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Speaker A: My view is that ultimately we will get an Ethereum ETF. The core logic on which the bitcoin ETF approval rests, which is that futures and spot track each other very well and are tightly correlated. So I think we'll eventually get it. I would guess I'm over 50% by the end of this year. |
Speaker B: Welcome to bankless, where we explore the frontier of Internet money and Internet finance. And today we're exploring the frontier of ETF's, specifically the bitcoin ETF and the Ethereum ETF. We have Matt Hogan and Ryan Rasmussen from Bitwise to help us out with that. A few things we talk about today. Number ... |
Speaker C: There's so much to unpack in this episode, especially with the conversation around the Ethereum ETF, which has been going around in the crypto Twitter verse. A lot of the conversations and just around Ethereum these days is about the ETF. Lately in the ETF conversation, there has been discussion about the de... |
Speaker B: We have two esteemed guests from Bitwise today. Matt Hogan is the chief investment officer at Bitwise, and Ryan Rasmussen is a senior analyst at Bitwise. Matt, Ryan, it's great to have you on bankless. |
Speaker A: Great to be here. |
Speaker B: Okay, so, bitwise for. For context, we've had Matt on before, is an asset management firm. And, uh, you guys have your own bitcoin etfemen. It's called bit b I t b. So four letters there. It's got 2 billion in assets under management. So congrats on that. And bit wise, it's probably one of our favorite bitco... |
Speaker A: I love it. Yeah. Appreciate the support. |
Speaker B: All right, so, first question here is, uh, how are the bitcoin ETF's going? Just give us the lay of the land. We are, what, like just over 60 days in? Uh, you know, a few more than that. How's it going so far? |
Speaker A: I'll start and, uh, and Rasmussen can jump in. This launch has exceeded everyone's expectations. Right. For context, I spent 15 years in the ETF industry before I moved into crypto, uh, full time, six and a half years ago. These are the largest ETF launches ever, by a significant factor. To put it in context... |
Speaker C: Well, if you think these first two months of the bitcoin ETF's have been quiet, I can't wait to see what a future acceleration looks like because it doesn't look like it's been quiet. From my perspective, it seems like it's been quite loud. I want to ask just about how the success of these bitcoin ETF's has ... |
Speaker D: I'll go ahead and take this one. I think that this has been a massive boon for the industry. I think we hear a lot of stories from, whether it's grandparents or aunts or uncles or parents or siblings, who now with these bitcoin ETF's, look at that as a stamp of approval from not only the government but just ... |
Speaker B: Matt, you call this an overwhelming success? Was Wall street surprised by this? |
Speaker A: I think Wall street was surprised. I think people thought it would be a success. We knew there was demand, but the scale of the success and the broad based nature of it I think has exceeded expectations. I think it gets to something that Ryan mentioned, which is what really changed from traditional finances.... |
Speaker B: You mentioned, Matt, this second acceleration, we've seen the first acceleration that got us to 12 billion, and the second acceleration, can you describe what that actually is? Why would we be getting a second acceleration? If you're looking at this from the outside, you might say, well, the first wave, ever... |
Speaker A: Yeah, great question. I can start it and Ryan can finish. The thing about ETF's approval is it unlocks only a portion of the market. So the day an ETF is approved by the SEC, retail investors can buy it, and independent financial advisors, people who manage money on behalf of other people, can buy it, but th... |
Speaker B: That what we're seeing when we see, like, Morgan Stanley has kind of opened the gates, that bitcoin, Wells Fargo has opened the gates to the bitcoin ETF, all of these gates. I didn't even know these things existed. But is that basically the process of this second acceleration here? |
Speaker A: That's exactly right, yeah. It's like a nuclear key, right? You need the SEC to turn it, and then you need Morgan Stanley to turn it. And we're just going through that process of the second key turning. |
Speaker D: I would give one additional data point here. So I spent eight years before I joined bitwise working at a company called Cetera Financial Group. This is a large network of independent financial advisors. They have 10,000 advisors or more. They manage 300 billion in assets. And they just recently approved bitc... |
Speaker C: Yeah, this is certainly probably things that are moving on timeframes that crypto natives, the crypto industry doesn't really consider, uh, because we are so short term focused in this industry. But really the, the bitcoin ETF's in general, ETF's uh, broadly are just like a fine wine kind of thing. Like you ... |
Speaker A: Yeah, I mean that's, that's a, that's a back of the envelope calculation, but that's a route. Right. If you look at the us wealth management industry, people have different measures of how big it is. But let's call it, you know, 40 to 50, $50 trillion somewhere in that zone. Yeah. I think about 30% of that c... |
Speaker B: I will say one of my favorite parts of this whole story, the whole crypto story, and what's happening with Wall street, sort of discovering crypto is something we say at the beginning of every single bankless podcast. This is an opportunity to front run the opportunity. Bankless listeners will know we are fa... |
Speaker A: No, but I think that's exactly right. I mean, this is an empowering technology, and institutional capital has so many sort of behavioral biases against it, inherently anti tech, inherently disruptive, difficulty getting their heads around digital things. This was one of the few places where retail had advant... |
Speaker C: We got a two part question for you, Matt. I was looking for some timelines on that 70%. That 70% will be accessed by the end of this year, end of 2024, or is it even longer than that? And then zooming into the fullness of time. Once this acceleration phase is over and we strike some equilibrium with flows, I... |
Speaker A: Yeah, great questions. I think it's a, let's say it's a year long process evenly distributed with unlocks along the way. At each phase of that, it may be till the end of 2025. It may be an 18 month process, and a little bit gets unlocked every time. Its not like the shotgun start of the ETF launch, which was... |
Speaker B: I think theres this idea. Matt, you said earlier that, well, crypto bitcoins not going away anytime soon. Theres this realization. I think theres also this realization that crypto is now, has to be part of a portfolio. I think I saw this was Fidelity Canada, by the way, not fidelity us yet, but you could ima... |
Speaker A: That's absolutely right, and it's a complete game changer, but it aligns with sort of the most conservative stayed pinstripe suit, dyed in the wool investing methodology, like sort of the Jack Bogle vanguard methodology to evoke a firm that is now very much disliked by crypto, but their view is that your sta... |
Speaker B: Crypto will help us pay for the rising cost of education. I mean, but you're talking about the truth here. Just a quick side quest though, Matt, since you invoked the name of Vanguard and the bogleheads. Okay, so CEO Vanguard has says no bitcoin. We're not doing that. Double down multiple times it seems like... |
Speaker A: Can you explain that anchoring bias, you know, desire to seem conservative. Vanguard also said, no, eTF's right. Jack Bogle was famous for hating ETF's. They thought he tempted shareholders to trade too much and destroy themselves, and they stayed out of the ETF game for a long time. Now it's their largest a... |
Speaker B: When was this? |
Speaker A: 2017. An index of money laundering. And then to his enormous credit, I mean, really his enormous credit, we compete with them. But to his enormous credit, he studied it, talked to smart people, changed his mind, and developed a team to integrate bitcoin into Blackrock. So I think Vanguard will eventually be ... |
Speaker B: I will never get tired of that. |
Speaker C: Line, by the way, bitwise. Ryan, I want to ask you about, through your travels and conversations with just these buyers of the bitcoin ETF's, who are they? I'm sure there's the regular cast of characters that I could also guess, but are there also any surprises in there? What kind of data do we actually have... |
Speaker D: Yeah, that's a good question. So we go on the road. We have a sales team, about 25 people that go around every day. They're meeting with financial advisors or ras at their offices or at steak dinners or at lunches and so on. The research team, we travel with them sometimes. Recently I was in Denver ahead of ... |
Speaker C: Just out of curiosity, is there any just like comparative conversation being made about gold ETF's? And just like, how has the pr around gold as a commodity changed. Now that bitcoin is like this sparkly new digital gold that's also gotten ETF. What are people saying about gold these days? |
Speaker D: I get the same critique when we try to make the comparison of bitcoin to gold. I think you often have similar to how you have like a, you have a bitcoin bug in the room. You have a gold bug in the room. And they try to argue all kinds of things like it's been around for a thousand years, it's 10% of it's use... |
Speaker A: Preston. Yeah, id just add two things on top of that. Were seeing some advisors have an inflation bucket or a us government debasement bucket. Thats 50% gold and 50% bitcoin, which I think is great. Thats fine. Thats an easier sell to their clients. Were worried about a government printing trillions of dolla... |
Speaker C: I think inside of the crypto industry, we're all pretty good at thinking in parabolas, much more than the tradfi community. And so when we see the gold market, captain, uh, gold being the number one asset by market cap and bitcoin as like number nine, number ten, as crypto natives, we were like, oh, we could... |
Speaker A: Oh, I love that. I think the flipping will happen next year, and I do think it's a big deal because ETF's are how investors today express their preferences for what to allocate to. And what that will signal is that more of them want to allocate to bitcoin. That nostalgia is not an investment strategy and gol... |
Speaker B: How close are we, Matt, and how does that end? |
Speaker A: Well, we have about what, $50 billion plus in the bitcoin ETF's, inclusive of GBTC. I think gold is north of 100 if you add them all up together, or right around 100. |
Speaker C: So we only need a two x. |
Speaker A: And that's price inflows. There you go. Exactly. |
Speaker D: We'll do that this year. |
Speaker C: We'll do that before Q two. |
Speaker A: Let's flip q three. |
Speaker C: Excuse me. |
Speaker A: Yeah, it's going to happen. I think it's inevitable. As Ryan mentioned, bitcoin is just so much more valuable in a portfolio context than gold has been historically. Not to mention it has better underlying fundamental growth patterns. But, yeah, we might flip it this year. I love it. |
Speaker C: Beautiful. Beautiful. |
Speaker B: I know bitcoin is not the only crypto asset that you guys at Bitwise find interesting or valuable. In fact, I think, Matt, we've had you on the podcast before. We were talking about how to talk to our ias and institutions about DeFi decentralized finance and some of the tokens surrounding it, and these new c... |
Speaker A: We do not yet. Oh, we do not yet. |
Speaker B: Okay. Is that something you want to announce, Matt, on the. Upon the podcast today? |
Speaker C: How much work is that yet work doing? |
Speaker A: Yeah, that yet work is doing a lot of. A lot of work. I mean, we've talked about it in the past. We. We intend to have an Ethereum, uh, ETF filing when we think it can be approved and were really excited about Ethereum. We love the asset as weve discussed, Ryan. I think for many in tradfi, its easier to get ... |
Speaker C: We have some freedom before you file. Once you file, you'll have a little bit more mouse, but now it's more open. |
Speaker A: That's exactly right. Yeah. |
Speaker C: Once you file, I've got some questions. |
Speaker D: Yeah, let's do it. |
Speaker B: Let's go. |
Speaker C: Okay, so the recent meta has been a decreasing in the probability of the approval of the ETH ETF in May. I think there was something previously like 60% to 70% sometime late last year, early this year now that has decreased. You can see this in the poly market. The ETF bros, Eric and James, have also decreas... |
Speaker A: Yeah, sure, I can start. Ryan, you can jump in afterwards to set up. The reason people talk about May is because ETF filings for crypto ETF's move on a 240 day review cycle. And so by the 240th day, the SEC has to say yes or no. And the first of those days ends up in May. |
Speaker C: So May would not end up in a delay. It would end up in either an approval or denial, correct? |
Speaker A: That's correct. Yeah. They can't kick the can down the road after May, and it's a great part of the process because they have to say yes or no. The reason you're seeing the odds decrease is because Eric and others are reading the tea leaves. What are the tea leaves? Usually when you get to this point in the ... |
Speaker C: There's general indifference from the SEC. |
Speaker A: Yeah, or they're listening. They're in listening mode. There are meetings with the SEC and you see them listening, and they did that with bitcoin for years. But there's no two way flow, and that's really what you want to see. That doesn't mean it's impossible. We're not yet in the window where it's impossibl... |
Speaker C: Preston Tradfi is just currently reeling, overwhelmed from what's going on with the bitcoin. ETF hasn't completely processed it. Still digesting it. And so it would be more bullish if we just sat on our hands as an industry and waited for them to catch up with the times and then we can improve the ETH ETF. T... |
Speaker A: Thats my most bullish version of the future because Ryan can only do so many meetings and he still has to get through his bitcoin meetings before he can do his ethereum meetings. Its a joke, but its true. So I do think if these launch at the end of the year and Weve had Denkun and Weve started to see the app... |
Speaker C: Ryan, tell us about your perspective on just the conversations around ETH and the ETH ETF as the resident boots on the ground here. |
Speaker D: Yeah, I think that's right. You don't want to overwhelm these advisors with choices. You have to think about. Even though we're talking about and researching and on Twitter talking about ethereum every single day, in talking about crypto every single day, these investors spend a very small percentage of thei... |
Speaker C: Come and dump it all. |
Speaker D: Yeah, exactly. And so then you try to tell them, okay, look, that's the whole case around bitcoin, is its limited supply increasing demand. It's a. It's a commodity similar to gold. Then you try to explain Ethereum, which is this decentralized version of the Internet where all these crazy crypto applications... |
Speaker B: And our job here, Ryan and Matt, just so it's clear, is when that time comes, to make sure that there are some bankless listeners implanted in the audience. You talked about those bitcoin fanatics. We want some Ethereum fanatics in the audience who are allocated to ether to speak up for it and to explain it ... |
Speaker A: Yeah, I think the lawsuit makes a lot of difference. And I love the words arbitrary and capricious. I should like get a couple dogs and name them. I think it's wonderful. So I think the lawsuit is real because it did establish that if you have a futures based ETF, which we do in ETH, and if the futures are h... |
Speaker B: We have those things. |
Speaker A: Yes, we have those things. Absolutely. And the data is very convincing. And the ETH futures market is very liquid, and the correlations are arguably even tighter than they are in bitcoin. Its a very compelling case, and I ultimately do think that will be the winning argument. And thats why I dont think we ne... |
Speaker B: Okay, now I'm going to ask you to take the other side of that argument. So if we don't get the Ethereum ETF by the end of the year, why won't we get it? I think some have pointed out political pressure being a reason. I'm sure no one in the SEC would ever acknowledge this. They are purely merit based, aren't... |
Speaker A: I think the anti crypto army is a lot less scary now than it was a year ago. There's been a lot of desertions from that army. It's now five people waving ratty flags into the wind. So I wouldn't worry too much about the political pressure, at least not as much as I would in the past. I do think from the SEC'... |
Speaker B: To be clear, the industry is ready for this now, at least from the industry side. If they approved in may we would be good to go. |
Speaker A: Absolutely. These ETF's would work perfectly again. They would lower costs again. They would improve security for many investors and improve access. It would be a win for american investors and a win for american technology and a win for America if they approved it. And I think eventually they will. I just d... |
Speaker C: We talked about the bitcoin ETF kind of aging like wine. And there's this extra nuance in the ETH ETF that it actually has its own endogenous reason why it would improve over time. And that's because I think in the fullness of time we will see staking be a part of the ethereum etfeminal. And so in addition t... |
Speaker A: 100%. That's exactly right. And you're right it will probably start without staking. And you're right that it will add it over time. That's what investors want. |
Speaker C: And is that a trivial evolution or is this going to take another number of years in order to get the SEC and regulators and just people on board with this? |
Speaker A: So I don't know is the answer, but I'd be surprised if it was years. Year. A year seems like a more reasonable number. They're certain to. Not certain they're likely to go with the simplest version first. Because that's what you do when you're getting something new out the door. Think of it as an MVP of an E... |
Speaker D: Would just add to that. I think an analogy you can make here with the vanilla and then getting more complex from there is other ETF's that initially launch, whether its bitcoin ETF's or simple ETF's that you then have short or inverse ETF's launched that are focused on those products, you then have leveraged... |
Speaker C: Man. Ryan, I think you just opened up a whole entire rabbit hole of ETF permutations, ETF derivatives. What kind of spark our imaginations here? What kind of other types of crypto ETF's merely even just off the bitcoin or the ETH assets, what types would you expect to see emerge on the floor sooner rather th... |
Speaker D: I think if you look at the futures ETF's, we had bitcoin futures ETF's, we had ethereum futures ETF's. Then you have maybe 50 50 eth futures and bitcoin futures ETF's that just split it down the middle so that with the purchase of one share of an ETF, you have 50% exposure to bitcoin, you have 50% exposure t... |
Speaker C: Beautiful. I want to get back into some more questions about just the nature of the ETh ETF. This is starting to get into some fog of war stuff. We just don't really have too many answers or clarity here. But Matt, any insight on how this staking mechanism would actually work inside of a staked ETh ETF? What... |
Speaker A: Really complex question. Made more complex by the fact that the structure of these ETF's is something called a grantor trust, which you can sort of think of as a box that doesn't want to do anything. All grantor trusts want to do is just sort of sit there. And so making a grantor trust do something like stak... |
Speaker C: And then the last question, and I think is the most important question about this whole ETF thing when it comes to ETH, is of course the price impact on it. ETH is of course one third of the market cap of bitcoin. It also has less ETH on secondary markets, simply because there's plenty of ETH in Defi, plenty... |
Speaker A: That's a great question. Look, I think ETF's will gather billions of dollars of long term capital that buys it and holds it, and ETH market cap is not that large. So over time I think the impact could be really significant. I still don't think, right now I'm not sure that the ETF tail is what's wagging the e... |
Speaker C: Future catalysts, not current catalyst future catalysts. |
Speaker A: That will impact price. But ETH has other really important catalysts almost in a way that bitcoin doesnt. Right. Bitcoin has the having, but the ETF was really important for bitcoin because its fundamentally a store of value, its use case. Ethereum has so many use cases. And the technological story is so goo... |
Speaker B: Okay, so bitcoin is 50 billion right now and were expecting maybe by the end of the year it could flip gold. What do we think if we got an Ethereum ETF, do you think it would be comparable to that? Do you think it would be smaller? Some have described this as it's more like the opener, whereas people go to t... |
Speaker A: Theyll be way more successful than the Ethereum futures ETF's were, which were very disappointing. Those launched at a nadir in the market in a period of disinterest, and they were rushed to market. So I dont know that thats a good analogy. I dont think theyll be out of the gate as big as bitcoin, but I thin... |
Speaker B: Ryan, you're on the front lines of institutional education here. And you've certainly been doing your share of education around bitcoin. I'm not sure what narrative is sticking the most, but if I had to guess, it'd be like store value, hedge against the dollar. We've talked about some of those things here. D... |
Speaker D: I think you got to look at it like a technology investment that tends to resonate the most with the advisors that we're talking about. When we explain what Ethereum is, we don't get so into the weeds of it's a blockchain. That's a decentralized database that allows anyone to build, you know, any kind of dece... |
Speaker B: Okay, so you're basically saying this is a piece of the Internet, maybe the decentralized Internet. That's part of the narrative. When it comes to valuation, though, do they think about this as a tech play, similar to maybe an Amazon high growth tech stock? Or how do you talk about valuation? I'm wondering i... |
Speaker D: No, I think that has a chance. We kind of talk about it in two ways. We say, look, in some ways, when there's more and more activity on this network, you start to have this burn mechanism, which acts a lot like a share buyback, right? And traditional investors can understand share buybacks. The largest compa... |
Speaker C: Does the one two punch of a asset that has a native stock buyback component to it, that is also yielding dividends at the same time? Because both of these things are great in silo. But the cool thing about ETH is that you get both, you get a deflationary asset that's also producing yield. Does that one two p... |
Speaker D: I think that one two punch lands. It's kind of like the setup for the haymaker, which is then when you show them the revenue that Ethereum's generating, it's billions of dollars in revenue every single year. And so I think those three things together, it's like, sure, great, there's a buyback, and sure, ther... |
Speaker B: What we're really asking you for, Ryan, is that you would take David and myself on the road with you so we can help fight the good fight and convince some folks. Matt, what would you add to this discussion around kind of narratives and positioning of ether, the asset for the institutional tribe? |
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