#1418 Jeff Park | The INSANE Bitcoin Super Cycle Thesis

Jeff Park is the Head of Alpha Strategies at Bitewise Asset Management. In this conversation, we discuss the big deal about bitcoin ETF options, bitcoin volatility, why Bitewise recently bought 2 companies, what he expects to see in public markets, how Wall Street is using bitcoin ETFs, and what that means for you. ======================= Buy book: https://www.amazon.com/Live-Extraordinary-Life-Anthony-Pompliano/dp/0857199927/ ======================= Wondering where to go for financial advice? Domain Money makes financial planning simple. No hidden fees and no sales pitches - you get a personalized roadmap to your goals, from dream vacations to retirement. Flat-fee advisors create a plan tailored to you, with zero pressure to invest. Don’t be like most people who’ve never had a real conversation about their financial plan. Book a free strategy session today at ⁠⁠⁠⁠⁠https://www.domainmoney.com/pomp⁠⁠⁠⁠⁠While I'm not a Domain Money client and they are paying me, I've seen first hand the value of their service through the free plan they did for one of my brothers. Yes, I might have an interest in promoting Domain Money, so just like any major financial decision, it's important you understand what the service is and if it's right for you so make sure to see important disclaimer at ⁠⁠⁠⁠⁠https://www.domainmoney.com/t/legal⁠⁠⁠⁠⁠ ======================= The Pomp Podcast is powered by BetOnline.ag, the premier crypto-friendly place to gamble on politics and sports, casino, poker and horse racing. BetOnline.ag gives you the ability to use Bitcoin and more than a dozen altcoins to make deposits and withdraw your winnings. There are no crypto transaction fees, and processing is instantaneous and secure. Visit ⁠https://promotions.betonline.ag/pomp⁠ and use PROMO CODE: POMP100 to receive a 100% matching bonus on any crypto deposit. BetOnline.ag is available in nearly every country around the world, making it the top global gaming destination for crypto users. ======================= View 10k+ open startup jobs: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://dreamstartupjob.com/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Enroll in my Crypto Academy: https://www.thecryptoacademy.io/

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

• 0:02Anthony Pompliano?

  What's up everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. What's up guys? Today we have Jeff Park. He is the Head of Alpha Strategies at Bitwise Investments, and he brings the heat. You guys are gonna love this episode. Jeff explains why ETF options that were recently approved are going to be such a big deal. He's got

• 0:44Anthony Pompliano?

  nuanced opinions as to why he thinks that Bitcoin will continue to be more volatile, both on the upside and the downside. And he explains exactly where we're headed. And then on top of it, we describe why Bitwise recently bought two companies, what he expects to see in public markets, could there be active ETF management on the way for crypto assets? And then we get into the nitty gritty details as to how traders on Wall Street are using things like the ETFs or the ETF options, and what it means for you and your holdings of Bitcoin or other crypto assets. I always enjoy talking to Jeff. He's incredibly intelligent and you'll see immediately what I'm talking about. Here's my conversation with Jeff Park.

• 1:21Speaker 01

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 1:45Anthony Pompliano?

  Today's episode is brought to you by Domain Money. I love talking about money, but I'm not a financial professional, so I don't offer one-on-one coaching or advising. But in order to get ahead, you need someone with expertise to work with you, one-on-one, and provide personalized advice. The decisions you're making now will significantly impact the rest of your life. The more time you waste not taking the steps to get a plan for your money, the harder you make it to achieve your goals. That's why I've partnered with To pair our community with flat fee certified financial planners. That's right, they are CFPs. They can actually give you advice and they can help you level up your money game. Don't get left behind and head over to domainmoney.com/pomp to book your free strategy session to help you get started.

• 2:28Anthony Pompliano?

  That's domainmoney.com/pomp to get started with a CFP now. Go check them out and just like any other major financial decision, it's important you understand what the service is and if it's right for you. So make sure to go see the important disclaimers at domainmoney.com/legal. That's what the lawyers told me to say. Now go check them out, domainmoney.com/pomp. This episode is brought to you by BetOnline. Do you like making a profit from sports betting? Well, set yourself up to take home the most profit possible using crypto to fund your sports betting, casino and poker account at betonline.ag. You can avoid costly transaction fees, get your payouts lightning fast and do it all securely and anonymously with the highest deposit and with your all limits in the industry.

• 3:11Anthony Pompliano?

  If you want to get in on the action, do it the smart way with crypto at betonline.ag. Head to the website, sign up with promo code POMP100 to get 100% bonus on your crypto deposit today. If you go and you deposit, they'll give you 100% bonus if you use promo code POMP100. BetOnline, the game starts here. BetOnline.ag, go check them out today. All right, guys, bang, bang, I've got Jeff here. Jeff, I thought a great place to start when the options got approved for IBIT, for the Bitcoin ETF, I came out and I said, I think volatility is going to go down. There's going to be more people involved in the market. Within seconds, you're making me look like a fool. You tweeted out, you said it's going to be like the super cycle. We're going to go way up and you had this great thesis.

• 3:55Anthony Pompliano?

  And so I want to talk through kind of the pros and cons of these options getting approved. And so help people understand like what, why is it that these options are so unique compared to maybe options that have been encrypted before? And then how do you see this playing out and their impact in the market over the coming months and years?

• 4:11Speaker 02

  Yeah, Anthony, thanks for having me on. A pleasure to be here with you and would love to have this chat with you in an open ended format. So thanks for the invitation. The first thing I just want to step out and define is volatility in itself. I think volatility can be a word that is a catchall for the way people want to enthuse a certain feeling behind it. But there are really two ways I think about the dimensions of volatility. One is, of course, the concept everyone's familiar with, which is the rolling average, the standard deviation of returns. But there's a greater nuance to this number, which is that it's a static snapshot that doesn't represent the distribution of outcomes that are possible as well. So when I think about risk, I often think about not just a static snapshot of

• 4:54Speaker 02

  a rolling window, but also the distribution of probable events that are possible within that risk spectrum. And then thirdly, the severity of that risk event, which actually does matter in the construct of volatility and the impact that it can drive. And I think all of these concepts come to life when we talk about options, because options are ultimately path dependent financial instruments that create leverage in the system.

• 5:22Speaker 02

  The thing that I'm so excited about with ETF options, and I think what most people underestimate is not that different from how people used to say the SPOT ETFs would be irrelevant, because we already have all the ways to access SPOT assets by Coinbase and other regulated exchanges, that the ETF itself is a nothing burger. And of course, we all learned, this is wrong. It is by far the most successful ETF launch in the history of the United States. And so there's a lesson here, which is sometimes fixing the conduits for financial wrappers for access matters a great deal. And for derivatives, it's even more profound. So the first thing that I point to is the essential removal of counterparty risk that is permitted

• 6:07Speaker 02

  in the regulated financial systems as operated by the CFTC and the OCC and of course, the SEC. I've had a few people who tweeted back and saying, hey, Jeff, this is irrelevant, because don't you know, we already have LedgerX, we already have Derivit, we already have these functioning exchanges that have brought crypto derivatives to life. So this is actually irrelevant.

• 6:30Speaker 02

  It's simply not true because the OCC has a clearing mechanism in which you essentially get a chance to remove the counterparty risk in the ways that crypto has not ever perfectly solved offshore in the ways that regulated investors want it for. But there's actually a more important second point here, which is the power of cross collateralization. So things like Deribit is ultimately serving one asset for one kinds of investors. You can only really trade crypto. But you and I both know that the beauty of a very well-run margin system comes from the ability to cross collateralize. The idea of bringing other non-correlated assets into your collateral pool to then

• 7:14Speaker 02

  build a different model of what those maintenance margins could look like. And here, this is profound, right? So maybe to bring in the context of how a crypto-native investor might talk about things in the ways that we talk about security, Bitcoin Layer 2, right? The new thing that people are really interested is how do we maybe borrow the security budget of Bitcoin and build a separate Layer 1 that benefits from the security provided by Bitcoin? Huge unlock that is possible in the same way that I would say cross collateralization is permitting that for Bitcoin options in a regulated space.

• 7:55Speaker 02

  The idea that you can pull close your GLD ETFs, your gold assets, as part of the pool that can serve as a collateral with haircut to then put on Bitcoin leverage is simply not possible on Deribit. It will not be possible on anything that services just crypto assets. And that is, I think, one of the most important things that people are missing, that long run, we are creating a new margin framework that is going to be much more efficient and much more diverse in ways to bring a lot of things that hasn't happened before.

• 8:30Anthony Pompliano?

  So do you think that these options will simply just magnify the move? So if Bitcoin spot is going up, the options can kind of magnify the severity of the move? Same thing on the way down? And so it's kind of a pro and a con depending on the direction of the market? Or do you think that there is something structural about the way that these options are traded? Maybe another asset classes where it's 80% kind of long, 20% short? And so it should kind of help the price of Bitcoin over the long run? Like, how do you look at kind of directional impact? And then the severity of those moves with these specific instruments?

• 9:04Speaker 02

  Yeah, yeah, this is a great question and one that appeals to drawing upon my memories of starting my career as an exotic derivatives trader at Morgan Stanley.

• 9:15Speaker 02

  For any well functioning and liquid market, you want organic buyers and sellers to create natural demand and supply, right? This is, oh, at the core, what synthetic markets can do, as long as there are natural participants that are hedging or speculating on specific needs for their mandates.

• 9:37Speaker 02

  So taking a step back, with derivatives, you have the chance to buy options or sell options, and you'll have a variety of participants that take one side or the other. Historically, most of the options-taking endeavors have been speculation oriented, except for maybe the purpose of Bitcoin miners, who actually do think about insurance that comes from the ability to sell calls, which may be then covered as a covered call strategy. And I mentioned this point because covered call strategies may be actually the one way in which, to take your argument, that volatility comes down in this space. If you imagine the world where only those who own the assets are selling calls against

• 10:20Speaker 02

  it, and therefore you're not creating net leverage into the open interest on the other side, where the buyers are taking leverage for, then that is a possible world model in which options are volatility reducing.

• 10:35Speaker 02

  But here's the other thing. Volatility tends to come from dealer activities as to how they choose to hedge the option risk that they've underwritten. So in other words, whether dealers are short gamma or long gamma is an important critical determinant as to what kinds of market environment and exuberance might be created in that environment. So if I find that dealers are essentially long gamma because they are only buying options on the other side of Bitcoin miners, that's volatility reducing because again, the hedging activity of long gamma makes it such that there's mean reversion in the market. The real powder keg goes off when dealers are short gamma. How do dealers become short gamma?

• 11:20Speaker 02

  Well, the other side has to be long. So now we're talking about people who are buying calls and buying puts, and those create short gamma in the system.

• 11:30Speaker 02

  This is, this is really the interesting thing that we have to think about. Who are the people that are going to be participating in these things where they're buying options? You can imagine folks are buying calls to have the ability to take leverage to the upside. You can also imagine people are buying puts where they're actually thinking about hedging their risk a little bit more. To be honest with you, I don't think we've seen a lot of that endeavor in the, including existing markets today. But that is one venue of it. And so what happens is when dealers are then short gamma, they have to basically run their hedging portfolio in a way that is adding volatility to the system. This gets a little bit technical, but what it ultimately means is that the dealers in

• 12:14Speaker 02

  their hedging activities have to continue buying when the spot market goes up, or they have to continue selling when the spot market goes down based on the hedging portfolio that is required by being short gamma. So very practically speaking, they're adding fire to the fuel. The thing that I wanted to add to this is about Bitcoin specifically and why it's so special versus other assets that we know in the traditional system. Most financial assets exhibit a feature called the volatility skew. This essentially means that people demand volatility to the put side being more important

• 12:55Speaker 02

  and valuable and expensive than the call side because people like insurance and insurance is inherently more valuable than speculation. And actually, most stocks would demonstrate this. You see stocks that plummet one day because of bad events, but you rarely see stocks go up like crazy without there being specific catalysts. So you live with this risk of the black swan events to the left almost every day, but not so much on the right. Bitcoin's different. Bitcoin, since its inception, has the highest lepto-curtic distribution that you could ever imagine on the long tails of the left side and the right side. It melts up just as much as it melts down. And so this creates what is called more akin to a volatility smile where upside volatility

• 13:39Speaker 02

  is actually just as expensive, just as valuable as the downside vol. And because of this feature, there's something unusual that happens with Bitcoin, which is that when price goes up, volatility goes up with it. This is a key insight because most assets do not behave like this. When the S and P goes up, volatility actually kind of may come down because the market might anticipate it's overshot and we have to come back in. And so the fixed strikes and the vol surface doesn't really move that dynamically. But in Bitcoin, it does. And so what you have here is a double whammy effect of not only do the dealers have to now buy more than their models would have told you, once you put in the higher implied

• 14:22Speaker 02

  vol number, the models now tell you, you have to buy even more than what your books marked it for yesterday. And that creates an incredibly compounded squeeze to the effect that you have seen in certain stocks in the past like GameStop and AMC, et cetera. And I think this is, yeah, go ahead.

• 14:39Anthony Pompliano?

  Jeff, I was gonna say, so you mentioned GameStop and some of these other stocks. One of the things that I think you were talking about, I'd love you to explain is when we have seen these gamma squeezes, or whatever your kind of vernacular people want to use, these are companies that have equity, that they can issue more equity, and so they can kind of tamper it down. I liken it to, you know, the fish are trying to eat, you feed the fish, they stop trying to eat, right? They're full. You can't issue more Bitcoin. And so how does that play into this?

• 15:09Speaker 02

  Right. This is the beautiful thing about the monetary design of Bitcoin as the fundamental core ethos. It cannot be manipulated by any form of technocratic manipulation of what the intention of that security may represent. Bitcoin is an asset in some ways that I akin to saying having no gravity. So there is a little bit of the sense that there's a floor, because there's minor profitability and a minimum price required for the network security budget to avoid, you know, 51% attack, etc. So there's a floor, but there isn't really a ceiling. And what I mean by this is that Bitcoin is more of a flow asset than it might

• 15:48Speaker 02

  be a state or stock asset. Another way to explain this might be a simple example of, let's say, you know, someone thought a stock was worth something, and then shorted it, and someone else bought it, and then the stock ripped, and so one person made money, one person lost money, the stock ended up higher, right? In that simple example, someone just lost money, someone just made money, and the stock reset higher. As you've mentioned, eventually the stock gets pushed down, because one, someone's gonna say, hey, it's overvalued at that price, I'm gonna go short it. Or even differently, as you pointed out, management's gonna take advantage of it, and they're gonna issue shares, because it's overvalued, because there's a way that fundamentally people have a valuation framework around an asset. So there's gravity.

• 16:32Speaker 02

  But for Bitcoin as a flow asset, it just moves from point A to point B. In that path, somebody lost money and somebody made money. But at some point, when a price is discovered for Bitcoin, it just is where the price is that people will transact. Now, this changes, of course, if you assume there's going to be more sellers at that price, because some people want to take profits, et cetera. But taking out that particular behavior and psychology, Bitcoin itself has no gravity. And this is really important because many of these types of short squeezes end because there is an anchor to resetting the world back to its reality. I think the thing that's really exciting about Bitcoin

• 17:15Speaker 02

  is that the market cap of Bitcoin really may not represent all that much, except for a particular moment in time in which people choose to transact money into a construct for which they hold their wealth. So it is a price in which people transact for that moment. But beyond that, it's hard to really represent fundamentally what Bitcoin's ceiling may be. And as a result, you can imagine a world where the squeezes will lead to a price higher, but it doesn't mean that the price has to then fundamentally come back down. And so actually, folks who are long Bitcoin should be also excited about the chance to bring options,

• 17:56Speaker 02

  because all we're doing really is accelerating the flow of the price discovery to Bitcoin, where people want to transact. We're pooling that time curve forward, which I think is a great thing.

• 18:06Anthony Pompliano?

  So let's say that Bitcoin was going to go up X percent. And X represents, you know, kind of the full, you know, a kind of upside of Bitcoin in this bull market. Whatever number, some people say 100, some people say 150K, some people say 200K, some people say, we already hit it, right? Whatever that number is, adding these ETF options in there, how much bigger should we expect to move? Is it like X plus 20%? Is it X plus 100%? And, you know, how do you kind of think about the additional severity of the move in a bull market with options without, you know, the ETF options?

• 18:42Speaker 02

  Yep. So my belief is that in the end, most of the participants of retail options trading will be retail centric in the vision, in the version for which they're accumulating more. I don't think there are many people out there who's willing to sell options on crypto. And it's because that is actually a pretty dangerous thing. Based on the left of nature of Bitcoin's distribution, it's like, as a common phrase would go, trying to pick up pennies in front of a steamroller. It is not something institutional investors will do, unless it's a covered strategy. So then we have to go back to the asymmetry of the maintenance

• 19:21Speaker 02

  margin model. This is actually more definitive by the fact that maintenance margins are flawed. In some ways, maintenance margins actually try to make things so simple by letting go of some of the most important features about what it's supposed to be doing. So for example,

• 19:44Speaker 02

  most maintenance margin models require a concept of a money-ness that adjusts with how much you have to post, depending on the stock price. But it doesn't actually take delta into account and volatility into account. So it makes no differentiation between how much more or less collateral you would have to post, based on the underlying volatility of an asset. That's pretty counterintuitive, right? You'd have to imagine those that are more volatile should actually demand more collateral. But that's not how these things work. The second thing is, it makes no effort to bring in the concept of duration. So here,

• 20:27Speaker 02

  if I trade a five-year option, and someone else trades a three-month option, the maintenance model doesn't discriminate between those two things as to whether you should post more or less on the other. But you and I already know, you should actually post more for the one that has duration, because it's more valuable. So already here, we're seeing, I'm seeing signs of ways that people will

• 20:54Speaker 02

  Express their views on how they want to take directional risk in crypto, but now in a much smarter way. So the idea of buying a long dated, way out of the money call option, that is maybe two delta, three delta, it would feel so improbable that it would be in the money. But you make it so far dated that you actually have a chance at hitting that in the ways that maybe there are folks out there who have these big price targets by 2030 plus.

• 21:26Speaker 02

  People are going to express those views. And the more people express those views, the more convexity is going to exist in the system that's going to accelerate the price discovery to that point because of the dealer hedging activity.

• 21:41Speaker 02

  And so, you know, Bitwise has a price target. We are out there with a price target of 250,000 by the end of 2028. And I think depending on whether we have options next year, I would take the bet that we're going to get there sooner.

• 22:00Speaker 02

  I can't tell you exactly if the price difference is going to change as to what the end state of Bitcoin is. But the thing that I feel very sure and convicted is everyone's price target by a certain timeline with options will be pulled in. It's just going to happen faster.

• 22:15Anthony Pompliano?

  Yeah, so it's basically you're shortening the timeline more so than you're changing kind of price level. One of the things we've seen in past bull markets are obviously these blow off tops and then kind of 80% corrections. Given some of the market structure changes that we've seen with ETFs, now we've got options. There's different kind of players at the table. Some would argue that they're more sophisticated and, you know, kind of risk averse. Others would argue there's just as many gamblers on Wall Street as there are in kind of crypto. Do you expect there to be kind of blow off tops and also, you know, kind of these big drawdowns and the cycle kind of continues? Or do you think that the market structure changes have changed kind of that cyclical nature?

• 22:53Speaker 02

  Yep. So I'll answer this by two ways. One is first assessing what the market structure for crypto looks like versus other established markets that we're familiar with in the global economy. Bitcoin actually has very little leverage in the system relative to the commodities market and the equities market. So just taking a quick figure, the equities market in the US is about $50 trillion that trade in the spot market and the derivatives market is 10 times the size of that, right? It's 500 trillion. And that's normal. That's the same also in the commodities market where it's actually a higher multiple in ways that show people like synthetic replications and hedging tools as a way to manage risk,

• 23:35Speaker 02

  either for insurance purposes or other for speculative purposes, but they are a bigger market than the underlying spot market. Bitcoin is the opposite. The spot market as represented by its market cap is about $1.2 trillion and the open interest, as I saw it last with Derbit and CME was about 3 billion, 30 billion, sorry, 30 billion, which is less than 3%, right? So the multiplier effect we're going to see from options being introduced is not just the 10x that you see in the equities market. It's actually moving from 3% of a market to a 10x. So it's a 300x growth. I mean, that's an astronomical number for which

• 24:16Speaker 02

  there's going to be new flows and liquidity coming into this market, which will likely, therefore, add volatility. The reason I think it will add volatility is more fundamental in nature by its monetary design. You need no explaining of this, as you've long been a practitioner of this space, but I find myself at times on behalf of Bitwise still trying to explain to investors what Bitcoin represents. And at the core, I bring up the idea that money is ultimately

• 24:49Speaker 02

  A product that has an assurance mechanism on two things, it's price or quantity. There really is no other way around what money can represent to you. And the central banks have obviously chosen a model in which the assurance they want to provide is price, which is why there's so much concerns about inflation and ensuring purchasing power parity for their citizens. And they do that by the technocratic manipulation of the quantity. And that's okay. That is a model and it serves people well for now. The other model is maybe someone might say, I don't care about the quantity. Uh, I don't care about the price. I want to fix the quantity. And that model offers a different kind of assurance, which is the quantity assurance.

• 25:34Speaker 02

  And there, because of that virtue, the price by definition has to be volatile. There almost is no other mathematical way to justify the assurance trade off in the ways that we're thinking about the costs and benefits of either of those models. So the pro to the central banking model is that there's very good price stability. And a con to that for Bitcoin would be there's a lot of price volatility. But that is very much, in my opinion, a feature of what Bitcoin represents. And if you subscribe to that view, that we do want to have some assurance on the quantity side, then price volatility is something that we're going to want to understand, to live with.

• 26:15Speaker 02

  Uh, and, and, and that's the component where I think volatility will always be begotten from to the point where with derivatives being such a small part of the crypto markets today, it's going to have a pretty strong compounding effect until we find that natural price. There will probably be a point in the future when we find where most people got invested and have a sense for a cost basis and there's real dollars in it, that there's going to be some natural points of, of, of gravity towards different things. But we're just still so early. Most people actually have not invested really in crypto in a meaningful way. So I think anyone who's trying to think about when that time will be when crypto volatility goes down,

• 26:59Speaker 02

  um, we're just so far from, from, from that point where we can assess those outcomes.

• 27:06Anthony Pompliano?

  Now, we have seen volatility come down in Bitcoin over the last number of years. I think the thought process has been market cap has just increased. And so naturally you get some volatility coming down, different market participants come in. But what's always been interesting to me is, given how many people just buy and hold Bitcoin, it's a relatively illiquid market on a percentage basis compared to, you know, equities or anything else. And so as these new players enter the market, how are you all changing the way you look at trading the asset, right? And there's options now, but also when these larger institutions come in, does it change the landscape or make you trade kind of differently? And really, the reason I ask is because it kind of feels like it was, you know,

• 27:52Anthony Pompliano?

  PvP between crypto players previously. Now it's kind of like, oh, wait a second, like the quote-unquote professionals are showing up. And again, I would argue, you know, maybe the crypto native people actually are the professionals in this sense. But it does feel like there's a different market participant that's now coming to play the game. And so, you know, you manage an active book and from what I understand, have done a fantastic job. You're kind of navigating a lot of these different components of the industry. Like, how are you changing with these people showing up now?

• 28:20Speaker 02

  I think most investors today still allocate to crypto where they control for the risk that they're underwriting by sizing. And so what that really means is that before we even entered the sophistication of hedging strategies, the investors have already at some level decided that they're underwriting their crypto exposure almost like a call option in itself, right? What is a call option, right? It's a bet on a tremendous asymmetric upside capture, but you're willing to lose it all too if it doesn't go in the money and the premium is gone.

• 28:52Speaker 02

  In that model, Bitcoin is valued like a call option. This goes back to the conversation we were having around the vol of all and the ways that Bitcoin can be explosive. But without any news, without any attention, Bitcoin tends to kind of middle around or go down, actually, which is kind of what you've seen in Q2 and Q3 this year. And then there'll be like a big catalyst and people will start paying attention and then it'll explode. And so In some ways, I don't think that will change. I think there will be a lot of people who will say, "Hey, Bitcoin volatility is so high that we really just can't wrap our head around doing something so exotic to oversizing it and then putting all these hedging strategies over it

• 29:33Speaker 02

  to kind of bring volatility down." And the simpler thing would be, "Hey, I'm going to lose it all. Just let's express it in the best way possible that is clean and transparent, which is what the Bitcoin ETFs do for you." That being said, eventually, a lot of the wealth accumulation by those who hold Bitcoin, they're going to demand more hedging strategies. And this, I can tell you, we've seen at Bitwise, where at some level Bitcoin represents an uncomfortable level of wealth, and you may not want to sell it, but you may be willing to monetize it a little bit and be happy to part with it. Here, we come back to what the covered call strategies can do for those types of investors who are willing to sell high-vol assets for a premium,

• 30:18Speaker 02

  for which they're going to be compensated for. I think you'll see similar behaviors like that on the put side, too. I've met investors who are interested in selling their spot Bitcoin assets, but then selling puts against it, too, where they would say, "I'm happy to buy it back at a lower price if it ever gets there and get paid for the chance to wait for it." It's a little collateral intensive, of course, put shorting, but there are investors who think about this. So there will be ways in which these kinds of participants will create different kinks along the volatility curve and the term structure, that smart and savvy traders will know exactly how to anticipate these different types of flows, what traders call "axes" in this space.

• 31:00Speaker 02

  And there will be great opportunities for profit maximization for those that are in the market-making business, for those that are in the high-frequency trading business, more based on technical intraday type of flows than it may be on a two-year-plus fundamental belief system.

• 31:18Anthony Pompliano?

  How do you think about the other assets? So we've talked about Bitcoin and obviously ETF options there. Do you foresee, whether it's Ethereum, Solana, move all the way down, kind of a coin market capitalist? You can just take out the Bitcoin asset, put a different asset and most of what we're talking about is just as applicable and true? Or are we at a point where each one of these assets is now becoming unique enough? And the market structure and some of the data points, et cetera, are causing you to say, hey, the strategy that we employ on Bitcoin is different than maybe where we do with Ethereum, Solana or anything else?

• 31:52Speaker 02

  I think Bitcoin is uniquely in a class of its own versus other crypto assets. And I reference mainly back to its origin as a proof of work asset. I think if you think about why the financialization of the current global economy is the way it is, a lot of it has to do with what I call liquidity transformation, right? Where people are trying to thinking about, think about how to price time by manipulating the liquidity curve across a variety of different instruments. And proof of work represents another way to maybe manipulate time without liquidity, which is energy, right?

• 32:33Speaker 02

  Energy is the one other thing that actually can bring time in the way that it serves as a battery in ways that is representative of real productivity, some might say. Bitcoin is the only asset that really captures that essence. All the proof of stake tokens are what I would still call in the category of liquidity transformation that looks more like the financial system we have today. It doesn't mean they're not invaluable, but I think Bitcoin just has such an extremely unique characteristic that is rare and proprietary to its existence.

• 33:10Speaker 02

  I think Solana and Ethereum and all those different types of layer one bringing network effect will find product market fit in the future. I do believe this. And I do think at some level, it goes back to the belief that if these are going to be consumer facing applications, there will be different kinds of consumers that require different kinds of needs. Some people need speed. Some people need real security and those things are going to be trade off decisions someone's going to want to make. And for that reason, I think that they're both going to be relevant. In the particular conversation around Solana and Ethereum, I use this analogy often with our investors

• 33:53Speaker 02

  to thinking about it, looking at the transportation system here in New York. So I would say Ethereum kind of represents the MTA. It's a public utility in the most optimistic way that it services people and it's very much the thing that underpins the core infrastructure of New York City and the way that Ethereum services that with the widest moat of developers and engaged users. And it has spirit of a public utility that Ethereum, only Ethereum really, I think, has. And because of its early start and its wealth effects, there's a lot of embedded network effect there that's very hard to replicate. I would say that feels like the MTA in New York. Now, of course, Ethereum has a lot of tech debt, technical

• 34:38Speaker 02

  debt that people would say is problematic. The MTA too is a legacy system, has a lot of debt, but it's such a fundamental necessity and it's used by the most amount of people. Solana to me feels like Uber. And the reason I bring Uber into it is because Uber, it can be really difficult to understand in pricing, the same way Solana can be very difficult to understand in its valuation method, which is Solana casts a really wide TAM, right? They play with improbable numbers to the smallest things, to the most infinitesimal things on the fee structure, to the TAM, which is astronomical. So if you can share

• 35:17Speaker 02

  the view that deep pin and DeFi and real world assets of different kinds that are going to participate in the Solana ecosystem that requires low latency is the TAM. That's a humongous number. And then you put the slight, infinite small fee against it. People have a very hard time doing the math on like, what is the true value of the smallest fee on the biggest TAM? And Uber sometimes feels like that. You don't really know what the TAM sometimes could be on these businesses. And the fees can look really small when it gets competitive, but nonetheless, it's valuable. And it feels like it's more commercially driven with the consumer in mind than maybe the MTA is. So this is a little different than I think maybe what you've heard before.

• 36:02Speaker 02

  But that's kind of my mental model as to how I think about the benefits and

• 36:07Speaker 02

  the attractions that might come in this space as people weigh their options.

• 36:11Anthony Pompliano?

  I think it makes a ton of sense and it's kind of a unique way to really look at it, you know, and compare it with things people interact with on a day to day basis. Let's talk about Bitwise for a second. You know, I've been an investor, as many people know, for quite a while. I think that you've been there now long enough to really understand, you know, the company and kind of what is being built. The company has been growing very quickly. People have seen, obviously, the launch of the Bitcoin ETF. But also you guys recently announced the acquisition of two different companies. And so maybe talk a little bit as to kind of where you see opportunity for the business, what you're most excited about, and then anything you can share in terms of kind of future plans for Bitwise.

• 36:49Speaker 02

  Absolutely, absolutely. So Bitwise's founding mission since seven years ago is still very much the same, which is to singularly service our investors to finding access and opportunities to invest in crypto in the most safe and professional ways possible. In many ways, ETFs represent a unique opportunity for that. Nonetheless, we have other products that are offered in the suite of strategies and implementations that are catered to serve the customized need of all our investors. ETFs to me, I think, represent a really profound shift in the marketplace and will continue to do for a long time. On one hand, people talk about ETFs being a great force of democratization, where everyone can become a DIY investor by choosing thematic baskets

• 37:33Speaker 02

  or it's thematic strategies and implementing their own investment goals. This is true. But the other thing that I mentioned is that ETFs are kinds of Financial service in the financial market in itself by providing liquidity to pockets that never had liquidity. They're also a liquidity transformation tool. That is actually a very profound thing to be a way to participate in the financial ecosystem. And in crypto, in particular, we're just very early in what that could mean. So the addition to service our investors in a global way by the acquisition of ETC was an important one because I think

• 38:13Speaker 02

  crypto of all assets truly is a global asset. And so while you may not see these kinds of trends in equities market or in the credit market, I think in crypto, there's a lot of synergy that could come from it. The other thing to mention is that scale matters. And so at some level, having the chance to tack on Osprey Trust and others in the space is beneficial in the ways that we're going to bring more convenience to our investors by bringing liquidity. And I think that's key, too. The other thing is active strategies on ETFs, too. There are a few folks who have come out and launched different things in

• 38:52Speaker 02

  the space. And I think the world is colliding where we're going to see more implementations of actively managed type strategies in ETF wrappers that offer the same convenience and guarantee in the ways people want to get into indexed products. And so I see a world in which these trends are going to emerge, and we're going to have the chance to think about more sophisticated ways to express views in crypto. That doesn't have to be just about price. Maybe there's a differential on wanting to think about trend following, or it could be on the fact that there's yield premiums that can be harvested by different types of financial arrangements possible, whether again, it goes back to call selling or otherwise. And I think we're going to see more of those things. As of course, we've

• 39:37Speaker 02

  also seen the levered and inverse floating ETFs as well.

• 39:44Anthony Pompliano?

  Do you expect the traditional markets, tangentially related to crypto, to be bigger than the crypto native markets? Should we expect ETFs and actively managed ETFs and the variations that people will come up with in the future, where I'm sure they'll create indexes and different variations of that? Should that market cap end up being bigger than, let's say, maybe the market cap of crypto itself? And/or what about trading volumes? Do you expect investors to go and allocate more capital into ETFs or related products on traditional exchanges, more so than they would go and just do spot in the crypto-native exchanges?

• 40:24Speaker 02

  I think for financial investors and RIAs, if your number one concern is more about hedging for the downside, where you're worried about custodial risks and operational risks, then the ETFs are almost a no-brainer. And I think the ETFs will continue to service those types of investors in a pretty meaningful way. The downside, though, is that there may be some crypto-native opportunities that you're missing out as a result. So, for example, staking is topically one of those things here that US investors do not achieve in the total return that is supposed to be provided by participating as an owner of these assets

• 41:07Speaker 02

  like Ethereum. So, the question is, if you're an institutional investor, do you care more about the security of being able to follow the regulatory guidelines and taking price exposure? Or do you actually take the view that maybe you do want the total return of an asset, and then you're going to actually engage on-chain to find those income accrual? I think that there is still a lot of demand for people wanting a convenient product. And we will find ways to think about staking in crypto that is provided in this manner. But I also continue to think that there are things moving so quickly in crypto that the regulatory apparatus will not be able to fully capture and offering all of those opportunities quick enough.

• 41:53Speaker 02

  So already this year, people started talking about not just staking, but restaking, right? The chance to earn another income on top within the staking endeavor in which you actually provide a little more discretionary control over the ways you see your assets. And the launch of Pendle and Athena and all these things around restaking with Renzo, those things I imagine will continue to happen in crypto where you're always going to find investors who just prefer to do it that way because they're in it for the technology, they're in it for the frontier. And I hope that we have a business in which that we can service both and that the US

• 42:34Speaker 02

  will actually get a chance to have clarity in the regulatory framework that allows companies like Bitwise to pursue those types of investors too. But I don't think of them as mutually exclusive. I think there will be people who will want both. And part of it is because I go back to the importance of cross collateralization. If you own a lot of Bitcoin and you might want to own more Bitcoin, then the chance to cross collateralize non-Bitcoin assets is a pretty powerful thing. Or vice versa, maybe you only have Bitcoin, but you actually want to take equities and other kinds of exposures without actually using more cash and Bitcoin can serve as the underlying asset pool to do that, hugely valuable. So ETFs do this.

• 43:14Speaker 02

  ETFs actually provide that better than the crypto native world today because of its variety. The other part is the counterparty risk. If you're a Bitcoin ETF owner, you can participate in the sec lending market really easily, which actually very challenging in crypto to engage in bilateral counterparty relationships without the counterparty risk. So I bring these points up because as simple as ETFs are, the simplicity is its virtue in which there's this financialization unlock that happens to play very nicely within the existing systems.

• 43:46Anthony Pompliano?

  When the ETFs got approved, I think there's a lot of debate, are they going to be good? Are they not? Are they going to be a nothing burger? Or are they going to be impactful? I think most people look at it today and say, hey, they were obviously positively impactful. And it seems like it was a pretty good idea. Is there anything in the embracing of Bitcoin and crypto by Wall Street? That you think is still a risk or something that we might look back on and say, ah, you know, careful what we wished for. We wanted mass adoption, but actually here's the negative side of kind of the big players coming into the market.

• 44:19Speaker 02

  Mm hmm. That's a really great question. I have a view that one of the things I love about Bitcoin is the fact that it is so financially excluded from most of the institutional players. And I mean that in the most earnest way possible, where I return to this belief that so much of our assets in the financial system are all correlated to this one giant global carry trade. That it is actually a fairly close ended formula as to where all of this recursive flows will end up in. And that's why when you see things break down,

• 44:59Speaker 02

  it kind of goes to correlation of one in the ways that you saw in 2022 with 6040 breaking down. And Bitcoin by being outside of the financial system feels like a hatch that can get you a different kind of uncorrelated exposure. So earlier this year, one of the things that we saw was Bitcoin ETFs were being used by professional investors, but not to take directional risk, to participate in the future spaces arbitrage where they were paid to be able to short CME futures against it. And those kinds of things are bringing sophisticated participants.

• 45:38Speaker 02

  But so far, it's fairly narrow in a tactical implementation in the ways that there's arbitrage opportunities possible. And I still go to sleep at night knowing that probably most institutional investors won't be able to come into crypto for all of these types of global carry oriented implementations, because at the core Bitcoin is anti-carry. If you think about the constructs of a carry trade, you need a lot of leverage. And you need it to be a relatively low vol asset, which is why people do it in FX. And the characteristic is ultimately your short vol as a result, that you're kind of earning money for the most times. And then one thing happens and you lose a lot.

• 46:23Speaker 02

  And that's the essence of a short carry. Bitcoin is the exact opposite. It has very little leverage today. And it explodes to the upside and to the downside. And so, most people, I don't think will be able to wrap Bitcoin into a global trade, carry trade type contract because it is too volatile. And so I have this optimistic belief that we're still going to be able to protect the purity of that anti-carry component of Bitcoin in the long run, as long as volatility is at a level where people are not playing around with this collateral multiplier effects and all these hyper-financialization that is creating more systemic risk because of the nature of what volatility represents to these institutions.

• 47:06Anthony Pompliano?

  I think it's going to be very interesting to watch all this play out over the next year, 12 to 18 months specifically, because I think people are waking up to just how much money these Wall Street institutions have and kind of how smart they are. Jeff, where can we send people to find you on Twitter or anywhere else that you'd like to kind of continue the conversation if people have questions about what they've heard today?

• 47:27Speaker 02

  Yeah, I am active on Twitter and my Twitter handle is DGT10011. Every bone of my compliance-trained body coming from Wall Street told me that Twitter is the most evil thing. And yet, here I am, having found the amazing profound power of Twitter and the social reach I've been able to find with folks I never thought I would reach. And so I've been completely converted on the possibilities that social networks can unleash and the friendships that you can build in the space. So please reach out if you'd like. Otherwise, you can find information on us on bitwiseinvestments.com. You may even find a TV ad of ours on CNBC with the most interesting man in the world. We're around, we're everywhere.

• 48:05Anthony Pompliano?

  Jeff, thank you so much for doing this. We'll definitely do it again in the future.

• 48:09Speaker 02

  Sounds great. Look forward to it. Take care.

• 48:12Anthony Pompliano?

  What's up guys? I hope you're enjoying this episode, but I got a quick message for you. I just released my very first book. It's called How to Live an Extraordinary Life. In this book, there are 65 life lessons that I've picked up over the years. These lessons will teach you about money, investing, relationships, work, health, happiness, and much more. In this book, I wrote letters to each one of my children and I tried to share those life lessons with them. If you pick up this book, there's three things that I can promise you. The first is that it is very concise. The audiobook is only three hours. You can listen to it on a long drive or on a rainy afternoon. The second thing is that you're going to learn something. It's worth the price of admission just for the lessons themselves. And then the third thing is it will make you think more deeply about your life and how you try to live it.

• 48:57Anthony Pompliano?

  So go pick up How to Live an Extraordinary Life today. It's a quick read. It's very impactful. It's very concise and it would mean the world to me for the support. Go check it out today on Amazon, Barnes & Noble, or wherever you buy your books. Hardcover, audiobook, it all works. Thank you so much for the support and I'd love to hear what you think about the new book.