ETH ETF: Bullish or Bearish? | Alex Thorn & Matt Hougan

Is the Ethereum ETF Bullish for ETH? Matt Hougan and Alex Thorn put together their own analysis of inflows for the ETH ETF. Remarkably, their numbers came in somewhere close to the same place. We discussed how much demand there will be for the ETH ETF, whether or not it will overperform or underperform expectations and the overall state of the Crypto Market today. ------ ✨ Mint the episode on Zora ✨ https://zora.co/collect/zora:0x0c294913a7596b427add7dcbd6d7bbfc7338d53f/24?referrer=0x077Fe9e96Aa9b20Bd36F1C6290f54F8717C5674E ------ TIMESTAMPS 0:00 Intro 2:18 When ETH ETF? 7:16 Data Gathering Process 13:59 The BTC ETF Datapoint 24:17 Estimating ETH ETF Inflows 42:19 Price Impact 52:36 The ETH ETF Bear Case 1:03:14 Solana ETF? 1:05:44 The State of the Market 1:13:53 Closing & Disclaimers ------ RESOURCES Matt Hougan https://x.com/matt_hougan Alex Thorn https://x.com/intangiblecoins Bitwise https://bitwiseinvestments.com/ Galaxy Digital https://www.galaxy.com/ ------ Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures⁠

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  I don't know what the flows will be in the second half of the year, but I expect that we'll see an acceleration as those account platforms come on. And as the inevitable tailwinds behind crypto right now, which are massive, push us to new all time high prices. I will also add, I expect 2025 flows to exceed 2024 flows.

• 0:25David Hoffman?

  Welcome to Bankless, where we explore the expectations around the incoming ETH ETF with two guests, each from an ETF issuer, Matt Hougan from Bitwise and Alex Thorne from Galaxy. Both Matt and Alex have been doing some market research to put together an analysis of inflows for the Ethereum ETF. Remarkably, their numbers come pretty close to each other. These aren't random guesses. These are educated guesses and each one comes to the show today to give their numbers and show their work. Some of the things that we discussed with the guests today. How much demand will there be for the ETH ETF? Will the ETH ETF overperform or underperform expectations? What about the ETH E trust from Grayscale? Is that going to come and kill the party like it did with the Bitcoin ETF? Some other topics as well, the Solana ETF from VanEck.

• 1:09David Hoffman?

  Was that real or just a hail Mary? What's going on with that? And overall, what about the market as a whole? Are we bearish, bullish or confused about the state of the crypto market more broadly?

• 1:19Ryan Sean Adams?

  This is the episode I think we need. I guess if you're into, if you're not into bullish episodes on Bankless, maybe skip this one. Okay. Because this was definitely a bullish episode. But it's a good response to a lot of the narrative that's going on. Prices going down, people are getting bearish. There's a lot of bearishness in terms of sentiment being expressed in particular on the Ethereum ETF, like it won't amount to anything. Yeah, but we dive headlong into that. So we actually make the bear case as well and get both Alex and Matt to respond to that. So there's a bit of back and forth. And I think listeners should strap themselves in and make their own conclusions at the end of this episode. Let's get to the episode with Matt and Alex. But before we do, we want to thank the sponsors that made this episode possible,

• 2:00Ryan Sean Adams?

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• 2:05David Hoffman?

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• 3:35David Hoffman?

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• 4:20David Hoffman?

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• 5:04David Hoffman?

  Matt is the CIO over at Bitwise, one of the ETH ETF issuers. Alex Thorne is Head of Research at Galaxy Digital, another issuer of the ETH ETF. Matt and Alex, welcome to Bankless.

• 5:17Speaker 00

  Thanks for having us. Yep. I'm excited to be here.

• 5:20David Hoffman?

  Thanks for having me. So we've had both of you guys on before, both Matt and Alex, before the Bitcoin ETFs were approved and started trading, to ask the same question that we are asking today: How big will the demand be for the ETH ETFs? And as we watch the Bitcoin ETFs become approved and start trading, I would say like both of you guys like pretty much nailed your predictions. Both you guys were like pretty close to each other's predictions and they were like, you know, more or less like dead on. So we're bringing you guys back to ask the question, but for the ETH ETFs, how much demand will there be for the ETH ETFs? That's going to be the bulk of the content, the conversation here today. But first, before we get into the actual ETF like metrics that we can talk about, just want to talk about the approvals.

• 6:03David Hoffman?

  We're going to release this podcast episode on Monday, the Monday, which I believe is the first, with the Bloomberg Boys with their tentative over/under date, their 50/50 date being tomorrow, July 2nd. I'm wondering if you guys have any like alpha or information that you might be able to share about speculation on when the ETH ETF might actually go live and start trading? Alex, do you have any alpha you can share us?

• 6:27Speaker 03

  Yeah, I mean, I I was very surprised, I think, like many people, with the abruptness of the process and but now, you know, you've seen multiple issuers file amendments. There are still amendments to be filed. You know this because we don't have fees for many of these, you know, prospective filings. I think only one maybe has it so far. So there there's got to be more, but they could those could be the final ones. If you start looking at the the delta between the various versions and amendments, it's pretty minimal. We don't see a lot of changes being made in the latest round of amendments that came out. This is the exact tea leave reading that we were doing back in November, December

• 7:09Speaker 03

  of 23. It seems like issuers have really copied the Bitcoin S1s on a variety of the issues that had been tricky, create redeem process, the stuff that the mechanics of it that really had to get figured out. So this is all to say, David, that I I think we're close. I had when when in May, when the sort of pivot, the abrupt 19b4 process really sort of kicked off on a Monday and was approved on a Thursday, I thought maybe like earliest you could see would be August, just because of how many rounds there'd been for the Bitcoin ones. But they seem to have picked up from a, you know, much further starting point. And so I I'm going to go ahead and just straight up guess next next

• 7:51Speaker 03

  week. So the week of July 7th or 10th, whichever that week is sometime then they actually trade. Keep in mind, we have a holiday this week, right, with July 4th. So you lose a day, even if they maybe get, you know, if the SEC were to say, these are all done, we don't need to do anymore, that's still probably I would bet they don't trade this week. So could be next week. Could take longer, though, of course.

• 8:15David Hoffman?

  Matt, vibe check. How's that? How's that vibe with you?

• 8:17Speaker 00

  Yeah, I think that sounds right. My birthday is July 8th. That'd be a nice birthday.

• 8:24Speaker 00

  March then. So I think, you know, They could be any day. I think that's right. Issuers are waiting to hear from the SEC and many expect it to be the last round and then they would file and launch a day or two after that. As Alex mentioned, we have a funky week with the half day on the third and then the day off on the fourth. So this would be a chaotic week for those to launch, but this is crypto in the SEC. So you never know, we might get that. But I think, I think I'll put the over under on my birthday.

• 8:54David Hoffman?

  Matt, does Bitwise have a July 4th, I'm taking the day off, big finance commercial coming out?

• 9:03Speaker 00

  I can't disclose that. I can't disclose that. But hopefully you all have been enjoying the commercials.

• 9:08David Hoffman?

  We definitely have.

• 9:09Speaker 00

  The team did a great job.

• 9:10Speaker 03

  Yeah, those, I have to say too, Matt, those Ethereum commercials were excellent. Very funny.

• 9:16Speaker 03

  You guys also had the most interesting man in the world too, didn't you?

• 9:20Speaker 00

  Yeah, we did the most interesting man for Bitcoin. We had to figure out something to do in the ETH space. And yeah, we've gotten great feedback. They've been fun and there are more to come. There are more to come. There's new characters coming as well.

• 9:31Speaker 03

  Yeah, I don't know if people have actually, I'm sure this must have been part of the inspiration and maybe it's, you know, maybe I'm dating myself a little bit, but they were very reminiscent of those old Mac Windows ads with the sort of lined up Windows guy and the comedian that was the,

• 9:48Ryan Sean Adams?

  It was like, I'm a Mac, I'm a PC.

• 9:51Speaker 00

  Yeah.

• 9:52Ryan Sean Adams?

  You know what? In that case, I actually read like way back then, some people had sympathy for the PC. They thought he was like fun and like you. And it's like, it was, it was backfiring a little bit for Mac, but I don't see that with the TradFi guy. He kind of just like in the Bitwise commercials, he just kind of annoys me. So yeah, I think you guys have maybe done a better job than Steve Jobs way back then.

• 10:14Speaker 00

  I love it. I love it. I don't hear that very often, but I'll take that one. Any day.

• 10:19David Hoffman?

  All right, so vibes are good. Sounds like we're getting it sooner rather than later. Maybe not this week, but optimistically, it sounds like next week, which I'm just fine with. Again, want to get into the actual metrics of the measuring of the flows, but I actually want to talk about your guys' methodology first for doing so. Just the data gathering process for how you guys have made this guess. And I want to make and put emphasis on this. This is an educated guess. You guys are not just like licking your fingers, sticking up to the winds and like picking a number. You guys are gathering data. You're doing some market analysis, I'm guessing. And I kind of want to just like get some insight into that process. So we know what this like educated guess actually actually looks like.

• 11:01David Hoffman?

  So maybe Matt, we can start with you. Just what does the data gathering process look like? What are the data inputs into this educated guess?

• 11:09Speaker 00

  Yeah, I love that you frame it that way because the reason I wrote my piece was I was frustrated. Not by what Galaxy and Alex had done, which I thought was great, but what a lot of the takes I saw on social media, which were just people sticking their finger in the air and saying it's going to be zero. It's going to be a hundred billion dollars. It's ridiculous. There are starting points to look at, so I really focused on two sets of starting points. One is just the relative market cap of Bitcoin and ETH. I think it's incredible that people didn't look at that. And the reason I looked at it is I was speaking with an advisory firm that has, you know, over a hundred billion dollars of assets. And the first thing they mentioned to me was that they were uncomfortable with just Bitcoin.

• 11:52Speaker 00

  And they really wanted to diversify. They would be more comfortable with their advisors allocating if they could build a diversified basket. And it just hit me like a ton of bricks that the starting point for many investors is going to be the market cap weight, which is about a three to one ratio right now. Now, some people want Bitcoin only. Some people want ETH only. There are good arguments on both sides, but the naive starting point is the market cap. So that was the first point. And then I thought to myself, well, there are ETH, ETP markets internationally in Europe and Canada.

• 12:27Speaker 00

  Among others, and they're not identical to the US market. Those those ETP markets operate a little bit differently, but they're not completely irrelevant. So let's look abroad. And when I looked at the AUM, it almost lined up with this market cap weight. It was a little bit lower, which makes sense to me because Bitcoin was first and some people just click the box and move on. But they were 22 or 23% by assets. And from there, it's some pretty simple math and you arrive. From my perspective, I mean, the number I got to was $15 billion over the next 18 months. But what you arrive at more fundamentally than that is that, yes, there's going to be significant demand for these ETPs.

• 13:11Speaker 00

  I could be off by billions of dollars here or there, but it's not going to be zero. It's not going to be 100 billion. It's going to be really significant, you know, 10, 15, 20, in those ranges. And that's how I got there, David.

• 13:27David Hoffman?

  Alex, you sent me a pretty robust research report from from Galaxy. Maybe you could talk about when that's going live, if that's going live. And talk about some of the methodology that that you went into creating that report.

• 13:38Speaker 03

  Yeah, so I it's just really interesting because I had a similar reaction to Matt when watching people and Charles, you Chuck on my team, who actually wrote this report, he and I were been debating this now for a couple of weeks and laughing that we wrote our version of this for Bitcoin months before they launched. This one we just published on our website today. We sent to our clients and counterparties on Wednesday. The same day Matt wrote his, so I actually didn't see his until after we had published it, came to a very similar conclusion. Also used things like market cap weighting. I think, you know, when I think about how institutional allocators or financial advisors are gonna get in, get exposure to crypto, I think it's pretty unlikely that they're going to choose to just own the Bitcoin ETF. And then you start to say, okay, well, if I'm doing 1% crypto, 2%,

• 14:24Speaker 03

  it's probably some weighting and usually market cap weighting is where you might start. We also looked at things like the ratios between the Bitcoin open interest on CME versus the. ETH open interest on CME, right? That's an eight. That's one where Bitcoin's much larger, but it's eight, 8.4x ETH. But also the APs for the Bitcoin ETFs use CME futures to hedge. So you presume that would go up if ETH futures, ETH spot ETF launches. Open interest across all exchange. Bitcoin's only 2x bigger. Daily futures volume on CME, it's only 4x bigger. Anyway, we looked at the funds that we looked at the grayscale trust before launch, leading into launch. And their relative sizes, that came down to us about an overall average of 3.2x, right?

• 15:08Speaker 03

  So that we sort of work with 30% as a multiplier, which by the way, is basically the market cap weighting. So the idea, and we talk about a whole bunch of stuff about, we look at obviously now, now that we have empirical data from the Bitcoin fund launches. Like that's our sort of starting point. So we say, okay, what if they perform proportionately the same as the Bitcoin ones? Now that would be great performance because the Bitcoin ETFs, I think, really came out of the gate very strong. Frankly surprised everyone. We, we kind of got the number and price relationship right. But actually, we said those 14 and a half billion for the Bitcoin ETFs were going to come primarily from the wealth platforms.

• 15:50Speaker 03

  And only 20% or so of the total reported 13F filing shareholder was, you know, $100 million investment manager bigger. So like, I think it was mostly retail. So that further colored, you know, I know that people are very pessimistic. I maybe we'll talk about why. And I acknowledge these things, the timing and other things related to it. But if we look at it and just say, what if they are as big? We come to, we didn't look past like through the end of the year, basically. We just said, we'll look at the first five months of Bitcoin and predict the first five months of ETH. But we said a billion a month in net inflows or 5 billion over five months. It's really not that much different than 15 over eight months, which is what Matt came to.

• 16:33Speaker 03

  And I think the story I'm trying to real, partly because I think people have so vastly underestimated the retail demand, the demand on brokerage platforms and people's tax advantaged accounts in their brokerage windows and their 401Ks. I just think it's more, our rapport is more about saying like, you know, maybe people are overthinking this. Maybe they're kind of mid curving this. And what if it's kind of like, well, ETF good, you know?

• 17:01David Hoffman?

  That's one data point that we have with the ETH ETF that the Bitcoin ETF did not have is the Bitcoin ETF. So maybe we could really double down on that conversation. Like the Bitcoin ETF, I think we were all surprised with the demand. And now we're kind of extrapolating that to the ETH ETF. Maybe that gets balanced out by the fact that the ETH price is higher now because of the success of the Bitcoin ETF. So maybe those things cancel out, but just really, maybe Alex, we could just double down one more time. Like, what did we learn from the Bitcoin ETF that informs the ETH ETF?

• 17:35Speaker 03

  Yeah, well, we see the total net flows, right? Actually, we see inflows. Let's just start there. You see inflows into all the newly launched vehicles, right? And then, of course, that's weighted against the outflows from the Grayscale Bitcoin Investment Trust. And we expect, you know, there's obviously the Ethereum version of that ETH. I don't know what it's like Ethereum, Grayscale Ethereum Trust, probably. People expect outflows from there, too. But I would also say part of the reason for outflows, in addition to people having played that trade of trying to collapse the discount to NAV on GBDC, is also because the fee is really high. It's they're still charging 1.5%, 150 bips on GBDC, when all of the other issuers were in the, you know, you know, high teens to like mid 20 range.

• 18:18Speaker 03

  And also waived them, almost all of them, I think, waived the fees for like the first six months or to some threshold or something like that. So much cheaper vehicles launched that caused a lot to come out of GBDC. So obviously, we say, hmm, ETH is a similarly structured product. It had a pretty large discount that collapsed, leading in to what we expect as a conversion. So we expect there's outflows there from people just closing that trade that they did, right? Where they, you know, they short futures and they long the trust in order to collapse that discount to NAV on the trust. So outflows, we know there'll be outflows. So now that's why we're talking about net inflows, right? But now we start calculating them. We also have the whole first quarter, those 13F filings, to me, were very telling.

• 19:00Speaker 03

  Like, you had like the top seven or something of the Bitcoin ETFs by AUM were not really heavily institutionally owned. I mean, sure, there's some big names, a couple of them are above 20% of the filings, right? You have to make these filings if you're an investment manager that has more than $100 million in assets. That, you know, $100 million RIA or Wealth Manager isn't that big, right? So like, this would capture a lot of that, right? And only about 20, 25% on the, on the big ETFs had to, had to file. That, that mean, that tells me that most of that, uh, those shares are held at fidelity.com, E-Trade, TD Ameritrade, right? Like Schwab, the retail brokerage platforms.

• 19:45Speaker 03

  And, well, I mean, look, hedge funds and institutions can also use those platforms, but if they themselves are reportable $100 million or more investment managers, doesn't matter where they have it, they would still report. So you're, so you're thinking like, I'm thinking it's a lot of people that like crypto already, like they liked Bitcoin. Similarly, I think there's a, at a minimum of proportionate amount of people, maybe market cap weighted that like ETH, probably fewer than Bitcoin, but still a lot. And there are people with a lot of money in these accounts. You can pull data on like separately managed accounts or 401k balances. Think about the, and then also you start thinking about the, the, so I think a lot of the ownership is on those platforms in the hands of regular people.

• 20:27Speaker 03

  And that really surprised us, I think, that there was that much demand coming from there because we can all buy Bitcoin for years. I've been buying Bitcoin for, I didn't need an ETF, like people that want to buy Bitcoin, it's possible, right? But I don't know, you start to say, well, you know, I did go in and buy some of the ETFs in my, in my tax advantage account where I wasn't able to buy Bitcoin. So you, you just, to me, it's like, one of the main learnings here was to caution against underestimating it. Cause I think we did underestimate the Bitcoin ETFs, even though they were, even though some, plenty of people said they were going to be great. I mean, I also thought they'd be great, but not that fast, right? So that's, that's sort of what underpins, I think that's probably the main learning I have from the Bitcoin ETFs.

• 21:10David Hoffman?

  Matt, how does this analysis vibe with you? Does that align with your, your thinking? Anything you want to add?

• 21:15Speaker 00

  Yeah, I think that's right. I think it stretched our Overton window of what an ETF could do. I mean, before these ETFs, the most successful ETF of all time gathered $5 billion in its first year and we're at, you know, 15 in six months for the Bitcoin ETFs. So I think it recalibrated how successful this could be. I think what Alex mentioned is right. There was a lot of retail demand. I think a lot of retirement account demand. And let's be honest, crypto works really well in that setting. It's a long-term investment with potentially very high gains that can be protected from a tax perspective. That's, that's three big boxes to check. And I think you saw significant flows into that space. So yeah, it taught us that this is a successful space.

• 21:57Speaker 00

  It expanded how successful it could be. And now it's also created a class of traditional investors who own crypto in a brokerage setting. And I think a lot of those people are going to add ETH on top of their Bitcoin ETF exposure.

• 22:11David Hoffman?

  Okay, I do want to get to the ETH flows metric. I know Alex kind of dropped the answer, but maybe if listeners weren't paying attention, we're going to say, I'm going to get an asset for that minute bit. But I'm going to continue to drag this out because I have one side quest I want to get down. Are there any estimates about the next few months of the Bitcoin ETF flows? Or are we now in the world of we'll just see it as it happens? Right now, we're in a bit of a lull. It kind of seems like the broader crypto market is priced to the flows, trying to see what the flows are doing next. And the flows haven't, haven't done a lot. We've had some small updates, some small down days, down days. But overall, I think we've like established an equilibrium in the Bitcoin ETF flows. Do you guys have any takes for over the next like two, three, six

• 22:52David Hoffman?

  months of the flows for the, for the Bitcoin ETF? Any sort of, do you guys have any estimates about that? Alex, start with you.

• 23:00Speaker 03

  Yeah, I do. I don't have any hard numbers, but I would say what we're waiting for, I think, I think it's fair to say we've reached a bit of an equilibrium. I mean, there's definitely been some independent registered investment advisors that have come in. So you have some financial advisors, right? But I think all the issuers, this is one of the Weird things about the ETF, the ETH ETF timing. The issuers, I, I think Matt will know this as well, are all quite busy doing diligence with all the big wealth platforms right now to get their ETFs onto those platforms, right? Those are the flows that I was always talking about, that I know Matt and the team at Bitwise has always been targeting. Like, this is the, the giant kit, like, piece of the pie, you know?

• 23:39Speaker 03

  I think, we, we think it's twenty, forty trillion dollars in either bank or broker dealer wealth management platforms, right? So, we're talking about like Morgan Stanley is the one that's been in the news a lot. It's been reported many times by Bloomberg and others, so it's not that they are, they, they've been actively looking to add these like quicker than most. They're, I think they are the biggest, so, um, but they're, they, as far as I know, it hasn't been reported that they have yet, right? So, for Bitcoin flows, like, from a non, um, you know, outside of catalyst for BTC USD spot Bitcoin, I would say it's, we're, we're waiting for more platform access. They haven't really arrived yet. That's the crazy thing about these, like, this is, to me, it really is mostly a retail phenomenon. And so, when, to the extent that that changes, right?

• 24:24Speaker 03

  To the dominoes fall for these giant platforms to start allowing their advisors to solicit and sell these things. And you start seeing model portfolios get constructed and people start telling the story that Matt's talking about with the long-term benefits, then I, I think that probably creates a whole, whole new wave of, of demand. That's who I thought these were for. Like I said, we could all already buy Bitcoin, you know?

• 24:48Speaker 00

  Yeah, yeah, I think that's right. Um, every indication I have of that audience is that demand from that space is accelerating already.

• 24:58Speaker 00

  Um, you know, we're seeing increasing wins from that space. I'm sure Alex is seeing increasing wins from that space. And, uh, as mentioned, we expect to, you know, open up major new markets at the Morgan Stanley, Wells Fargo, Bank of America's UBS of the world. And I would just click down on that forty trillion dollar number. You know, we're seeing sort of two and a half percent emerge as an average allocation. Two and a half percent of forty trillion dollars is trillion dollars, right? We've done fifteen billion, it's nothing. I don't know what the flows will be in the second half of the year, but I expect that we'll see an acceleration as those account platforms come on. And as the inevitable tailwinds behind crypto right now, which are massive, push us to new all time high prices.

• 25:41Speaker 00

  Uh, as we move to the end of the year, which I think we will see. I will also add, I expect 2025 flows to exceed 2024 flows. And I think we're going to build.

• 25:52David Hoffman?

  Wow.

• 25:53Speaker 00

  Yeah. Yeah, year after year for a number of years. Uh, there are two reasons for that. One is these wealth platforms coming on board and the institutional capital unlocking. And the other, again, to point back to data. Gold ETFs are the closest analog to this Bitcoin ETF launch. They were enormously successful out of the gate. They were the most successful ETFs ever at the time. And year two flows exceeded year one. Year three exceeded year two.

• 26:20David Hoffman?

  Really?

• 26:21Speaker 00

  Year four exceeded year three, all the way up to year seven. When you open up new asset classes, it's a multi-year phenomenon. So I do think we'll see accelerating flows in 25 and beyond.

• 26:33David Hoffman?

  Matt, if you had to give an inning for, uh, what the Bitcoin ETFs are in, in terms of their overall like maturity, like if we're at the ninth inning, then they are as like mature, they've totally, their, their wine has aged, they're good to go. Like what inning, what inning are we in?

• 26:47Speaker 00

  Yeah, we're like, we're like maybe at the bottom of the first. Maybe ETFs are, ETFs are a slow burn business. I mean, I point back to those gold ETFs. They took one year off in year eight and then they re-accelerated again. Their highest year was 2020, 16 years after they launched. You know, institutions need to buy trillions of dollars of crypto. Right now they own zero and ETFs are going to be a primary vehicle. So I think, yeah, maybe it's the bottom of the first and the, the, the home team's coming up.

• 27:20David Hoffman?

  All right, so let's go ahead and get right to the punch here. Estimating the flows for the ETH ETF. We talked about some of the analysis, the market cap weighting. What does that actually get us? Like, what can we reasonably expect at launch, maybe? And then also just five, six months into the future. Matt, let's start with you.

• 27:37Speaker 00

  Yeah, so I think at launch is the thing I'm the squirreliest about. Because there's a big question in my mind, how fast the money comes out of ETH? And whether there is some significant net outflows that could even exceed inflows for a short period of time. I don't know that that will happen. That didn't happen in Bitcoin. But I do think people have sort of realized that that trade is inevitable and they're going to make that swap. And so maybe they accelerate the pace at which they make that swap.

• 28:09Ryan Sean Adams?

  And so people know what you're talking about. ETH is the grayscale trust with like Ether embedded inside. And the projection is that will kind of like bleed out. That will be a source of outflows for the Ethereum ETFs in general, yes?

• 28:24Speaker 00

  That's right. And there are two types of investors in there, right? There are investors who want to be long ETH. And they will probably sell the higher cost product and rotate into products from Bitwise and Galaxy. And then there are people who are just playing the arbitrage trade, who have bought ETH because it's trading at a discount to its net asset value, hedged themselves and are just waiting for that discount to disappear if there's a conversion. And then they'll exit the ETH space. So the thing to worry about is whether those people exit and do new investors come in fast enough? So I think in the in the few weeks around launch, I think it's possible for a variety of scenarios to happen.

• 29:08Speaker 00

  I actually have low confidence exactly what will happen in the few weeks around launch. I think as we get to month two, three, four, five and six, this flood of money that's going to come into the space is going to make itself felt. You know, I think we'll, I think we could easily be at, you know, at five, six billion by the end of the year in net flows, and I think it could accelerate from there in 2025.

• 29:32Ryan Sean Adams?

  Just really quick, because we do want to bottom line some of those estimates. But like the ETH E grayscale trust issue, this already played out. To David's point earlier, we've already seen the script run with Bitcoin. Of course, Bitcoin had GBDC, and that was a grayscale product. And the same sort of net effect happened here. And I remember there was consternation or concern before the launch of the actual trading of these products and people asking these same questions. Is can't we just take what happened to Bitcoin and just like copy paste, apply it to Ethereum? And just like, as Alex was saying, not mid curve this thing, just like, hey, you know, this already happened. Let's just like play it back for Ethereum at just a slightly lower market cap.

• 30:15Speaker 00

  I think that is the base case. I think that's the base case. I would note that Bitcoin sold off after its launch for a few weeks. And then it rallied sharply to new all time highs. Again, I don't actually, if I had to make a base case analysis, I don't expect that to happen. I expect there to be enough new investors come in to offset it. But I just think investors should be prepared that the few weeks around launch will be an interesting period with lots of shifting dynamics. The long term story is $15 billion is going to come into these ETFs and pushes to new all time highs. And I think that will happen rapidly. But you have to keep the long story separate from the very short term.

• 31:00Ryan Sean Adams?

  Short term chaos. Oh, yeah. And by the way, for bankless listeners, you know, we have their famous saying that just like most disagreements in crypto are over time horizons. So when you see different like banter disagreements on crypto, some of it's just a time horizon. And I remember in January, after the launch of the Bitcoin products, when the price of Bitcoin went down, the bearers came out in storm and was like, see, it was sell the news, we told you. And then boom, off like a rocket in the weeks after that. So just to get super clear on your estimates for inflows then, Matt, then we'll turn it to Alex. So you think possibly like a $5 billion or so in inflows in the first, you know, five

• 31:41Ryan Sean Adams?

  Six months, but then ultimately your analysis over 18 months is what like 15 billion, something to that effect?

• 31:47Speaker 00

  15, yep, 15 billion by the end of 2025.

• 31:51Ryan Sean Adams?

  Okay, and do you feel like that is a base case estimate? Or is that leaning more conservative? Or is that leaning more optimistic? And what are the things that could impact in one direction or another? Either, either, you know, cause your estimate to be, you know, less bullish than it should be, or like more bullish than it should be?

• 32:10Speaker 00

  It strikes me as slightly conservative because I think the market is underestimating the scale of the tailwinds behind Ethereum, for which I would focus on the changing regulatory environment in Washington and what that means for this ecosystem, the after effects of the Dengun upgrade and what it means for the ecosystem. I just think the Ethereum ecosystem has these massive tailwinds behind it. And if we see those manifest in real organic growth in the space over the next 12 to 18 months, as I think we will, then I think my estimates will be low. So, so I guess I'd consider them conservative, slightly conservative for that reason.

• 32:49Ryan Sean Adams?

  Okay, let's get to Alex's estimates. And so Alex, you kind of gave some of these estimates early in the show, but I want, I want to get you to underline it today. And I think it's important maybe to say that both of you arrived at these estimates of inflows independently, right? So like you were, you were not talking like, you know, you didn't copy each other's work. This is not a case of plagiarism here. You just crunched the data on your own, but you resulted in a similar calculation, I believe. Alex, what is kind of your end result estimate and over what time horizon for inflows? And the same question to you, is this like a base case estimate? Is it, is it more towards bullish or more bearish? And what are the puts and takes?

• 33:31Speaker 03

  Yeah, it is pretty remarkable because I've seen so many bearish takes, which is one of the things that I was cognizant of as we were preparing this over the last week and a half or so. And then saw Matt's thread literally like an hour before or after we emailed this report directly to people. And I was like, that's actually like, he says 15 over eight, 15 billion over 18. We come, we didn't look past basically the end of the year. We just said, In our study, we're just going to look at the the length of time the Bitcoin ETFs had exists, which when we first started writing was four and a half months. We updated the data and make it five months, right? So you think of July plus five months. That's through the end of the year. So we'll just look at that, right? But, you know, five billion over

• 34:13Speaker 03

  five months is where we land, right? Effectively net one billion per month. But I agree very wholeheartedly with Matt about the it's gonna be tricky. By the way, you know what's gonna color also this this ETH outflow if we get it is the the fee that they have. Now, there's no guarantee that they do the same strategy where they keep it at 1.5%. We don't know yet. And and the president of Grayscale has left. So it could be a whole different strategy for all we know. That was that's a big factor for the cohort Matt described who just want to be long ETH. If all of a sudden, the fee goes down to 20 bips, then maybe just stay, right? So it could that which would reduce the outflow. On the other hand, and we spent

• 34:55Speaker 03

  a lot of work on this. That's why the ETH question is a big one for the netting of the demand. And then we spent a lot of time on the demand side, which I'll talk about in a second. But the ETH outflow, I mean, ETH has 2.4% of total circulating supply of of Ether. GBDC had 3.2%. So it was bigger on a net basis, or on a relative basis to the Bitcoin network. So actually, ETH might it it holds less, even if every, you know, even if half of it comes out in the first, how long to take two months or so for GBDC to bleed half its Bitcoin out to the market? Like, that's still slightly, I mean, you know, almost a whole percent less, which I mean, is reasonable. It's a notable difference.

• 35:39Speaker 03

  We hold that through, then we're thinking, you know, if if the exact same happens, Ryan, you said copy paste, then you'd have 54.2% of net outflows as of like, last week when we when we did this. So that was out of GBDC, more slightly more than half has come out since they launched, since they converted. The same thing would be a billion dollars a month, you know, by the time maybe like, you know, 150 days after the ETF, you'd start to see a billion dollars a month come out of ETH. You know, that it could take long, they could come out with a they could waive the fee briefly, and then go back to a high fee that could temper outflows. There could also be a much higher percentage of

• 36:19Speaker 03

  Shareholders in that vehicle that are playing that arbitrage trade than are long ETH. We don't, you know, you don't have great evidence on how much they are. If they, if there are more of those like hedge funds and arbitrage funds, market neutral funds trying to play that thing with ETH on a relative basis than there were with GBDC, it could be worse. So we spent a fair amount of time on that. Ultimately, we came down, we, we still basically said, let's just take the proportionate, the proportions and line them up with GBDC and, and throw in the caveat that, those two caveats, what the fee they end up going with and what the hedge fund arb ownership is of that, we don't really know. But that could cause it to be like, really, I mean, if it's, if that fund is 80% owned by arb

• 37:03Speaker 03

  traders, for all we know, it could be, then it could be quite ugly at first, right? But it's still only about $10 billion. Like, it's not that big in the scheme of things. So I totally agree with Matt. I mean, this thing will resolve mostly one way or another. Either they'll, it'll reach its own equilibrium and the outflows will stop, or all of the outflows will happen and it'll be done, right? Like, so I don't think, long-term, there's, it's, it's not a big overhang. And then, you know, from the demand side, again, it really is to me about not overthinking this. These products are, I mean, Matt's an ETF guy. Like, I'm not really like by, by trade, but like, I've grown to love them and they are great products. They're, they are efficient, they are transparent, right?

• 37:47Speaker 03

  They're, they're, they're inexpensive to operate and to own. People love ETFs, they're absolutely gobbling the asset management industry. So, you know, and Ethereum is one of the most popular investments in the world. So like, I, I think the demand will come, I, you know, some of the things that, that, that make me think are, you know, we say like, I think that $5 billion in the first five basically is 30% of what we saw, which is about 15 in the, you know, 15, two or something in the first five of Bitcoin. I think from what I've read, basically everyone other than Matt, even, even that is technically a little higher than what Matt had, has, if we just extrapolate, you know, if I say a billion a month, I would, I would theoretically be at 18 billion in 18 months.

• 38:31Speaker 03

  But we don't assume like a linear thing, we didn't look that far. But most people are much more pessimistic about this and I, I just think like we were so, you know, and there are reasons, right? You've got, you do have tailwinds for sure, but you also have no staking. There's probably sophisticated Ethereum investors who would rather buy and stake their ETH rather than be diluted, right? And it's the summer. It's not nearly as good a time. I don't know, maybe I haven't done a study on this, but summer is typically a pretty low volume time. You, you know, the phrase buy in May or sell in May and go away, right? It's not a great time for like lots of active investing. And the issuers like they're busy. The issuers, you haven't even seen really any of the issuers, um, except for Bitwise

• 39:16Speaker 03

  and, and Grayscale and I think Arc has one. Most have not even done advertising yet, right? Not really, right? So it's kind of, and they're actually just busy working on getting the Bitcoin ETF still up and running like these, to Matt's point, these are a long thing. So a bunch of reasons why people are pessimistic, but like, I, I think, I mean, obviously long run, like let's be clear, like Bitcoin and Ether are the obvious top two, like, and by the way, top two in crypto, I mean, that's, that's just empirically obvious. It's also a narrative thing though. To me, the other thing about this that's really interesting. Yeah, okay. I think Solana is reasonably like the third chain that definitely matters in crypto, but you probably cover about like 80% of the narratives in all of crypto.

• 40:00Speaker 03

  If you just have exposure to Bitcoin and Ether, um, you know, it's what is it 75 or 80% probably of the market cap? So this is a pretty full offering now for most investors. And so I, I see a lot of the people that longed Bitcoin in the ETFs in particular, like another owning both. I mean, I just see them owning both and, and maybe in a proportionate size. And these products fly off the shelves and Ether is a, is a very, very, very popular product. So that's why I was, I was like, you know what? And Matt said one other thing too, I wanted to add to because he said, um, there was a lot of hand waving on these people's estimates. We could have said, I do think they are inherently inferior to owning spot more than

• 40:44Speaker 03

  the Bitcoin ETF is than owning spot Bitcoin, primarily because they don't have staking and primarily because Ether has so much utility on chain. So you're, you're getting diluted and you can't use it in DeFi, right? That, that's a much bigger delta in functionality with the ETH ETFs than the Bitcoin ETFs have. So. But I'm like, how do I quantify that? Like, how do I, oh, so what? I'll just be like, instead of 30, we'll make it 20, right? Like, I don't know how to quantify that. I don't know how to quantify, you know, how much. And we tried, to be clear. We looked for ways to come up with like an even more granular number that included more assumptions. And in the end, I think just the simplest one was like, we looked at the market cap ratio.

• 41:26Speaker 03

  We looked at the ratio between futures products for the two assets around the world. And we looked at the ratios between fund products around the world. And basically, like futures comes out to 2X and funds come out to 3.8X, like Bitcoin being larger. And like, that's basically 20 to 30%. So we're like, let's just go with that and be confident in the fact that retail outperformed the last time.

• 41:50David Hoffman?

  Okay, so continuing to double down, saying, no matter what way you slice it, it ends up looking like the market cap weighted average. I really want to nail down this ETH E thing because I think if we want to answer, like, what does price do in the short term? You got to look towards ETH E. And crypto looks, we honestly, we look in the short term. Like, I want to know what happens in two to three weeks. And I just kind of want to nail down some of the variables here. The ETH E is smaller relative to the overall market cap for Ethereum than Bitcoin. So it has a lesser impact from that perspective. Also, we kind of have seen Grayscale spin up that Bitcoin mini trust and attempt to like, quote, "stop the bleeding" out of the GBTC trust. So maybe there's an idea that they might be incentivized to roll out the ETH E mini trust

• 42:33David Hoffman?

  sooner rather than later, which might dampen the sell pressure. Nonetheless, there are people who are arbitraging the discount that previously existed and now are waiting for the ETF to be approved to just basically sell. That's kind of the biggest unknown variable. We don't really know about that. But it sounds like to me, to summarize all of these variables, the ETH E trust is... At most, equally bearish to the ETH price as the GBTC was to the Bitcoin price, or less, or less than that because of the smaller size and potential incentives out of grayscale. Matt, does that vibe with you? And do you have any perspectives on this?

• 43:11Speaker 00

  Yeah, I think that's right. I would also just note that it's a non-recurring issue. Like, if you think about what's going to happen in this space, flows are going to come into these ETFs, assuming they launch on a continual basis for multiple years. And ETH, we will get past. You know, when companies report earnings, they classify expenses that are special and one-time expenses as non-recurring expenses. And if you're looking at the overall value of the company, you exclude non-recurring expenses because they were a one-time thing. And so I think, you know, the right way to think about this is this is a non-recurring event. There's going to be outflows. I think you've classified them right. David is equal to or less than with Bitcoin,

• 43:54Speaker 00

  but they'll introduce a little bit of noise around the launch. And if they introduce a lot of noise, to my mind, that's an opportunity for investors. And I think people should think of it that way.

• 44:05Ryan Sean Adams?

  Okay, so to summarize inflows, and by the way, we're talking about net inflows. So that already adjusts for the outflows from the ETH ETF or the trust that we've been talking about so much. And so Matt's prediction is 15 billion, 18 months. Alex is pretty similar, you know, a billion a month and projects it to the end of the year. And then if you just expand, that's pretty similar to Matt's. And that's in terms of net inflows as well. Matt, just one quick question. Does this depend on us being in a bull market? You know, 12 months from now, 18 months from now? If we are no longer in a bull market, a crypto bull market, do your estimates change? Or are you just, you know, saying that's a dependency? Of course, we're going to be in a bull market in 18 months.

• 44:47Speaker 00

  Yeah, come on, man. Of course you're going to be in a bull market. You know, my prediction is based on a generally positive market. It's not an extreme runaway bull market, which I, again, I do think is possible, given the tailwinds. And it's not a earlier-than-expected crypto winter. If it's another crypto winter in 2025, then my estimate will end up, will go way down.

• 45:12Ryan Sean Adams?

  Okay.

• 45:12Speaker 00

  Right? People are people. So this assumes what I predict, which is a good market for the next 18 months, which is my base case for what we'll see.

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• 47:38Ryan Sean Adams?

  Okay, so this is the million dollar question, or maybe the 10K question, let's say. Which is, what does this do for ETH price? All right, so we're talking in terms of inflows, and I think people are getting a sense for that. But like, let's say we get 15 billion in inflows over the next 18 months. What does that do for the price of Ether, the asset? Can we take some lessons from Bitcoin? And how would you adjust that for this lower market cap asset? I'll throw that to Matt first.

• 48:12Speaker 00

  Yeah, I think there are lessons you can take from Bitcoin. GSR put out a report on this recently. They talked about how the Bitcoin ETF effectively 2.5x Bitcoin's price on its first 15-ish billion of inflows. They considered that from when it was clear to the Bloomberg team that we were going to get a Bitcoin ETF, which was October until today, right? And Bitcoin was around $27,000 when that happened. So they're counting all of that price appreciation, which I think is a reasonable estimate. Here we have a much shorter window, because everyone was bearish on these ETFs until a few weeks ago. And so we're just sort of building that estimate in. Will we see the same impact? We're doing an analysis right now.

• 48:56Speaker 00

  So you're capturing us mid-analysis on the price sensitivity of ETH to these inflows. I think there's an argument to be made that it could be stronger. That argument is based on the fact that there is effectively no net new supply in ETH, and there is net new supply in Bitcoin right now. I always like to think of the market as two types of people. People who have to sell and people who can sell. In Bitcoin, the people who have to sell are the Bitcoin miners. And they've swallowed some of the demand that the Bitcoin ETFs have had. You know, net issuance roughly zero, it depends on your timeframe, but roughly zero over recent periods.

• 49:38Speaker 00

  The only people that these ETFs can buy ETH from are people who don't have to sell. So there may be more reflexivity in the price. I'm pretty optimistic if we see these flows, we're moving to new all time highs.

• 49:51Ryan Sean Adams?

  And just to quickly do the math, like for people, right? If we just get, you know, two and a half times the price of ETH at, you know, 3,500 right now, we get something close to 9,000 price of ETH, which would be not only all time highs, well beyond all time highs, it would be about a 2X. And that's if we kind of replicate the Bitcoin thing and like we kind of price that in. It was, it's the trading around and the short term price around Ether has been very interesting because we got that day of the ETH ETF approval and like just a god candle, as we called it. It was like 20% up or 25% up. And now I don't even know, like we're down from that, aren't we?

• 50:32Ryan Sean Adams?

  So we've traveled all the way back down as if there was no ETH ETF approval day. I don't know, I know the broader crypto market is down as well, right? So Bitcoin, there's some, you know, Mt. Gox type stuff, there's all sorts of things. It's a slow summer, maybe people sold in May and they're just like checked out right now. But it feels like Ether has not priced in very much of this inflow demand. I don't know, what's your sense of this, Alex? Like, what do you think's going to happen with ETH price if these inflow predictions are true?

• 51:07Speaker 03

  Yeah, you guys had a great episode last week about whether there were any bulls left and you talked about a lot of those headwinds. And I think that's probably more to do with, frankly, Bitcoin price performance in the last month or two as well and Ether. We did do some sensitivity analysis, so I was thinking about this the same way as Matt. And look, I mean, I think we have it as, you know, issuance less burn on ETH is like a currently a 0.4% inflation rate. You know, again, it's been, I'm looking at the actual supply as we published this a couple of days ago, it was 120 million. I've just back of the napkin, anytime anyone asks me what the supply of ETH is, I've just said 120 million now for like a year and a half. So like, yeah, it is basically flat, so there is less issuance.

• 51:52Speaker 03

  And the other, but even more interestingly, so this is where we, I agree with Matt. I think that actually. Ether is more price sensitive. The thing about this, you have what? You have long-term Bitcoin hodlers, sure. Long-term ETH hodlers, okay. We can't really look at, you know, handicap it that well, but we could do something like, you know, not moved on-chain for X amount of days. You know, like people that don't even stake their ETH, they just put it in multi-sig, you know, safe or something like that, right? Same thing with Bitcoin. Okay, we didn't even bother with that, but let's do things we do know. Well, we know provably lost supply. That's not that big a number. But we'll say if you didn't move it, but, you know, in the last 10 years on Bitcoin, that's about 3.2 million coins. Now, strangely, crazily, I have, we have seen at Galaxy,

• 52:36Speaker 03

  some people come out of the woodwork with these coins during this run. They didn't sell at 20K in 2017. They didn't sell at 69K in 2021, and they didn't sell yet. And even then, a lot of these folks are looking for things like loans or yield, which is just crazy. There are people like, they shouldn't be considered all lost coins. But if we do the same analysis, it's about 8 million units, right? So that's only about 6.5, 8 million ETH units. So that's only about 6.5% of total supply versus 16% of Bitcoin total supply. But then, this is where it gets really different for Ether, right? Like, and I'm not, I'm gonna get to staking in a second. Supply and bridges and smart contracts.

• 53:17Speaker 03

  11.5% of Ether is in smart contracts and bridges, right? So that's basically bridges and DeFi. You know, you think about no staking yield, no ability to use DeFi, at least yet, and with these ETFs. I mean, hopefully, you know, one day, the traditional finance system can incorporate more of those features. But I don't see anybody that's using their ETH in that way, saying, you know what? Let's sell this ETH by the ETF, right? So that, like, they're not, that supply is, in my mind, is totally off, or sell this ETH to someone who's gonna use it to buy the ETF, right? Like, to me, that supply is totally off the table, right? That's 11.5% of the supply. And then, and then you have the stake supply, thirty two point seven million ETH are currently staked, right? They're earning, um, you know, rewards for helping validate the network.

• 54:02Speaker 03

  Not going to get those if you stake in these ETFs and even if the ETFs could stake like they, you know, there'd be limits on how much and stuff. So, I mean, if you're able to stake, you're not going to enter the exit queue of the chain and, and then sell your ETH and then buy the ETF. You're not going to rotate and you're not going to, if you're staking ETH, you're, you're a long-term ETH bull, right? Like no chance in my mind that that supply is available to be acquired by the ETF. So we actually had it at eight point seven percent discount to reported supply for Bitcoin and a fifteen percent discount to supply for ETH relative. So like let, it's less liquid in a supply basis, right? And by the way, it is also technically slightly less liquid on exchanges, the spot trading volume.

• 54:45Speaker 03

  So I think effectively an equal or smaller move could have an outsized or equal price, equal or smaller inflows could have an outsized or equal price impact. So higher price sensitivity. We haven't actually come, I think, all to, to an actual number here, um, in this one. But basically that's, that, that's how we look at it. I mean, I think there's actually less ETH for sale than, uh, you know, relative to its total supply, I think than their, than their theoretically was for Bitcoin. So I think it could be, and, and we also, we didn't, um, we, we also have a study. I mean, it's a pretty naive correlation analysis, but daily net flows to daily Bitcoin price change. And like it's, it's correlated. Like, I mean, I don't think that would surprise a lot of people.

• 55:30Speaker 03

  I hear some people trying to, um, you know, be like the well actually guy and say, well, actually like the ETFs only did XYZ volume and there was this much exchange volume that day. So like they're a small part of the story, but that never felt intuitively correct when we were going through that huge run in February and March. And I mean, we, our correlation analysis shows that there absolutely is correlated. I mean, it's not, it's not like, it's not like super correlated, but it's, it's statistically significantly correlated, the inflows to price. So if we, we see inflows, it should affect price. Theoretically, we see outflows, it should affect price. And Ether is more sensitive to that than Bitcoin. So, but keep in mind, that means like if if a whole bunch of outflows happen before the inflows start, then it could be more negative

• 56:14Speaker 03

  in the near term, right? It's sensitivity. It's not up only. But that, I mean, yeah, that makes me quite bullish. I'd be pretty shocked if we didn't see Ether hit a new all time. I mean, all time highs, what, like 4,800?

• 56:25Ryan Sean Adams?

  It's so easy. It's such a low bar.

• 56:27Speaker 03

  Like it, yeah. Yeah, I feel like that you could hit that by the end of the year if these things launch.

• 56:32Ryan Sean Adams?

  Well, can I give you a more bullish scenario? And then we'll, we'll, we'll put some cold water in this. So here's a bullish scenario for you in a timeline. Okay. So let's say we are in the summer doldrums. It's sell in May, that sort of thing, right? When you were just saying, you know, both you guys were saying, look, you know, just to get the amplifier that Bitcoin had two and a half X, you know, say ETH gets a little bit more, right? You know, three X right now, we're already at 10K. And here's how it could happen. So on Matt's birthday, we get the Ethereum ETFs, you know, trading. So that's July 8. And then things go down for a period of time, just like they went down with Bitcoin and shakes out the market. We start trading in the, you know, like 2000s. And people are

• 57:15Ryan Sean Adams?

  like, oh, my God, the crypto bull market's over. I told you, you know, sell the news event. The ETH ETF was nothing. TradFi hates it, blah, blah, blah, blah, blah. And then we get towards the end of August and into September. Okay. And then these flows start to steadily build. And then that impacts ETH price from a flows perspective. And then zip forward, Christmas time, we get you guys on a podcast and we are celebrating 10K ETH price. Okay. As a Christmas gift from, you know, like crypto Kringle is giving that to us. So that would be, that would be another interpretation of all of this. And that's the one that I choose to hold my heart at the end of this conversation. Let me put

• 57:55Ryan Sean Adams?

  some water on this parade, though, because we have been bullish from an inflows perspective. I want to get to something, Alex, you just said, which is like, I did see a lot of bearish sentiment on the ETH ETF. This was an analysis by Andrew King, who's a, who's a kind of a trader. And he actually threw into question what you were just getting at Alex on kind of the inflows, right? We're talking about, you know, the 14.5 or so billion in Bitcoin ETF inflows, you know, 50 billion AUM. And he says, these aren't actually true inflows, guys, because there have been many delta neutral flows that need to be accounted for.

• 58:36Ryan Sean Adams?

  So namely basis trade, you sell futures, you buy this, you spot ETF and spot rotation. So it's a bit more of like a rotation trader type play. And you can't really count this as a true inflow. And then he goes on further and he says, like, if you take these delta neutral like trades into account, then you actually don't see 15 billion in Bitcoin ETF inflows. You see something closer to 5 billion. And then if you just extrapolate that to Ether, you don't get the 15 billion in inflows at the end of 18 months. You get something like 1.5 billion. So something a lot smaller. And he quantifies that on kind of the inflows estimate.

• 59:17Ryan Sean Adams?

  He also has some qualitative bear case, you know, cold water to rain down on this parade that we'll get to first. But can I get your reaction to this kind of inflows calculation? Like, maybe these inflows are exaggerated because there's some other delta neutral trading that's going on in the background. Would you find this case compelling? Or do you think that this is a possibility, Alex?

• 59:40Speaker 03

  Oh, it definitely is a possibility. And Andrew is one of the, I think, much most articulate of these more pessimistic cases that I've read. I'm not sure if he's wrong. I think, look, there were some big hedge funds that reported 13F positions like Millennium and Schoenfeld. And Millennium is a pod shop, right? They're a multi-strategy hedge fund with many teams. My guess is that that was pure basis trade. And I think it was $3 billion, right? So he says 4.5 billion was the basis trade. Like, that could be right, right? Because I mean, I see one that I think probably was, although we don't know, but probably was. I would say that

• 1:00:25Speaker 03

  You know, that's still, he speculates there on what you had on the screen a second ago, Ryan, that we don't know if large holders, he named Block 1, confirmed, you know, converted their Bitcoin into the ETF. I'm highly skeptical of this. I don't, I don't know any large holder that considered this. There's most likely, unless you happen to, I don't know, what was the price, right? We'd have to look at when the inflow occurred, but you'd have to for it to be tax neutral, you have to take a slight loss or have it be the exact same price. I think most people that are big holders that have been accumulating for a while, this would be a huge capital gains event for them. I don't see anyone needing to do that. I think if you, by the way, accumulated and held a lot of Bitcoin for a long time, what, all of a sudden, it's too hard to store on your hardware wallet

• 1:01:08Speaker 03

  or at your custodian, you've got to get into the ETF. Like, you were fine for those, you know, four years, five years, 10 years that you held all that Bitcoin, but gosh darn it, now I've got to take this tax event to just, for the ease of going to my fidelity.com account and looking at it there? To me, I don't, I don't buy that. I'm not aware of any, like, evidence of that in size, and it doesn't make sense to me. So, that only brings it down to 10 billion in net flows if we, if we accept his basis trade number, first of all, which is still enormous. And I would say, just as a caveat here, too, ETH has mostly had a higher funding rate on exchanges than Bitcoin, so you probably see flows from the delta, from the trade, from the basis trade here, too. So, hard

• 1:01:53Speaker 03

  to place exactly, you know, if we look at, like, annualized basis, you assume people will be playing that. It's much, you've been doing this trade for years anyway. You don't need the ETFs for that, it just makes it a little easier.

• 1:02:04Ryan Sean Adams?

  All right, Matt, I'm gonna add some more cold water before, to make it even more challenging for you, my friend. So, I want you to comment on those inflows in a minute, right? And he says it's delta neutral, recall, and like, closer to 1.5 billion than 15, so, a lot lower than, than your estimate. He also gives qualitative reasons why. He said, "Personally, I believe the expectations are crypto natives are overinflated with respect to the Ethereum ETF and its interest among TradFi allocators. It is nat- That those deep in crypto have relatively high mind share and buy in on Ethereum. But in reality, the large groups TradFi, the key portfolio allocators are not crypto native. They're not interested in buying Ether.

• 1:02:49Ryan Sean Adams?

  He also says that, you know, this whole property of ETH as a cash machine. Well, it's actually not that impressive from a price to sales ratio perspective or a PE ratio perspective, particularly after net issuance and inflation. So if traditional investors are looking at this as kind of like a cash flow PE growth tech stock play, they won't be impressed either. So you got the quantitative net inflows, like it's a bunch of delta neutral stuff. You can't count it. And then you got the qualitative like TradFi doesn't care. I mean, Bitcoin was the brand name and it came first, right? And now you've got Ethereum and like, how are they going to look at this asset? And the PE ratio is not very impressive relative to other growth tech stocks.

• 1:03:34Ryan Sean Adams?

  What do you make of that?

• 1:03:35Speaker 00

  Yeah, that's a trio of arguments. I'm ready to swat them down.

• 1:03:39Ryan Sean Adams?

  Yes.

• 1:03:42Speaker 00

  So on the first one, you know, I deducted $10 billion of assumed AUM in the Bitcoin ETFs related to the basis trade and things that I didn't think would appear in ETH. I think it's a question of whether they appear in ETH or not. But my estimate already removed 2X what the basis trade likely is from estimated AUM. And I think the dual mistakes that Andrew are making, and I agree, he's a great analyst. He's assuming the Bitcoin ETF AUM is static and not going to continue to grow, which is an extremely bearish view. And then when you start deducting these blocks of $10 billion, they come right out of the end result. So even small changes, one to one, translate into flows.

• 1:04:27Speaker 00

  So you, you pull that number straight down. So already accounted for, at least in my estimate. And, you know, I know Galaxy thought through these issues as well because the basis trade is really well known. So you can see that in my write up. On the TradFi doesn't care, I do think that's a mid curve analysis. I will say TradFi's point of view is like, I want to own crypto.

• 1:04:51Speaker 00

  I want to be diversified. I think they're not thinking about even things like different use cases or things I wish they thought about about ETH and they found it interesting in these platforms, etc. They're just like, oh, I could own 50% of the market. That sounds like a coin flip, or I could own 72% of the market. That sounds like a better bet. I'm gonna own 72% of the market. I don't own one stock. I don't own one bond. I think this diversification narrative is just the dominant narrative for most non crypto native people. I just want to own this space. So I think, I think he's maybe, maybe sort of overthinking it from a qualitative

• 1:05:31Ryan Sean Adams?

  Like they're not doing the discounted cash flow analysis and trying to project MEV and validator income and like issuance and all of these things.

• 1:05:40Speaker 00

  No, they're just like, you know, I don't own one stock. Why would I own one crypto? I don't want to own 50% of the market. I want to own most of the market. You know, I'm just gonna diversify. I'm just gonna buy both. That's what I hear from advisors day in and day out. On the price to sales stuff, I do, I do love all the analysis that people put out on discounted cash flow models for ETH because it's really fun to look at and Bitwise has its own analysis and VanEck has a great analysis and StoneX has a great analysis. There is an issue with them, which is they're making these assumptions and as you tweak the assumptions modestly, your outcome changes dramatically. That's why all of these arrive at a price target between

• 1:06:25Speaker 00

  $200 and $100,000. And that's like not really super helpful. To me, the value of those price to sales analyses is that they show that eventually this can be a cash flow driven asset. It's like doing a discounted cash flow model on a series A startup. You end up with such wide variances. What you're looking at is it going after a large addressable market? And is there a reason it would be valuable? And that's what those things show. From my perspective, you know, you can get to very large numbers with certain assumptions or very small numbers with other assumptions. I think they serve their purpose. I think a far better way to think about the price of ETH is that the price today reflects the conditions today and is probably accurate.

• 1:07:10Speaker 00

  And we have this huge demand shock coming and no new supply. I think that's a much more accurate reflection of what's going to happen in the price than toggling with discount factors on DCF models to arrive at one price or the other.

• 1:07:24Ryan Sean Adams?

  Just really quickly on the point about toggling DCF variables, right? TradFi investors did not do that with Bitcoin, right? So they're already trained to just like, look at a crypto asset and completely ignore DCF. Not that they should in the scheme of things. I know we have some great cash flowing productive assets in crypto, but like, they're not, there's no DCF going on for purchase of Bitcoin.

• 1:07:50Speaker 00

  No, that's correct. And I think with ETH, what they want to know is, oh, this is the platform on which tokenization will take place. This is a platform on which stablecoins will take place. This is a platform on DeFi taking place. BlackRock is launching money market funds built on ETH. This could be, you know, this new platform for how finance works in the world. I want a piece of that. And I think, I think that's basically enough. Remember, this is a small part of their investment portfolio. It's a couple percent. They just need to know that it's going after this huge addressable market, that serious firms are building in the space, that there's massive new demand coming online and no new supply. And that's, that's enough for me.

• 1:08:32David Hoffman?

  Guys, this has been fantastic. Really appreciate you guys coming on and sharing with us some of your analysis and thoughts. I just want to tie off a few conversations before we wrap this thing up. Yesterday, VanEck announced their ETH ETF, oh, excuse me, Sol ETF, Solana ETF filing. I'm wondering what your guys' reactions were to that because I think the general industry perception was like, wow, that's ahead of schedule. Matt, when you saw that, what were your, what were your first thoughts?

• 1:08:57Speaker 00

  Yeah, I mean, it's clever in a sense. There are two facts that are relevant here. And VanEck's a great firm, friendly with the firm, you know, we're investors in some of their products. Two facts are relevant. There's never been a commodity ETF approved by the SEC without a parallel regulated futures market. There's the spot Bitcoin ETF and the regulated Bitcoin futures market. You know, potentially this ETH ETF in a regulated market. The gold product in the approval of that reference the gold futures market. And there's no regulated Solana ETF. So in a sense, it bucks ETF history. The other fact is that the SEC has 240 days to review these applications.

• 1:09:40Speaker 00

  And 240 days from VanEck's filing is sometime in mid-February, which is about when a new SEC commissioner would come in. And so I think those, that's sort of like the bull case and the bear case to that filing. But

• 1:09:55David Hoffman?

  They're trying to like shoot a gap, trying to like

• 1:09:58Ryan Sean Adams?

  It's, it sounds like, it's like, uh, yeah, it's, it sounds like it's a hail Mary, right? Let's say, I mean, we, many of us saw the, the debate last night, the presidential debate last night, right? Who knows what could happen, but let's say a crypto-friendly president takes office and decides to do crypto a bunch of favors, like replaces the SEC. And that's all, that infrastructure is all set up in, in February. Then I guess VanEck is just like, hey, we threw the pass way back in, in summer. And you know, somebody can catch it in, in February, but low likelihood maybe event, but still possible.

• 1:10:31Speaker 00

  Yeah, I don't think that's an unreasonable take on it. That, that, that sounds about right to me. And look, eventually we're moving in the direction of having multiple crypto assets with ETPs, just like you see in Europe, just like you see in other markets. So it's directionally that right bet. I think the specifics are what you said. It's a, a low probability, high payoff event, smart. And you know, it's the direction of travel for this industry anyway. So kudos to them for, for sticking their neck out there.

• 1:11:03David Hoffman?

  Alex, the last time I saw you was at the Galaxy event where I listened to Mike Novo. Kind of give like a quick like download on the state of the industry, the state of the market as it stands in 2024. We're kind of in a little bit of a lull, like I said, with Bitcoin inflows finding some sort of equilibrium. Market price hasn't really moved in any major crypto asset in the last like three months. I'm wondering, just like a kind of a mid-market, mid-cycle check-in. Like, what are your sentiments? Bullish, bearish, like comfy? Like, what are your thoughts?

• 1:11:33Speaker 03

  I think I'm, right now, for this summer, I'm a little, I think it's hard for me to take conviction on major moves in any way, right? I'm actually pretty confused about the state of this market. I'm not embarrassed to say. I think I'm optimistic about the Ethereum ETFs driving more interest and demand in what is otherwise going to be a very strange summer, I think, with one of, it appears maybe one of the most bizarre summer campaign seasons that we've ever seen is about to unfold. It's going to capture a lot of mind share. You know, frankly, for all I know, launching, if they do launch Ethereum ETPs into that, might actually be even more bullish, for all I know. I don't, it's really hard for me to really.

• 1:12:18Speaker 03

  One thing, I think for me, the election itself in November is the very, is a very clear catalyst

• 1:12:26Speaker 03

  in one way or another. I think it's true that, and I also would commend Fanact, they also have a history of filing early, right? They were the first filer for the ETH ETP also. And it is true that that's been the pathway, part of the reason the pathway for the solely ETFs was that is because that was the argument that the SEC made for denying Bitcoin ETFs the whole time, that they lacked a regulated market of sufficient size. That was effectively overturned by the D.C. Circuit Court of Appeals in Grayscale, and that's what led to the Bitcoin ETFs eventually being approved. And and now and Matt's absolutely right. Ether has gone through the exact same thing. CME futures, CME futures ETFs, actually Canadian spot ETFs, not like that's really a factor for the SEC.

• 1:13:09Speaker 03

  And then hopefully and potentially spot ETFs. So, I mean, and I read, I like Matt Siegel a lot. I read his, his, his argument for this on Twitter. And he was like, well, they could just like surveil Coinbase and, and that may be true because it is a little bit arbitrary that they, that it has to be this process. Um, but it, that would be new, right? That would be unprecedented. And think about this, if, if you're a commodity, um, there's no central exchange for gold, right? The gold trades literally everywhere. It trades in pawn shops. It trades all over the world, right? There's equity securities typically trade in one, one exchange, right? I mean, there, there can be derivatives and available elsewhere, but you surveil that one exchange and bam, you've basically surveilled it.

• 1:13:54Speaker 03

  That's why you surveil commodities exchanges for futures exchanges for commodity surveillance, right? So the, if Solana is a commodity, which of course they are arguing it is because they're filing for commodity based trust product, then it should probably have futures, right? I mean, pretty much they all do. So to me, I think absent a change in posture at the SEC, this gets rejected, but we may have a change in posture coming at the SEC. So I, and, and the timing makes sense. Um, and also they don't have a lot to lose. I mean, this is a professional fun shop. Like, sure, the S1s, they're big documents, but I mean, they can, they can write those. It's not, they're not a, a small startup, right?

• 1:14:35Speaker 03

  Like they can file, like that's not the end of the world. Worst case, what? The SEC gets a little annoyed. It's not, it's certainly not a legal to file for any product at all, right? Leave, I mean, so I, I commend it frankly, and also I hope we get, one of the things that makes me bullish, Ryan, um, is that we, that I think right now the cryptocurrency industry has more influence in policy than at any other time. And it may be more influence now than it is even if the most pro crypto. White House Congress takes office. I think right now is when the the politics are dictating a game theory that is everyone needs to listen to us. So we could actually get legislation that is great for crypto. One of the main things the industry has wanted for years is a clear delineation

• 1:15:20Speaker 03

  between the CFTC and the SEC, specifically defining what is a digital commodity versus a digital security. That could moot this whole question, basically, right? I mean, so there there are pathways that get very positive with the weird policy and politics backdrop that I think is going to dominate the narratives for this entire summer. So it's hard for me to think about markets elsewise, sort of outside of that at the moment. One thing I will add that is just that also has me concerned, not so much for ETH or even really Solana, Solana a little bit, but unlocks. There is a giant amount of supply that was created by venture capitalists and investors in 21 and two that is, you know, you you do a token deal in 21 with a three-year

• 1:16:05Speaker 03

  lockup. That's coming up now, right? 80 billion in token unlocks between now and the end of 2026. The entire liquid crypto hedge fund industry is 20 billion in AUM. So there's a big, really, again, outside the scarce assets of Bitcoin and Ether, kind of outside, we Solana's is a long linear unlock. It's not as dramatic, but there are some wild, like, you know, supply events coming across the altcoin complex that make it tricky for me over the next, I mean, truly, I'm wondering, especially if retail's not here in size. So that's how I'm thinking about it. I'm looking, waiting for the election. I'm thinking maybe policy can be a positive catalyst in the near term as well.

• 1:16:47Ryan Sean Adams?

  Yeah, those are great, great takes, Alex. So yeah, I do agree with you that like market caps beyond Bitcoin and Ether get a lot softer as you go down that world, that I almost said WorldCoin, because it was on the top of my mind. As you go down that that long tail, I mean, WorldCoin, I did see FTV, you know, 100 billion, something like that with a very low flow.

• 1:17:07Speaker 03

  I looked, I think it has 500% inflation between now and the end of the year.

• 1:17:12Ryan Sean Adams?

  It's a lot for the market to absorb down market. So that could be an impact. I also think that that people in general are have not acknowledged the massive shift of winds that we felt in in politics in the US. Like, we are peak regulatory flood in this country, and we are well beyond that. We could be in a position where the the winds start to blow at our backs and move in crypto's favor. Like, I saw the debate last night. Also, regulators getting slapped down in in the courts, not just the SEC, the Chevron case, like, all sorts of things going on. And I don't think the market has fully priced that in. Matt, give it, give us kind of your summary take on on the markets, then we'll close this out.

• 1:17:51Speaker 00

  Yeah, I think there are lots of short term negatives and lots of very big, long term positives. And I think that's what we're seeing in the market, right? You know, Bitcoin is still a dominant player, and people are worried about Mt. Gox, and they're worried about the US government selling, and they're worried about short term liquidity issues. Alex mentioned the unlocks downstream in the altcoin space, and that's all short term. But if you pan out again and look long term, I agree that the market hasn't wrestled with how big the shift in Washington is. And I think if it fully understood that, we would be at all time highs. I think the market hasn't fully appreciated that these ETF inflows are multi-year stories, and that we're really just in the early stages.

• 1:18:36Speaker 00

  And I think if they appreciated that, again, we'd be much higher. And they haven't appreciated just how little institutions have come into this market. If you look at any other major asset, professional investors hold the majority of that asset. And here, we're still in a few percentage points. They have to buy trillions of dollars. And so, yeah, I think those short term negatives in the summer are weighing on us. But as we approach the election and approach the end of the year, The tailwinds are just going to be so strong. I think it's going to be a really fun time. And we can get back together to talk about it.

• 1:19:12Ryan Sean Adams?

  Well, let's hope these

• 1:19:12David Hoffman?

  This is my kind of episode.

• 1:19:13Ryan Sean Adams?

  Yeah, mine too. Let's hope these products launch either before your birthday or on your birthday, Matt. And you know, maybe there's hope of five-digit ETH at some point soon this cycle. Matt, Alex, it's been great to have you on Bankless. Thank you so much.

• 1:19:28Speaker 00

  Thanks for having me.

• 1:19:28Speaker 03

  Yeah, thanks for having me.

• 1:19:29Ryan Sean Adams?

  Bankless listeners, got to let you know, none of this has been financial advice. Of course, you know crypto is risky, even when it's in an ETF. You could lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the Bankless journey. Thanks a lot.