Speaker 1: What can a chillions.
Speaker 2: I'm Joe Webber and I'm Eric Belchunas.
Speaker 1: Eric, I thought the Bitcoin etf dream was dead and
Speaker 1: then all of a sudden it is like back, and
Speaker 1: it's back with a vengeance.
Speaker 2: You've seen Godfather three where al Pacino goes. I thought
Speaker 2: I was out and they pulled me back in. Yeah,
Speaker 2: that's how I feel. Every time this race gets reignited,
Speaker 2: it's exhausting. That said, it's exciting, and this time around
Speaker 2: it's got another level of fascination because you've got Blackrock
Speaker 2: who filed. BlackRock's the biggest asset manager on planet Earth.
Speaker 2: The SEC's you know, obviously a big part of the government.
Speaker 2: Bitcoin had FTX, and now it's sort of coming back
Speaker 2: as usual, you know, it's it never seems to go away,
Speaker 2: usually comes back after these sort of big issues that
Speaker 2: it has. So you've got a bunch of things sort
Speaker 2: of colliding here, and there's so many subplots. My team,
Speaker 2: James Sayford in particular, we've been all over this. A
Speaker 2: lot of it's playing out on Twitter, but we've been
Speaker 2: writing notes, We've been doing interviews with all the crypto
Speaker 2: trade publications. There's a whole crypto underworld that is starting
Speaker 2: to look to James in particular as the expert on this.
Speaker 2: We had had some experience with the pro schars futures
Speaker 2: ETF about two years ago. We called that, we said
Speaker 2: it would happen, and it did, And now it's come
Speaker 2: back around and people are like, say, what are the odds?
Speaker 2: And so we're trying to handicap this thing in real time,
Speaker 2: and like I said, it's equal parts exhausting and exciting.
Speaker 1: To walk us through what we think we know about
Speaker 1: the state of play. We're gonna have James Seifert ETF
Speaker 1: analyst with Bloomberg Intelligence, as well as Aphelia Snyder, co
Speaker 1: founder and president of twenty one Shares. She is in
Speaker 1: the ETF race, this time on Trean's The Bitcoin ETF
Speaker 1: race is back. Okay, Aphelia, James, Welcome to trillions. Thanks
Speaker 1: for having me, Thanks for having us, Aphelia. It feels
Speaker 1: like we did this in the pandemic. We talked about
Speaker 1: I think crypto and ETFs back then. I'm curious, like,
Speaker 1: what the hell changed? Why is this happening all over again?
Speaker 3: Oh? God, so much. It changed. Crypto moves very very
Speaker 3: very quickly, as market and the markets. The underlying market
Speaker 3: that is crypto evolves quite quickly. So the market itself
Speaker 3: is very different than it was two years ago when
Speaker 3: we talked about this at a like fundamental level in
Speaker 3: terms of the market participants are and what it looks like,
Speaker 3: and what volumes look like and what flows look like.
Speaker 3: It is a very different market from that perspective, and
Speaker 3: I think that's part of what's contributing to why this
Speaker 3: is coming back. I think this most recent crypto winter
Speaker 3: has actually flushed out a lot of bad actors in
Speaker 3: the space, fleshed out a lot of like the garbage
Speaker 3: that kind of gums up the works in crypto markets,
Speaker 3: and we're starting to see people come out of that
Speaker 3: and sort of the work that's been done during that
Speaker 3: crypto winter, and it's part of what's reigniting this conversation.
Speaker 1: So to be clear, there are already bitcoin ETFs, but
Speaker 1: they're futures based. What we're actually talking about here is
Speaker 1: a spot based ETF. Why does that remain the holy grail?
Speaker 3: So twenty one chares as an issue runs about thirty
Speaker 3: seven of these products in Europe already, all spot based
Speaker 3: single assets indexes, shorts, all based on spot. The reason
Speaker 3: that remains the holy grail here is because futures products
Speaker 3: are great can be great things, but they're actually a
Speaker 3: little bit different than a spot product. They have a
Speaker 3: different exposure built into them, so you're dealing with different
Speaker 3: factors that impact that market. It can be a really
Speaker 3: good product if you understand what all of those things are,
Speaker 3: and that's what it is you're trying to buy it is. However,
Speaker 3: what it is not is pure play bitcoin exposure. It's like,
Speaker 3: for example, it's why you saw oil future ETFs go negative.
Speaker 3: It's because actually there's something else baked into there. From
Speaker 3: an investment thesis perspective, there's nothing wrong with that, but
Speaker 3: you need to actually want that additional thing. And for example,
Speaker 3: you saw this evolution in gold markets where we went
Speaker 3: through sort of the future is products and eventually ended
Speaker 3: up at spot spot. Really is that just pure exposure.
Speaker 3: There's nothing else in there other than long bitcoin.
Speaker 2: And I think at the end of the day, people
Speaker 2: just want it to track the price, whether it goes
Speaker 2: down or up sideways. That's all anybody wants, and that's
Speaker 2: the beauty of ETFs.
Speaker 1: And I want to do it with an ETF rather
Speaker 1: than bothering with whatever crypto while it is out there.
Speaker 2: Yeah, I mean ETFs generally speaking, bring convenience, and they're
Speaker 2: also in the plumbing of a lot of advisors in particular,
Speaker 2: So the ETF. I think, if you want crypto and
Speaker 2: you're younger and really into this, you don't really need
Speaker 2: the ETF, but it can be convenient. ETF can trade
Speaker 2: on exchange, you can buy any brokerage, and it's in
Speaker 2: it fits its trust by the advisors of the world.
Speaker 2: I think that's a big They have like thirty trillion
Speaker 2: dollars in assets. They trust the ETF, they're used to it,
Speaker 2: they're comfortable with it, and that's a format that they like,
Speaker 2: and I think that's also a big part of the story.
Speaker 1: And yet the SEC keeps saying no. How many times
Speaker 1: has the SEC said no.
Speaker 2: Let's go to James on that one? Yeah, yeah, thirty three.
Speaker 4: Well, I mean, if you include the futures CTFs they've
Speaker 4: denied or forced issuers to withdraw, we're in like I
Speaker 4: think we're seventies, where we might be up there, we're
Speaker 4: in the fifties at the very least. That's a lot.
Speaker 1: So what's changed now, Well.
Speaker 4: What Ophelia said is one thing. The other saying is
Speaker 4: Blackrock which to be to be Frank Ark in twenty
Speaker 4: one shares were early. They filed back in April of
Speaker 4: twenty twenty three, and Blackrock just filed in June fifteenth.
Speaker 4: That's when we first saw their prospectus, and also when
Speaker 4: they filed their nineteen B four, which is the rule
Speaker 4: change proposal. That is what we're all here to talk about.
Speaker 1: But really what which like I had never heard of
Speaker 1: until suddenly like nineteen B four.
Speaker 3: It's objectively not interesting. It is objectively interesting because what
Speaker 3: it's supposed to be is a form document that's on
Speaker 3: the back end of some things that exchanges do. Most
Speaker 3: people with a normal ETF application, there's nothing in there
Speaker 3: that anyone would ever be interested in looking at.
Speaker 1: But even nineteen B fours get their moment.
Speaker 4: Yes, I mean they've had a lot of moments with
Speaker 4: all these Bitcoin ETF denials. Whenever you see people, if
Speaker 4: you see news stories or headlines with all the crypto publications,
Speaker 4: talk about them, and they'll say, oh, it's been delayed again,
Speaker 4: or it's denied or approved. Every time you see that
Speaker 4: that's a nineteen before application. I find that a lot
Speaker 4: of the crypto world over the last few years, didn't
Speaker 4: really understand what they were writing about. They've gotten a
Speaker 4: lot better over the last five years since we've seen
Speaker 4: a denial after denial after denial, so more of them
Speaker 4: know what's going on now. But yeah, it's the nineteen
Speaker 4: B four process, which is basically as Ophelia said, it's
Speaker 4: an exchange. Applying to get a rule change to make
Speaker 4: something be allowed to happen is essentially what it is,
Speaker 4: and that thing in this case is to launch a
Speaker 4: spot bitcoin etf.
Speaker 2: So you can't underestimate how shocking the Blackrock etf filing was.
Speaker 2: First of all, Coindesk deserves props. They recorded it, They
Speaker 2: said it was going to happen earlier one day. I
Speaker 2: did not believe it.
Speaker 1: At first.
Speaker 2: I thought, well, maybe, but this doesn't make any sense.
Speaker 2: And then it happened and it basically was shocking. It
Speaker 2: took me like a little while to process this. We
Speaker 2: were all trying to figure out why they would do it.
Speaker 2: Blackrock does not do things lightly. They like to bring
Speaker 2: a gun to a knife fight. This is a firm
Speaker 2: that is very close with the government. They don't want
Speaker 2: to upset the government, and they could afford to be
Speaker 2: late in this race, to be honest, So for them
Speaker 2: to file and be the innovator here and come out
Speaker 2: of the blue like this again, it was shocking. What
Speaker 2: was your thought when you saw that filing.
Speaker 3: There are a few moving pieces in the market right now,
Speaker 3: Blackrock is one of them. But when you ask like
Speaker 3: why now, one of the big things that doesn't come
Speaker 3: up as frequently as it should in these conversations is
Speaker 3: the Gray Skill lawsuit, because ultimately, if Gray Scale wins
Speaker 3: their lawsuit, what do they actually win. What they win
Speaker 3: is requiring the SEC to go back with a higher
Speaker 3: burden approof That's it. They can't win an approval through
Speaker 3: that process, right, Like a positive decision is not here's
Speaker 3: let me hand you a you now get to go live.
Speaker 3: It forces the SEC to basically re explain their decision
Speaker 3: making process and do it with a higher standard, with
Speaker 3: a lot more scrutiny. That's really interesting because that's going
Speaker 3: to come through in the fall no matter. There's a
Speaker 3: standard judicial process that's going to happen around those filings.
Speaker 3: That's really exciting and that changes things in this market.
Speaker 3: And so if there is and if you read sort
Speaker 3: of the early statements coming out from that lawsuit, it
Speaker 3: appears really promising. And so the question is, if you
Speaker 3: think that that moves the needle, then this timeline actually
Speaker 3: makes a lot of sense.
Speaker 2: This is the timeline so that that inspires you to
Speaker 2: file back in was the grey Scale lawsuit, which, for
Speaker 2: just enybody listening who doesn't know what that is, gray
Speaker 2: Scale has a trust that isn't an ETF and they're
Speaker 2: basically assuming that the SEC and saying that by approving
Speaker 2: the futures ETF and not the spot, they were inconsistent.
Speaker 2: And when the arguments were heard, which anybody could stream,
Speaker 2: people were shocked at how more on the side of
Speaker 2: Greyscale the judges sounded and how on the heels the
Speaker 2: SEC lawyer was, and our legal analysts went from forty
Speaker 2: percent possibility Grayscale could win to seventy just on that.
Speaker 2: And I think that's sort of again a huge variable
Speaker 2: because if the SEC loses, that's like some egg on
Speaker 2: the face there at least if not, you know, they're
Speaker 2: not going to turn to an ETF, but that certainly
Speaker 2: would change things.
Speaker 3: It raises the standard of proof for what they're saying, right,
Speaker 3: They're going to have to substantiate things more, which is
Speaker 3: not a bad thing. I think one of the from
Speaker 3: our perspective, Look, we never actually exited this race. We
Speaker 3: refiled last year, refiled the year before, We submit new
Speaker 3: analysis every time we do. We have an amazing research
Speaker 3: and quant team, so we actually do a lot of
Speaker 3: primary research ourselves. We're not just referencing other things around.
Speaker 3: You know, how you think about like covariance between different markets,
Speaker 3: and you know, we've gone back and forth with regulators
Speaker 3: all over the world around how we sort of manage
Speaker 3: those statistics and helping them get comfortable with them. So
Speaker 3: we've sort of been engaged in this all along. But
Speaker 3: I think when you look at the Blackrock piece of this,
Speaker 3: why now that timeline actually does make a lot of sense.
Speaker 3: And if you couple that with Larry Fink's letter for
Speaker 3: the year in terms of key themes, crypto being one
Speaker 3: of them that seems quite internally consistent.
Speaker 4: And the other thing that we obviously haven't even touched on,
Speaker 4: which is the key thread in all of these recent
Speaker 4: wave of applications, is the fact that when Blackrock filed,
Speaker 4: they said they were planning to enter or were entering
Speaker 4: into a surveillance sharing agreement with Coinbase, which all the
Speaker 4: denials prior all I talked about those nineteen before denials,
Speaker 4: the one thing the SEC always said was we want surveillance.
Speaker 4: We want to have surveillance over a market of sin
Speaker 4: gifting de size, specifically a regulated market. So this isn't
Speaker 4: the first time we saw a surveillance share agreement with
Speaker 4: coin with within a crypto exchange. The Winklevoss Twins applied
Speaker 4: with this. They said they were going to have a
Speaker 4: surveillance sharing agreement with their own Gemini, among many other things,
Speaker 4: and the SEC denied it, saying it was neither a
Speaker 4: market of significant size nor a regulated market. So now
Speaker 4: we have these filings, everyone's saying they're going to have
Speaker 4: a surveillance sharing agreement Coinbase, which I have written this
Speaker 4: and I will argue this that coinbase is a market
Speaker 4: of significant size, especially if you just look at US
Speaker 4: dollar trading. If you look at the global markets, they're
Speaker 4: like less than ten percent, but almost all of that
Speaker 4: is in stable coin pairs, which are just for those
Speaker 4: that don't know, it's essentially these coins that say they're
Speaker 4: peg to the US dollar. There's a lot of manipulation
Speaker 4: that's potentially happening on some of these other exchanges. The
Speaker 4: big player in the room is Finance, which SEC is suing.
Speaker 4: But if you look at just US dollar pairs, Coinbase
Speaker 4: is the number one trading pair with bitcoin. If you
Speaker 4: just look at exchanges that accept US dollars, Coinbase is
Speaker 4: forty percent of that market. So Coinbase is the market
Speaker 4: when you're talking about bitcoin priced in US dollars, So
Speaker 4: I think they are marketed. It's a significant size, which
Speaker 4: should satisfy some of the SEC's concerns. Combined with the
Speaker 4: fact that we have those CME futures, which we have
Speaker 4: the future CTFs that were approved, all of that points
Speaker 4: to the fact that the SEC might get comfortable saying
Speaker 4: they have enough surveillance. The only caveat that I'm looking
Speaker 4: at right now is basically Gary Gensler and the SEC
Speaker 4: need to kind of accept that bitcoin trading on coinbase
Speaker 4: is not a regulated market. That's the one hang up.
Speaker 4: But honestly, I don't know what would entail a regulated
Speaker 4: market in bitcoin, because bitcoin, even Gary Gensler in the
Speaker 4: SEC would say, is a commodity and not a security.
Speaker 4: So I guess I would push it back to Aphelia
Speaker 4: and say ask if she has any comments on or
Speaker 4: disagreements with anything.
Speaker 3: I said, no, I agree with you. I think the
Speaker 3: question is going to come down to how they define
Speaker 3: significant size, because it's not actually there's no standard for that.
Speaker 3: This isn't like a reference to a law where it
Speaker 3: says it needs to be x right. It's an undefined term,
Speaker 3: as is the sort of regulated piece of that. Neither
Speaker 3: one of these are things that actually you're standardized, and
Speaker 3: so I think it's going to come down to a
Speaker 3: few of those points. And I also think if you
Speaker 3: look at I mean not Torp on this, if you
Speaker 3: go back to gold markets, which is the closest corollary
Speaker 3: we have, and you look at sort of the level
Speaker 3: of surveillance that's expected there, there is an understanding that
Speaker 3: you can really only surveil a portion of that market
Speaker 3: because of the inherent construction of it. Gold markets involve
Speaker 3: everybody from like your pawnbroker to you know, JP Morgan
Speaker 3: trading gold bars in both London and Zurich with different prices, Like,
Speaker 3: how do you deal with that? The answer is you
Speaker 3: make do with some level of surveillance, understanding it's not
Speaker 3: going to be complete. And I think that's actually a
Speaker 3: likely model here.
Speaker 1: Okay, So all of a sudden, we have Coinbase as
Speaker 1: this sort of third party that everybody agrees is going
Speaker 1: to have ability to have this surveillance agreement with. So
Speaker 1: why is coinbase so significant to all these resubmission applications
Speaker 1: all of a sudden, Well, part.
Speaker 4: Of it is all the things I just said, right,
Speaker 4: They are that surveillan sharing agreement, which basically means that
Speaker 4: like NASDAK, who definitely has when CBOE is trying to
Speaker 4: enter one nice he's trying to enter one, they basically
Speaker 4: have contracts where they're trying to enter these agreements officially.
Speaker 4: And all it means is like if the regulars come
Speaker 4: back and say they suspect some sort of manipulation in
Speaker 4: the market, wash trading whatever, they want to be able
Speaker 4: to go to a spot market and say, tell us
Speaker 4: what was happening with the trading on this time so
Speaker 4: they can back into with exchanges that have KYC Know
Speaker 4: your Customer and anti money laundering rules. They want to
Speaker 4: be able to be able to basically like figure out
Speaker 4: who was doing this and if it was actually happening.
Speaker 4: So that's all this is. This is an agreement that
Speaker 4: the exchanges can go to coinbase and get that information affiliate.
Speaker 1: Do you have those in any other jurisdictions.
Speaker 3: No, but it's a different market construction. And one of
Speaker 3: the things that's come up a lot in the context
Speaker 3: of these sessays is sessays are not really commercial in
Speaker 3: that way, So there's no incentive to work with one
Speaker 3: exchange not another. That's not the design. In fact, like
Speaker 3: realize you would have an agreement like this between equities
Speaker 3: exchanges that compete with each other, right, This is not
Speaker 3: that kind of thing. This is a piece of very
Speaker 3: wonky back end infrastructure for exchanges, and so I think
Speaker 3: what you're going to see is coin is coming in
Speaker 3: is great. I think you're going to see more of them.
Speaker 3: I actually think you will see more exchanges sign up
Speaker 3: to this because it actually helps normalize crypto markets to
Speaker 3: standard market practice. And I think a lot of the
Speaker 3: centralized exchanges, especially the ones operating in Europe and the
Speaker 3: United States, have a vested interest in moving in that
Speaker 3: direction and they are so I think that's going to
Speaker 3: be something to look at. I think in the coming
Speaker 3: months is that I don't think this will end up
Speaker 3: being a one off I think you will end up
Speaker 3: seeing a movement in this direction ultimately long term and
Speaker 3: awesome thing for crypto markets.
Speaker 2: And if you're the SEC and Coinbase is going to
Speaker 2: give all this data enter into these agreements with these
Speaker 2: different exchanges, and I mean if Coinbase is working with Blackrock, NASDAC, CBOE,
Speaker 2: we'll call those like sort of the traditional finance companies.
Speaker 2: To me, it just seems like possible they would be
Speaker 2: able to maybe overlook the regulated given all of that,
Speaker 2: in other words, that's that's a regulated in quotes if
Speaker 2: you will, because it's it's with all these traditional finance
Speaker 2: companies and there's no actual bills coming through Congress that
Speaker 2: are going to regulate it anyway, So can you really
Speaker 2: regulate it? So this would be the closest thing and
Speaker 2: it's good enough. And if you're Gary Gensler and you
Speaker 2: have you know Biden's going to let you have another
Speaker 2: presidential election coming up, and you want to basically say
Speaker 2: you move crypto forward, this would be a way to say, well,
Speaker 2: I left it with a lot of the traditional finance companies.
Speaker 2: It's doing well, it's safer than when I started. I
Speaker 2: checked that box.
Speaker 3: And one of the questions, is regulated as what? And
Speaker 3: this is something James was alluding to, because you commodities
Speaker 3: regulated as what, and the issue is a regulated market
Speaker 3: of significant size. If the market is a securities market
Speaker 3: that has a defined meaning. If the market is a
Speaker 3: commodities market, now you're getting into a completely different set
Speaker 3: of things. There isn't necessarily a way to have a
Speaker 3: regulated market there. So I think it's going to come
Speaker 3: down to some of those definitional questions. And it seems
Speaker 3: like if you look at a lot of the enforcement
Speaker 3: actions that have come out of the SEC recently, it
Speaker 3: seems like there is at least an internal consensus within
Speaker 3: the SEC around how to categorize some things as they
Speaker 3: definitely their opinion is that this is definitely a security.
Speaker 3: Whether or not that ends up being the case is
Speaker 3: neither here nor there. But they are stating an opinion
Speaker 3: in these lawsuits, right, so you kind of start to
Speaker 3: see where their opinion's at. That also introduces some wiggle
Speaker 3: room here, because fundamentally, if it's not a security, then
Speaker 3: what is a regulated market? And I think that's one
Speaker 3: of the things that's going to shake out over the
Speaker 3: next few weeks, and we'll be quite interesting.
Speaker 1: So there's some big names here, the black rocks of
Speaker 1: the world. You're basically going head to head with them.
Speaker 1: And I'm curious, what do you think is going to
Speaker 1: distinguish the filing and that plication that you have, Like say,
Speaker 1: everybody say SEC stamps everybody, I don't know when within
Speaker 1: the next year, and everybody's on the in the market,
Speaker 1: what's your product going to look like versus everybody else's.
Speaker 3: So crypto ETFs are not copy paste products of other markets,
Speaker 3: they're not The types of things that happen inside of
Speaker 3: crypto are actually different, and there are corollaries, right, So
Speaker 3: like a fork is kind of like a corporate action,
Speaker 3: and air drop is also kind of like a corporate action.
Speaker 3: But there are a bunch of things that happen that
Speaker 3: are unique, and they're unique to how blockchains operate. And
Speaker 3: then that's true of settlement, that's true of dust that
Speaker 3: accumulates on networks. There's a bunch of like things that
Speaker 3: can happen here. And ultimately, when we look at our
Speaker 3: positioning in the market, we've been doing this for five years.
Speaker 3: Our oldest product is celebrating its five your anniversary in November, which,
Speaker 3: by the way, was not a single asset tracker on
Speaker 3: bitcoin was actually an index product. And we've done this,
Speaker 3: We've seen all of that, and there's something to be
Speaker 3: said for an actual experienced set of hands here, which
Speaker 3: is not true of most of the existing asset managers
Speaker 3: in the space. And if you look at, for example,
Speaker 3: the European market, you know, we've certainly outperformed a lot
Speaker 3: of the traditional, if not all, of the traditional shops
Speaker 3: that have entered the space simply on the basis of
Speaker 3: you do need niche knowledge here working with investors to
Speaker 3: get them comfortable on where bitcoin fits in their portfolio.
Speaker 3: A lot of this is quite specialized information. And the
Speaker 3: way that sales process work is actually very different.
Speaker 4: Yeah, I mean there's a lot of ways they can
Speaker 4: differentiate if we do get one approved, and I just
Speaker 4: think like, based on everything we've seen from the SEC
Speaker 4: and Gensler, the SEC will kind of back into legally
Speaker 4: like whatever they want to basically what Gary Gensler decides,
Speaker 4: right Like, we keep talking about what is a market
Speaker 4: of significant size, what is regulated market? I mean you
Speaker 4: can look at what we had two Cream Future CTFs approved.
Speaker 4: We had Bitcoin Future CTFs approved under two Cream and
Speaker 4: Basically what the SEC said was the CME futures market
Speaker 4: is a market of significant size with respect to the
Speaker 4: CME futures market, which to any normal person would read
Speaker 4: that and be like, am I actually reading this from
Speaker 4: the SEC? So basically they can they'll back into what
Speaker 4: they wanted back into. And she said, what is a
Speaker 4: regulated market? I mean Coinbase, their shares trade on this,
Speaker 4: the they trade, they're regulated by the SEC. They're regulated
Speaker 4: by NYDFS, which is the New York Department of Financial Services.
Speaker 4: There's money transmitter laws, so they can kind of back
Speaker 4: into whatever they want if they really want to, just
Speaker 4: like they can say it's not a market of significant
Speaker 4: size and it's not regulated, so there's all these things
Speaker 4: they can do and they have all these backdoors. But
Speaker 4: my view, and it's all circumstantial evidence. Eric and I
Speaker 4: have talked about this and he can talk about a
Speaker 4: little bit more, but like, it's all circumstantial evidence. And
Speaker 4: if the SEC is suing Finance and Coinbase, they're going
Speaker 4: after all these bad actors in the space, and they're
Speaker 4: focused on all coins. They're focused on Honestly, some of
Speaker 4: the coins that Ophelia also has ETFs for in Europe.
Speaker 4: But the one thing that they that Gary Genzer always
Speaker 4: goes back to is bitcoin is not a security. He
Speaker 4: it's the one thing he'll admit in the whole crypto
Speaker 4: ecosystem that he'll call a commodity. So like, if you're
Speaker 4: gonna give somewhere, and like Eric said, there's political wins here.
Speaker 4: Saying that they got a crypto exchange to come under
Speaker 4: a surveillance sharing agreement with exchanges that are regulated by
Speaker 4: the SEC. That's a win that he can pull. So
Speaker 4: there's a lot of circumstantial evidence that would show that
Speaker 4: this isn't just like the last time. There's a lot
Speaker 4: of people on Twitter like it's gonna get denied, this
Speaker 4: is just like all the other ones. That's not the
Speaker 4: case here. There is a better shot here. Now, is
Speaker 4: it ninety percent chance of approval? Obviously not, But I'll
Speaker 4: let Eric chime in a little bit more here.
Speaker 2: Well, we're at fifty percent, which some people are like, oh,
Speaker 2: that's a cop out. Fifty percent. I'm like, honestly, compared
Speaker 2: to our ETF expert colleagues out there, fifty percent is
Speaker 2: pretty high. A lot of them are just naysaying because
Speaker 2: that's what the SEC recently said, but I don't know.
Speaker 2: We feel as though there are definitely some things have changed.
Speaker 2: There's also some interesting back channel chatter. Blackrock is a
Speaker 2: huge variable. Like I said, they're not doing this just
Speaker 2: on a lark. Okay, so there's a there's also I
Speaker 2: feel the winds of change fidelity Citadel or forming an exchange.
Speaker 2: There's been this whole schwab is with them, Yeah, schwab.
Speaker 2: There's been this whole trad five moving into crypto post
Speaker 2: FTX kind of thing. And this stuff matters. I mean,
Speaker 2: we're again we're trying to read the tea leaves here
Speaker 2: and all this kind of factors. And now that said
Speaker 2: fifty percent also means there's a chance of fifty percent
Speaker 2: that is not going to happen. But there's a lot
Speaker 2: of connecting of dots that would tell you this makes sense,
Speaker 2: the time is right, and it would be obviously, both
Speaker 2: on the political and technical side, feasible.
Speaker 1: Appelia, I'm guessing you're going to take the over on
Speaker 1: the fifty percent. Where do you put probability?
Speaker 3: I actually don't. I think I agree with you guys
Speaker 3: on this. I think one of the things are going
Speaker 3: to see. I think we're still going to see the
Speaker 3: process take the full two hundred and forty. So we're
Speaker 3: not even in the first in here, like we've barely
Speaker 3: started this clock. This is not I think there's this
Speaker 3: expectation that, like they file, this is now happening maybe
Speaker 3: like maybe, but it's still going to take my guesses,
Speaker 3: the entire statutory time if it does.
Speaker 1: Days for four months.
Speaker 3: Uh, it's two forty.
Speaker 1: Nine.
Speaker 4: I can tell you the date that I have estimated
Speaker 4: for a which is final. I have twelve twenty seven
Speaker 4: as the estimated final date because that's.
Speaker 2: On your filing, that's on from April.
Speaker 3: Yes, this is a long game.
Speaker 2: Could be a good Christmas for Ophelia and her who
Speaker 2: lives in Rome.
Speaker 3: It's it's gonna be a it's going to be a
Speaker 3: long thing. And so I think for where we are
Speaker 3: at in the process, which is like a couple of
Speaker 3: months into a multi month process, that seems fair. And
Speaker 3: I I agree that I think the odds have increased
Speaker 3: with these types of arrangements, and I think we're going
Speaker 3: to see a different kind of conversation and that's ultimately
Speaker 3: all you can ask for from regulator. And look, we've
Speaker 3: done this with regulators all over the world. All you
Speaker 3: really want is for them to come to the table
Speaker 3: with an open mind on and have a path forward.
Speaker 3: The path forward may not be we're going to do
Speaker 3: this tomorrow. The path forward. Maybe we need these thirty
Speaker 3: seven things. But if there's a thirty seven thing list,
Speaker 3: you can at least deliver those things. And I think
Speaker 3: that's what this does. It puts us in a position
Speaker 3: to say, Okay, we've cleared one of the things on
Speaker 3: your list, what's the next one? Is there a next one?
Speaker 3: Or are we good?
Speaker 2: Let me ask you this. So when we tweet about this,
Speaker 2: two thirds of the people are aren't thrilled. They're like, yeah, bitcoin,
Speaker 2: let the advisors buy and I love it. I love
Speaker 2: it two hundred k. There's definitely people who want the
Speaker 2: price to go up. Then there's you know, a third
Speaker 2: or like, whoahoa, guys, you want black Rock to touch
Speaker 2: your money? This is not your coin's not your wallet.
Speaker 2: There's this sort of like more purest form of the
Speaker 2: Bitcoin people who think this is like selling out, like
Speaker 2: be careful what you wish for people. How does that
Speaker 2: play out in the crypto world? Obviously you're the etf issure.
Speaker 2: In my view, the ETF is the preferred platform for
Speaker 2: a big, gigantic want of money, at least in America
Speaker 2: from advisors, and that is what you're unlocking with this.
Speaker 2: But you are bringing in a lot of traditional finance,
Speaker 2: and some people would say, well, the whole point of
Speaker 2: bitcoin was to be outside of that system. So is
Speaker 2: there any tension between that sort of ethos, right, and
Speaker 2: all this happening where and all this thing you can have,
Speaker 2: Like all these big asset managers have ETFs and all
Speaker 2: the boomer advisors own them and such.
Speaker 3: So the not your keys, not your coin's crowd is
Speaker 3: a thing one hundred percent and will continue to be
Speaker 3: and should be. But I think the question becomes this,
Speaker 3: I do believe in more control over people's financial destinies.
Speaker 3: That makes a ton of sense. How much of your
Speaker 3: day would you like to devote to that? Because I'm
Speaker 3: perfectly happy personally, even as someone who uses crypto regularly,
Speaker 3: I have no interest in processing my own wire payments.
Speaker 3: It's just not a good use of my time. I
Speaker 3: have other things I would like to do with it,
Speaker 3: and I'm very happy to pay somebody to do that service.
Speaker 3: And I think that's what you're going to start to
Speaker 3: get into with some of these purists, is at what
Speaker 3: stage are you no longer going to be doing this yourself?
Speaker 3: And I think with bitcoiny to you have some particular
Speaker 3: where that comes in is my mom. My mom is
Speaker 3: honestly an amazing woman, but she started talking to me
Speaker 3: about bitcoin in twenty thirteen, which is an absurd concept
Speaker 3: if you think about it, and she was like, this
Speaker 3: makes perfect sense. I believe monetary policy should be centralized.
Speaker 3: Mirk spends too much money hedging. There should be a
Speaker 3: way to have a global currency one hundred percent spot
Speaker 3: on all of the economic arguments. I was like, okay, Mom,
Speaker 3: Like are you going to buy some She's like yeah,
Speaker 3: but there's no way for me to do that. I'm
Speaker 3: not opening a new account with somebody I have never
Speaker 3: heard of, and at the time that was coinbase and
Speaker 3: coinbas was much smaller. I'm not going to get engaged
Speaker 3: with you know, I don't want to do this. I
Speaker 3: don't want to have to manage my own passwords. She
Speaker 3: can barely remember, you know, the password for her AOL account,
Speaker 3: Like this is not this is not her thing, and
Speaker 3: that's not where she wants to spend her time. But
Speaker 3: she can see value in it, and she sees value
Speaker 3: in participating in that environment. And actually that is the
Speaker 3: reason I started my company, is because I wanted to
Speaker 3: be able to help her, like there was nothing to
Speaker 3: put her in. And these ETFs actually filled that gap.
Speaker 3: They fill a gap for people who for whom the infrastructure,
Speaker 3: like the juice isn't worth the squeeze on the infrastructure.
Speaker 3: They don't want to set that up. And I can
Speaker 3: appreciate that, And that's true for a bunch of people.
Speaker 3: And it's also true quite frankly, like all the way
Speaker 3: down the retail chain, for example, like the types of
Speaker 3: crypto custody that are available to an average market participant
Speaker 3: in crypto is nothing compared to the kind of security
Speaker 3: we have, the kind of insurance policies we have, the
Speaker 3: kind of process we have to safeguard assets. It's just
Speaker 3: not even in the same ballpark.
Speaker 4: I mean, we can try me like FTX blew up,
Speaker 4: a lot of people lost their money. I mean recently,
Speaker 4: Prime Trust was a trusted member of the community in
Speaker 4: the US crypto custodian world and they've completely blew up.
Speaker 4: They lost they lost the access to wallets, they put
Speaker 4: their client money in and tried to cover it up.
Speaker 4: And we don't need to get into that in this
Speaker 4: but basically there's a lot of bad actors in the space.
Speaker 4: And no, I don't think like bringing TRADFI and normal
Speaker 4: people in is going to solve all the problems. But
Speaker 4: these people are used to being under heavy regulation and
Speaker 4: doing things right, and I think people that can tow
Speaker 4: that line a little better than the traditional I would say,
Speaker 4: crypto crowd. There's a there's a real selling point there.
Speaker 2: My response after FTX was an ETF fixes this because
Speaker 2: an ETF is SBF proof. That guy, you could not
Speaker 2: do that with an ETF because at ETF's transferable that
Speaker 2: they take it and it's with a custodian. So and
Speaker 2: that goes with any ETF, whether it's stocks or bonds.
Speaker 2: It's the same concept, right. That's why ets were kind
Speaker 2: of invented to be a physically backed kind of futures contract,
Speaker 2: because futures are obviously dependent on counterparties. Anyway, long story short,
Speaker 2: ETFs are I think a safe structure, and there again
Speaker 2: the asset manager could go crazy, but the ETF is
Speaker 2: transferable through the custodian.
Speaker 3: Also realize you for example our products, they're all bankruptcy
Speaker 3: remote Like if our company implodes tomorrow, nothing happens to
Speaker 3: those assets. They don't even from part of the bankruptcy estate.
Speaker 3: They're a completely separate thing. And so what ends up
Speaker 3: happening is what you don't have is something like FTX.
Speaker 3: You don't find any or voyager or prime trust or BLOCKFI.
Speaker 3: And look, FDx is a weird one because that's just fraud,
Speaker 3: and I generally dislike putting them on the same list
Speaker 3: as these other people. Like the other people there are
Speaker 3: issues usually do with credit, FDx is just a fraud case.
Speaker 3: And I think the difference with an ETF frapper is
Speaker 3: that you have that transparency, You have these requirements, you
Speaker 3: have a certain amount of controls process that's built around this.
Speaker 3: And this stuff is terminally unsexy and no one actually
Speaker 3: likes to think about them. But when the rubber hits
Speaker 3: the road, that's when it matters. And no one cares
Speaker 3: about any of this until you're in a situation where
Speaker 3: you actually can't recover your assets and you're starting to realize, hey,
Speaker 3: wait a second, this thing that seemed boring is actually
Speaker 3: where I'm going to, you know, hang my hat and
Speaker 3: find the safe harbor.
Speaker 1: Okay, So, just on the heels of this last question,
Speaker 1: if we've gone through this FTX and these crypto winters
Speaker 1: and retails backed off and FTX no longer has naming
Speaker 1: on the Miami Convention, et cetera, no more Super Bowl commercials, etc.
Speaker 1: And yet the institutions are sticking around and like almost
Speaker 1: showing up. Finally, how big of a of a market
Speaker 1: is this?
Speaker 3: It's massive and it makes sense the institutions. How long
Speaker 3: does it take to get an institution comfortable with entering
Speaker 3: a new market? The answer is actually years. So most
Speaker 3: of what you're seeing now is actual work that was
Speaker 3: done two years ago. So during bull market, a lot
Speaker 3: of people did some work, and through a bear market,
Speaker 3: those seeds have been growing. It's true on the technology front,
Speaker 3: true on the institutional adoption front. It's just generically trund
Speaker 3: crypto bears are for building. It's a trope, but it's accurate,
Speaker 3: and I think what you're seeing is you're finally seeing
Speaker 3: the return on that the return on years of work
Speaker 3: by people. So I think ultimately, even if retail's temporarily
Speaker 3: backed off of the space and risk on assets are
Speaker 3: not popular across financial markets right now. This isn't unique
Speaker 3: to crypto, right, this is you're seeing the same thing
Speaker 3: in VC, You're seeing the same thing in inequities markets
Speaker 3: like this has been a change, right, It's why you're
Speaker 3: seeing layoffs at Facebook for the first time and that
Speaker 3: type of dynamic. And I think this market is massive,
Speaker 3: but it's just the beginning, and people somehow sometimes link
Speaker 3: price to those types of advancements. Price is a lagging
Speaker 3: indicator of what's actually happening in the space by a
Speaker 3: long shot. So the question becomes where are we actually
Speaker 3: We're in a early good spot, and this is what
Speaker 3: the groundwork for the next bowl market is going to be.
Speaker 1: How big is massive? They're a number for it.
Speaker 3: That's hard.
Speaker 2: But you asking about the ETF market, We'll start there. Well,
Speaker 2: how much is there right now in global crypto ETFs?
Speaker 2: Like fifty billion?
Speaker 4: I mean, if you totally ets, no, it's less than that.
Speaker 4: But if you include the gray scale bitcoin, let's include that,
Speaker 4: it's twenty Yeah, it's around fifty billion. That it's right,
Speaker 4: it's forty billion, fifty billion. I haven't checked in a
Speaker 4: past in a little while.
Speaker 2: Then I would say five hundred billion that's that's a
Speaker 2: little more than gold is. But I you know, I
Speaker 2: don't think all advisors will allocate and and I don't
Speaker 2: think they allocate a lot, but certainly an institution, some
Speaker 2: of them would use an ETF. Some would just go
Speaker 2: straight and rate with an asset manager and not use
Speaker 2: an ETF. But that's my guess. I would say five
Speaker 2: hundred billion in like five years.
Speaker 3: Do you mean crypto or do you mean bitcoin?
Speaker 2: I'm crypto Bitcoin probably a vast majority of that number, though.
Speaker 3: Interesting because I think that's the question. Depending on how
Speaker 3: you think about what the future of crypto is, that
Speaker 3: number can be wildly different. So, for example, do you
Speaker 3: believe in the tokenization of the underlying securities, because then
Speaker 3: you're getting into whole other thing. So the question is
Speaker 3: the question is how big is the market for blockchain
Speaker 3: based things and investment products. That's a very different conversation.
Speaker 3: If the question is is it, you know, specifically crypto
Speaker 3: including all the alts, that's different. I think those kinds
Speaker 3: of numbers for like a bitcoin product makes sense. But
Speaker 3: I think as you start to add these other line items,
Speaker 3: there's a version of the world where there's no difference
Speaker 3: between crypto ETFs and all ETFs because you can actually
Speaker 3: operate the plumbing on a blockchain. So then I think
Speaker 3: those numbers start to fall Apart.
Speaker 2: From that's a little two next level for me.
Speaker 4: I mean, I'm going to take it back and say
Speaker 4: I'm on the record, this probably will be if we
Speaker 4: do get a spot bitcoin ETF. There's a chance they
Speaker 4: all want to at the same time. But if they
Speaker 4: do launch at the same time, I think the assets
Speaker 4: the flow into these products will be like the biggest
Speaker 4: launch we've ever seen. So if we only get one ETF,
Speaker 4: I think it could beat biddoh, which is the Bitcoin
Speaker 4: Futures ETF that is currently the fastest launch to a billion,
Speaker 4: the largest launch in the first week. I think these
Speaker 4: products could blow that out of the water, even if
Speaker 4: some of that is taking money away from biddoh and
Speaker 4: other products.
Speaker 2: And just to just a final thought here, this is
Speaker 2: why this is so fascinating. It's a race, and usually
Speaker 2: biddo has ninety five percent of the Bitcoin Future ETF
Speaker 2: volume and assets, and it only had a three day
Speaker 2: lead over the number two launcher. So that is why
Speaker 2: this is utterly fascinating because if you're out first, you know,
Speaker 2: unless you're a big company, it's it's hard to catch
Speaker 2: up from that first, the first launch, the first.
Speaker 1: To market, Ophelia. I guess we'll have you back in December,
Speaker 1: if not sooner, maybe Okay, James Aphilia, thanks for joining
Speaker 1: us on Trillions.
Speaker 4: Thanks for having us, Thanks for having.
Speaker 1: Us, Thanks for listening to Trillions until next time. You
Speaker 1: can find us on the Bloomberg Terminal, Bloomberg dot com,
Speaker 1: Apple Podcasts, Spotify, or wherever else you'd like to listen.
Speaker 1: We'd love to hear from you. We're on Twitter, I'm
Speaker 1: at Joel Webbers Show. He's at Eric Balchunas. This episode
Speaker 1: of Trillions was produced by Magnus Hendrickson. Bye