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BlackRock vs Fidelity - Who WINS The Bitcoin ETF? #CryptoTownHall
Recorded: June 19, 2023 Duration: 1:16:51Space Recording
Short Summary
The discussion centers around the potential approval of BlackRock's Bitcoin ETF, strategic partnerships with Coinbase and NASDAQ, and the implications for the crypto market. Fidelity's interest in entering the crypto space with Bitcoin and Ethereum products reflects a trend of traditional finance integrating with digital assets. Regulatory challenges and legal issues, such as those faced by Valkyrie and Do Kwon, highlight the ongoing complexities in the industry. The conversation also touches on the potential for growth in crypto adoption through wealth management services.
Full Transcription
Steve, it's just us.
Quick, we get to talk about ETFs by ourselves.
Oh, joy.
I know, you're excited.
It's very exciting, very exciting, right?
Well, after seeing a thousand messages,
after seeing thousands of messages all over 20,
people trying to wrap their brain around
what is there to be.
After, you know, of these images that spread the...
Hey, Steve, I think you got a bad connection, buddy, unless it's just me.
Dave, Steve, you're super robotic.
Dave, do you hear that as well, or is it just me?
I hear it.
Try it.
Okay, cool.
Thank you, Michael.
Yeah, I heard it also.
Trying again.
Yeah.
Oh, yeah, you're better.
Now you can tell me about the thousand messages you've gotten.
For context, everybody, Steve, obviously, the head of Valkyrie and has had their spot
ETF denied a few times, but has the futures ETF.
Yeah.
Go ahead,
yeah.
you were saying.
I'm just saying that,
you know,
we have all these
super sleuth,
amateur ETF people
that have read
the Black Rock
filing and have been discussing it.
Yeah, we're going to have some actual experts here today, like yourself, of course.
So that's a good thing.
We were trying to get Eric from Bloomberg over.
He couldn't make it.
But we have James Safert, who's going to be here as well, who's a Bloomberg expert on ETFs.
But nobody knows more than you.
I don't think, Steve, having gone through this process so many times.
I would argue that James and Eric probably know more than me.
These guys, this is all they do, and they've been doing it for years.
Yeah, I can't wait to get them up.
Yeah.
Well, to everybody else, we're, Rand is finishing up on YouTube as we speak.
So he should be here momentarily.
Obviously, quite a few things to discuss today.
We got pretty deep into Black Rock last week, but I think now that it's simmered for a few days,
it's really worth diving into further.
And then, of course, we have...
quite a bit of speculation about fidelity to follow BlackRock,
potentially to do some sort of buyout with Grayscale or GPDC.
Also worth discovering we're going to have,
we're going to have AP Abacus up who broke that story and see what the sources are.
And if we can dive in further to that.
And as we dig in even more,
there's some breaking news that's happening as we speak.
Of course, Doquan was just...
charged in Montenegro and sentenced to four months.
Just to be clear, that's four months for faking, falsifying documents and passports, not for any of his
alleged crimes with Luna.
And then the bigger story that I definitely am going to want to get into later from
financial times, but being shared by the block, the crypto.com operates an internal proprietary
trading desk.
meaning, of course, going back down the rabbit hole of exchanges counter trading their customers.
So that's going to be heavily worth speaking.
But I know, James, you're here, and we can only talk ETF with you for about 20, 25 minutes before you go.
So have you heard anything about this fidelity rumor as you've been digging into what's happening with BlackRock, or do you think it's just speculation for now?
Yeah, so I haven't really heard anything about Fidelity to that like other than other than what you spoke about really.
Just just just the rumors I've heard.
So obviously Fidelity is big in the Bitcoin crypto space now and they're invested a lot.
But I haven't really heard anything other than what you've heard.
I don't have any special insight.
Any new thoughts on what's happening with BlackRock after letting it sort of sit for a couple days?
Obviously, I think last week we dug into quite a bit of the clarity between trust,
ETF, why this is more ETF and trust.
So I don't think we need to relitigate that.
But, I mean, have you any new thoughts on how big this is, how impactful it is?
And more importantly, I guess, you know, the likelihood that this will get approved.
Yeah, I see Steve is on.
So Steve's about as knowledgeable on ETS as I am, I would say.
He just said you were the most knowledgeable guy before you got here.
I'll say a few things.
So the one thing that came out since we did the spaces was the 19 before filing,
which I mentioned on the spaces on Friday was,
basically that they would have to file a 19 before in order to get this launch,
which is that that whole rule change proposal.
And I said that basically once the rule change is accepted by the SEC,
it's kind of like gives free reign to other issuers to start launching under the same rule changes.
And on the...
All of our ETF people are living in the glitch right now. James, you've got to cut off. I know that you're driving. But apparently if you say the word DTF Twitter spaces censors you. James, I think you're back. Go ahead.
Okay. Sorry about that. Yeah. So essentially, what?
We are different with this Black Rock application and why they did it.
And we,
the whole consensus at that point was,
this is Black Rock.
They are not going to do something unless they think they have an edge or they think they have some reason why they can do this.
And we got that 19 before application.
And really,
the only thing that's different is they are citing that they have surveillance sharing agreements with the spot exchange market.
And,
you know,
This isn't anything new. Bitwise and other issuers have applied using surveillance sharing agreements and regulated markets using CME futures, which is obviously different than the spot market.
Now, in the 19 before application, they don't say what spot exchange they're talking about.
One can probably assume that it's going to be Coinbase, I'm guessing.
But this is not the first application where Coinbase would be the custodian of a Bitcoin
ETF.
So obviously, that's my number one guess, but there's no way to know for certain that's what it is.
But the one thing, if you look at any of the rejection letters,
basically they reject them and then they say they need us a regulated market or they need
a market of significant size which is a key term they keep they always say market of significant
size and they want surveillance sharing agreements which basically means like regulators the
exchange in this case NASDAQ can get access to trade data of the spot market to look for any
fraud manipulation what have you so there's like a basically
basically we're going to share all of our data that's going on in trading back and forth between each other.
And that's what the SEC wants.
But the one thing they always say is they want a market significant size.
And no matter how you slice it, unless you're just talking about the U.S. market, you're
Coinbase is not a market of significant size
for the global Bitcoin trading spot markets.
Now, there are some issues, obviously, with finance
being accused of wash trading.
Is there some false volume going on there?
Who knows?
But undoubtedly, Coinbase would typically not satisfy
that market of significant size.
So I'm toying with the idea that maybe BlackRock thinks
that the combination of a CME regulated market
with the spot market from Coinbase
or whoever they are partnering with,
will satisfy the SEC.
But even then, I'd be surprised if that,
based on language that the SEC is used to deny these things in the past,
that that would get through.
The caveat here is that maybe the SEC and Gensler are realizing this is a losing fight.
Maybe they see the writing on the wall with the gray scale case
that they're going to have to go back to the drawing board.
And this could give them like a face saving measure
where Gensler could say in the SEC,
Oh, well, they got a regulated market or they got a surveillance sharing agreement with a spot market.
And we have CME futures and we're going to let this satisfy us.
Even though if you look at any of the language they've written for denials in the past,
they should technically deny this.
Right, yeah, that's the thing.
There's nothing materially different here, I think, where they wouldn't deny it, but like you said,
it's BlackRock, right?
And Steve, I'm going to go to you in one second because we've talked about that privately.
But Mark Ustco just popped in and ran, Mark pointed this out and it reminded me that
probably three or four times I was going back on my shows.
We've talked about rejections of spot ETFs.
on my shows, on Rand shows, and you have repeatedly for years said,
ha ha, nobody gets approved until Black Rock applies for an ETF.
What crystal ball did you have?
Well, it's not a crystal ball, it's not a crystal ball.
It's just, look, the game is not a fair game.
There are people who are in charge and the people who are in charge get what they want.
It's the old gold and the rule.
He who has the gold makes the rules.
So it was clear to me from day one that there was a certain group that was going to get control.
And look, it's all part of this bigger thing.
It's not a coincidence.
If you look at the day the bear market started in 2008.
18, I'm sorry, 2017, it was literally on the day that the future started trading.
And if you look at the day that the bear market started in 21, it was literally on the day that the futures ETF started trading.
So what the futures allow you to do is manipulate the price by being short, basically naked short.
And, you know, J.P. Morgan at all had been doing that for years.
Black Rock is part of the J.P. Morgan. I can't use the C word. So let's just call it cartel.
We still say cabal here. Yeah, I know. I know. I'll just use cartel. But anyway, it's, it wasn't a crystal ball. It was a confidence in the rigging of the system.
Right, but at that point, did you really believe that we would see BlackRock eventually apply for us on ETF?
Or was it more of it or is it more of a ha-ha?
Oh, no, no, no, no, 100% knew this was coming.
And they will get approved.
There's no question in my mind.
They'll get approved.
No one else will get approved.
I agree.
I mean, I agree, Scott.
I just did a whole show on this.
We analyzed the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the
thing behind the black rock case.
And I mean, it's like, you know, a company with 575 wins to one loss.
And by the way, the only, uh, ETAF that they've lost is, uh, an ETAF, which didn't
require a, they, they went for a structure of an ETAF, which didn't actually require like daily
reporting of the holdings of the ETF.
And, um, and, and so, it, what.
what you realize is that the way that they structured this ETF
was very, very, very smart to get approval.
Now, the question then becomes, why now?
Why did they do this now?
There are a couple of theories for me as to why they did it now.
And I'm very interested to hear what Mark will say about these theories,
but things like...
You know, TradFar is ripe now for takeover by the old incumbents, so like by the traditional financial system.
So you look at crypto and you look at, you know, what we've managed to achieve.
We've broken things, but we've also created things in the last five or six years specifically.
And now is the perfect time for TradFar to actually come in and take over.
And it's almost like, let the kids play.
But, you know, now the grownouts are going to take over.
Mark, what do you think of that theory?
I think it's spot on, right?
I mean, look...
The then they fight you phase was exactly as you described, Rand.
It's about this displacement of the threat, the disruptors.
And again, this is not unique to tradfi and C-Fi and D-Fi.
This has been going on with every disruption throughout history is the incumbents use
regulation first to block the path, then they use coercion and bribery and all kinds of other things.
And eventually they try to take over, literally buy the tech.
You know, Cisco during the internet, Web 1 boom, did this all the time, right?
They would buy competitors, shelved the technology.
Like Henry Ford did it to the American Electric Vehicle Corp.
People forget the largest car company in America, 1903, was an electric vehicle company.
It was not a gasoline engine company.
But Henry Ford and John D. Rockefeller colluded to create Ford and use the gasoline, the effluent that John D. Rockefeller was flushing down the river to power the vehicles.
So exactly as you describe, first they ignore you, 2009 to 16 or 15.
Who cares? A bunch of nerds and geeks playing with their magic internet money.
Then they laugh at you. They make fun of you, 2016 to 21.
Well, now they fight you, and I do believe you're going to see JPM and a few others come in with real money to buy real assets that have set the stage for the decentralized future,
but they're going to try to keep it centralized for as long as they can.
I mean, you saw the SEC order, centralized or die.
That was basically what they said.
Go ahead, Steve. I saw you lifted your mic and once again, for anyone who wasn't here at the beginning,
I mean, Steve, you have more context on this than anybody because you've been dealing with this approval process
and actually were the one to get the futures ETF approved.
Yeah, and let me just add a little bit more context to what Mark said, because I do agree with him.
I spent most of my career at a tiny little asset manager called Guggenheim, and...
We decided that, oh, yeah, we'll get into the ETF business and bought a couple of ETF shops and started launching ETS.
And we came up with something that was really interesting.
Back in the day, it was an actively managed fixed income ETF, one, you know, that was short duration and one that was ultra short duration.
Yeah.
And we filed for it and we got push back and push back and push back and
made it like our asset back securities we had in there, you know,
all kinds of things.
And then after PIMCO and BlackRock launched, then we were allowed to launch.
Now, you know,
Guggenheim is a lot smaller than those two, right?
And if you, you know, if it's a, if it's a shop like Guggenheim that gets delayed, you
know, for these guys, I mean, just think about it, how it is for everybody else.
So, you know, in the end of the day, we end up winning because we had a superior product.
But, you know, the same thing is happening, same thing is happening here.
You know, BlackRock will get approved.
You know, I don't know when, but they will get approved.
And then second of all, you know.
what James mentioned earlier with the 19 before,
and I've spent a lot of time, you know,
composing 19B4s for rule exceptions,
particularly for Bitcoin Spot ETF.
There's the one key difference indeed is the...
the market surveillance.
And there's a lot of questions around that,
but let me be really helpful for a moment, okay?
The reason why Black Rock is so big,
the reason why it has so many assets,
particularly in fixed income,
but across mutual funds, across ETS,
is because they created a system called Black Rock Solutions, Aladdin.
And what it does, it surveils the bond market,
It aggregates pricing for bonds, and it spits out pricing and report for bond managers, including themselves.
So when you run the system that plugs into every asset managers and every client's portfolio to help them with pricing reporting tools for their clients, you're going to win the market.
And there was some news about a year ago that I think a lot of people ignored, but it's really, really relevant.
And that was that Black Rock Solutions Aladdin was working with Coinbase to create surveillance, pricing, and reporting around Bitcoin Spot.
So they were ahead of this.
So you're saying this has been coming for a long time.
This is the long game.
This is the long game.
So now that it's in BlackRock solutions, which they control,
and now that financial advisors, insurance companies, pension funds,
sovereign wealth funds can have an accurate pricing
source for data.
They can now include Bitcoin in their portfolios.
But guess what?
When they launched that,
BlackRock created their own product for Bitcoin spot.
You know, in a private vehicle that, you know, not only can we provide you the price in reporting,
but here's the vehicle that you can do it in.
And, you know, and this, this, this, this, this, this, this, this, this, this, this, this, this
this, this, this, this, this, this, this, this, this, this, this, this, this,
to, uh, you know, to, to, into, into, into, into, into, into, in, in, in, in, in,
So if you take that news from a year ago,
and they were working with Coinbase and others,
and now that they are saying that,
yeah, we're going to have a Bitcoin surveillance
and pricing and reporting tool,
We already know what it is.
You know, you just have to kind of, you know, look back in time at this little, little, you know, little talked about report that came out a year ago.
So the answer is all day it's Coinbase.
Yeah.
It's Coinbase, but you're also talking about just to be clear, they've said, and James, you could maybe clarify that it was going to be in conjunction with NASDAQ that they would have the surveillance.
So is NASDAQ in some way aligned with Aladdin, or is this basically more than one thing that will be tracking the market to...
Everyone's aligned with Aladdin. Nasdaq, Bloomberg is.
I mean, when I used to trade bonds, I would take my data from Aladdin and push it through Bloomberg because you're required to report your trades within a certain period of time, depending on what the bond is.
Same thing with Bitcoin.
So, you know, when you're trading an ETF, you're required to enter the data of every trade through a surveillance tool, and you can take the information from Aladdin and push it through Bloomberg, NASDAQ, you know, whoever has tools that make it publicly visible.
Go ahead.
Go ahead.
Yeah, so I was going to say the reason it's with NASDAQ is because technically speaking, and Steve can confirm this.
Like the people that are applying for these rule changes are the, it's a self-regulatory organization.
But it's really the exchanges that do the application.
And they do it in partnership with an issuer like Valkyrie, like BlackRock.
like Bitmise, what have you.
So they're the ones that are doing the application.
And because the ETF will be trading on NASDAQ,
in this case, they are the ones that have to have the access
to the surveillance sharing agreement.
They need to have access to this data.
So it's NASDAQ in conjunction with point base, with BlackRock,
with whoever and likely with whatever
else is going to happen here.
There's going to be a lot of issues that launch this.
And like Steve and Mark were saying,
we at Bloomberg Intelligence,
we always thought BlackRock
was going to launch a Bitcoin ETF.
This is right up their alley.
They have a gold ETF.
But to be honest,
I kind of expected them to,
you know, let, let somebody like a Valkyry or a Bitwise or a Grayscale go first.
And then as soon as the approval's happening, we expected them to file and launch as soon as possible.
And they would take up significant market share just because of who they are and what their name is.
But I must admit, I'm a little surprised that Mark was right.
And they have a shot at being first here.
But again, when you look at what you can win, if you're first to market or at least come into market right in line with another issue or another product, the money that would pour in, even at a pretty low expense ratio is significant, very significant, even for somebody like BlackRock potentially.
Hey, so...
Go ahead, Dave.
I see you have your...
Go ahead, Mark, and then Dave.
Okay, quick question.
I'd love to hear if anyone has any relevant theories about right, why now?
Because Black Rock's been looking at this for a long time.
And it's like, you know, was, were they front-running fidelity?
Or was fidelity following?
Or like, but why this moment?
Because I think there's...
Obviously, there's a lot of conversations behind the scenes about this.
Like, the timing seems to signal something.
Part of it.
part of it has to be just cycle timing i mean it was just mentioned earlier that uh you know the
peak of the of the bull market in uh 2017 was the day that uh you know futures were announced
the c m and then people started shorting and then uh you know then the the the futures uh etf uh
you know kind of the same day of the peak of uh of the 21 cycle
Well, I think you can look and see that we're at or close on any analytics.
Trust me, these guys in Trad, if I know how to do analytics around the four-year cycle,
that we're pretty much near the bottom right now.
And what better time to go and create a vehicle that's going to monetize the next couple legs up.
My concern that I haven't heard anybody mentioned yet was, is there a path for BlackRock to all of a sudden have it be more like a GLD where there's, you know, 30 paper gold for every bar of gold that's traded?
Or is it really going to require that, you know, there is one Bitcoin sitting in Coinbase for every Bitcoin and it's bought, in which case that's going to expand Coinbase's business quite a bit.
They already have the other side.
See, this is just like GLD.
GLD was ready to go for three years.
Three years, they held it up.
Why?
Well, because J.P. Morgan wasn't short enough yet.
And the only reason GLD was allowed to go through was when J.P. Morgan had enough short.
They were two times short the world's held reserves of gold.
Just let that sink in for a second.
So they've already put the short side on.
That's the reason it's taken so long for this to, to quote unquote, get ready to be approved,
is it took a while for JPM and Black Rock, which is funny, they're on both sides and everybody else in the group to take the short side.
And yes.
There are way too many paper Bitcoin out there, which is why we just had a 74% drop.
Same reason that gold has been spoofed.
And JP Morgan pays a billion dollar fine every year.
for spoofing gold.
Just think about that.
But they make $20 billion.
They're like, yeah, it's a cost of doing business.
So the fix is in.
Mark.
Hey, guys, I know James really quick.
I know James has to leave in about three or four minutes and has his hand up,
so I'm going to let him respond.
And then, Andrew, we're going to start to dig into Fidelity in a bit.
Go ahead, James.
Yeah, I'm going to talk about something that I know David Bailey cares about.
So as far as timing, it's a little less conspiratorial in my view, but it's still a guess.
I think, like, we at Bloomberg, we're pretty confident that Grayscale's going to win their case against the SEC.
Now, that doesn't necessarily mean that GBC is going to convert to an ETIP, even if they win.
We think it's going to be handed back to the SEC and say, like,
you denied for these reasons and they weren't good enough you violated the APA go back to the drawing board
either approve or deny for different reasons that don't violate the APA so i think personally that this
is just a convenient way for the SEC to basically make that a moot point right so that decision
in gray scale is going to come sometime
It was potentially going to come in the second quarter, but it was almost most likely always going to happen in the third quarter. So the third quarter, you have until the end of September, right? So they're running out of time if they want to find a back way out of this if Gary doesn't want to get a losing decision from the federal courts here. So I think this is kind of convenient for Gary. If,
if they can approve this 19 before application after or even before the 45 day period of when they file.
So then they have 45 days from when this 19 before filing hits the federal register,
which basically means the SEC accepts the application.
And then we could see theoretically it get approved.
Now, if we wait the full time period, which they usually do for any denial,
we won't see any denial until the end of February, early March.
But as everyone says here, they think it's going to be approved.
I don't think BlackRock would be applying for this thing if they thought that the odds of them being denied were very high.
But even still, like I said, the benefits of launching this, even if they think the odds are 50-50 that they can get this thing approved and they think there's some shakiness going on with Gensler's thought process around Bitcoin and Bitcoin ETS.
The benefit of launching this thing and taking the risk are vastly outweighed the risks, I think, is what ultimately came down.
James, can you walk through that timeline one more time, those dates?
Yeah.
Yeah, so the way the 19B4 process works is I don't have it right in front of me.
But essentially, after 45 days, the SEC has to delay, deny, or approve.
And if they're going to ultimately deny 99% of the time, they just delay it.
So that's why you always saw those applications that says delay.
Oh, they're delaying again.
So it's basically a 45 day period, 45 day period, then 60 days.
and then 90 days.
And whatever it is,
it all adds up to 240 days.
So 240 days after this hits the federal register,
they have to either approve or deny.
And typically,
that's when they got the denial letters.
Theoretically,
if they're going to approve this
and accept this spot surveillance sharing agreement
with whatever exchange it is,
which...
We're all in agreement.
It's almost certainly Coinbase.
They could do it at that 45-day mark or before that.
That's the deadline of when they have to issue a report.
So it probably come around that 40-ish day mark from when this 19B4 application hits the Federal Register.
So honestly, if it gets delayed, that's a bad sign.
Or depending how you look at, that's a sign that's likely.
Hey, we're losing you there, James.
I think you're on the road.
Yeah.
Yeah, sorry.
So basically it's the 45-day period.
Yeah, no problem.
Yeah, we keep losing him.
Dave Weisberg, I'm going to give you a chance to share your thoughts now.
And then, guys, I want to jump over to Andrew and start talking about the fidelity side of this.
Yeah, I think something important, something James said is he's wrong.
And actually, that makes it much more likely for it to be approved.
The notion that Coinbase is not a market of significant size.
In fact, if the product we are discussing is Bitcoin traded in dollars, Coinbase is number
one with a bullet.
It's not even close.
They're the largest exchange trading dollars by a lot.
You know, over the last day, for example, 86% of the time for at least five Bitcoin, they were the best offer.
In terms of coin market cap, if you look at volumes in the Bitcoin dollar pair, they're number one.
So it would be pretty close to impossible to argue they're not a market of significant size.
And if you look at the other thing that's really important here is the comparison to both GLD and IAU.
GLD, we talked about, you know, gold trust, IAU, I share's own gold trust.
Both use OTC markets, you know, based on 15 dealers to, you know, the LBMA, you know, which is blessed by IOSCO, admittedly, but they're using this, this market that is dramatically smaller.
than the spot gold market, which is really very OTC, i.e.
You go into a store, you go into a gold dealer, et cetera, et cetera.
And the opacity of gold as a price, you can't even compare the two.
And there's no way that any judge would allow, you know, the SEC to make the argument that Bitcoin is more,
isn't significantly less opaque than gold.
So I think that that matters.
And that kind of jives with what James is just saying about the grayscale case.
because this particular, and it gives, and I don't like to be a conspiracy theorist,
and although Mark and I agree on many things, I worry about trying to go down a rabbit hole too much.
I think it's much simpler.
Occam's Razor says, listen, you know, we have a company that we trust,
we have the objections that we have that are answered,
and frankly, if they had to go to court against BlackRock, you know,
they probably know they have basically no shot.
And, you know, it's just not worth it. So I think that it's important to understand that the major objections, the only real objection they have left. And we talked about that this morning, Scott, is this notion that it's manipulated from overseas. But they approve the CME. And the CME prices are absolutely, you know, just as is correlated to the price of overseas Bitcoin trading. So it's basically an impossible argument to make.
Sure, and just guys, we like to do a quick market update, but there's nothing to update on everything is dead flat, but I know that we have to do that. I do want to move to the Fidelity side.
side of this.
Scott, before we go to Fidelity, do you not think the biggest winners here are actually
Coinbase?
If you look at what's going on here.
Of course, of course, especially in light of their suit.
I mean, the SEC is suing Coinbase, but concurrently would be the ones to approve
ETF from BlackRock that's using Coinbase's custodian.
Exactly.
If you think about it, they've taken Binance completely out of the US market.
So Binance is now completely out the way.
And I guess the biggest winners here at the end of this, and it's only going to be after a hard fight, it's probably going to be Coinbase.
Yeah, I tend to agree. I tend to agree. I think we can dig into that in a bit. James, did you have something to say before you leave?
Yeah, I want to say one thing to back up what Dave was saying. So Dave talked about that U.S. dollars specifically. A lot of finances is stable coins and things like that. They're not actually U.S. dollar trading. And that is a very good point because...
When you look at even Steve, Steve, Steve,
so technically Steve Valkyry,
they have two approved Bitcoin Futures ETS.
They have one that's a 33 Act approval
and one that's a 40 act approval.
And when they approve the 33 Act approval,
which goes under that same 19B4 process
that we're talking for Spot Bitcoin,
the reason they approved them
is because they way narrowed the scope
of what they use to decide,
what is a market of significant size.
And they basically said,
we're only looking at the Bitcoin futures market to determine what Bitcoin futures are a market of significant size.
And there was only one market when they did this.
So they basically said, CME is the market and therefore it's a market of significant size.
So if the SEC wants to also do the same thing like what Dave was talking about,
all of a sudden, Coinbase is a market of significant size if you're looking at true U.S.
dollar trading pairs of Bitcoin.
So if you're saying we're looking at U.S. dollar trading pairs alone,
all of a sudden you satisfy that criteria and Coinbase is a market of significant size.
Perfect. That makes sense. So Andrew, I want to give a chance to pivot to you here.
So guys, to give some context, there's a tweet which is pinned above in the nest.
Update, digital assets and fidelity is about to make a seismic move in crypto via both Bitcoin and ETH.
Sources expect Fidelity to either make a bid for grayscale or quickly launch their own spot Bitcoin ETF.
One or both are coming soon.
Star BlackRock and Fidelity will own the crypto space in the U.S.
I should give a lot of context that Fidelity has been deep, deep in crypto, specifically
Bitcoin, mining and other products, allowing their customers to have access to these
long ahead of any other institutions have been massively bullish and huge cheerleaders for the market.
So nothing there I guess would technically surprise, but Andrew, what I want to know because
You're the one who kind of broke this, says multiple sources, but I haven't seen it anywhere else.
So what do you know that we don't?
So first and foremost, Fidelity has been mining Bitcoin since 2015, early 2015.
So that's eight years, right?
So obviously certain sources and all sources at Fidelity aren't going to put their name on anything
and everybody knows on this call, you know, unless it's a lawyer or a PR, somebody involved
in stories.
Most people don't put their name on stuff.
But what I will say is,
We're talking about folks that not only are at the highest points of the digital assets portion of Fidelity's work,
but above them, there are folks that run Fidelity that are behind this, that are part of the Bitcoin movement.
If you take a look at a tweet right underneath that particular post,
it shows a basically the architecture of what fidelity is doing to move bitcoin into larger mainstream
use within the wealth management space and what that architecture shows it's almost a
point for point graph of what grayscale does
custody solutions, trading solutions, just across the board.
Basically a one-stop shop for fidelity to handle Bitcoin.
And oh, by the way, spot ether opportunities for all of their clients, all of their wealth management operations.
Something that most people on this call may not understand about Fidelity.
Yes, they have a front facing, let's call it, not institutional, but retail shop, right?
So Fidelity has a, you know, client facing retail shop, but...
A big part of their business is they're a back end operations custodian for 80% of the
wealth management operations across the United States.
So not UBS, not Merrill Lynch, not Morgan Stanley.
But any advisor that handles $100 million to a billion to $5 billion in client assets that leaves any of those firms, they have four organizations to choose from to basically handle custody, trading, and all those things.
Fidelity is the biggest in that space along with Charles Schwab, right?
So Fidelity offering this not only to retail clients, but are rolling it out to the back end operations of every, you know, 80% of the wealth management apparatus here in the United States.
That is a really, really, really big deal.
Couple that with the comments from Mark Usko.
Everybody on this call and anybody in the crypto space should hang on every syllable that Mark said about this issue.
Black Rock will get approved.
Fidelity will get approved
Vanek will then get approved
and there'll be a cascade of approvals
that will happen very
I'm sorry to interrupt
but I think we all agree with that premise
but you're making a very specific claim
about both Fidelity and Grayscale
Mm-hmm
Where is that coming from? I understand because we, I mean, factually, I just told you in the beginning. I told you in the beginning of my response. It's coming from sources high at fidelity. Okay, because fidelity has actually filed for the wise origin Bitcoin trust in 2022 and were rejected by the SEC. So, you know, they're not 2022 anymore.
It's not 2022 anymore.
The landscape has dramatically changed.
I 100% agree that this is something Fidelity will do.
I'm just wondering where we get the idea that it's imminent
and then making the jump to the grayscale side of it is pretty big.
So is that also coming from...
I don't have any privy knowledge.
And Andrew's sources in my experience are pretty solid.
But I would be very surprised...
if there was a deal on the table right now for Fidelity to acquire Grayscale.
There's been multiple acquisition offers taken to Grayscale.
They have rebuffed all of them, even at pretty hefty multiples.
And I...
Uh, like, I'm of the, the view that Barry is not going to sell that entity really under any circumstances.
It's the only asset that he has that's valuable.
That's my thinking as well.
And I, that's why, David, I'm glad you're here because obviously, you know, and Steve as well, because the GBTC side.
Yeah.
The only other thing I would say on that front, and again, Andrew's sources are, like, he's had lots of scoops that people have said, oh, that's bullshit.
And they're 100% correct.
So, uh, he's got good sources, but, um, uh,
Yeah, the DCG entity is a very leaky ship right now.
There's a lot of stress.
There is a lot of pressure at all sides of the entity.
And if there was an offer, a deal on the table...
for fidelity to buy the golden goose, that information would have leaked.
They would be, the Genesis creditors would be all over that shit.
Let's just put it like that.
So I'm highly skeptical that a deal of that magnitude could be put together and that information be kept that tightly controlled.
But...
Yeah, I'm not down.
I'm not saying Andrew.
Yeah, yeah, yeah.
I get it.
We're all in here chatting about it.
So I'll give a little more context here.
I will say that I have two sources at Fidelity.
And to David's point, I have one significant Genesis creditor that that also floated this, this conversation to me.
Yeah.
Now, some more context to it.
The conversation is also having to do with there's an expectation that DCG will have more problems in the future.
Okay, that the reality associated with DCG as an entity and being able to hold on to gray scale is going to weaken potentially in the future.
Okay.
That's where Fidelity is kind of holding its water and keeping a sharp eye on,
we want that entity, but we want it at probably a price that Barry isn't currently sufficiently pressed into yet.
So there's the reality behind the conversation is two sources at Fidelity, one large Genesis creditor that would know.
And so, you know, that's the reality behind it, is that it's going to continue to be a fluid situation because there's more to come associated with DCG.
I would say this. There's probably going to be more over the next couple of months associated with Barry's leadership and his ability to hold on to that leadership at DCG.
I'll put that out there.
Yeah, those rumors are widespread.
I can definitely agree with you there.
That's something that I've been hearing now for, you know, six to nine months.
Point being, it can be a forced, something that is forced.
And so if and when that is forced, again, the vice grip on the only entity that's worth anything for this part of the conversation at DCG, that grip would be loosened.
And so there is a continued interest from a fidelity in gray scale, but also secondarily,
their interest in pursuing a spot ETF as well is real.
Well, I will say one thing to back up Andrew, you got to love the Friday front running of the news heading into the close, 15% pop in GBTC.
So to move the price that much, you know, you're talking at least 50.
I mean, I haven't looked at that.
Sorry, guys, I just cut out.
You got a phone call?
Probably somebody telling me I need to shut the fuck up.
But the volume into the close, I thought was pretty telling.
And yeah, I don't know why the market's closed today.
But I'm curious to see what the next trading day looks like.
It's Juneteenth, so all the broader markets are closed for Juneteenth.
Yeah, indeed. So, Steve, do you have any thoughts on all of that? Once again, being in line, McClurg, I just keep coming back to you because you're my guy at these topics.
Yeah, I mean, I don't necessarily have much else to say there. I mean, I, you know, I'm not aware of any rumors around that topic. It would surprise me as well.
Yeah.
given the hair around DCG.
I can't imagine anybody really wanting it, but somebody does.
That's great.
Okay, then Steve and David,
can you talk more about what's happening than with GBTC
and perhaps the efforts on that side from holders?
I mean, I can't really talk about that a whole lot,
but I might let David do it.
David can.
Yeah, uh,
Right now, I can't say a lot either.
You guys could recently, especially David, but go ahead.
Yeah, I will say that there is a lot of litigation in flight right now.
There are some big boy decisions being made that...
are above my pay grade in terms of getting the largest shareholders aligned around a couple
topics. And I think you're going to see news there by the middle of July. And yeah, there is some,
there are some
You know, one of the challenges here is that people are very worried about discovery.
People are very worried about, um, uh, what exactly comes out in litigation.
This whole fucking thing is a, is a stinking pile of shit.
Let me just put it like that.
Um, and, uh, uh, yeah, it's, it's,
This whole thing being GBT specifically, or you're talking about DCG?
Because that goes back to an...
BTC, DCG, Gray scale, Barry, Michael, it's...
a pack of thieves and I highly recommend people read the complaint that Alameda filed
against GBT or against Grayscale, DCG, Barry Silbert and Michael Shana Shine.
And yeah, I think I think there's going to be some substantial developments in the next
30 days on the litigation side, but I'll just leave it at that.
Andrew, does that align with what you're hearing?
It does, and it's interesting that...
It's not really interesting.
I guess it's the reality of human nature nowadays,
but people don't read stuff, right?
They're...
If you want to know what's going to play out in the next three to six months,
just go read the documents that are mostly public, right?
There are real problems with...
I mean, DCG, I'm going to stop short of, you know, making anything inflammatory, but they've got real problems from just about every angle.
David is, you know, stopping short of saying those things as well.
Um, you know, I, I, I, they have criminal problems. Correct. That, that, that is, that is correct. And, you know, their, their shareholders and, and Genesis creditors, um, and to some degree, you know, the SEC as well as the DOJ have, have tried to give them opportunities to,
to work themselves out of those problems.
And for all intents and purposes, come clean.
And look at the last 45 days.
They were given an opportunity to, you know, to mediate and arbitrate and work through those issues.
And just complete bad faith.
Just nobody, you know, I'd had...
couple of conversations with let's call it the biggest Genesis creditors in this whole deal.
And they're like, these guys, it's all smoke and mirrors.
And they think that in some way, shape, or form, they'll find a way to get out of it.
And so just bad faith.
There are good and bad actors in this particular story.
And it is crystal clear who the bad actors are.
It's not even a question anymore.
You know, and I'll just throw out there, like, you know, this is based purely on just my perspective or instincts.
Like, I don't have any inside scoop to this, but based on just what I know about the situation at DCG and Grayscale.
you know, like,
regardless of Grayscale's intention,
which is a whole other conversation
about what does Grayscale actually want to happen.
And I can tell you it's not to be approved for an ETF,
at least not soon.
But I just see no way in hell
after everything that's happened with FTX,
with Celsius, with all of this stuff,
that they're going to hand a Bitcoin ETF
to perhaps...
one of the biggest fraudulent enterprises in the entire industry.
And, and, like, I just don't see it happening.
And so from the perspective that Black Rock provides air coverage for a denial to happen
and to take away the banner of grayscale as, like, we're fighting for a Bitcoin ETF,
I think that that makes plausible sense to me because it's just there's no way they're going to let Barry Silbert have the first ETF after.
So David, so really quick, I just want to unpack that outside of even the Black Rock side of it.
or who wants what?
Because if all of this is going to happen,
then GBT is not going to get converted anyways, right?
I mean, if there's criminal charges in some way, shape, or form,
which I cannot substantiate coming against this organization,
it's very doubtful that they're going to get approved for an ETF.
So...
So why are you saying they're kicking the can down the road?
Why are you saying that they don't actually want the approval?
Is that because the current fee structure and ran, we discussed this, I think, on Friday,
but is that because the current fee structure?
They're just making gobs and gobs of money and it's not really in their best interest to have that ETF approved?
Yeah, I mean, if you take the perspective that basically Barry Silbert wants to come out of this mess with money.
He wants to not be zeroed out.
And I mean, I'm hearing people wanting to go after Barry Silbert personally and go after his personal assets, like his house, etc.
So, I mean, if you're taking the perspective that he's trying to dig his way out of a hole,
he's going to follow the profit maximizing path.
He has to.
And so from the perspective of what generates the most fees, right now he has an annuity
in grayscale that he thinks can never be dislodged, where he's taking 2% off the top
per year on the nav, which is roughly 13,000 bitcoins a year he's collecting and putting
in his pocket.
So from his perspective...
Hey, the longer I can drag this out, the longer I can keep the lawsuits at bay, the more I can pretend that, you know, we're seeking some sort of an ETF conversion, the longer I can take that 13,000 Bitcoin fee.
What happens is they're approved for an ETF and they actually convert into an ETF.
Their fees are so astronomically above what would be commercially standard rates
that they're going to have to either a drop their fee or there's going to be massive capital flight out of the fund as soon as they open up.
Correct.
So they're going to have to drop their fee to something competitive.
Now, you can ask, you know, we actually had a whole...
private conversation at the GBT shareholder meetup in Miami.
But, you know, let's call, like, let's say commercially standard fees and there's a variety
of views, but let's call 50 basis points.
And even that is high for a trust or a vehicle of this size.
That's a 75% reduction in fees.
For them to make the equivalent amount of fee income, they would need to 4x.
the amount of AUM, the amount of Bitcoin that they're holding in the trust, which on the surface, it's like, oh, maybe that's plausible.
There's the first ETF, yada, yada.
But you have to actually look at the Bitcoin numbers.
They have 3% of the world's Bitcoin supply in this trust.
For them to be able to 4x the amount of AUM in the trust, they would need to have 12% of the
of all the Bitcoin in the world in the trust.
There's not even 9%.
You can't even, if you had infinite money,
you couldn't even buy 9% of the Bitcoin right now.
There's not even that many Bitcoin available
out in the public markets.
Like maybe you can get a million bitcoins
off of all the exchanges.
I'm sure there's some on-chain sluice
that can look at this.
So there's no way...
that they can actually grow AUM.
And that was if they were running this vehicle perfectly.
But instead they've been running it like a criminal enterprise.
People are fucking pissed.
There's going to be redemptions.
Even if they cut the fees, there's going to be redemptions.
So there's no plausible path for them to generate the same amount of income as they're generating right now.
And so the profit maximizing path is for them to just delay, delay, delay.
have some sort of plausible excuse for why they're not enabling redemptions,
which they have the full ability to implement today if they want to do.
Right. That's the biggest head scratcher in the entire process.
Yeah, go ahead.
Everything that David Bailey is saying to is pressure.
It's pressure on keeping their...
ownership and the vice grip they have around this trust and at some point that all of everything
that David is saying there is potential for it to break their their grip meaning if that fee
if that fee has to be cut right and the flight of assets so what what is the point of pain associated with
let's sell this thing to Fidelity that's going to net X of whatever versus this thing's going to die on the vine because everybody's leaving because the Fiat Black Rock, the Fiat X, the Fiat Y is, you know, 10% of what our fee is or what we want to even get our fee down to.
See what I mean? There is a pain point here associated with it. Therein lies Fidelity's interest.
we took we took a billion dollar offer to them not that long ago and it got shot down like not even not even interested yep so that's like that's where their minds are at i'm not saying that that's that's just
justifiable. And if you if you say, hey, this thing's going to be busted in the next two to three
years and you do kind of like what's the what's the projected fee income if they become an
ETF in the next two to three years, a billion dollars is hard to justify given all the
baggage that comes with it. And that still wasn't even in the ballpark of interesting to them.
So I don't know. I think I think they're looking at this as like the 630,000 bitcoins that
are in that trust are their Bitcoin.
And they're going to be in that trust 50 years from now until that 2% fee drains it down to nothing.
So that's just my gut take.
Of what they want to see happen.
I think that's probably what they want.
But, you know, I don't think, I think if you ask First Republic, you know, months before what happened there, if you ask Bear Stearns before what happened there, I think they would have said the same thing.
I mean, they would have said, oh, no, we're going to be fine.
We're not going to sell.
And I think that the point that someone made a few minutes ago that, you know, with lawsuits, I think that there's going to be a grand bargain here.
I mean, you know, I think it feels a hell of a lot like, like this is going to be an engineered thing.
takeover where they basically promise Barry that he's not going to be on a breadline and,
you know, and give him some insulation for the issues that he's had and et cetera, et cetera, et cetera.
I mean, it just feels like that.
I mean, that's been the history of financial markets for the last 20 years when big companies get in trouble.
they get bailed out by other companies and a lot of their internal issues go away.
I mean, if you look at country, there are so many of these that we've seen.
It feels like that is the only solution to the walls came in.
I couldn't agree with that more.
the grand bargain theory.
And again, you're talking about the biggest players.
Again, this is an obvious point, probably to everybody here,
but let's be real.
The Gary Gensler's of the world, they may make a lot of noise
and do a lot of stupid stuff, which pisses us off.
But that guy in the SEC effectively work for Black Rock and J.P. Morgan.
They don't, you know, they're not going to take meaningful action against those types of organizations that either of those organizations ever care about.
As I think Mark or somebody said, you know, J.P. Morgan on average pays a billion dollars.
A billion a year.
They don't care, right?
BlackRock doesn't care.
They've submitted this knowing that it's going to get approved.
And when fidelity comes or buys the, you know, gray scale, they know it's going to get approved.
These organizations don't make these types of decisions without already knowing the outcomes.
Not only that, but knowing that the outcomes have already been decided and engineered by them themselves, right?
J.P. Morgan put almost $100 billion and engineered $100 billion into first report.
public and what it ended up happening three weeks later jp morgan now owns first republic
right that that they knew that was going to happen the minute that they decided to put a dollar
into first republic they had already done the analysis of why do we want this asset done over other than
the screeching heads on the media to you know kind of lay the groundwork and all right all right
everything's fine now jp morgan has it and the waters have been calmed
Same thing will happen here in the United States. Look at the bigger picture. Nearly everybody has been wiped off the board. Coinbase is fighting and they will be a part of whoever mentioned the grand bargain. They'll be a part of it. It's, I mean, it's just it's it's fairly obvious to, to, here's who it's fairly obvious to.
All the agency folks that for some reason have decided to talk to me, they've etched it out in stone.
Here are the people that are going to survive.
Here are the organizations that are going to survive.
And here's who is going to take it over.
It's for all intents and purposes, been decided.
And that's just, that's the reality, right?
Is there anybody here who does not think BlackRock will get approved?
Curious. Any guests?
Caleb, you haven't spoken at all.
Do you think BlackRock gets approved or do you think not?
Do you think that they know in advance what's happening here?
Yeah, you know, I've been happy to just sit back and listen to the conversation because this certainly...
Yeah, but I'm going to force you this.
I'm going to force you to give an opinion. I'm sorry.
No, look, Black Rock, as everyone knows, is the largest financial services non-banking company in the world.
And so if anyone can get it done, it's them.
And I think, you know, it's been mentioned before that they probably have the highest track record of success in getting things approved.
So, you know, if I was a betting man, which I guess I am, if I could put my money on anyone to get something approved, it will be BlackRock.
So, yeah, I mean, I think the question then just becomes how long does it take, right?
Yeah, I've seen people conjecturing that they could be as soon as a month.
That would be pretty surprising.
Andrew, you clearly have an opinion.
Let me give you another point of reference.
Why has in so many of the SEC actions, why has Ethereum never been mentioned?
Or if it has been mentioned, it's been mentioned in a very, very kind of angled slash...
strategic way.
They don't want to mention it as security.
And then why in some of Fidelity's documents that just came out last week about what they're rolling out to wealth management, Bitcoin and Ether are the two, you know, the two cryptos that are going to be part of what they're doing, right?
That is...
Put it in, you know, on Times Square across the billboard.
That is the pathway that is being pursued by Black Rock Fidelity.
Eventually, J.P. Morgan, that is what's going to happen, right?
They already know what's okay to do and it's not going.
Of course, but just Andrew, just to play devil's advocate there, and I tend to agree, but that's also 70% of the market.
Right? I mean, yeah.
No, I agree with you.
I agree with you.
I agree with you.
Fidelity or any of these.
Literally every other asset in crypto outside of Bitcoin and Ethereum is a nothing burger and,
irrelevant and completely too minuscule for them to even touch for now i'm not going to get it
you know i'm not getting in a conversation of what is and isn't a nothing burger i agree with you
that that's 70 percent and nothing burger i'd have a conversation along with david about
aetherium and burgerness but be that as it may the reality on the field is that it's all
it's all been decided for all intents and purposes and
it's all been decided.
And if you think that the likes of BlackRock or J.P. Morgan or these scale of organizations
aren't part of the process by which, you know, SEC, you know, claims go out.
Yeah, they are.
And they absolutely are a part of that process.
There's no question that they play a part of this and they are effectively a part of the government.
I guess the place, Andrew, where I...
am struggling here is the point that Rand and I were discussing earlier, which is that BlackRock is using Coinbase for custody while concurrently being, you know, Coinbase is being sued by the SEC.
Those two things don't seem to align too well for me, but maybe.
The SEC is a civil.
Right.
Right.
The SEC is a civil organization.
We all know that, right.
If Coinbase was being, was being.
attacked by the DOJ.
That's another conversation.
The SEC, again, J.P. Morgan often has probably with the SEC.
I'm just saying it's the same agency that has to approve the CTF from BlackRock.
Yeah, sure, sure. I get it. Just wait until it comes out that, oh, you know what? Coinbase is going to pay a $700 million fine and they're going to adjust their offerings and adjust this and adjust that. And they'll agree to it. Why? Because Black Rock is going to shuffle money down their throats for the next decade.
And the cost to be huge.
I think I agree with and I think this coin-based thing has to resolve itself.
I think in traditional finance, they kind of used to this kind of stuff,
these fines and arguments with the SEC.
It happens very often in traditional finance.
We just, you know, to us, this is completely new.
So we're like panicked, but...
this is like if you're in traditional finance and you're a big organization you've been
taken on by the cc a few times and you've paid a lot of money in in settlements and and stuff like that
And as I said, I think that the biggest winner here is actually Coinbase because...
Yeah, but the reason...
Go ahead.
Sorry.
The reason people are panicked, Rand, is because that in that resolution that Andrew just described,
this is not the same as a financial organization paying a money laundering...
you know, a penalty for money laundering or for commingling,
which all these have in the past,
and then continuing on with their business.
In this case, for American investors,
if that resolution that Andrew just described happens,
Americans then can't trade 98 to 99% of crypto assets that exist.
So it's a much bigger deal because if it's settled that way and Coinbase's custody business becomes massive,
but somehow they're allowed to have everything deemed unregistered securities and they delist all of those things.
That's a huge deal for the retail people who are trying to trade this market or invest.
Yeah, well, surprise, surprise retail people get fucked.
That's not news yet.
It's not news to anybody, right?
Scott, I'm going to say that I'm going to go out on a limb here and I'm going to say that you probably agree with me that 90% of these things that are trading are actually securities.
Yeah.
Yeah, maybe 99, but it's...
Maybe not on Coinbase, but I mean that exists.
Yes, yes, 90%.
Shall we say that the majority of them are actually securities disguised as utility tokens?
Of course.
Okay.
But why is that a bad?
But why is being a security a four-letter word is the other conversation?
But yes, go ahead.
Unfortunately, those are securities laws in the United States.
And until such time as they decide that they're going to change securities laws in the United States,
that's unfortunately the laws by which we have to abide.
I think we all agree there.
Go ahead, Dave.
I see you have your hand up.
Yeah, I mean, that statement I literally couldn't disagree with Rand Moore.
The fact is security laws of the United States are not supposed to be designed to destroy innovation and policy.
And the fact that there is no way for token issuers that do not have financials, do not have boards of directors, do not have the stuff in the forums to actually fill out at S1 is ridiculous.
And it is why five years ago.
Hester started talking about it.
A lot of people, hell, I started talking about it, there needs to be a regulatory regime.
It's why every other country decided they needed a regulatory regime.
At the end of the day, at the end of the 90s, there was lots of internet regulation being debated, and they never did it because they realized they needed to understand the technology and work with the technology.
In this particular case, the SEC has for multiple reasons, different reasons for different chairs, decided not to work with the industry.
But the idea of creating a death sentence is...
for distributed organizations for use tokens is important.
And one more thing, Rand, there was a huge difference in terms of what is the security,
in terms of what you're talking about.
The ability to have an equity or a bond, we understand that.
But having a, you call it utility token, call it a governance token,
call it bring it revenues forward, you know, selling future, whatever,
Those are different, but the other big problem here, and it's huge and it's going to impact a lot of industries is the accredited investor rules.
The real reason why people don't try to register securities is because if you're trying to incentivize developers and network users for layer one or any other token, you can't because they're not allowed unless they're accredited, which is very hard to prove and you can't control it if you're an issuer.
You literally can't be giving tokens to people who aren't accredited investors unless they're seasoned for six months at least.
And so there's no way to actually manage it.
The rules are completely unworkable.
And if you don't acknowledge that the rules are unworkable, you can say, well, tough.
The U.S. law says you can't do innovative new capital markets.
But hold on.
But Dave, Dave, Dave, Dave, but that's not the SEC's fault.
The fact that the SEC, 100% as Scott.
As Scott always says, as Scott always says, you know, to the SEC, when the hammer, when you only have a hammer, then every problem seems to be a nail.
No, it's not true.
No, Rand, that is wrong.
That is literally wrong.
A sitting SEC commissioner has been saying the same thing for five years.
The SEC has the ability to make rules.
They 100% could have consulted the industry and made rules long before now that would have amended the, the, that would have amended any of these rules.
They can create safe harbor, Dave, but they can't change what a security is at the end of the day.
I think the point obviously is that the Howie test and securities law come from Congress,
and it's their job to change that.
So the truth is in the middle.
Yeah, but the point, Scott, is it would never get to court.
If the SEC created a safe harbor, change the ability of issuers to issues so that tokens could actually fit under it, change the ability for exchanges to then register to actually do the things that they were doing and make it workable, kind of like Micah is doing.
They didn't need laws to do that.
What they needed laws to do is to give them jurisdiction.
And the reality is the industry not only wouldn't have fought against that jurisdiction, it would have been conceded to them if in fact that they had taken the approach of working with the industry.
The reason the industry fought tooth and nail, the reason it goes to court is because they're like, well, we have no path to compliance.
So what the hell do we do?
And they say, well, it's a commodity.
But the CFTC doesn't recognize, doesn't really regulate commodities.
They regulate commodity derivatives.
And so it's in this black hole because there's no path to compliance.
Create one and it never would have gone this far.
That's the thing that people always miss about this.
Rand, did you have a thought there?
Yeah.
No, I don't.
Yeah, I think we're going to...
I think it's too technical, and I think that, I think in this case, I think there's, you know,
there's just too many technicals yet.
Yeah, I mean, I guess it. Scott, I wonder if anything else, or maybe we, maybe you could
wrap up for us today, Scott.
Well, I don't know who's going to hang up on me.
I don't know.
Well, Mike Alfred just joined.
So, Mike, you get, you just joined and you now get the final words.
Good job.
Yeah, thank you.
Look, I think this has been a pressurized environment for, you know,
the last call it six, nine months.
I didn't hear anybody mentioned Fertree or Valkyrie.
I didn't hear anybody mention any of the other pressures
on Barry and Michael over at gray scale.
But this Black Rock ETF filing combined
with any rumbling from Fidelity should be the thing
that finally precipitates closing
of this NAV discount, which earlier last week, it was like 43, 44%.
It closed the week at 36%.
There was a massive move, one of the largest moves in the last year on Friday.
And for transparency, this is a major position for you.
Yeah, yeah.
I mean, I had 100,000 shares two weeks ago in my fund, and I increased it to 235.
just over the last two weeks.
Not specifically because of this,
partially because of the limits that a lot of funds have
on how much spot Bitcoin they can hold
with certain prime brokers.
And so because I wanted to consolidate
all my prime relationships with an equities focused broker,
they just weren't letting me hold enough spots.
So I wanted to use, I thought GBTC was the cleanest
way of increasing the overall Bitcoin exposure. And I think a lot of funds look at it that way.
But now that I look at the landscape and how much it's changed over the last week,
I'm much more confident now that that 36% discount is going to compress. I don't think
Barry and Michael will be able to maintain a 2% fee for very long. So to the commenters earlier who
were like, Barry's still going to be mining that 2% fee in 20 years. Like I was chuckling to myself. Like,
Clearly, that's somebody who has no idea what they're talking about has never worked in the asset management business, doesn't know Barry or Michael, doesn't know anything about the SEC and candidly probably isn't that intelligent generally.
So when I heard that, I was chuckling and almost dropped off the space because I said this is an unintelligent conversation.
It's much more likely that there's a major movement in the next, call it 12 months here.
I suspected that was going to happen anyway, but I think Black Rock and Fidelity will precipitate it.
I don't think BlackRock can make this happen quickly because the SEC is locked in a battle that seems very political.
So we'll see how that plays out.
But I think the net result of all of this is that there will be a spot Bitcoin ETF in the next two years.
And the gray scale discount is going to go to zero at some point.
Caleb, go ahead.
Yeah, those were great comments there from Mike.
And sorry for the background noise.
He stumbles a little bit loud.
Yeah.
Quick question on that point.
Do you, I mean, I'd agree with you about the GBT discount the NAV closing by a pretty substantial degree even further.
What are your thoughts on the Grayscale Ethereum Trust, E-T-H-E, if you have any?
I mean, I looked at it earlier this year because I was evaluating whether I should put it in the...
in the fund and i have a pretty pretty strict mandate to to not go past bitcoin because bitcoin
is the only asset that that i think has institutional qualities and and i'm highly confident
will still have value in 10 years everything after that including ethereum i have
some doubts about i hold ethereum personally but i don't put it in the fund and so i just stopped
short of of getting too excited about it it does look cheap to me it does look like if you really
want a theorem exposure
Given all the movements right now on the Bitcoin side, there's a good chance that that Ethereum discount could close too.
And so, like, if you want to have Ethereum exposure in this environment, I don't think it's the worst play here.
Yeah, I mean, I'd agree with you on that too.
And, you know, albeit the discount closed pretty substantially on Thursday and Friday.
it's still trading at, you know, basically a 53% discount, you know, so it's like if you think the GBTC discount is pretty big, the eth one is even larger.
And so, you know, I think just.
But there's no, but there's no rumor here that BlackRock's going to have a spot Ethereum ETF.
Exactly.
That's exactly the point.
It could be interesting.
But you can look at the spread between the GBT discount and the E discount as sort of a call on whether or not Grayscale is going to get acquired versus whether or not there's going to be a spot ETF, right?
So to the extent at which that spread widens, it means the market saying gray scale will not be purchased, right?
To the extent of which that spread between GBT and ETHE tightens, that means the market thinks,
that fidelity or somebody else is going to buy all of of gray scale in which case if somebody
were to buy all of gray scale the first thing they're going to do is lower the fees they
They may do some buybacks.
They may do a number of different things, even beyond getting SEC approval for a spot version of those products.
They may do things that close those discounts.
And the market will start to sniff that out if that happens.
So that's what I'd be.
I'd be looking at that 36% versus 53% and asking myself over the next few weeks to a few months,
what happens with that dynamic?
I think that'll say a lot about what's actually happening behind the scenes in these conversations.
That's a really great point for everyone who's on the call.
So, Mike, thanks for that clarity and for that information.
I appreciate it.
Yeah, I love that.
That was a really nice perspective on it because it basically gives you a lot of insight
as to what the market is saying is likely for both of those assets and certainly for
grayscale.
Rand, I think we're up against the wall here.
Run it back tomorrow.
What do you think?
I think I got a phone call even with my phone on airplane mode.
So I don't know if you guys heard me or not.
Yeah.
I think it's just me.
All right, guys, that's basically...
Go ahead.
Yeah, sorry.
That's all we got for you guys today.
Of course, we'll be back tomorrow 10, 15.
There is a pin tweet above guys for anybody who's looking to run sponsorship with the show.
That is something we're opening the doors to, so you can email us above with that.
And otherwise...
really in lightning, I think we're going to see a lot more information on all of these ideas in BlackRock in the near future.
And so we'll obviously continue to cover it.
And we kind of decided to skip over some of the other topics today.
Crypto.com.
I'm sure you guys all saw.
We shared the news earlier that there was a Financial Times article alleging that they have a proprietary trading just its market making on the platform.
So we're going to try to get the writer of that Financial Times article to discuss that before we start just throwing out speculation and indicting anyone before we have the facts.
So that's all we got for you guys today.
Thank you so much.
And we'll see you all tomorrow.
