MSBT Is Cheapest But IBIT Likely Still Can't Be Beat for This Reason

Transcript

I mean it performed really well. I it traded over 34 million in day one, which isn't like blockbuster. We've never seen this before, but it's top, I don't know, percentile, couple percentile of ETF launches over the last year or two. Um so there's still interest out there for Bitcoin spot ETF launches, though I think the Morgan Stanley name and what is behind it, which we'll get into, is a huge driver of that, obviously. Um today, obviously, we're in the second day of trading. It's probably going to trade over 20 million, 25 million would be my guess. We're at 12 and 1/2, just a little bit on halfway through the day now. Um so yeah, it's gone pretty well.

It took in 30 million dollars on day one. Um this is not something where I would guess this to be like, oh my god, money's going to pour in immediately. I think this is going to be much more of a slow burn type of thing. If people are going to move assets or interested in Bitcoin, they've had plenty of opportunities. Even Morgan Stanley advisors, they're okay to buy IBIT and some other ETFs. I think BITB from Bitwise, but don't quote me on that. Um so the advisors that they really wanted could have gotten exposure. The the benefit here is it's 14 basis points, which is the cheapest ETF on the market right now. But and when you get to things like spot Bitcoin ETFs or spot anything ETFs, and all it does is hold the underlying asset, like the nuance becomes around branding and fees. And

now this is the lowest cost provider. I will say VanEck, their HODL Bitcoin ETF is a fee waiver, so it's zero fees right now. So they're undercutting Grayscale's BTC by one bip, and they undercut IBIT by 11 bips here. So long-term buy and hold oriented investors are probably going to be very interested in this product cuz 11 bips it can add up over a long enough time frame. So yeah, it seems like the fees will really drive a lot of this, but you did mention something about the Morgan Stanley brand. Like tell me, you know, generally how you think it will fare in competition with other Bitcoin ETFs?

Like you know, who will it appeal to versus the other ones or, you know, who's going to buy it or how, you know, will will it sell itself? Yeah. Um I think it has to be more geared towards long-term buy and hold type of investors. Like that's the people that are going to buy this. Right now, IBIT is far and away the largest. It's also but there there's plenty of others with billions of assets in them. I think there's 12 or 13 ETFs now. They're all pretty for the most part doing pretty well. One thing that no one is touching IBIT on from BlackRock is the volume and the options volume. I mean they have 97 plus percent of the options volume. So if you're trading and hedging and doing a lot of stuff like that, you're probably going to go more towards IBIT, particularly for

shorter-term type trades. Obviously, um if you want, there's leverage versions of these things as well. So this is going to be geared, like I said, much more towards the advisor base, the people who are putting this in their retirement accounts. I mean 14 b- like I said, if you can get at the lower cost you can get, the better off you are long-term. There's competing products. Grayscale's BTC is only one bips more expensive, but we see like lower like if you have a fee that's one basis point lower, it can move flows by the billions in the equity side of the market. I don't see why that won't be the same case on crypto for people who are going to be cost conscious. So long-term buy and hold investors and particularly advisors and wire or people at the wires like at Morgan Stanley, um obviously, we

we call it BYOA, bring your own assets. Morgan Stanley's wealth platform basically has over 7 trillion in assets. So and they're advocating for some portion or an allocation to crypto or Bitcoin, you just take a small fraction of that, that puts a small fraction of that in their portfolio, and it can add up. And so for any Morgan Stanley advisors uh that previously wanted to, you know, put some allocation of Bitcoin in their clients' portfolios, they probably were sending sending them to a competing ETF. So how does that affect the business of those products?

Yeah. Um it'll be interesting. It depends exactly what happens because one, if you're sitting on a loss, you can and you're going to sell. So say right now, a lot of people are probably sitting on losses in their Bitcoin ETFs. We know for a fact the average investor in Bitcoin ETFs are sitting on a loss. I think the average price is around 83K last I checked. Um So one of the problems is if you sell at a loss, you can't buy something that's substantially similar, theoretically, because of a wash sale rule. There's a lot of nuance here because crypto technically isn't subject to it, but an ETF is a security that holds an underlying crypto. Uh so talk to your tax advisors, but um if you wanted to swap when it was up, then there is no time limit. So basically, you can't do it immediately on the same day, but if

you wait 30 days, I think is the number, you can do it. So ironically, the, you know, selling to lock in losses might not be what they're going to do. Um so one, that would be some of the money, right? Some of the some of the assets that are going to go into MSBT are going to be people moving from another product cuz they're going to go into something cheaper. Um now it's the cheapest product on the market. Also, advisors coming into the market, new players that are trying to add to allocations, if they're going to sort by fees, this thing is going to be at the top of the list alongside, like I said, Grayscale and VanEck. Um so those are the type of investors that are going to come in.

Again, it's not going to be the traders. It's those those people are unlikely to go here. Um it's easy to kind of eat market share and get flows and do well on AUM, but on volume, it's hard, and on options volume and options open interest, it's even harder. Uh because volume and the liquidity tends to, you know, go to the center. It's like a snowball rolling downhill. Okay. And so I saw a lot of commentary was making a lot out of the fact that Morgan Stanley has 16,000 financial advisors who can help sell this. So talk a little bit about how you think that affects how it competes long-term with, you know, the likes of IBIT or, you know, uh Bitwise or or any of these other products.

Yeah. So it's interesting. In the ETF market, there's there's always been this trend of these people trying to do BYOA type products, right? They're going to launch products that are substantially similar, but they don't have the brand cachet of like, say, for a large-cap US equity ETF. There are plenty of products out there that are basically free to get exposure, but still it's the S&P 500 ETFs that matter. With this, there is no like underlying index. So it kind of comes down to the brand name, and I think one, obviously, this is if you're if you're in the space, one, I think we could end up seeing other people cut fees. Uh right? If you're charging 25 bips or 22 bips and you're not doing as well or 21 or 20 or whatever it may be, and you think if you can get even if you

don't want to go down to 14, if you go down to 17, it becomes a lot better of a conversation for an advisor. Right? If if if IBIT had come out and launched at, you know, 35 or 40 bips, it probably wouldn't be the dominant player it is. But it got to 25, it was substantially similar to the lowest products on the market at 20 bips when all these things went live, and BlackRock's brand name and cachet and their advisor network was able to take off. Obviously, Morgan Stanley's had a bit of a disadvantage here. They're they're coming out two years later. Um but like I said, and as you said, they have 16 plus thousand advisors, they have 7 trillion dollars in assets. They are officially now recommending, I think like a two to four percent allocation depending on like the client's growth if as long as they're

like positioned for growth, not, you know, income or conservative portfolio allocations. They're basically saying it makes sense to put this as a, you know, a satellite position in your portfolio. So um and then that that's just one wirehouse, that's just Morgan Stanley. You also have UBS and JP Morgan and all these other things. We recently had Schwab come out with recommendations for putting Bitcoin into a client portfolio depending on your growth and conservative characteristics. Um so all of these things, if you're going to go in, the number one thing you're probably going to look at one, it might be track record, so it like I said, it could be a slow burn. Um so if this thing is out for a year or two, there's no issues.

It's still the lowest on the market. It could it it will be definitely beneficial. Um but yeah, that's that's the way I think it's all going to play out, and I'd be interested to see if we see some other players lower fees to compete. All right. So yeah, let's dive a little bit more into the fee thing because um I remember the day it was announced, you tweeted in all caps, "Wow." And I wondered like why your reaction was so strong. Morgan Stanley isn't known to be the vanguard of anything. They are not out there offering super low-cost fee competitive products, let alone the leader in the clubhouse. Again, absent fee waivers. So like they also don't launch a ton of ETFs. Most of their other ETFs that are out there are

technically under brand names. They own a company called Eaton Vance and Parametric. So most of the ETFs that are out there aren't like Morgan Stanley branded ETFs. Um so one, it's just fascinating from when they filed that they were going to do this because like I said, you can make the argument if you can make the argument that Morgan Stanley should launch a Bitcoin ETF, then why don't they just launch their own S&P 500 ETF or every other ETF in the sun, and then just have only their clients invest in those. And that's not what happens. It doesn't work that way for the most part because of, you know, what I said about liquidity coalescing uh as it like a ball rolling downhill. Um but they have a view here. And I I wonder part of it is they obviously think they're going to put client portfolios into it, and they

they're basically they I'm guessing they're offering this at cost to them. Like there's probably no money being made at 14 bips on this. I don't know what they're paying Coinbase and their other uh BNY Mellon and these other administrators for the fund. Um but I think it's one that I think also they see how much money and they see crypto is growing. There's a lot of money still on like DeFi rails and crypto and people who don't have, you know, legacy assets like exposure to equities and bonds or an advisor or broker to do this stuff for them. So I think part of this might also just be branding and marketing for them. Like, look, we have the lowest cost Bitcoin product. We understand this thing. Let us Come to us and we'll make a portfolio for you. We'll do we'll do long-term financial planning. So I think

there's a whole bunch of ways you can game out why Morgan Stanley might have done this. Okay. So um you kind of hinted before that potentially their entrance could spark Bitwise or it's not Bitwise, BlackRock to drop their fee. But as you mentioned, because a lot of people are underwater at the moment, like there might be just a period where where people aren't moving money initially. So in general, like how do you think things will shake out initially? Like, do you think that BlackRock will cut fees? You know, do you think that um people will switch? Or like, yeah, just just generally, how do you see competition playing out?

Yeah, I don't know for sure. I I wouldn't bet my life on BlackRock cutting fees. That said, they are extremely competitive and they will like cut off their own leg to save the arm to save the body kind of thing with that they've done this in the past in the past in the ETF world. Um they're also it's it's 11 bips, so it's not that crazy. And like I said, they are the leader in the clubhouse and they're the most liquid. They have a lot of advantages. It's these other players that are, you know, now, you know, one of the more expensive products in the market that might drop a couple bips to get more competitive, I think, uh to eke out, you know, some sort of competitive advantage. What What do I think will happen? Like I said, if you're trying to tax loss harvest um, you know, some

losses in Bitcoin and you're in an ETF, and you're looking to what to do, I don't understand why you wouldn't consider just going to the lowest cost product, assuming you are have no problems, you're not concerned about the risk of the way these things are structured. And this thing is structured like every other product out there. And like I said, if you're an advisor who's extremely cost conscious, like in your coming to the market, you're going to go here. So, I do think we'll see some money in the same way that we saw when these ETFs launched. So, we where we had 11 launch on January 10th, 2024, a lot of the money that went to IBIT and and BITB and ARKB and all these other products, HODL, it came from Grayscale's GBTC, um cuz it was charging 1.5% and people were waiting for a cheaper, more

efficient product. There was a lot of people just generally annoyed at Grayscale, even though most of it wasn't their fault. Um and money poured into these other products. I don't think it's going to be quite that bad. I mean, 1.5% is a world of difference uh compared to 25 bips, right? So, like I don't think you're going to see money pouring out or even 21 bips. But you could see some money move. And we do see advisors that will just completely move all of their assets into the cheaper product for their clients, um just to save a few bips on on an on an investment. Etherfi is giving Unchained listeners 15% cashback on ride shares, groceries, and restaurants right now, which honestly is kind of wild for a card like this.

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