I'm Akshatrati and this summer on my podcast Zero, I'm doing a series about climate storytelling,
how we talk about climate change and what it means for how we confront it. This week,
I'm interviewing Dorothy Fortenberry, executive producer of Extrapolations and Apple TV climate show.
All of the current shows on TV that are taking place right now that don't portray climate change,
those are the science fiction shows. Listen to Zero on the iHard Radio app or wherever you get your
podcast. Hello and welcome to What Goes Up, a weekly markets podcast. My name is Mike Regan,
I'm a senior editor at Bloomberg. And I'm Valdana Hireg across acid reported with Bloomberg.
And this week on the show, well, cryptocurrency efficiency and autos have been
pining for a Bitcoin ETF for a long time now. But as application after application was filed with
US regulators, well, the regulators have refused to give the green light amid worries about fraud and
market manipulation and really all the other things that come up when you talk about the
thorny subject of cryptocurrencies. But then BlackRock dropped their application and many think
that's the game changer. Since after all, this is the biggest ETF issue we're in the world.
So are we finally going to see a Bitcoin ETF? We'll get into it with two expert guests. But first,
Valdana, I would remark, this is also our latest crossover episode. It is. This is like. The last
one was a great success. Was it? I think so. Yeah. You don't think so? I'm going to tell Joan Tracer that
you said that. I thought it was a great success. It was great success. This will be an even greater
successor. Well, the two guests we have on this week, they're from Bloomberg Intelligence. We know
both of them really well. And I told them, you and I are going to basically drill them. This is
going to be a tough episode for them. Oh, yeah. No fun. No jokes. Like very serious. No jokes.
All right. Well, we do have to get a cheat state recommendation because we have a Philly guy.
We do have a Philly guy. And another New Jersey guy. Yeah. That's a lot of Jersey in that.
Oh my gosh. It's so great. Well, we should probably introduce them. We'll get a pork roll
recommendation to them. Pork roll. Well, don't offend some people. Teller him. Some people say
teller him. Yeah, I think it's pork roll. It's pork roll. This is good. We're already stirring
conspiracy or controversy. Yeah. Yeah. But I want to I want to introduce our guests. It's Eric
Bell Tunis from Bloomberg Intelligence and James Seifert. Also from Bloomberg Intelligence. They
are great, great ETF experts. I've known them for years. And thank you guys for joining us.
Yeah. Thanks for having me. I'm happy to be here. Great to be here. Big fan.
I love the Tracy and Joe. I'd lots crossover. And I also like was driving to Philly one night
when I was listening to your episode with Katie. And she said she's never had she
stayed never once. And I almost had to pull over. I was like, well, I don't understand.
Now somebody could go to school. Yeah, Katie Grayfield. Yeah, Katie Grayfield. I can see that.
Never. But all right. So first things first, Eric, what's your what's your cheat state recommendation
in Philly? So I'm not a Philly native, right? So I don't really care that much about
cheesesteaks. But I'll take somebody to Geno's or Pats. They're equally good to me. I just don't
I'm not a connoisseur. I don't know which ones are they're all pretty good. Yeah.
John's is the one a lot of people will I'm sorry. Is it Jim's or John's on South Street?
Oh my god. Jim's Jim. Do you live there? John's is the robust roast roast pork
imploring. This is like a New Yorker not knowing like Broadway show to go to. Okay. But the
Jim's has a line usually going around the block. But I'm not waiting in the line for a cheesesteak.
And you know what exactly the thing is you are a true Philly guy then. I have this other thing
which is like I have a limited amount of calories as I get older. My metabolism is lower.
And I don't know if I want to spend that big of a calorie intake on a cheesesteak. Sometimes
I'd rather have like Mexican food or I go to Chick-fil-A out with my kids. Like I just I don't
know. Cheesesteaks never really come up that much for me. This is not the answer I was expecting.
That's fair. Now you expected more enthusiasm. Yeah. How long have you been living in Philly?
18 years? Yeah. Come on. I mean I eat them. Like I went to the Eagles game the practice they had
at the link last Sunday. How nice. And I went to get food and I got a cheesesteak. And it was
delicious. I think it was from Chicky and Peats. Yeah. Yeah. And it was good. But I wasn't like oh
this is only like an eight out of 10 and the one at Jim's. I don't do that. They're all pretty good.
All right. We got a transition to the subject to the subject that we'll get Eric excited here.
Bitcoin ETFs. Bitcoin ETFs. So I guess my first question is BlackRock files their application.
Everyone assumes they know something. Is that fair? Maybe they know something but you know BlackRock
is the biggest asset manager in the world. Larry Fink is very well connected. A lot of people who
worked in the government now work there in vice versa. They helped the Fed by ETFs in 2020 when
the market needed liquidity. So BlackRock has more of a reputation than just being like an ETF
issue. Right. So when they filed it was a whole different ballgame in my opinion because it's
even if they don't know anything or don't have any like I don't know wink nod from the SEC
that's going to happen. The fact is they are generally like to bring a gun to a knife fight.
This is a firm who doesn't like to lose who knows what they're doing. And they must see something.
They have to have had I'm sure they had multiple meetings. They went over all the stuff that we know
which is Gensers said no this that and the other fraud manipulation. And they said to themselves
nope this makes sense. That is what is the difference maker. Could part of it be that all this
enforcement action we've seen this year has not been targeted at Bitcoin. It seems like the SEC
is kind of letting Bitcoin do its thing. Do you think that plays into the rational?
So that's part of our argument for why we've publicly stated we thought there was a 65% chance
that these spot Bitcoin ETFs are going to get approved. The SEC is going after everything
else. They're going after all the alt coins, these weird institutional sales, the ICOs,
these different things. They're not really doing anything with Bitcoin. If you look at Gary
Gensler, any of his speeches that he's given testimonies in front of Congress, he says the only
thing I will say that's not a security publicly or the one I'll name is Bitcoin. So he puts it on a
pedestal on its own. And there's some recent inclinations that we're getting that they might be
kind of like Bitcoin, obviously tier one on its own, not a security. It seems like there might be
pushing a theorem a little bit closer to that than we initially thought. But everything else for
the most part based on the lawsuit against Coinbase itself, Binance, all these other things. They are
not done going after those things, but there might be kind of a bit of a changing of the guard
as far as Bitcoin goes and maybe a little bit of Ethereum too. Okay, James, can we just take a step
back and maybe you can lay out the field? What does the actual race and the competition look like?
We have a ton of issues applying for spot Bitcoin ETFs. Who is part of this race and how did we
see all of this play out over the last two months or so? If we start, we have to go back to
Arc, Kathy Woods Arc, and 21 shares, which is an ETF issue in Europe that has launched a bunch
of crypto ETFs. They refiled for their spot Bitcoin ETF application back in April. Yeah, April
of this year. I think it was April 25th. Yeah, that's pretty good. You've been covering this
pretty well. So they were the only one that was active when BlackRock dropped their filing on June
15th. And they were almost certainly active because another player that is technically, they don't
have a 19 before a filed, which is what you file for a rule change. In this case, the rule change
to launch a Bitcoin ETF is grayscale. Grayscale launched and owns GBTC, which is the grayscale
Bitcoin trust, billions of dollars in there. It's not an ETF. It doesn't trade like an ETF. There are
a lot of inefficiencies there. They are suing the SEC trying to convert GBTC to an ETF.
That decision is due sometime in the next couple of weeks, potentially months, but it should be in
the next few weeks that we should get a decision on that grayscale ruling. So grayscale is the other
key player here. Then you have BlackRock entering. Then we have Bitwise, Vanneck, Wisdom Tree,
Invesco, who's partnered with Galaxy. Galaxy is Mike Novogratz's crypto company. Then you have
Fidelity, Valkyrie, and GlobalX, all that have applied for a spot Bitcoin ETF. So those are all
like huge names in the ETF space, asset management space. This is not like nobody's trying to launch
these things. So what is that eight or nine total? It's 10 total. 10 total. It's just filed
last week actually. So is there enough demand to rationalize 10 Bitcoin ETFs? Are some of these,
do you think they're the polar plans of BlackRock gets approved? Like how do you see a chicken out?
Well, let's let's assume they all get out around the same day. They'll all try. This is where I
just sort of note saying that if they approve or let out multiple ones on the same day,
we're going to see ETF marketing like you've never seen before because they all do the same thing.
So marketing is going to be a massive variable here. BlackRock has a big advantage because of
their name and their distribution. But you know, like ARK and 21 shares are known a little more
within the crypto community. That could help. So same with Novogratz and Galaxy with Invesco.
GlobalX, they all have their customers and clients. So I think though it's a winner take
most market. One of them is going to be the GLD. Let's just say BlackRock is out in the same day
and it becomes like the GLD. GLD is the goal, the prominent gold ETF for those. Yeah. And GLD,
even though there's been cheaper ones and much cheaper ones actually, GLD still commands a lot of
assets and a lot of volume. And there's a lot of eat traders and institutions who will look over
of a more expensive ETF because of the liquidity. So if you're the most liquid one, it's perfect because
you have pricing power. You don't have to worry about getting sort of undercut on fees.
It's the next one is probably going to be the cheap one and they're going to maybe get their assets
from advisors. Then there'll be ones that might, I don't know, write options on top of it. There
might be one that comes out and adds ether into it. There'll be a whole set of creative products that
try to do something different. But for the nine or ten that come out that are just Bitcoin,
I would say, you know, to get James's take two, I would say one will be the superstar and there'll
be like two or three other ones that are able to carve out enough of a niche to make it onto like,
you know, the next couple years. Yeah. Some of the niches I'm thinking about is like one of
some of them are going to say, we will absolutely not lend out your Bitcoin, but other will be like,
we'll lend out your Bitcoin and give you dividends and returns, which will scare plenty of people
away. But other people will like, oh, if they're doing it smartly, I would love to get that
additional return. You can like, there's ETFs out there where you can deliver gold to your doorstep.
If you have enough ETF shares, it's a lot easier to deliver Bitcoin to somebody's Bitcoin
wallet than its gold. So I think they'll figure that out too. So there'll be different ways that
people try to differentiate, but I'm with Eric. It's going to be one at the top and then a handful
of others, like he said, winner take most. It's the way it's going to play out.
Vildona, I would make sure I was at home if they delivered gold to my doorstep.
I really hope so. Yeah. You don't want to leave it out.
The UPS guy doesn't want your gold anyway. He makes a lot of money in his car.
I mean, honestly, I've had like really low budget random stuff stolen off my doorstep
from people in the Amazon delivery. Gold would be the best. These guys would be like,
oh, my God, you need to hit the jackpot. I thought it was going to get a toothbrush or something.
I got gold. Okay. James, can we talk about what actually might happen with the approval process
because there's a lot of, I guess, questions around this. Like, is it the case that we would see
all of them go at the same time? Is that something the SEC would want? Or is there an advantage
to having filed earlier than the rest? Historically, the way it works is if you file first,
you go out first, right? That's the way it has worked historically. If you look at Bitto,
which is the Bitcoin futures ETF that launched, that is a slightly different process than the 19
before that we're doing talking about the spot Bitcoin ETFs. But it launched first a couple days
early because they filed first and it commands the market. It's 98, 99% of the volume, 95, 96% of
the assets. The SEC got a lot of flack for basically being a kingmaker. We've got from conversations
we're hearing with other people that are having with the SEC. They probably don't want to be a
kingmaker. There's been a lot of firms that spend a ton of money on legal and all these different
things filing for these ETFs. I mean, the Winklevalls filed for this thing for the first time 10 years
ago at this point. There's been a lot of people putting a lot of time, money, and effort. Maybe they
shouldn't take that into account. But really, the cleanest way to do this would be to allow
all of them to go at the same time. Theoretically, we do really do think if they approve,
it's going to be multiple at least if not all at the same time. So there's good thesis to
that's what they'll do. Theoretically, though, the way it should work is there's all these approvals
in delay or denied deadlines. And usually they just wait till 240 days and then they approve or
deny, right? The average time is like 220 something days. So for the most part, they take the full
time and then they approve. But as Eric had said, and he can get into a little bit more, this is
like a completely different situation. We have the gray scale lawsuit against the SEC,
which we're expecting decision on. So we're waiting for that decision. Obviously,
if gray scale loses, it changes our odds. All of a sudden, we're probably not at 65%. But we
think gray scale is likely to win this, right? So the timeline is weird. Is there going to be
some day after that decision comes down where they just, the SEC says, all right, they have 45 days
to do what's called an on-bond curing, which basically just means they'll, rather than a panel
three judges in the gray scale, they'll include all 16 or 17 judges on the DC circuit court of
appeals. And they all come back and be like, did these judges do this right essentially? So it
just be a little bit more time. But assuming the SEC doesn't do that, there's going to be some
language in the opinion that says what the SEC needs to do. And there'll be some time where the
SEC either needs to deny gray scale again for different reasons or approve it. And this brings up
the sort of thesis and it's not been confirmed at all. But this is, I've many people have come
with this possible thesis, which is why BlackRock filed. Somehow BlackRock thought, okay,
we're going to file. And what they did that was novel is they included a surveillance sharing
agreement with Coinbase, not even Arc had that. So this was a novel situation. And NASDAQ too
wasn't involved. So there was some novelty to their filing. Yet the thesis is that, well, BlackRock
filed because then if the SEC loses to gray scale, the SEC can save face by saying, well, we were
waiting for an SSA with Coinbase. BlackRock provided that. Therefore, we're going to let them out.
That's why we didn't let you out. And they'll let BlackRock out first and just sort of maybe
delay in court with gray scale to not let them convert just to sort of screw them over for
suing them. So you save face and sort of get back at this company that sued you. This is one of the
thesises on why BlackRock filed. Then Gensler gets to say, not only did I do that, but I, as I look
at regulating crypto, I'm getting no help from Congress. So at least I got Coinbase to clean up
in order to me to say yes to this. And I left it with the adults, BlackRock. He can almost turn
that into a win regulatory wise. So you could see this is again, all thesis, but you could see how
that kind of makes political and practical sense and explains why BlackRock would have filed.
I thesis her a little bit of conspiracy theory. Oh, yeah, no, I don't change all the time.
conspiracy thesis. We'll call it. You ever see the movie JFK? Yeah. Yeah. I feel like Jim
Garrison. It's easy to say they're not going to prove it. That's Lee Harvey Oswald act alone.
But then you start to see all this stuff. And you're like, what's real? What's a red herring the
circumstantial evidence that he didn't is so compelling and interesting. And that's sort of what this is like.
I'm Akshatrati and this summer on my podcast zero, I'm doing a series about climate storytelling.
How we talk about climate change and what it means for how we confront it. This week,
I'm interviewing Dorothy Fortenberry, executive producer of extrapolations and Apple TV climate show.
All of the current shows on TV that are taking place right now that don't portray climate change,
those are the science fiction shows. Listen to zero on the iHeart Radio app or wherever you get
your podcasts. But talk about the surveillance sharing agreement and how important it was,
because then all of the issues that had also filed for a public community have had to go in and
add surveillance sharing agreements, right? Yeah. So all the denials, I said, the Winklevall
supplied 10 years ago, right? And every denial has basically said they want it. And I'm going to
inputting quotes, a surveillance sharing agreement with a market of significant size.
So the question is, what is a regulated market? Which isn't, it sounds like, yeah, I know what it is,
but there's no, the SEC has refused to exactly define what that is because they like to have a
little wiggle room. And they also haven't defined what a market of significant size is, right? So
they will do things to back into whatever decision is made from above. So if Gary Gensler and the
politicians that he worked with and reports to decide they want to approve this, they'll figure
out a way to do it and meet those requirements. So if we look at the Bitcoin futures ETFs that
went through this 19 before process, the SEC approved it by saying it met those metrics because
the CME Bitcoin futures market was the only market for the CME Bitcoin futures ETFs. So therefore,
it's a regulated market of significant size, which is just like weird to back into, right? So
the argument here for Coinbase is, are they a market of significant size? If you just look at
Bitcoin trading volume, they probably aren't because, because Binance makes up 60% of the global
trading volume. But if you look at just US trading, Coinbase is a dominant player. And if you look at
US dollar trading specifically, they are by far and away the dominant player because all of Binance
is stuff is with stable coins and all these other things. So the SSA, the question is, is the SSA
a market of significant size? I think I could easily make the argument that it is specifically for US
dollars, but it's not a regulated market under what you would normally consider to be a regulated
market. But again, Bitcoin isn't a security. So it's not going to trade on a regular regulated SEC
exchange. Yeah. And a lot of this wasn't really put on gold when it launched. Gold is the same thing.
It's like a commodity. This is an unusually high bar in my opinion versus when gold came out.
And that's what a lot of people are arguing. And this leads me to this whole idea of just like,
he's just not that into you, you know, that movie. Again, so just doesn't like crypto. And that's
just the way it is. And so we also, in our calculus factor in the political angle. And will this become
politically untenable for Gensler? Because there are some democratic congressmen who are actually
moving over and sort of becoming more pro crypto. And if he sort of feels it from them, and now he's
going to, if he loses great scale, it's more egg on the face because they just lost another
lawsuit on these spikes, future things. It's possible. He's in he's in a position where it's
the politically right move. And then they're going to make up whatever legal language to fit that,
they, they want anyway. So our thesis is that the, the language they use is you can change it.
Yeah. They'll just make it work if they want to do it. But he made some comment on Bloomberg TV
to the point of, hey, I'm only one vote on the commission that that yeah, little on me. I'm just,
yeah, we thought that was interesting. He'd never spoke like that before. He said, I'm just one
of five commissioners when Kayleigh asked him about the Bitcoin ETF. And that's interesting because
when the last one was denied, three said denial, but two dissented and said you should have approved
it. So it's three, two. So if one defects, he has, he's in trouble. Now we, again, we hear from our
legal analysts and regulatory analysts that that just wouldn't happen because that would be like
defecting from your own party. But again, as I said before, there's democratic congressmen who are
moving over that the political lines are, yeah, it's not clear. No ink, you know,
they're, but let me, I got to play the role here of the cranky old traditional finance guy with
rumor, which let's be honest, it's not a stretch for me, right? But, you know, in Valdon and I,
we talked to a lot of, you know, traditional asset fund managers, RIAs, you know, the old school,
the old guard. I don't see a lot of them pounding their fists on the table saying, I'm dying to
get my customers, my clients into Bitcoin. But only if there were an ETF, you know, to me, it's like,
okay, I get the whole notion that, okay, people with clients like that are going to be more comfortable
on a regulated exchange with a regulated product. But when you boil it down to, I don't want you
putting your money into Queen base, put it into this ETF where the Bitcoin is custodyed by
Queen base. I don't know, like, how big is the demand there? How big, like, how much in assets
are we talking about that we expect to go into these ETFs? Should they be approved?
All right, let me take first swing of that. Games can clean up anything I miss. The financial
advisors in America have about 30 trillion in assets. It's a big amount. So even if like 0.4%
of all of those portfolios or a portion of them go into this, that's $150 billion. That's how
much gold ETFs have. So that's kind of where we're at 0.5%. Some will never use it. But there could
be some that use 2, 3, 4%. The other thing you have to know is advisors are scared about this transfer
of wealth from the boomers who are 80, 90 years old almost. And they're going to transfer it down to
their millennials, genexors like me and even the generation below. And the boomers are going to want
to, I mean, the advisors are going to want to look a hip and cool to what the younger people want.
And I believe some of those young people are going to want exposure to this in terms of just
as a FOMO trade or a store of value. So we do think there's probably some market for it.
When you look at other countries like in Canada, that percentages are about the same. So I think
a Bitcoin ETF, again, it won't be that big of a deal. But if we're talking $150 billion,
that's a pretty big chunk of what total Bitcoin market cap is. So it will be a bridge, though,
to all of the boomer money and they have all the money.
Yeah. So you think even an advisor who's maybe skeptical personally about crypto will have to
react to the client demands and say, look, if you're going to do it, I'd prefer you to be in an ETF
than a separate crypto. Well, there's two things here, right? So I've talked to plenty of
advisors who have clients that they don't offer their advisors, they don't really offer crypto
specifically. So for years, there's been platforms where like we'll tie into your platform,
you can pay an enterprise license and we'll get you access to Coinbase custody. But really,
for the most part, advisors don't want to deal with that. I'm sure you've met plenty of advisors,
they are more like salespeople, some many of them. So what they would prefer is for those assets
to be under their umbrella, right? They charge 1% on their assets or whatever have you. So if a client
comes to them and says, I want crypto in my portfolio or I want Bitcoin, figure out how much I
should have. Maybe it's one, two, three, there's plenty of studies that show out there that'll increase
your sharp ratio helps returns the decreases volatility ironically. So there's different
reasons why you would hold it. But telling them to hold it on Coinbase on their own account,
that's not under my 1% fee, right? If I'm an advisor, I can, the ETF is click and buy,
I can hold it, I don't have to worry about custody, I don't have to set up other pipes,
and I get it under my umbrella. I get the greed motivation more than the other, the other
explanation. You're turning my into a believer. One other thing, if you're trading on Coinbase,
you get charged not nothing. I mean, I know we debate this all the time, but you can
be charged as much as 150 basis points for trade. Three percent. A Bitcoin ETF will be one
basis point. Really that low, you think? Well, all ETFs, like if you take trading, he's still
trading, not a feds ratio, not a feds bread, right? Right, right. What kind of expense ratio would
you think? So I think they're probably going to, this is my, I think 70, 75 will be the opening bid
by the Black Rocks and Arks, but then someone's going to Vanguard the category with like a 30 basis
point. Not Vanguard, not Vanguard. No, I, I, it, well, I wrote a note saying that the end game here
is a 15 basis point Vanguard multi crypto basket ETF in 10 years. Vanguard laughed at me, said
that'll never happen. But if they're saying even Vanguard is starting an advisory, they started
one, they're having an advisory platform, they manage people's wealth, that got them into private
equity. That's a very unbogly in area two. If you're managing somebody's assets, you kind of have
to have access to everything. So I think Vanguard could be pushed to do it themselves if they don't
like anything on the market. It's a long shot, but I think Black Rock and some of the firms are
also going to just like Vanguard the category, even without Vanguard, they've got the scale to
totally. And your ETF has a long tradition of when they bust down a new asset class, you know,
the products come in at a fee like, you know, maybe 50, 60, but within five years, you know,
usually there's a super liquid one that's affordable. So think about it. If you're an advisor, ETF
has all the plumbing that works for you. And it's going to charge you say 50 bips and it charges
one basis point to trade. The one basis point to trade is also going to attract institutions.
Some institutions really like GLD because they just don't want to deal with gold. No one
wants to deal with Coinbase. So I think if the liquid ETF here will also attract pensions,
endowments, foundations, traders, maybe not again to this mass. It's not going to be like a mass
surge. But on the edges, some of these bigger fish are going to appreciate anonymously trading
whenever they want. Go long short. This one basis point traded exposure to Bitcoin.
I wonder, you know, so Bitcoin's been stuck in a price range little above 30,000,
little below it for a few months now. It did get a pop when BlackRock filed. Are these approvals
in the price, do you think? I think the, so I would, you would be dumb to argue that the
potential approval is not in the price. You can go back to the BlackRock filing and all those
things. It was part of the reason why the price ran up. I don't, so I think no matter how you look
at it, right? If we get to January, so that we were talking about deadlines, right? So I said
some deadline after the Grayscale decision, we could see some approvals happening. But ultimately,
we're going to see full denials, at least by January 10th, if that's what's happening. We don't
see some of these other ones. The SEC denying arcs and then approving BlackRock in March. It's
possible, but I think it's somewhat unlikely. So we get to March and they're not approved. That's
definitively bad for demand and price. But approval, I would, it's hard to say, right? So we talk
of Grayscale. They have 633,000 Bitcoin, something like that. They've three over 3% of the supply.
So all of a sudden, if GBC can convert to an ETF, it's trading at a massive discount,
25% is right now. All of a sudden, that Bitcoin is open to go on the market. Right now it's
been locked up. No one can touch that Bitcoin. So it's not as clean as all of a sudden ETF launches
and billions of billions are going to run in and the price is going to go up. There's a lot of
other things that can happen. If you look at Bitcoin futures ETFs when they launched and just futures
themselves, futures in the CME for Bitcoin launched at the end of 2017, early 2018. And that was the
beginning of the end for that first Bitcoin bull market. Bitcoin futures ETFs launched in late
October of 2021, again, right at the peak of the Bitcoin bull market in 2021. So it's not,
it also opens new avenues for shorting and all these other things. It's not just as clean as
all the sudden the herd is coming and hundreds of billions of dollars are going to buy Bitcoin.
The markets were designed to surprise you. Yeah, classic buy the rumor, sell the news.
That's what's going on in my opinion. And we got to be careful because we're asked on these,
some we don't need crypto spaces and podcasts. We let go downtown a lot. God bless you.
We'll be asked like, is the price going to go up? They just want they want hope. I'm so bad.
And we can't give investment advice or even make calls about prices. So we're like,
look, I mean, Bitto, that was a peak that went down after that. We don't know. And there's many
variables in crypto. There could be another SPF situation. Crypto is famous for having these
scandals. I don't know. All I know is that over time, an ETF would be a legit bridge from all
of the boomer money in America to Bitcoin, not and everybody's not going to flood over. But
that bridge can't hurt. And over time probably will probably result in a good amount of bid orders.
Yeah. The one thing I would say is he mentioned we go on in these crypto spaces. Like with you,
I'm like arguing like why it's more likely than you you initially thought it was with them.
It's like the exact opposite. I find me. I play the opposite. I'm like, look, we are at this
65% odd, but there's 35% chance in those odds that it's not going to happen. One more thing
that they sometimes they're so into hope. That they'll take something and just completely contort it.
So member has said advisors have 30 trillion. And I was on a podcast and I explained that
a tiny portion of that money will probably be in play, maybe 0.5%. That's still 100 200 billion
whatever. But that one place came with the headline saying Bloomberg analyst says 30 trillion
dollars in demand is coming to big point. There's a lot more words in my answer there. I mean,
come on. That's crazy. It's a trip. It's a whole lot. Let's make that our headline about
that student says 30 trillion. 30 trillion. But speaking of those infamous crypto scandals,
can you talk about some of the risks that potentially would be inherent to such a product or even
just some of the risks that the SEC has cited in the past? Sure. So I wrote a couple notes saying
after SBF and FTX, I said, an ETF is SBF proof. Because let's say an ETF existed, right?
Market makers are very smart. These are the ones who are going to go between crypto and the
end client. They probably would have smelled SBF as a fraud earlier, maybe even. And if they did use
other crypto exchanges to make a market in crypto, we know this because there were spot Bitcoin ETFs
in Canada and in Australia and other countries. And they traded fine. The price didn't really deviate
too much from the nav, meaning R was possible. Whereas if you were in FTX, you basically had your
money frozen. So even if the ETF issuer, I don't know, let's say it's a small one. Let's say
Kathy would. Let's say she just goes crazy and just runs off to the Bahamas. You still have the
crypto with the custodian. And that's why ETFs are so I think prevalent is that there is liquid
as derivatives, but they actually are physically backed. So I don't think there's much for risk.
There's a risk of the price going up and down. It can be volatile. But that people are okay with
that. The problem with GBTC is that it doesn't match the price of Bitcoin. All people want is for
this thing to give you the price. They're okay if it goes down. I think the fraud or manipulation
is definitely something that can happen. But as crypto is matured, I think once you get all
these market makers who are not messing around, these are people, the very sophisticated traders,
they're not going to deal with shady characters. So naturally, the shady characters will be isolated.
And maybe they'll even get unshady so they can participate in this Bitcoin ETF. So I think
the SEC was kind of, I don't know, simple-minded in not approving it in that if they did, I think
it would help their actual regulatory goals of cleaning up crypto. But would I recommend
a Bitcoin ETF to my mom? I would say, look, it's volatile, but I don't not trust it. It's not
going to get frozen. You're not going to lose all your money. But Bitcoin goes down. You're
are going to lose that money. So that'd be my answer to that. I would also say the SEC
a bit here has lost the force for the trees. GBTC already exists. People are getting access
to this in Coinbase. This isn't 2016-20 strategy. There's all these way less efficient ways.
And I understand they're trying to project investors. But at the end of the day,
like, anyone buying a Bitcoin ETF at this point, they know what Bitcoin is. This isn't 2016.
Like, I understand denying the winkelvoss for all the reasons they denoted them. Plenty of
the other ones. But we're at a point where people know what they're buying. It's not like they're
they're buying this thing and expecting that it's not going to be risky or the vast majority
of people. And there'll be a lot of disclosures in there. So there's a whole other avenue that
you can make the argument here. But obviously, the SEC is fixated on a few things and the
the issuers applying for this have to argue with the SEC on those issues.
Yeah. And we have a traffic light rating system for all ETFs. Green yellow red.
And it just basically gauges the nasty surprise potential. Like, what potential do you have to be
surprised? So a VOO, green, no dings. Like, it's, you know, you'll never get surprised there.
The Vanguard S&P 500 fund. Yeah. And IVV same deal. GLD actually gets a one in a green light
from us because it's because it's tax is collectible. So it's got a little bit of a surprising
tax thing going on there. But it's still green. Now the SEC has approved a 2X Bitcoin futures ETF.
That would be hardcore red light. Yeah. And then GBTC if it were an ETF would be hardcore red light
because it deviates from the nav so much and has awful tracking. So it's ironic that there's
all these red light ways to get it. Yet if a spot Bitcoin ETF is approved, we would give it a green
light based on our system. That's just ironic and frustrating. I wonder, you know, okay, say
Bitcoin's trading at 30,000. I wonder how the pricing of the ETFs would reflect that. Would it be
like a similar to the spy where I don't know, Bitcoin's at 30,000 is the ETF at 30 bucks, 300?
You know, would it try to track it with a shift of decimal point like that? So that's, so there
is like an evidence that like lower handles like do better, specifically with ETFs. So like,
though, honestly, I wouldn't be surprised if they did that. But for the most part, I don't think it
matters. People are like, even if there's one that's like, they tend to start at like $10, $20,
$20, $25. So starting at 30 or whatever it is, I assume that might be something they try to do.
But I mean, time will tell. Some ETFs purposely lower the price, so get more retail investors in.
Some though, like GLD likes a higher price because if a big trader and you get charged,
you actually get charged less if the price is higher. So basically, I think they'll probably start
at 40 bucks, most start at 40 or 25. And then from there, it'll track the price of Bitcoin. But
we could see again, once there's one or two popular ones, you're going to see everybody throws
spaghetti at the wall to try to like, oh, this is Bitcoin with a low handle. This is Bitcoin with
a high handle. This is Bitcoin that goes short goal, long Bitcoin. This goes long Tesla short
Bitcoin. They're going to try all kinds of stuff. And that's fine. Most of that stuff will be
French, but they'll be one or two mainstream ones that make it in or are used by mainstream America.
I'm Akshatrati and this summer on my podcast zero, I'm doing a series about climate storytelling.
How we talk about climate change and what it means for how we confront it. This week, I'm interviewing
Dorothy Fortenberry, executive producer of extrapolations and Apple TV climate show.
All of the current shows on TV that are taking place right now that don't portray climate change.
Those are the science fiction shows. Listen to zero on the iHeart Radio app or wherever you get
your podcasts. But you mentioned BITX, which is the two X Bitcoin features ETF at launch in June.
And I think a lot of people at first were like, no, there's no way this is going to launch. I think
you were one of the only ones who was like, no, this is launching on Twitter. And a lot of people
are potentially seeing that as the SEC may be warming up to crypto. But more is that one of like,
is it like a step forward? Yeah, I think so. I get back channel information and some of it's
very valuable. And that's why we are at 65. We don't just get public things. We get things that are
a little sort of, you know, in the back alleys. Why don't you brag about it? Some of that stuff is
nonsense. Back alleys. You get a lot of nonsense in the back alleys. The key is.
Surely is a silly guy. I get it behind gyms behind gyms.
A lot of information back there. But this was an ETF BITX2X futures when it came out. And then,
I don't know, three weeks later, that same firm filed for an ether futures ETF, which had been
withdrawn, filed and withdrawn maybe three or four times historically. And in May. And just in May.
They had been withdrawn in May. So they file and then like another 10 people file. And then I
hear back channel. The SEC is actually okay with these. And so we are we handed a cap that
70% just in case that information was bad. But now we're we're in like two weeks since the first
filing. And most of the withdraws happen within six days. So we're well beyond the normal time they
withdraw. So it looks like they're going to let ether futures come out. Which again, if they let
Bitcoin futures, it almost it's a it's one step in my opinion on to the spot. But it does show the
SEC can have policy changes because we're also argue with these people on who are like anonymous
on Twitter, who are like X regular tour guys. And they'll like they'll say they're never going to
do this. They're always I don't know. They lean negative. I think they just hate crypto. But they
were they said they'll never do the futures and they did it. And some of these people said they
never do the Bitcoin futures. Now ether. So some of the people who are like come out and like this
won't happen. A lot of times you got to ask them, did you say the futures wouldn't happen either?
I guess my point is things change. Policies can change. And it might not be because anything legally
changed. Their brains just changed or the politics changed. It's all it's a lot political and it's
also legal, right? So one of my arguments for why so they the BidEx the Bitcoin futures ETFs launched.
I mean, theoretically, the way that process works is you file and after 75 days, you can list.
And for BidEx, they filed and it wasn't withdrawn. And but really the way it usually works is the
SEC just back channels to the asset manager that applied, right? And says, hey, can you withdraw
this? If somebody decides like with these ethereum futures ETFs or that Bitcoin 2x futures ETF,
it's like, no, you got to send me like the equivalent of a season to sis. You got to you got to stop.
And they're like, that issue is willing to go to court the way grayscale was.
Based on what the SEC has seen in court in the grayscale case, if you look at those oral arguments,
I am guessing that the SEC was like, all right, if somebody really wants to push us on this 2x
Bitcoin futures ETF and on this theory, these ethereum futures ETFs were likely to lose in court
the same way we're going to lose in grayscale. And except if we lose in court on that front,
we don't have a way to argue against it, right? For Bitcoin, our thesis initially for grayscale was
they would the SEC would lose in court. And then they would basically all it does is vacate
the denial letter. And before BlackRock filed, we're like, the SEC is just going to find another
reason to deny this thing though. They'll lean on there's no custodians we trust. There's other
reasons they could say why they deny. You don't have any of any reasons really on Ethereum futures
or 2x Bitcoin futures ETF. And just to get into the whole how cannonball run this whole thing is,
this reminds me of cannonball run. I'm the only one in the room old enough to get that reference.
And I thank you for that. I write Reynolds over here.
I remember Sammy Davis Jr. and D Martin dressed up as priests. The whole the movie was about
who can get from New York to LA the fastest. But you obviously, if you get busted by a cop,
it's going to slow you down. So some people tried to pretend they were an ambulance.
Some people drove a Lamborghini. They all tried these interesting ways whoever gets to LA gets a
million dollars. It reminds me of this. And so in the ether futures, what we've already found is
that somebody said, oh, we're going to change the name and of strategy of a current ETF.
And that process is a little shorter. So we're going to see if the SEC allows a name change to cut
the line to come out before the regular filers. So there's all this jockeying because again,
if you get out first, you have such a massive advantage. But to James's point, there has been
some of the history of better to ask for forgiveness than permission with the SEC and to just push them
and push them. And sometimes override them. People have had some success.
Namely, the Latin America real estate ETF that converted to a pot ETF before the SEC was comfortable.
And the SEC just sort of like, oh, fine, whatever. The SEC did come out after that. It was like,
don't do this again. But that battery is the company that filed for that name change. They have
a Bitcoin futures ETF they launched. And I mentioned Bitto has 98% of the assets. So BTF, it doesn't
really have much in the way of assets, right? So they were just like, we're going to go this way.
Yeah. They jump in front of volatility shares by about a week. Yeah. And Bitwise sees that
Valkyrie does that. And Bitwise also jumps. They're changing their Bitcoin futures ETFs, the whole
Bitcoin and Ethereum. So they're also jumping in front of the volatility shares, which was the one
that was the first to launch the. And this is just the undercard. This is just the undercard
race to the real race. So there's two races going on constantly. James and I were frazzled.
Every day, there's something new. And it's just, I tell people, this is the most one of those
fascinating stories because especially with the spot Bitcoin, it's the largest asset manager,
the highest rungs of finance, government. And it's in the bridge to this crazy underworld. All
these elements. And there's a clock and it's a race. So it's hard not to be completely
compelled and just sort of, you know, fascinated by this, although not everybody on our team
is as into it as we are. I told Athanasia is like, look, if they take you guys to the
psych ward, I'll be here for the team to come back. Well, and the sort of blurred political lines
make it more fascinating. Yeah, there's so many issues in modern life or left and right. You
know, there's no cross in the middle, but the blurry political lines I find fascinating. But I
think what I've learned today is I should file for a single stock micro strategy ETF and beat
everyone. What do you think? Like a leverage one. The leverage and you might do well.
Hey, I have to leverage two X. But anyway, yeah, Eric and James, such a treat to catch up with
you guys and hear all about the Bitcoin ETF. We can't let you go just yet. We're going to do our
crazy thing. But I feel like it's finally time for me to reveal my favorite cheesecake. I'm a
heretic. No one asked you. I just feel like I'm a heretic as well. I know it's sorry. You
think you would catch the bait on that, you know, that catch the hints. I'm a bit of a heretic.
The best Philly cheese steak is actually in Atlantic City, White House subs in Atlantic City.
Just going to throw that out there. And now we can get to our craziest things. You're really,
you're really stirring the all on what makes it so good just to take this extra something,
or do they use cheese whiz? No, I think I think it's either pro-loan or American. It's the bread.
So 99% of your Philly cheese steaks are on the Amoroso bakeries roll, which is a fine,
classic, cheesecake roll. White House, I think they bake their own bread and it's delicious.
It's absolutely great. So all right. Time for our craziest thing. I don't know if they
warn you guys about our giving care of the craziest thing we've seen in markets this week.
Phil Donovan, why don't you just start it? All right. Okay, mine is about Taylor Swift.
Oh, okay. Shockingly. Who is not in the market, but she's not in the market, but listen to this.
This is from a New York Times story. A research shop estimates that her concert could generate
4.6 billion in economic activity in North America alone. That's stadium capacity, people's spending
plans like I believe that the story said like people are spending money on costumes and getting
their nails done and things like that. That's on par with the revenues from the Beijing Olympics
in 2008 after adjusting for inflation. That's pretty good. I've heard some speculate that she,
we avoided recession because of Taylor Swift. I don't know if that's believable. I love it.
Well, people spend like, I don't know, $2,000 or something, just not just on the tickets,
but buying costumes and... All right. Good stuff. I think I might give you the one for that.
Thank you. But mine's pretty good. Mine's your favorite subject, Valdana.
Taylor Swift. No, bond math. Oh, no, please. I'm leaving.
We're all going to... I'm asking you all to do some bond math here. I'm leaving.
Country Garden. You've heard of Country Garden. It's the struggling property developer in China.
It's kind of tearing on the verge of bankruptcy default. It actually suspended this week trading
of its bonds. We are recording on Monday, so keep that in mind. These numbers may move, but
I want you all three of you in our game show, the price is precise.
Need you to guess the highest yield that Country Gardens bond,
maturing in January of 2024, 2024. So in a few months, what do you think the highest yield
this thing offered in the past week? Offered. Right. So as you know very well,
and when the price of a bond goes down, it's yielded. What's wrong with this company?
They're basically teetering on the brink of bankruptcy. China's distressed.
China's real estate market is... I'll open with 28%. I was going to go with 24.
44. All right. Would it help if I gave you the price of the bond? No.
It traded below $0.9 on the dollar. Do you want to change your answer?
So it's higher than $140. Okay. 150%. I win. I win. James was closest to the tee.
$2,978 was the yield on offer for a country. This is why I should have done 41% like prices right now.
You always got to go. Yeah. But you went first. That's true. Yeah. I'm going to change my
my pick though. That is a crazy set. Congratulations, James. Nice job, James. Thank you for having me.
I always wanted to play the price. It's precise. Everyone's a dream. James, do you have a crazy
thing? A crazy thing in markets. Yeah. Obviously, the fire that happened in Maui is devastating,
but there looks like people are starting to blame Hawaii electric and they're down 40%, 35% today,
40% today. Yeah. So that stock is taking a crater right now. Yeah. You don't want to own a
utali stock when a wildfire breaks out. Yeah. How about you, Eric? You got anything crazy for us?
I mean, I don't know. Something I just keep thinking about is the returns of the cues this year.
And we have this debate in our team because we have a lot of international people on the team.
There's just something about America and that index, man. There's something that you don't get
in other countries in the cues of 37%. That is just an astonishing haul, especially when we're not
even sure the fed's done hiking completely. But that index, it's just really, really powerful.
And compared to the rest of the world, international has these like six month runs and it's like
back to the cues and these like really innovative companies in that index. So that's something that
I'm thinking about that we're actually going to do something on and we talk about a lot. I don't
know if that financial news, but today on IQ, we are talking about the 37% return of the cues this
year. To me, that's just, we take it for granted almost. It's almost like Jordan scoring like 55
points or whatever. It is pretty wild. What if all mutual funds change their benchmark to the Nasdaq
100? How do you think that would fly? Morning started a study and over the past 15 years,
not one growth manager was able to beat the cues. Really? Yeah. For that for the 15-year period.
Now, that's a good crazy step. Isn't it? Yeah. There's a couple, there's a couple funds we found
over the past five to 10 years that have beat it. But the only way to beat the cues is to forget
everything you learn in your CFA and just go hog wild on a couple stocks like a Tesla. This one
fun owns like has 91% exposure to St. Joe's, which is owns a bunch of land in Florida. Like you've
got to be really, really crazy and out there to beat the cues. I think if you have a CFA mentality,
you're naturally going to shift to stocks that haven't done as well and you will lose. Yeah,
diversified holdings. It's not a massive conundrum for active managers. Yeah, that's a great point.
Eric Balchunis and James Seifert of Bloomberg Intelligence. Thanks so much for your time.
Thanks for having us. Thank you guys.
What goes up will be back next week until then you can find us on the Bloomberg Terminal website
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Follow me at Reganonymous. Well, Donna Hyrek is at Valdana Hyrek. You can also follow Bloomberg
podcasts at podcasts. What goes up is produced by Stacey Wong. Thanks for listening. See you next time.
I'm Akshatrati and this summer on my podcast zero, I'm doing a series about climate storytelling.
How we talk about climate change and what it means for how we confront it. This week I'm interviewing
Dorothy Fortenberry, executive producer of extrapolations and Apple TV climate show.
All of the current shows on TV that are taking place right now that don't portray climate change,
those are the science fiction shows. Listen to zero on the iHeart Radio app or wherever you get your
podcasts.