, if you own some, you're gonna feel
Speaker 2: good about.
Speaker 1: That, okay, James if I sell GBTC that's gray scale
Speaker 1: at a loss. Can I buy another bitcoin ETF or
Speaker 1: do I have to wait thirty one days to avoid
Speaker 1: the wash sale rule.
Speaker 3: Yeah.
Speaker 4: So first before I answer this question, I'll say, seek
Speaker 4: tax advice from a tax professional.
Speaker 3: As far as I'm aware, maybe we just leave it there.
Speaker 4: I can answer from what I understand because I went
Speaker 4: in the weeds on this a little bit last night
Speaker 4: and this morning.
Speaker 3: Right now.
Speaker 4: Technically so for gold ETFs, for precious metals ETFs, there
Speaker 4: is no washeale trading rule, which is what you were
Speaker 4: asking about. You can basically sell and buy immediately because
Speaker 4: they're not securities. A lot of the bills that have
Speaker 4: come in front of Congress, specifically one from Lumus Gillibrand
Speaker 4: trying to do a market structure bill around crypto and
Speaker 4: digital assets, if those ever get passed, it will make
Speaker 4: why sale. It will bring the wash sale rule into
Speaker 4: effect for cryptos. That said, as far as I'm aware
Speaker 4: right now, it is not in effect, so it's not
Speaker 4: going to be impacting flows. That said, even flows wouldn't
Speaker 4: matter because for the most part, anyone who's in these
Speaker 4: things right now is probably up unless they bought like
Speaker 4: at the very worst time a couple of years ago.
Speaker 4: There's there's likely not really a situation where people are
Speaker 4: going to be tax loss harvesting right now in these things.
Speaker 4: So yes, I don't think they're subject to the washsale rule,
Speaker 4: but no, I don't think it's impacting anything right now.
Speaker 1: Okay, James, We're we're getting to the final questions here.
Speaker 1: How does an advisor in good faith recommend a bitcoin
Speaker 1: ETF when the SEC chairman who taught blockchain at MIT
Speaker 1: has said it's pretty much a scam in his approval statement.
Speaker 4: Yeah, I mean a lot of what Gary said there
Speaker 4: is political in nature, is the first.
Speaker 3: Thing I would say.
Speaker 4: And second of all, you can just look at the
Speaker 4: hard data around what a small allocation in bitcoin does
Speaker 4: to a portfolio. It wouldn't be hard to make the
Speaker 4: argument of why it would make sense in a giving
Speaker 4: client's portfolio, obviously assuming they have the risk appetite and
Speaker 4: the ability to take the risk to add a volatile
Speaker 4: asset to a portfolio. But for the most part, I
Speaker 4: think it'd be a pretty easy argument, especially if you
Speaker 4: have your end client coming to you asking you to
Speaker 4: buy this thing.
Speaker 1: Eric, if you're having that conversation with the financial advisor.
Speaker 1: The next obvious question is, if you're the advisor, this
Speaker 1: is what you're gonna hear from someone. When do I
Speaker 1: get to put this stuff in a retirement account?
Speaker 2: That's a good one at some point. A lot of
Speaker 2: them have a broker I mean a lot of them
Speaker 2: do a brokerage window. You can get through there, assuming
Speaker 2: they provide it. I know Schwab has access to it.
Speaker 2: But here's the bigger question. A lot of it may
Speaker 2: be difficult for now. Again, over time, black Rock, Fidelity,
Speaker 2: these are actually sponsors of some retirement accounts, so it
Speaker 2: depends for now. I think over time it'll be normal
Speaker 2: through a brokerage window. That said, the platforms out there
Speaker 2: like these, these brokerage platforms and advisory platforms, Wells Fargo, Merrill, JP, Morgan,
Speaker 2: A lot of them don't have them yet, so these
Speaker 2: flows and assets are even without that kind of distribution.
Speaker 2: Those will probably also happen over time. That could take
Speaker 2: like a eight months to two years. Though Vanguard doesn't
Speaker 2: have them. That's more for philosophy. They just don't believe
Speaker 2: in this philosophically as an investment. They might come around eventually,
Speaker 2: but for now, it's actually not available a lot of places.
Speaker 2: I think over time, given the size of the asset
Speaker 2: managers that are into them, they will pop up on
Speaker 2: these places again typically, you know, Joel, you know I
Speaker 2: love MTV.
Speaker 3: I read the book MTV.
Speaker 2: Cable companies did not want to carry it. Remember the
Speaker 2: campaign I Want my MTV. That's how they got That's
Speaker 2: how MTV became MTV. They were told people call your
Speaker 2: cable person that you're you know, in Illinois or whatever,
Speaker 2: and tell them I want my MTV. That's how MTV
Speaker 2: got on widely distributed on cable. The same thing here.
Speaker 2: If there's enough grassroots demand, it'll be everywhere us me.
Speaker 2: If not, it might not be everywhere all right.
Speaker 1: Final question. Unsurprisingly outflows dominating the conversation so far. So
Speaker 1: what's next. What are some other key ETF data points
Speaker 1: or features worth keeping an eye on to gauge success
Speaker 1: in competition in the coming weeks or months.
Speaker 4: James, Yeah, So I'm watching those discounts and premiums I
Speaker 4: was talking about. I'm watching spreads, GBDC. Is they tight?
Speaker 4: It is trading of all these products, which makes sense.
Speaker 4: As Eric talked about, it came over as a full
Speaker 4: grown adult with immense liquidity, but their spreads are extremely low.
Speaker 4: But ibitspreads are already compressing pretty heavily just on the
Speaker 4: third day of trading, and so are many others. They're
Speaker 4: all trading pretty tightly, so be watching that and we'll
Speaker 4: continue watching flows.
Speaker 3: Obviously volume will be important.
Speaker 4: We'll see I would expect volume to fall off a
Speaker 4: little bit after the hype train has subsided, But as
Speaker 4: Eric hinted with his last answer, I'm more interested to
Speaker 4: see what happens with these assets and flows over the
Speaker 4: next eight to eighteen months, more so than I'm really
Speaker 4: focused on what's going on. Yes, now matters getting more assets,
Speaker 4: getting more volume immediately out the gate can help you
Speaker 4: longer term, but it doesn't guarantee anything.
Speaker 3: Longer term.
Speaker 4: Stuff will be very interesting to see as these ETFs
Speaker 4: potentially get added to those big wirehouses and advisor platforms.
Speaker 3: So flows is still going to be the number one
Speaker 3: thing I'm watching as far as I'm concerned over the
Speaker 3: long term.
Speaker 4: And then some of those other facts, like is somebody
Speaker 4: going to release their wallet addresses? Will people figure out
Speaker 4: ways to deliver smaller values of bitcoin directly to end clients?
Speaker 4: And will we get to in kind creation redemption with
Speaker 4: the SEC is not comfortable with He.
Speaker 2: Went over almost everything I had. I would add in
Speaker 2: their options. Options should be listed on these in about
Speaker 2: two months ish. They have to get some more approval
Speaker 2: from the SEC. But assuming they do, options will help
Speaker 2: because anything volatile and you have options on it, you're
Speaker 2: going to attract the trading crowd. They love that you
Speaker 2: get leverage. ETFs have been filed already two x bitcoin.
Speaker 2: That will also drive in, so there'll be a lot
Speaker 2: of these amplifiers or these things that sort of bring
Speaker 2: more ecosystem into it. We're going to watch that, and
Speaker 2: then the fees. The fees are already low between twenty
Speaker 2: and thirty, we're probably going to see somebody break through
Speaker 2: and set a low, so the fee war will probably
Speaker 2: carry on as well. I'm watching that, and then I
Speaker 2: would just but just to go back to James, as
Speaker 2: I think, you know flows are truth. You just you know,
Speaker 2: assets can move with the price of bitcoin, like you
Speaker 2: can have assets go up just because the bitcoin went
Speaker 2: up in your fund. But flows are really truth, and
Speaker 2: so flows are probably the most important number. But I
Speaker 2: will say this to anybody listening who's from the crypto world.
Speaker 2: You need two things for an eat, for a new
Speaker 2: category to have a good shot at growth volume and
Speaker 2: low fees, and these have that in spades. And what
Speaker 2: I also like, what I'm seeing so far is that
Speaker 2: if you look at the nine, the newborn nine, their
Speaker 2: flows and their volumes are proportional to their size, and
Speaker 2: everybody's getting some love. That tells me it's not one
Speaker 2: giant investor or something. It's everybody putting their whole might
Speaker 2: behind it and it ends up proportional to their weight,
Speaker 2: and that's good. That means a middle class is growing already,
Speaker 2: and that should help long term as well.
Speaker 1: We've been waiting for this race to begin for ages.
Speaker 1: Now it actually began. When are we gonna know who
Speaker 1: wins the race to be the top spot bitcoin ETF.
Speaker 4: I'll jump in real quick. I would argue that it's
Speaker 4: almost kind of over right now because of gbtc's immense
Speaker 4: lead and assets and liquidity.
Speaker 3: That said, I would never count Blackrock out.
Speaker 2: Wait, who whoa whoa whoa whoa that I thought you
Speaker 2: were going to say Blackrock, There's no way you can
Speaker 2: count GBTC that. This is where it's complicated rol GBTC.
Speaker 2: It's like it's like, Okay, there's a race and the
Speaker 2: the it's adults and like nine newborn babies, and the
Speaker 2: race goes on for fifty years. Obviously, that's I'm getting
Speaker 2: into a weird place.
Speaker 1: I was gonna say, listen, listen, listen. Let me just
Speaker 1: say this did take some longevity meds there.
Speaker 2: Here's what's gonna happen over time. GBTC is going to bleed.
Speaker 2: It's going to like a melting ice cube. It will stabilize.
Speaker 2: But honestly, from what I'm seeing early James, I wouldn't
Speaker 2: be surprised if bit of an ibit is already trading
Speaker 2: more day to day than GBTC within the month, And
Speaker 2: once that happens, it's only a matter of time before
Speaker 2: the assets gets past sort of like img EM. So
Speaker 2: I would look at a couple of years down the
Speaker 2: road the assets get passed. But the real important one
Speaker 2: is volume, and I think I BIT could have more
Speaker 2: volume by the end of the month. You disagree.
Speaker 3: End of the month seems new to me.
Speaker 4: But again, I think a lot of the reason that
Speaker 4: GBTC has has made up fifty two percent of this
Speaker 4: entire volume. Pie is because it was being used as
Speaker 4: the other side of the trade on these market makers.
Speaker 4: So when they're when they're offering shares to new people
Speaker 4: that are buying them on these new Boar nine, they're
Speaker 4: probably going out because then they're net short those ETFs.
Speaker 4: They have to go long Bitcoin in some way on
Speaker 4: the other side, and I think a lot of people
Speaker 4: were using GBTC. That's why we saw minimal outflows in
Speaker 4: the first day despite the massive trading volume. So I mean,
Speaker 4: maybe you're right, maybe that once these flows start to
Speaker 4: settle in and the discounts and premiums come down a
Speaker 4: little bit, maybe GBDC starts to lose some of its shine.
Speaker 4: But right now, from what I'm seeing on a trading perspective,
Speaker 4: GBDC spreads are are immensely tight and tighter than everyone else.
Speaker 4: But IBE it's gaining on them really quickly. So maybe
Speaker 4: you're right. I'll take the l of the wrong I won't.
Speaker 4: I won't bet a Susie Lunch on this one.
Speaker 2: But again is whoever has the average thirty day volume
Speaker 2: that's higher that will take a couple months to play out,
Speaker 2: that to me would be the winner. But again, GBTC
Speaker 2: makes this such an intriguing race. It's it is interesting,
Speaker 2: but it's a again. It's that's why I say the
Speaker 2: newborn nine.
Speaker 1: Do you think we'll talk about any of this again? Probably? James.
Speaker 1: Thanks for joining us on Trillions.
Speaker 3: Thanks for having me guys, this was fun.
Speaker 5: Thanks for listening to Trillions until next time. You can
Speaker 5: find us on the Bloomberg Terminal, Bloomberg dot com, Apple Podcasts, Spotify,
Speaker 5: or wherever else you'd like to listen. We'd love to
Speaker 5: hear from you. We're on Twitter, I'm at Joel Webber Show.
Speaker 5: He's at air Caultunas. This episode of Trillions was produced
Speaker 5: by Magnus Hendrickson. Bye