WEBVTT - Will Prediction Markets Come to ETFs? 0:00:05.559 --> 0:00:06.280 Wokan A trillions. 0:00:06.320 --> 0:00:15.520 I'm Joel Weber and I'm Eric Belchunas. 0:00:12.280 --> 0:00:15.680 Eric, I know you're really excited about this episode, and 0:00:16.200 --> 0:00:19.960 I had a prediction that was related to that. We're 0:00:19.960 --> 0:00:23.320 going to talk about prediction markets, which had become I 0:00:23.360 --> 0:00:27.400 think one of the most fascinating areas in all of 0:00:27.480 --> 0:00:29.440 kind of we'll call it finance, even though I think 0:00:29.440 --> 0:00:31.960 it's slightly adjacent to that, but people have gotten really 0:00:31.960 --> 0:00:35.760 into prediction markets, and that meant that the ETF industry 0:00:35.800 --> 0:00:38.000 has also taken note, and there's been some filings that 0:00:38.040 --> 0:00:42.160 I'm really interested in discussing on today's episode. What caught 0:00:42.200 --> 0:00:42.680 your attention? 0:00:43.760 --> 0:00:47.800 Yeah, about maybe a month ago somewhere, and there I 0:00:47.880 --> 0:00:50.640 was sitting I remember exactly where I was. I was 0:00:50.680 --> 0:00:54.040 at my kids au basketball game. We're just about to 0:00:54.080 --> 0:00:57.000 keep score. I wasn't the coach. I was the scorekeeper 0:00:57.000 --> 0:00:59.800 for this one. But anyway, I saw the filing. I 0:00:59.840 --> 0:01:02.320 think James might have texted it to me and he said, 0:01:02.320 --> 0:01:04.880 look at this. And it was Friday. A lot of 0:01:04.880 --> 0:01:07.480 the best filings come in at Friday on Friday at 0:01:07.480 --> 0:01:11.360 like four pm. Anyway, I'm looking at it, and it's 0:01:11.440 --> 0:01:15.320 prediction market ETFs. There was a filing from round Hill 0:01:15.800 --> 0:01:18.520 and then Bitwise followed and then there was a third 0:01:18.520 --> 0:01:20.720 issue or so there's three issuers who filed for prediction 0:01:20.800 --> 0:01:24.399 market ETFs. A that's interesting, and be the ones they 0:01:24.480 --> 0:01:29.280 chose were Democratic president wins twenty twenty eight election, Republican 0:01:29.319 --> 0:01:32.040 president wins twenty twenty eight election, and then there's some 0:01:32.080 --> 0:01:35.040 Democrat Republican Senate ones in there, so it was political. 0:01:35.560 --> 0:01:37.560 Now that's just a tip of the iceberg of what 0:01:37.560 --> 0:01:41.640 prediction markets could do. But as instantly as an ETF analysts, 0:01:41.680 --> 0:01:44.240 I'm like, oh my god, they're going after this. I 0:01:44.319 --> 0:01:46.680 just didn't anticipate it. There was nothing in my brain 0:01:46.720 --> 0:01:51.240 that was expecting prediction market ETFs. And I'm pretty aware, 0:01:51.320 --> 0:01:53.400 you know, I'm total nerd in this space. So it 0:01:53.440 --> 0:01:56.200 was interesting to be caught by surprise. And then you know, 0:01:56.240 --> 0:01:59.320 we looked in how will these work? And again that's 0:01:59.360 --> 0:02:01.320 why it's fun to be an ETF analyst. It's never 0:02:01.320 --> 0:02:04.080 a dull moment. I mean, every time, every time it 0:02:04.120 --> 0:02:07.400 gets a little like calm out there, something else throws 0:02:07.440 --> 0:02:09.919 you into this new world. And this could be really 0:02:09.960 --> 0:02:13.840 interesting because if these go through, there's you know, the 0:02:13.880 --> 0:02:16.120 sky's the limit. You know, we could see a whole 0:02:16.160 --> 0:02:20.880 gigantic category created for basically easy ways to click a 0:02:20.880 --> 0:02:24.040 button and bet on prediction markets for a variety of things. 0:02:24.080 --> 0:02:27.280 So I thought it was worth discussing, you know, while 0:02:27.320 --> 0:02:30.280 they're in registration, just so people could sort of, you know, 0:02:31.000 --> 0:02:33.040 get these teed up and look out for them if 0:02:33.040 --> 0:02:33.480 they launch. 0:02:34.160 --> 0:02:36.320 So if being the big operative, we're there and to 0:02:36.360 --> 0:02:39.880 discuss all of this with us. Matt Hogan, who's the 0:02:40.000 --> 0:02:43.840 chief investment officer of bit Wise Asset Management. Usually he 0:02:43.919 --> 0:02:46.560 comes on to talk about crypto, so I'm excited about 0:02:47.000 --> 0:02:52.480 talking with him about something off today, this time on 0:02:52.520 --> 0:02:57.639 trillions prediction markets. Matt, Welcome back to trillions. 0:02:58.000 --> 0:02:59.920 Oh thanks for having me. I'm excited to be here. 0:03:00.400 --> 0:03:02.600 Okay, So I didn't know that you wanted to do 0:03:02.680 --> 0:03:05.400 things other than crypto. I thought you had gone full crypto, 0:03:05.800 --> 0:03:08.600 and once you go full crypto, you can't do anything else. 0:03:09.040 --> 0:03:10.880 But I guess there's room for a little bit more. 0:03:11.600 --> 0:03:14.000 Wait, hold on, did you go full crypto? Because whenever 0:03:14.080 --> 0:03:15.639 we had him on and he said he was fifty 0:03:15.639 --> 0:03:17.359 five percent crypto, he. 0:03:17.440 --> 0:03:21.160 Was full crypto. But yeah, okay, I think you're full now, Matt, Yeah, 0:03:21.160 --> 0:03:22.079 what's that breakdown? Now? 0:03:22.080 --> 0:03:25.320 Come on, guys, I dragged ETFs into crypto along with 0:03:25.360 --> 0:03:29.600 a lot of my friends, so I merged the two worlds. Yeah, 0:03:29.639 --> 0:03:33.520 full crypto, full financial innovation. Look, prediction markets are a 0:03:33.639 --> 0:03:37.960 close analog to crypto. They sort of got their early 0:03:38.040 --> 0:03:42.000 traction in the crypto market with Auger and then polymarket, 0:03:42.080 --> 0:03:45.760 and now we see more regulated traditional onshore venues like Kalshi. 0:03:46.240 --> 0:03:48.680 So these were close cousins. I think if you've been 0:03:48.680 --> 0:03:51.280 involved in crypto for the last five years, you've been 0:03:51.320 --> 0:03:53.920 paying very close attention to prediction markets, So to me, 0:03:54.000 --> 0:03:55.800 it's a natural extension. 0:03:56.840 --> 0:04:00.440 Okay, so I'm really curious about how this is actually 0:04:00.440 --> 0:04:04.880 going to work, Like, how do you imagine calci or 0:04:04.920 --> 0:04:10.000 polling market style bet being packaged into an ETF. What 0:04:10.040 --> 0:04:10.960 are the mechanics of that? 0:04:11.440 --> 0:04:13.480 Yeah? Sure, I mean first I should say that I 0:04:13.520 --> 0:04:17.080 can't speak about the filings beyond what's in the actual filing, 0:04:17.160 --> 0:04:20.520 of course, because they're alive filing and registration. I'm going 0:04:20.560 --> 0:04:23.640 to speak generally about the process as opposed to specifically 0:04:23.720 --> 0:04:27.520 about the prediction shares filing. But look, you know, if 0:04:27.520 --> 0:04:30.440 you think about the ETF industry writ large you guys 0:04:30.480 --> 0:04:34.640 have been covering. It takes interesting financial applications and packages 0:04:34.720 --> 0:04:38.279 them into an easy wrapper that people can access. We've 0:04:38.279 --> 0:04:41.839 seen that from stocks, to bonds, to hedge fund like strategies, 0:04:41.839 --> 0:04:45.159 et cetera. This is a natural extension of that. So 0:04:45.200 --> 0:04:48.640 if you think of the underlying exposure, what's going on 0:04:49.320 --> 0:04:54.599 in prediction markets. There are prediction markets on a wide 0:04:54.680 --> 0:04:58.560 variety of things, from the silly to the geopolitical to 0:04:58.600 --> 0:05:02.960 the political. Have something like a Democrat or a Republican 0:05:03.040 --> 0:05:06.200 wins the election in twenty twenty eight, people in the 0:05:06.320 --> 0:05:09.640 underlying prediction markets can bet on that outcome. Let's say 0:05:09.640 --> 0:05:14.000 it's trading fifty five forty five Democratic. They could bet 0:05:14.040 --> 0:05:17.080 on the Democrat winning fifty five percent. If he wins, 0:05:17.120 --> 0:05:18.880 it goes to a dollar. If he loses, it goes 0:05:18.920 --> 0:05:25.040 to zero. The ETFs, per the filings, can use swaps 0:05:25.080 --> 0:05:27.960 or direct exposure to gain exposure to that kind of outcome. 0:05:28.440 --> 0:05:31.599 So it's actually it's relatively simple, which is that this 0:05:31.760 --> 0:05:36.040 exists in a regulated market, and the ETFs are capturing 0:05:36.080 --> 0:05:38.920 that or proposing to capture that, because of course they 0:05:38.920 --> 0:05:41.640 aren't launched. They may not launch theirself to be approved, 0:05:42.279 --> 0:05:44.359 proposing to capture that in an ETF rapper. 0:05:45.000 --> 0:05:49.000 Okay, so Matt, Basically, if you're looking at let's say 0:05:49.040 --> 0:05:50.880 to CTF launched, and you were at the fifty five 0:05:50.920 --> 0:05:54.200 to forty five the Republican one, I forget what you said, 0:05:54.200 --> 0:05:56.479 but let's say that was the fifty five to one, 0:05:56.520 --> 0:06:00.800 you would buy the ETF and it would match the 0:06:00.839 --> 0:06:05.799 percent currently on polymarket or whichever interface you were using. 0:06:06.279 --> 0:06:10.080 So effectively, all this is doing is just making it 0:06:10.120 --> 0:06:12.320 a little more convenient for people who do like to 0:06:12.440 --> 0:06:16.000 use ETFs versus getting your own poly market account, which 0:06:16.320 --> 0:06:20.400 again isn't that dissimilar from crypto, where you're literally just 0:06:20.680 --> 0:06:24.600 having this thing put into your environment where. 0:06:24.360 --> 0:06:25.440 You like it. 0:06:25.560 --> 0:06:28.880 That's all that's happening. There's no other variable here. You 0:06:28.960 --> 0:06:32.719 basically will click by at fifty five and that number 0:06:32.760 --> 0:06:35.039 will move based on how poly Market moves up to 0:06:35.080 --> 0:06:35.520 the election. 0:06:36.279 --> 0:06:38.480 I mean, that is what you see in the filings. 0:06:38.520 --> 0:06:40.880 That is how it's defined. Of course, the exact exposure, 0:06:40.920 --> 0:06:44.480 as I mentioned, could be either swaps based or direct 0:06:44.480 --> 0:06:49.560 contract based. The proposals contemplate both, but the general idea 0:06:49.680 --> 0:06:52.920 is exactly that. I think the analog to crypto and 0:06:53.000 --> 0:06:56.680 bitcoin is very similar. When the bitcoin ETF's launched, there's 0:06:56.720 --> 0:06:59.279 this hue and cry you heard it about why do 0:06:59.320 --> 0:07:02.000 we need a bitcoin ef You can buy it on coinbase, 0:07:02.080 --> 0:07:05.080 you can buy it through self custody. It turned out 0:07:05.080 --> 0:07:08.640 that people like the protections and ease of the ETF format. 0:07:09.200 --> 0:07:12.280 This is exactly that. It's absolutely true that individuals can 0:07:12.680 --> 0:07:15.440 open a Calshie account or a poly market account and 0:07:16.000 --> 0:07:20.760 trade tailor swift song views if they want to, but 0:07:20.960 --> 0:07:23.880 not everyone wants to open those accounts, capitalize them. They 0:07:23.880 --> 0:07:26.280 don't fit into their plans, et cetera. So if these 0:07:26.280 --> 0:07:29.200 were allowed and permitted, it would allow it to happen 0:07:29.280 --> 0:07:30.760 in a traditional ETF repper. 0:07:31.160 --> 0:07:34.680 So how have regulators responded to your interest so far? 0:07:35.000 --> 0:07:38.120 Well, we're engaged in the process with regulators. I'll just 0:07:38.160 --> 0:07:41.160 say that there is there is interest. But you know, 0:07:41.400 --> 0:07:44.680 one thing I've said before when we filed originally for 0:07:44.840 --> 0:07:49.760 crypto ETFs is that bitwise doesn't exist to pay lawyers 0:07:49.760 --> 0:07:52.720 and file projects that we don't believe will launch. So 0:07:52.760 --> 0:07:54.600 if we didn't think there was a pathway to launch, 0:07:55.200 --> 0:07:58.000 we wouldn't have taken this filing. All that said, I 0:07:58.000 --> 0:08:00.400 said that when we first filed our bitcoin et which 0:08:00.400 --> 0:08:03.560 I think was twenty nineteen, So you should take because 0:08:03.600 --> 0:08:07.560 words with a long term view and not a guarantee 0:08:07.560 --> 0:08:08.840 of any short term activity. 0:08:09.560 --> 0:08:13.880 Is there a prediction on when your filing will actually 0:08:13.920 --> 0:08:14.320 get through? 0:08:14.360 --> 0:08:14.520 Yet? 0:08:14.560 --> 0:08:15.120 Can we get. 0:08:15.520 --> 0:08:18.120 Prediction markets on when the prediction ETFs will launch? 0:08:18.280 --> 0:08:20.560 I've actually pretty shocked that there isn't. Well, as far 0:08:20.600 --> 0:08:23.800 as I know, there's not one. But maybe after people 0:08:23.840 --> 0:08:24.120 listen to. 0:08:24.280 --> 0:08:25.720 Should I should get it going? 0:08:26.000 --> 0:08:26.760 You should get it going. 0:08:28.400 --> 0:08:32.560 I mean after seeing what went down with the bitcoin 0:08:32.640 --> 0:08:36.600 ETFs and the crypto ETFs and how well they've done. 0:08:36.640 --> 0:08:39.360 And again, the ETFs have proved over and over you 0:08:39.360 --> 0:08:41.960 could stuff almost anything in there. These issuers know what 0:08:41.960 --> 0:08:45.040 they're doing. I don't see them taking that long to launch. 0:08:45.440 --> 0:08:48.640 There could be something I'm not seeing here, but it's 0:08:49.400 --> 0:08:53.040 seems like you would just be able to use those 0:08:53.080 --> 0:08:57.000 other examples as things that worked fine in a similar fashion, 0:08:58.240 --> 0:09:00.760 And that's all ETFs have ever done. They've just made 0:09:01.240 --> 0:09:03.800 something you can probably do on your own easier. 0:09:04.200 --> 0:09:06.839 Yeah, I think that's right. If you think back of 0:09:06.920 --> 0:09:10.480 the history of ETFs, they've almost always worked extraordinarily well 0:09:11.080 --> 0:09:14.959 accept in situations where the underlying was really complex, like 0:09:15.760 --> 0:09:21.280 inverse vix, or where they were underlying liquidity issues like 0:09:21.320 --> 0:09:25.679 putting private shares into an ETF have. Those have enabled challenges. 0:09:25.720 --> 0:09:30.080 But if you have a liquid underlying that's accessible and 0:09:30.120 --> 0:09:32.360 that could be clearly explained to people, that has an 0:09:32.480 --> 0:09:36.400 extremely strong track record in ETF land over the last 0:09:36.400 --> 0:09:37.760 thirty years. 0:09:45.040 --> 0:09:48.880 So if I'm a regulator, what's going to make me nervous? Like? 0:09:48.880 --> 0:09:50.600 What did you have to anticipate as you were thinking 0:09:50.679 --> 0:09:54.480 about this, about what the anxieties are going to be? 0:09:54.920 --> 0:09:57.800 Yeah, certainly, I think they're probably two that come immediately 0:09:57.840 --> 0:10:01.439 to mind, and these would apply to any sort of 0:10:01.480 --> 0:10:05.160 filing that you're doing. One is the underlying liquidity. Right, 0:10:05.200 --> 0:10:08.240 the underlying liquidity on some of these contracts can range 0:10:08.240 --> 0:10:11.320 from very good to very poor, and so you have 0:10:11.400 --> 0:10:14.080 to think about how liquid the underlying is. That's certainly 0:10:14.120 --> 0:10:17.720 something that went into our calculus when evaluating this space. 0:10:18.200 --> 0:10:20.760 And then the second is that prediction markets are a 0:10:20.840 --> 0:10:26.080 vast canvas and we've seen reactions for and against different 0:10:26.120 --> 0:10:29.200 parts of the prediction market sector. Right, there's this big 0:10:29.240 --> 0:10:32.959 debate our prediction markets investing or gambling, and I think 0:10:33.000 --> 0:10:35.880 it's like not a great debate, because if you take 0:10:35.960 --> 0:10:40.040 a prediction market on a sports game, like the outcome 0:10:40.400 --> 0:10:45.360 of the NCAAA final, that looks a lot like traditional 0:10:45.360 --> 0:10:47.680 sports betting. If you take a prediction market on FED 0:10:47.720 --> 0:10:50.559 fund futures and the outlook for interest rates, that looks 0:10:50.559 --> 0:10:55.080 like a lot like traditional investment categories. And so I 0:10:55.120 --> 0:10:57.640 think the other thing that we think a lot about 0:10:57.880 --> 0:11:01.600 is what is appropriate in a setting and then what 0:11:01.840 --> 0:11:06.280 is maybe less appropriate. And I think that's that's something 0:11:06.320 --> 0:11:10.360 that I think you'll see et officialers think carefully about 0:11:10.640 --> 0:11:12.000 as they look to pursue this. 0:11:12.640 --> 0:11:15.600 You guys have these look I agree, and I actually 0:11:15.640 --> 0:11:18.800 before on the train ride up, these political ones Joel 0:11:18.800 --> 0:11:21.440 are the most popular. So my guess is there's a 0:11:21.440 --> 0:11:25.160 lot of liquidity for giant political races, and that's why 0:11:25.200 --> 0:11:25.920 you started here. 0:11:26.480 --> 0:11:31.040 But I'm actually sports is by far the more popular 0:11:31.800 --> 0:11:34.040 place where the money goes. It's like something like Matt, 0:11:34.080 --> 0:11:36.920 you'll probably know better, something like ninety percent is all 0:11:36.920 --> 0:11:40.520 in sports. It's basically become a proxy for sports books, 0:11:40.559 --> 0:11:46.480 which is why states have been filing lawsuits against prediction markets. 0:11:46.679 --> 0:11:49.199 So I'm curious, like you, I mean, starting in a 0:11:49.240 --> 0:11:54.440 place like politics and elections purposely avoids that discussion, and 0:11:54.720 --> 0:11:56.760 I'm curious why go politics to start? 0:11:57.000 --> 0:11:59.920 Well, look bit wise exist to help people gaining interesting 0:12:00.040 --> 0:12:02.679 exposure to important areas of the market. I think politics 0:12:02.720 --> 0:12:05.680 is obviously extremely important for the outlook of the market. 0:12:05.720 --> 0:12:08.280 I mean, living in crypto, the outcome of elections has 0:12:08.280 --> 0:12:10.680 a huge impact on my business, and there is no 0:12:10.800 --> 0:12:14.960 way to explicitly hedge that impact or lean into that impact. 0:12:15.000 --> 0:12:17.840 So if you think about it from an investment lens, 0:12:18.760 --> 0:12:23.520 the presidential election will impact huge numbers of investments. Whether 0:12:23.920 --> 0:12:27.080 Michigan beats Yukon or not will not impact a huge 0:12:27.160 --> 0:12:29.920 number of investments. So I think it's as simple sort 0:12:29.920 --> 0:12:31.080 of real politic as that. 0:12:31.360 --> 0:12:34.000 But isn't the sports thing inevitable, Like we're going to 0:12:34.080 --> 0:12:37.320 have Super Bowl bets and ETFs at some point if 0:12:37.360 --> 0:12:38.160 we go down this path. 0:12:39.040 --> 0:12:41.240 Oh, I don't know. I'm not sure that that's true, 0:12:41.880 --> 0:12:43.559 you know, as you mentioned, and there's a lot of 0:12:43.920 --> 0:12:46.960 state based litigation about that. I think that introduces some 0:12:47.040 --> 0:12:50.800 regulatory risk and maybe some existential risk into the development 0:12:50.840 --> 0:12:53.640 of products focused on that, while those is still adjudicated. 0:12:53.720 --> 0:12:56.480 So I'm not sure that you have to assume we 0:12:56.559 --> 0:12:59.240 go to infinity, if we go to one, I would 0:12:59.280 --> 0:13:01.840 even say that oddly about prediction markets. I think there's 0:13:01.880 --> 0:13:04.920 a possibility in the future that prediction markets narrow in 0:13:05.000 --> 0:13:08.920 from their current enormous scope and refine what is appropriate, 0:13:09.040 --> 0:13:13.120 at least on the regulated onshore markets. I don't think, yeah, 0:13:13.120 --> 0:13:15.560 I don't think that that is fully scoped at this point, 0:13:15.600 --> 0:13:17.440 and people are sort of feeling out the edges. 0:13:17.840 --> 0:13:22.400 It does seem like the ETF industry will definitely play 0:13:22.400 --> 0:13:26.040 with this a little bit. I expect that if these launch, 0:13:26.640 --> 0:13:31.560 we will see a little silly season, but generally speaking, 0:13:31.920 --> 0:13:35.280 when it comes like I'm I'm thinking of like will 0:13:35.320 --> 0:13:39.040 Aliens come back? Will Jesus come back? Will the Eagles 0:13:39.080 --> 0:13:40.920 win the Super Bowl? I want a two x version 0:13:40.920 --> 0:13:47.239 of that. I could see this happening, But those ideas 0:13:47.360 --> 0:13:50.400 are very similar to crypto. The further you get from 0:13:50.559 --> 0:13:53.560 further away you get from these big liquid areas, they're 0:13:53.600 --> 0:13:55.960 not going to be huge successes in the ETF either. 0:13:56.040 --> 0:13:58.840 So I think sticking to politics it is probably makes 0:13:58.880 --> 0:14:01.559 sense for me point of view too, which is there's 0:14:01.960 --> 0:14:04.040 probably a lot of people who are interested in that, 0:14:04.120 --> 0:14:07.560 and you know, there's always been this thing like oh, hey, 0:14:07.600 --> 0:14:10.840 I think Trump's gonna win, let me go along the market. 0:14:10.920 --> 0:14:13.439 Or some people were like he's going to crash the market, 0:14:13.800 --> 0:14:16.080 and that's actually two way bet there, like people don't 0:14:16.080 --> 0:14:18.800 even know. This cleans that up a little because then 0:14:18.840 --> 0:14:22.400 you don't have to actually do like three D math, like, well, 0:14:22.440 --> 0:14:25.440 if the Republicans win, the rates will do this, and 0:14:25.480 --> 0:14:27.480 people will think this and this will go up and down. 0:14:27.880 --> 0:14:30.320 This is just straight up this will pay off if 0:14:30.360 --> 0:14:33.440 they win, which it cuts through having to do that 0:14:33.480 --> 0:14:35.400 three D math, which people have to do with the 0:14:35.720 --> 0:14:37.200 political stuff a lot. I think. 0:14:38.160 --> 0:14:40.520 I think that's enormously true, and I would actually extend 0:14:40.600 --> 0:14:43.320 that beyond things. If you look at something like interest 0:14:43.400 --> 0:14:45.880 rates and you look at the Fed fund futures market, 0:14:45.960 --> 0:14:48.600 that involves a high degree of math to figure out 0:14:48.640 --> 0:14:51.840 what they're expressing, Whereas what people want to decide is 0:14:51.880 --> 0:14:54.760 will interest rates go up or down at the next meeting. 0:14:55.120 --> 0:14:57.720 I would even say that that extends to some degree 0:14:57.840 --> 0:15:02.440 to like options and and equity price outcomes. You know, 0:15:02.480 --> 0:15:05.440 what people want to allocate to is will bitcoin cross 0:15:05.440 --> 0:15:08.440 one hundred thousand dollars. They don't want to talk about 0:15:08.520 --> 0:15:11.760 various Greeks on how that's expressed in the options market, 0:15:11.800 --> 0:15:14.840 at least not everyone wants to. So you know, again, 0:15:14.880 --> 0:15:19.520 if you think of one pathway that ETFs have followed 0:15:19.600 --> 0:15:23.040 has been taking institutional exposures and making them accessible and 0:15:23.080 --> 0:15:26.320 easy to understand for everyone. I think prediction markets are 0:15:26.360 --> 0:15:30.239 in that vein when it comes to politics, economic indicators, 0:15:30.880 --> 0:15:35.160 market indicators, and I think that's really good for investors 0:15:35.160 --> 0:15:38.400 and actually really good for the world as well. 0:15:38.720 --> 0:15:42.080 Just to stick with the regulatory theme for a second, 0:15:42.080 --> 0:15:43.960 one of the things that I find interesting about prediction 0:15:44.040 --> 0:15:47.440 markets is that we've talked about the states and how 0:15:47.480 --> 0:15:51.640 they're suing the companies and trying to change what you 0:15:52.240 --> 0:15:54.400 may or may not be able to bet on. The 0:15:54.480 --> 0:15:59.080 CFTC has really been the most vocal on a federal 0:15:59.200 --> 0:16:02.600 level proponent of the markets. So I'm curious. We've seen 0:16:02.640 --> 0:16:07.160 what happens between SEC and CFTC on occasion. Do you 0:16:07.240 --> 0:16:10.560 have any inklings of how that dynamic plays out yet? 0:16:11.000 --> 0:16:13.920 Look, I think it's it's you know what celig has said. 0:16:14.000 --> 0:16:17.080 The chair of the CFTC is pretty clear that he've 0:16:17.160 --> 0:16:19.520 used these as swap contracts that ought to be regulated 0:16:19.520 --> 0:16:22.680 by the CFTC, which means a lot of things which 0:16:22.720 --> 0:16:26.400 are worth noting. It means things like market surveillance, it 0:16:26.480 --> 0:16:30.400 means things like rules against insider trading, et cetera, et cetera. 0:16:30.480 --> 0:16:34.640 I think that is obviously the dominant paradigm. ETFs have 0:16:34.720 --> 0:16:38.720 interacted with commodity swaps and options for years, right, So 0:16:38.800 --> 0:16:42.239 ETFs hold things that are primarily regulated by the CFTC. 0:16:42.800 --> 0:16:46.320 That's been going on at least since the gold ETFs, right, 0:16:46.400 --> 0:16:48.800 certainly you know before that. So this is just an 0:16:48.800 --> 0:16:51.760 extension of that. Now, of course, the SEC has its 0:16:51.760 --> 0:16:55.840 own review process for these contracts, but the underlying I 0:16:55.840 --> 0:16:58.359 think there's a I think there is a broad consensus 0:16:58.400 --> 0:17:02.040 that those are you know, swap that belong under a 0:17:02.200 --> 0:17:03.320 CFTC guidance. 0:17:04.040 --> 0:17:06.679 And just to stick with the mechanics of how this 0:17:06.800 --> 0:17:09.879 might work. So there's this, let's call it a binary 0:17:10.160 --> 0:17:14.800 that on a presidential outcome. What does that look like 0:17:15.080 --> 0:17:18.479 after it resolves? From an ETF perspective, Is there any 0:17:18.760 --> 0:17:22.679 version or comparison that we've ever seen in the marketplace 0:17:22.720 --> 0:17:26.720 of basically a you know, ETF resolving itself in sunsetting 0:17:26.760 --> 0:17:29.800 like that seems like a new chapter. 0:17:30.280 --> 0:17:32.439 Yeah, Actually, so there are two versions. There's one that 0:17:32.480 --> 0:17:35.480 you're referring to, which I would say there is a 0:17:35.480 --> 0:17:38.480 great example, which are the bullet shaars. The bulletshairs were 0:17:38.480 --> 0:17:41.680 bond ETFs that targeted specific years, so like I'll only 0:17:41.720 --> 0:17:45.280 hold treasuries that mature in twenty twenty nine, and then 0:17:45.320 --> 0:17:47.000 at the end of twenty twenty nine you would get 0:17:47.000 --> 0:17:49.680 your one hundred dollars par back. You've collected interest along 0:17:49.680 --> 0:17:52.840 the way, and then the it liquidates and off you go. 0:17:53.359 --> 0:17:56.000 And the reason that was a successful franchise is because 0:17:56.000 --> 0:17:59.040 people have specific needs at specific years. They want to 0:17:59.080 --> 0:18:02.520 get their money back, and traditional bond ETFs don't do that, 0:18:03.080 --> 0:18:07.200 and then people would often move from the twenty twenty 0:18:07.280 --> 0:18:09.560 nine to the twenty thirty or the twenty thirty one, 0:18:09.600 --> 0:18:12.040 et cetera, using them like a bond ladder. So I 0:18:12.040 --> 0:18:15.399 think that is the best example of sunsetting ETFs that 0:18:15.440 --> 0:18:19.399 we have, and it was enormously successful. Obviously, it introduces 0:18:19.520 --> 0:18:23.359 some capital and tax considerations that are worth thinking about, 0:18:23.440 --> 0:18:25.800 but we do have a clear example of that. The 0:18:25.880 --> 0:18:28.400 other thing you see in the filings, again not talking 0:18:28.440 --> 0:18:31.400 about ours, but just the filings broadly, is a concept 0:18:31.400 --> 0:18:35.760 of rolling these into future where you would use stock 0:18:36.000 --> 0:18:41.400 reverse splits to sort of recalibrate it to the next election. 0:18:41.920 --> 0:18:43.920 I think it remains to be seen. You know, what 0:18:44.040 --> 0:18:47.120 is the best approach, what investors want, how those will 0:18:47.119 --> 0:18:49.480 work from a mechanical perspective, But if you dig into 0:18:49.520 --> 0:18:51.440 the filings you'll see both ideas. 0:18:51.800 --> 0:18:54.760 I'm curious, Matt, because you're referring to filings other than 0:18:54.800 --> 0:18:56.520 just your own. Is there anything else you saw in 0:18:56.520 --> 0:18:59.280 the filings that made you go, Oh, that's that's different 0:18:59.320 --> 0:19:01.879 and that tickles my brain in a way that I 0:19:01.880 --> 0:19:02.600 hadn't expected. 0:19:02.920 --> 0:19:05.119 Yeah, I think I think that is the That is 0:19:05.160 --> 0:19:08.919 the primary thing that I've seen. From a difference perspective, 0:19:09.080 --> 0:19:11.359 I think a lot of the details have to have 0:19:11.440 --> 0:19:13.800 yet to come out and yet to materialize. I think 0:19:13.840 --> 0:19:17.480 if you're thinking around where are the interesting structural questions, 0:19:18.280 --> 0:19:21.320 that's the primary one, and then how you gain exposure 0:19:21.359 --> 0:19:24.040 is the secondary one. But that's more sort of nuts 0:19:24.040 --> 0:19:27.919 and bolts. And if you think about product development perspective, 0:19:28.040 --> 0:19:30.880 it's the question we talked about earlier, is are there 0:19:30.920 --> 0:19:34.560 more where else could get this go? Where is appropriate? 0:19:34.960 --> 0:19:37.879 What is helpful for investors versus harmful for investors? What 0:19:37.960 --> 0:19:40.960 is easy to understand versus not easy to understand, and 0:19:41.000 --> 0:19:43.920 I think those are the two avenues of exploration you'll 0:19:43.920 --> 0:19:47.800 see at least first as we go down. As Eric mentioned, 0:19:48.040 --> 0:19:51.720 you know, the ETF innovation machine throws everything against the wall. 0:19:52.200 --> 0:19:54.720 So I won't foreclose what other people will do in 0:19:54.760 --> 0:19:57.640 the future. I have no idea if we'll see leveraged 0:19:57.640 --> 0:19:59.520 prediction markets or something like. Who knows. 0:20:00.119 --> 0:20:03.240 And I'm telling you right now, these things go through. 0:20:04.240 --> 0:20:06.520 You know, Matt Tuttle, just the name one. He's on 0:20:06.600 --> 0:20:09.399 a loan. We're going to see some funky stuff and 0:20:09.480 --> 0:20:12.399 I'm here for it. I don't mind that. I've always 0:20:12.440 --> 0:20:17.080 looked at the exotic and even silly part of ETFs 0:20:17.119 --> 0:20:21.200 are just you can't have perfect innovation where everything's serious 0:20:21.240 --> 0:20:25.200 and perfect and always works. It's just the way capitalism works. 0:20:25.520 --> 0:20:28.480 And one of these goofy ones may take off, and 0:20:28.520 --> 0:20:31.760 that's fine. This is a free market. That said, like earlier, 0:20:32.359 --> 0:20:34.720 the goofy er and crazier you get the less of 0:20:34.720 --> 0:20:36.280 the market. There will be the same thing's happening with 0:20:36.320 --> 0:20:39.439 the crypto. As you get further away from bitcoin, the 0:20:39.480 --> 0:20:41.159 assets are going to go down and down, and the 0:20:41.160 --> 0:20:43.600 interest will go down. It's not like the ETF will 0:20:43.600 --> 0:20:46.480 all of a sudden drum up new dynamics that the 0:20:46.560 --> 0:20:49.760 underlying market doesn't have. So I do think though there's 0:20:50.320 --> 0:20:53.760 there are some ones that could appeal to direct retail 0:20:54.040 --> 0:20:57.920 that are just silly, goofy and you know a little 0:20:57.920 --> 0:20:59.960 on the de gen side, and then they might leverage them. 0:21:00.080 --> 0:21:00.560 We'll see. 0:21:00.960 --> 0:21:04.080 But you know, there are two x dock ETFs out 0:21:04.080 --> 0:21:08.240 there right now that have such incredible volatility that you know, 0:21:08.320 --> 0:21:12.520 there's plenty of ways to gamble. So it's not that 0:21:12.640 --> 0:21:15.440 big of a deal. But the it'll be seem like 0:21:15.480 --> 0:21:18.360 a big deal for a while. It always, it always does. 0:21:18.600 --> 0:21:21.679 I've just been doing this so long. You know, at 0:21:21.720 --> 0:21:24.280 some point nothing shocking, you know, like. 0:21:24.400 --> 0:21:25.919 This is when he like becomes the old man on 0:21:25.960 --> 0:21:26.680 the rocking chair. 0:21:28.680 --> 0:21:31.760 Well, actually, I feel pretty young at heart because there 0:21:31.760 --> 0:21:34.600 are some other analysts I won't name them who kind 0:21:34.600 --> 0:21:37.359 of crap on a lot of the new stuff. We 0:21:37.440 --> 0:21:39.720 had a theme that we started writing about last year 0:21:39.800 --> 0:21:42.760