What ETF Flows Are Telling Us About Investor Appetite | James Seyffart

Transcript

Intro

You listen to people who have been in crypto for a long time and they you think like everything's over and it's awful and then you talk to these trad by institutions who are looking to get in and they're like, "No, there's a lot of opportunity here. It's like very bullish." It's like this weird dichotomy where price is collapsing and like all the people that everyone was saying we need the institutions to come in are finally starting to really invest and put put things to work in the space. Something I wrote in December in my year ahead outlook was like we're going to see well over 100 [music] of these products come to market. They're going to be leveraged versions, you know, covered call writing so you can get income on the underlying. These are all derivatives versions. You you name it. They're all going to come to market.

I think a lot of them are going to liquidate. Before we get started, a quick reminder that Blockworks is premier institutional conference, the Digital Asset Summit, is returning to New York City this March 24th to 26th. This year represents more than $4.2 trillion in assets under management with 150 speakers and 750 institutions attending. Speakers include SEC Chair Paul Atkins, CFTC Chair Michael Selig, Fed Governor Steven Mnuchin, and Tether CEO Paolo Ardoino, alongside countless other executives, asset managers, regulators, and the core crypto infrastructure builders shaping the industry. If you want serious, institutional-grade view of digital assets in 2026, Digital Asset Summit is where it happens. Use code forward 200 for $200 off and head to

blockworks.co/events for more details. Nothing said on forward guidance is a recommendation to buy or sell any investments or products. This podcast is for informational purposes only and the views expressed by anyone on the show are solely their opinions, not financial advice, or necessarily the views of Blockworks. Our host, guests, and the Blockworks team may hold positions in the companies, funds, or projects discussed. As always, investments in blockchain technology involve risk. Terms and conditions apply. Do your own research. >> [music] >> All right, everybody, welcome back to another episode of Forward Guidance and joining me this week is James Seyffart,

Bloomberg senior research analyst. He's been dubbed the ETF GCR for those that know that reference, but >> [laughter] >> been a been a long time analyst of of all things crypto ETFs and ETFs as a whole. Been a long time at at Bloomberg and yeah, we've had a couple conversations before, but great to have you back here, James. Yeah, thanks for having me, Felix. Happy to be back. It's it's uh it's been a while since the heyday of these launches and stuff. It's not as interesting to cover this area anymore when you're what's crypto is concerned. Yeah, exactly. I'm hoping that I can you know, be be somebody that buys low, sells high, and gets you on here at the hopefully the bottom and before before we start to see ETFs and and crypto getting exciting again, but uh yeah, interesting times. Before before

we do get into all of that, do want to give a quick shout out here that if if you do enjoy this conversation, James is going to be at the Digital Asset Summit in a month at New York. Uh we'll have a link in the show notes to the conference there. Going to be a ton of fun. Um yeah, get your tickets. It's going to be a good time. Yeah, I'm very much looking forward to it. Yeah, always great always great to have you. >> Bringing one of the guys on my team. It's going to be his first uh crypto conference. Uh maybe it's even first like real full professional conference, too, so. >> Oh, wow. There you go. There you go. Yeah, great place, great venue, Javits Center right in Manhattan. It's it's beautiful. So, yeah, get your tickets.

There's a discount code, too. We'll have that flashing on the on the visual cuz I always mess up saying the actual code, so I'm not even going to try it this time. So, anyway, Digital Asset Summit, go get your tickets. Okay, James, everybody was really excited like a year ago on the narrative of institutional adoption of crypto. We had the Bitcoin ETF. I believe it was the most successful ETF launch of all time, surpassed GLD. And ever since then, it's been pretty lackluster. Everybody's excited about AI now. So, I want to just get you on here and just hear a bit of a, you know, state of the union. We're recording on the day of the state of the union, so you can have your your version of it and just hear like What what happened?

What Happened To Crypto?

Yeah, I mean if you really go back if we go back a year ago, people really excited. Then we went through the April sell-off. Um and people then were saying it's over, right? And then the ETFs went on an absolute blistering run taking in almost 30 billion between like the April bottom and October. Um and we've kind of Now we've gone in the opposite direction, right? So since that Whatever caused that sell-off in April 10th, I know you've had I mean in August to uh October 10th, I can't speak. Um it hit the ETFs, too, obviously. And there's a lot of, you know, theories around what caused it. Did somebody blow up? Is there correlation to software stocks, some package trade? Who knows exactly what happened? But if you look at the ETF flows, they Bitcoin ETFs have now seen record outflows. So they're

just about almost 9 billion since that October 10th blow-up. Um Some of it, I think, is basis trade related. So there were times where the the basis on Bitcoin ETFs or the big basis trade, which is where you're, you know, selling futures and buying spot, and most hedge funds were using the ETFs to do that. Um that sell-off in early 2025, 100% basis trade related. Like that was a huge portion of it cuz the basis was so steep at the end of 2024 that everyone and their mother was piled into that. So we saw 4 or 5 billion pile out, and a lot of that we saw in the open interest on the futures contracts come out. So we knew like there I don't know, there's no way to know exactly how much of the flows is correlated to that, but a huge chunk of it came from that.

Uh and then we didn't really see open interest pick up that much after April. So all the money that came in that 30 bill, most of the most of it seems, at least from from the data that I can see, was people actually buying and getting long the asset. Um Recently, we have seen some outflows and some open interest drop, and the basis is just completely nothingness. So for a while, you had a lot of people in because you were getting, you know, near 20% yield almost risk-free, and that's like really appetizing. Uh but when you're starting to get single digits, it's like these hedge funds kind of lose interest. So there's been some of these outflows have definitely been related to that from my point of view. Um so yeah, it's it's it's it's hard to know exactly what's happening. The one thing I will say is

like I mentioned it was 30 bills that came in between April and October. And yes, from October now to end of Feb, we've seen almost 9 billion come out. But I mean, it's if you told me an asset falls as much as this asset has and you only see that small percentage of a drop, you know, 12 15% of the the flows go out, that's pretty damn good. I guess I would say is the cap the flip side. Yeah, that's fair. Um, on on the point of the basis trade, that one's always been so perplexing to me because I mean it's at certain times it's been a very juicy trade for people and it's just it's it's shocks me how durable it's been. I'm curious, how do you how do you think about what drives that basis trade? Is it just demand for leverage from retail and there's someone

The Basis Trade

on the other side of that? Or like what what have you How do you understand the marginal driver of it? So, there's so many theories out there. My theory now on what causes it, one is that I think a huge portion of it was just demand for leverage demand demand for capital in general, right? I mean, and so a lot of it comes from these offshore systems, these, you know, crypto specific native exchanges or what or, you know, protocols, what have you. Um, and it's like this arbitrage between like taking tradfi capital and putting it over there. And so like hedge funds are doing it via the futures contracts. And then there's other people doing it via um, you know, perps and you know, non-regulated SEC CFTC regulated products. So there's like this whole like steep curve of like how much you're paying over here and how much you're

ending up with um, by putting tradfi capital into that same type of trade. Um, so I think part of it is just that, like taking capital and there's a lot of demand there. Part of it is momentum, right? Like when momentum when when price is running this these these basis levels get really high. Right now, I mean, they're nearly non-existent. I mean, if I'm looking at Bitcoin for the most recent ones today, we're looking at for the two-month of 5.6% for the one-month 4.3. I mean, XRP is near zero. For a while even after the ETFs launched. That was double digits. Solana right now is actually kind of steep.

It's around 10%. Ethereum is near zero on the first month of contract. So like it's just there's no interest essentially. So I think like once momentum goes it's part of it. But I think a lot of it really did at least initially is like it wasn't an efficient market yet. So the hedge funds were able to provide capital and just to hedge out on a basically risk free basis and it was a nice trade. It is a nice trade when you can get it. >> [snorts] >> Yeah. Yeah, interesting. What what else has been going on? You you just you just rang off a bunch of other crypto ETFs have been launching there and I'm curious like it seems like the the appetite to at least launch these ETFs is is still existent. Um interesting to contrast that with the supply dynamic of of the amount coming

The Evolving ETF Landscape

on. But yeah, how are you how are you thinking about just the state of play of the broader crypto ETF landscape? Yeah, that's a really good point. I mean the first thing I would say is is if you look at the uh atmosphere and the way people are talking about this market is very different from when I'm talking to issuers and institutions in the space, right? They are still very bullish stablecoins. They're still very bullish tokenization. They're still very bullish like all these assets. And like it's it's it's weird it's this weird dichotomy. It's been like this for over a year now. I mean you've had other people on here. It's like you listen to people who have been in crypto for a long time and they you think like everything's over and it's awful. And then you talk to these tradfi It's just I guess you don't know which

protocols are actually going to benefit from all this or how much of they're actually going to benefit from it. Um as far as launches you were like there's so many filings. I I can't even keep up. I think there's a hundred and I'm looking at a hundred and sixty hundred seventy filings right now. Some of them have already launched like you mentioned XRP, Solana. We have a bunch that have launched. And they're doing pretty well. I mean the flows are not bad for Solana and XRP. They've I think XRP actually has inflows in aggregate. Um there's a bunch of ETFs that have launched. We have a whole bunch of other things. Sui just launched. So, these issuers, they're still going to launch these products because they spent time, effort, and energy building up the back-end systems to launch these things.

They already filed with the SEC. They went through the legal paperwork. They were always going to launch them. Something I wrote in December in my year-ahead outlook was like we're going to see well over 100 of these products come to market. They're going to be leveraged versions, you know, covered call writings so you can get income on the underlying. These all derivatives versions. You you name it. They're all going to come to market. Uh I think a lot of them are going to liquidate. So, my take in December before things started getting really bad was like we're going to see a lot of these things launch and then within 12 to 18 months we're going to see a huge wave of liquidation just cuz one if you get down the list of like the largest crypto assets and you get like to number 20, like can that really

survive with like four different ETFs relating to it and it's like there's no interest? Maybe if it shoots up that market cap list, but like for the most part the issuers that we we call a spaghetti cannon, right? They're just throwing these things at the wall seeing what sticks. They're doing it with single stock levered ETFs right now. They're going further down into the market cap spectrum launching mid-cap double 2x levered mid-cap stocks that like I've never heard of in many cases or whatever. So, um yeah, they're just launching things and they're going to continue to do that in crypto, too. Yeah, that's I was going to ask like how common is that for Like what's this churn of ETFs? Is that like common practice within the ETF industry? Is just, you know, spraying praying hope some sticks or how does it work really?

Um over the last few years that is definitely been the case. So, we went through this thing called the ETF rule which basically made it easier to launch ETFs. Uh kind of we went through a similar process with the the the crypto ETFs. I'm not sure if you or your listeners were paying too much attention, but like the SEC used to have go through and like approve these things, write up these huge long papers around why they were approving this asset for an ETF wrapper, and the SEC came in with this rule under Hester Peirce and Atkins and basically streamlined that process. That process was also streamlined for ETFs. Um and they did it for active ETFs. So, like that process made it one cheaper and easier and smoother to get these things to market. And so it made more sense to do that kind of spray and pray type

approach. Um and then now we have these things like I mentioned like the 2x levered single stocks and we have all these crypto assets where it might be worthwhile to launch something on an asset that's you know 25 on the top list of crypto market caps and if it like hits some stride or does something really well and hits a lot of momentum and you're the only issuer that has the ETF that you can get exposure to in the TradFi markets, like right place, right time. That has been sitting there for 12 months gathering no interest whatsoever and all of a sudden couple a hundred 200 million dollars flow into that thing and all of a sudden you're profitable and you make all the money that you've wasted letting that sit there. So there's kind of like this uh trade-off system you have to make when

you're launching these products and some people are being a lot more diligent. You look at BlackRock. They have only launched Bitcoin and they've only launched Ethereum. They're going to have two ETH and two Bitcoin ETFs. Um One is a premium income so writing cover call on Bitcoin. The other one is an ETH staking and the and the original one ETHA is already they're not going to do staking in it. So they're keeping very specific on what they're going to launch but these some of these other issuers are like oh we're going to launch Trump coin. We're going to launch a Melania coin ETF. Like we're going to do whatever we can kind of thing. Yeah. That's that's so crazy. It's it's interesting that yeah the contrast that with where the interest cuz to your point a bit earlier about the state of the industry is that

Onboarding Institutions & Tokenization

retail's just been absolutely smoked. Um a lot of these more long-tail crypto tokens have just been performing terribly for a while but at the same time you hear all this excitement from the institutional side about getting into crypto but I I I'd I'd love to hear a bit more about your thoughts on how that dichotomy is representing itself because you know there's all this talk from from the institutions about coming in but you know then when you actually look down at what they're actually doing it's things like that basis trade which is delta neutral or it's like these banks issuing their own stable coins and trying to you know harvest that those fees And he was like, it's things and actions that don't directly accrue value to these tokens that are being launched.

And I'm just curious how you think about that contrast. I I agree with 100% what you said. Like that the contrast is very hard to wrap your head around. But there are plenty of other things happening on the surface, under the surface, right? So there's there's a plenty of institutions that are leaning in pretty heavily. You look at Robinhood, you look at Fidelity, um you look at BlackRock. They're actually building on these chains and they're doing tokenized assets. There's a lot of like the fake tokenization stuff that's happening from these institutions. A lot of it is institutions like they've had small teams that were like paying attention to what's happening here, testing things out. And they're building out those teams. Like Frank Chaparro has been tweeting constantly about all these new TradFi firms that are hiring for people to do things like vaults and all this

different stuff. All those companies I just mentioned. So I think we're just still early is part of it. Um so and it's hard to know exactly where this is going to um coalesce, right? Um you have like networks that are they're you have plenty of people that are still kind of leaning on like private blockchains, which I hesitate to even call blockchains because like the whole point of it is that they're they're public and decentralized and and what have you. So um yeah, I'm I'm still optimistic that some of this stuff is going to work out. I just think it's it's one of those things where like humans in general like tend to overestimate what what's going to happen in the next, you know, 12 to 18 months and then underestimate what's going to happen over the next 5 to 10 years. Uh and I think that's what's

happening here. I think it's just going to take time. They're going to build these there's a lot of regulation specifically for these financial firms. Like they're not just going to do this immediately. But Schwab is going to turn on crypto trading directly soon. Um all these things are happening. A lot of these advisor networks, which we can talk about, too, and who who actually holds these ETFs, they're still like coming online. Like I talked to you two and a half years ago about like the eventually these advisor networks and and what brokers platforms are going to allow people to invest in these ETFs. I'm still hearing news about these platforms allowing them to come online now. Like there's still plenty of platforms out there where you can't just click buy on some of these ETFs. So, we're we're a long way out still. Yeah.

I think an interesting one I'm curious your take on is BlackRock is one institution where they've talked about actually like tokenizing a lot of their ETFs. What do you like break down the benefit and value proposition of doing something like that for like non-crypto-related ETFs as well. Um well, I mean one is 24/7 trading, taking ownership like directly of your own stuff, right? Um but I I think at the end of the day like there's the way they're going to work now, at least the the tokenization I'm hearing about in the ETF side is is like it's there's going to be a custodian that owns the actual ETF shares and there's going to be a tokenized version of it.

There's like this like kind of halfway halfway to doing this and there's a like a full-fledged way to doing it. But like the full-fledged way, you need like the underlying stocks to be tokenized themselves and you can do it like via vaults or automated smart contracts where like they're already out there just owning the underlying tokenized assets. We are so far from that happening. I mean, you can see notes from from Atkins and uh Selig over at the CFTC like they want to in like invite a lot of this stuff to start happening and testing it out on these different um platforms. The DTCC is bullish on doing these sorts of things, but again, this is like we're so early that like I don't know. I don't I I don't think it's going to move as fast. The other part of me is like some of it is

BlackRock and think they want to seem like they're ahead of the curve on a lot of this stuff and you know, they they really push the charge on ESG and some of that stuff and you really don't hear them talking about it anymore. So, part of me worries like they're talking about this tokenization side of things and eventually it's going to fall out of favor and they will just kind of stop talking about it. But I I actually don't think that's going to happen. That's like the the risk in my head. I I I really do think the benefit is like 24/7 leveraging, atomic settlement, all those things are the benefits that would happen and I think like the first way we're going to see this real tokenization stuff take hold is in tokenized treasuries and and dollars, which you're already seeing and using them for trading in platforms. You've

had plenty of people on your podcast to talk about the benefits from from doing those types of things. Um So, yeah. There's There's a whole bunch, but it's going to be a long time. Like Like even right now, it's it's such a small portion of the market. Um ETFs came out in 1993. In mid-2000, people were saying these are the future. ETFs are still smaller than mutual funds right now, right? So, they're not going to pass it for a long time. So, like even if we do get to a point where our tokenization really starts to take over, it might be a much small slower roll than people are thinking. How do you think about the access to ETFs from folks outside of the US, like the rest of the world? Like What is Do you If we get to a point where we can

Global Access To ETFs

tokenize ETFs, I imagine that unlocks a lot of availability of these highly sought-after US-denominated financial assets for for countries that have historically not been able to have access to those assets. Like How do you think about the landscape of that? Is that like a huge barrier still to a lot of countries, or is it pretty easy for them to get access to it? In the developed world, it's pretty easy to get access. Like every issue Like BlackRock is huge in Europe. BlackRock is huge in in Australia. Japan has plenty of ETF issuers, so does China. If you want exposure, for the most part, you can get it. There are caps and issues where like they won't allow Like in China, specifically, like there's things where those ETFs will trade at massive premiums because people want so much access to, you know, I don't know, the Mag 7, and like the the Chinese um

regulators don't allow you to like create more shares to get additional access. So, they trade at a premium cuz people just want exposure to it. Um but for the most part, like in the developed world, if you want to get exposure to it's large-cap tech in the US, like you can do it pretty easily. Um so, that said, obviously, in developing world, it's a whole different like getting even getting a bank account in some countries is pretty hard. And I guess, like theoretically, if you get everyone on chain, they can, you know, get exposure this way. But honestly, like I don't think that's like a That's really pie in the sky type stuff from from my point of view. So, I mean, there are benefits, right, of doing these things and tokenizing them and getting everything on one ledger theoretically.

Um but again, I just keep going back to like one, there's so many regulations that we have to fight through. Like there are reasons why certain ETFs like can't be traded outside the US or certain people can't hold them. Like there are there are regulations preventing those types of things. Uh and those all need to be sorted out, too, which I again, like it's going I think ultimately it'll be sorted. Um and right now the the administration at the CFTC and SEC is optimistic and bullish on like allowing these things to thrive. Um but we only have you know, three more years of them. Um not even so. Uh we'll see what happens after that. But and we we don't even have clarity right now in Congress, which our my colleagues in Bloomberg Intelligence down in DC are very optimistic. They have been. They never went below 60% odds, so that

should help some of this stuff. But there's still a lot of questions out here on the regulatory regulations side um that need to be sorted. Yeah, fair enough. So it's uh it's it's 13F season right now and and we're getting all those updates and I know you've been writing a bit about changes in ownership of these crypto ETFs and you know, we've seen those outflows as you mentioned. So walk us through yeah, like who's who's been selling? Who are the top holders? Where have you been seeing the changes? What's what's going on underneath the surface? Yeah, so for the first time, so this is data we just it just came it just got finalized this like within the last week of of our recording here. Um investment advisors actually sold. Um so in aggregate, they sold almost 22,000 Bitcoin uh in the fourth quarter. Which again, I

Top Holders & Sellers And AI Competition

was talking about like the basis trade potentially collapsing a little bit and we're seeing outflows. I don't know. That also contributed to hedge funds being huge sellers. So they're the biggest one and two holders on the 13F report. Um as of 3Q, we knew about 26, 27% of the holders were filers with the 13F. That number is now dropped as of the end of 2025 to 24%. So like we've seen these institutions actually drop their allocations. That's not saying everyone did. There's plenty of institutions that were first-time buyers. There's plenty of institutions that added to their allocation. Um a lot of the biggest holders are like people involved in market making and probably derivatives. So they're using these when you have a 13F like the only thing you can see is the long side of the trade.

So like we see who owns like a whole bunch of these ETFs, but like we don't know what the other side of the trade looks like. So like Jane Street, I'm pretty sure they're just not long like a few billion dollars worth worth of [laughter] worth of Bitcoin. They they are probably hedged. >> reading Michael Saylor and being like, "Oh my god, now I'm converted." [laughter] Yeah, yeah, yeah, exactly. So you see a lot of people on, you know, social media talking about this stuff like, "Oh my god, look who bought this." And it's like, "Yeah, this is the long side of the trade. We don't know. They could be net short even still if they're holding a couple hundred million." Um so yeah, the the the I would say that the biggest things that jumped out at me were it was net selling from 13F

providers and it was led by hedge funds and ETFs uh and brokerages actually um were the biggest net sellers. And that's not even including the huge drop-off we saw in January into Feb. Um so I'm I'm going to guess that these numbers are going to Well, we don't know what's going to happen for another month. So we'll get data from 331 a month and a half after that and we'll know then, but I'm right now I'm suspecting based on what we've seen with price and and outflows that we're going to see numbers drop again. Um so yeah, the new holders I would say they're This is something that's been all over social media. CoinDesk reported on it today. Uh Baurora Limited is like a Hong Kong entity that is bought like basically 437 million dollars worth of IBIT. Um so

there was a lot of conspiracies that I never really believe in that, but that's apparently it's just one person who's believes in it. Um so yeah, I can rattle off a bunch of the top names if you want, but it's just kind of a who's who of like Wall Street essentially. >> Yeah. Yeah, that No, I I I think we got a good idea. It's a Yeah, there's Do you have any line of sight into basically like crypto has had a monopoly for the past decade basically being the tip of the spear of speculative capital and there's this narrative emerging that now AI has just it's it's running laps around that basically. It's it's I think it's pretty clear it's taken over the being the tip of the spear of speculative capital. And do you do you see that in any sort of data either in

terms of like retail numbers or even institutional like everybody going all in on I don't know CoreWeave or or you know those tip of the spear names and coming out of something like I bet? Um not really. So I will say for the most part the So one I do see that the speculation talk. I mean there's no argument I think you're 100% correct. Like even you don't even have to like look at what's happening with prices. You can just look at what the media is talking about and what's being spoken about on on social media platforms and what have you. Like what you're saying is fact not even trying to figure it out. But I will say the ETFs for the most part like I said granted they've seen 9 billion in outflows but they had a peak of like 170 billion in assets.

Um right now they're around 100 billion. So like granted 9 billion outflows a lot but in the grand scheme of things it's not a lot. And for the most part people acquiring you know Ethereum ETS, Bitcoin ETS, Solana ETS, extra P ETS. From our point of view they know these things what we are what we would call the hot sauce bucket. So they're buying it. And these are like more long-term allocations. Obviously there's plenty of people trading and there are levered ETFs on these things that see tons of trading. Um but I think most people coming in kind of know if they're buying this asset it's like every four years it goes to 70% drawdown. And I think that's why like I said at the beginning like if you told me they would only see this much outflow I'd say that's pretty damn good.

Like compared to the rest of the crypto markets these ETFs are holding up exceptionally well. Now the trend doesn't look good right now because there's still like trickle outflows every single day that we look for the most part. Um but yeah that would that would be the flip side of what you said but for sure like if we look at what I'm looking at like I mentioned those two x single stock ETFs anything with an AI name is like flying tons of money being pushed around in there tons of volume. Um that is where all the interest is for certain. It's not even But the interesting This thing there is you and everyone knows like the biggest names that are going to be the most pure play you can't really get exposure to them.

Uh whether it's, you know, SpaceX now or Anthropic opening AI. I mean yesterday we're we're seeing issuers you were talking about spaghetti throwing spaghetti at the wall. I mean I'm seeing issuers filing for single stock ETFs that on stocks that haven't even IPO'd yet. Yesterday we had a filing for uh covered call exposure to SpaceX one for OpenAI and one for Anthropic. Like neither of them have IPO'd yet. I mean granted they're likely to IPO this year, but I mean the issuers are so far ahead of the game in looking at like what you're saying like AI is what people want and they're like we need to file so when these things IPO we can just get these things launched as soon as humanly possible. This episode is brought to you by Coinbase. If you're a long-term crypto holder but don't want to sell your Bitcoin or Ethereum,

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to learn more and get started today. Yeah. I think what's been especially crazy too is the trend of these these levered ETFs. It just seems like people are just going crazy for them these days. And it's like I've I've started to notice their impact on, you know, when they rebalance in the afternoon, it seems like they've been having a pretty substantial impact on the actual spot price or what have you. Like during during a couple months ago we saw, you know, the big surge in silver. And and and the rebalancing of like the silver levered ETF was like a very fundamental driver of the intraday price action.

Levered & Covered Call ETFs

Have you Have you been looking into that at all? So, I haven't, but I've seen other people talking about it. And like this this happens when when manias happen, like happened with silver and precious metals, like this this tends to happen. And like the biggest example is the the volatility VIX blow-up in February of Man, I don't even know. 2018, I want to say. >> yeah. Yeah, yeah, yeah. Like that was the tail wagging the dog. And that like people like to act like it that happens with ETFs all the time. And like it does happen. It happens with extreme manias, but it's like such a small portion of what these things do. Um but that said, it it definitely was happening with silver from what I saw. I would not be surprised. I mentioned the the issuers are launching 2x single stock ETFs on

like smaller and smaller names, right? So, there's tons There's like quantum stocks now that have 2x stocks on them that like if these 2x stocks 2x ETFs had launched, you know, I don't know, 8 months ago when quantum went down 40%. Like they'd be liquidated. These funds would not exist anymore. So, we're going to see another prediction we have this year is we're going to see some of these 2x stocks uh liquidate, whether it's because a name goes up 50% in like a 24-hour period or down because there's usually a 2x long and a 2x short version. Um so, we're going to see these things liquidate, and there are almost certainly going to be instances of exactly what you're talking about where you have tail wagging the dog type issues, whether it's because of derivatives or the leverage products.

You name it. It It happens. And it it kind of is what it is, and it's like one of those things where like I don't know. Is Should we stop these things from launching? Cuz obviously, people like them, and they want them, and like uh Yeah, it's it's it's There are a lot of filings for like 4x versions of like sector ETFs, and they keep issuers keep filing them. That's another thing I'm launching watching. They They filed for 4x Bitcoin and Ethereum, too. Um the SEC has stopped these every time they've been filed, but every There's like five or six issuers that keep filing these things. And we don't know what's going on. We think like A, they're just hoping this slips through or they think I don't know if they're probing some sort of like uh defense at the SEC or some rules around what would

allow them to launch, but I don't think if they should launch. Like if we get stuff with 4X Bitcoin, like it's just going to be all over the news that like this this ETF liquidated cuz Bitcoin went down 25% or you name it, any stock. It's just going to be bad for the ETFs and could be bad for the underlying asset. Um but, you know, if you want to use margin in your account, I guess you can get pretty pretty hefty margin exposure, too. It's just Yeah, it's interesting to see how far out on the curve these these ETFs are going and Yeah. these issuers are pushing. That's insane. Do you Have you modeled out or looked into any sort of risk associated with like you mentioned a couple times already these covered call ETFs, these ETFs where they're just writing options against their positions?

Is there Obviously, you know, they're covered, so it's not like selling an outright call or anything, but is there How do you think about any sort of risk that can come there cuz it seems like they're getting pretty popular, too. Yeah, I mean, I've heard Tyler on your on your roundups talk about some of the stuff and some of how like these ETFs are distur- disturbing the way like um the derivatives are distributed and priced. I mean, from my point of view, I haven't really dived into or dove into exactly how much of an impact it's having, but I mean, on the large names, like the ones that do um they own an index or they own underlying assets and write calls on a whole bunch of stuff, um I seriously doubt that's doing too much. When it's when we get to these single name covered call products, it's

where things can get wonky, particularly when these things get to, you know, billion dollars in assets. It's It's the the problem isn't how big these ETFs get. It's like how big the ETFs get and how big is the underlying market they're investing in. And when the underlying market is a single stock and you're writing options on top of them and like that's when things can get really wonky. Uh and the SEC is allowing these things to go through. Um I wouldn't be surprised if we see blowups on on that sort of thing as well uh at some point down the line because some of these single stock names, granted on Nvidia, which is you know, multi-trillion dollar market cap, so it's not a big deal, but they're like five plus billion dollars in assets on two x leverage stocks on there's covered call versions on them.

Um, you have uh, zero DTE options ETFs on single names. Like there's probably some really wonky stuff and if you're an active trader and you can figure out exactly when these things are rebalancing, trust me, the there's hedge funds out there that are doing this. I also tend to write about um, uh, index rebalances. Like what names are going to go in and get booted out and I can tell you all the big hedge funds have teams that like specialize in doing all this stuff. It's like it's own sub-industry. I actually I remember back in I think it was like just after April liberation day, but there was like a pod shop that kind of got smoked on the index rebalancing trade. Was that did you look into that? I did not look into that specifically, but um, I do write about every quarter. I'm getting ready

Index Inclusions & Rebalancing

to write about S&P 500 because they're going through it again. Yeah. In the next week or two, we'll we'll know who the who the names going in and going out. Um, but the S&P 500 is interesting because that's where you can get smoked on something like what you were talking about because it's a committee discretion. So if you think a name's going to go in and the the index committee decides not to even if it is like qualifies and everything, it's a really large name, you name it. It might not get in. But like something like Nasdaq is like very rules-based. Like they let if you meet the criteria, you're going in. So for example, MicroStrategy technically met the criteria the last two quarters, doesn't this coming quarter, but they didn't let it in because they had concerns around like exactly what it was. Is it more

like a closed-end fund? They don't tell you why they didn't let it in, but there was other names that were bigger that needed that had been waiting just as long. Um, so but Nasdaq got in because like it met the criteria, it was a certain size, it was a certain number on the list and it goes in. So like there's this there's two dichotomies, right? There's these indexes that are massive that are just like this is exactly the rules and this is what we're following and everyone thinks the S&P 500 is super passive, but like it's literally like a group of people that like decide what goes into these things and like the fun thing I like to point out to people is if you look at the S&P 500, obviously it's 500-ish names. Um they we there's like 20-something stocks out there right now

that are that qualify to go in and like well over 100 stocks that like if they were to go in the S&P they wouldn't qualify for the S&P 500 today, but they're already in there. So, there's plenty of names that can get booted, plenty of names that can go in. Um and obviously, there's a lot of crypto names that are going to IPO and have recently IPO'd and stuff like that that we'll be talking about like trying to figure out whether they're going to get in there. Yeah. Where where do those funds like how do they generate the alpha around that? Is this something similar to like a merger arb thing where there's a spread that represents the probability of them entering the index? Or how does how does it actually work? I I've never been on one of these teams, but I can tell you like it it's not always it so

it kind of depends like is it is it fully expected that this thing's going to get bought, right? And what weight is it going to go in? A really large name that isn't in there like when Tesla got added, like it's going to go in at such a large weight that like, you know, trillions of assets that track this index are going to have to buy billions of dollars of this one name. So, there's a lot of front running before it goes in. So, before it's announced and then there's front running after it's announced because you know, Vanguard's going to have to buy X amount and everybody else is going to have to buy X amount. And there's plenty of stuff like at the actual ETFs or funds or index funds, I should say, that are like trying to, you know, get ahead of this

and not get, you know, too too got by the the pod shops, if you will. But um it it it it's kind of hit or miss, too. Like there I look at some of these names and we're writing about them getting in and we think they're going to get in and they get announced and then like they cut they sell off until they get bought into the into the index. So, like I won't pretend to know exactly why that happens in some names and not in others. Uh some of it has I'm sure has to do with momentum. Um but it's not hit or miss just because you think it's going to get in, you buy it before the announcement. Like I'm telling you, there's plenty of names that like it gets announced it's going in and it pops slightly and then like tanks into before

it gets added to the index like a week or so later. Yeah. Um So, >> Many many such cases of that in finance. >> Yeah. Yeah, I'm not going to pretend to be the guy that knows exactly what's happening, but yeah, it's it can be as much an art as it is a science, I guess is what I would say. There's probably somebody way smarter that could answer exactly what you're asking. I'm sure there's so much that goes into it. Yeah, if you're if you're an index rebalancing pot shop guy and you're listening to this, send me a message. We'll get you on. >> Yeah, let me know. I'll guess cuz I have plenty of questions, too. Yeah, I'll join you.

>> you go. Um Before we hit record, we were talking a little bit about just the recent dispersion in markets and this these sector rotations. It's been crazy. Like I I personally feels like one of those times where I've been focusing in on sector ETFs most in a long time because you know, for years it's just been the passive bid into into tech passive, you know, buy QQQ and that sort of thing, but we've started to see some pretty significant rotations, whether it's caused by these, you know, AI risks into like software. We've seen software ETFs just get absolutely smoked.

Massive Dispersion & ETF Rotations

Curious how you're seeing that from the from the top level of these ETF rotations cuz it just seems crazy to me what's going on underneath the surface. >> mean, real quick on software, um I wrote about when it when it first started, like there's a huge correlation between Bitcoin and the software stocks, which plenty of other people have talked about. Um but the funny thing is like the software stocks like IGV that ETF, which everyone is talking about, which is like the US software names, that's what people are using to trade around this. One, its volume and everything is is through the absolute roof. The other side of it that I would say is that like it's getting bought. The dip is getting bought like crazy in that ETF. Like it's like there's billions flowing in. And but the dip is not really being bought

in in the the crypto ETFs for the most part. We're still seeing net outflows. Obviously, there are days where we see inflows and it's not all like horrible things, but for the most part, I would say the biggest dichotomy I saw on that side was the fact that the software stocks are getting bought. as far as the flows you were talking about, I I think there's this this So, we've seen tons of flows into these other sector names like other than tech. Um Um like record level flows. I don't have them in front of me, but these other sectors look pretty damn good as if you look at the um the ETF breakdown. And what I think is happening, I mean I'm not the first person to say this, but it's a lot of these of money maybe not necessarily flowing out, but they're not buying, you

know, big tech back seven anymore and they're but they're diversifying. So we're seeing it in international international stocks, uh emerging markets. Obviously, there's a huge theory out there I know you guys subscribe to that Trump wants a weaker dollar, which is obviously good for international stocks. So it's not just the sector side of things, it's also international um stocks are doing very well, too. Um so Yeah, I I think and what and when you get that and you see money leaving or just not going into tech like a billion into tech is a lot less impactful than a billion into industrials or consumer staples and it's showing up in the PE multiples in some of the names in these sectors, uh which is very interesting to see. I mean, some of it you could argue maybe

it was a re-rating from like uh the people expecting the tariffs to get shot down and things along those lines, but no matter how you slice it, it looks like people are diversifying away from big tech whether they're worried about the cap ex spending. Um but I honestly, I think it's a good thing. I mean, it's a broadening out of the market. I mean, people are talking about like it's the end of the world and we're I don't know how far away from all-time highs right now. Um I don't know. Yeah. It's uh I feel like people also though underestimate just the contrast in size of like what you were saying there. A billion dollars into tech, you know, barely that's just another day, but like a billion dollars into I don't industrials, the XLI ETF has just been like ripping recently and you know, nobody owns that and you put a

billion dollars in there and it's starting to make a dent. It's crazy. Yeah, I mean, here I'll give you the the largest sector inflows for equity ETFs in the first quarter of 2026. You want I'll give you a guess. Guess what the top three are. And I'll tell you what Sorry, of of inflows? Of inflows by sector. Sector ETFs, like with ETFs with a specific sector focus. What sector has the most in that top What is one, two, and three? I'm going to say consumer staples, industrials, and metals. Close. Metals isn't one of them. I think they would go under materials, but I'll give you materials. Materials is number two. Number one is energy.

Number two is materials, and number three is industrials. Boom. Um so, uh I I mean, I was a little surprised that utilities are so low, but I think that's because it's kind of related to the AI trade. And then number four is thematic. Um so, like some sort of thematic names. And if you look at thematic, like the biggest names are like uh natural resources and things like that. So, it's like basically buying big name cash flowing hard asset type stuff. So, the trend is showing up in ETFs, too. Um it's not just showing up in the the price performance. And I'm sure we I mean, there's 100% names that are getting, you know, baby thrown out with the bathwater type stuff. I'm not smart enough to know what those are, but I mean, honestly, if you're an active manager, like this is the type of

environment you should be like praying for because things are getting sold and bought indiscriminately in these baskets. And there's almost I mean, I'm not going to sit here and say every name in software is going to be fine, but I there's probably plenty that will and plenty that won't. And if you can like pick that dispersion, like this is exactly what you want to be doing as an active manager, uh which I'm not. And you're seeing it a dispersion and broadening out here across sectors, as we spoke about. So, I don't know. I I think it's a healthy thing. I mean, it's very exciting for markets. Like as somebody who who's been covering markets now for over 10 years, like the last year and a half has been kind of insane uh to say the least.

>> it's so cool. Like there's so much to look into right now. Like I'm, you know, when I'm looking at it, like what's going on with uranium? Then I'm looking at like, yeah, industrials, like, you know, we're not just all buying It's not just all one trade anymore, right? Like we spent a decade where it's like, you know, the TINA, right? Like there's no alternative. You just buy mega cap tech and you sit. And if you do anything else, you underperform. Like it's it's great. I I think it's awesome. That's one of the reasons I love being an ETF analyst. Obviously, a a lot of the last few years and I've spent a lot of time specializing in crypto, but I do a lot of stuff with like the alternative stuff, the alternative ETFs. Um anything that's kind of out of the ordinary uh is where I found a niche

like explaining what's going on. And one of the reasons I love is cuz I can be kind of mile wide inch deep. And then when I really need to on a certain thing like crypto, like some of these other things, uh I can worry about going mile deep uh on those. But for the most part like we're looking at ETFs and what's going on in the market and it's like every sector, every theme, everything you can think of has an ETF. So we can always, you know, try to try to look into what's going on and whether it's what issuers are launching, where money is going, where money is leaving, all those things. So that's why, you know, I love I love my job. Uh which is I guess is a nice thing to say.

Private Credit & Equity

>> Well, well, to that point about going a mile wide, I think one last interesting sector to talk about, I don't know if you've been looking into it much, but it's just around the the private credit side and what's been going on there. And you know, some people speculate that it's just the the same it's just a mirrored version of what's going on in software, but I'm curious if you look into that much and just this trend of of yeah, these these private credit pieces that have just been struggling really lately. Yeah, I mean the I mean the they're I mean you're a software company, you have stable margins, low CAPEX, and you just kind of like add money on and like that looks stable cash flows look really good if you're trying to be to lend money to somebody. And if that is potentially going to be disrupted,

whether it's 5 years from now or whatever, couple years from now, that is almost certainly what's happening with private credit. I would say um related to all this is like there's a lot of push from different issuers and honestly from investors to take private assets, whether it's private equity, private credit, and put them into the ETF wrapper, which is something we've been talking about a lot on our team. Um so there's a lot of put like XOVRI is an ETF that has exposure to SpaceX via an SPV. And it like had like a I don't know, a 10% allocation, but so much money has come in that the allocation has gone down, but people are still buying it to get exposure to SpaceX, mostly, I'm we're guessing.

Uh and like it's such a small portion of the portfolio. And the problem is like people want um the exposure to these things, private credit, private equity, in ETF wrapper, but it it doesn't fit that well, particularly if something just doesn't trade. Um I will say the ETF wrapper for the most part, even if they do get these things in, there's limits on how much it can have. So, theoretically, you can only have 15% of an illiquid investment in an ETF. Ron Baron has actually broken that because he's basically calling SpaceX stock now less liquid rather than illiquid, which is like you can self-certify what it is, which is fascinating. So, that's another area we're watching. Um but yeah, I mean, at the end of the day, people are going to try to push a lot of different things in the ETF wrapper. I

would argue that private credit and private equity and things like that belong better in something like a closed-end fund structure or an interval fund. Um it's just that investors don't want them. They tend to have higher fees, you're locked up, which you probably should be if you're investing in these types of assets. Um my boss we argue all the time cuz he's like, "Well, just let them put in the ETF. Like, it'll trade at a discount and then people at least can sell if they want to sell." And I'm like, "Maybe if you're buying these things, you shouldn't be allowed to sell on like, you know, 2:00 p.m. on a Tuesday because you're on a whim." But um that is one of the benefits of the ETFs, right? So, even if you're holding something, like when Egypt closed as the economy during the Arab Spring or Greek during the

Greek financial crisis, uh there was an ETF to track those things. And like, it traded every day, the NAV didn't move cuz there was no underlying strike price. In both cases, Egypt and Greek that we have to look at, were closed like the underlying market was closed for a long time. And then like you look at the NAV, it's just flat, and the price of the stock uh the ETF was moving. And all of a sudden the stock opens and then the they're like in line. Like, the price of the underlying assets open in line with what the ETFs were holding. So, the ETFs are very good at like price discovering and figuring things out. So, even if they look at their trading a huge discount, it's probably a reason for it. Another example is like the high yield muni market and during COVID, I mean, the ETF

was trading at a 30% discount and people were like, "It's broken." But, like you talk to anyone at a high yield muni trading desk when people were like worried about these these, you know, small markets going out of business. It was just no bid, no bid, no bid. So, there was like literally no trading happening. So, the NAV wasn't moving, but everyone who was trading these things was like, "Yeah, I'm not touching this for anything less than, you know, a 30% hair clip." Um so, it's a good it's a good market. Uh it's interesting. Private assets is huge um going forward, but I I don't know. I don't know if they belong in these ETFs >> like regardless, we need to figure this out as like how do we take these illiquid things that get marked every quarter into something that's liquid and traded every day because like more and

more the trend is of companies that stay private for much longer and you know, we see this right now with like Anthropic. You know, everybody everybody wants to own Anthropic to the point where I've seen people go out and buy Zoom as a stock because they own a bit of Anthropic. >> Yeah. It's like crazy. Like people are going for anything. Yeah. I mean, it's it's it's wild. I I was going to say something right right before you said that and I'm blanking on what I was where I was going to go with that. Um shoot. It was a really good point. >> Uh it's all right. We'll move on. If I if I think >> it's lost to the void. Yeah, yeah, yeah.

Final Thoughts

I'm going to think of it as soon as we stop recording here, but um Well, just have to get you on again or people have to go to DAS Yes. where they'll hear you and then you'll you'll hopefully remind remember it by then, but uh Yeah, man. James, always great to have you on the show. Um appreciate just you know, getting the state of play of everything. Like there's just so much interesting stuff right now going on. It's it's really cool to just I it must be such a cool position you're in looking at all these different ETF landscapes and being able to dive in where where things are happening for sure. Yeah, it's fun and I'm a huge fan of you guys. I listen to uh most of these and I listen pretty much every week to you coin and Tyler or whoever's on that week. So keep up the

good work guys. Awesome. Thanks James. Well, yeah, always great to have you on and all the best. Yep, see you next month.