Speaker 1: Welcome. Achillian's I'm Chill Webber and.
Speaker 2: I'm Eric Belchernas.
Speaker 1: Eric. Everyone thought that crypto and bitcoin were going to
Speaker 1: go away, maybe well not everyone, but some people. And
Speaker 1: then all of a sudden, SBF went down and Bitcoin
Speaker 1: kept coming and kept coming and kept coming, and here
Speaker 1: we are at a high that we haven't seen for
Speaker 1: more than eighteen months, and a lot of that enthusiasm
Speaker 1: is about the prospect of an ETF.
Speaker 2: Yeah, no, this is huge.
Speaker 3: Ever since Blackrock I shares filed in I think it
Speaker 3: was June of twenty twenty three, there's been a lot
Speaker 3: of excitement about spot ETF approval, the SEC lawsuit with
Speaker 3: Greyscale that was another huge catalyst, and then we've seen
Speaker 3: very very good news in terms of these legal documents
Speaker 3: getting updated, which shows the SEC working with issuers. So
Speaker 3: we are basically, if this has been a ten year journey,
Speaker 3: let's call it a marathon, we're literally in.
Speaker 2: The last mile. We're a mile twenty six. So it's
Speaker 2: a big deal.
Speaker 3: This marriage has been, you know, something in the mix
Speaker 3: for again a decade, and when it finally happens, there's
Speaker 3: a lot of you know, it's like building a bridge
Speaker 3: to the Advisor World in particular. And so you know,
Speaker 3: we thought one of the main players is ARC and
Speaker 3: twenty one Shares. They were honestly filed before black Rock.
Speaker 3: They deserve credit for having probably the most vision of
Speaker 3: figuring out this is the cycle, and so their filing
Speaker 3: is actually the one that has the first deadline in January.
Speaker 3: So because of them, we're probably going to see an
Speaker 3: ETF on January tenth, or at least approval by then.
Speaker 3: And so yeah, it's great to have both sides of
Speaker 3: that prospectus, both ARC and twenty one Shares.
Speaker 2: On the cast today.
Speaker 1: So joining us, we've got Kathy Wood of ARC and
Speaker 1: Aphelia Snyder of twenty one Shares, this time on Trillions.
Speaker 1: Let's talk about a bit points and more. Kathy, Aphelia,
Speaker 1: welcome back to Trillions.
Speaker 4: Thank you, Joel, thank you Eric.
Speaker 5: It's good to be back.
Speaker 1: Okay. So Eric described this as a marathon. We're in
Speaker 1: a mile the miles sprint to the finish line. Are
Speaker 1: we going to get across that finish line?
Speaker 5: I think this is the perennial question, and I I
Speaker 5: think I've pretty consistently said the same thing on this,
Speaker 5: which is that if you would like a different outcome,
Speaker 5: A pattern break is a good thing.
Speaker 6: I have to give twenty one Shares a lot of
Speaker 6: credit on that, because you know, we were denied and
Speaker 6: denied and we just kept filing, and it was because
Speaker 6: twenty one shares, you know, the grip, the gumption, the determination,
Speaker 6: which which is very much in keeping with the way
Speaker 6: we work as well. So I think that's why we're
Speaker 6: first in line.
Speaker 1: Okay, so there's this January date that's going to happen
Speaker 1: the tenth. Eric says, what's going to happen on the tenth?
Speaker 5: Everyone is very focused on the tenth makes a ton
Speaker 5: of sense. Completely understand why it's not how this works actually, right,
Speaker 5: These windows aren't quite as clean as what people seem
Speaker 5: to say, right, So it's completely conceivable that it's before.
Speaker 5: It's completely conceivable. You know, we hear something day of.
Speaker 5: If you look at previous rejections and delays and approvals,
Speaker 5: the day of is not necessarily like the key window.
Speaker 5: But I think from the minute you here go, what's
Speaker 5: going to happen is it's going to boil down to
Speaker 5: who's actually ready to go, because and it's not just
Speaker 5: a question of like the regulatory or a documentation critical
Speaker 5: critical component, but has everybody actually operationally set up these
Speaker 5: products in the background, because the SEC says, go whether
Speaker 5: whatever that ends up being, you're going to have everyone
Speaker 5: jump at the same time, and it's going to fundamentally
Speaker 5: be a question of who's got aps on board? Are
Speaker 5: the custodians ready, are the accounts open? Have you actually
Speaker 5: completed the process it's the exchange ready to go? Like
Speaker 5: how much of this have you actually operationalized? And I
Speaker 5: think that's a much bigger deal at an infrastructure level
Speaker 5: than anybody thinks right now.
Speaker 6: It's been interesting as different firms. We've been doing due
Speaker 6: diligence with different firms, and you know, some of those
Speaker 6: who have filed really haven't haven't issued ETFs before, so
Speaker 6: you know they're they're trying to figure out, wait a minute,
Speaker 6: who do we choose among this field of perhaps twelve
Speaker 6: if they approve twelve at the same time, and they're
Speaker 6: really thinking about, okay, how do I'm only going to
Speaker 6: pick three? Maybe so, and they're beginning to delineate, Okay,
Speaker 6: this is what these are my checkboxes.
Speaker 5: And I think one of the things that's so undervalued
Speaker 5: is clients service and client support. So obviously there's actually
Speaker 5: a third piece here, which is resolut and in some
Speaker 5: of the distribution on that side, Like at the end
Speaker 5: of the day, this is going to come down to
Speaker 5: you're going to get a go are you ready to
Speaker 5: actually do it? Is the thing you're bringing to market
Speaker 5: high quality because one of the things that I think
Speaker 5: the world is sick of is crypto products that are
Speaker 5: both more expensive and less good than what you normally get.
Speaker 5: That that's not going to work anymore. So it's going
Speaker 5: to be a question of are you bringing something that's
Speaker 5: high quality, can you do it quickly? And are you
Speaker 5: going to be able to actually help clients. Client service
Speaker 5: is huge. You've got advisors who are looking at entirely
Speaker 5: new asset classes for the first time, like are you
Speaker 5: ready to answer those questions? Because they're going to have
Speaker 5: them and you need to actually have answers and have
Speaker 5: a way to support them through that process. So I
Speaker 5: think you're going to see a flurry of operational activity
Speaker 5: followed by a very steep educational curve for the client
Speaker 5: base as they try to get up to speed and
Speaker 5: try to figure out like what are we doing here?
Speaker 5: Most CIO's offices don't have a policy on crypto yet,
Speaker 5: and if they do, it's negative. So what's going to
Speaker 5: happen here in terms of their need to be responsive
Speaker 5: to their own customer bases. As they start to allow
Speaker 5: product on platforms, they start to get comfortable making allocations.
Speaker 5: It's going to be a very critical time for cryptos
Speaker 5: and industry in terms of welcoming a whole new cohort
Speaker 5: of players. And it actually goes back to it, and
Speaker 5: I mean, this is this is the whole core of
Speaker 5: ARC right. This is about research and education and providing
Speaker 5: people who are curious about this space for the gateway.
Speaker 6: Our first research piece on bitcoin was in two thoy
Speaker 6: fifteen when it was two hundred and fifty dollars and
Speaker 6: we asked the simple question that it was a white paper,
Speaker 6: can bitcoin serve the three rolls of Money? And we
Speaker 6: did that in collaboration with Art Laugher, and when he
Speaker 6: really understood what this was, he said, I've been waiting
Speaker 6: for this since they closed the gold window in nineteen
Speaker 6: seventy one, so twenty fifteen, and then the next year
Speaker 6: we wrote Ringing the Bell for a New asset class Bitcoin,
Speaker 6: Ringing the Bell for a New asset class. So we've
Speaker 6: been trying to educate the market. And I remember in
Speaker 6: the early days twenty fifteen especially, you know, many people
Speaker 6: dismissed us. That's a marketing gimmick. Bitcoin market nothing but
Speaker 6: a marketing gimmick. So we've come a long way.
Speaker 3: Oh yeah, absolutely. I was skeptical of myself. I remember
Speaker 3: the first one filed, the winklevoss etf in twenty thirteen,
Speaker 3: bitcoin was ninety nine dollars, so I knew about it,
Speaker 3: and I'm kicking myself for not buying any because it
Speaker 3: was I remember it was. I was doing a TV
Speaker 3: hit around then about the filing and Matt Miller was
Speaker 3: way more up to speed than I was.
Speaker 2: I could have acted then, but I was like, this
Speaker 2: seems so silly.
Speaker 3: I don't know, it just seemed like, I don't know,
Speaker 3: like almost like a little bit of a fun craze,
Speaker 3: like something that would just go away, like a fad. Anyway,
Speaker 3: I want to go and talk. I know, Kathy, you've
Speaker 3: been into You bought GBTC in the early days with
Speaker 3: ARKK and you made it was a huge trade. It
Speaker 3: was a powered a lot of your returns early on,
Speaker 3: so I know you were in it early. Now Ophelia
Speaker 3: twenty one shares is over in Europe. You're launching all
Speaker 3: these ETFs. At some point you guys met and like,
Speaker 3: I guess talk me through that and then the filing
Speaker 3: in April, I mean, and like, how you guys work
Speaker 3: together on this.
Speaker 5: It's actually a lovely story. Kathy and I have known
Speaker 5: each other for a while, like way way before this
Speaker 5: partnership was public. I was like a super green that
Speaker 5: had just started my company, going to my first like
Speaker 5: gathering of people who know stuff about ETFs, and I
Speaker 5: sat down next to Kathy at lunch and we started
Speaker 5: talking and there was such a wonderful alignment between our
Speaker 5: philosophies as firms or views on crypto. We come at
Speaker 5: this from a very different perspective. I'm a total like
Speaker 5: wonk for structuring and things and rags, and I think
Speaker 5: Kathy definitely comes with more of a visionary technology perspective.
Speaker 5: And we just got talking. It was such a good
Speaker 5: match that we we kept in touch, and I was
Speaker 5: building an ETF business for the first time and transparently
Speaker 5: had a long way to go and learning how to
Speaker 5: do that, and it turned into I think a very
Speaker 5: productive and very enjoyable, like friendship and relationship and that
Speaker 5: sort of it was the genesis of these products.
Speaker 6: So I can give you a little bit more inside
Speaker 6: scoop here. This was at the annual ETF comfab called Denostia,
Speaker 6: and I remember, yes being late to the lunch, sitting
Speaker 6: next to Ophelia, and then she started talking and I said,
Speaker 6: I know what school you went to, and I know
Speaker 6: what school within the school you went to. You went
Speaker 6: to Stanford, the Earth System School at Stanford. And she
Speaker 6: was shocked because nobody knows about that. But if you'll
Speaker 6: remember Chris Bernisky, he was our first crypto analyst, and
Speaker 6: I heard Ophelia talking and thinking in the way that
Speaker 6: he did, so that's what really got us going.
Speaker 4: And then I definitely understood early.
Speaker 6: On how much into the ops and infrastructure and plat
Speaker 6: form part of the business Aphelia was and it was
Speaker 6: not what I do. But I said, I want you
Speaker 6: to meet Tom Stout, who's our COO, because he loves
Speaker 6: the same things that Aphelia does, and we were looking
Speaker 6: for someone who could help us with the platform play,
Speaker 6: the infrastructure play associated with bitcoins. So you know, very
Speaker 6: quickly we p came fast friends professionally as well.
Speaker 3: So you got together, you're filing for this ETF. Like,
Speaker 3: do you guys talk every day now? Because we're sort
Speaker 3: of at the eleventh hour here, Like how often are
Speaker 3: you communicating? Or Kathy, do you just sort of like
Speaker 3: let Ophelia drive this because you've got the stocks to pick?
Speaker 2: I mean, how does this work?
Speaker 6: Like I guess today, I think Aphelia and Tom talk
Speaker 6: at least once a day if I'm no more, if
Speaker 6: not more, and we get together, you know, I'm update
Speaker 6: it all the time, but we get together regularly to
Speaker 6: compare notes and you know, just make sure that we're
Speaker 6: all on the same page. It's it's you know, we
Speaker 6: have to get everything right. This is really important.
Speaker 5: And one of the things to rize is we already
Speaker 5: have five funds out as part of this partnership, right,
Speaker 5: and we already have a suite of crypto ETFs. They
Speaker 5: came to market a couple of weeks ago. So it's
Speaker 5: not just a question of I think Kathy and I
Speaker 5: and not just a question of Tom and I. At
Speaker 5: this point, there are touch points across essentially every layer
Speaker 5: of our organization, and as there we're already in the
Speaker 5: trenches operating product together.
Speaker 6: Yeah, our marketing teams. Our marketing teams are working very
Speaker 6: closely together. Our research teams are working very closely together.
Speaker 6: So it's across the both organizations.
Speaker 2: Okay, And so these new funds you okay, So for.
Speaker 3: People who don't know, obviously the main headlining act is
Speaker 3: the spot bitwinn etf race, but there is this sort
Speaker 3: of under card with the futures. And obviously there was
Speaker 3: a Bitcoin Futures ETF put out, then Ether futures were approved.
Speaker 3: You guys have put a bunch like five or six
Speaker 3: products out. One of them is like an active Bitcoin
Speaker 3: future strategy, one's an ether, one looks like it's uh blocks, right,
Speaker 3: So these are all futures. I guess you know. Give
Speaker 3: given when I saw these, I'm like, I get it.
Speaker 3: But given that Spot is so close, you know, in
Speaker 3: the futures ETFs probably going to be a little outdated.
Speaker 3: Like you know, most advisors prefer Spot when given a choice,
Speaker 3: like we've seen that with gold. They don't really want
Speaker 3: to use the futures, like do you I guess give
Speaker 3: me the logic there, given that we're so close to
Speaker 3: the Spot, why put all these futures ETFs out.
Speaker 5: So a couple of things here. I the premise I
Speaker 5: agree with. I think Spot is a more accessible product
Speaker 5: for most people most of the time. I think Future
Speaker 5: is similar to gold. Futures are going to have a
Speaker 5: reason to exist and are going to be a critical
Speaker 5: part of certain profiles investments and how they choose to
Speaker 5: enter that market. And I do believe there will be
Speaker 5: a use case for them similar to what we've seen
Speaker 5: in other commodity markets. Beyond that, with this suite, we
Speaker 5: took an approach to bringing a series of highly differentiated
Speaker 5: products right that these are not really exactly the same
Speaker 5: as what was in the market before. At a strategy level,
Speaker 5: we're looking at a product that is strategic allocations of
Speaker 5: bitcoin versus ethereum, bitcoin versus cash, and a true multi
Speaker 5: asset product. These are designed to solve a very different
Speaker 5: set of problems for investors. Crypto is a massive, massive industry.
Speaker 5: This is not going to be one size fit solved.
Speaker 5: Different people are going to have different issues and this
Speaker 5: allows customers and advisors to take advantage of our expertise
Speaker 5: as a crypto firm. We've been doing this for five years.
Speaker 5: ARCS expertise inactive management, some really sophisticated on chain analytics,
Speaker 5: all of the benefit of our research and ARCS active
Speaker 5: management as well as our operational excellence, and it really
Speaker 5: packages these products. They're fundamentally quite different than something like
Speaker 5: just a pure play Bitcoin spot product, because that's not
Speaker 5: really what they're intended to do. These aren't. The vast
Speaker 5: majority of the suite is not intended to be a
Speaker 5: long only exposure, but rather more sophisticated exposures. Is to
Speaker 5: take advantage of that knowledge base from us as a firm,
Speaker 5: or actually as two firms. And so that's I think
Speaker 5: one of the key things with why we chose to
Speaker 5: do this. We don't believe that this is going to
Speaker 5: be one size fitsall. We intend to provide clients with
Speaker 5: solutions that fit their needs in this space that lets
Speaker 5: them take advantage as much as possible of our experience
Speaker 5: and expertise in the sector.
Speaker 6: And I would say we have been investing on the
Speaker 6: research side. In our team, we have three cryptoanalysts, one
Speaker 6: of whom does nothing but on chain analytics. And what's
Speaker 6: beautiful about this ecosystem, especially Bitcoin, but others as well
Speaker 6: ethereum the transparency of these ecosystems gives us a lot
Speaker 6: of information to manage actively, and so this is the
Speaker 6: first time, while we've been developing these tools for a
Speaker 6: number of years now, this is the first time we've
Speaker 6: been able to activate them in a productive way. So
Speaker 6: I'm pretty excited about that.
Speaker 1: Okay, So obviously you do are both big bulls and
Speaker 1: have you know a stake and where this product can go.
Speaker 1: There's still remains plenty of naysayers, even Jamie Diamond coming
Speaker 1: out and basically saying that if he were in the government,
Speaker 1: he would just shut Crypto shut till day.
Speaker 4: Yeah yeah, yeah, so crazy.
Speaker 1: So you're still having to wrestle with a version of haters, right,
Speaker 1: And I think the haters actually, for a while within
Speaker 1: the last year and change kind of gained a little
Speaker 1: bit of an upper hand with the carnage that came
Speaker 1: out of the SBF fallout. So how do you wrestle
Speaker 1: with that sentiment that still remains, which is like, there's
Speaker 1: no point to this, why should I even bother?
Speaker 6: So I'll start there. I had to defend what we
Speaker 6: were doing throughout last year. So Terra Luna Celsius three
Speaker 6: arrows FTX and when FTX blew up. I basically said,
Speaker 6: and I think it's now clear that wait a minute,
Speaker 6: this proves the value of bitcoin and other cryptocurrencies. Bitcoin
Speaker 6: completely transparent, decentralized, no counterparty risk, whereas FTX completely opaque, centralized,
Speaker 6: and fraudulent.
Speaker 4: So that was the first step.
Speaker 6: But even more provocative, I thought was during the regional
Speaker 6: bank crisis in March. As you pointed out earlier, Joel,
Speaker 6: bitcoin went up fifty percent as the KRE the regional
Speaker 6: Bank index was imploding, an SVP and signature went under,
Speaker 6: and we were able to say to our clients, wait
Speaker 6: a minute, Bitcoin is not just a risk on asset.
Speaker 6: It is now showing its stripes as a risk off
Speaker 6: asset when there's a financial crisis and counterparty risk becomes
Speaker 6: a question, because that was a question with the regional banks.
Speaker 6: I think that has gotten a lot of people's attention,
Speaker 6: as well as others in the industry who were negative.
Speaker 6: And you're right, it's so interesting to see Jamie Diamond
Speaker 6: and Elizabeth Warren on the same side of the agreeing
Speaker 6: with each other. Kind of what But someone like Larry
Speaker 6: Fink coming around after years of focusing on the environmental
Speaker 6: issues that he thought were a part of the bitcoin ecosystem.
Speaker 6: And you know, I think one of the most important
Speaker 6: things that happened actually happened five years ago when Cambridge
Speaker 6: Associates published its first report on crypto and focused on
Speaker 6: bitcoin in particular and basically said to its foundations and endowments, Look,
Speaker 6: you may not like this instrument, but you should get
Speaker 6: to know as much as you possibly can about it,
Speaker 6: because this seems like it's a new asset class with
Speaker 6: very low correlation of returns to other assets. And so
Speaker 6: I think, but one by one these points are I
Speaker 6: think are a are hitting home, hitting a responsive cord.
Speaker 6: And I do think the SEC coming around and blessing
Speaker 6: a bitcoin spot e TF is going to check the
Speaker 6: box for a lot of institutions.
Speaker 1: When when the SEC does whatever it does, and let's
Speaker 1: let's say that it approves, right, I'm curious what kind
Speaker 1: of modeling you've done. What happens to the price of
Speaker 1: bitcoin when that headline moves that SEC has approved a
Speaker 1: spot bitcoin product.
Speaker 4: Some of it's happening right now, right.
Speaker 1: And there's this anticity the room building for that moment,
Speaker 1: But what happens at that moment?
Speaker 6: Yeah, very often, very often you will get a sell
Speaker 6: on the news because and I don't know where it
Speaker 6: will go between now and then. And you could have
Speaker 6: a sell on the news and you know you'll get
Speaker 6: maybe some week holders in kicking and screaming, and they
Speaker 6: may sell. But when you think we're at roughly nineteen
Speaker 6: and a half million bitcoint outstanding and we're only going
Speaker 6: to twenty one million, and I really do believe that,
Speaker 6: knowing the core some of the core developers the way
Speaker 6: I do, then I think this institutional push in will
Speaker 6: be the biggest reason that our target, which the base
Speaker 6: case is six hundred and fifty thousand and the bowld
Speaker 6: case is one point five million. One of the reasons
Speaker 6: that we have a shot that those numbers are close
Speaker 6: to the mark is the institutional interest in a new
Speaker 6: asset class.
Speaker 1: Can I ask just about how, just because those numbers
Speaker 1: are what they are, when you do the research and
Speaker 1: the modeling to get to those prices, how does that
Speaker 1: math work, Kathy?
Speaker 6: And you'll see this in our Big Ideas twenty twenty three,
Speaker 6: we delineate what we are assuming for twenty thirty. Those
Speaker 6: numbers are twenty thirty numbers. When it comes to digital gold,
Speaker 6: that role the institutional push and the use of bitcoin
Speaker 6: in emerging markets, which have from a use case point
Speaker 6: of view, when economies are hyperflating their money and spending
Speaker 6: egregiously and are corrupt, there's all the reason in the
Speaker 6: world to look for an insurance policy like bitcoin. So
Speaker 6: those are the three biggest reasons we think it will
Speaker 6: go there. But just the institutional case alone, and we
Speaker 6: did write a piece on institutional I think it was last.
Speaker 4: Year or the year four.
Speaker 6: But if you do the analysis, if you and you're
Speaker 6: an institution saying this is a new asset class, if
Speaker 6: you want to minimize volatility, you will probably take it
Speaker 6: to two and a half percent in terms of an
Speaker 6: allocation to a new asset class, if you want to
Speaker 6: maximize your sharp ratio, so we're speaking their language, you'll
Speaker 6: look at something closer to six or six and a
Speaker 6: half percent. So those are the bull case is based
Speaker 6: on that six and a half percent. Now why are
Speaker 6: these numbers making sense to us? Well, if you look
Speaker 6: at new asset classes. So in the seventies and eighties
Speaker 6: it was real estate and pension funds. In the eighties
Speaker 6: and nineties it was emerging markets as a new asset class,
Speaker 6: institutions started tiptoed in with one percent than two percent,
Speaker 6: then end up a five percent or roughly thereabouts. So
Speaker 6: it's not crazy. These are not crazy numbers, and we
Speaker 6: used a Monte Carlo analysis to get to them. So that,
Speaker 6: I guess is the biggest the biggest source of the
Speaker 6: upward move in bitcoin from our point of view.
Speaker 5: And one of the things people don't realize. And I
Speaker 5: think there's been a lot of statements made by people
Speaker 5: about the sell then news concept and what that's going
Speaker 5: to look like, and I you know, sure, yes you
Speaker 5: may see that. I think what you're going to end
Speaker 5: up seeing that is a little bit unexpected. Is there's
Speaker 5: less of a question of what does it take to
Speaker 5: get people off of zero? Most ras, most managers, most
Speaker 5: advisors are currently at zero, and the reason for that
Speaker 5: is there's not really a good way for them to
Speaker 5: access them. And typically the counter example is well they
Speaker 5: can buy Spot. In order to do that, you need
Speaker 5: to set up a new custodian, a new set of
Speaker 5: trading relationships, all new reporting. It's unclear how that tax
Speaker 5: reporting is going to work. Does this integrate with any
Speaker 5: of your systems? How are you displaying that to your clients,
Speaker 5: Like the operational burden and overhead associated with this is unbelievable.
Speaker 5: So even if you wanted to today, how much of
Speaker 5: an allocation are you been able to make and would
Speaker 5: you be able to access that in the first place?
Speaker 5: The answer is probably no. And so aside from this
Speaker 5: sort of regulatory clarity that comes from this kind of structure,
Speaker 5: as well as some clarity around like tax and efficient
Speaker 5: trading and all these other things, there's this idea that
Speaker 5: I don't think the market currently realizes what getting off
Speaker 5: of zero looks like for the big players, right because
Speaker 5: a couple basis point allocation is a lot of money.
Speaker 5: It's way more money than crypto sees or understands conceptually.
Speaker 5: Like there's a reason this podcast is called trillion and
Speaker 5: not billions or millions, right, Like, there's a difference in
Speaker 5: what these numbers look like, and it's very difficult for
Speaker 5: people to actually conceive of. So whether or not you
Speaker 5: have managers like appropriately timing the market, a lot of
Speaker 5: them may just throw something to get off of zero.
Speaker 5: If you have enough of that dynamic of like I'm
Speaker 5: just going to dip my toe, I'm going to put
Speaker 5: one bip of a portfolio in there, because like, why
Speaker 5: not that is going to proportionally look very different than
Speaker 5: the kinds of flows that you've seen historically in this space.
Speaker 5: And I think that's something that is not fully That's
Speaker 5: sort of what when when I hear this concept of
Speaker 5: institutional adoption, I think that's oftentimes misconstrued. There's a very
Speaker 5: real barrier to entry here, and I think to some
Speaker 5: extent that feeds into the narrative that that Kathy is discussing.
Speaker 5: When we look at it, we sort of we understand
Speaker 5: this client base. We've been serving this client base and
Speaker 5: other geographies for years. Their issues are very real, but
Speaker 5: that market is significantly large in the United States.
Speaker 6: I'll just add one thing, one for the institutional side,
Speaker 6: one for more retail. Mas Mutual put one hundred million
Speaker 6: dollars in. I'm going to say maybe Aphelia was three
Speaker 6: years ago to two three years ago and it meant nothing.
Speaker 6: It was a zero point zero something percent of their book, right,
Speaker 6: So that one hundred million is against where are we
Speaker 6: right now a one point five trillion dollar total market
Speaker 6: cap for all crypto assets, right, So that one hundred
Speaker 6: million was point zero zero something, you know, So that
Speaker 6: gives you a sense. And then on the this is
Speaker 6: more on the corporate side. I should have said, remember
Speaker 6: when Tesla and block and micro Strategy they put bitcoin
Speaker 6: on their books. There's been a very important ruling in
Speaker 6: the last few months from Fasby saying this is no
Speaker 6: longer needs to be accounted for as an intangible asset
Speaker 6: which you can only mark down, and instead they're now
Speaker 6: going to allow mark to market I think officially in
Speaker 6: twenty five, but you can start doing it in twenty four,
Speaker 6: so we may see corporate treasuries move in here too.
Speaker 3: So just my two cents on that, I largely agree
Speaker 3: with you. I think advisors in particular love the ETF.
Speaker 3: That is their preferred vehicle. I have to I got
Speaker 3: to tell these crypto people on Twitter all the time,
Speaker 3: like He's like, why would you even need the ETF.
Speaker 3: I'm like, you understand a lot of people just like
Speaker 3: to click a button own it with the you know,
Speaker 3: the SEC stamp of approval. It's liquid, it'll be one
Speaker 3: basis point to trade. It's just something they're comfortable with.
Speaker 3: It's their familiar place. And I was like, well, maybe
Speaker 3: I zero point five percent of the advisor assets that's
Speaker 3: thirty trillion go in there. You're looking at one hundred
Speaker 3: and fifty billion. That's about what gold has a little less.
Speaker 3: So I see it somewhere in that ballpark. Now, the
Speaker 3: institutional money, a lot of times they wait to something's
Speaker 3: really liquid, Like they tend to love the liquid ETFs.
Speaker 3: It's harder to get them into something that doesn't trade
Speaker 3: a lot. So I want to fast forward to the race.
Speaker 3: And this is where I think the race is so
Speaker 3: fascinating and why I'm so obsessed with this. Even though
Speaker 3: it's probably gonna make up one percent of ETF assets,
Speaker 3: I spend like forty percent of my brain power on this.
Speaker 3: I'm even getting pushed back from some people on Twitter
Speaker 3: who are like, hey, easy, easy, you know, take it easy.
Speaker 3: And my Ethan on my team makes fun of James
Speaker 3: and I constantly anyway, but this is just so high drama.
Speaker 3: The race is going to start, as Ophelia said, some
Speaker 3: people may not make it to the starting line. Let's
Speaker 3: say there's six people who launch six issuers. Let's say
Speaker 3: you're one of them. It's usually a winner take most,
Speaker 3: and the one that gets really liquid probably going.
Speaker 2: To have better luck.
Speaker 3: In the institutional crowd because they just love that big liquidity.
Speaker 3: They don't want to like be like one hundred percent
Speaker 3: of the assets or anything, and they want to have
Speaker 3: less impact costs. So how do you position yourself in
Speaker 3: the race to get liquid and get some mojo going
Speaker 3: early on? If you got a blame Brock in a
Speaker 3: fidelity next to you. One of my theories is that
Speaker 3: you're going to sell GBTC and put one hundred and
Speaker 3: thirty million rate into RCB, which is going to show
Speaker 3: up as flows and volume, which I think is an
Speaker 3: ace up to sleeve. So that's what I would do
Speaker 3: if I were you, But I'll get your take on it.
Speaker 6: Well, we have to be very careful about what we
Speaker 6: say right now there. You know, GBTC right now is
Speaker 6: at two percent and we're at least in print at
Speaker 6: eighty basis points if we're approved, So there's a certain
Speaker 6: logic to what you're saying. Of course, there are also
Speaker 6: you know, as there are also some tax issues that
Speaker 6: we do have to focus on as all this is happening,
Speaker 6: and some of that depends some of that will depend
Speaker 6: on what happens to the price between here and there.
Speaker 4: So I really.
Speaker 6: Shouldn't be talking about it very talktful.
Speaker 5: Well, here, how about this one. I can talk about
Speaker 5: how we're thinking about this. Look, a big piece of
Speaker 5: this is capital markets infrastructure. Everyone right now loves talking
Speaker 5: about like the create redeemed structure because it's like the
Speaker 5: topic du jour from the SEC.
Speaker 1: That's how Eric puts his kids to sleep.
Speaker 3: Well, I'm sorry, I'm sorry create redemption real quick though,
Speaker 3: I heard back channel. The SEC will only allow cash
Speaker 3: creates in the first trench to go out. So if
Speaker 3: you want to do in kind, which is better with
Speaker 3: the investor, I agree with you know, black Rocks definitely
Speaker 3: digging in on this. I think you are to an extent.
Speaker 3: I guess would you if you couldn't get out within
Speaker 3: kind in the first trench? Would you do cash for
Speaker 3: the time being until you could figure out in kind?
Speaker 5: So I actually think the answer to both of these
Speaker 5: last two questions is the same thing. Having a being
Speaker 5: first is going to be critical. Obviously, first move for advantages.
Speaker 5: We get all of that, not arguing it. I think
Speaker 5: the next thing that's going to be critic goal that
Speaker 5: is currently undervalued is the way the primary market operates
Speaker 5: here in primary market efficiency is going to drive an
Speaker 5: enormous portion of how these volumes actually play out because
Speaker 5: there is no standard, right, no one has done this
Speaker 5: with these providers in America before. Now we obviously we've
Speaker 5: been operating a primary market in cryptots for five years,
Speaker 5: so we have a pretty standard playbook that we know
Speaker 5: leads to an efficient market. There are some obvious differences
Speaker 5: as you move between geographies, but that piece, the operational
Speaker 5: know how of how to make this primary market go correctly,
Speaker 5: is going to end up playing a huge role here
Speaker 5: on both sides. Right, it is about it's about how
Speaker 5: do you make that market work as effectively as possible
Speaker 5: because it's going to show up linearly in spreads. So
Speaker 5: the better you can do, the more cost you can
Speaker 5: take out of it, the more efficient you can make it,
Speaker 5: the easier and clean, or you can make it free
Speaker 5: market makers to hedge. The better this is going to be,
Speaker 5: and that's going to end up driving a big chunk
Speaker 5: of how volume plays out. You need those markets to
Speaker 5: be tight and providing a really stable, very well structured
Speaker 5: primary market is going to end up playing a really
Speaker 5: big role here. And so to answer your original question
Speaker 5: on like how do you do this, I think you
Speaker 5: lean into that operational experience. There isn't another There isn't
Speaker 5: anybody else in this race that has actually done this before.
Speaker 5: Lots of people and they're good firms. They probably can
Speaker 5: do this, but they don't know how to do this.
Speaker 5: They haven't done well.
Speaker 3: Let's let me let me let me push back a little.
Speaker 3: You know, using operations as you're marketing again, you're going
Speaker 3: to put some people to sleep. I think people are
Speaker 3: going to just I think there's maybe some you know,
Speaker 3: if if the spreads are different, surely that definitely speaks
Speaker 3: to that. Like no one wants to pay ten BIPs
Speaker 3: for one for sure, be talking about Blackrock in fidelity.
Speaker 3: I mean, people look at Blackrock as the ETF king.
Speaker 3: They've got four hundred and fifty funds, so I think, yeah,
Speaker 3: I got to assume they'll be somewhat good on that front.
Speaker 3: But you know, we'll see. I know you have this,
Speaker 3: you know you have the experience in Europe. But like
Speaker 3: I said, I think it's gonna be tough for everybody.
Speaker 6: Eric Can, I, as a student of disruptive innovation, I'd
Speaker 6: like to make an observation, a couple of observations here.
Speaker 6: One and maybe I didn't emphasize this enough in the
Speaker 6: beginning or concretely in the beginning. Twenty one shares is
Speaker 6: the largest pure play crypto ETP player in the world.
Speaker 6: And as a student of disruptive innovation, we're maybe not
Speaker 6: thinking about this. You know, ETFs when it comes to
Speaker 6: equities and fixed income, you know well worn paths.
Speaker 4: ETFs.
Speaker 6: When it comes to crypto bitcoin, we think very different.
Speaker 6: And I have been incredibly impressed Tom Stout as well.
Speaker 6: Of course our president and COO, working very closely with
Speaker 6: Ophelia at how much does go into this? So it
Speaker 6: would be very interesting when we get off the mark
Speaker 6: here off the block to see what happens. Let's test
Speaker 6: this out.
Speaker 1: We talked about the operations. What else I mean, this
Speaker 1: crowded race that we've been talking about, like how I
Speaker 1: mean and to have somebody like a black Rock be
Speaker 1: out there, how else do you distinguish yourself in such
Speaker 1: a crowded marketplace if there's multiple people off the blocks
Speaker 1: at once, like the race is going to start all
Speaker 1: over again.
Speaker 3: And let me just jump in here for the listener.
Speaker 3: As an ETF nerd for almost fifteen twenty years, this
Speaker 3: is fascinating. You've never had a situation in the history
Speaker 3: of ETFs where they've let everybody out at the same
Speaker 3: time and all the funds do something the same thing.
Speaker 2: They offer bitcoin exposure.
Speaker 3: So it's the first time I've had like a I'm
Speaker 3: calling it, I'm trying, by the way, I'm trying to
Speaker 3: get coin.
Speaker 2: This phrase the bitucky Derby. What do you think about that?
Speaker 2: You like that? Or no, Joel, what do you think
Speaker 2: Bentucky Derby?
Speaker 1: Because it's like it's like we'll talk about it offline.
Speaker 3: It's like a horse race and you know, some domake
Speaker 3: it's the starting gage, Joel, they have to got it.
Speaker 2: I got it anyway.
Speaker 3: So this is the first time you have a natural
Speaker 3: horse race. So this is a case study from heaven.
Speaker 3: If you're an analyst.
Speaker 5: Look, I think the other piece of our marketing positioning
Speaker 5: here and like how we think we differentiate in this market.
Speaker 5: Experience is part of it. Ops is a part of it.
Speaker 5: That's my background. So it tends you to overemphasize that,
Speaker 5: and that's on me. The other half of what it
Speaker 5: is we do, which is extremely unique, is it's research.
Speaker 5: At the end of it away, we give it away.
Speaker 5: It's free, it's best in class. We're the only two
Speaker 5: firms on the street who do that, who can actually
Speaker 5: sit there and provide the client support. Right, you want
Speaker 5: to sit down with an advisor and like help them
Speaker 5: understand how this can fit into their client's portfolio, how
Speaker 5: they can support their clients through that. When there's a problem,
Speaker 5: they can pick up the phone and call somebody who'll
Speaker 5: explain to them what's happening in crypto. That's actually a
Speaker 5: huge piece of missing component in how you actually place
Speaker 5: these assets. And bluntly, that is not something people get
Speaker 5: from the king of ETFs because that's not actually their specialty.
Speaker 5: That's not their approach to the market never has been.
Speaker 6: Another thing is and I'll go back, of course, to
Speaker 6: the research side of it. We have been researching and
Speaker 6: writing about educating our client based, prospective clients, anyone who
Speaker 6: wants to read our research since twenty fifteen when bitcoin
Speaker 6: was six billion dollars five six billion dollars.
Speaker 4: In market cap.
Speaker 6: Today it is roughly seven hundred billion dollars in market cap.
Speaker 6: And again we think we've just begun, but I think
Speaker 6: we've earned some stripes because all we do three analysts
Speaker 6: focusing on crypto, and we have partnered our partner distribution
Speaker 6: partner here in the US, Resolute, the entire firm. It
Speaker 6: may be much smaller than Blackrock, but they have been
Speaker 6: working with us on disruptive innovation, exclusively disruptive innovation, and
Speaker 6: are incredibly excited and confident that you know that we
Speaker 6: could make a big splash.
Speaker 3: Well, first of all, good luck to you. I think
Speaker 3: this is again, this is going to be fascinating to watch.
Speaker 3: One just last question about ARC in general, and obviously
Speaker 3: this has been quite a journey for you.
Speaker 2: You you came and.
Speaker 3: I remember meeting Kathy at the ETF's boot camp. I
Speaker 3: think you were like two months before launching, and I
Speaker 3: swear you told me the idea. I was like, yeah,
Speaker 3: I don't know, I might not see her next year
Speaker 3: because at the time nobody wanted active. But you proved
Speaker 3: me wrong and you went from like zero, and as
Speaker 3: an indie especially, it's hard to make it. I think
Speaker 3: you might have peaked at thirty forty billion. It's now
Speaker 3: your fund's are fourteen billion. You've had that huge run up,
Speaker 3: huge rundown, now you're up.
Speaker 2: Again this year. It is a bit rollercoaster ish.
Speaker 3: Your journey kind of reminds me of Steve Martin's quote
Speaker 3: in his great biography called Born, Standing Up, where he goes,
Speaker 3: at first I wasn't famous enough. Then I was too famous,
Speaker 3: like when the jerk came out and he goes, now
Speaker 3: I'm just right famous. And it sort of feels like that.
Speaker 3: Do you think fourteen to fifteen billion for your equity ETFs,
Speaker 3: let's move crypto aside? Is that the right spot for you?
Speaker 3: Because you know you're less visible in the markets now,
Speaker 3: you're not like pushing stocks around or do.
Speaker 2: You want to be bigger or smaller?
Speaker 6: If we are right, and this is not just about crypto,
Speaker 6: it's about all of the innovation platforms around which we
Speaker 6: have centered our research and investing, then disruptive innovation broadly defined,
Speaker 6: will go from roughly fifteen trillion dollars in market cap
Speaker 6: globally equities both public and private, so a little more
Speaker 6: than ten percent of the market to more than two
Speaker 6: hundred trillion by twenty thirty. And we think we should
Speaker 6: gain share in that market because this is all we do.
Speaker 6: And so that's Steve Martin quote is very interesting. In
Speaker 6: late twenty and early twenty one, I was very uncomfortable.
Speaker 6: I was I'm on record saying keep some of your
Speaker 6: powder dry. We can't do anything wrong. And I sent
Speaker 6: this to my team too. We can't do anything wrong.
Speaker 6: This is not reality that we're going to have. There's
Speaker 6: gonna be another side to this. Did I believe Michael
Speaker 6: Berry when he said this is just the Nasdaq circa
Speaker 6: two thousand? Absolutely not. And I told him, you don't
Speaker 6: understand innovation. Well, what I didn't understand was the FED
Speaker 6: was going to take interest rates up twenty fourfold within
Speaker 6: roughly a year's time. Never happened in history. Vulgar took
Speaker 6: it up twofold ten to twenty percent, but only twofold
Speaker 6: twenty fourfold, shocked the system. I think we've paid our
Speaker 6: dues and I think we're on the other side of it.
Speaker 6: I'm much more comfortable today that many people don't think
Speaker 6: we can do anything right, although that's changing with this
Speaker 6: year's performance. But innovation gains traction during tough times, and
Speaker 6: that's what's happening. Our companies are now earning their place
Speaker 6: in our portfolios. Their earnings are surprising to the high side,
Speaker 6: and they're moving to the top of the heap. So no,
Speaker 6: we're really excited about the next five to ten years.
Speaker 6: This is why I started ARC.
Speaker 1: Okay, we'll leave it at that. Kathy Aphelia, thank you
Speaker 1: so much for joining us on Trillians.
Speaker 4: Thank you, Thank you, Joel and Eric.
Speaker 5: Thank you guys.
Speaker 1: Thanks for listening to Trillions. Until next time. You can
Speaker 1: find us on the Bloomberg terminal, Bloomberg dot com, Apple Podcasts, Spotify,
Speaker 1: or wherever else you'd like to listen. We'd love to
Speaker 1: hear from you. We're on Twitter. I'm at Joel Webber Show.
Speaker 1: He's at Eric Balchnas. This episode of Trillions was produced
Speaker 1: by Magnus Hendrickson. Bye