Bitcoin's Path to $1.5M by 2030 | Cathie Wood & Ophelia Snyder

Transcript

in fact I've seen conversations among portfolio managers and other firms where the Benchmark is their Bogey and shall I be 10 basis points above on this name or 10 below that's a ridiculous way to invest it's absolutely ridiculous you need to take a white sheet of paper and say what is the world going to look like not what has what has happened and what does the world look like if you are an Empire listener hopefully you've played around on chain and if you have done that you know that transferring assets across different chains is a pain to put it nicely that is why we are incredibly excited to have

the Wormhole Foundation as a partner of the Empire podcast stewards of the Wormhole protocol supporting over 30 different blockchains and six different run times stay tuned later in the show we have a cool thing that you can claim which is a wormhole nft just for Empire listeners this episode is brought to you by monad which has not only the highest performance evm L1 architecture ever built but also the wildest and craziest community in crypto mad's internal devet is live and public testet comes out soon so make sure you join the monad community today at discord.gg slad m o n a dmad this episode is brought to you by shum an evm based smart contract

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Empire all right everyone long awaited episode I've been excited about this one for a while we have Kathy Wood founder of Aran vest we have opilia Snider uh the co-founder and president of 21 shares so ailia Kathy welcome to the show thank you Yano very happy to be here thanks for having me yeah excited about this okay Kathy I'm gonna pick on you to kind of take us into this conversation um you you recently published you both published your big ideas for 2024 and then you published a smaller piece that was titled I think the journey from monetary shock to Innovation Le economic boom I would love for you to tee up this conversation by just walking us through that piece and like your kind of yeah

explanation of of of of how we got to the place that we got to today yeah um yeah yes okay well thank you yeah and we call we summarized it as the journey back because uh that really references how uh long duration assets were pummeled during 21 and 22 as interest rates went up so interest rates uh the FED increased interest rates 24 fold that has never happened in history uh you go back to the 80s when chairman vulker was trying to put a stop to inflation and he took interest rates up twofold you know this was more than 10 times that magnitude and many people were dismissing it saying oh interest

rates were so low you know back then they were 10% he went to 20% yeah they had been getting the businesses consumers had been getting used to it over 10 years uh maybe more than that this time it was just a shock and uh what we believe has happened is a rolling recession here in the United States housing is down 20 to 40% depending on on the me measure uh Autos are in they're not in expansion territory they're more they're closer to recession territory in the 15 to 16 million unit annualized rate range uh you have commercial real estate uh in a world of hurt office and now multifamily

you have Bank deposits still leaving the system they're still negative on a year-over-year basis and in fact they're um they're now negative over last year's negative so it's a a double whammy we don't think a Regional Bank crisis is over and finally companies are losing pricing power so inflation is measured by the CPI has come down from 9% to 3% so we no longer have to fight the we're in a 70 style inflation and it's not going away this is uh you know we're going to end up in the high single digit so we're not there we're at 3% now people are saying oh stagflation this is still we haven't

reached uh the fed's 2% we listen to earnings uh reports and listen very carefully for pricing power companies are losing pricing power those who are trying to fight the unit uh unit declines with higher prices to salvage their margins are getting hurt and they're going to end up cutting prices uh Walmart saying prices uh are negative def we're in deflation uh and Costco is saying they're flat moving into deflation so um we think companies are going to lose pricing power and that is going to accelerate the shift towards innovative solutions to this problem and

uh that's what our five major Innovation platforms are all about so robotics energy storage artificial intelligence blockchain techn technology and multiomic sequencing so they touch every sector and they are converging and this is what we think uh a lot of traditional asset managers are missing the convergence between and among these Technologies uh and they're highly deflationary now many people are saying well wait a minute isn't isn't Bitcoin a hedge against inflation isn't that the reason to own it uh why do you own why are you such a big proponent of it when you think there's actual deflation happening well if you look um when we first took uh when we took our first

exposure to Bitcoin in 2015 it was $250 and and you know traditional asset managers and others in the ETF space uh were making fun of that decision and so we paid very close attention to the Daily moves and at the time uh Greece was threatening to leave uh the the European Union and we were worried about uh you know a relapse into the European sovereign debt crisis well if you were watching Bitcoin very carefully back then you saw it nuded up every time that uh that there was a flare up around Greece and that gave us confidence that Bitcoin might be a

riskof asset as well as a risk on asset and that was confirmed last year during the Regional Bank crisis when when Regional Banks imploded and Bitcoin went up 40 to 50% so I think uh this recognition that uh and I know I've I've I've you know pivoted here a little bit from that paper uh to the topic at hand but I think that realization that Bitcoin is not only a risk on asset you know a technology uh you know as technology is uh but it is a riskof asset in terms of counterparty risk there's no

counterparty risk here like there is in the banking system yeah I want to ask one more question about this like big Global macro because that'll then tie into this conversation about Bitcoin and crypto and ethereum and things like that how do you grapple with the fact that it does feel like most of the um I don't I don't even know the right word like the old world companies like Home Depot and ups and U uh craft hindes and 3M are are struggling right they're really struggling then you have these countries at a sovereign level struggling as well Europe UK Japan China either in recession or on the brink of recession but then you have like what feels like the most exciting Technologies ever in the history of the like this AI boom and Robotics and and

crypto like how do you grapple with where the world and like maybe where US GDP is going based on those two like very different ends of the spectrum it's a great question Yano uh first first of all you're hitting on something important when you mention those those companies I know I put them in the report they are their revenue growth is negative now a large part of that is the rest of the world and now we're getting flash flash points Nigerian NAA down twoth thirds this is one of the wealthiest countries in Africa and and their population has lost two two thirds of its purchasing power in dollar terms

and uh and probably two-thirds of its wealth because they tend not to be well Diversified uh you had Egypt just devalue by 40% this has all happened since I wrote that paper uh that the 40% decline um of course Argentina under mle is basically becoming uh honest about where their that that currency the peso uh should be the black market had it right it was worth half as much as what the government was saying so we're seeing and I actually think Bitcoin might be a reason for this you know many people Now understand they can have a hedge against inflation and as I said deflation um

associated with counterparty risk uh with some Bitcoin and I think this could be causing uh a little bit of a domino effect I I I don't want to I I I don't want to you know create alarm or anything for you know other governments but you know I think that this idea that Bitcoin is an insurance policy is um is uh is important and maybe behind some of the devaluations we're going to we're seeing out there um I think there is a global recession underway you you said it and in the US this this you know the the Technologies uh versus the economy uh

these are booming Technologies when you get uh technologically enabled Innovation um it's highly deflationary and we've got these five platforms we haven't seen anything like this since the late 1800s early 1900s telephone electricity internal combustion engine deflationary period right and those were deflationary Technologies so we're seeing a lot of cross Curren in the US it's very confusing in the employment report you get uh non-farm payroll employment moving up you get household employment moving down right that's interesting we've lost a million jobs and that household employment is what feeds into the unemployment rate even

with GDP if you look at real GDP on a year-over-year basis it's up more than 3% but if you look at its identity uh gross domestic income they they should equal one another that one slightly down on a year-over-year basis and I think what's happening is the the there there could be some immigration uh distortions here we're trying to figure that out but also Innovation because it's moving so rapidly there are the the measurement systems in place right now were born in the Industrial Age and they're trying to catch up uh and so we would not be surprised at the end it's going to feel a little chaotic and you're going to

have you know conflicting crosscurrents I think while this is going on but when all is sudden done we think these Technologies are now beginning to move the needle and that real growth this is what we mean by economic boom uh as deflation really happens and the fed the FED wants 2% inflation they're going to get Negative inflation as that happens uh there will be very significant unit growth from these new technologies but there will also be what's known as creative destruction if you've studied shumer uh and uh a lot of companies think traditional Autos internal

combustion engine if we're right electric vehicle prices keep going down to the 20 to $25,000 range the traditional auto market is out of business so that's creative destruction ailia I want to throw this to you and maybe just a little context because we jumped right into this uh conversation so the reason we wanted to have ofilia and Kathy on the show is uh you you both have um yeah AR Arc and 21 shares have partnered for the The Arc 21 shares Bitcoin ETF which I will just give you both a massive Round of Applause here I think you're sitting at Fourth right now um behind well there's there's grayscale which already you know had their obviously gbtc and stuff like that so in the new players it's Black Rock uh Fidelity and then the the ark B so I

don't know how I don't know how you both are feeling but I would uh I feel like it's a pretty good place to be sitting but yeah congrats to both of you we're we're really excited about it I think it's been a fantastic launch far in excess of what anyone expected these products to perform this quickly realizing it hasn't even been 90 days yet it's nuts it's nuts the reason I wanted to like lead in with that conversation about um you know these countries are in recession the kind of quotes around this old school companies are struggling is there was this conversation I had with my co-founder two weeks ago where we were talking about like do you sell let let's say you sell your ass let's say you try to time

the top of the crypto cycle we've been in cryp we've seen a couple Cycles in crypto let's say you try to time the top and you maybe sell the top of crypto we both the conversation winded and ended up in this with us asking this question what else would you allocate to really what else what El what like are you just buying the S&P then when we believe that there these kind of revolutionary Technologies are out there like really what else would you allocate to outside of crypto and oia I guess what I want to ask you is when you're in the room with some of these asset managers um and you're talking about I don't like arcb and and and the products you guys offer a bunch of other products as well outside of that like what how are people feeling about Bitcoin I I guess I'd say

Bitcoin first and then like crypto more broadly and you I guess you can take that in any direction there so I I think it's important to realize what institutional Behavior looks like when you come into a new asset class and and this is a new asset class right and and yes it can fit into commodity buckets and yes you can think of it in a store of value but but it is fundamentally something new and different right and we're trying to find cories but there there is quite a bit that's novel here the behavior is quite simple you go from this is crazy why would I buy this to well wait a second now I need to at least have an opinion about this and I think that's where most the United States pretty radically shifted into in January went from being completely fine to have no opinion

whatsoever on crypto and you could tell your clients that and they wouldn't find that weird to now clients not accepting that as an answer you you can say you hate it but you need to have a well-founded opinion and needs to be based on something and not just whatever and I think that was a pretty big shift and we've seen that happen in other markets it happened in Europe a few years ago it's continuing to happen the arrival of the US ETFs has accelerated that globally but I think that's really where we're sitting they're developing opinions you then see people do what I would call like testing the waters or dipping a toe in they'll throw like a tiny allocation like a something just see how does this perform in my portfolio how do my clients react to this you know these are still 70v

products right and and you're not going to get the kinds of returns that you see without volatility that that's literally definitionally how you measure volatility you you need they go together um this is not but it's not something you know a lot of more traditional investors are used to seeing in their portfolio they're used to much more steady returns um in some respects and I think so you're seeing people out a little bit then you'll start to see them build full allocations and and we've had customers uh not not in the US market because obviously that's newer but we've had institutional customers in other markets who started by allocating 10 or $100,000 to Bitcoin in a multi hundred million dollar portfolio just so they like kept an eye on it had

a reason to look at it and now they hold tens some of our clients hold hundreds of millions in in assets ranging from Bitcoin to some pretty esoteric alts and I think there's definitely a learning curve there um we're very early in that in the US like the educational process for learning what these assets are and understanding how they can fit in your portfolio is very very early still yeah yeah know I I this is I'd love to um pipe in here a bit because uh when you ask that question where else would we go I think um what you what you're um alluding to is if you look at the S&P 500 and

NASDAQ um and and you look at what's at the top of uh each of those you know the companies there are they've hit that level because of past success and if the world is going to be disrupted and you know the traditional World Order is going to be disintermediated um that's probably not the place to go however and we've been fighting this battle for 10 years uh including Bitcoin and we are providing exposures to the new innovation the way the world is going to work and what has happened and and it's fortunate it's I

think it's the most massive misallocation of capital in history is after the Tekken Telecom bust and even more so after 0809 there was a move towards risk aversion or risk mitigation and and and what did that mean to the traditional World it meant let me get close to my Benchmark let me get close to the S&P 500 let me get close to the NASDAQ in fact I've seen conversations uh among portfolio managers and other firms where you know the Benchmark is their Bogey and shall I be 10 basis points above on this name or 10 below that's a ridiculous way to

invest it's absolutely ridiculous uh you need to take a white sheet of paper and say what is the world going to look like not what has what has happened and what does the world look like you and especially given how quickly these Technologies are moving and the great thing for for Arc in terms of everything that we do and I know it's true for 21 shares but they only do uh digital assets but the great thing for us is there is a new investor who understands and accepts this notion that volatility is part of the price you pay

uh for this new asset class and many many uh we've been referred to just our basic ETFs in Innovation as a new asset class as well that is we're not a new asset class these are equities Bitcoin and digital assets that's a new asset class but now we have an investor that understands that volatility is part of what you need to expect they are I'm not saying they're comfortable with the downside volatility they love the upside volatility volatility is a very good thing on the upside so I think this whole Space this new asset class is helping um investors understand what we've been trying to communicate for the

last 10 years through Bitcoin of course but also through these other Innovation platforms yes and for what it's worth I am not an equities person but I've been uh that is actually one of the reasons I started looking at ARC products years ago for my own portfol because I did struggle and you know it shouldn't come as any surprise you know you think about like personal portfolios I massively overweight crypto I think yeah Kathy is too right like we're we're pretty overweight this is a real conversation my wife and I were having she's like you know we're like I we have too much of our you know net worth in in crypto and Bitcoin I'm like what what what else are we buying go look at the S&P like I don't want to own Home Depot

and Chevron and Accenture right now I'm sorry I just you know I don't so and it's it's interesting yeah I don't know I I've struggled with that question myself I and I remain very overweight cryp and thank you for saying that ailia I um we it's to me it's astonishing to me this is Back to the Future when I started in the business I was in college 1977 what Arc is doing now is what we were doing back then we're trying to Envision how is the future going to evolve and we were in 1977 talking about Hong Kong 1997 20 years in the future and that became a

very productive Conversation Over time right we were ready for uh uh the Handover and uh you know what might happen after that we were head ready for uh China integrating more into the global economy now I know that it's doing the opposite right now but you know you you have to think about the way the world is going to work not the way that that it has worked and that is why our strategies we feel are uh fulfilling an unmet need that's why I started Arc yeah so when you maybe taking going deeper into crypto for a second there are kind of three ways to slice crypto in my mind and I think I forget I might

have actually taken this from an arc thing or maybe it was a Chris bernis thing at one point in time but there's there's like the money Revolution the financial Revolution and uh the internet Revolution right there's kind of the Chris Dixon way of explaining the internet and web one to web two to web three there's kind of the bitcoiner way of saying K you know K Austrian economics and you know you know Bitcoin is is better money or better gold whatever you want to say and then there's the financial Revolution right defi AR you know JP Morgan and everything's built on Cobalt from 1970s and it's this archaic system and there's you know we just need to revolutionize Finance how do you both exp I ailia I imagine you've done a lot of the money

Revolution or the selling Bitcoin recently but as as as eth comes into play for these ETFs and maybe we push past that we're gonna have to think about how we talk about the internet Revolution the financial Revolution to some of the big institutions be curious how you think about kind of slicing these three buckets up and and and kind of what lands and what doesn't land right now so I think the financial Revolution side of things and the internet Revolution side does land I think there's a very clear understanding and typically the analogies I've seen resonate is um when people talk about social media right the the movement from being able to actually create content and content creator networks is something that obviously I think is

quite tactile and quite something people understand that the progression in technology and the progression and the use of Technology changes and so this idea of transitioning towards actual ownership of assets um I think is something that has res historically quite well I think the other thing to realize is especially once you start getting into some of the narratives like defi um they actually understand this pretty well it's their jobs right like if you don't understand how to you know write a swap and you work in finance they're they they understand these products and they understand what those rails look like so I think especially as you start to talk to people who have been in this space for a long time there's an appreciation for innovation in this area and I don't think it's actually that

hard of a cell I think it's quite easy for somebody to appreciate especially if you spend any time in it I was talking about this earlier today and I C Kathy knows this but I'm a huge history nerd and I think one of the things we often forget when we think about financial revolutions and you know movements towards new new technology and new technology adoption especially in financial markets everything in financial markets exists in a certain way for a reason it may not be a good reason a very simple example is a ticker why why are tickers for letters they don't need to be it's an illogical thing right why why do we limit ourselves to four letters why are three letters better like what happened there why do most crypto assets have four letter tickers it actually has to do with the

structure of ticker tapes and the ability to physically produce documentation in the 20s and based on technology limitations that are just irrelevant but we've we've adopted that as a standard there's no reason to do it that way there's a lot of things in in finance generally that are that way there are a lot of things in the internet that are that way right there conventions because they made sense 20 years ago or 30 years ago that that no longer apply and I think one of the things that there's a real appreciation for is I think linking to that and saying like look we do things a certain way yes but you don't need to and there's a way to actually accelerate this and if you have that appreciation for why it was done a certain way and you're able to articulate that in some way say like hey look we all know why we

all know why we use T plus2 settlement does it make sense in a digital era no but we understand why it is that way it it has to to do with historical precedent and and we can we can make this better without necessarily you know throwing the baby out with the bath water there's a piece of this that makes sense and I think typically once you start explaining innovation in that way of saying hey this is a logical continuation of the way we do things and it makes it better and it makes it faster and easier and more accessible and more democratized and gives you more control over it um I think they're really able to see that especially because a lot of the things that we're talking about are very um are very tangible for people right like the internet is a very tangible thing we all

use it every day we're using it right now people actually do understand these things in a much more visceral way than you know I think I mean I I certainly don't do things in genomics but to me the something about the use cases we frequently discuss for blockchain feel a lot more tangible to people uh when they first come into the space than I think other forms of innovation where that can be much more abstract sort of like AI pre-chat GPT um blockchain I think has that tangibility which is helpful and I think um and and this Chris berisi also did uh coin recently you know the the the defi can sound intimidating to people defiant and so forth so he was saying look the

way to help people understand what this is as ailia just said is this is the internet Financial system this is what the developers did not put in place in the late 80s early 990s uh as they were evolving the internet because they never thought the financial services or Commerce would take place on uh on this thing that we're all using now so uh I think stepping back and talking about it that way and then also uh describing you know how young people are behaving even the most seasoned investor out there they have children or grandchildren and

they're looking at how they spend their time and they know that half of more than half of their leisure time or discretionary time is spent online and so this notion of social status moving online uh with these immutable uh digital assets uh is a thing they're not doing it but they see their children and grandchildren doing it so if you if you kind of describe what's going on out there right now to people who just put it in context and and Phil is absolutely right when you think about the internet how much it has been built out over the past 30 years

that's that's kind of priming the pump and now you're just putting this ifs in this internet Financial system with uh Native currencies native to to the internet taking out the middlemen bringing in more peer-to-peer it begins to make a lot more sense to people who just wouldn't even think about it before and there's a piece that's also just and and you kind of said this right we as an industry we love calling things names that sound cool on paper that are fundamentally not that helpful in terms of getting people to understand and adopt the standard at the end of the day if you actually want Bitcoin blockchain crypto digital app

assets nfts to actually do what they're supposed to do you need a couple billion people using them regularly that that's actually the bar right you need to get to a place where adoption looks like the internet you're talking about billions of users that's that's the goal and you need to get there as quickly as humanly possible and if you want to think about Bitcoin and and store of value and you want to compete with gold you're talking about basically everybody right you need you need to be getting close to that seven billion number one billion is not going to help you that much and I think sometimes we forget that which means at the end of the day our industry needs to be about transparency accessibility and welcome to everybody because at the end of the day whether you think self- custody is the greatest thing since

sliced bread or you only ever want to use an intermediated product because you don't even enjoy having you don't enjoy having cash in your wallet why would you want to have Bitcoin on your laptop you need both and you need them all right like this is very much like a got to catch them all Pokemon kind of thing here to that's what it needs to be you actually need to capture every single one of these sub verticals and actually welcome them in and I agree with what Chris says around defy and we do have that as an issue right even think about the word crypto right cryptography is not accessible to people sort of definitionally there there's a reason why you see people preferred nomenclature like digital assets yeah it

is a lot more welcoming and I got into crypto because my mom I I realized that's maybe a weird one my mom introduced me to crypto in 2013 um and she's kind of amazing but even it didn't feel welcoming to her it still not doesn't necessarily and I think that's not to our advantage when having these conversations yeah it's funny so we one of the events that blockworks hosts we have a big event called permission list with the folks at bank list that we do we have another one called digital asset Summit Das and the reason we called it Das is because or digital asset Summit is we tried hosting a crypto event in 2018 te and no nobody wanted to come or none of the our our audience at the time very institutional crowd very B2B type of event uh kind of the suits coming to

learn about the space is what we wanted to set up nobody wanted to come soon as we called it digital asset Summit then we started getting people there so um but yeah and ailia as a fellow um I was a history major and fellow history nerd and there's this um there's this piece of History I love which is Mark andreon talking about the internet and what he calls the original sin right which ties into what Chris is talking about as well with internet money he said the original sin is it would have made a lot of sense to build uh to build into the browser the ability to spend money but that didn't happen and as he says he says quote I think the original sin was that we didn't actually build economics which is to say money at the core of the internet it was just a protocol that was

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super for sponsoring maybe can you take us into the in like deeper into the Bitcoin ETF so launched in January we're like three and a half months in there's s what 75 billion of if you include grayscale there's like roughly 75 billion of Assets in this black rocks leader then Fidelity then the arcb arc 21 shares Bitcoin ETF I think you're sitting a little under three billion right now what um what what's coming next right there are conversations this could be a conversation around the wirehouses conversation around eth ETF conversation around like assets Beyond Bitcoin and and and eth maybe we could start actually with the wirehouses I'd love to know why this is kind of the the

next important unlock and when this comes and yeah love would love to have a conversation around that um I so Resolute is our distribution partner has been for all of our ETFs and now for uh these digital assets uh digital asset uh products um and what we're learning is that warehouses when they learned that 11 of us were going after this Market uh the first thing they need they have been doing due diligence but they're not going to do due diligence on all 11 and they know not all 11 will make it that they're probably I mean Philly I don't know what what you you say but you know

I say three or four make it I guess I have to say because of three to five can you explain why why that so the long tale of the ETFs will will what they'll stay in business but just like no one will allocate to them they'll disappear and shut down what you know it's interesting Galaxy had its conference call yesterday and uh according to Galaxy Invesco is waiting for wealth managers to put uh crypto on their P platforms to approve and uh maybe Invesco is uh very good in that space so each one has a strength now what we feel great about is most of our While most of our ETFs are distributed through the the

W wirehouses so Morgan Stanley UBS uh Bank of America maril Lynch Wells Fargo um not one of them has put us on uh its platform and uh why is this they wanted to see who the survivors were going to be they do not want to put their clients money into a fund that will ultimately shut down so I think that is becoming clear although you will have each one of the the the bottom six or S saying no it you know you have to give us until this happens in the case of uh Invesco I guess it's the wealth managers we have not had our primary clients uh uh buy

into this yet they're doing due diligence on a lot of things critically on infrastructure and Ops and of course that's a a f is 21 shares um uh baileywick and and they've you know the great thing for us and one of the reasons we wanted to partner with them is they have been battle testing infrastructure and Ops for the last five years over what now is roughly 45 46 um offerings different funds right through booms busts through havingsex through airdrops and you know those are all those are all events that

um that traditional asset managers are are not well they've not been through some of them so uh that that's uh that's the first thing they're looking at they're really doing indepth research on this and I'm I'm sure ailia will get into that a bit more they also need to know that their clients and they are going to be supported by two things research and we give our research away as does uh 21 shares research and we're prolific we're putting something out every week on something in the digital asset space and they need to know that they whether they're advisors or other

asset allocators uh are going to be able to call someone who really understands the space and so Resolute our distribution partner has been working with us since 2016 and I remember the most senior ETF specialist uh laughs because as she was coming to her interview uh apparently she had to look up what Bitcoin was in 2016 now they have to know a lot more than what Bitcoin is they have to know a lot about Bitcoin and these other digital Assets Now That We're putting out these other funds I think one of the things to realize and and this is you know to

illustrate that point story from another Market is we we actually ran a Luna product uh when when Luna existed and obviously that did not go well um but our clients were so aware of potential risks and what the research was saying and hey there's this you know this tie-in with anchor and all these other things and they both felt well informed so they were educated on the risks they were taking they wanted to take them anyway they took them and when things didn't go well they were actually our infrastructure held longer than everyone else's so we were able to continue operating and trading these products effectively efficiently people were able to come in get out there people who bought product at that time thinking there would be a recovery like we were able to support that on an ongoing basis entirely infrastructurally

during what you could think of as one of the worst possible crises that could happen on a blockchain right that the the the dpeg around LUN is catastrophic and the products were able to continue to operate and we actually ended up having a bunch of very very large institutional clients switched to our product Suite because the research across their entire crypto allocation because the research they were able to get that support they were able to pick up the phone hear from analysts this is what's going on here's how to think about it and have that support and in crypto especially that's critical because it's not just about what you don't want in crypto is fair weather friends I think that's what Kathy's getting at right you want someone who's going to be there in the trench is with you going to provide you with that

research upside and downside risks going to help you understand why you're making these allocations what these allocations are doing in your portfolios and by the way when things aren't great be able to pick up the phone stand up and say Yes here is here are the circumstances that are leading to this it's either you know this is happening on chain or you know macro has moved in this way and here's more research to support it and the consistency of that over the cycle is critical um and so from our perspective I think we've seen a couple of things we've seen that client service and research be extraordinarily important we actually um I I will say this absolutely shamelessly but but even before we had this partnership we we may have a pilford arcs research Playbook uh car of a coffee C had many years ago um and it

it's been very very helpful in supporting our customers and I think one of the other things we've seen in going back to the warehouses they care about safety for their customers because the worst possible thing for them is either the product shuts down in which case they have to liquidate all their customers and there are tax implications of that and it's not a good look for anybody uh and they're obviously you're basically locking in whatever gains and losses there were you have to explain it to clients they're not happy like it's not a good situation so they want to make sure there's longevity to the products and they want to make sure they're not going to be other issues and other issues is you know what is your Capital Market setup look like how tradable are these products what does custody look like because what most people don't

realize is institutional custody in crypto is not a one-size fits all there's no outof the-box implementation you basically get an outof thebox technology which is then implemented within your organization so what controls process have you brought around this uh how do you think about risk and compliance how do you think about kyc AML how are you handling you know security are you storing all of those assets in a single wallet or have you distributed them well actually we we distribute them because it's it's safer right you you're essentially diffusing a uh you're diffusing a tax surface which makes it much harder for there to be major compromises for example small thing right how many steps have you put in your approval process why does the approval process work that way how many

points of validation are you doing um these types of questions is what you're getting into it's extremely indepth and it's typically highly operational so one of the things that I've been really excited about is uh I get I get a reason to talk about our operational setup uh and at the level of detail that no one has ever been interested in before but we built a lot in there to ensure that clients are getting the safest most effectively traded product possible so you want low spreads consistent tracking so not a lot of Premium discount you want to make sure it's happening safely you want to make sure you're settling effectively for APS you want to make sure that the market makers in the aps like the setup

that you've built so that they feel confident in it because they price that risk into the markets and that ultimately is money out of client's Pockets so this is this is what we spend a lot of time doing and the wirehouses this is the stuff they really care about they really only care about three things with these products from what we've seen and it's client service research and like operational integrity and I think our our partnership ironically was really built on those three pillars and it's it's a reflection of who we are as a firm and I think ultimately the uh the clients we serve and what one measure of operational integrity and Excellence is spreads and I think for me the biggest surprise

shouldn't have been because uh of uh 21 shares history but is that we have the tightest spreads on most days tighter than Black Rock tighter than Fidelity uh and that is the true measure of operational excellence what about um maybe we could talk about but the eth ETF what do you so there's been $75 billion of demand for the Bitcoin ETF so far I guess if you just it's a Layman's way of adding that up I'm just adding up all all the ETFs so far what do you think the demand looks like for the eth ETF short answer is less and you can see that if you look at other markets

um for a variety of reasons uh it's typically a later stage thing for somebody to understand it's been my experience that people come in they understand Bitcoin and then they start to to get into um other Technologies I think it's a little bit earlier there's been less institutional adoption I think there's been a lot of interest in the underlying technology but I don't know there's been that there's been as much just raw education um in ethereum as there has been in Bitcoin over the last maybe five five years how much less do you think ailia because I I just pulled up the um the Bitcoin to eth chart and it's sitting at around 20 today um so would you say there's 20 times less demand for

bit for eth than Bitcoin is that a fair is that like a fair way to look at it that seems fairly extreme to me in terms of what that Delta is and especially because of because of what just happened with the Bitcoin ETF right so that's probably not not a good analogy yeah if you look at if you look at like European markets for example right you'll get maybe just depends on the product line depends on the issuer but maybe anywhere from like 50% the size kind of range somewhere in there nice one of the

things in sorry just in terms of sizing the opportunity which is we spend a lot of time doing that you know in Bitcoin you're talking about a global monetary system you're talking about a technology and you're talking about store of value and we think ultimately uh it will play all all all three roles of money so and a new asset class new asset class so you've got three major so monetary system technology new asset class um the ethereum um I mean some people will say maybe it will be a a currency but it will not be

a monetary system the way that that Bitcoin is Bitcoin is the most secure and you know I think when people ask us okay how's this all going to shake out is is Bitcoin going to take usurp the the Dollar's role as the world's Reserve currency we don't think so we think the strong are going to get stronger and what I mentioned earlier the Emerging Market currencies are probably where you're going going to see a lot of defections so it's a very big idea uh and we think it will be the biggest by far it will dominate the crypto asset ecosystem I'm not sure ofilia if uh if you feel as strongly about that I think our team does so it will account we

think for more for more than half of uh the crypto asset ecosystem ultimately oh I don't mean longterm I'm thinking more like size of ETF flows right right so when I think about the like the institutional demand side of that equation I I agree with your your long-term view that I think um there's a lot more that can be done Beyond just monetary um monetary Theory uh indivitual assets I think there's going to be it's revolutionary and it touches almost every industry and I think that will end up being the dominant use case over time I think when you look at short-term institutional Demand on a 90day Time Horizon there's just been less there's been a lot less education

around these topics and these topics are substantially more complicated right people understand how the dollar works and people understand how Reserve currencies work because we all have to deal with them every day people have a much more limited understanding of how Financial systems work of how the internet actually works of how like Ecommerce actually works and Visa networks these are this is there's a much higher burden of Education to this um than I think there is for Bitcoin just just because of the timing right like Bitcoin people have been talking about for 10 years there haven't there hasn't been as much education in institutional circles on some of these other us cases I do think that's changing um it's inter I I I actually one of the first things I read

when I came into kco was one of Chris's other books uh which divided the world into crypto assets uh crypto Commodities and then like sort of tokens and and tokenized application layers and I think that that made a lot of sense to me I think that will be part of how people explain this this idea that you can have assets that are Curren cryptocurrencies that are actual currency you can have Commodities like ethereum which are essentially primary inputs in the production of a service right and it's the equivalent of buying like iron ore right you're using it to then produce a service for somebody and whether that is a you know decentralized Financial interaction or something else right it's it's a primary input and I think that will take a little bit longer for people

to connect to and and fully understand and um we try to break that down as much as possible but again it took quite some time for Commodities to fully reach their potential in investment portfolios and I think that that time Horizon is a little longer for eth than it has been for Bitcoin yeah we're seeing the exact so we have so we have blockworks the media company and events and podcasts and all that stuff and then we have a a research and analytics platform called blockworks research and one of the things inside of the analytics section is um we build kind of pnls for a lot of these things and so you can kind of you can put a p&l around Unis swap or maker but when you start trying to put a p&l around like ethereum really what you start to realize is like this is more of a this

is a commodity you don't have a p&l for oil it's a it's an asset that gets used for something else so yeah we're we're having the same conversations actually that you guys are having I'm starting to realize but um Kathy you uh you called for one I think it was 1.5 million Bitcoin um I I forget when you made that call but I think the call is 1.5 million by 2027 curious how you still think about that call so that's by 2030 it was and and and it stands but I'll tell you that is the bull case the bare CA I mean the base case for uh 2030 was roughly $650,000 however what what has just happened the green light from the

SEC uh we believe will um will cause the institutional uh participation to move towards the bull end of our set of assumptions which was closer to the 5% asset allocation to bitcoin over time uh so we think that probability has gone up so the probability of the bull case the 1.5 million has gone up nice do you what what do you both think is the likelihood that we'll get something like a um Beyond Bitcoin and and eth uh salana Avalanche what whatever you want to other assets you

want to throw in there I don't want to pick any names but what is the likelihood that we get some of these ETFs in 2024 what is the likelihood we get some of these ETFs in 2025 I would I would assume it's slim to none in 24 but actually relatively likely in 25 but I'm curious what you as the experts think here ailia is much closer to to the regulatory so I I can take this one um so I I think it's really important to understand why these things get approved because I think there's a misconception on the logic um so the Bitcoin ETF got approved on the basis of a lawsuit not not because there was a fundamental change of heart the regulator just start with that right

so this is a direct result of the Judiciary challenging a policy of Regulation through enforcement uh specifically there was a lawsuit on this topic that was it um now assuming you look you look at this as a point in time you then need to look at what what's the basis for that and it comes down to typically speaking like two things there two key components one is Market micr structure so for example if you you need to have a large exchange of significant size like the Futures Market that is regulated and overseen something like CME that is very very closely correlated to the

underlying asset price so that asset price discoverability is there pricing discoverability is there right there there's a bunch of check boxes on like what does the market structure look like and does it actually meet criteria and those criteria have largely been set by prior rejections of the Bitcoin ETF but there is some precedent for them the other thing you need is in order to list a financial product of any kind you need to have categorized the underlying asset because whether it's a security or a commodity or something new it needs to fit within um rules and regulations around derivatives right so whether those are futures or other things right and and which regulator has

oversight on this differs now there are a bunch of lawsuits in the United States right now including one with coinbase including one with binance specifically about what are these things right and we've been reading about that quite a bit and it's coming down to what what features do they have what do utility look like um how is the Ico run what is the underlying use case of this asset why are people buying it where are they buying it what constitutes an investment contract Etc so the the issue is that if you don't have Clarity on that it makes it very difficult to then package a product off of it now as you mentioned ethereum is pretty clearcut it's commodity easy right and it's pretty well established in the United States also so that's a very different conversation once you get beyond that

you're talking about some of these other assets there's not a lot of clarity on that topic within the US framework now those are the only two reasons there's nothing inherent to those assets that creates a problem we run a nearly billion dollar salana product in the European market with no issues and have for years and it stakes and the staking yields compound to the product no issues no tax issues no regulatory issues it works in Switzerland it's those that second question is clear you can package them this way they have a clear status that that solves this issue but as a result of the fact that the market structure differs between Bitcoin and eth on one side versus everything else on the other

and the fact that there's a lack of clarity in the second category I think unless you see some resolution on one of those two points over the next 12 months you're probably not going to see any movement Beyond those first couple of names and there's sort of a chicken and an egg problem right you need to solve these problems before you could perceivably get something across the line so I would put 2024 at zero and I would put 2025 at a low probability maybe depending on what happens over the course of 2024 I think the a lot of this will be determined by What policies are set after the presidential election right so

who's in power what are we doing what's the what is the what is the executive Branch's policy on these topics because we all forget the SEC is an extension of the EXA Branch right they are part of the executive which means whatever policy gets set by whoever is President is going to end up determining how these things happen and that I think is actually the biggest wild card in this setup so I wouldn't be looking for 2024 Beyond Bitcoin and e as we start also realize you need 240 days which means that unless someone's filing that very very very soon you're not this isn't happening it's a 240 day cycle you're not making 2024 unless you see something in the next you know 60 days from somebody it's not happening yeah um

once you get beyond that 2025 a lot of this is going to come down to what happens in November and I think that it's going to end up being a major moment for crypto in terms of what direction regulations in this country take we should also uh ailia mention that we are one of the first two in line for the eth uh uh approval and uh you know the I think the probability is probably going down I do you agree with that because uh you know one of the one of the telltale signs for Bitcoin that something was going to happen with the spot Bitcoin ETF was uh the fact

that we were communicating with the SEC um and unless ailia knows something I don't know I I just think that the SEC um is still biting its time maybe studying the issues from what we can tell I think the one thing that gives me some hope here and I think I'm less less bearish on this than others is that there is a there's not a lot of differences between these filings for ethereum and the filings for Bitcoin they're the same structure the same custodians the same disclosures it's very internally consistent

um that means there's less to look at right and there's less to look at given that these were only done a couple months ago so there's also that right if these had been done 20 years ago that would be a different discussion and you might want to revisit it but given how fresh most of the documentation is um that's the one thing I think that puts me at a let's say more optimistic than it seems like most uh so so's call it most markets with it today yeah what is that I can't read it is that 20% yeah this is so if you're watching on uh or if you're listening I'm showing a poly Market thing ethereum ETF approved by May 31st it's gone from about 80% likelihood in January down to about 23% likelihood uh

today and so and our filings uh if they're going to be approved that will be a May event uh so I'm happy to hear uh a ailia slightly more optimistic and I think fitting in with what she says is yes there's a there there are Futures out there on uh on ether uh the same was true with Bitcoin so fitting into similar structure similar setup the the difference though I don't know I don't know who has staking still in their filings maybe everyone still does I I I think that has been a sticking point uh and has anyone pulled a staking out uh

ailia uh no I actually think a couple people have added it in recently I saw Fidelity had and that to me said okay they're adding it in that's since that seems to be the sticking point maybe they don't believe uh anything's going to be approved and they're just saying what the heck interesting or maybe they're really excited they know it's all getting approved Kath maybe the probabilities were that you just presented would have gone up on that if that were true yeah that's true that's true so uh that's why you're the investor and I'm not so anyways I know I know we're at time here so Kathy ailia this this was awesome anything else that uh we we missed that you really want to discuss here or we could also save it

for a second podcast that we could definitely do in the near future I would just say watch currencies out there you know we I I'm going to say when we were uh brainstorming about Bitcoin in early days but really we've had this thought continuously that is that at some some point you know the this Bitcoin and the insurance policy the protection to purchasing power and wealth that it represents could be the reason you'll see you know some of these marginal currencies having problems and uh I don't know if it's started already um uh but I think the ETFs and and and how

much uh how quickly they've evolved and all the education around Bitcoin that uh you know marketing teams have put out there uh might have might have helped that uh scenario along to some extent it's a great Point um ofilia Kathy thank you both so much for the time uh this was awesome I'm sure we'll do round two at some point in the near future and yeah congrats on everything third place behind Black Rock and Fidelity is a good place to be right now so thank you so much hey everyone Thanks for tuning in to today's episode don't forget to claim your free Wormhole nft exclusive to Empire listeners hit the link in the description of today's

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