How Bitwise is Unlocking Ethereum Futures ETFs | Matt Hougan and Ryan Rasmussen

Transcript

what are the secular bull markets where we can escape this gray overhang of of rising rates and spiraling inflation in a possible recession what are the secular trends that are strong enough to Sur plant that and surpass that and right now crypto looks really good right prices are already up and we haven't even had the Catalyst of spot Bitcoin launches you know black rock is already coming into the market and so I think investors particularly as they go into year end and they start to reset their portfolio iOS for 2024 are going to look at the available choices and there's going to be this bright shining light of the best performing asset class of the year which still has its brightest days ahead of it and I think that's going to

drive some flows so I think it's setting up pretty well for us what's up everyone welcome back to another episode of zerox research before we dive into today's episode a quick shout out from our sponsor hexans the most hardcore security team in web 3 pioneering in ZK and novel cryptography hexons is trusted by tier one projects like polygon including their work on their new ZK evm mantle risk zero Lio one-inch newbank and more you will hear the about them a little bit later in the show from Dan uh today is October 5th and we have an awesome interview lined up with Matt Hogan and Ryan rasmusen from bitwise uh thanks for coming on guys thanks for having us we're excited to be here so I was thinking we could just jump into the big news obviously

the E Futures ETF uh launches this week was pretty huge and bitwise is is included in that list so I just want to get your guys' take on how the launch has gone is it how have the flows been um and how big of an impact does this have for institutional investors oh great great question I mean zooming out this is a big week for crypto in general I think we're entering the the sort of heart of the ETF era of crypto and that's going to transform this asset class yeah so we launched two ETFs uh aeth which is 100% ethereum Futures and btop which is 50% Bitcoin 50% uh ethereum futures equally weighted and rebalanced uh every quarter and the the reception has been certainly lighter

than it was for spot Bitcoin or or for rather for Bitcoin Futures ETFs but we expected that and we're happy with the way they're trading they're trading at tight bands we have significant interest from investors volume is building over time so much much lighter than Bitcoin Futures but that actually makes me uh hopeful for the people that are buying in today you know you don't tell your friends about the trades you make at the peak to the bull market you tell them about the trades you make when the markets are quiet this is an indication that sort of mainstream investors haven't realized that we're in a new Bull marketing crypto they may not know that crypto is the best performing asset class in the world this year and that makes me excited for the people who are investing today and then in terms of the

uh Bitcoin spot ETF that you guys filed for I believe you guys posted some research in your refiled application can you just walk us through like really why a spot Bitcoin ETF has been so difficult cult to get approved thus far and why you think maybe this time around might be different sure yeah I'll I'll take a shot at that one yeah so the first spot Bitcoin ETF was filed in 2013 when Bitcoin was trading for about 80 bucks I think uh so people have been waiting on it for a while and those who didn't invest waiting for Bitcoin spot ETFs to be approved have missed out on a lot of price appreciation from the sec's perspective there have been historically a lot of concerns with the spot Bitcoin Market

maret they won't let an ETF launch on any Market they've been concerned about Market manipulation maybe they've concerned about custody they've been concerned about trading the Bitcoin Market has matured significantly since that first spot Bitcoin ETF was filed in 2013 and recently there have been a number of breakthroughs that make me think we're getting close to an approval one of course grayscale won its lawsuit against the the judge found that it didn't make sense to allow Bitcoin Futures ETFs to Launch and deny spot Bitcoin ETFs that was a big win uh two black rock the world's largest asset manager which has uh a nearly perfect record of launching ETFs filed to launch a spot Bitcoin ETF with a surveillance

agreement with coinbase in place and then as you mentioned Sam we just sent in an additional 40 pages of research and what that research did was answer Point by point every objection the SEC has raised over the history of denying spot bit coin ETF so they've rejected I think 33 spot Bitcoin ETFs for each one they wrote between 20 and 100 pages of reasons they were rejecting it and we just line item all those rejections and then provided data driven responses to explain uh why the market is now ready to support an ETF so I'm I'm I'm optimistic uh that we'll see a spot Bitcoin ETF launch this year of course I can't speak to R filing or any specific

filing but the te leaves are pointing in a positive direction and would you say that sentiment uh kind of is just isolated towards a spot Bitcoin ETF because I did hear some Rumblings around in eth spot ETF as well is do you think like Regulators kind of view those as two separate things like truly or is it like okay like at this point you know maybe we just call them both a crypto asset that's fair to trade a spot yeah Brian you want to tackle that one yeah definitely I think it's a little bit of both so on the one hand uh we did see an application for spot ethereum ETF get filed within the past month or so and that was the first time that we had an application for those be filed now I think you won't get to a

spot ethereum ETF before you get to a spot Bitcoin ETF it's you know Bitcoin the the oldest and largest crypto asset ethereum you know following that with the SEC being the second largest crypto asset but I think the the market structure of both those assets is very similar and that's why we're seeing the approval of ethereum Futures ETFs this past week uh you know after bit coin Futures ETFs were approved uh you know about about a year or two ago and so um we're seeing the evolution of both markets kind of follow the same path just ethereum trailing by a few years and so I don't think we're a long way out from an ethereum spot ETF once we do get the Bitcoin spot ETF but I think they look at them a little bit differently one promising element of the eth Futures ETF being approved is that

the market for eth futures is is clearly now at the same maturity level as the uh Bitcoin futures ETF or Bitcoin Futures Market was you know a year or two ago and so yeah we're seeing a little bit of a lag but I think it's I think it's promising that we're seeing applications for spot ethereum ETFs some of that could be a marketing play but in general I think you know you don't file unless you you're pretty hopeful or or there's a little you know some hope that you could get approved and so yeah I think I think we'll we'll get there but it'll be a two-step process yeah I would just add on to that I don't think the the broader Market has recognized the level of progress we've made towards getting spot ETFs launched I think they've been rejected so many times that people have

come to believe it's like the boy who cried wolf that we will never actually there will never actually be a wolf we'll never actually get over the line but if you talk to the firms not just bitwise but other firms that are operating in this space it does feel different this time than it did a few months ago there's been commentary on on Twitter on social media about uh ETF issuers getting responses back on their perspectus which has never happened before so I think there are uh there's reason to believe the market hasn't priced in or thought about the real probability that we may get one in the coming months uh both first on bitcoin and then eventually down the road on eth given the fact that these Futures I'm assuming that they're cash settled

instruments so do you think it's fair to say that a spot approval would have a much more dramatic impact on I guess market dynamics than a Futures one and then tag teaming on top of that um what would you say like everyone always talks about like how Futures ETFs kind of hurt retail because you have to roll the contracts every month and then over time you know you get eaten at on a percentage basis whether it's three to five percent can you guys just kind of explain like that dynamic because people talk about it but I don't think anyone actually understands it a spot ETF is going to be orders of magnitude bigger than a Futures ETF if you look in the gold market which is the closest Corollary spot gold ETFs have about a

hundred billion dollar in assets under management and spot or gold Futures ETFs actually have zero because the only one that existed closed down because of lack of Interest so what people want is spot Bitcoin people want is spot ethereum they'll use Futures based ETFs until they have those but in the long run those are the big dog on a scale of like 100x right not not 1X so they'll have a much bigger impact on the market you mentioned this issue of contango and roll cost which historically has been true the way the Futures markets work is they allow you to sort of buy an asset in the future and the price may be higher than it is today if bitcoin's trading at 28,000 the Futures Contract for November may be at $

28,100 and because you're maybe typically not always but typically overpaying a little bit you have this drag and it goes by that funny word you mentioned which is contango I will say that the market today is different than it was was when Bitcoin Futures launched in 2021 when we had these conversations around Kango and the difference is we're no longer in a zero interest rate environment so the thing that people don't realize about Futures ETFs is that when you have Futures ETFs most of the money is actually invested in short-term treasuries you're getting 100% notional exposure to ethereum but most of the money is parked in treasuries when Bitcoin Futures ETFs launched that was

earning zero today that's earning five and a half percent and so you have to offset some of that contango with this interest income it's a better environment does it still mean spot is better I think it still means spot is better but we're not in 2021 anywhere we're 2023 it's a different environment it's slightly more favorable and I think you'll see a little bit less slippage than you have in the past quick shout out to hexin as we explore today's blockchain landscape let's take a moment to recognize them as a premier cyber security provider in web 3 hexon is trusted by tier one projects like polygon including a Security review on their new polygon ZK evm mantle risk zero Lio one inch new bank and more get a deep dive into your technology stack

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okay we can give investors this which is you know what's generally described as a less desirable product for the reason you just discussed that a spot Market isn't like what like what is it about spot markets they like hey you know let's not give this to investors this isn't safe this isn't this isn't what uh regulated regulated is the answer to that question so the SEC the the Futures Market is regulated by the cftc we of course have two big regulatory organizations in the US governing investment products the the SEC which covers Securities and the cftc which covers Commodities the the cftc launched Bitcoin and ethereum Futures contracts a few years ago and so it's relatively easy for the SEC to say well

you guys got this we're just wrapping up these regulated products in another regulated product how could we say no that's different when you get to a spot product where the underlying Market is not regulated at the same level the questions become more complex it doesn't mean you can't have an ETF right I'll go back to gold as an example the spot gold Market is not regulated on 47th Street where you're trading gold bars it's not like the SEC is looking over their shoulder right the spot gold market is unregulated market so you can have ETFs on relatively unregulated spot markets but it's just harder you can't just say the cftc has it so that's been the historical

difference do you expect there to be some type of redemption mechanism for investors or maybe institutional SL inred accredited investors for these spot products once they hopefully launch and I have a follow-up question depending upon your answer uh Ryan this is this is deep geek ETF stuff so I can't stop talking uh my apologies take it take it away I I expect in the future there may be the ability to redeem on an individual basis initially that complication probably won't exist so it's an extra complication people will go with the simple version if you look at the gold market Market sorry to keep using that analogy but most of the

products don't allow that but there is one that allows that because some people want to be reble to redeem uh directly in an individual basis but I I think that's like an added complication at this point we're just trying to get over the Finish Line okay and then piggy backing off that question is I could just see a world where there' be an eth ETF the issuer would stake that eth zero management fees so it's super attractive to the investor and then you just take the entire staking yield do you think that's like a product that could potentially come to Market in the future I I I expect again like if we if we if we go stepwise I think you'll see an eth ETF and then I think you'll see them engage in staking as that market matures

My Hope Sam is that the product issuer wouldn't take a 100% of the revenue but rather would take a portion of it uh and allow a portion of it to go to the investors so it might more than offset there may be that Z percent expense ratio and yet they're taking the staking yield but really they should split it with investors right they should get paid for the act of staking because it is work and it is risk but it's the Investor's money uh and so I I I expect I think that's a clever idea but uh it would be even more clever if we gave some of the investors some of that return as well wait till they start pumping that through the lto staking router and that percentage goes up only that'll that'll

I'm sure crypto TI love that one but I got one more ETF question uh and I hate to Pivot back to the first question but this just came to me was so we talked about flows and comparing the Bitcoin uh Futures ETF to the the new eth Futures ETF and it was a pretty you know significant difference is that attributable to the assets like you know just uh institutional attention or demand for Bitcoin versus ethereum or is that more so just like look when the Bitcoin ETF Futures launch it was like October 21 Bitcoin was 60 K crypto is the hottest thing on in town at that point in time and that's when the F that's when the ETF launched of course there is more demand is it like I'm sure the answer is like you know some

combination of both but curious to get your thoughts there yeah I have a thought but you want to try Ryan yeah sure I think it's mainly driven by the market environment that we're in today uh you mentioned that we're in a much different environment than we were in when Bitcoin Futures uh ETF launched and I think that has a lot to do with the amount of interest and the flows that we're seeing around the E Futures products we're obviously in a higher interest rate environment and so there's less appetite for risk assets crypto obviously falls into that into that band of a portfolio and so uh it just is a is a good reminder of where we are in the market cycle and uh it's it's promising for what the future of these ETFs uh could look like for sure but I do think it's

mainly a market environment situation versus uh Institutional Investor interest in Bitcoin over ethereum so um you know we do get a lot of interest around ethereum especially now compared to a year or two years ago there's many more questions that we're getting around ethereum and even kind of longer tale assets uh than we were primarily getting around Bitcoin a few years ago and so uh there there's definitely interest there I think there's interest for you know spot ETFs like we've been saying not all institutional investors even want exposure to Futures products and so you have to kind of keep going down the down the ladder to get to the those that are in this environment interested in Futures based ETFs uh for crypto assets

there's a lot of Hoops to jump through to to get to those specific investors which is why we're seeing less flows today than than perhaps in in Bitcoin uh Futures ETFs that we saw back when interest rates were lower uh and and the market environment for crypto in particular was was significantly different so excited about where the future is uh it's going to land when we do turn the corner uh for this next poll Market but not super surprised like Matt was saying earlier around the flows that we're seeing right now and and uh you know I guess the lack of interest that there is overall in in Futures based ETFs at the moment yeah the I I agree with everything Ryan said the the Nuance I would add on top of it it has opened my eyes a little bit to the fact that

sort of many traditional investors not the one bitwise works with and we work with thousands of firms who have educated themselves on crypto but for many investors it's still crypto and they probably don't know the difference between Bitcoin and ethereum and there's a whole educational process uh to take place before or they do more than just check the crypto box I think of course there are professional investors who are expert there are people who will you know debate you know not just Bitcoin but vers eth but eth vers salana and on down the chain but for many investors it's still crypto uh and I think that education process has to take place in terms of like the the investment climate and just I guess the macro environment more broadly how would

you guys say investors are feeling and I guess what's your own take on you know how you think the next 12 months look like I know you don't have a crystal ball but everyone in macroland is talking about the bond market and I think if you would have showed people a picture of the bond market and asked if Bitcoin would be you know trading where it is right now three years ago uh I I think you'd be saying no no shot Bitcoin and ether trading where they are so just curious to get your guys' thoughts on that front yeah Ryan yeah uh you know I think the macro environment is definely playing a factor in in where crypto's at today uh on on the one hand if you look at at crypto specifically I think we've just reached a kind of a floor of of sellers like

everyone who was gonna sell pretty much has sold at this point uh is is what it feels like and what a lot of the data kind of indicates and so uh I think that's one reason why we're seeing kind of prices more stable despite what's going on with the bond market and with the you know broader kind of macroeconomic climate uh on the flip side uh I do think that crypto has kind of separated itself a little bit from the macro environment over the past year or two we were so tied up in in the you know fiscal policy when coid happened and the dramatic change and the like velocity change of interest rate uh policy and so all of that kind of drove the returns of crypto assets why we saw

super low interest rates we saw crypto kind of Skyrocket interest rate started Rising very very quickly at an unprecedented rate we saw you know crypto prices all other kind of uh risk assets collaps and so uh we're now seeing a little bit of a separation there as macro takes somewhat of a back seat uh you know compared to where it was before and people are focused more on you know institutional adoption regulatory uh Evolution right and and so we're seeing institutions come into the crypto Market I think we just uh we saw UBS recently announced that they're exploring tokenized Bonds on ethereum we're seeing uh you know obviously big institutions file for spot Bitcoin ETF Black Rock the largest financial institution in in the world you know

looking to get into the spot Bitcoin ETF uh market and so I think those are better long-term signals for where the Market's headed I don't know if it's in this next year because there's obviously a lot of questions around what the fed's going to do with interest rates and and where we're at today but I think you know there's some really strong Tailwinds combined with the fact that you know a lot of sellers uh have already sold over the past year and a half two years that's allowing crypto prices is to to kind of sit at more of a stable level uh than they be and so um I think we're just going to kind of keep chopping sideways until we have that that next major leg up but I would guess uh that you know those major leg Downs are somewhat behind us yeah I I think

it's a great setup I think there are a lot of financial advisers and financial professionals who open up their Bloomberg and try to decide what to buy and it just looks gross like they're going to go into bonds and bonds look gross they're going to go into stocks and stocks look gross it's going to be a recession they're already highly valued and so I think that opens up their mind to what else what are the secular bull markets where we can escape this gray overhang of of rising rates and spiraling inflation and a possible recession what are the secular trends that are strong enough to surl that and surpass that and right now crypto looks really good right prices are already up and we haven't even had the Catalyst of spot Bitcoin launches you know black

rock is already coming into the market and so I think investors particularly as they go into year end and they start to reset their portfolios for 2024 are going to look at the available choices and there's going to be this bright shining light of the best performing asset class of the year which still has its brightest days ahead of it and I think that's going to drive some flows so I think it's setting up pretty well for us all I heard was sellers have run out of coins the ETF is coming and the mon a month after that we get a Bitcoin happening so I don't know sounds like that sounds like a recipe for success for me that's right but one of the I want to talk about coinbase and that's kind of been our baby on this show and I think you guys shielded to us I don't

know gosh I think our first appearance on the episode was over a year ago now which is which is pretty awesome by the way so thanks for coming back but I do want to talk about the latest and greatest going on over there I mean they've had a lot going on whether it be their new uh purpose Market obviously base and its success so how do you feel about coinbase today and is it safe to say it's kind of like this uh in a play on crypto's success and and not to keep using ETFs but in some way like an an index fund on on crypto as a whole yeah look I I'm really excited about coinbase I think that they're they're playing this bare Market particularly well compared to most companies out there it's it's really exciting to see them continue to step up

their product uh their product Suite right in in the face of all this fa Market in the face of all the scrutiny that they're under with their uh their lawsuit with the SEC they're launching uh you know purpose markets they're they're expanding globally uh into new markets and increasing their footprint in markets internationally they're already established in and then they're launching base obviously you know it's been been pretty successful so far and so I'm still really excited about coinbase they also uh you know reworked their relationship with circle around usdc we're talking about the macroeconomic environment and the interest rate environment I mean few business models are are better positioned for Rising interest rates than stable coin issuers and so I think coinbase is you know almost it's

definitely as exciting to me now as it as it was when we last talked about it or the time before that but it's almost more exciting when you think about all of those dynamics that have shifted in the market we we had the collapse of FTX we're kind of seeing the demise of binance we're seeing uh exchanges and and other service providers exit the US market Meanwhile we're seeing coinbase just expand and lean into the market and expand their offering and grow their grow their base so uh I'm really really excited about it I think that they're shifting their focus uh as well you know into profitability into uh service-based revenues versus transactional revenues only right which is only going to grow significantly when we do turn that corner so yeah I'm I'm really excited about coinbase I think that they're

making a lot of the Right Moves and uh we're we're also very fortunate that uh you know when the SEC is coming after a company they're they're coming after a company like coinbase which is well capitalized and you know seemingly well positioned to fight the good fight for crypto uh and so yeah I'm I'm clearly pretty bullish on on on coinbase uh as a business and with the moves they've been making I think they're playing the bull market or the bare Market extremely well yeah no I love that analysis it's like if I just try to like if I was going to left curve this thing be like what's the most simple way to get excited about coinbase it's like all right it's a the only publicly traded us company that is a is a centralized exchange focused on crypto with that lives in a ultra high growth market and

its competitors are pulling out foot guns left and right it's like all right like you know it seems like a pretty easy thing to get excited about and of course I I just love how they're fighting the good fight and Brian arog is doing such a great job on the media side of that as well right like explaining why they're fighting the fight and explaining the highlights of why that's important uh one of the things you mentioned though was the agreement with circle and how they kind of bought uh bought in I don't know the terms of the deal but since it came to an agreement around the ownership of of the The Entity um yeah if you look at usdc market cap that thing is just down only for 13 14 15 months at this point where how do what do we need to find a

bottom like how how does usdc kind of regain its market share and the reason why I ask is because I kind of think of that as a proxy for us investor allocations into crypto and is that even a is that a good way to think about usdc uh it's an interesting way to think about it I don't know if it's uh the right proxy to to look at um it's C it's certainly one of them I think you're going to have investors in the US certainly go into usdc before they're going to go into usdt by all means so many institutional investors are likely accessing the market you know through through uh OTC desks or uh through you know Partners like like uh you know companies like bitwise and other

companies who um kind of managing that on their behalf and and may not uh may not be you subscribing into stable coins all that frequently and so um I do I do agree obviously you know the data is telling us that I think the last time I looked the usdc market share compared to tether was was like somewhere between 20 and 25% which is which is down significantly um it's hard to know why that is there's a lot of you know talk around well there's free redemptions with usdc and so you see people kind of move into usdc and then redeem and it's just like drops Supply there's also the fact that tether controls the the supply of usdt right they they kind of mint and uh and burn usdt um based on their expectations for supply and demand

versus usdc which you know has a kind of constant Redemption and and mint mechanism and so um I think for sure in the in the next leg up in the market when we see more liquidity coming into the ecosystem I certainly think that we'll see USC's market share rise back up to where it was it was hit hard uh by the uh the Silicone Valley Bank uh crisis that we saw earlier this year for sure I think people were scared of of us-based stable coin issuers uh despite the fact there's so much uh lack of visibility into to tether's issuance in reserves but uh but yeah I do think that we'll see a leg up for uscc once the market turns it's it's a great alternative and it's it's uh to to the

bmer volatile crypto assets and it's uh integrated into like every single area of Defi and crypto markets obviously so yeah I would just add a few things on it it's so bad it's really disappointing uh you know we made 11 predictions at the start of the year and one was that usdc would exceed usdt from market cap and it's the only one we got wrong otherwise we would have had a perfect slate of predictions and we got it really wrong uh I think there there there two other explanations I would point to one is that trading volume uh on us-based exchanges is just way down right there is just much less trading um and so you would expect its market cap to go down uh the other one I would note is is the

real you know the differentiation between usdc and usdt is people who care about regulation and people who don't uh and I think until we get a unlock on stable coin regulation in the US and in other developed markets I think it's going to uh not be able to hit its fullframe market right it's not like Goldman Sachs is holding you know a 100 million uh usdc on its books that's just not happening at this point in time so those users are still restricted by the lack of regulatory Clarity once we get that unlock I think you'll see usdc uh do exceptionally well I'm still long bullish we may make that prediction again this year we'll see um and uh and hopefully we'll be more right than we

were in 2023 okay okay yeah no that's that's that's a great Point as well and just jumping quickly back to coinbase itself one thing crypto Twitter loves talking about is how Wall Street doesn't understand like what Bas means for coinbase like bass dl2 do you think there's any Merit to that like is it I don't know like do they do they see the long-term potential of a centralized exchange like owning and operating an L2 sequencer is there anything meaningful there uh you know I don't think that it's largely understood by the broader uh you know institutional Market if you think about the time they have to spend thinking about crypto the the amount of time they're thinking about L2 sequencer is being issued and and the company

behind who's issuing that and what that means for their businesses like relatively small uh they're still trying to you know wrap their their minds around uh you know what are Layer Two scaling Solutions why are there different ones and and what does that mean for ethereum let alone what does that mean for for the issuer so uh I don't think that people are call it pricing in or managing their expectations around how big base could be for coinbase it's it's obviously uh you know been very successful so far in the past few months they have you know millions of transactions they have tons of active users obviously uh frch was just an explosive application built on top of Base that's kind of spurred its own tent of like applications and its own little ecosystem that's just that's like the first case study of how large

base could grow uh for coinbase for the broader ecosystem so I definitely think people are getting it uh wrong when they when they think about or just aren't quite as aware uh maybe as they should be of how big base will be for coinbase yeah I would I would add on that that there just no good analogies and try thrives on analogies so Bitcoin is digital gold coinbase is Charles Schwab Bas is what I not sure you can find an example of a trafi company that did the equivalent of base and how it impacted and I think that lack of analogies means trafi is not going to get it for two or three years uh until it becomes an overwhelming factor in in in the balance sheet in the returns I think it's going to take a while how much do you guys

think the ongoing lawsuit actually plays into like the the lower valuation that coinbase is currently trading at do you think that's a huge Factor on most investors radar or do you guys think that's more of just something that's going on in the background my view is that people look at those sorts of things as uh in a binary way if it's an existential risk to the business then they'll Factor it into the price and if it's just a financial P fine they won't right Wall Street companies get fined all the time it never impacts their stock price even when it's billions of dollars because people are factoring in the long-term cash flow I don't think most people see this as an existential event so I don't think it's the primary drag on returns it definitely on the edges raises some

people's concern maybe keeps a few investors from allocating but I think coinbase has a fairly strong reputation in the space I just think there's a a lack of recognition that we've turned the corner from the FTX days that we're in a new bull market and that they are the clear category leader um I just think people haven't focused on that yet but I I don't I don't think the lawsuit is that big a factor Ryan May disagree but that's my take yeah no I think you know if you want an analogy for it I mean how many times have we seen major Banks take a fine from a US regulator uh right just take it to the chin and kind of you know the stock price will shrug that off any given day so I I do think it's it's in the back of the mind or not

in the mind at all for investors and they're broadly thinking about what does what does crypto adoption look like in five to 10 years how does that translate into cash flow for coinbase how well are they positioned that's why we've seen coinbase be a strong performer year-to date right because it was highly oversold last year at the end of the year going into 2023 and now we've seen we've seen uh investors clearly take interest in those in those price levels uh given where we're at in the bare market and so I think mainly investors thinking about how exciting is it to own one of the largest crypto companies one that's been around for longer than ethereum's been around and one that has its its hands into every single kind of facet of the crypto market so uh yeah the fine that they may incur through

this lawsuit if they do settle is is really a a small drop in the bucket on the broader scheme of things really you know for the amount of cash that they have and the amount of profit that they generate it's it's not really a big concern for the long term that's actually really valuable Insight I would have expected very different answers from you guys so that's kind of cool to hear but um do you think that the kind of switching veins a little bit do you think that the FTX liquidation Mount gaw Supply overhang all of that stuff plays a role in institutional investors eyes or do you think that's also kind of a nothing Burger look I think that FTX plays the The Narrative around FTX plays a big role in the mind of institutional investors than the potential liquidation of FTX Holdings does they they're so

narrative driven and and aren't paying such close attention to uh some of those particular elements of the case or the evolution of uh the FTX Saga right they they kind of are seeing the headlines that we're seeing this week of the of s spf's in court right and just kind of bringing back these these flashbacks to last year we had you know the biggest Financial crime in the US in decades and so uh I think that it's it's definitely a factor to to uh you know to crypto prices um it's it's a large amount of assets that that are going to be sold on the market but it's a it's again it's a really small element of what these these investors are thinking about I don't think they're they're thinking more about uh FTX and and what that meant for broader crypto then they're thinking

about you know what the liquidation of FTX assets means for crypto prices in this current moment yeah I think that's right I think Mount gax is a little bit of an overhang uh I think about Mount gox that's a lot of Bitcoin uh and I'm hopeful that a spot Bitcoin ETF is closely timed uh with Mount gox to sort of even even that out um on the market so I do hear that concern a little bit I agree FTX not a big concern just to wake one more point on coinbase sorry to go backwards took me a little while to pull up these stats uh it's the same market cap is Pinterest the the size of coinbase is so shocking when you compare it to other companies given the scope of the market it's going after I know we we

moved on past coinbase but I I had to share that stat uh because I thought people would enjoy on zerox Research we have never moved Beyond coinbase so we love it that's crazy because uh what's the if you have the number still in front of you what's the market cap it's about 17 billion and that's before you take into account the five or six billion in cash uh I mean it's it's just shocking it is uh it is shocking to have such a clear market leader executing so well in a space that could be so large at that kind of valuation I I don't it doesn't track for me the only reason that doesn't hold up in my mind is my mom my sisters my girlfriend they all use Pinterest and I feel like you just

can't fade that women are always right there you go all good in terms of the uh broader regulatory I guess environment over the next year or two and then also heading into an election year it's a topic of conversation I don't know if I'm just sitting in an echo bubble and I actually think that it's a big thing on the political stage and it's actually not um I guess just where do you see us going over the next 12 to 24 months versus where we're at now yeah I'm really optimistic when I go to DC uh and talk with people in Congress I hear bipartisan interest I hear a high level of understanding and I hear sort of the emergence of bipartisan agreement on ways to move forward on a regulatory

front I think we've gone through the the worst of sort of the legislative and Regulatory concern surrounding crypto and we're now on the UPS slope and you can see that you know they're bipartisan letters to Gary Gensler asking him to approve spot Bitcoin ETFs they're bipartisan pieces of legislation uh moving us forward on the crypto front so I'm really optimistic and I I think the election is going to be crypto positive there are a lot of people um uh who have become experts in crypto you know uh that that are that are incorp Orting it on their platform you're not just in the Echo chamber the the protm speaker of the house uh has tweeted about the difference between algorithmic and collateral back stable coins I mean

consider that fact uh if you had said those words four years ago there's no chance even three years ago and yet that is actually true at this current moment so I think it's a big deal and I think we're on the UPS slope and I think the elections will only accelerate that yeah ju I mean just to add on to that uh I think that you can't uh underplay that the interim speaker of the house is such a pro crypto Advocate and he's he's grilled Gary Gensler uh you know in in court over his stance towards crypto assets his stance towards ethereum other crypto assets and the way that they've been standoffish towards crypto and so I think you have these these kind of you know once in an industry shifts in in regulation or in

certain Market factors and I certainly feel like we're on the cusp of that from a regulatory perspective for crypto it's really really exciting you saw uh you know there's a there's a presidential candidate who spoke at the Bitcoin conference uh in Miami this past year I mean it just goes to show that they're really taking the time lawmakers Regulators politicians to get learn about crypto learn about the technology learn about what it could do uh you know not just for the us but for the the broader world and kind of modern society and their their leaning into that yes because they obviously want support from Pro crypto voters and uh proc crypto lobbyists maybe but also just because they believe in the technology and that's a huge zero to one shift for what we had uh from from how Regulators

lawmakers and politicians viewed crypto two three four years ago during the last election cycle so I'm really really excited about where we're at in the kind of regulatory cycle for crypto I think it's a Once in an industry uh you know one time in this industry that will have this major shift in regulation I think we're right on the cust that's that's really exciting in general for the unlock that could happen all right so this got me thinking we at the beginning we talked about some like Financial Vehicles making it easier to access crypto and why that's exciting and we've talked about you know companies in the space and why they're at really exciting points in their their cycle we've talked about the crypto Market as a whole and why it's at a very critical point in its cycle H even from a regulatory uh

standpoint and why that's exciting why is this all wrong what are the overhangs that we need to be watching for and and like what kind of blows up this this idea of we're at a really really really critical spot in crypto that's great we we love these exercises bitwise I do them all the time uh with the team uh you know we we should we should admit there's no uh breakthrough app that people are using like Pinterest we're still in uh the the crypto inside cycle and we can point to experiments we can point to proof of Concepts we can point to uh crypto industry breakthroughs but uh Sam's mom aunt and whoever else is on Pinterest is

is uh is probably not doing the same on crypto yet and I think that is a big uh big potential overhang um and then other overhangs they always existential risks threatening crypto uh we're one bad news story away from that regulatory cycle shifting uh and so you know a major negative event uh or a major negative use of crypto in the world uh could turn the regulatory tides and uh that's something you just don't know until you wake up in the morning so those are two of uh dark clouds uh that that keep me up at night Ryan what do you have yeah I have I have two uh more specific dark clouds that keep me up at night I would say the overhanging risk of a of an

implosion of binance uh really keeps me up you know I think we took uh obviously the implosion of FTX was a big hit to the industry and I just think that uh you know all of these rumors and all of these uh events around finance that that are happening right we see a mass Exodus cross the Executive Suite for binance for binance us I think that that kind of keeps me up at night because uh and I think you know most of us that are deeper in the weeds probably don't even really use binance right like it's not something that I I go to and use when I'm using crypto applications when I'm trading when I'm exploring new applications but I think it's such a big piece of the crypto industry uh just from the size of it as an exchange but also from what the mainstream media

talks about thinks about and what anti- crypto politicians and and Regulators could site when they uh when they talk about crypto so that's one that that I think is a big overhang that I hope is is a bit of a nothing a nothing Burger but the other one I would say is tether it's another one right it I mean it's it's been one that's hanging uh over crypto you know for for years now uh and and I'm not necessarily in the camp where I believe that tether uh's reserves aren't there or there's something funky going on with tether's reserves but if we're thinking you know tin foil hat worst case scenario for crypto I think the collapse of bance is is pretty bad uh and I think that the know the potential if if there was one collapse of tether could be equally bad uh if not worse and so I think those are

the two things specifically that uh have that dark cloud over over my head uh when I when I try to put on that uh put on that mindset you know I I would have agreed too on the usdt thing other than the fact that when usdc deeg it's like how is tether not being affected by the banking struggles that everyone else is struggling with that was a bit of a red flag and I'm I'm curious if you guys have any thoughts on that yeah yeah I think I think no one knows what tether's actually holding especially at that time and and as strange it is to think that the lack of transparency was actually a positive uh a positive Mark for them but I I do think that's it you you looked at

usdc like okay well they they're actually coming out and saying that 10% of their reserves are sitting with a bank that's insolvent uh you look at D who holds a large portion large portion of their reserves in usdc which is with you know a bank that is insolvent and then you look at usct you're like well I don't really know what they're holding but like they probably don't have a lot of US banking partners and and you know I don't know maybe maybe they just like by by their lack of transparency incited some level of confidence that led people to to that being the only alternative if they wanted to stay in stable coin so that's a bit of a weird Paradox to be in where their lack of transparency was a positive Mark for them that's in my mind how I was thinking about that kind of

weird Market dynamic and then Matt you mentioned one of your kind of dark clouds is just the lack of actual consumer applications with crypto integrated what do you guys think outside of stable coins because I think we all agree stable coins have definitely demonstrated product Market fit and we all expect those to grow substantially over the next decade but outside of stable coins what applications um are you guys expecting to kind of be that first killer use case for crypto oh man that's a good question if I knew that I'd go build a billion dollar app uh as a side hustle to what I'm doing here at bitwise um I I think I think uh I think you have to look at the new capabilities that we have in crypto

that we didn't have before and think about what that means so what are those capabilities I think the rise of Layer Two and the flattening of transaction costs is a big change from where we were in the past cycle and that will enable new applications some of the places I would look in that is non-financial applications uh I think we've already seen some signs Ryan was speaking of it that we've seen sort of breakthrough applications start to spiral out in non-financial applications that's something you can do when you have reliably low fees um I think uh you know micro payments and other things could be a space that we see uh I think defi could be a big unlock if we got regulatory Clarity but um yeah I don't I don't know exactly but I do know that

historically looking at capabilities lead you to uh to where those are I think the new capabilities are reliably low fees higher throughput and soon regulatory Clarity and if you put those three things in a blender and see what comes out I think those will be where the the the breakthroughs are more specifically uh I'm I'm personally really excited about ticketing I know this is like kind of like a weird thing to hang your hat on maybe uh but I think ticketing is like one of those killer applications outside of stable coins for crypto that could really like Sol like using nfts and using crypto technology to take care of ticketing could solve every problem that we see with ticketing and if you look at how big like you know the Taylor Swift Eros tour was like ticketing is not a small it's not a

small industry and it's it's it's so uh prevailance that you have price gouging and that you have lack of royalties on ticket resales for artists and performers and uh just like the the ease of transferring and and exchanging tickets without having these enormous fees from the the the uh Market places where you do that at like that's an example that's so clear to me and that I think people who maybe don't understand blockchain technology don't understand crypto or when they hear nfts they think of you know monkey pictures or penguin pictures when they when they first uh eventually experience kind of a a near zero fee ticketing Marketplace that's instantaneous that they you know can easily pull up on their phone or send to

a friend or or resell you know very easily uh or buy without a large fee I think that's something that could kind of unlock the the technology of of blockchain in people's minds around what that can do and then that opens up a bunch of other use cases but uh you know we see Ticket Master Sports Illustrated uh launched or partnered with consensus I think on a ticketing Marketplace earlier this year we're seeing a lot of like interesting things around that uh you know or um I the name is shaping me but there's there's a uh there's a ticketing nftd company that's works with movie theaters to help kind of uh provide metadata on on movie goers uh to the studios and to the uh to the to the

movie theater and stuff so I think there's a lot of interesting thing around around ticketing uh that gets me exciting when I try to not think about stable coins as the as the killer app I I'd throw in two more things I I like those examples Ryan I would I would point back to stable coins actually I think they penetrate about 1% of their potential Market I think stable coins as a payment tool and a way to access access dollars outside of the US are not A1 trillion doll use case I think that's a 10 or hundred trillion dollar use case so I really think stable coins are a big piece the other thing I would note is often the Breakthrough things were pre-aged in the past cycle right crypto kitties before nfts icos before Defi and so if I were sort of thinking in that

space I would look back at sort of the the initial breakthroughs we saw even in the last Bull Run I think defi has probably just just scratched the surface so sometimes it's it's what's the next leg maybe that's tokenization um uh is an example of how I've seen these things transpire in the past yeah Ryan I I loved you point towards nfts because I I I've said this a few times so I won't harp too long here but it's just like that is to me that is something that we have we have this like superpower and we have no idea how to use it and it is definitely not 10,000 collections of pfps that is for sure uh so I'm really excited to see where this goes whether it's like tokenizing block space and having an nft that represents the rights to order

transactions in a given block or ticketing is a really great real world example as well I I do think there's something there and I I just what worries me is like I just don't know how long it's going to take to figure out because you know round one was a disaster um but Matt Yeah you mentioned uh tokenization so this this is my my crackpot Theory so please shoot me down here but um what do you think about the idea and assuming there was the regulatory environment that allowed for this to happen because obviously that is so far from the truth today using like tokenizing coinbase stock and using that as as like the gas token of their L2 this is my crackpot Theory wow that is an interesting Theory um that's an interesting idea I love I

love the sort of uh synthesis analysis of ways to go I've often thought um you know stocks could could theoretically uh be a payment vehicle there there can be tax issues around that so we'd have to clear out tax reporting um has been one of one of the chaos but um but that's an interesting idea that's sort of reverse engineering uh the ethereum ecosystem into into coinbase itself which is uh which is pretty clever so I love it let's see it let's try all these experiments uh you never know which one's going to hit how about tokenization more broadly like real world assets has been a pretty big narrative lately you see maker absolutely killing it on the real world asset vaults you got Ando tokenizing t-

bills is this like a a trend that you guys expect to continue over the next honestly the next Bull Run or or is this something that do you think we need just more regulatory uh Clarity before it can actually take off and and reach the masses you know I think tokenization here to stay it's one thing that got to be really excited about it's like one of these like kind of financial corners of real world use cases that like just being in being like a finance person and in crypto maybe I get really excited about right but I but I think like more broadly speaking when I got into crypto and started thinking about or learning about the different use cases like that was one that was really really exciting to me you can you know we we all at one point or another trade stocks options uh

you know things like that in our traditional brokerage accounts and when you start to learn about behind the scenes how long it takes to settle transactions right like like you have two days to settle transactions that's kind of mindo as soon as you do a single transaction on a decentralized exchange using crypto and so just the ability to whether it's tokenizing bonds whether it's borrowing against other tokenized real world collateral whether it's trading tokenized uh real world assets instantly uh with without a middleman with lower fees I just think it's really really exciting it's like it's it's essentially replacing uh lawyers with smart contracts when you start to think about the tokenization of real world assets that reduces the amount of fees and increases the efficiency so it's

something that I get really really excited about I think you can't you can't short sell the amount of Interest we're seeing from very large financial institutions in tokenizing real world assets I mentioned it earlier but UBS is looking to tokenize bonds we've already seen JP Morgan do that we're seeing Franklin Templeton they have a tokenized money market fund I mean it's there's there's uh you know there's reasons behind why they're doing it that's the potential that they see for these markets to uh to evolve and be transformed by blockchain technology so I think it's here to stay I think we've had that kind of zero to one moment already so I get super excited about it because I think it's one of the major uh use cases albeit Financial use cases uh primarily for crypto and for blockchain technology it's one that I get really

really excited about yeah I do too and I'd add one thing on top of that that I don't think people have noticed really which is in the past when we saw these pilot projects from Big institutional firms looking into tokenizing treasury funds or whatever they were all built on private blockchains and that's completely shifted right the UBS tokenized platform is built on ethereum right uh MasterCard announced new settlement plans on salana they've all moved to public blockchains I think that's a really big unlock I just also love one of the great things about crypto is having facts that you can point to which are ear can't be can't be disputed and to use the tokenized

example you know Goldman Sachs structured a $100 million Bond on ethereum it's settled in an hour and it usually takes five days uh that's just a fact now does that doesn't mean that all bonds will go onto ethereum tomorrow but it does mean that trafy has a long way to catch up with the efficiencies we can already deliver today if we can get that regulatory unlock and those those facts are just really valuable in opening people's minds to how real these savings will be uh in the future I absolutely love to hear that because it does seem like that's kind of a very meaningful next step for for the industry what about the like how do we deal with the regulatory overhang there like is there an issue that like you

know maker has its SDI token that is basically just passing you know treasury yield onto any individual with no kyc like is that a problem yes of course it is you can't you can't ignore the regulatory setup and uh and regulations are complex but the way regulatory progress works as ugly and horrible and messy as it is is that people stress the boundaries and they stress the boundaries and then their enforcement actions which Define the boundaries and then hopefully there's legislation which expands it more broadly so this is this is part and parcel of the process um but we won't get to just ignore them we won't get to ignore regulations we will have to either uh influence legislation to to

show the benefits uh or or see where the lines on the court are and only play Within those lines but I'm optimistic that we'll get to this point of increasing benefits all major changes in how Financial technology systems work are seen as impossible and then happen very quickly uh if you go back to stocks it was impossible not to have trading take place on the Flor of the New York Stock Exchange with humans holding tickets people railed against that and then one day we woke up and it was all upstairs and All Digital overnight just like that and I think that will happen here as well it may seem impossible that we'll move from traditional rails to blockchain rails uh but one day we will

wake up and it will it will happen effectively overnight and I think that's that's what the history of sort of financial technology changes show and I think that'll be repeated here so what does that look like in practice practice because we see a couple different strategies being explored by different teams today so like meerow and fra kind of like used like in the case of maker they have you know various offchain entities that they just interact with where frax is kind of internalizing that with their new finr PBC entity that kind of operates us all under one umbrella so that's kind of like one approach is like working with offchain entities versus something like uh Rob lner's new project super state which is basically saying like Hey we're we're just a company that is going to do this and then we're going to give you uh a token that represents

your ownership of this asset on chain you can't transfer it you have to kyc to get it and kind of go that route like that kind of seems like the way that fits under like okay if we're going to do this as legal as possible given the guidelines today you'd kind of go the Rob Lesner out but how do you see the the balance between the two and like which one is probably the better way to go about this yeah I think you have to think about what gets us to to to to step one and what gets us to 100 and probably the the the more traditional structure gets us to Step One is an important step and then down the road you need uh automated kyc through onchain identity that makes it all seamless and happen instantly um so we know that that's like the the

destination uh but it it's it's probably stressing the boundaries to try to get to that too quickly um so so both will work they just have their phases and increments is my thought I love that perspective guys honestly anyone listening to this check out bit wise's product seriously like if you have a a brother or dad or Aunt or Uncle who isn't capable of self- custody like these guys actually are doing the work to make it possible to get access to these uh these Assets in a honestly a safer way so can't recommend enough checking out the website that we can link to in the show notes and I guess I just did your guys' show for you but Matt Ryan do you have any closing comments for us no that was great great to be on again uh really appreciate the time you know follow Ryan and I on

Twitter we go back and forth there as well yeah thank you guys appreciate it awesome until next time see you guys [Music] later