How the ETF Impacts Bitcoin's Price | Matt Hougan & Eric Balchunas

Transcript

a it went up 80% on the rumor or optimism of approval you have to factor that into all this if you go from approval day on and you're like what have you done for me lately you have a major perspective problem you need to get outside touch grass read a book get into relationship find something else to do Eric you've really been pulled into a you've really been pulled into crypto Twitter talking about touching grass and I I love it man if you are an ire listener hopefully you've played around on chain and if you have done that you know that transferring assets across different chains is a pain to put it nicely that is why we are incredibly excited to have the Wormhole Foundation

as a partner of the Empire podcast stewards of the Wormhole protocol supporting over 30 different blockchains and six different run times stay tuned later in the show we have a cool thing that you can claim which is a wormhole nft just for Empire listeners this episode is brought to you by PayPal here at Empire you know that s and I are really into real world use cases and always on the lookout for the next killer blockchain app we're excited to share that PayPal has arrived in crypto to unveil a way to seamlessly connect Fiat to digital currencies later in the show you will find out how you can use PUSD to check out at millions of online stores what's up everyone before we jump into the episode little plug for digital

assets Summit coming up in London March 18th to 20th tickets are pacing so far ahead of schedule that we had to decrease the discount codes so instead of Empire 20 it is now Empire 10 head over to the website digital asset Summit Das London March 18th to 20th use code Empire 10 and get 10% off your ticket see you in London all right everyone uh welcome back to Empire we have uh two uh new newly famous folks on the scene I would say Matt and Eric have uh how's the how's the celebrity uh you know status been to start the here incredible I get into all kinds of parties now yeah do you go you go to the grocery store people are like is that is

that they started clapping I got free milkshakes it was it's been great man I gotta be honest has his perks have you thought about what you're gonna do this uh yeah yeah this is this is a very very very Niche kind of celebrity status but I'd say our goal was to build a new audience and we clear did that within the crypto World um we were preliminary ETF people since the Black Rock filing dropped I've been we James and myself have have definitely grown our audience and that was um you know our Our Big Goal so um you know what we covered the [ __ ] out of it though like we really worked hard and obsessed over it and it was only us two we quarantined ourselves the rest of the

team was not allowed to cover it just in case we went that crazy we were like we need someone to be here in case we lose our minds uh so we had to sort of separate them and they started you know making fun of us for our Obsession especially around the odds they were like oh did you guys see what gzar had for breakfast today your odds go up by 0.001% yet so um we definitely got grounded a lot by the rest of our team but we have to cover everything and we gave this a lot of Mind share uh especially compared to how much assets it will eventually get which is maybe 1 to 2% market share um but yeah that was our goal and and we did it so I was really happy especially after they proved it we stuck our neck out so I

couldn't have been more pleased with the whole thing um there a couple little Annoying Parts but mostly it was great no you guys did a great job at Bloomberg so we've got Eric from Bloomberg Matt from uh from bitwise back on the show both have been with us in the past um Eric maybe um I'd just be curious to hear your take on like you've got these two groups of Twitter who have never agreed on anything in their life and they're finally coming together you have the uh the the the Bitcoin crowd of 98% of their life savings in Bitcoin and they are frustrated with you because uh when moon right Bitcoin has not been skyrocketing and then you have the uh the uh you know the economists uh by day and uh [ __ ] posters by night who have um the fin twit crowd who is also saying

this is an underwhelming launch and they are agreeing that this is an underwhelming launch and I would just be curious to get your take on that yeah this has been fascinating because I'm all I'm just the guy who's been like no you know had his nose to the ETF grindstone for almost 20 years and I've seen launch after launch in fact they come out so fast you miss them there's been since in the past six weeks there's been like 120 ETF launches we've only talked about 10 of them but there's been 120 right and most of them have do nothing I mean they're like crickets they're lucky to get a million dollars in trading so here here come these they trade 50 to 500 times the norm not percent increase but

times and the people are unsatisfied and I I realized that there's two groups that are mainly crapping on it it's the econ twit um and just general people who who hate Bitcoin they like to troll the Crypt Bros so this is a great way to say man these are underwhelming it sort of signals to the rest of econ they're cool and it basically trolls the crypto Bros to going crazy because oh my God what did you mean it wasn't successful so I get why they would do that there that's their motivation the when Moon crowd they were like thinking oh my God we're gonna get

this like huge God candle or whatever the god candle and and it kind of flattened it went down a little bit there was a sell the news kind of event and they're all like trying to investigate wait a second the gbcc outflows kind of match the inflows to the ETA the other ones there's no new net buying and they're you're playing Sherlock Holmes and they're frustrated because they wanted that bump two things on that a it went up 80% on the rumor or optimism of approval you have to factor that into all this if you start if you go from approval day on and you're like what have you done for me lately you have a major perspective problem you

need to get outside touch grass read a book get into a relationship find something else to do because youve really been pulled into uh you've really been pulled into crypto Twitter talking about touching grass and I love it man I know my kid uses that I don't want to lose you I don't want to lose on once this e ETF is done like what are you gonna do you're gonna go back to covering these other boring ETF no as Matt knows as an ETF analyst you're you travel all over the world so I will be you know making my business don't worry but my kid and I actually have had some terminology crossover between between my journey into crypto twit there's definitely some overlap with his words and and crypto Twitter but anyway um you know I'm a 6040 investor I I'm happy

with 7% a year so the idea that you could still be at 50% or something year to date and be bitching and moaning is insane to me so there's that kind of perspective now every time there's a runup like when the FED is supposed to lower rates there's a runup in the stock market before the FED announcement like this is what happens in markets there's a runup before an expected outcome so there's a seldom news event second there's been a lot more um buying in flows than there has been gbtc outflows but the numbers and the volume is so dramatically off the charts and abnormal I'm not really sure what planet people are from that that it's not enough or they didn't think it

they thought it would be bigger um certainly there was a lot of hype and maybe it just underwhelmed compared to that but that's a relative issue that I can't help I can only go with reality and the past and numbers and this was like top .1% ETF launch ever can you put some numbers around that Eric sure so if you go by we'll go by flows right so the newborn nine and again I separate out the newborn nine because gbtc coming over and as is a fully grown adult you know launching a new ETF is like sending a little baby into the Amazon jungle it's got nothing and to actually survive alone is is is a is a is great to get actual big you are now a total warrior

gbtc came came into the jungle with like a mansion armed guards all the food it wanted like it's not fair so gbtc is a separate entity the newborn 9 which again these are all first ever have taken in $3 billion they've traded about $6 billion those are crazy numbers so the volume alone that's six billion that's more like that's like multitudes more than all 500 ETFs launched last year traded combined like pick a day this week they trade about you know maybe close to a billion dollars the 500 of them together and these guys are you know these guys have done six billion of that they're

averaging more than the 500 combined basically so it's hard to do this in the first couple days and the other thing I mentioned which I'm about to tweet out and Matt is going to get a kick out of this this is amazing to me the volume usually on these big hyped up launches it starts high and it comes down like 25% a day and then you hope it it it settles into like 70 million a day or something like that you'd be happy with that it went up today so today all of them are trading more than they did the day before that is really good sign you never see that that tells you there's legs here it's not just like some hype thing that like fizzled away so I can't think of any like there it would be hard to find a better better data H Matt why

do you think this was so successful because people want to own Bitcoin I mean I hate to be as simplistic as that why are why is number going up more people are buying than selling but I mean come on uh coinbase had more accounts than Charles Schwab Robin Hood erade interactive brokers combined Americans want to own Bitcoin and an ETF is arguably the easiest way to do it and with the fee Wars that we saw uh with people pricing down to 20 basis points as bitwise did it's arguably the cheapest way to do it so uh that's a huge unlock that that brings new people into the

ecosystem uh it encourages people to convert and I'm with Eric I think there's real sustained demand I mean we're just starting to get turned on at Major platforms uh we're just starting to have conversations with advisers they're just doing the due diligence but you know we're doing whatever 100 meetings with advisers a day at bitwise we're one of 10 firms uh I think it's going to build over time I actually think those volumes they may level off for a while but they're going to come back up I think it's a massively successful one what does that mean getting turned on at platforms like getting on the you know I guess not Vanguard but on the TDM trade account or on the Schwab account or what what does that really mean yeah or on

the big National wirehouses right like everyone's goal is to get on Morgan Stanley Lynch UBS and Wells Fargo they take a while to do due diligence on new products but they're doing them quickly and then below those big four there are smaller platforms maybe that host independent raas and those are starting to turn on this week next week next week so the right way to think of an ETF launch people assume it's like the door swings wide open and everyone can go through it's not how it works the door opens and Eric knows this maybe 30% and then you get turned on at all these other platforms that host investors and you know after a period it could be weeks months or a year then the ETF is

fully available to everyone and that process is going on right now it's it's going on faster than I anticipated Matt take us inside the the room of like these fee the fee conversations basically so I think it was Fidelity who came out at 39 bips um and once they came out at 39 bips everyone started I think it was refiling and I don't really know that process worked but pulling it down to 30 bips then 25 bips and 20 bips and what was happening in the room at bitwise because there there's a calculation right it's do we how much more will we get if we pull it down by this and it's you know if you increase by 50% you got to go down by 10% or whatever the math is it's a math game so what what was actually happening there yeah there was there was

a huge amount of Game Theory it was a lot of fun and very exhausting the the way the SEC was orchestrating this process was all the issuers had to up upate their filings effectively at the same time so you had to turn over your card and say what your expense ratio is and so at bitwise I mean we were we were thinking about the personality of the people at every firm uh we were thinking about where they might price we were trying to reach out and figure that all out we were committed to being on the lowcost side we did have an advantage in that we have an existing infrastructure for our business right we've been running crypto funds for seven years so we're not adding a crypto trading effort or a crypto research effort or a crypto

sales effort so we could afford to be very aggressive on price but you know fees matter in ETFs that's a lesson across the industry it's not the only thing that matters it was vitally important for bitwise to be one of the winners and we're happy that we launched at the lowest fee that certainly helped us I'll say the exhausting thing about it Jason would be you know we would finish this whole process game theory different personalities different economics we'd come out with our price and then the next day everyone would refile and Hunter horley would call me at 6:00 a.m. and we'd have to walk through the whole thing all over again it was it was it was totally exhausting Hunter yeah it was really nice uh when

they finally launched yeah Eric do you think that I think everyone loves to rag on the SEC and Gensler and stuff like that looking back in hindsight do you think this process was a good process yeah it was so unique it's hard to compare it to anything I mean um it sounds like the SEC uh worked hard looks like from the changes there were like amend I mean six or seven amendments um I don't agree with everything they did I think in kind should have happened um I think some of the risk disclosures were a little absurd but outside of that um looks like they worked hard to get these things into playing shape and everybody especially during the holidays I had this you know remember we were on that podcast with Stephen uh the valkyrie guy

he was saying this is the government like they don't work a lot on the holidays so once we got to like Christmas time I was like man you know I got a little doubt because I thought okay this is where maybe they punt or they have Arc withdrawal because anyway it seemed to me and but I was getting wind from my sources that they were working really hard and that people were really outside of the two holidays worked a lot that week and the SEC had deadlines that were in the middle like a lot of people had that week off but they had a deadline in the middle of the Christmas to New Year's week this is all a good sign to me and I I give them credit I nobody wants to work around that time but they did they got it done and so at the end of the day it was fine

where where I think they probably could have like started earlier maybe on some of those details they also could have um I think that the the tweet and the hack I'm not sure I can blame them we don't know exactly what happened yet but the roll out wasn't great then the the sort of angry you know know I I I yes we approve these but I hate it letter from gendler I don't know I mean there was one little note in there that I thought was a little silver lining which is look I mean if you're gonna do it these are probably the best way to do it because you know I know he likes ETFs I was at actually a conference where he spoke um it was a like an investment management conference and I was actually one of the speakers and he was speaking I don't

know like an hour before me and he went through all the stuff he had he was going to all his plans private equity advisors when he got to ETF he didn't really have anything he was like you know these are good they've served America so I know he likes them so I think that at the end of the day he came around finally to what we all thought which is you don't really have to trust Bitcoin or even know what it is or whatever but you can trust the ETF and the people in the industry to give investors you know one of the best deals possible and that's exactly what he came around I but we knew this 10 years ago it took them a long time in the court case to come to that same conclusion but anyway so I can't really I have no really like angst towards the

or anything looked like they worked hard um and there was some issues that genzer was gonna have like a last minute rug pull this is where it was difficult for James and I to hold the line because it's easy at in the last two weeks to throw out a call option which is you know gender could do a rug pull just so you have that time stamp in case they do you can go well I said it James and I purposely did the tough road and said don't say anything any [ __ ] like that let's just go all in with our 90% odds and say we're not going to entertain that people were working too hard it would be too weird and out of out of character and then when the mainstream media started reporting from different sources they had it we also felt um you

know like it was going to happen but the last day there was even Some Loops thrown with letters withdrawn and the fake tweet um it was an emotional roller coaster for sure but they got it they got it done and you know what when Elizabeth Warren put out her angry tweet like the 24 hours later bitcoin's awful like I can't believe they approved the ETFs it was great it was like I felt nothing I had immunity because it's too late I felt the same way I was like I was like oh my scr like again War is Over yeah like 10 years of war 10 years of having to like be captive to people

like that knowing that they just hate Bitcoin um and their other ways to get access to it that are not as good as the ETF and you know this and you have to just have to you have to deal with them having this opinion and it's you have no choice in the matter it's all over and it felt good and I felt like weight was lifted and now we have immunity Gary's letter didn't bother me her tweet didn't bother me I I just feel no more frustration and it's awesome yeah Matt take me into um I love that Eric Matt take me into like the nuts and bolts or maybe like the plumbing of some of these ETFs so a couple questions here one is so everyone's focused on the fees because that's like the cost to the user

right what about the cost to bitwise so when I think about the cost to you guys there's custody costs there's I'm sure I don't know how much you pay like an AP or like the market makers to buy the Bitcoin like if you take the you know on 20 bips so 100 million oh boy Mental Math here 20 that's so that's what 200k to you guys or something of 20 bips like some some amount of that goes to a custodian and some amount goes to the people you know the the desk who's trading for you guys like what are the costs here how do you think about that yeah I mean the the largest single cost is custody and that cost declines as the size of the fund grows so these funds become more profitable as they get to be

a billion or two billion or that's a deal that you've structured with coinbase or whoever your custodian is to say you know at this amount it's 10 bips at this amount it's five or whatever it may be that's the way that's the way all custodia relationships work generally is the is the more scale the lower cost and that's true in crypto as well it was true before ETFs it's true in ETFs beyond that the primary costs are like audit your administrator and your tax because you have to send everyone a1099 but those are relatively small the biggest single cost is custody the trading fees um those are sort of uh outsourced they're they're embedded into the spread of the ETF which is very small which is uh been great it's been trading a penny wide on bitb so the real

costs are custody the way to think about it from a business perspective again bitwise was fortunate that we have this existing business that we just layered this on top of this is not an interesting product from a financial perspective directly until it's you know multiple billions of dollars but it does become a good product financially from that perspective and more broadly it opens other doors right we're a complete crypto asset but you know I suspect these will be products measured in in the tens of billions of dollars and at that level even at 20 basis points 20 basis points on10 billion is $20 million that's um that's material Revenue maybe maybe less for Black Rock than it is for

bitwise but it's not a bad business yeah not a bad bit it's a real business and I think that's where these products are going yeah um for on the custody side do all of you guys pay the same amount to because I know everyone pays or a lot of people use coinbase do you know is everyone just or is that a negotiation and you don't really know I actually don't know I don't know I don't know they would tell us yeah well can you tell us how much you guys pay like what the percents are or no we can't disclose that unfortunately so those are those are our restricted items um but uh but you know coinbase there's a reason everyone went with not everyone eight out of the 10 providers went with coinbase to the largest they're the most established and this is a market where you want the best

heart surgeon and not the cheapest heart surgeon uh and coinbase has been that I mean there are other interesting Plumbing aspects of how how these ETFs are design that are different but most of them ended up using coinbase because they're they're great at what they do um I'm not sure if this is a question for you Eric or or for Matt or for I either you guys can answer this but what happens when you purchase a share of an ETF is that what's the backend what's happening there like who's that trade getting sent to where is the Bitcoin settling on is it OTC like can you just why of you guys just walk us through what's actually happening here yeah I can take a shot from inside bit wise's perspective and maybe Eric can can add some broader ETF commentary

I mean when you individually buy a share of an ETF it's like buying a share of Apple stock you're buying it from someone else who's selling it right um what happen what what you're really asking is when new ETF Shares are created how does bitwise acquire Bitcoin to represent that that's right and and and the way that works there these there's this group of authorized participants who are able to create new shares when they sense new demand in the market so if they sense new demand they're able to create new shares to facilitate that demand uh mechanically what happens is at the end of the day uh they submit what are called creation orders to us which says we want to create X number of shares and once those orders are accepted which for us takes

place at 2 pm they wire us cash so like on day one we got $237 million of cash of of of fiat currency of dirty Fiat it's a nice it's a nice that's right well once we get it uh we have to go out and acquire Bitcoin and so the way we do it in our trust and this differs from different ETFs but we have listed Bitcoin trading counterparties and these are Big firms like Jane Street drw and mcari and others they're listed in our perspectus and we'll go out and we'll put them at competition with one another we want to buy $200 million of Bitcoin what's the best bid you can get then we'll take that and put that in competition are you calling them are you

emailing them are you messaging them on telegram here uh that's that's the trading team they use a variety of different of different tools uh our trading team for what's worth is is X black rock uh from from their bond desk um so they have deep expertise in this but you're putting it at at work against one another and then when you get the best price you agree to that price and you've purchased the Bitcoin for what it's worth uh on that day one when we acquired you know $237 Million worth of bitcoin we got it at like single digit basis points above the bid asset there's a lot of liquidity there um the next step is the Bitcoin has to get to the custodian the way it works is our trading partner so

let's say it's XYZ Corp that we agreed to buy it from deposits it sends it to the custodian and once it arrives at the custodian we release the cash to them to settle the trade so the trust never is on the hook it has the Bitcoin and then it releases the cash you can find those transfers online we're not able to disclose them at the moment but you if you if you're deep enough in crypto Twitter you can find people who are attracting wallets that have gathered a lot of Bitcoin recently yeah well that was actually my next question I was I was looking at the M Pools and the and just like transactions basically on um on the Bitcoin blockchain and the like transaction fees the M Pools like they

weren't it wasn't really spiking so I was trying to figure out how all of this Bitcoin was bought but the uh a the Bitcoin price didn't really fluctuate on that day I know what Eric was saying which is like it was really the leadup but if all this Bitcoin was being bought why didn't that Spike and why didn't the transaction fees the me pool Spike as well yeah yeah one one Nuance that's maybe not obvious is these authorized participants sense that there's demand throughout the day and then don't actually you know the Bitcoin isn't acquired by us until the end of the day but the market makers may know that it's coming so they can build positions throughout the day so it won't show up for them on a single transaction and the broader reason is bitcoin's a very liquid Market I mean even buying

you know a couple hundred million dollars of Bitcoin is a lot but Bitcoin trades billions of dollars every day around the world and it has for a long time and there a lot of ways to facilitate those transactions so this Market is more liquid than many people give it credit for and I think that's why you're seeing it it processed fairly normally um through all the systems yeah yeah and can I jump in here yeah yeah and I should Pro I should probably like do something with this um we used to show this chart because Matt knows this there's there's people who are like oh um ETFs are the tail wagging the dog and like stock picking is over because every because all the stocks are in ETF the flows in the ETF will make uh dispersion among stocks go away long story short

some of the ways we dispelled that was showing like GE stock over the course of a year when like bad earnings came out it like tanked and then we showed the flows of ETFs that held it and index funds and the flows could not do anything to stop the tanking um they were inflows coming in to buy GE Now would GE have gone down a little further probably so I would argue in this kind of a scenario if you have selda news people because who are players who were Hedge funds who bought gbtc maybe wrote it up and they're selling any kind of sell the news or gbtc selling that flows into the newborns at least are making it less bad right so this happens right it would

could would be way worse if it weren't for the ETF flows that are net positive at about a billion dollars so it's it's like somebody else is doing it I put that Meme of like the call we we've traced the call it's coming from inside the house because it's coming from because I was like talking to the crypto people this is on you buddy some somebody in your world I don't know who it is some whale or just a bunch of degenerates they're selling the news here that's overwhelming the ETF inflows so just like GE could fall despite ETF inflows and and disprove the tail wagging the dog these ETFs are not going to Wag the Dog either there are many other elements going on over time they should help um I would I would think but

one other point to make the other holy gbtc outflows newborn 9 inflows so even though the newborn 9 have taken in more than gbtc outflows there definitely is some kind of an offsetting and I don't know how many people are like refugees from gbtc who have found a home in in one of the newborn nine let's call that 30% of the outflows um I don't think it's I think a lot of hedge funds you know game that discount and they're going somewhere else they don't use ETFs a ton anyway that said ETFs are going to steal from everywhere like when ET like Vu is the Vanguard 500 right we track its flows it's taken in 35 billion or $40 billion last year probably some of that came from mutual

funds and those outflows for mutual funds the inflows to VU they are Net Zero Demand on stocks we still track Vu inflows if we tried to offset every flow that ETF stole we go nuts it's just they steal from everywhere and that they will they'll probably be coming out of the Canadian ETFs there'll probably be flows coming out of coinbase they'll probably be flows from definitely from gbtc anything that's high cost it is is gonna get some of its uh lunch stolen by the ETFs over time but gbtc is like a great example to me it's playing the role of the high cost mutual fund in this little Universe I think that's a great example although I do think overtime the impact

is going to be really significant right I mean ETFs just collaps the cost of accessing the space they've open up the market to many new investors I I've I've used this analogy before but I think it's like the having like number don't go up on the day of the having number goes up in the Years surrounding the having as people price in the having and then it has a sustained effect on the supply demand Dynamic and I think the same thing is true here number went up significantly into the runup of ETFs on the day of ETF launch the week of ETF launch it's been sideways in May but over the next year I think it's going to have a a really substantial effect hey everyone wanted to give a big

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gives you a really good sense of what their vision is take the next step by signing up for a PayPal account today the future of crypto payments starts with PayPal is there a framework that you you can use to say uh to think about the flows into Bitcoin ETFs and the impact that has on the price of Bitcoin no uh I mean Arc has done the best research on this uh friendly competitor they put a 30X multiple I think that's probably too simplistic uh I think it's it's it's Dynamic and probably exponentially shaped depending on the size of the flows so say can you say more about what that means well you

know I think I think at very low levels of flows it probably has no impact it's just it's just added into the mall or very limited impact I think if it had overwhelming rapid flows you would see enormous price appreciation very quickly so I think it's it maybe 30X is a nice average but at uh a billion in annual flows maybe it's 1X and at a 100 billion of annual flows maybe it's 100x and price goes insane um just because of the way sort of dynamic pricing Works in traditional markets it gets exponentially Harder To Source liquidity so I suspect it's something like that but but arc Arc came up with that 30X multiplier which is I think it's

feasible it's also important to note that ETF flows directly aren't the only impact there's also the fact that I think the approval of the ETF will grow the ecosystem in general over time so I think there's a effect too Eric you mentioned grayscale or gbtc outflows do you think the outflows will just continue over as they keep their you know their fees are what 1.5 and compared to bitwise which is you know 20 uh so they're you know seven and a half times higher here so the flows just continue out yeah look a lot of people are trapped in there and it's they're gonna have to play with this dilemma of whether to realize capital gains or

stomach to 1.5% and the math probably is going to f staying in there for many of them to be honest yeah um now over time and if if there is a little bare market for the next six months that's that could open up a lot of those captives same thing with mutual funds we've estimated about a trillion dollars is just people who would leave if they could but they're just sitting on too many gains over like 30 years and so this is again gbtc is really playing the role of the high cost mutual fund in a parallel way so I think there'll be a steady bleed I don't I don't think there'll be like you know 10 billion out in one day but so far it's been um about a half a billion a day um but the the discounts narrowing and that's good I

think maybe you'll see that level off a little um but I would you know looking at that flow chart I think it'll be a while before we see we inflows if ever um and that's going to be their decision to make they're going to have to wrestle with the fee versus the flows because let's face it I told people this if you're uh shopping for a car and the same car is like $21,000 or $150,000 I mean come on I mean that that is too extreme now you could say well gray scale has liquidity um options on it yada yada but even at that price it's a tough sell I that's why I think Black Rock coming at 30 kind of everyone had

to tether to that because you now everybody has to go out and explain well I can get black rocket 25 or 30 you know what yeah you can probably get up to 45 before it's just undoable with you know your your pleas of you know hey I'm an expert or we do this other thing or we we'll donate to this organization but there comes a point where that that like give is over and I think it may be 10 bips and they're like what 120 bips so they're like Way Beyond the elasticity of a fee a fee obsessed adviser in my opinion maybe we could switch gears a little bit to just talk about like broader role of Bitcoin in investment portfolios and

like actually on the monetary system zooming out even more from that um and Matt I'd throw this one to you so if you look at the Historical portfolio like the 6040 portfolio and then I think in the last maybe decade or so it was you added Alternatives and originally maybe Alternatives if you were a pension or something like like that it was maybe 1% allocation and over a decade as Alternatives outperformed it became maybe okay okay we're comfortable with 5 to 10% actually in Alternatives uh the number I see going around with you know Bitcoin or crypto allocation let's call it just Bitcoin right now is 1% sometimes 2% if you look towards the future like how do you think that role of Bitcoin in the portfolio changes yeah we think 5% is the new 1% uh at least that's what we're seeing

amongst a lot of our clientele we see people upleveling their Bitcoin exposure there there are a number of reasons for it um one one is it's gotten cheaper and easier to access that actually makes the asset class more attractive uh the second is you have a longer track record which reduces the sort of binary risk of failure and that was one of the primary things keeping things at 1% and three is that just statistically if you strip the name Bitcoin from it you look at it from a historical perspective as an asset uh it's done exceptionally well it's the best performing asset in the world plus 1 three 5 10 15 years it has very low correlation it's extremely liquid um so I think it's going to find

a a slot in the 1 to 5% range over the next three years in a lot of portfolios I think it's going to be hard to deny um once you get above 5% you do start impacting significantly the volatility of your overall portfolio it becomes a Big Driver of your maximum draw down but at 5% or lower that's not true uh at least historically and I think I think it's going to have a big impact I'd add one more thing uh one of the reasons most people have kept their alternative exposure relatively low is it's been extremely hard to access the best version of alternative exposure it's extremely hard to access top tier

Venture Capital it's extremely hard to access top tier private Equity one of the beautiful things about Bitcoin you can own the same Bitcoin as Paul tour Jones it's extremely easy to access and uh therefore I think it's going to be sort of help Drive uh a growth of an alternative sleeve as a normalized part of every portfolio I think it's going to be pretty do you have a sense just from these conversations that you're having whether that 5% flows out of equities part of the portfolio out of bonds out of Alternatives where does that come from yeah it's mostly out of equities people think of it as a a risk asset with high volatility which is fair and therefore they're drawing it primarily out of the equity sleeve often it's replacing or complimenting a high tech

exposure I think could Rel it could easily belong in alts but many people don't have an ALT sleeve um and so equities is the most common place we see it dra from interesting yeah um I want to just also go in the alt concept here I do I do think it's an ALT to certain people I think if you're an adviser or um I'll use advisor I think because they're the classic 6040 types you know again I think there's a little pock in the portfolio for highly speculative stuff we call it the hot sauce bucket I think it fits there I don't think it fits in an ALT bucket to an advisor or a regular sort of non-institutional investor they're not

big fans of alts anyway but what they what they do you know advisor always worried about career risk so I think the Bitcoin ETF does a couple things for them one it gives them something else to talk about it differentiates the portfolio a little bit it also cures any possible fomo complaints down the road like oh why didn't you put me in this it's now up to whatever price and I think also if they're trying to impress the kids of the Boomer clients this may look like hey I'm I'm cool too um so there's there's a there's a couple reasons I think it makes sense that are totally different than the way an institution might see it as an alt and a way to sort of like bring the sharp

ratio up in a portfolio and think advisers are going to see it more that other way um and there's no there's no problem with that Ark is the classic case of putting a little hot sauce on the 6040 what we found that is the more passive grows in portfolios the more there's a demand for the exact opposite and that's where Kathy Wood in ironically was built on the shoulders of Jack Bogle even though he would have not liked her program She is totally complimentary to a Vanguard portfolio Vanguard portfolios are great but the problem is you got to wait 30 years to really feel the magic of compounding and your Bor is Bored to tears in the meantime it's like watch literally

watching a tree grow in your backyard for 30 years I mean you would go nuts so this occupies you a little bit and there's nothing wrong with that in in my opinion this is actually a behavioral hack to keep you from touching the the stuff that's got to grow Matt will say this should grow too and I don't I think it it's it should the other thing is in the hot sauce that has to grow like if Kathy Wood's right and we've got Ro taxi automatic you know robot taxi cars and you know all this you know futuristic stuff then you need to be disciplined in a very volatile investment to fulfill that dream the core of Vanguard Holdings is awesome for giving you the intestinal

fortitude to hang with the volatile stuff so this to me is a great compliment you know you got the serious stuff and the vegetables covered with Vanguard and you don't need to sell the Bitcoin or the arc when it crashes for a year because it's not the main thing and this is a big deal and I think that's how I would position this in a portfolio um the Vanguard will give you the stomach to deal with this I thought we were all quitting Vanguard I thought that was a I thought we all supposed to leave Vanguard talking about normal people not like all in 100% you my portfolio you would be an unhappy unhappy

I love itan I'll just add I'll just add one more thing from Eric's normalized view which is that uh Global equities are a hundred trillion dollar asset class crypto is a$1 trillion doll asset class if you don't have 1% in crypto you're underweight you're short you're below the global normal Baseline allocation if you're at 2% you're overweight but if you're at zero you're severely underweight an asset class that's part of the global capital mix I know Vanguard doesn't allow its clients to uh to access it but their philosophy of just owning the market would lend yourself to want to own this one trillion what happened behind the scenes here Matt like why do you think that Vanguard it it's a it

really didn't make sense to me even if you don't like Bitcoin you know it do you have a theory on why they I you know I I don't know is is the short answer I wonder if Eric has a a theory um they don't like gold they don't like non-cash flow producing assets but they've never restricted those before I think it's I think it's a a reactionary Force maybe they're worried people will abuse the ETFs or something I'm not sure I don't know Eric you yeah I it's just philosophical um I don't know it had to come from Buckley I mean this is something that they're probably hearing it about it on the phones a little bit so it has to be upper management look they do let GLD trade on the platform so I called him and asked

him about about this first of all Bogle and Vanguard generally don't like Commodities because you don't get earnings growth and dividends or a coupon like in stocks and bonds your money literally works for you which by the way the crypto people really should understand that I I wouldn't I wouldn't go all crypto uh because you don't want to put your whole thing on a commodity it's only worth what someone else will pay for it not that's bad but Vanguard said that the reason GLD was allowed was that it actually had a use so this tells me this is like a pretty classic Boomer disdain thing and you're gonna have a

lot of that um I've seen it elsewhere and it's just the way it is Matt one time the first time I went to index Universe conference I gotta tell you this Matt Hogan and Dave Ned n are up there and they do this incredible PowerPoint the PowerPoint is the size of a movie theater screen so it's like and they use pictures they don't use charts or the worse is bullet points this is fun PowerPoint and I remember they put bogle's face in where Obi-Wan Kenobi was they saw him as like the um the sort of good force in the industry so I gotta think Matt is feeling a little conflict here between the sort of Vanguard disdain and his new career I'm just

curious It's like when you meet your it's like when you get too close to your Heroes you know and you like you realize that they're not really all that you made them out to be in your head you know this is why he wrote the intro to my Bogle book and I I wanted him to because Vanguard and Bogle and mutual funds seem Boomer and boring but crypto seems interesting to young people and I wouldn't Matt to split the difference and he did a perfect job of like somehow understanding bogle's greatness but yet also recognizing that you can disagree with him and still take some of his traits with you on this new journey and there are a lot of overlap between Bogle and crypto there's a lot of

spiritual connectiveness where they disagree though is in investment philosophy I think um that's where it breaks down yeah but I think spiritually there's some overlap there it's actually gonna be really interesting once the eth ETF comes out which I want to ask you guys about next I know we were running up against time here but um because e like eth you know I've got quotes around this like does something right it's got again quotes around this like cash flows it's got like dividends it's got yield whatever you want to call it and there are companies built on top of it um and I think in like Boomer Zone like Bitcoin is just like they're like oh we we have gold we don't need another digital gold like I don't even understand the internet whatever I got gold but eth is just like a tech

investment basically so it'll be interesting what what do you guys think is realistic for this eth ETF Eric's miss the predictions so well um we're at about 65% we haven't dove into it but we we we we talk quickly and we say Okay two-thirds chance the big we're hanging our hat on two things they app they approved e Futures so if you want to come at me with the whole Securities thing or whatever it doesn't matter they already approved e Futures ifof facto you'll get sued if you don't approve it and Grace scale is one of the people within with the filing they want to convert their trust so we're kind of in like a day ja Vu and black rock filed and you know they're

not they're not messing around so that's the pro case the anti- case is gender's rebuttal basically was like don't expect anything else for a while U we hate everything you know don't ask about other coins but I think he just needed to vent I think he needed to be on the record to all his Democratic friends that um I hate this yes I did it but I hate it believe me I'm with you I don't I think he was harsher than reality will dictate down the road so I could see one coming out in May yeah Matt are you guys expecting may I would love to see it I think I think eth is harder than Bitcoin has more moving Parts you have this question of staking you have less Clarity on the regulatory process so

we're optimistic in the next let's say 12 months but I think it's more challenging near term than than many people think but I'm I'm hopeful I'd love to see it nice um will you guys int will when you guys launch an e ETF will it have staking included I think that's a question that the industry is working through one one challenge with these ETFs is that they're Grant or trust you can think of things that go into grant or trust as just sort of sitting there and they have difficulty doing things and uh staking is a thing you do and so that that makes it difficult within the required structure it's not necessarily impossible but I'd be a little bit

surprised if the first eth ETFs have staking attached to them nice all right one one just this is just a plant an idea and Matt said if eth is a security could you not do an afford act you could force the issue and file both of them right I I would why not I love it I love it this this some good ETF ETF nerd talk right here is uh's going down um all right I'm gonna make both you guys by the way Matt okay so this one guy who I like he writes and I because every now and then someone like one of us to me like someone from crypto world

and um what's the ETF equivalent of laser eyes because I wanted to award that to this one person from crypto Twitter who's really gotten into the ETF thing very well but I don't know what the equival would be wow I gotta think about that one yeah I'll think about that one that's a good question it's a good question uh all right two rapid fire questions end this first is um to both you guys how how in the in a 12month Time Horizon so for January 2025 how much larger will the Bitcoin ETF Market be than it is today 5 to 10x what's the date January 18th in a year yeah in a year okay so

and Matt we're are we at 20 are you counting gbtc no no the newborn nine newborn nine which are at which are which are at what today right now there's three three billion in assets all right so Matt says 15 to probably probably yeah probably five four to five x I would say 45 yeah so that would be 3 * 5 15 billion that's where we were we said 10 to 15 billion in PL the the wild card here is the price of Bitcoin I mean if Bitcoin double tomorrow those would all be worth six billion but I'm looking at flows that's the hard stuff yeah I'd say 10 to 15 billion would be a really good first

year and they're already at three I agree flows and we think bitcoin's price is going up this year substantially so AUM will be higher what to what price M are you is your compliance we're on the record of saying we'll set a new all-time high we think it's going to top 880,000 this year yeah um all right last rapid fire I know we've got a minute left are you both excited for D London yes yes I was just talking about it with my team today I'm fired up first of all the speaking lineup really does look absolutely incredible so kudos for Ping that together and uh 100% wouldn't miss it I you're you're on the speaker list ER I am is this the thing on the on the

14th of marchish 18 of March but you're close yeah I gotta tell was it you was it you who asked me to go couldn't couldn't tell you couldn't tell you okay I I don't think I can go I could go remotely um there was supposed to be a a Bloomberg event but that got pushed so I was only going to do it because I was in town anyway so I'm because I gotta go back to London like a month after that so I'm I probably can't go I don't know maybe I'll go twice we'll see but I'm probably just gonna have to bail com not the answer that is not answer our event marketing team was looking for Eric that is not the answer Matt by the way Matt is starting the first ever crypto to trafi

dictionary you got like six words already it's brilliant What would this EV be in the trafi like you have to map it for me oh I have to map it for you it's it's an elite Gathering of top mines not not you know many thousands but extremely high quality think Morning Star ETF no it's um it's a good question what is the equivalent what you wouldn't say inside etf's us no it's more Elite than that I would say it's more Elite salt like Salt's a good example

salt in the early days for crypto I think is a good example early day salt yeah there you go without Lenny Kravitz Eric is back on the table for London all right good place to end it Eric's coming to London we love that uh Matt Eric thank you guys so much for the time and congrats on everything and Eric nice work being right so much thank you good to see you Matt thanks for having me hey everyone Thanks for tuning in to today's episode don't forget to claim your free Wormhole nft exclusive to Empire listeners hit the link in the description of today's episode and fill out the form to claim your unique Wormhole nft today hey everyone thank you so much for watching today's episode really hope you enjoyed it we wanted to

take a second to just remind you about our upcoming digital asset Summit in London March 18th to 20th Santi and I got your back seats are limited if you heard it earlier in the podcast there's a little competition running at blockworks to see who can drive the most number of tickets so when you register for the digital asset Summit make sure you use our code see you in London [Music] n