#693 Bitcoin ETF Deep Dive w/ Eric Balchunas and James Seyffart

Eric Balchunas is Senior ETF Analyst at Bloomberg and James Seyffart is the ETF Research Analyst at Bloomberg Intelligence. In this conversation, we discuss ETFs, Bitcoin, Futures vs Spot, ETFs vs Trusts, Grayscale, the SEC, and future capital inflows. ======================= My friends at Coin Cloud will give you $50 in FREE Bitcoin when you buy $200 or more at any of their 4,000+ machines. Use promo code POMP to get your free Bitcoin. For details or to find your nearest Coin Cloud machine, visit www. Coin. Cloud/Pomp Coin Cloud has been serving customers since 2014 and has established itself as the world's leading digital currency machine (DCM) operator. More than just a Bitcoin ATM, Coin Cloud machines make it easy to buy and sell Bitcoin and 30+ other digital assets with cash. To get your $50 in free Bitcoin, visit www. Coin. Cloud/Pomp ======================= Compass Mining is the world's first online marketplace for bitcoin mining hardware and hosting. Compass was founded with the goal of making it easy for everyone to mine bitcoin. Visit compassmining.io to start mining bitcoin today! ======================= AG1 by Athletic Greens, the category-leading superfood product, brings comprehensive and convenient daily nutrition to everybody. Keeping up with the research, knowing what to do, and taking a bunch of pills and capsules is hard on the stomach and hard to keep up with. To help each of us be at our best, they simplify the path to better nutrition by giving you the one thing with all the best things. ONE scoop of AG1 contains 75 vitamins, minerals and whole food-sourced ingredients, including a multivitamin, multimineral, probiotic, greens superfood blend and more in one convenient daily serving. The special blend of high-quality, bioavailable ingredients in a scoop of AG1 work together to fill the nutritional gaps in your diet, support energy and focus, aid with gut health and digestion, and support a healthy immune system, - effectively replacing multiple products or pills with one healthy, delicious drink. To make it easy, Athletic Greens is going to give you an immune supporting FREE 1 year supply of Vitamin D AND 5 free travel packs with your first purchase if you visit athleticgreens.com/pomp today. Again, simply visit athleticgreens.com/pomp to take control of your health and give AG1 a try. =======================

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. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Eric Balchunas is a Senior ETF Analyst at Bloomberg and James Seifert is the ETF Research Analyst at Bloomberg Intelligence. In this conversation, we discuss ETFs, Bitcoin, futures versus SPOT, ETFs versus trust, grayscale, the SEC, and future capital inflows. I really enjoyed this conversation with Eric and James, and I hope you do as well. Before we get into this episode, though, I want to quickly talk about our sponsors. First up is CoinCloud. Did you know you can buy and sell crypto with cash? I want to introduce you to my friends at CoinCloud. More than just a Bitcoin ATM company, CoinCloud is the world's leading

• 0:46Anthony Pompliano?

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• 1:30Anthony Pompliano?

  and use promo code POMP today. You get $50 in free Bitcoin when you buy $200 or more at any CoinCloud machine. Coin.clored/pomp and use promo code POMP. Next up is Compass Mining. Compass Mining is the world's largest marketplace for mining hardware and hosting. With Compass, everyone can mine Bitcoin. Their team makes it easy to start mining wherever you want, at home or in one of their 23 hosting facilities around the world. Through the Compass Marketplace, retail miners can access mining hardware with similar prices and purchase plans as the world's largest mining companies. Compass miners own their machines. They choose whatever mining pool they want, and you mine. directly to your own wallet miners who don't want to host their machines can order

• 2:14Anthony Pompliano?

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• 2:58Anthony Pompliano?

  and taking a bunch of pills and capsules is hard on the stomach and frankly, just hard to keep up with. To help each of us be at our best, Athletic Greens has simplified the path to better nutrition. They simply give you one thing that has the best of everything you need. It's that simple. One scoop of AG1 contains 75 vitamins, minerals, and whole-food sourced ingredients, including a multivitamin, multimineral, probiotic, green, superfood blend, and more in one convenient daily serving. The special blend of high-quality bioavailable ingredients and a scoop of AG1 work together to fill the nutritional gaps in your diet, support energy and focus, aid with gut health and digestion, and support a healthy immune system, effectively replacing multiple

• 3:41Anthony Pompliano?

  products or pills with one healthy, delicious drink. To make it easy, Athletic Greens is going to give you an immune-supporting free one-year supply of vitamin D and five free travel packs with your first purchase if you visit athleticgreens.com/pomp today. Again, simply visit athleticgreens.com/pomp to take control of your health and give AG1 a try. Visit athleticgreens.com/pomp, take control of your health, and give AG1 a try. Alright, let's get into this episode. I hope you guys enjoy this one.

• 4:11Speaker 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.

• 4:34Anthony Pompliano?

  We have Eric and James, both from Bloomberg here with us. How are you guys doing? Awesome. First, let's just start off with James. People on the internet think that you look like Luka Donik. What's up with that?

• 4:47Speaker 03

  I usually get Kirk Cousins. That's the one I get the most from anyone.

• 4:52Anthony Pompliano?

  All right, just making sure.

• 4:54Speaker 04

  I think it was a merger of Luka and, what's his name, the other guy. It was pretty good. I mean, that one might be Kirk Cousins.

• 5:04Anthony Pompliano?

  Awesome. All right, Eric, let's start with you. Let's talk about a ETF, an exchange traded fund. What exactly is the advantage to these ETFs versus, let's say, the Bitcoin Trust that Grayscale has, or some of the other kind of fund structures that are in the market?

• 5:20Speaker 04

  Generally speaking, an ETF is probably the superior wrapper for just about everything. Obviously, you can do a lot on your own. If you do anything on here, you could buy the S and P 500 stocks on your own. You could buy gold and store on your own. There's nothing wrong with that. But, you know, this is a world where consumers like convenience. So you can log on to any exchange, buy the ETF. It has a three, four-letter ticker. It trades on the public exchanges. It's been sort of allowed or approved by the SEC. So you have that kind of comfort. It has liquidity. You can trade it intraday. And in this case, there'll be options on it. That's very useful, helpful. So ETFs generally have just made it easy to democratize investing.

• 5:59Speaker 04

  GBTC has done all that. The problem with GBTC is it's not really an ETF. You cannot

• 6:08Speaker 04

  you cannot create and redeem shares on demand, which means arb is not possible. And when arb is not possible, you have a price deviating from the NAV. With ETFs, you can create and destroy shares whenever you want. Therefore, if the price gets away, you can arb that. And then the price gets away, you can arb it. So there's constant arbing going on, keeping the price close to the underlying price of what it's tracking, which is what people want. I mean, that's at the end of the day, they get the coins volatile. They want something that tracks the price. That's it. They just, that's the bottom line. And GBTC does not do that.

• 6:43Anthony Pompliano?

  Got it. And James, when you think about, let's say GBTC obviously is traded at a massive premium at times, a massive discount, is that really the big thing that people are going to drive interest to the ETFs is the fact that the other publicly traded vehicles right now have those discounts and premiums. And so this won't, therefore will drive some of the inflows?

• 7:01Speaker 03

  Yeah, I think that that's definitely part of it. Right now GBTC is trading at like, it's just about 18% discount to the NAV. So basically what Eric was talking about in a typical ETF, you can exchange shares for the underlying on a daily basis. So that means if they're the same exact thing, you can always make sure that the price is worth exactly what it holds. With GBTC, you can't do that. So you can, right now, the fund is closed. You can't even create shares, and there is no redeeming of shares. So that whole mechanism of being able to take the delivery of the underlying just isn't, isn't possible. But again, it's trading at a discount to NAV right now. So, so if you wanted to buy GBTC and you were expecting it to convert to an ETF, that is a potential premium, if you will, in the returns that you can generate. But as Eric

• 7:44Speaker 03

  said, over the short term, GBTC tends to trade very closely to Bitcoin price, like over a day. It's correlation, it's beta to the Bitcoin market is pretty close. But over the long term, it just breaks down because of those reasons. If you bought it at a huge premium, there was times where it's trading at 120% above what it was worth. So you were buying $50,000 Bitcoin when Bitcoin was actually trading at $20,000. So that, that's the problem. And there are issues with it. But there are, we can get into the nuances of it. There are also going to be some issues with the futures ETFs as well. So you just kind of need to know the, the issues with both and understand the pros and cons.

• 8:20Speaker 04

  I want to just add the number here. If you bought GBTC last year on this date, you would be trailing the price of Bitcoin by 160 percentage points. Now, there's times where you bought GBTC and it actually outperformed Bitcoin. The problem is you don't know. It's got a third element and people generally don't like the third element. That's why close end funds have really not, you know, that's an area of the market that's very much like GBTC and they've been largely ignored for the ETF.

• 8:48Anthony Pompliano?

  Okay, so let's talk about ETFs in general, right? We know gold ETF, GLD, massive impact on price. How do you guys think about just whatever the structure of the ETF ends up being? What do we anticipate that impact to be on the underlying kind of Bitcoin price? If any at all?

• 9:06Speaker 03

  I can jump in here real quick. So I will say one thing. What GLD did is different from what this Bitcoin ETF is going to do. If you were a retail investor, you had no real way of getting access to gold back in the day. Like an ETF opened up in a completely new market. Right now, there's Coinbase, there's Gemini, there's FTX, everything, everyone, people have access to Bitcoin. It's not basically democratizing the entire space. So I would say like equating the the impact of the ETF on the gold market to the Bitcoin market is probably a little far fetched, a little bit much. Again, this is also futures, but it's definitely, no matter what people say, people say it's like fake and paper Bitcoin, but really it is, you're buying Bitcoin. So any buying of this is going to be more demand on the

• 9:50Speaker 03

  actual underlying Bitcoin market in some way. And we can talk about margin requirements for futures, but the answer is that it's going to be positive, but it's not likely to be positive with new demand into the ETF, but it's not going to be the same impact that we saw with gold. And also gold, that was one of the biggest best runs for gold that had, it launched right before, not long before the 2008 financial crash. Like there was a whole bunch of other situations going on there with with gold.

• 10:13Speaker 04

  Yeah, and I also think there's a lot of optimism baked into the run of Bitcoin that we've seen. So while a Bitcoin futures ETF in particular, because that isn't even like GLD, that's more like USO. And we know from history that things that track futures in the ETF market are largely generally ignored by advisors, which have 24 trillion in assets. That's the real giant pool of money that ETFs tend to tap into the most. But there's traders and I think USO has attracted traders, this will attract traders. But I think the bigger issue here, and I think, you know, I don't think there'll be, uh, this won't be like some game changer. I just heard, I saw a call that somebody from, um, I won't say who it is, but they thought that this ETF where the Bitcoin futures have taken 36 billion in flows in the first year.

• 10:56Speaker 04

  Um, that seems very, uh, overly optimistic. I would say more like four or five. Now, if it was ETF tracking spot Bitcoin, uh, maybe we get to 30 billion, um, you know, given what we saw at GBTC and up in Canada, but I, I, I still think for the futures one, the big news here is that A, it gives traders something to use. Um, it will be used by traders. It definitely will. Uh, but it's what it represents is this slow start to the SEC getting comfortable with Bitcoin and crypto. You could see Ether, you could see the physical, you could see people who have active funds that do crypto picking inside an ETF like an ARC. Down the road we go and all of a sudden now you're talking about real assets.

• 11:39Speaker 04

  But this particular launch probably isn't going to be like some big game changer asset wise.

• 11:44Anthony Pompliano?

  So that's definitely the takeaway that I've had from conversations with various people in the market is, uh, it, this is more of a signal and a really positive step forward, but the actual price impact may not be massive as, as people want. Talk to me about what happened in Canada. So these were spot ETFs, uh, related to Bitcoin. And I remember, I actually can't remember which one of the two of you, but you guys were going nuts. It was like your Super Bowl, those two, the two days, uh, that those started to trade because it was just massive inflows and it was like every day they were breaking a new record. So like, what was going on there?

• 12:16Speaker 04

  The, the, what was so fascinating about those, and I'll let James jump in because he's done a lot of work on this, but I'll, I'll just say what, what caught my attention is the, the, the trading, the volume on this ETF was like, it made it the number one or number two most traded ETF in Canada on day one. And then day two, and then day three. I mean, it didn't go away. There wasn't that initial pop. It kept the volume going and it's still, I think today a top 10 traded ETF. That was shocking to me, uh, that it would get that much attention so quickly. The flows did come, I think it had like a, I don't know, two months straight flow streak and then the flows came out. But now, you know, there's a lot of products up there that the market's definitely open. But it was those early numbers that blew my mind. It was something like it traded the equivalent

• 13:01Speaker 04

  of like what Tesla trades in the US on day one.

• 13:05Speaker 03

  If you if you account for the size of the market.

• 13:07Speaker 04

  If you if you translate the size of the market, Canada's 27 times smaller than we are. So if you do that conversion, which is a little loose, but you know, there's something to be said about if you can do that much in Canada. That speaks well to what you could do in the US, but I'll let James take over about the the the growth after that.

• 13:25Speaker 03

  Yeah, I would say I would also say like so um I would also jump in and say part of that I think is was demand from the US and around the world because as we mentioned, an ETF is a superior wrapper. It just makes it can you can put anything in an ETF. We talk about this all the time. People have been complaining about high yield bonds being an ETF forever, but it just makes the the process of trading and holding these things super efficient. But I think part of the the thing is, as we saw when these things launch is when GBTC really started going into a discount. There's there just became a lot more options. So while a retail investor in the US couldn't go out and buy these ETFs in Canada. Institutions probably could that had money in GBTC, so they might have traded out and gone to here because it's just a more efficient vehicle.

• 14:06Speaker 03

  So we think I like we talked about the massive demand. I think that showed more that it wasn't just Canada that was accessing these these products. So people were going there and that happens in the US a lot. The US, we basically outsource liquidity. People from all over the world, institutions, they could be in Asia, anywhere. They come to the US to trade in our ETF market because we are so liquid and that is very important to institutions. So I think that kind of happened with Canada's ETF launch.

• 14:33Speaker 04

  If Beto, the ProShares ETF or whichever one becomes the liquid one. And it starts trading, say 100 million, 200 million, a billion a day. All of a sudden, you're going to get people from all over the world using it. You have a Japan pension fund using it to maybe get some quick access to Bitcoin. So that is correct. The US market is so liquid and no other countries can really produce that kind of liquidity. So we will steal. Investors from the whole world into this fund. Again, I think a futures fund won't steal as much as, say, a spot physical will. But that's a very good point. And the thing there, though, is there's only like one or two of those per category that get that liquid that they start to get used by everybody.

• 15:17Speaker 04

  And then, once they get like used by everybody, they become so liquid, they almost start unstoppable. And that's sort of what SPY is, EEM. You know, there's a couple, we call them liquidity kings. And once you get to that spot, that's something you can't buy. I mean, even assets can be kind of bought in a way. Like, you could bring assets over, but liquidity has to grow naturally. And when it does, it's very attractive to people.

• 15:40Anthony Pompliano?

  Talk to us about the difference between the Bitcoin spot ETF and the Bitcoin futures ETF. I know that there's a ton of debate as to whether the spot ETF should have gotten improved first or the futures. We get the futures. So what is the key differences between those two structures?

• 15:57Speaker 03

  Yeah, I could start. So I'll say, like, as we talk about this, the big, the big thing here is it's a move from zero to one. So like, while we are, we think the spot product would be better for retail investors, probably, just because it's less confusing. As we mentioned, this is zero to one for the SEC, which is a big move, but it's not necessarily going to have a massive impact. And the other thing that I wanted to go back to is Eric talked about 24 trillion investor in advisor assets. I mean, even if you take a tiny, tiny sliver of that, that's a lot of money that's going into Bitcoin, whether it's the futures ETF or the spot ETF. But the big difference here is futures, you have to roll every month. So if you're holding the front month contract, right, that expires. So the next one expires on October 29th. You need to sell that contract that's going to expire on October 29th

• 16:39Speaker 03

  and buy the next contract that is November, which is November 30th, whenever the, whenever the contract ends. So basically, what happens is in a typical market, like with oil and other thing, there's storage costs. So that next contract is usually more expensive. That's called contango. So what you're doing is you're selling the lower price contract and buying the higher price. So every time, you're losing a tiny bit of money. And that could add up. Over the last year, that was about 36%. So, I mean, it's, it's not nothing. But we think, we Expect that to go down. Eric and I actually had a call this morning with Mike McGlone, who some people on here probably know he's our commodity analyst and he covers Bitcoin as well. And he thinks that's going to go way down. So right now, there's times where Contango is acting

• 17:21Speaker 03

  more like a commodity that's hard to store, like oil and something like that, that it's hard to get this arbitrage. Because what you can do is, it's called a cash and carry trade. You essentially are going to buy spot and sell the futures. And essentially, you can earn that difference when the futures contract that's coming up is more expensive. But right, it's not that expensive to store Bitcoin and get Bitcoin like it is to go store barrels of oil. So we think it's just going to be arbed away eventually. But even still, I mean, right now, we're talking about 10% to 12% on average the last year or two, I think. But Mike McGlone thinks it could go down to half that, 5% to 6%. Which again, isn't perfect, obviously. A spot Bitcoin ETF doesn't have any of those roll costs. But for 5% to 6%, for some of these people who are going to be using these products,

• 18:05Speaker 03

  especially traders in any along that lines, it's not that big of a deal, probably.

• 18:10Speaker 04

  And let me add a couple of points here. So if you look at the pro funds mutual fund that tracks Bitcoin futures, it's basically the prequel to Beto. It's already been out two and a half months. It's given us a nice case study for what Beto will do. It's only missed Bitcoin by about 1% 60 basis points in two and a half months. That's very good. It's way better than we thought. It's sort of feeds into McGlone's prediction that the role was only bad going way back. And that going forward, especially with the incentive to arb and how the ETF will bring all this money in, we're looking at, it's probably more optimistic than we originally thought. And I, but still, let's say it's 5% a year. If something costs you 5% a year, that's kind of an annoying high fee.

• 18:54Speaker 04

  The other thing is advisors, who, you know, it's possible if this thing tracks really well, over long periods, it could bring in some of those advisors. But remember, they're once bitten, twice shy. A lot of advisors bought BXX and learned the hard way what roll costs are. That's like 40% a year. BXX is brutal. USO could be 20% a year. So they probably, or UNG, there's a couple of them where they probably learned the hard way that anything that rolls futures. Is it could really, you could get the bet right. You could actually bet right on oil or natural gas and actually not win because of the product you chose. That's a big reputational sort of thing that these ETFs have to overcome. That said, the ability to track Bitcoin on a daily and weekly basis is all that will matter to the trading crowd.

• 19:39Speaker 04

  And that's a real audience and that's fine. There are ETFs that are for traders and some that are for long term. The question is, can this one actually build its audience beyond the trading crowd? And that real cost will be a big, you know, variable in that.

• 19:52Anthony Pompliano?

  When you guys think about the grayscale Bitcoin Trust, GBTC, it now has been confirmed that they're going to apply to have it converted to the spot ETF. Do we think that just odds have increased now because futures have been approved, but we don't know much more than that? Or do you guys have other thoughts around that application and the potential for it to be approved?

• 20:13Speaker 03

  Okay, I'll go. So I think, well, as I mentioned, this is zero to one for the SEC, right? So this is them. And as people have talked about, I mean, a lot of people out there, they talk about no need for an ETF. Their people are mad at Gensler because of he's so negative towards crypto. But honestly, he knows his stuff, like as much as people want to say that he doesn't, he really does know his stuff. And he's learning and I really think that, as we mentioned, I think the spot product is a better product for most people that want to use this. I think they should have allowed both at the same time and let investors put their money where they want to put their money, right? Let them, let democracy pick the winning structure. But for whatever reason, Gensler chose this. He highlights a few things.

• 20:56Speaker 03

  So one of the things is these futures products are under something called the 1940 Act. And we don't need to get into nitty gritty here, but like essentially it's a little bit, there's a little more consumer investor protections. There's a little more restrictions on what you can and can't do versus something under the 1933 Act, which is an older act that GBTC, if it converts and these other spot products, which we have a bunch of filings out for, they would fall into that 1933 Act. So that's a big difference. But again, I think the part of the reason that Gensler went with this first is, one, there's obviously some animosity in Congress. Janet Yellen doesn't like. Bitcoin from everything we've seen. So I think this is almost like CYOA, like a little bit of Gensler covering himself.

• 21:36Speaker 03

  Because he can say, hey, we slowed the roll. We went with futures, which are already on a regulated market by the CFTC. I didn't allow it right away. We're taking our time. So I think this is just him like, if anything goes wrong, he has all these cushions between him. Whether Bitcoin gets cut 70%, people lose their money, which obviously is possible to happen. We've seen it happen plenty of times. So I think there's a whole bunch of reasons why we went this route. But I do think we're going to see a conversion at some point. I just don't know if it's going to be on GBTC's first try. And a little bit of background. So Van Eck is, they filed for this. So the whole process for those 1940 act ETFs was a wholly different scenario. Which is why a lot of people weren't with Eric and I when we were calling for an October approval initially. Because they go through a different process where it's just a 75 day period.

• 22:21Speaker 03

  GBTC and these other physical ETFs that go through a separate process, through something called a 19B4 application. They basically need to apply to the exchange and ask for a rule change to allow these ETFs to trade. So that process, that's what you're used to hearing all this like delay or deny or approve. And all the other filings we've seen, they either delayed or approved. So they go 45 day process, delay or approve, delay or approve. And it adds up to 240 days. And that's after they get this 19B4 application to hit the, what's called the SEC register. So Bitwise filed one on Friday and it hasn't hit the register yet. But after it hits that register, then you have basically 240 days

• 22:59Speaker 03

  before the SEC needs to make a decision. And we have Van Eck's spot ETF that they filed through the 1933 act on that 19B4 process. And their final date of approval from filing on December 30th of 20, I think around December 30th, I don't know the exact date, 2020, is November 11th. So it's a long time before they can be approved. So even if GBTC applies for this application, it's not that 75 day process. I believe it's going to be that 240 day post 19B4 process. So it's going to be a long time, even if they get approved the first time. And we don't think any of these ETFs that are coming up on this approval window in this quarter are going to get approved by the SEC. Because they were very, very explicit in wanting a 1940 act product that only holds futures.

• 23:43Speaker 04

  Yeah, and let me, let me jump in here because yes, it's a different process. It takes longer. The heart of the matter though is, and the problem for GBTC converting is it would have to convert to a 33 act fund. And Gensler does not like that act. He is really not into it. He likes the 40 Act. It has a myriad of more investor protections. So as James said, it's a CYA kind of act. He feels much more comfortable with it. So the question you have to ask yourself, yes, there's all these other technical delays, whatever, but is when will Gary Gensler get comfortable with the 33 Act? Or is it possible somehow Bitcoin is denoted as security?

• 24:26Speaker 04

  Because that means it could then go under the 40 Act because you have to be a security to get under that act. So which of those two things happen? I just don't see either of those things happening in the near term, even with, and then you add on the other delays. I just, I don't know. I feel like you're going to hear a lot of talk about a conversion, but the question, if you hear anybody say this in your show, ask them, well, are you saying that Gary Gensler is now comfortable with the 1933 Act? That's the question they won't be able to answer.

• 24:59Anthony Pompliano?

  All right. So I have two questions. I got my brother's show. They got questions for you guys too. First one, James, you said when we called for it in October, you guys were right. Are you guys taking a little victory lap here? Are we getting a little dancing on graves?

• 25:11Speaker 03

  Yeah, I did. I have a bunch of those remind me of this in seven days and 10 days.

• 25:16Speaker 04

  Oh, my God.

• 25:17Speaker 03

  People were saying us were idiots for calling for this. So I'm waiting for those notifications to pop up and just go back and like the tweet.

• 25:24Speaker 04

  Yeah. I mean, look, we felt we had an opportunity here because most people did not agree with us. We felt strongly, and that's a good time to sort of put yourself out there because if you're right, it's a big payoff reputationally. But you know, two things. One is we did get four things right. We got the fact they'd approve, the first one out, ProShares, the date, we missed it by one day. Okay, fine. We said that. That's fair enough. And then the fact that they wouldn't approve many at once. Some people were replying with that. And I was trying to say, I think they should do it, but here's what we think they will do. So it was, yes, I agree. I took a tiny victory lap today, but you know, I don't want to get too into it because. Honestly, what it really came back to, you ever see Silence of the Lambs?

• 26:10Speaker 04

  When Hannibal Lecter tells Agent Starling, "Just look at the case file." It really came down to Gensler's words. He basically was like, "Look, I want to see 40 ETFs that hold futures. I look forward to reviewing them." That was the heart of the case. And ultimately, I think it proved to be true. There was some other evidence around that, but it wasn't that hard to predict, to be honest. I think people got caught up in recency bias. They were used to the SEC. You know, their hopes were built up and the SEC dashed them, like Lucy pulling the football away. And I understand that. But in this case, there were many different situations and variables that led us to come out with that call, which obviously came true. But we were nervous at times.

• 26:54Speaker 04

  There was a couple of times where like, "That little thing over there, that could be bad news." And we were used to getting the football pulled away. But in this case, it worked out.

• 27:04Anthony Pompliano?

  So my second question is, do you guys have a prediction for when the spot ETF gets approved? Do we have like a month where we think that's going to happen?

• 27:11Speaker 03

  I'll go. So I'll say two things. One, I'm a little more positive on this than Eric is because he's saying the 1933 Act. Again, I think that was more Gensler covering himself and slowing things down, allowing like kind of things to happen a little slowly. I don't think he really has that big of a problem with the 33 Act. I think he might just be leaning on it as a crutch. Because as you talk about, GLD falls under that 33 Act. It's also a grantor trust, which is the same structure as GBTC. So there's plenty of these products already out in the system. So I think eventually he'll get comfortable with it. I think we see one approved in 2022.

• 27:44Speaker 03

  That's my guess. I'll say Q4. I'll give it a year from now.

• 27:50Speaker 04

  Yeah.

• 27:50Speaker 03

  A year from launch, I think.

• 27:52Speaker 04

  Yeah. So he's going Q4 2022. I'd probably land there. If I was Vegas and forced to make a book, I'd probably start the over/under November/December 2022, which is about a year. But anything's possible. Again, I don't know what would happen though to get Gensler comfortable with 33 Act. I haven't really been able to make that connection. So I'm not ready to go on the record and be as out there with that call yet as I was with this one. Because I haven't connected the dots in what would make Gensler come around. And until I do, I'm not really going to say much more than just gun to head. Okay, fine, maybe a year.

• 28:30Anthony Pompliano?

  All right. What do you guys got? I'll go first.

• 28:33Speaker 05

  Thanks for doing this, guys. So my question would be, we talked about kind of the differences between futures and a spot ETF relative to institutions, traders, retail investors, etc. And it sounds like, in my opinion, and you guys as well, that this may be, you know, opening up the door and getting people more comfortable with a spot ETF. If we were to get a structure like that, whether it's, you know, next year, the following year, etc., is there any estimates that you guys have seen or you guys are familiar with on kind of how much inflow that could bring into the market?

• 29:01Speaker 04

  A lot. That would be, look, this is the holy grail, a spot Bitcoin ETF, and then a spot Ether ETF, and then, you know, a spot ETF where Kathy Wood picks the crypto she likes. This is a big deal. This would be, in our estimate, possibly $100 billion category after, you know, four or five years. Now, you know, inflation obviously helps a little bit. The price of Bitcoin would obviously depend on that. But I see a torrent of flows into this, especially also as the Vanguard effect kicks in. What you'll find is that someone will come in, like, I don't know, a State Street, and they'll undercut on feeds. So we could be looking at a world in five years where, I don't think it'll be from Vanguard,

• 29:43Speaker 04

  let's just say a Vanguard-esque total crypto market ETF for like 15 basis points. And that will sell in a big way and in a deep way. We've seen it happen in the stock market and in the bond market with ETFs. So there's no reason to think that after a lot of that clutter gets put out there, you know, a lot of product gets put out there, they get cheaper, they get liquid, you couldn't see, you know, something close to 100 billion after five years or so.

• 30:13Speaker 03

  Yeah, and I'll go real quick and say that there's about 9 billion in ETFs, Bitcoin ETFs globally, more if you include the other ETFs. So it's not like it's a massive thing, but the US is the largest market. The other thing I'd say, everyone likes to talk about trying to value Bitcoin based on the gold market, different things. As Eric mentioned, it's $24 trillion in advisor assets. A lot of people talk about putting like 1% to 5% of their portfolio in Bitcoin at this point. Even if it's 1% or 0.01% of that $24 trillion, we're talking Hundreds of millions of dollars that would flow in. So that could, some of that could be through the futures of, some of it could be through spot ETF that eventually gets launched.

• 30:50Speaker 03

  But it's a whole massive pool of capital that could enter this via this way easier than going through like a crypto account specifically.

• 31:00Anthony Pompliano?

  Yeah. Talking about that pool of capital, thanks for joining us, guys. What is going to be the info for this ETF, for this futures ETF now? And are you guys going to put any money into it?

• 31:11Speaker 04

  Look, so I don't actually invest in ETFs. I just don't want to have anything in my head that makes me biased. So just in full disclosure, I own like a couple of index funds and Schwab ETFs, but they're like the boring vanilla stuff. Believe me, it kills me sometimes not to buy ETFs. Like I really wanted to buy the uranium ETF a couple of years ago. I nailed that call. But I didn't. And so I generally just sort of stay away from it to be a sort of unbiased analyst. That said, I think, look, I think the futures ETFs could see four to five billion in the first year. And I think the majority of that will go to the one that gets the liquidity. So like, let's say Beetle comes out and it becomes 80% of the liquidity. I think it could get 70, 80% of the assets. But then you remember, let's say ARC, ARC is going to put out a futures ETF, they'll be by the eighth to market.

• 31:56Speaker 04

  That's not a good place to be, but that's Kathy Wood. She has a lot of name power, people, you know, a lot of younger people who are into crypto are like her too. So she could actually give this like sort of second wind. Then you have Bitwise and you have all these people that have built in markets. So while I think a lot of the spoils will go to the real liquid one that is out first. I do think there is a lot of to be said for some of the ones coming in later. That said, I don't see this as the big sort of watershed moment that a physical would be. So I'll stick to five billion after one year. I don't know if James is coming over or under on that, but I imagine under a little.

• 32:33Speaker 03

  I'm probably under a little, but I guess it depends on how the roll costs play out. I will say though, it's grayscale while it's basically at 40 billion in AUM right now, 39 ish. It's only had like seven billion of inflows in its entire life since like 2013 or 2014, wherever it is. So a lot of that is appreciation. So if Bitcoin doubles from here, I mean, those numbers could go way up. So it's, it's hard to say where the asset is going to be. But I think four billion is a fair guess. I'd probably put the over under there. Yeah.

• 33:01Anthony Pompliano?

  I'm going, I'm going 10 billion and it has nothing to do with inflows. It's all price appreciation.

• 33:10Anthony Pompliano?

  At some point, it hits 10 billion.

• 33:12Speaker 04

  Is a big variable.

• 33:14Anthony Pompliano?

  Yeah, uh, let me ask this question. If you guys were evaluating, uh, the ETF that starts trading.

• 33:20Speaker 04

  Hold on, can I give one caveat here?

• 33:22Anthony Pompliano?

  Yes.

• 33:23Speaker 04

  Okay, there is one thing to watch, which is the front month futures market isn't that big. So let's say four or five billion came in. Uh, some of these ETFs might hit position limits. I'll say for now, it probably won't be a big deal, but let, let's just say they become too popular, you know, they get four, five, six billion. Um, they may have to start owning other parts of the curve. That will dilute their ability to track spot. And that's what happened with USO. And when that happened, the trading crowd just hated it. They fled USO and they have not come back. XIV or SBXY, there are some exotic ETFs. When they cut that sensitivity, uh, it doesn't work out well. So this is just one thing to watch is

• 34:08Speaker 04

  they could, it's possible they come a little too popular for their own good and that, that could alter the dynamics of this. I just want to throw that out there.

• 34:15Anthony Pompliano?

  Okay. When you guys are evaluating the futures ETF that's going to start trading tomorrow, it looks like, um, walk us through the pros and cons and then should retail be more interested in this or is this more of like an institutional RIA type product? Like just somebody sits down to say, okay, this is going to start trading. How should I evaluate it? And where do I come out on pros and cons of this specific vehicle?

• 34:35Speaker 04

  I'll, I'll jump in real quick. So the one thing, we keep talking about the trading crowd. I mean, if you're using an over the counter retail account with one of these other providers, I mean, the fees are not cheap. I mean, compared to zero trading fees and ridiculously tight spreads that you're going to get in this ETF, it definitely makes it cheaper. So again, if you're trading, this is actually not a bad way to get exposure, especially you're going in and out. Um, cause there's no transaction fees and the spread and the spreads are tighter. Um, so that, that's the first thing. And then the other thing is you're, you're basically comparing, at this point, it would be the futures ETF to GBTC as far as I'm concerned. And you need to understand the pros and cons of both. Uh, GBTC might not track as well, especially with the discounts rate. Lately it's been moving exactly in line, uh, ever since it's got to this.

• 35:18Speaker 03

  discount level, it just kind of moves with Bitcoin, but that's not guaranteed like it's probably going to be way closer with the the ETF. But again, you're buying at a discount. So right now it's trading at 18%. So all of a sudden, if the ETF does get approved or GBTC can convert, that's a whole 18% or it's like a at 18% it's like 24% that goes up to meet to meet NAV. So there's that positive. But again, over a shorter term, you're not you're not tracking that closely. And especially you don't know what Bitcoin's price is going to do over that time. So even if for some reason Bitcoin goes into one of its bear markets and you're holding, even if it comes back to NAV, it was still a bad purchase at that point. So again, I think the the futures ETF is good for trading. It should be much closer to spot, as Eric mentioned, as long as we don't hit those futures limits, those position limits.

• 36:00Speaker 03

  So you just have to weigh the pros and cons. I think a spot Bitcoin ETF would be best for everyone, but that's not an option.

• 36:06Speaker 04

  Yeah, the the retail YOLO zoomer crowd, I think is going to take to this, especially because they can now buy call options on it. I mean, this is going to get real because they can't really do that right now. Right? So the options market around the one that becomes the liquid one is going to be a big deal. So I think there's a real demand from retail traders. I will say advisors and long-term retail investors probably aren't going to flock to this. But retail traders who just like juice, they like the meme stocks. This should be right up their alley, given how easy and cheap it will be to trade and the options on it. So I can see that whole crowd coming in and then I can see as it gets more liquid, the bigger institutions

• 36:48Speaker 04

  using it for like, you know, operational purposes and hedging and things like that. That but, you know, so I guess that's my answer. I just would warn any retail investor just, you know, this is a trading tool. I wouldn't I wouldn't buy and hold it unless unless you get some evidence that the roll costs aren't that bad.

• 37:07Anthony Pompliano?

  All right. My last question. We have any end of year Bitcoin price predictions? Where do we think Bitcoin itself ends up?

• 37:14Speaker 03

  You can go first, Eric.

• 37:18Speaker 04

  Look, I've been watching Bitcoin. It looked like when Elon and Kathy and Jack Dorsey did that, you know, that panel, it looks like it rebounded there and then it got some lift from the ETF news and some other things. It's been on a nice run. I mean, I don't know, like, is a lot of this baked in? So it's tough. I can't make predictions, but I'd say you're talking end of the year?

• 37:41Anthony Pompliano?

  Yes.

• 37:41Speaker 04

  Yeah, maybe there's some buy the news or buy the rumor, sell the news for maybe a month or two, and then maybe there's some more bullish news. But, or maybe this is just all very bullish and it's actually just unleashing a whole new wave of this bull market. I just don't know. I can see this going either way. So what's the price right now?

• 38:03Anthony Pompliano?

  Sixty-two thousand.

• 38:05Speaker 04

  Okay, knowing I never, I'm not allowed to make predictions, I'll say seventy.

• 38:10Speaker 03

  We're not allowed, we're technically not allowed to make predictions.

• 38:12Speaker 04

  I have no idea. Yeah, I'm not, that's not my forte.

• 38:15Speaker 03

  Yeah, I would say.

• 38:16Speaker 04

  I make ETF predictions, not Bitcoin, not price predictions.

• 38:19Speaker 03

  Yeah, I would say, so I'd say a lot of the on-chain metrics that like I've been following, but there's plenty of people on Twitter are like very bullish, obviously, right now, long-term holder percentages and all those things. But again, the one thing I'd be worried about is buy the rumor, sell the news type situation, especially after this thing starts trading. So, yeah, that's the thing I'd be watching. But there's a lot of certainly bullish indicators right now, but Bitcoin surprises everyone on a regular basis, so.

• 38:43Speaker 04

  And there's one thing to be said here about the more the ETF, the more, you know, ProShares has all these salespeople. They go golfing with advisors. They just have built, they have audiences that they're friends with. So the more this, the more people have these ETFs, VanEck has one, and then this, you know, you're looking at just really tapping into a whole army of of salespeople and distributors and distribution. And I think that's worth something. That's why I don't know if this is just a quick hit, buy the news, sell the rumor, but possibly some of that. But I will say that's why I think this is a much bigger deal than even the people who are a little like, I don't know, negative on the futures element, the roll costs. This really is a.

• 39:27Speaker 04

  Major situation because of of what it's tapping into and what it is sort of like putting into motion, which is all of these big asset managers have all of these salespeople and they're going to start calling people about this and going, you know, and talking about it. And those people, a lot of those advisors in particular, over time, like, you know, might be comfortable buying some. But, um, like I said, a physical one would be better for this.

• 39:53Speaker 03

  Yeah, I would I'll jump in and say there's plenty of people out there that think there's no need for an ETF. It's just we don't need it. We don't want it. Tyrone Ross over at Onramp, I've been on panels with him debating this. He's he's against the ETF. He's not a fan. But the one thing I would say is if you're an advisor and you're just going to put 1% of your client's account in your 2%, what's easier? Just buying this ETF and just putting that in this odd the financial rails that you already have on your system? Or are you going to go out and create accounts with all these other crypto providers to put like a little bit of your client's money into these accounts and track it in different areas, which, again, Onramp is trying to make easier. But I think there's just plenty of people that are at these big shops that have these old massive legacy financial systems and putting an ETF in

• 40:34Speaker 03

  this position just opens up to a giant new pool of capital. I keep going back to that. So that's the huge indicator. It's going to democratize some people's exact access to Bitcoin. In the same way we talked about gold, it's just not as bad because people can get it regularly on their own. But there's plenty of advisors out there that aren't weren't going to touch Bitcoin until it's an ETF.

• 40:52Speaker 04

  Yeah, it's not. It's not the it's not veto itself. It's that veto is just is a first step.

• 40:57Anthony Pompliano?

  Yeah.

• 40:58Speaker 04

  I think that's the general takeaway here.

• 41:00Anthony Pompliano?

  I'm not buying the futures ETF unless Proshare sends a salesperson to take me golfing. That's what that's my takeaway from this conversation. That's what I'm buying.

• 41:08Speaker 04

  They will. I think they will.

• 41:11Anthony Pompliano?

  I'm sure there's somebody that they'll send.

• 41:13Speaker 05

  I'm gonna need a vest and some lunch today.

• 41:18Anthony Pompliano?

  Awesome. All right, guys. Listen, thank you so much for taking the time to do this. You guys have been all over it. This is your virtual victory lap from us to you guys. You nailed it. So thanks so much for all the hard work. Anyone who's not following both of these guys on Twitter, definitely go follow them. And then James, also, by the way, I'm not going to let you out of here before. He did the podcast in, when, February, I think? And I thought I was following him and I recently realized I wasn't. I follow him. And then he tweets out and he's like, hey, this guy took six months to follow me. Big time.

• 41:53Speaker 03

  I had to call you out.

• 41:57Anthony Pompliano?

  Awesome, guys. Listen, thank you so much for doing this. We'll do it again in the future. And I think a lot of people are hoping you guys are right in terms of inflows to the ETFs.

• 42:06Speaker 03

  Thank you.

• 42:07Anthony Pompliano?

  All right. See you, guys.

• 42:08Speaker 03

  Thanks, Paul. Bye.