When Ethereum ETF? | Matt Hougan & Ryan Rasmussen of Bitwise

The Bitcoin ETF was a huge win for Crypto. What’s next? Will an Ethereum ETF be approved? We brought Matt Hougan & Ryan Rasmussen of Bitwise to explore exactly that. We go through what made the BTC ETF so successful, what we need to replicate the process for Ethereum and what comes after the ETH ETF. ------ 📣 PERMISSIONLESS III | BUY TICKETS NOW Bankless Citizens get 30% off: https://www.bankless.com/tools/perks Use BANKLESS10 for 10% off: https://bankless.cc/PermissionlessIII ------ 🎧 SPOTIFY PREMIUM RSS FEED | USE CODE: SPOTIFY24 https://bankless.cc/spotify-premium ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://k.xyz/bankless-pod-q2 ⁠ 🔗CELO | CEL2 COMING SOON https://bankless.cc/Celo 🗣️TOKU | CRYPTO EMPLOYMENT SOLUTION https://bankless.cc/toku 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle 💸 CRYPTO TAX CALCULATOR | USE CODE BANK30 https://bankless.cc/CTC 🦄 UNISWAP | SWAP SMARTER https://bankless.cc/uniswap ------ TIMESTAMPS 0:00 Intro 6:50 Bitcoin ETFs So Far 10:40 BTC ETF 2nd Acceleration 22:56 Crypto Default Allocation 26:31 Who’s Buying the BTC ETF? 28:59 Bitcoin vs Gold 36:46 When ETH ETF? 46:39 Forces at Play 53:25 ETH ETF Derivatives 58:38 ETH ETF Price Impact 1:02:10 ETH Narratives 1:08:31 What’s Next 1:12:02 Closing Thoughts ------ RESOURCES Matt Hougan https://twitter.com/Matt_Hougan Ryan Rasmussen https://twitter.com/RasterlyRock Bitwise https://bitwiseinvestments.com/ ------ Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. 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

  My view is that ultimately, we will get an Ethereum ETF. The core logic on which the Bitcoin ETF approval rests, which is that futures and spot track each other very well and are tightly correlated. So I think we'll eventually get it. I would guess I'm over 50% by the end of this year.

• 0:24Ryan Sean Adams?

  Welcome to Bankless, where we explore the frontier of internet money and internet finance. And today, we're exploring the frontier of ETFs, specifically the Bitcoin ETF and the Ethereum ETF. We have Matt Hougan and Ryan Rasmussen from Bitwise to help us out with that. A few things we talk about today. Number one, the Bitcoin ETF, was it a success? How successful was it in the grand scheme of things? And why Matt and Ryan still think there's a lot of juice to squeeze out of the Bitcoin ETF. Number two, flipping gold? Why not only is the Bitcoin ETF flipping gold in line of sight, maybe we go far beyond that, potentially 3X or more beyond that. Number three, the Ethereum ETF, is it coming this year? What are their honest predictions? This is by far the best analysis I've heard yet. And number four, what's next for the institutions?

• 1:07Ryan Sean Adams?

  After the Ethereum ETF, after the Bitcoin ETF, where do we go from there?

• 1:12David Hoffman?

  There's so much to unpack in this episode, especially with the conversation around the Ethereum ETF, which has been going around in the crypto Twitter verse, a lot of the conversations and just around Ethereum these days is about the ETF. First, before we get into this conversation with Matt and Ryan, get this podcast on the premium RSS feed, where you get every single Bankless podcast without the ads and all the bonus episodes that you don't get if you're listening to the free RSS feed, which you are if you're hearing this. If you're listening to Bankless on Spotify, you can sign up for the premium RSS feed directly inside of the Spotify app, and you get all the other perks of being a Bankless citizen, of which there are too many to mention here. You can use code PODCAST24 to get 10% off of this subscription forever, but this code expires at the end of March, so go do it right now.

• 1:56David Hoffman?

  Lately, in the ETF conversation, there has been discussion about the decreasing likelihood of the Ethereum ETF approval at the end of May, where the first deadline is up. After going through the gamut that is the Bitcoin ETF conversation, of which there is plenty to talk about and we do unpack all of that conversation. We get into the Ethereum ETF conversation and the crypto industry really has just always a perpetual short-term focus because of how fast things move in the crypto industry. And so thinking in like multiple quarters is generally not what we do, but Matt and Ryan and generally people speaking all understand that the Ethereum ETF is going to get approved. It's not a matter of if, if it's a matter of when. And so we ask some of the questions about that approval. Of course, we

• 2:39David Hoffman?

  start asking by when, but then we asking about further things like what about staking inside of the ETH ETF? How much demand is there? Will there be for the ETH ETF? And how are they positioning the ETH ETF to their broader clients? Matt is coming to us from Digital Asset Summit over in London where he's talking to all of TradFi and about what their interests are. And he's got a lot of outfit to share here on the podcast today. So we're going to get right into all of that information. But first, I want to talk about some of these fantastic sponsors that make the show possible, especially the place where you can still front run the opportunity with Bitcoin and ETH and all the other tokens that you can buy on Kraken, our preferred exchange for crypto in 2024. If you do not have an account with Kraken, consider clicking the links in the show notes and getting started with Kraken today.

• 3:21David Hoffman?

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• 4:05David Hoffman?

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• 4:50David Hoffman?

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• 5:12Ryan Sean Adams?

  Bankless Nation, we have two esteemed guests from Bitwise today. Matt Hougan is the Chief Investment Officer at Bitwise, and Ryan Rasmussen is a Senior Analyst at Bitwise. Matt, Ryan, it's great to have you on Bankless.

• 5:22Speaker 00

  Great to be here.

• 5:23Ryan Sean Adams?

  Okay, so Bitwise, for context, we've had Matt on before, is an asset management firm. And you guys have your own Bitcoin ETF. It's called BitB, B-I-T-B. So four letters there. It's got $2 billion in assets under management, so congrats on that. And Bitwise is probably one of our favorite Bitcoin ETFs, if we're allowed to have favorite. I don't know, because we've known Matt in Bitwise for a while. They're crypto natives. They understand the space. They understand this industry. And so we want to ask you guys a few questions about ETF world, about institutional adoption and everything that's going on there. Does that sound good?

• 6:01Speaker 00

  I love it. Yeah, appreciate the support.

• 6:04Ryan Sean Adams?

  All right, so first question here is, how are the Bitcoin ETFs going? Just give us the lay of the land. We are, what, like just over 60 days in? You know, a few more than that? How's it going so far?

• 6:16Speaker 00

  I'll start, and Rasmussen can jump in. This launch has exceeded everyone's expectations, right? For context, I spent 15 years in the ETF industry before I moved into crypto full-time six and a half years ago. These are the largest ETF launches ever by a significant factor. And to put it in context, before these ETFs, the fastest-growing ETF for one year inflows, in other words, how much people invested in the first year, were the NASDAQ 100 Qs, QQQ. And those pulled in $5 billion in a year. And if you take these new Bitcoin ETFs, even after you subtract the outflows from GBTC, they've pulled in $12 billion in two months. So by far and away, the fastest growing ETFs of all time. I was very optimistic.

• 7:01Speaker 00

  I spent, you know, three years with the team at Bitwise or five years trying to get one of these launched, and I didn't expect anything like this. We're at 2 billion, the ecosystems, you know, pulled in 12. It's just been outrageously great, and I think it will accelerate in the future. So after maybe a few weeks, a few months, maybe a month or so now, where it may be a little bit quiet, I think there's a second acceleration coming that that may even dwarf this first one. So it's good time in ETF land.

• 7:31David Hoffman?

  Well, if you think these first two months of the Bitcoin ETFs have been quiet, I can't wait to see what a future acceleration looks like because it doesn't look like it's been quiet from from my perspective. It seems like it's been quite loud. I want to ask just about like how the success of these Bitcoin ETFs has characterized the industry from the outside perspective. So like we, there were two potential worlds going into the approval of the Bitcoin ETF. They were, there was the flop, and then there was the massive success. And we are in the universe in which we got the massive success. How has that changed the PR, the optics, the position of the crypto industry to the perspective of the outsiders?

• 8:10Speaker 03

  I'll go ahead and take this one. I think that this has been a massive boon for the industry. I think you hear a lot of stories from whether it's grandparents or aunts or uncles or parents or siblings who now with these Bitcoin ETFs, look at that as a stamp of approval from not only the government, but just the mainstream America. You have these big investors going on CNBC, Larry Fink and others that are really well known, talking about Bitcoin as an asset class rather than a speculative vehicle or something that like vaporware that's going to, you know, go away in a few years. And I think that just shows what these ETFs have done in a very short amount of time. In two months, we've gone from, and crypto is a scam to, oh, this is a legitimate asset class that could overtake other commodities at some point like gold. And so that just kind of shows where we're at.

• 8:55Speaker 03

  And I know the conversations that I'm having on the road with our sales team at conferences with advisors are way different today than they were one year ago or two years ago. And without the ETFs, we wouldn't be in the situation that we're in. So it's been a huge boost for the for the asset class.

• 9:10Ryan Sean Adams?

  Matt, you called this an overwhelming success. Was Wall Street surprised by this?

• 9:14Speaker 00

  I think Wall Street was surprised. I think people thought it would be a success, right? We knew there was demand, but the scale of the success and the broad-based nature of it, I think has exceeded expectations. And I think it gets to something that Ryan mentioned, which is what really changed from traditional finance's view is they now accept that Bitcoin is going to be here forever. Once we have these ETFs, once BlackRock and Invesco and these giant names are in there, once, you know, RAs, investment advisors, institutions are piling in, they've accepted that Bitcoin won't go away. So I think, you know, we knew it was going to be a success, but the scale is just, it's just off the charts.

• 9:53Ryan Sean Adams?

  You mentioned, Matt, this second acceleration. All right. So we've seen the first acceleration that got us to 12 billion. And the second acceleration, can you describe what that actually is? Why would we be getting a second acceleration? You know, like, if you're looking at this from the outside, you might say, well, you know, the first wave, everyone who wanted to buy, they probably already bought. And certainly now the Bitcoin ETF is hyped enough, we're squarely in a bull cycle. So why would there be any second acceleration?

• 10:23Speaker 00

  Yeah, great, great question. I can, I can start it and Ryan can finish. The thing about ETFs approval is it unlocks only a portion of the market. So the day an ETF is approved by the SEC, retail investors can buy it, and independent financial advisors, people who manage money on behalf of other people can buy it. But there's a whole class of investors who still can't buy it. So the largest wealth management platforms in the US are firms like Morgan Stanley, Merrill Lynch, UBS, Wells Fargo. These have tens of thousands of advisors and trillions of dollars of assets. And they can't buy it on those platforms until they complete their own due diligence.

• 11:05Speaker 00

  So it's not good enough that the SEC approved it. Each of those platforms has a due diligence process, and they have to approve the ETF as well. And that process hasn't happened yet. That will probably start to happen in the next few weeks or the next few months. I would say that maybe thirty percent of the wealth market in the US can now access these ETFs. But there's a whole additional seventy percent that's going to come online, not all at once, not like the ETF launch. This will be a series of individual approvals at each of these firms and each of these sort of tiers of wealth. Until we get to the final opening, I'll make an analogy that maybe maybe makes sense to people. The closest analogy to the Bitcoin ETF launch was the gold ETF launch.

• 11:50Speaker 00

  And the gold ETF launch was a very big deal and suddenly people could buy gold. But inflows built over seven years, right before they reached a local maximum. And actually, the largest year was year sixteen. So what we've seen now is retail investors and independent advisors buy these ETFs, hedge funds, venture capital funds. Great, huge success, but there's this whole other level that we're about to get to in the next month or two months or three months that. That's really where the trillions of dollars.

• 12:20Ryan Sean Adams?

  And that is that, Matt, is that what we're seeing when we see like Morgan Stanley has kind of opened the gates to Bitcoin. Wells Fargo has opened the gates to the Bitcoin ETF. I like all of these gates, I didn't even know these things existed, but is that basically the process of this this second acceleration here?

• 12:35Speaker 00

  That's exactly right. Yeah, it's like a nuclear key, right? You need the SEC to turn it and then you need Morgan Stanley to turn it. And we're just going through that process of the second key turning.

• 12:45Speaker 03

  I would give one additional data point here. So I spent eight years before I joined Bitwise, working at a company called Sotera Financial Group. This is a large network of independent financial advisors. They have ten thousand advisors or more, they manage three hundred billion in assets. And they just recently approved Bitcoin ETFs on their platform for those ten thousand plus advisors to start allocating on behalf of their clients. And that took two months. And like I said, I've been in that organization before and organizations organizations like that. And the wheels just move very slowly. There's so many executives and teams involved in reviewing what is Bitcoin? Are we okay with our advisors allocating to it? How do we feel about them getting exposure on behalf of clients? Then, once they make that decision, they have to evaluate the different vehicles, they have to decide how they're going to educate.

• 13:30Speaker 03

  There the advisors on what Bitcoin is and what it means to put Bitcoin in portfolio. A lot of time those advisors have to educate their clients before they actually make that investment. And so there's all these different hurdles that you have to clear before you actually make the allocation. It isn't just the platform approval. There's a whole education process that happens after that. And I think, you know, on the retail side, we move a lot quicker because we're self-directing our own investments. When you have someone managing money on behalf of another, there's a lot more hoops you have to jump through to make sure you're complying with all of the regulatory requirements and whatnot. And so I think that's partly what takes so long.

• 14:01David Hoffman?

  Yeah, this is certainly probably things that are moving on timeframes that crypto natives, the crypto industry doesn't really consider because we are so short-term focused in this industry. But really, the Bitcoin ETFs and generally ETFs broadly are just like a fine wine kind of thing. Like you got to let them age before they really, they really mature. Matt, I just want to try and get some more numbers on this thing. You said 30 and 70% in terms of like 30% of capital is available. And just want to make sure that I'm understanding that correctly. When in terms of the acceleration that you are referencing, the 30, 70% is like total available, like pools of capital, as in like the 30% is the available and interested capital.

• 14:42David Hoffman?

  And that acceleration that you're talking about is like, there's roughly 70% more capital available to be, to buy the Bitcoin ETF as the BTC ETF ages. Can you just shed a little bit more light on that?

• 14:56Speaker 00

  Yeah, I mean, that's, that's a, that's a back of an envelope calculation, but that's a route, right? If you look at the US wealth management industry, people have different measures of how big it is. But let's call it, you know, 40 to 50 trillion dollars, somewhere in that zone. Yeah, I think about, you know, 30% of that can access these ETFs today, which is great. Like that's trillions of dollars that can access these ETFs. And it's turned into billions of dollars of flows. And those flows are just getting started. But there is this whole other group that haven't even crossed the chasm into being able to access that. It's probably, it's certainly the larger contingent. So the majority of wealth, whether it's 60 or 70% of the wealth that's still waiting and they're doing.

• 15:40Speaker 00

  Their due diligence, they're actually moving faster on these Bitcoin ETFs than they do on most ETFs. Usually this would be a six month or year long process and it's it's going to be a quarter long process or a four month long process. So it's great. But as you said, that's that's sort of glacial from a crypto perspective. But they will get there. The the progress is happening. They're they're going to approve them. And we'll start to feel those flows build over months and quarters and years.

• 16:07Ryan Sean Adams?

  I I will say, one of my favorite parts of this whole story, the whole crypto story and what's happening with Wall Street sort of discovering crypto is something we say at the beginning of every single Bankless podcast. This is an opportunity to front run the opportunity, right? This is like, Bankless listeners will know, we are fans of the crypto natives, the believers, kind of the underdogs, you know, like retail over institutions wherever possible. And retail has had a solid decade to front run Bitcoin price appreciation. And even now, there's still time for retail in their 401ks, for instance, their IRAs, to get ahead of that 70% that still has no access to capital.

• 16:46Ryan Sean Adams?

  And I'll juxtapose this with basically almost all, 99% of the opportunities that that you sort of see for investment opportunities where institutions have an edge. If a company is going to IPO, first of all, all the VCs get in first. And you have to be an accredited investor and all of that rigmarole. And then, you know, the the banks that are issuing the the stock, they get their cut ahead of time, too. They get preference. And by the time the thing is IPO'd, right? It's like all of the all of the juice has been squeezed out of it on the institutional side. And what's retail left with, with just like, you know, Facebook stock that's already done its 10,000x appreciation? And you just get a measly like, you know, five to 10x after that.

• 17:28Ryan Sean Adams?

  And just like, thank you very much. Crypto is the exact opposite of that. And that is one of the things I've been most excited about for every single every single moment of joining. Retail, the small guy, gets first dibs on this. The believer, the person who's using it. And then institutions are left to kind of like, come, come, buy our bags.

• 17:53David Hoffman?

  I'm sure you would phrase it like that, Matt.

• 17:56Speaker 00

  No, but I think that's exactly right. I mean, this is an empowering technology and institutional capital has so many sort of behavioral biases against it, you know, inherently anti-tech, inherently disruptive, difficulty getting their heads around digital things. This was one of the few places where retail had advantages and has taken advantage of it. And kudos to them, like kudos to everyone who was early and has been in this for years through bull and bear markets. Kudos to everyone, as you mentioned, still getting in now because, you know, it's not, it's not the end. It may be the end of the beginning, but we're not quite there yet. There still is a little bit of time, even on Bitcoin, much less on ETH,

• 18:40Speaker 00

  which, you know, I'm sure we'll get to. But, but yeah, I, I love that about crypto as well. It's, it's, it's really a beautiful thing. It warms my heart.

• 18:48David Hoffman?

  We've got a two-part question for you, Matt. That I was looking for some like timelines on that 70%. Is this like, that 70% will be accessed by the end of this year, end of 2024? Or is it even longer than that? And then zooming into the fullness of time, like once this like acceleration phase is over and we strike some equilibrium with flows. Like, I don't want bankless listeners to like perceive that, oh, like, oh, the fun is over. Like, in the old world of the stock market, like, there is constant flows into people's just like 401ks into QQQ into SPY. And so like these indices, and even just like the general stock market is up only because there's persistent flows into them.

• 19:30David Hoffman?

  And this is where Bitcoin is going. This is where the Bitcoin ETF is going. Any sort of crypto asset within ETF gets access to this flows. And that's the new equilibrium. And so the, the two-part question is like, this acceleration period, what's the timeline on that? And then once that closes, what is, what does the final equilibrium of flows into the Bitcoin ETF look like?

• 19:50Speaker 00

  Yeah, great questions. I think it's a, let's say it's a year-long process, evenly distributed with unlocks along the way at each phase of that. It may be till the end of 2025. It may be an 18-month process and a little bit gets unlocked every time. It's not like the shotgun start of the ETF launch, which was the SEC said go. These are, you know, probably 50 individual decisions that each unlock a little bit of this additional pie. Some more important than others, but it will, it will take some time. I think the point you made about one difference of these TradFi markets, there are probably actually two. One, you mentioned continual investment, which is absolutely true.

• 20:34Speaker 00

  What we're seeing at Bitwise is people putting these ETFs into models. And what that means is they have a sort of theoretical allocation to stocks, bonds, real estate, and now a little bit of crypto that they put all of their investors into. And as they save money for retirement, as they save money in taxable accounts, a little bit goes in on a continual basis. The flip side of that is a lot of these people rebalance, which is if crypto goes up a very lot, they may sell a little bit to bring it back down to that target weight. I think the, the effect of this will be sort of upward push

• 21:15Speaker 00

  on crypto prices, long-term, sustainable upward push, because it's a continual flow of capital. As you mentioned, that's why stocks are, you know, up only over long periods of time and a diminution in volatility. I don't mean that crypto is going to be boring. I just mean it will be less volatile than it was in the past because you'll have people who invest a little bit every month. You'll have people who systematically sort of buy low and sell high because they're rebalancing. And so you should see volatility compress a little bit over time, which it already has been. But it's hugely positive for crypto, persistent inflows that will, you know, match or overwhelm supply. I think is what you should expect. And, and I just think you should expect that to build over multiple years.

• 22:00Speaker 00

  Like, I don't think. 2024 will be the peak year for Bitcoin ETF flows. I think that'll be many years out. I think it's going to build over time.

• 22:09Ryan Sean Adams?

  I think there's this idea, Matt, you said earlier that, well, crypto Bitcoin is not going away. Right anytime soon, there's this realization. I think there's also this realization that crypto is now has to be part of a portfolio. I think I saw this was Fidelity Canada, not Fidelity US yet, but you could imagine it coming. Now they have their default growth funds, right? You know, the typical 6040, 60% stocks, 40% your bonds. If you're doing something high growth, for instance, well, now it's like 6043. Or it's like, you know, it's not 6040, obviously, you know, that's 103%.

• 22:50Ryan Sean Adams?

  But we've got like 3% allocated to crypto by default. So we're starting to this move to this world where not only is crypto not going anywhere, it's part of a default portfolio construction. And that is, I think, the world that you were describing here.

• 23:06Speaker 00

  That's absolutely right. And it's a, it's a complete game changer, but you know, it aligns with sort of the most conservative, staid, pinstripe suit, dyed in the wool investing methodology, like sort of the Jack Bogle Vanguard methodology to evoke a firm that is now very much disliked by crypto. But their view is that your starting point is you should own everything. You should own every stock, you should own every bond, you should be just invested in the global economy because it grows every year, just own everything. And from that perspective, you have to own crypto. If you don't own crypto, you're actually short crypto versus your global benchmark of asset allocation. And so what that 3% in a model portfolio tells you is that's sort of the baseline.

• 23:51Speaker 00

  If you're below that, then you're making an active bet that crypto is not going to matter in the future. Most people don't want to do that. They just want to own the market and it's a complete game changer. I mean, you know, like I save for my kids' college education every month X dollars. And there's no crypto in that exposure yet because. The products don't exist, but I suspect that will change in the next couple of years. And that means everyone who's a parent will be, you know, saving X dollars every month for their children. And a little bit will go into crypto. I think that's the world that we're moving into.

• 24:26Ryan Sean Adams?

  Crypto will help us pay for our, the rising cost of education. I mean, but like you're talking about the truth here, just a quick side quest though, Matt, since you invoke the name of Vanguard and, and, and the Bogle heads. Okay. So CEO Vanguard has says, no Bitcoin, we're not doing that. Double down multiple times. It seems like, why? Can you explain that?

• 24:46Speaker 00

  Oh, anchoring bias, you know, desire to seem conservative. Vanguard also said, no ETFs, right? Jack Bogle was famous for hating ETFs. They thought he tempted shareholders to trade too much and destroy themselves. And they stayed out of the ETF game for the long time. Now it's their largest area of the market. Vanguard will come over as well. Look at BlackRock. Larry Fink called Bitcoin an index of money laundering.

• 25:11Ryan Sean Adams?

  Did he really? When was this?

• 25:13Speaker 00

  2017 and an index of money laundering. And then to his enormous credit, I mean, really his enormous credit, we compete with them, but to his enormous credit, he studied it, talked to smart people, changed his mind and developed a team to integrate Bitcoin into BlackRock. So I, I think Vanguard will eventually be here, just like they eventually became a large ETF issuer. And everyone gets the Bitcoin price they deserve. And, and apparently the CEO of Vanguard deserves a higher price.

• 25:41Ryan Sean Adams?

  I will never get tired of that line, by the way.

• 25:44David Hoffman?

  Bitwise Ryan, I want to ask you about through your travels and conversations with just these buyers of the Bitcoin ETFs. Who are they? I'm sure there's like the regular cast of characters that I could also guess, but are there also any like surprises in there? Like, and what kind of like data do we actually have to, to talk about? Like, who are the actual buyers of the Bitcoin ETF?

• 26:03Speaker 03

  Yeah, that's a good question. So, so we go on the road. We have a sales team, about 25 people that go around every day. They're, they're meeting with financial advisors or RAs at their offices or at state dinners or at lunches. And so on the research team, we travel with them sometimes. Recently I was in Denver, head of ETH Denver with our sales rep out there. And we went into a large RIA. They managed 350 million in assets and we catered some sushi lunch. We sat down with them and then we did a Bitcoin 101 presentation. What is Bitcoin? How does it work? What is mining? How does Bitcoin fit in a portfolio? And you can just walk them from the very beginning through where we're at today. Why Bitcoin ETFs exist? Why those are a big deal? And then what you see in the room is a wide variety of people, some that are crypto interested.

• 26:46Speaker 03

  There's generally one or two people in a room of 10 or 12 that's a diehard crypto fanatic. They own it in their portfolio. They start asking about NFTs and like go down a rabbit hole. And then you see some other people on the other side of the spectrum that are likely too afraid to ask questions because in a room of their colleagues that are supposed to be, you know, well versed financial professionals. Maybe they haven't taken the time to study Bitcoin and crypto and they don't want to seem like they don't know what they're talking about. And so it's really a wide variety, but those one or two people that are crypto fanatics in the firm is what allows us to get our foot in the door. And then from there, it's just an educational journey. And I would say that those individuals that, that are into crypto, they're probably advocating for 3% to 5% of portfolios to be invested in Bitcoin or invested in a crypto index.

• 27:31Speaker 03

  And then you have the skeptics who think 1% is outrageous. And that's where we show them the models and the portfolio simulations that say, look, if you have 3% or 5% or even 10%, that can add a lot of risk adjusted returns to your portfolio while barely increasing volatility. And I think once you show them that kind of data, you really start to see their eyes opening, especially the people that were more, more averse to adding Bitcoin to a portfolio going into the conversation. You start to see their eyes opening and they see the, the sharp ratios, the risk adjusted returns. And they start to realize, oh, this is a real asset that can really boost a diversified portfolio versus add unwanted risk and unwanted volatility. And that's when they start to come around to adding it into their client portfolios.

• 28:12David Hoffman?

  Just out of curiosity, is there any just like comparative conversation being made about gold ETFs? And just like, what, how has the PR around gold as a commodity changed? Now that Bitcoin is like this sparkly new digital gold that's also got an ETF? Like, what are people saying about gold these days?

• 28:32Speaker 03

  I get the same critique when we, when we try to make the comparison of Bitcoin to gold. I think you often have similar to have, you have like a, you have a Bitcoin bug in the room. You have a gold bug in the room and they try to argue all kinds of things like it's been around for a thousand years. It's 10% of it's used in electricity, electric or in electronics. And so you have to kind of fight that narrative. But we ran a really interesting simulation at the beginning of this year. We said, instead of adding 5% of Bitcoin to your portfolio, to a traditional 6040 portfolio. What if you added 5% of gold? And the impact that gold has on a portfolio is actually negligible. It doesn't do anything for your portfolio. It doesn't add any, any risk adjusted returns. It doesn't increase volatility, but yet it doesn't boost returns. And so we start to show that kind of data that says, look, I understand that you, you like gold. We understand that you may be allocating to gold.

• 29:17Speaker 03

  But if you just take a small portion of that, maybe 50% of your 3% gold allocation, or 50% of your 1% gold allocation, and you shift that over into Bitcoin, the impact it has on the potential for, for returns without really impacting the downside is really hard to ignore. And they almost have a fiduciary responsibility to listen to that argument and to look into it, because they really have to do what's best for their clients. So that's certainly what we're seeing, definitely seeing outflows from gold into Bitcoin as they think about what part of their portfolio and their alt sleeve they're carving off as they're investing in Bitcoin as well.

• 29:50Speaker 00

  Yeah, and I, I just add two things on top of that. We're seeing some advisors have an inflation bucket or a US government debasement bucket. That's 50% gold and 50% Bitcoin, which I think is great, right? That's fine. That's an easier sell to their clients. We're worried about a government printing trillions of dollars of debt every few months. Let's hedge it. Who knows how it's going to work best? I think that's fine. The other narrative change, which I find really interesting, is for the, the last five years, mostly you could talk to advisors about Bitcoin taking a percentage of the gold market. 10% of the gold market, 20% of the gold market, 50% of the gold market. Increasingly, I find you can convince them that it may be multiples of the gold market.

• 30:35Speaker 00

  That Bitcoin is everything that gold is, plus the ability to teleport it around the world. And that has more applications. So is it 2X the gold market? Is it 3X the gold market? And I think that's an interesting change. You couldn't really get that across to people before the Bitcoin ETF. Now I think you can. You can start to talk about multiples instead of percentages. And I think that's pretty exciting.

• 30:59David Hoffman?

  I think inside of the crypto industry, we're all pretty good at thinking in parabolas much more than the TradFi community. And so when we see the gold market cap, gold being the number one asset by market cap and Bitcoin as like number nine, number 10, as crypto natives, we're like, oh, we could dethrone gold. And which is probably like unheard of to like TradFi, just like in the, in the, in their first like gut reaction. But like right now, I think the, the next milestone on this is like the Bitcoin ETF AUM, flipping the gold ETFs AUM. I actually don't know where we stand on this current race, but like also in crypto world, we are used to using this word, word called the flipping.

• 31:42David Hoffman?

  So like when, which I'm guessing is just inevitable, when the Bitcoin ETF does flip the gold ETF, is this like a big deal? Or is this more of a milestone for funsies that us crypto natives talk about? Like, how will that change the conversation in the traditional finance world?

• 31:56Speaker 00

  Oh, I love that. I think the flipping will happen next year. And I do think it's a big deal because ETFs are how investors today express their preferences for what to allocate to. And what that will signal is that more of them want to allocate to Bitcoin that, you know, nostalgia is not an investment strategy and gold is in the past. So I think that will be an important moment and I suspect it could happen as early as next year.

• 32:19David Hoffman?

  How close are we at? And how does that even happen?

• 32:22Speaker 00

  Well, we have about what $50 billion plus in the Bitcoin ETFs. You know, inclusive of GBTC. I think gold is, is north of 100 if you add them all up together or right around 100. So we need a 2X. And that's price and inflows. There you go. Exactly.

• 32:39David Hoffman?

  We'll do that this year. We'll do that before Q2.

• 32:41Speaker 00

  Let's flip it.

• 32:42David Hoffman?

  And Q3, excuse me.

• 32:43Speaker 00

  Yeah, it's going to happen. I think it's inevitable. As Ryan mentioned, Bitcoin is just so much more valuable in a portfolio context than gold has been historically. Not to mention it has sort of better underlying sort of fundamental growth patterns. But yeah, we might flip it this year. I love it.

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• 34:46Ryan Sean Adams?

  I know Bitcoin is not the only crypto asset that you guys at Bitwise find interesting or valuable. In fact, I think, Matt, we've had you on the podcast before. We were talking about how to talk to RIAs and institutions about DeFi, decentralized finance, and some of the tokens surrounding it, and these new cash flowing assets that are not stocks, but something different. Protocol network assets, something like this. So let's talk about the next set of assets that we think we can create an ETF wrapper around, like a trad ERC20, as we call it sometimes on Bankless. So the next one in line feels like it needs to be, it should be, the Ethereum ETF.

• 35:31Ryan Sean Adams?

  And I'm coming from the perspective that nothing else is close to that at this point in time. We don't yet have futures for any other ETF. So the next in line, apart from Bitcoin, would be the Ethereum ETF. And I want to get your take on when that's going to happen. Could it happen this year? There's been a lot of conversation about this recently. So some of the Bloomberg analysts who we've had on the podcast before recently came back, and they said by May, low probability, something like 30%. Saw Jake Trivinsky and others kind of like weigh in on this as well. They think that it will be politically very difficult, probably untenable,

• 36:12Ryan Sean Adams?

  for Chair Gensler to do this with the current kind of administrative setup and some of the political pressures he feels. Let's remember, Gensler is kind of like the third vote of five. He was the one that got majority for the Bitcoin ETF across the finish line. I know, I'm pretty sure you guys have a filing in. Is that correct? And so you don't yet? We do not yet. No, we do not yet. Okay. Is that something you want to announce, Matt, on the Ponle Podcast today?

• 36:42David Hoffman?

  How much work is that yet work doing?

• 36:44Speaker 00

  Yeah, that yet work is doing a lot of, a lot of work. I mean, we've talked about in the past, we intend to have an Ethereum ETF filing when we think it can be approved. And we're really excited about Ethereum. We, we, we love the asset. As, as we've discussed, Ryan, I think for many in TradFi, it's easier to get their hands around ETH and the cash flow generating nature of ETH and the real world use applications that are being built on the Ethereum network. I think that's easier for many people to understand. So we absolutely intend to be in this space. The good thing about not having a filing is I can talk about it.

• 37:20David Hoffman?

  Oh, so to not.

• 37:22Speaker 00

  I couldn't actually say anything.

• 37:23David Hoffman?

  We have some freedom before you file. Once you file, you'll have a little bit like more closed zipper, but now it's more open.

• 37:31Speaker 00

  That is, that's exactly right. Yeah. Once you file.

• 37:32David Hoffman?

  All right. Cause I've got some questions. Yeah, yeah, yeah.

• 37:34Speaker 00

  Let's do it. Let's do it.

• 37:35David Hoffman?

  Let's go. Okay. So the recent meta has been a decreasing in the probability of the approval of the ETH ETF in May. I think there was something previously like 60 to 70% sometime late last year, early this year. Now that has decreased. You can see this in the poly market, the, the ETF bros, Eric and James have also decreased their probability down to 35%. Maybe without any sort of question in specific, just like comment on that, comment on like the likelihood of the ETH approval happening like in this year, for example.

• 38:07Speaker 00

  Yeah, sure. So I can start, Ryan, you can jump in afterwards to set up. The reason people talk about May is because ETF filings for crypto ETFs move on a 240 day review cycle. And so by the 240th day, the SEC has to say yes or no. And the first of those days ends up in May.

• 38:27David Hoffman?

  So May would not end up in a delay. It would end up in either an approval or denial, correct?

• 38:33Speaker 00

  That's correct. Yeah. They can't kick the can down the road after May. And that's it's it's a great part of the process because they have to say yes or no. The reason you're seeing the odds decrease is because Eric and others are reading the tea leaves. What are the tea leaves? Usually, when you get to this point in the process, if you're going to get an approval, you're having direct engagement with the SEC where they're asking you a bunch of questions. And then you're updating your prospectus to reflect those changes. So they'll ask you like 40 or 50 or 60 questions. And if you look back at the Bitcoin ETF approvals, what you started to see was amendment two to our prospectus, amendment three to our prospectus, amendment four, amendment five.

• 39:18Speaker 00

  Between those amendments, there's this back and forth with the SEC. And I think the reason they're downgrading the likelihood, and I think the reason they're approximately accurate in those expectations is because we're not seeing any of that. Right? There's no amendments, there's no discussion, there's no obvious updating of all the prospectuses at once to answer the same questions. There's this none of the indicia.

• 39:42David Hoffman?

  General indifference from the SEC.

• 39:45Speaker 00

  Or they're listening, like they're in listening mode, they're meetings with the SEC and you see them listening and they did that with Bitcoin for years. But there's no, there's no two-way flow. And that's really what you want to see. That doesn't mean it's impossible. We're not yet in the window where it's impossible. If this were still true in late April, we'd be in the window where it's impossible. Right? They just can't move that fast. At this point, it's still theoretically possible. That's why it's 35 and not zero, but it's trending down. Because we haven't yet seen this in the public filings. My view is that ultimately, we will get an Ethereum ETF. The the core logic on which the Bitcoin ETF approval rests, which is that

• 40:27Speaker 00

  futures and spot track each other very well and are tightly correlated, applies into Ethereum and to give kudos to a competitor, Fidelity recently updated their filing with some really good data, demonstrating this. I think it's probably the best shot on goal that the ETH world has had for a Bitcoin ETF was the new fidelity update. So I think we'll eventually get it. I would guess I'm over 50% by the end of this year. I think it's probable this year and I'll add one more nuance and then I'll stop talking because I've been going on for a while. Let Ryan speak, poor guy over there. I think Ethereum ETFs will pull in more assets if they launch in December than if they launch in May.

• 41:11Speaker 00

  I think TradFi is still in the process, as we discussed, of digesting this Bitcoin ETF. And they're not yet ready for the next asset. So I actually think the ETFs will be more successful at the end of the year than if they launch in May. And I think it's more likely we'll get a launch at the end of the year than we get a launch in May.

• 41:30David Hoffman?

  So TradFi is just like currently reeling overwhelmed from what's going on with the Bitcoin ETF, hasn't completely processed it, still digesting it. And so it would be more bullish if we just sat on our hands as an industry and waited for them to like kind of catch up with the times. And then we can improve the ETH ETF. That's your most bullish version of the future?

• 41:51Speaker 00

  That's my most bullish version of the future because Ryan can only do so many meetings and he still has to get through his Bitcoin meetings before he can do his Ethereum meetings. I mean, it's a joke, but it's true. So I do think, I do think if these launch at the end of the year. And we've, you know, we've had DenKun and we've started to see the applications bubble up and we're getting those real world applications and user counts are growing. I think it's a perfect scenario for ETH. Of course, the sooner we get it in some way, the better. But I do think there's a bullish case to be made for end of the year.

• 42:22David Hoffman?

  Bitwise, Ryan, tell us about your perspective on just the conversations around ETH and the ETF as a resident boots on the ground here.

• 42:28Speaker 03

  Yeah, I think that's right. You don't want to overwhelm these advisors with choices. You have to think about, even though we're talking about and researching and on Twitter, talking about Ethereum every single day. And talking about crypto every single day, these investors spend a very small percentage of their time actually thinking about crypto, actually thinking about investing in it. They're over there trying to grow assets. It's really a business development business when you're in the world of managing assets and you're just trying to. Find clients who want to entrust you with their assets and then you go and invest them. And if you're only investing in 1% of your portfolio or 5% of your portfolio into crypto, you're spending less than that thinking about those assets as a whole because you're spending most of your time thinking about marketing and growing your business.

• 43:11Speaker 03

  And so I think if they let them get their arms around Bitcoin, when we go back to Denver, when I was in the room with that large RIA, almost every single question was about Bitcoin. It was, and they weren't deep down the rabbit hole around Bitcoin. We were still getting questions that says, how do we know that Bitcoin isn't a Ponzi scheme? How do you know they can't increase the supply to more than 21 million, right? And these are questions that we've maybe all grappled with our first

• 43:35Ryan Sean Adams?

  Satoshi's just gonna come and dump it all.

• 43:37Speaker 03

  Yeah, exactly. And so, so then you try to tell them, okay, look, that's the whole, the whole case around Bitcoin is it's limited supply, increasing demand. It's a, it's a commodity similar to gold. Then you try to explain Ethereum, which is this decentralized version of the internet, where all these crazy crypto applications are going to be built on top of it. They don't really know how to think about that. And when they're trying to allow the Bitcoin brain drain to come in, it's really difficult to also have the, this new internet come in, DeFi crypto applications. And so I think that conversation coming later would help, like Matt said, allow them to get some exposure to Bitcoin first, let that settle, let them talk to their clients about it, have some of their quarterly meetings or bi-annual meetings that they have with their

• 44:19Speaker 03

  clients to go over their portfolios, get them used to Bitcoin. And then the next best thing comes up, which is Ethereum. And they can then have that opportunity to say, look, we carved off some of your inflation hedge and we put it into Bitcoin. What if now we carve off some of your technology sleeve, maybe some of your, your NASDAQ sleeve and put that into Ethereum, which is a tech version kind of of the crypto ecosystem.

• 44:40Ryan Sean Adams?

  And our job here, Ryan and Matt, just so it's clear, is when that time comes, to make sure that there are some bankless listeners implanted in the audience. You talked about those Bitcoin fanatics. We want some Ethereum fanatics in the audience who are allocated to Ether to speak up for it and to explain it to, to their colleagues. That's what we're, we're here to do. Matt, I want to ask you about your percentages. So understand, like

• 45:05Ryan Sean Adams?

  You're not predicting May right now. You don't think that's going to happen. So you think maybe the 35% is along the lines of accurate, unless we see some real activity in April. But you still give it over 50% probability for the year, maybe toward the end of the year. And I want to ask you about sort of the pro side, the likelihood that it happens versus the against side. So on the pro side, a few facts, I guess I would say, are things of interest. And I'm wondering how you weight these. One is that BlackRock wants it. And so one thing that we used to say in 2023 is what BlackRock wants, BlackRock gets.

• 45:48Ryan Sean Adams?

  And that's probably a kind of a binary way of understanding it. But it's no small thing to have a BlackRock filing. And their filings have proven very successful over time. They usually don't lose. And so this would be in the camp that, hey, BlackRock is behind this. They definitely want this. So how can the SEC say no at this point? Another fact that I'll enter into the matter is there have been ongoing court cases. So it seemed like the grayscale win for where the, I believe, the court called the SEC's action arbitrary and capricious, which is just a brilliant line. We could apply that in many SEC decisions. Don't comment on that, of course. You guys are in the filing process. That was me saying that.

• 46:35Ryan Sean Adams?

  So like court cases could come up against the SEC if they do decide to reject an Ethereum ETF in May. Like, what reason do they have to reject that? When we have a trust out here, Ether E-Trust from grayscale as well. So some of these things factor in. I think at least they weigh highly in my mind. Do they actually make a difference? Is this more force to the pro that we'll get in Ethereum ETF by the end of the year?

• 47:01Speaker 00

  Yeah, I think the lawsuit makes a lot of difference. And I love the words arbitrary and capricious. I should like get a couple of dogs and name them.

• 47:11Speaker 00

  I think it's wonderful. So I think the lawsuit is is real because it did establish that if you have a futures-based ETF, which we do in ETH, and if the futures are highly correlated with SPOT, that it's very difficult not to allow a SPOT ETF. It's not impossible, right? There are differences around ETH, but it's very, very difficult.

• 47:34Ryan Sean Adams?

  We have those things, yes.

• 47:36Speaker 00

  We have those things, absolutely. And the data is very convincing. And the ETH futures market is very liquid, and the correlations are arguably even tighter than they are in Bitcoin. So it's a very compelling case. And I ultimately do think that will be the winning argument. And that's why I don't think we need a regime change to get an Ethereum ETF, because I think that's established. It's also the case that there is then a nice dividing line where where they don't need to go any further, because there are no futures on other assets. There's futures on Bitcoin and ETH. And so it's not like they're opening the floodgate gates to, you know, meme coin ETFs. That's not the case. They're doing the two blue cap

• 48:18Speaker 00

  assets, and they're letting people gain exposure to them. And so I think that will matter. I think the other thing that matters is that the ETFs have worked so well. They've worked perfectly. They've lowered the cost for investors by 90%. They've raised security. They've improved trading and liquidity. And the SEC is supposed to consider that in its reviews as well. So those are the big things. I don't put too much into the BlackRock piece. You know, that's a correlation causation thing. You could also argue that they only file when things look promising. I don't think they have any sort of magic inside sauce. But I think the lawsuit thing and the investor protection thing mean we will get them. I just think the SEC can take its time.

• 49:02Ryan Sean Adams?

  Okay, so now I'm going to ask you to take the other side of that argument. So if we don't get the Ethereum ETF by the end of the year, why won't we get it? I think some have pointed out political pressure being a reason. I'm sure no one in the SEC would ever acknowledge this. They are, you know, purely merit-based, aren't they? But you know, some have pointed to kind of like the political anti crypto army, maybe playing a role here, indicating that there was some political cost for various regulators approving this nasty crypto asset, this nasty Bitcoin thing. And I'm wondering if that factors in, or if not that, then what other factors would like create conditions where we don't have an Ethereum ETF by the end of 2024?

• 49:47Speaker 00

  I think the anti crypto army is a lot less scary now than it was a year ago. There's been a lot of desertions from that army. It's now sort of five people waving ratty flags into the wind. So I wouldn't worry too much about the political pressure, at least not as much as I would in the past. I do think from the SEC's perspective, allowing an ETH ETF sort of re-crosses that line of ETH is definitively not a security. And they've been uncomfortable with that post Hinman, right? The Hinman Hinman said it was not a security. Gensler has been unclear on that.

• 50:26Speaker 00

  And there'd be some sort of reendorsement of its status as a non-security by the SEC that I think I think they may be uncomfortable. Again, I think that's the mind. I don't think that's going to happen, but if if it did happen, I think that would be the behind the scenes reason. That wouldn't be the explicit reason. The explicit reason would be something to do with, you know, data quality or data history or liquidity or something like that. But I think behind the scenes, what what they would be wanting not to do is establish that precedent if if they didn't allow it, you know, within the next 12 months.

• 50:58Ryan Sean Adams?

  To be clear, the industry is ready for this now, right? At least from kind of the industry side, if they approved in May, we would be good to go.

• 51:06Speaker 00

  Absolutely. These ETFs would work perfectly. Again, they would lower costs. Again, they would improve security for many investors and improve access. So it would be a win for American investors and a win for American technology and a win for America if they approved it. And I think eventually they will. I just don't know if they'll be quite ready yet.

• 51:26David Hoffman?

  We talked about the Bitcoin ETF kind of aging like wine and there's this extra nuance in the ETH ETF that it actually has its own endogenous reason why it would improve over time. And that's because I think in the fullness of time, we will see staking be a part of the Ethereum ETF. And so in addition to all the regular TradFi just needs to absorb it, comprehend it, figure out how to filter it out to all of its like distribution arms, which are the brokerages, the advisors, et cetera. There's also the evolution of the ETH ETF itself. I would assume would start at the vanilla ETH asset and then evolve into a staked ETH asset in the fullness of time. Do you, Matt, do you agree that this is like the long-term conclusion

• 52:10David Hoffman?

  of the ETH ETF, just to really start this conversation?

• 52:12Speaker 00

  A hundred percent. That's exactly right. And you're right, it will probably start without staking. And you're right that it will add it over time. That's what investors want.

• 52:21David Hoffman?

  And is that like a trivial evolution? Or is this going to take like another number of years in order to get like the SEC and regulators and just people on board with this?

• 52:32Speaker 00

  So I don't, I don't know is the answer, but I'd be surprised if it was years. Year, a year seems like a more reasonable number, right? They're certain to, not certain, they're likely to go with the simplest version first, because that's what you do when you're getting something new out the door. Think of it as an MVP of an ETF, right? It's a minimum viable product. I don't think it's that far of a leap to staking and you can see it used in other markets around the world. But I do think it's, you know, it's a year, it's 18 months, it's something on that timeline if I were forced to guess.

• 53:05David Hoffman?

  I would just add to that, I think an analogy you can make here with the vanilla and then getting more complex from there is other ETFs that initially launch, whether it's Bitcoin ETFs or simple ETFs, that you then have short or inverse ETFs launched that are focused on those products. You then have leveraged ETFs launched that are focused on those products. And so you tend to always have this kind of simple approach first and then you get more complex out there. And so while staking is a little bit more complicated than just creating a leveraged or inverse ETF, I wouldn't be

• 53:32Speaker 03

  So shocked that we see the ability to have a staked Ethereum ETF in the future. It's kicking a dividend down to the investors ultimately, which again is good for the investors. And as long as you disclose the risks in the in the fund prospectus and all of that documents, really it's up to the investor to make that decision and the SEC shouldn't be playing gatekeeper when it comes to that. And so I think we'll eventually get there, but definitely we'll have that vanilla ETH ETF before we have anything.

• 53:58David Hoffman?

  Man, Ron, I think you just opened up like a whole entire like rabbit hole of like ETF permutations, ETF derivatives, like what kind of like spark our imaginations here, what kind of other types of crypto ETFs merely even just off the Bitcoin or the ETH assets? What types would you expect to see emerge on the floor like sooner rather than later?

• 54:19Speaker 03

  I think if you have, if you look at the futures ETFs, we had Bitcoin futures ETFs, we had Ethereum futures ETFs, then you have maybe 50/50 ETH futures and Bitcoin futures ETFs that just split it down the middle so that with the purchase of one share of an ETF, you have 50% exposure to Bitcoin, you have 50% exposure to Ethereum. You could have that as a market weighted ETF or you know, you could have some sort of moving average built into that fund where it trades in and out of one and into the other based on moving averages. We also will have options for these for the Bitcoin ETF soon, which will unlock an entirely new category of demand and traders and you know, call it Wall Street Bets or just institutions that love that love buying and selling options. I think that'll bring new

• 55:00Speaker 03

  demand into the market. And so covered call strategies, ETFs will emerge and all kinds of fun things like that. And yeah, it'll be interesting to see what happens to inverse Bitcoin ETFs when those when those hit the market.

• 55:12David Hoffman?

  Beautiful. I want to get back into some more questions about just the nature of the ETH ETF. This is like starting to get into like some fog of war stuff. We just don't really have too many answers or clarity here. But Matt, any insight on like how the staking mechanism would actually work inside of a staked ETH ETF? Is this like, what's the most likely outcome here? Like ETH is just basically getting a speed staked by Coinbase? Is this going to be like a Lido staked ETH denominated ETF? Like, did you have any sort of insight as to how the yield actually gets into an ETF?

• 55:41Speaker 03

  Really complex question.

• 55:42Speaker 00

  Made more complex by the fact that the structure of these ETFs is something called a grantor trust. Which you you can sort of think of as a box that doesn't want to do anything. All grantor trusts want to do is just sort of sit there. And so making a grantor trust do something like stake ETH is complex. I think it's liable to be at the custodial level.

• 56:07Speaker 00

  That's the most likely outcome is is is sort of through the custodial level. The analogy, for what it's worth, there is an analogy in traditional equity ETFs. So what many traditional equity ETFs do that hold like Tesla stock or Apple stock, etc., is they actually lend that stock out to short sellers and earn a yield on it. And that's typically done, you know, through the issuer or through the custodian. And I think the similar model will will apply here, but we don't know for sure yet.

• 56:38David Hoffman?

  And then the the last question, and I think is like the most important question about this whole ETF thing, uh, when it comes to ETH is of course the price impact on it. ETH is of course one third of the market cap of Bitcoin. Uh, it also has less ETH on on secondary markets, simply because there's plenty of ETH in DeFi, plenty of ETH on layer twos, plenty of ETH in Eigenlayer.

• 57:00David Hoffman?

  Do you have any sort of notion as to like how the relative price impact would be on Ether, uh, on an Ether ETF in comparison to what we've seen in the Bitcoin ETF? Do you have any sort of commentary on this, Matt?

• 57:10Speaker 00

  Great question. You know, look, I think ETH ETFs will gather billions of dollars of long-term capital that buys it and holds it. And ETH's market cap is not that large. So over time, I think the impact could be really significant. I still don't think, right now, I'm not sure that the ETF tail is what's wagging the Ethereum dog. I really still think it's the use cases and the technological progress, which has been massive and overwhelming. And maybe I'm just so bullish on the growth of those things that I think that that's more important than the ETF. I think of the ETF as like a nice important catalyst that will impact price.

• 57:53David Hoffman?

  Future catalyst, not current catalyst.

• 57:55Speaker 00

  Future catalyst that will impact price, but ETH has other really important catalysts, almost in a way that Bitcoin doesn't, right? Bitcoin has the halving.

• 58:05Speaker 00

  But the ETF was really important for Bitcoin because it's fundamentally a store of value and that's its use case. Ethereum has so many use cases and the technological story is so good right now and that the app development is so exciting right now that I think that's, you know, that's probably the primary driver. But look, it'll be billions of dollars. It'll, it'll impact price. I'm really bullish on ETH.

• 58:30Ryan Sean Adams?

  Okay, so Bitcoin is 50 billion right now and we're expecting maybe by the end of the year it could, it could flip gold. What do we think if we got, got an Ethereum ETF? Do you think it would be comparable to that? Do you think it would be smaller? You know, some, some have described this as sort of the, it's, it's more like the, like opener, right? And whereas like people, people go to the concert for, for Bitcoin and this is just kind of a side act, right? And it's not going to accrue the, nearly the interest that the Bitcoin ETF would. And they point to, I think the Ethereum futures, which are, have been fairly paltry to this point. What do you think of that argument, Matt?

• 59:12Ryan Sean Adams?

  And what are your expectations for a future Ethereum ETF?

• 59:16Speaker 00

  They'll be way more successful than the Ethereum futures ETFs were, which were very disappointing. Those launched at a nadir in the market and a period of disinterest. And they were rushed to market. So I don't know that that's a good analogy. I don't think they'll be out of the gate as big as Bitcoin, but I think, you know, they'll attract billions of dollars in their first year. That's my guess. I also think they'll have a slower ramp in terms of their, their terminal flows will be more upward sloping because there's more education around Ethereum than there is around Bitcoin. But I think it'll be billions of dollars. Look, I think they'll be very successful and you'll have BlackRock and you'll have Bitwise and you'll have others talking about Ethereum and real world use cases.

• 1:00:00Speaker 00

  I think it'll be broadly additive for the space, but I, I don't think it'll be, you know, 50 billion dollars in year one.

• 1:00:08Speaker 00

  You know, it'll be billions. It'll be a success.

• 1:00:10Ryan Sean Adams?

  Ryan, you're on the front lines of institutional education here, and you've certainly been doing your share of education around Bitcoin. I'm not sure what narrative is sticking the most, but if I had to guess, it'd be like, you know, store of value, hedge against the dollar. We've talked about some of those things here. Digital gold, that seems to be a lasting meme that you can kind of transport. How do you think the Ethereum narrative will land among that crowd? Like, what words will you use? What analogies? What narratives do you think are the stickiest for that tribe?

• 1:00:41Speaker 03

  I think you got to look at it like a technology investment. That tends to resonate the most with the advisors that we're talking about. When we explain what Ethereum is, we don't get so into the weeds of it's a blockchain that's a decentralized database that allows anyone to build, you know, any kind of decentralized application with smart contracts. You kind of zoom out. You say, look, this is a new technology platform that's going to fundamentally change the way that we interact with each other, that companies interact with their customers, and that we interact with data and value online in a way that Bitcoin just today can't touch. And when you talk about it like that, and then you get into things like emerging AI and other kind of technology narratives that are emerging, blockchains don't seem that crazy, and Ethereum doesn't seem that crazy. And the more it becomes a household name, the more that people are talking about

• 1:01:26Speaker 03

  that. As they talk about Bitcoin, when they go on CNBC or Fox Business News, the more that word Ethereum comes into the mainstream and the minds of investors. And really, you just need to educate them on the potential use cases on top of Ethereum. If you have this decentralized internet, look what you could do with stable coins, like what you can do with things like Farcaster or prediction markets. And that starts to really get the wheels turning in their head of, oh, man, if I could have invested in the internet in the 90s or in the early 2000s, what would that have looked like for my portfolio, for my clients' portfolios? And maybe it's not so crazy to carve off a bigger part of your technology sleeve to invest in Ethereum than what you're doing with your alt sleeve to invest in Bitcoin. And that's where I think we'll really start to see the demand

• 1:02:10Speaker 03

  for Ethereum ETFs when they launch is, okay, now this thing's real. We have an ETF around it that is issued by some of the largest asset Managers in the world. And if I invest in that ETF, I have exposure to this new technology platform where there's thousands of developers and millions of users and thousands of applications being launched and being used every single day. And all I have to do is buy this one asset, invest in this one asset. I don't have to pick the individual winners. It's kind of a, it's an index on that future growth of the crypto ecosystem beyond just a store of value. And I think when you talk about it like that, you start to see them really, you know, start to turn, turn the page on what's possible with this technology. You don't have to understand everything it does and everything that will happen on it to know that it will have a fundamental impact on the way that we interact with technology in the future.

• 1:02:54Speaker 03

  And that's really the best, the best selling point that I've seen resonate when I'm talking to advisors and walking them through it.

• 1:03:00Ryan Sean Adams?

  Okay. So you're basically saying this is a piece of the, the internet, maybe the decentralized internet that that's part of the narrative. When it comes to valuation though, did they think about this as like a tech play, like similar to maybe a, you know, an Amazon, a high growth tech stock? Or like, how do you talk about valuation? I'm wondering if specifically the, the meme that we've been working on, that some others have been kind of working on for, for narrative understandings, like the internet bond, right? This thing does have a yield that is sort of a share of the internet. Do you think that that has a chance or is that, is that too far? Is that a bridge too far, Ryan?

• 1:03:32Speaker 03

  No, I think that has a chance. We kind of talk about it in two ways. We say, look, in some ways, when there's more and more activity on this network, you start to have this burn mechanism, which acts a lot like a share buyback, right? And then traditional investors can understand share buybacks. The largest companies in the world spend billions of dollars buying their shares off the market to reduce the flow and to reduce the supply. And you have the same thing happening when ETH is being burned, when, when usage goes up. So we talk about there's value accrual from the fact that you have this burn mechanism, which is very similar to a share buyback. And then we talk about the yield from staking, which is very similar to a dividend. And when you put it into analogies, they can understand that are very similar to investment in dividend stocks or in stocks that do share buybacks. They can really start to see how value will start to accrue to the underlying asset.

• 1:04:16Speaker 03

  And so an internet bond is a great way to think about it. I think simpler terms for, for financial advisors who really think about things from a, from a cash flow, value accrual, dividend perspective also works.

• 1:04:27David Hoffman?

  Does the one-two punch of a asset that has a native stock buyback component to it that is also yielding dividends at the same time? Because like, both of these things are great in silo. But the cool thing about ETH is that you get both. You get a deflationary asset that's also producing yield. Does that one-two punch land? Or how do people react to that?

• 1:04:49Speaker 03

  I think that one-two punch lands. It's kind of like the setup for the haymaker, which is then when you show them the revenue that Ethereum is generating. It's billions of dollars in revenue every single year. And so I think those three things together, it's like, sure, great, there's a buyback. And sure, there's a dividend, but where's all that actually coming from? And what's going to make that happen? You say, well, look, here's thousands of applications. Here's millions of users. Here's billions in revenue being generated on this platform. Then they have that aha moment and they really start to understand this isn't going away. It's only going to get bigger and I should have some exposure to this on behalf of my clients.

• 1:05:22David Hoffman?

  What we're really asking you for, Ryan, is that you would take David and myself on the road with you so we can, you know, like, help fight the good fight and convince some folks. Matt, what would you add to this discussion around kind of narratives and positioning of Ether, the asset for the institutional tribe?

• 1:05:39Speaker 00

  Yeah, I think you all have touched it really well. I mean, the beautiful thing about that buyback and dividend thing is it puts it into familiar ground, right? It makes it just like a stock and it makes it like an early-stage technology investment, which all of these people are used to. And that just makes it very comfortable. There is a set of institutional investors who will never be comfortable with Bitcoin because it doesn't have those characteristics. And this makes Ethereum very comfortable for them. I'd also add that, you know, most of these people are 45, 50, 60 years old and they experienced the rise of the internet from something that was weird and quirky and no one used to something that they use every day.

• 1:06:21Speaker 00

  And so this is a narrative that fits in their mind with historical patterns. And I think that's really valuable as well. Those analogies really work with this audience.

• 1:06:32David Hoffman?

  Guys, this has been fantastic. And maybe I'll close this out with a final question. So we are

• 1:06:36Ryan Sean Adams?

  Maybe in the in the first inning of the institutional adoption, let's say, of crypto. And maybe I'll put some milestones or benchmarks behind that. First inning is Bitcoin ETF approved, right? Second inning is Ethereum ETF approved, which of course is, you know, like most famous for. It's a tokenization and smart contract capabilities. What is the third inning of this thing? Larry Fink has talked about tokenization as one of the things. I don't know if this is implying real world assets on chain or what that is. But after the Ethereum ETF, what do you think is next on this roadmap of TradFi adoption of crypto?

• 1:07:15Speaker 00

  Hmm, I want to hear Ryan go first, then I'll, I'll, I'll add mine.

• 1:07:19Speaker 03

  Yeah, it's a good question. I mean, certainly the real world asset tokenization narrative. I really see that resonate when I'm talking to institutional investors because they can understand the concept of just wrapping some kind of structured product around something that already exists. So for them, you think about tokenized real world asset on chain. That's kind of like taking a on-chain asset like Bitcoin or Ethereum and wrapping an ETF wrapper and bringing it on to the, the rails of traditional finance. And so that really resonates with them. So I think real world assets will be a big boost. And not only because it brings efficiencies into a market that's inefficient and that's opaque and not very transparent, but because you're seeing these large asset managers like JP Morgan

• 1:08:02Speaker 03

  and like Franklin Templeton experiment with tokenizing real world assets. And I think that's what gives them that stamp of approval or that conviction that, hey, this is real technology, it could really have a difference in the world. And if institutions like JP Morgan, if institutions like Franklin Templeton are really starting to invest resources into bringing assets on chain, then there must be value on chain that we can go after. And so I think real world assets will be huge. I mean, we have the continued growth of stable coins. We've already seen stable coin transaction volume in 2023 hit about 67% or 60% or so of Visa's total payment volumes in 2023. So we're seeing this like crazy emergence of stable coins, which is another use case. We're seeing this emergence of real world assets, which is now a billion or multi-billion dollar market.

• 1:08:47Speaker 03

  I think just more and more of these use cases that pop up and have real traction in the world will just bring advisors into the, the concept of investing in assets that are on chain and investing in the underlying infrastructure.

• 1:08:59Speaker 00

  Good answer. He touched on what I was going to say, which is I think massive mainstreaming of stablecoins is inning number three. And I think from two perspective, both from a payments perspective locally, and then a US bank account in every pocket around the world perspective globally. And I think the massive mainstreaming of stablecoins is sort of the last hook that we need before crypto and blockchain completely reinvents the financial ecosystem. So Bitcoin ETF, ETH ETF, stablecoins everywhere, and then we'll get tokenization and real world assets.

• 1:09:39David Hoffman?

  You want to call a timeline on that, Matt? Are we a couple of years out? Or is this going to take longer than that?

• 1:09:45Speaker 00

  I think stablecoins are probably this cycle where they really start to go mainstream, and tokenization is probably the final cycle, which is the next one. That would be my guess. But I think stablecoins could 10x from here from an AUM perspective by the end of 2025. I really think the growth could be off the hook.

• 1:10:02David Hoffman?

  Matt, you're at DAS right now is the conference that you're at. Just really quickly, give us the lay of the land. Like, what's going on over there? What's the sentiment like?

• 1:10:09Speaker 00

  Yeah, huge bull market, early bull market vibes. Two things stand out to me. I mean, one, it's sold out, it's oversubscribed, to give you a feel for the bull market vibes. It's much more institutional than any crypto conference I've been to in the past, and the quality of projects are exceptional. There's still some discussion of sort of the fun aspects of crypto, but there are serious people building real world projects. I'm more bullish coming from this conference than I have been at any conference I've gone to for the past three or four years. Really suggests that the industry has made a big step forward.

• 1:10:47David Hoffman?

  Oh, yeah. Well, if that's an early stage bull market conference, then at Permissionless in six months in October, man, that mania is going to be pretty, pretty well crescendoed by then. So I'm looking forward to seeing you guys there. Yeah, 100%.

• 1:11:00Ryan Sean Adams?

  For the Bankless Nation, as always, we'll include a link in the show notes where you can get a discount on those permissionless tickets if you want to join us all. And gotta end with this, some spectacular news, I think, for you. There is still some time to front run the opportunity. The institutions are coming, but they're not all here. And gotta end with this, of course, some more sobriety injected into the podcast toward the end. Crypto is risky. 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.