How crypto ETFs work and who is buying them

Transcript

You have a lot of these platforms that still don't allow you to invest in these products. That's starting to change. You're starting to see a lot more allocations. Once these things get into ETF model portfolios, that'll be additional demand. Will will it be enough to overwhelm this massive wave of selling from OG holders? Crypto ETFs have exploded, bringing a lot of capital and attention into crypto for the first time. But are all of these ETFs a good thing, or is all of this going to end in unwinds, tears, and a lot of I told you so? Hello and welcome to the Milk Road Show. the podcast that knows that leverage Dogecoin ETFs are an important part of the global hilarious financial infrastructure. I'm your host, John Gillan. Today is Tuesday, March 10th, and today we are joined by longtime friend of the show, James Seafart. James

is a senior research analyst at Bloomberg Intelligence, specializing in exchange traded funds or ETFs with a focus on crypto and commodities. He is renowned throughout the industry for his coverage of spot crypto ETFs and for their regulatory and market developments and he watches these things very closely. James is going to give us a ton of alpha on what's going on on Wall Street. So, if that sounds good to you, make sure you like and subscribe. Share this episode with somebody who's going to enjoy it. Today's episode is brought to you by Midnight, bringing rational privacy to blockchain. Warbucks, the easiest way to trade crypto and Nexo, earn interest, borrow, and trade crypto.

And without further ado, welcome back to the Milkro Show. James, how are you, sir? >> What's going on, John? I'm good. How are you doing? It's nice and warm here on the East Coast right now. It's very nice. >> Yeah, spring has sprung and it's a good day to talk about crypto. Uh James, as I've said, this is a crypto show, but I want to start with the macro view here. I'm the host of Milk Road Macro, so I always take a macro view of things. Um the inflows into ETFs in the US was over a half of a half a trillion dollars, over $500 billion in Q4 of 2025. I believe this is a record for quarterly inflows. Talk to us about what this is telling us, what the story, the market is telling us here. Why are these products so popular on Wall Street?

What's bringing all this attention and capital into ETF products? Yeah, that that was a recorderly record as far as we're tracking, at least on a calendar basis. I think it was a quarterly record no matter how you slice it for the most part. Uh and it was an annual record for 2025. They took in 1.5 trillion. The prior record was the year before at 1.1. Um so these things are taking off and right now we're not even we still have 20 plusish days left in the first quarter. Um and we're nearing in on 400 billion on the quarter already. So uh this quarter is could be I don't know if it'll quite hit what it hit in the fourth quarter. The fourth quarter is usually the biggest day for you, biggest quarter for inflows, a lot of tax rebalancing stuff. But for the most part, the real answer to your question

is like these things are competing with a whole host of different products, whether it's insurance products, derivatives, legacy mutual funds, private assets, private funds, new new um strategies are coming into the ETF rapper. Not to mention, we have crypto, we have single stock levered ETFs, we have um annuity like products in the ETFs. Basically, the ETF, we call it a technology, and some people in crypto laugh when I say that, but like this this is really a technology. And the way that a lot of people in this space view what tokenization is going to do is how we viewed what ETFs were going to do um for a couple decades now. Um and it takes a long time for this stuff to take hold, but that's what's happening. It's just tons of money pouring into the space for a whole host of reasons. And some of it is trading, some of it's

long-term buy and hold, some of it's tactical. You name it, it's it runs the gamut. We have money market funds now and ETF rapper. So people are just parking cash in ETFs. They they're basically can be used for anything is the real answer. >> Everything you're listening to today is also covered in our daily crypto newsletter and on Sundays we even recap the best parts of the entire week's worth podcasts. So check it out at the link below. >> Yeah. So I would love for you to just explain to our audience a little bit more about that because I've heard you say this before that ETFs have their tentacles in everything. A lot of these different products you've listed, you know, our audience is pretty savvy retail investors but they're mostly crypto focused. So, um, you know, a lot of the products you named already had

versions of themselves existing on the market. Why is an ETF rapper for an existing product so attractive? Why are these so popular? Why is this technology getting adopted in so many different pre-existing markets already? >> Yeah. I mean, the short answer is they're really good. Like, it's a really good technology and they're very >> Yeah. But what does that mean, right? Like give us examples of what that means here. >> So, so if the the way if if we so like I won't spend too much on this, but it's a good way to think about it, right? So back in the first types of funds were basically companies that were launched right so you launch a company and then you invest in other products and like the problem is you don't know what the underlying value of those investments are um like rather than Apple creating

iPhones and AirPods like you are just investing in other products and it's the same way you value Apple you don't know exactly what everything's worth underneath you don't exactly know what the cash flow is but you can kind of estimate it but if you're holding underlying stocks there's nothing that keeps that price of the fund in this case a closed end fund is what I'm talking about and the underlying assets in line and then they came up with mutual funds. And mutual funds, money can only go in or out at basically after market close. So cash comes in after the market close. You strike a nav. Basically, they value everything that's in the portfolio, whether it's bonds or equities, you name it. And then you come in with $1,000 and it's $1,000 divided by the NAV or the value of the underlying assets per share. And you get

that many shares. You can only come in at the end of the day. ETFs came up with this new thing uh creation redemption where money can come in intraday because at any point if it's whether it's Bitcoin is the underlying or a basket of stocks like the S&P 500 if you're handing over that basket of stocks you're handing over that Bitcoin you get an equivalent amount of shares back intraday and you can do the same thing you can hand shares back and get back the underlying asset that process allows that NAV and the price so whatever it's trading on the exchange and whatever the underlying value it keeps it in line it's not going to be exact exact but we're talking for things that are trading at the same time like 0.000 percentage points of premiums and discounts. So, it's very efficient at giving exposure. And this works on whole

different types of assets. It works for derivatives, it works for crypto assets, it works for stocks, it works for bonds, it works for complex strategies, it works for buffer products, you name it. So like that technology and the ability to do that is just really good and it's convenient. It ETFs are available on every brokerage platform, right? So, if you can get there and assuming you get through like the the risk metrics of like what's allowed and what's not allowed, anyone who has an account on that platform for the most part can buy an ETF. Um, so even if there is potentially you could argue it's better to own the asset directly or own the underlying directly, it's just super convenient to have somebody do this for you. And they're extremely low cost for the most part. There are plenty of expensive products out there, but these

things are competitively priced and people are willing to pay for convenience, which is a lot of people miss when you try to understand why people are doing this. Gotcha. So, there's efficiency gains, there's convenience, there's accessibility, and there's a lot of other benefits to these things, too. Um, which is why even for products that already have, you know, offerings on the market, an ETF version of that is attractive in in finding traction. Uh, it's very helpful, James. Thank you. I I want to ask you about something that happened here. The news reported this on March 2nd. There was a call that the SEC's division of investment management had. Yeah. I want to get your thoughts on this cuz I know you know where it's coming here. Um but they basically told a bunch of issuers in a pretty brief phone call that they're not going to approve ETFs with

uh leverage above 2x leverage, right? Because there's been a bunch of issuers who have applied for ETFs on, you know, single stocks or or whatever the case may be, but they have like multiple uh amounts of leverage on on them. And the SEC basically said, "We're not approving any of these." Explain to us your thinking on this. Why is the SEC drawing this line in the sand? What's the message they're sending? Why can't we have more than 2x leverage on an ETF? >> Yeah. So, the real answer is you technically can because there are some legacy funds that have 3x on like the S&P 500 and NASDAQ and other things. But you got to go back to like the 2000s.

They basically created a process where like only legacy issuers got express approval to launch leverage products. And what it did is it created a duopoly in ProShares and direction. Might have been some others that were able to do it. For the most part, they were the only ones launching these products. and anyone else who wanted to launch them could not launch them. And then in the 201s they late 201s I don't know exactly when they came up with um a derivatives rule and basically what it did it opened the floodgates for other people to launch leverage products but they put in a lot of limits. So one of the limits is you can only launch 2x stuff and also you might not even to launch 2x versions of things because we're putting a VAR limit value at risk limit which is just like a a risk metric to based on how

volatile the underlying asset has been and how much money you're putting at risk. So those limits were put in place. It's hard writing and that's what happened. All these filers for 5x, 4x, 3x, single stock, index, crypto assets, we were very bearish on them ever getting approved. We didn't understand. We So we we love that the SEC, this SEC is a lot more accommodative to issuers. They're allowing them to push the limits of things, but we just felt like this is going too far. Obviously, these issuers and their clients and their lawyers thought there was some sort of loophole that they could push through. Uh we don't know exactly what they were trying to do, but obviously they thought it could happen. We didn't think it would be a good idea. Imagine just a 5x product. I mean, all it needs a 20% one

day move and all of a sudden if it's up or down, the long or short version of that would get liquidated. It's just it would have been too much to handle. There would be demand there. It' probably make a lot of money for the issuers if they were to launch these, but the SEC is drawing a line in the sand, which I think is really good. like it's I I'd much rather them be here and blatantly draw a line in the sand and really push back um than just kind of be pushed over by some potential ETF issuers. And a lot of these issuers filing are I'm friends with them and the people that are trying to do this and they never told me exactly what you know perimeter and holes they were probing to get these things launched. But I'm I'm very happy that the SEC stopped these

things from getting through. Don't you think that there's an argument to be made here from the other side saying that if the SEC doesn't approve ETF versions of these leverage products that you know investors and capital that is seeking that leverage is going to be forced to go find riskier ways to get exposure? Like do you think there's any value to that argument or is it just like not worth the risk here to allow this kind of uh you know behavior? >> Yeah. So that was arguably I was on that side of the argument for the crypto ETFs and a lot of other ETFs, right? It's like the it's the mirror image, but it's it's completely different because you're just providing exposure to an asset class. This is a little different. It's derivatives. Uh it's it's swaps that you're you're entering into swap contracts for underlying exposure. And

honestly, there's already there's SEC rules explicitly outlining what is and is not allowed. And these things should not be allowed by those rules. And there needs to be a line draw somewhere. like you can I mean if you want to do 100x per and stuff like that you can go to these off [laughter and gasps] these offshore entities and exchanges in crypto world and do that and they probably will be able to do it but the SEC is a regulator that's focused on disclosures and other things and protecting end investors and I don't know maybe I could see an argument that maybe they should have allowed 3x or something but like there needs to be a line drawn somewhere and I think this is a fine place to draw the line there there needs to be a stopping at some point >> right we have to have an umpire and the

umpire has to make a call. So, they've made a call. Better or worse, they've made one. Um, yeah, I'm not familiar with the thousand1x. I've never heard of that before as a native [laughter] person. But, um, I I do want to ask you another question about this. So, we've seen the rise of prediction markets very quickly and very precipitously here. There's been a huge amount of capital demand and then more and more different versions of these products for prediction markets have been launched all the time. I've seen, and this may be out of date since I took these notes, but there have now been three different issuers who have filed ETF applications for what they think are prediction market equivalents. And a lot of these things are based on outcomes of political things or or whatever the case may be. But um talk to me about your

thoughts on this because is this something that you think that the SEC should be accommodative of or should they you know not allow ETFs to be used in this way and tell people if you want to get a prediction market exposure you got to go to Cali Poly Market or somewhere else? What is your view on this as a as a use for ETFs? >> I think this is the perfect example of what ETFs can do. Again people are going to think like why do I need to have an ETF that does this? I can just open a couchy account or poly market account or what have you. I could do it on Robin Hood. But this is exactly what the type of thing that people would want if you already have a brokerage. You're just putting it where people want it and you could charge a fee to offer that

connection. Those things that have been filed, you're right, I think it is three issuers. They're basically going to hold the underlying event contracts, whether it's, you know, Democrats to win the House, Democrats to win the Senate, whatever, Democrats to win the um presidency in 2028, th those types of bets. And basically they'll act just the same way that bet on a prediction market would work. So they'll trade at some some dollar value and they'll actually have a termination date theoretically once the contract is paid out and settled. And this is another perfect example. I didn't even say prediction markets and there are though you could argue that's a sort of it's a derivative. They're regulated by the CFTC theoretically. But as long as the CFTC agrees and the SEC agrees and these things get approved, they're going to get approved. I think there's a decent

chance they they could get approved. There's no way for me to know for certain, but this is a perfect example of democratizing access to something in the ETF wrapper. It's just taking those contracts and it's going to make a market in them be an ETF. >> Warbucks is the easiest way to start trading crypto. No deposits, no wallets, no complicated setup. Choose your path, one step, instant target or instant funding starting as low as $40. Trade, stack profits, and [music] withdraw on demand in crypto or USDC. Blow the account, you only lose the test feed. Reload [music] and go again. With Warbucks, you can profit from crypto moves in any direction, up or down. Get funded today at milkroad.com/warbbucks.

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get started at milkroad.com/nexo. >> Gotcha. Yeah. And I think we'll all have to see, you know, kind of what the SEC rules on this and and how these things progress, but you know, I really wanted the audience to get a sense of the the proliferation of ETFs, why this is happening and and how far this is going because I think a lot of people who don't follow this as closely as you do um may not have that context. So, I appreciate you sharing that wisdom there. Um I do want to pivot back to crypto. As I said at the beginning of the show, we would get back to crypto. Um, I'm curious your your observations on the flows that we've seen into Bitcoin and Ethereum ETFs primarily here in Q1 because uh, you know, spot volume used to be the major driver of digital asset prices and market action, but ETFs

have gotten so popular now that they've taken a big part of that big part of that spot market share and become a big driver of price action. What have you seen in Q1 for for Bitcoin, Ethereum, ETF flows, and do you think that we're finding a bottom here or are we like deep into crypto wins? Like what are you seeing on the ETF flows for for crypto now? Yeah. So, I mean, honestly, if you think that they are driving prices, you wish they were driving prices more so because [laughter] they have not been nearly as bad at selling or seen as much selling as as the actual spot markets have, right? Um, so the spot bitcoin ETFs, ironically, one of the things I looked at, uh, and I am still looking at, they're very correlated. Bitcoin itself is to software stocks. Software stocks getting killed by the, you know, AI is going to

make them not worth anything and stuff like that. So there's a heavy correlation there and but we look at the software ETF and it's getting bought handover fist no matter what. Um so far this year the Bitcoin ETFs haven't been really been bought that much. That changed a little bit around February 24th. We have seen a few days of outflows but it in the grand scheme of things since the 24th we've seen I'll tell you the exact number 1.7 billion that has come in. So a little bit came out on Thursday and Friday last week the 5th and 6th of March. Um but for the most part people started buying the dip again. I think a lot of it just has to do with one, it could just be near-term bottom calling. I don't I don't this is not like we're not seeing mass mass

amounts of money pour in. Um on a net basis from 1010 when everything blew up until February 23rd, right before some inflows started coming, they saw like almost $9 billion in outflows, which is a lot for the Bitcoin ETF specifically. But in the grand scheme of thing, they took in 30 billion from the tariff tantrum lows in April through um October 10th. So it hasn't even seen a m that much of a reversal on that front. There's some caveats there, but you we'll say something like 12 to 15% of the flows came out in that time period, which an asset that has gone down greater than 50%. It's not too bad. Um, but we've seen, you know, we've made higher lows the last couple of weeks.

Uh, and I think people are willing to take at least a bet on a near-term reversal, which we've we've gotten. We we went over 70 we're going right now at the time of recording. So that's what I think is happening. These assets tend to trade very technically. So a lot of technical analysis kind of makes sense in this market, but yeah, I won't pretend to know exactly what's going to happen. I will say I think a lot of this these recent flows and the trend is just, you know, near-term bottom calling and and Ethereum actually that's been a little worse. They've seen more like 25% of their flows reverse. Um but still that thing went down 60 more than 60% I think peaked a trough. Um but they've still only a quarter of the flows have reversed from there. Um so they're holding up decently well too. So

in the grand scheme of things the ETF holders they're they're doing a pretty good job at holding on and in these pull downs. When they start really joining the selling that's when things could be a problem. But I think part of the problem is people know these asset classes know they can go down 70% like that and people are concerned that we hadn't reached the bottom yet. And I think now we're seeing some people calling bottom, but there's plenty of cases in history of all assets, but particularly crypto, of people trying to call a bottom and all of a sudden it's down another 10 15% in a day. So, um, I won't pretend to know exactly what this pretends.

>> Uh, I appreciate the the insight there. So, what I'm hearing you say is that there's some short-term support, short-term bottoming structure might be forming here, but we'll have to see how that plays out, if that finds strength. Who do you see as calling this bottom? Is this a lot of retail support coming in buying these ETFs? Is it institutions allocating to Bitcoin and Ethereum like sort of buying the dip from from Wall Street's side or do you have transparency into that at all? What's that that been like from your perspective? >> So, we don't have a lot of transparency into exactly who is buying on a day-to-day basis. The only way we can see who's buying and selling is 13F reports and the most recent report we have is from the end of 2025. And ironically enough, hedge funds and advisers who have been the biggest

buyers or at least advisers have been the biggest buyers. The people putting Bitcoin or Ethereum or crypto into a 1% 3% 5% allocation of the portfolio, those have tended to be the biggest buyers. They were the biggest sellers in 4Q and they probably continued selling at least through, you know, the middle to end of February based on the data that we're seeing. We won't know um exactly what's happened this quarter, but I would guess a lot of it. But still, so for the Bitcoin ETFs in particular, at the end of the third quarter, we knew 26 27% of the holders were FOSs or 13F. So that means 75% almost we didn't know largely retail overseas investors, things like that that we can't actually know. That number went down. So we only know 24% of the holders as of the end of the year. Ethereum, the

numbers are somewhat similar. We only know a small portion of them. So there's no way to know for sure. But part of it is I think a lot of the buying up until like that sell off in the first half the first quarter of 2025 related to tariffs. A lot of the money going into Bitcoin was related to the basis trade and it saw significant outflows in that first quarter. I think that was a lot of the basis trade money because the basis trade which um for those unfamiliar is basically you buy the spot ETF and you sell short the futures and the difference in price if the futures is more expensive than the the spot ETF you actually can earn a profit and that it's almost basically risk-f free if you do the trade properly and that at the end of 2024 got up to like 20% yield uh and

it was over anytime it's over 10% we tend to see money come into ETFs and I would guess that's basis trade money coming in but we haven't really seen a big impact from the basis trade since the first quarter on the Bitcoin ETFs. The Ethereum ETFs, the basis was a little better through the summer, but that's even gone away. So, I think a lot of the money I said Ethereum ETFs saw 25% of their flows go out for the most part. I think a huge the reason that's such a higher number than the Bitcoin ETFs is because a lot of the flow that went in was basis trade related, short-term, not betting on the long-term viability of either of these assets. And yeah, we got XRP and Salana ETFs that launch and the basis is so low on them that I just don't see any client any of

our clients that I've talked to that are interested in potential basis trading. They're not those yields are not attractive enough for them. >> I I'm glad you brought up those ETFs because I I do want to hear your thoughts on sort of the broader galaxy of crypto ETFs that we've seen, especially in some of these alts. um because now there's there's hundreds of crypto ETFs now and uh some of them are getting more adoption than others but what have you seen in terms of traction from the the you know not Bitcoin not Ethereum the rest of the alts ETFs are those getting adopted are there people there long-term holders like what's the behavior you've seen around those assets >> yeah so the big two other than Bitcoin ETH at least as far as ETFs go is XRP and Salana so the adoption from 13F filers for the Salana ETFs is actually

extremely high we know 50% of the holders as of the end of December. Uh so the end of 2025, which is a very high number, uh more so than the Bitcoin ETH, which means a lot of institutions probably back these ETFs. We know for a fact some of the money that went in at launch of these ETFs was likely people that had Salana exposure and basically converted it into an ETF. Um XRP on the other hand, we know less than 15% of the holders. So it's a lot of retail that's buying there. There's no way to know exactly what's going on, but there's a decent amount of demand. Both of them despite massive pullbacks in their price, uh XRP and Salana, they've both taken in around 1.4 billion since their launch. So both of them had products launched in the summer time range that in a unique structure that were kind of

spot. Uh they held other international ETFs to get their exposure. They did staking in the case of the Salana, but then the real the the more pure spot products came to market in October and November for these and both of them are over 1.4 billion inflows and it looks pretty strong. There hasn't been a ton of outflows despite this. absolutely abysmal performance from these assets. So they are even better diamond hands than the Bitcoin and ETF holder, the Bitcoin and Ethereum ETF holders. >> Gotcha. So you're seeing more basis trade flows into Bitcoin and ETH, but the flows into the Salana and XRP ETFs have mostly just been long-term investors, people who want an allocation to hang on to them.

>> Correct. Because the when Salana and ETH launched, the basis was single digits and nobody's going to probably there's that's also gross. So that's like I don't know what the costs are. So the cost of putting on the trade are going to drive down those yields and it's like it was like 0% for some of them at different times. So like there's no way there's people piling into these things for a basis trade. So um Bitcoin and ETH I think they saw outflows in the fourth quarter due to the collapse of the basis trade. But when those ETFs launched in the fourth quarter I don't think any of these flows were basis trade related for the most part. There's no way for us to know for certain but I'm just like reading the tea leaves looking at all the data I have available to me. I can

look at the open interest in the futures contracts for CME and different things like that and I just don't see any indication whatsoever that any of the the interest in these things has been basis trade and like I said XRP ETFs in particular that's heavily retail driven uh it's a lot of retail buyers because even the institutions that we do know hold these things the top holders almost all of them are market makers so that again just because we know the holders doesn't mean we we only know the long position in these products right so when I'm talking about these 13Fs data like your Jane streets and your Goldman's potential who are making markets in these things and virtues of the world.

We don't know what their short boat looks like just because they have, you know, $50 million of exposure to this thing. They could have $70 million short and they're net short 20 mil. What really what's likely happening is they're probably not actually net short or long anything. And if they are, it's probably pretty minuscule because they're hedged. They're just they're there to make markets. >> Gotcha. Okay. So, let me let me unpack that a little bit more because I think there's some curiosity around this. There was some headlines that Goldman had taken positions in the ETFs for Salana, for XRP. Um, obviously they had big positions in Bitcoin and Ethereum as well, but I think that that caught a lot of attention, right? Was that a major Wall Street institution had a position in a spot, Salana and XRP ETF. Um, what are the tea leaves telling you on that?

What are you seeing in that decision? Is is it just like you said them potentially hedging because they're a market maker and they're just like net neutral on it probably or like what do you see that as a vote of confidence? Um, is that a long-term position? What is that a big signal to you? Like what do you see on that? Yeah, I wouldn't ascribe too much to seeing a name like that at the top of the holders list. Um, Goldman's at the top of the list for Bitcoin and Ethereum, too, right? They're probably it's probably from the trading desk. There is probably some there could be some money in there from their clients or high net worth individuals or what have you that are net long, but I would say the bulk of it is almost certainly more related to trading or some other sort of situation

like basis trading potentially, but who knows? Um, so there's no way to know for sure, but like the vast majority of the holders of these things, they're probably basically, like I said, they're they're they're just trading these things. Millennium is the same same boat. That's the second largest holder of the XRP ETS, for example. And then if you look at the Salana ETFs, there are a couple of like very specific crypto hedge funds that are leading the charge. Those are much more likely to be long-term buy and holds. They probably helped seed some of these ETFs by putting their own Salana behind them, which is why I said like some of the buying and these flows that went into these products. It's not all like net buying like they might have had XRP or Salana or whatever exposure and they're just basically converting that into the

ETF. So on a net basis, however long it takes to settle out those trades, they're not actually buying any net new Salana uh or XRP. >> Gotcha. Okay. I want to ask a question around this. There's like I said, there's been this explosion of demand for ETF products. there's been an explosion of crypto ETF products. Um, but I also think that there's at some point we're going to reach market market saturation and some of these ETF products might just, you know, get unwound. Where are we on that journey? Have we crossed market saturation? Is there still demand and appetite for these? You're seeing like what what does this look like from your perspective?

>> Yeah, we have nowhere saturated demand. I would say I there's over 130 products that have launched that are crypto-related. So either they hold spot or derivatives or a leverage version or like creating income or defined outcome where you're giving up some upside to protect downside. There's versions of these on a whole bunch haven't even launched yet. So there's going to be a lot more coming to market but as you said it will get saturated. Um I think for some of these tokens that are you know 10 to 20 to 30 on the market cap list on wherever you get your ranking of tokens. Maybe they could one ETF out there makes sense. Maybe two but like four or five like have been filed.

There's just no way. I don't think so. But if you got to realize in the ETF world, we talked about those leverage products and the 2x single stock products and all these things. If you're launching a product like it, it's a spaghetti cannon. Like they're just launching everything they can. And if one thing happens to catch fire and get, you know, a couple hundred million in assets, it's enough to pay for all the other failures, right? So, a lot of this is kind of like spray and prey. But if you're if you're an issuer and you launch I don't know token XYZ that's like 47 on the market cap list and all of a sudden a year later after you launched something big happens they partner with somebody and like the token starts ripping people are going to go looking how do I get exposure I don't

have a Coinbase account or whatever I'm just trading in my brokerage account I need exposure to token XYZ all of a sudden you get a hundred $200 million in in flows in a very short time period because people want to bet on what's happening that's a pretty good look so people will sit there and wait to see what happens That said, I think we're going to see a lot of liquidations in the space 12 to 18 months out. And to be very clear, I I called for that in December of this year before we really started seeing a massive pull down because I saw all the filings. Granted, a lot of them have launched now, but there's just so much product coming to market. Um, I think there can be one or two for as many coins as you can think of for the most part. So, take that take

a look at that. Um, but like a whole bunch of coin token ETFs on random things like we have 11 or 12 ETFs on Bitcoin alone. They're all doing great. There's more coming. Morgan Stanley is launching some products. That'll probably be fine, too. But like I said, 37 on the market cap list. Probably not going to be able to handle five different ETFs. It's tracking it. >> Okay. So, help me reconcile these two ideas then because it sounds like you're saying we have gotten nowhere near saturating demand and there's a huge amount of products that are going to come to market that'll have traction, but there's also going to be a lot of products that won't. And how how do you see those two things balancing? Like it seems like there's just like this frantic mad scrabble to find market share, find product market fit. Um, and

and what what do you think that looks like as that plays out as we see demand get met, but also things get launched that that don't find demand? How does that look like in the markets? messy, but that's capitalism, right? Like everyone's going to launch and try to launch something that they think could find product market fit and get investors and uh and they are expecting it's almost like um you know how VCs invest like they don't expect all of their to be successful. They're just hoping the ones that are successful are like you know return 10x their capital or more uh in in whatever time period. Um, and we see it with the single stock lever ETFs. Like when they launched, even I was like, I don't really get the idea behind launching 2x, you know, Apple and 2xvidia and stuff. Those products have 5 billion an asset. They

charge 1%. Like those the people who launch those are making a ton of money and traders love them. And that's kind of what I think is going to happen with these products. We've seen a whole bunch of filings for covered call products on Bitcoin and Ethereum and these other assets. Like I said, levered inverse and long. All of those things we'll see. I think it makes sense for things like Bitcoin and ETH, even Salana and XRP based on the demand we're seeing. Some other coins have launched, chain link, you know, all that type of stuff, but I don't know if all of them can handle, you know, 15 to 20 ETFs surrounding them. So, that's what's been filed at this point. um a lot of memecoin tokens, ETFs have been filed and these issuers aren't going to let them, like I said, they might sit around for a year, two

years because they think it's viable or if they're really a truly a believer in the underlying asset, they'll keep it going where they're not just going to sit on these things that they're spraying and praying and have no underlying belief in. They're just trying to provide access to a market, they're not going to they're not going to eat the cost. It's not it's not cheap to run an ETF or to have it listing on an exchange. It costs hundreds of thousands of dollars on an annual basis. So, they're not just going to sit there forever. But some some issuers are being a lot more diligent about what they do and don't launch. Right. There's there's it goes all the way down from Black Rockck, which is only launching Bitcoin and Ethereum products right now. I think that could change. I wouldn't be surprised if they launch an index

product in the next year or so, which I'm I'm pretty bullish on index or basket products. But these other guys, they'll launch anything if they can if they think they can get assets in it. And honestly, if if people are buying it, who are they who's who are we to stop them as long as they meet the rules of the SEC and CFTC? >> The transparency of traditional blockchains forces a difficult choice. utility or privacy, you shouldn't have to choose. [music] Midnight empowers innovators to break free from this limitation to a place where privacy isn't just a feature, but foundational. Go to milkgrow.com/midnight to learn more, >> right? Yeah. Well, as long as you meet the rules, you can play ball. Um, I'm curious to see how this this develops.

So, you said you're you're bullish on on ETFs, on basket products. I'm curious to hear your thoughts on what innovation there is left to happen in ETPs and ETFs. Have we seen this sort of mapped and it's basically just like you said like different flavors of like a covered call, a leverage long, an inverse version of it all just around different different crypto things um or different crypto assets rather. But what are some other innovations that you're watching for that you think are going to be game changers, market movers, anything like that you're seeing that you're excited about? >> Yeah, I'm most excited about the basket products and that includes passive and active. So there's products that have come to market now that are like, you know, top 10, top 20, x bitcoin, x bitcoin, x ethereum, things like that that are going to be able to, you know,

portfolio completion tools. If you already have exposure to Bitcoin, ETH, you don't need to sell it to get exposure. So maybe I'll buy this product that gives me the top 10 or top 20 because I want a little bit of exposure that's more diversified. I understand that I'm might be betting on things in the same way of like betting on do stocks uh in 2000. Um, but I think there could be some winners out of here and I want to have exposure. And then that's not to mention like active management. I mean there we're we're we're seeing ETFs come to market every day that are still just holding equities and bonds, right? Like there's plenty of demand going to products like that. We that like most of that money we talked about at the start of the show wasn't going to things like crypto or the alternative or

commodities. They're going to legacy assets. And when you can start having, you know, active managers right now, a lot of like the liquid alt strategy in the crypto space is like hedge funds that are charging very high fees and it's very convoluted about what's allowed and what isn't allowed in ETF rapper. But I think long term you're going to have people doing more, you know, for lack of a better term, fundamental analysis of the underlying revenue metrics of these onchain tokconomics and things like that. And they'll be picking, you know, underlying protocols to invest in. So I think active products, index products, and then also just getting all of these single coin assets out there. There's people are going to want to trade them no matter what. Um and so once we can get these things out there, even if a lot of them ultimately failure, uh it

doesn't really matter. Um the market will decide, at least the ETF market will decide what value there is in the ETF rapper. And we see plenty of products come to market in other areas of the ETF world that, you know, are just ahead of their time. So I wouldn't even be surprised if you know we get 12 months from now and we see a liquidation a bunch of these products and then you know another 12 months after that we see a launch of a lot of the same ones and all of a sudden they garner interest. Sometimes things are just launched ahead of their time or launch at the right place right time. >> Gotcha. And so like you're saying that there could be products that fail but then later on when the market matures they could they could find traction. I'm curious your thoughts on that. Do you

see that as the trend here? Like the market's maturing that people are starting to warm up to the idea of digital assets and like the demand overall for these things is increasing because it's hard for me to kind of sus out sometimes whether or not this is just like you know volume from spot markets migrating to ETFs or if there's like actual new demand being garnered by these products. What's your view on that? >> I do not think it's solely assets migrating from spot to these ETFs. A lot of it is new demand. I will say trading volume though I think is eating up some of the spot trading volume because if you go if you're a retail investor or you're like not quite institutional but you're also not a retail investor. If you're looking at the cost of trading on something like Coinbase or Gemini or

Kraken or even Binance like the fees for trading these assets are orders of magnitude more expensive than trading the ETF. Now granted you can't take delivery of them in the same way you can't own the underlying Bitcoin and ETF in the same way unless you have certain criteria met. Um, but like it's trades pennywide and there are no transaction costs if you're trading on like Swab or Interactive Brokers or what have you or even Vanguard [clears throat] now, right? Um, so I think that is kind of taking away some of it, but for the most part, people are still, you know, they're going to be getting their assets however they want them.

>> I'm curious your thoughts on this, right? Like it's like is the asset class maturing? Is new capital coming in? I >> remember. But >> yeah, but I want to kind of like couch that in a new rapper, which is that um institutions are super bullish on digital assets. they're adopting and they're launching all these products. At the same time, sentiment, retail sentiment, market sentiment is an absolute gutter. And I'm curious your thoughts on that and where that resolves and why that gulf is is so broad and broadening. It seems like like yeah, I'd like to hear your thoughts on that. >> So that's exactly was my other point. That's what I was going to make. I was going to say cuz like I talked to a lot of advisers and institution these fund issuers and like they're talking to advisers and institutions and like

everyone's like finally sounding like they're ready to potentially get on board in the short to medium term. I guess I would say you have a lot of these platforms that still don't allow you to invest in these products. That's starting to change. You're starting to see a lot more allocations once these things get into ETF model portfolios. That'll be additional demand. Will it will it be enough to overwhelm this massive wave of selling from OG holders? Probably not. Or maybe it could be. Who knows? Um, but it there's 30 plus trillion dollars in the financial advisor world, at least in the US. So even a 1% allocation from all of them is going to be absolutely massive to this space. Um, there's just no way to know.

But I I I I'm with you. I think most people don't have exposure. A lot of people are interested in potentially getting exposure. And the people that I'm talking to who are skeptical and said they might do it but they were waiting. Um they're kind of like oh prices are finally like I might consider it now and putting it in putting in an allocation. And the thing you got to remember is anyone who's thinking about putting any sort of allocation, [snorts] whether it's gold or precious metals in general or Bitcoin or a crypto basket, like they're going to have a set allocation goal, whether it's like 3% or 5% like I started. And if prices rocket, they're going to sell into those rallies most likely to rebalance on a quarterly, semiannual, annual basis, whatever it may be. But if they collapse in half, they're going to buy again for the most

part as long as they're actual long-term believers and they stick to a plan. So all of that is potentially positive longer term for the space. Um so um that's been my like I guess you would argue bull case for this space. Um but it doesn't really matter. Um I thought the four-year cycle wasn't going to be as bad. I guess it hasn't been as bad yet. It's not over yet. But yeah. >> Yeah. Well, I think it's a good place to end on the bull case. Uh James, I really appreciate you coming on the show, sharing all this alpha with us and and kind of opening up the the black box of Wall Street and sharing that with retail. Uh, where can we send people to find more of you and your work online?

>> Yeah, well, I'm pretty sure most of your audience probably doesn't have a Bloomberg terminal because that's where all of my full research is shown, charts, detailed analysis, and I'm always able to talk there. Uh, otherwise, I do tease some of the data and charts as you've seen on on Twitter. That's probably the easiest way, Twitter and LinkedIn. So, JSY FF on Twitter. Um, and I share as much as I can, but there has to be limitations, I guess, with how much I can post on there. But I share I share a decent amount. James, thanks so much for being on the Milk Road Show. I really enjoyed the conversation. Thanks for being here. >> Yeah, thanks for having me. Big fan of you guys. Keep up the good work.

>> Likewise, sir. And uh we will see you all next time on the Milk Road Show. I hope you all learned something today. Until next time, stay safe, stay educated, stay bullish, and we will see you all on the next episode of the Milk Road Show. Thanks for being here, everyone. Bye. Want insights on what's moving crypto markets and how [music] we're trading each event? Subscribe to our channel, join the Milkro Daily and Pro Newsletters, and start investing like the top [music] 1%. This show is for educational purposes only. Nothing we say is financial advice. Investing is risky.