Welcome to Trillions. I'm Joe Webert and I'm Erica Eric. The past week has been an eventful week for ETFs, specifically bitcoin ETFs, which we've been talking about. I went back and looked we first had we talked about e t F bitcoin ETFs on Trillions. Do you know when it was, uh, well August nine, oh, with Matt Hogan. Sure, and that was six. That was three minus five eight minus three is five years before after it was first file. Yeah, yeah, exactly,
So here we are. It happened. We are. Yeah, this past week felt like a decade, to be honest, I guess because we've been waiting a decade and a lot was crammed in. Honestly, I I kind of felt like I was, I don't know, like covering the last week of a campaign or something. Like every little thing was
was coming out and and it was really fascinating. And some people were saying they were sick of are tweeting and writing about this, but I told them, listen, E t S only kicked down the doors of an asset class once every decade, equities, bonds, gold, and now we've got crypto. This is a big deal and I'm happy we covered it well and it was really exciting, and the whole thing is just been a whirlwind and there's so much to discuss about it. So I'm no good
group to do that too with today, that's right. So we're gonna break down what just happened, what else might happen, and then maybe get into a few of the more technical aspects of it all. So joining us Jeremy Sindo Wicks, who's a shareholder at Better Price where he's an attorney, are calling Katie Greifield in Bloomberg News, and also James C for et F analyst and Bloomberg Intelligence, this time
on True Alliance. The Bitcoin E t F race is over in the beginning at the same time, Katie, James, Jeremy, welcome to trillions having Thank you very much. It's a big honor. Katie. I want to start with you because you had a news article that sort of um it preceded the official UH filings go and and sort of the the E t F s becoming live investments, and I wanted to ask you, did you move the price of bitcoin? Yeah, we moved the price of bitcoin. It was wild I had I was waiting for that artistic
article to go. I think it. It went live at PM on a Thursday and had my g I P screen up, and I mean you saw the price shoot straight up I think two right after that. And this scoop in question that was with vill Donna Hirich and Ben Bane also Bloomberg News, was that the SEC wouldn't stand in front of these launches. They wouldn't delay or
stop them. It's the language was a little tricky because it's not like they were they don't approve it necessarily, but basically, if you boil it down, the story that they would let these e t F launch and that's what happened, okay, and what's transpired since BITTO ticker b I t O uh finally started treading well, we saw the second most heavily traded debut ever according to uh b i's own data, and I mean just the assets
pouring into this fund. It was clear there was so much pent up demand for bitcoin and e t F rapper, more so than I was expecting. I mean, I've been talking to people for weeks, analysts and investors who weren't expecting as much demand as we saw, given that these are futures products. It's not the real deal that many in the crypto and et F community really have been
waiting for. That's kind of the holy grail. But even still, I mean the Bitto e t F it already as well over not well over, about one point two billion in assets at the time that we're recording this UM, and it really feels like they stole the show because we've had Valkyrie launched since then and still very heaty debut, but not to the same scale and the Valcori ticker b t F. So when Biddle launch, I'm gonna agree
with Katie that it was beyond my expectations. We had a group call with my research team, our team, and I basically had everybody pick how much do you think the volume would be on day one? And I think the highest pick was three million. I think we averaged
about two hundred millions, so it traded one billion. But here's the thing with bidd oh that was impressive, is it traded more the second day and the only other e t F to do that in history were like g L d accused, like really ones that are studs today, So that was a good sign. It has trickled off since, although I will say, um to that stat The number one most voluminous e t F on day one was this preceded carbon blackrock e t F, which I can
account because that was one institution. Um So, if you take away the b y o A preceding launches, Biddo was two times over the most you know, the biggest launch ever by grassroots volume. So again, major major deal and something that I think none of us expected to be so big. Okay, and James, I want to bring you in here because we've we said it a couple of times. We talked about it a couple of episodes ago.
This all of this was the futures based e t F. Right, and walk us through why that got approved instead of um uh, you know something that was actually commodity backed. Eric and I and pretty much everyone in the e t F ecosystems in agreement that the futures based product was not the right product for most people out there trying to buy a bitcoin etf UM And the sole reason, there's really only one reason as far as I'm concerned that the future is BASTF got to prove, and that
one reason is Gary Gindler. He gave a speech on August three basically outlined this is what you need to do, and he he gave a few different things, but the two main things where he wanted it under the and he wanted it to be holding bitcoin futures and pro shares. I don't I would love to talk to somebody inside of pro Shares to tell me how they did this,
because they got their filing out the next day. So either there was a group, or they had this thing tabled already ready to go or was on the shelf, or they had somebody working twenties four hours straight to get this filing. I don't know, UM, but I do want to hear the story because that's the reason they were first they got this thing out. Gary Genzler gave this peach on August three, and to us, we talked
about him, You're like this, this is it. There's gonna be an e t F and our team was kind of in favor, like yes, that they're gonna prove a Bitcoin futures et F. Ginzer wouldn't say this, um. And then he reiterated that statement on September twenty nine, UM, so we were pretty adamant. And then once he readed that statement on twenty nine. We were very bullish that
there was going to be an approval um. But yeah, it just goes back to Gary Gensler and his his adamant see that it became the whole bitcoin futures and be under the I just want to jump in. So pro Shares they were like right there, ready to go, probably working twenty four hours. So was Investco. I mean Vestco also filed on that day. And a fascinating story yet to be uncovered is Investco dropped their pursuit of their Bitcoin E T F futures filing. I mean they didn't.
They haven't withdrawn it. It's still you know, it's sort of on just hanging out in purgatory. But they theoretically could have launched in the past weekend chose not to. Yeah, they were exactly one day after pro Shares they're filing hit the egg or filing the next day, so they were just one day late. The idea that pro Shares would win this rate, so James and myself and R T was pretty aggressive and saying the SEC would approve
a bitcoin etf aggress more aggressive than most. We got a lot of pushback and we had pro Shares as the favorite so those did turn out to be true, but rewind two years, nobody would have picked pro Shaares to win this race. And the thing that I keep thinking of the scene in Silence of the Lambs, when you know Jodie Foster walks into see Hannibal Lector and he tells her all everything you need is in the case file. Uh that just it's all was all in
Genzer speeches and pro Shares. Not only were they quick to do it on the e t F side, but three months before that, Genzer talked about a mutual fund and they file that right away and launched that right away. And the fact that the SEC allowed that mutual fund out gave us confidence to say, okay, well the mutual phone was out seventy seven days. Uh, let's just go ahead and be very confident the e t F will also be approved. And it did. But it just goes
to show you, like following instructions. Those tests back in school, those are good tests. I think, those ones that like three kids get because everybody else does the one thing and only three of them actually listened to the teacher. Go ahead, go ahead and pop your callar Eric, good job, James, can you tell me the difference between Bitter and BTF the Valkyrie offering, Like, you've got two of these future
ones out there, what's what's the difference? I mean, honestly, from a high level perspective, pretty much nothing but right now, just because of when Biddo launched or however you want to us be I t o UM. Basically they had to roll because so much money poured in so quickly. As Katie talked about that, they had to basically leave that front month's contract, which was October at the time, and start investing in the second month contract, which was November.
So their exposures are a little different right now. So theoretically, if there's something big happens in the market, UM, it's possible that BTF would move more in line or aggressively than than BTF. But other than that, they're pretty much, as far as I know, uh, almost the exact same product, um, James. This whole role issue is clearly why at the beginning we said most people did not want a future z ETF. They thought of spot physically back to would be better
for investors. I still feel that way, UM, But let's go into why Gezer did this, because it is baffling to most people, and it really comes down to the difference between the nine Act and nine Team forty Act, and Jeremy is the perfect person to explain this. UM. Jeremy walks through why Gary Gensler was so okay with futures under the forty Act and the differences, and why he was not okay with the e t s that were followed the thirty three Act, which clearly would track better.
I think the best way probably to understand Gensler's position is that UM regulator is that his his his conclusions were driven by UM regulatory concentration rather than UM rather than what is the most efficient exposure to bitcoin. And from his perspective and from the SEC's institutional perspective, it makes sense that the combination of a futures based product that is regulated under the forty Act would provide the
maximum regulatory supervision UH maximum regulatory coverage. Then a e t F that is registered that is only offered under the thirty three Act. So let's go over that. So a Bitcoin, a bitcoin e t F can't be under the forty UM well generally because bitcoin itself is not a security in order to be offered under the forty Act,
a fund must it must be investing in securities. Um. What's interesting about a futures based e t F is that it can go either way because because when you're holding up, when you're having a futures based e t F, UH, your your portfolio makes is made up of the futures and some cash equivalent, usually treasuries um for margin purposes.
And the treasuries have a unique position under the forty Act by virtue of various both statutory provisions and sec interpretations over the years, and that treasuries can count as securities if you want them to for purpose is of registering under the forty Act, or they cannot count to securities if you don't want to. And so you can have a future of futures based product and choose whether or not you want to register it under the forty
Act or under the thirty three Act. And in fact, there is a futures based there is a bitcoin futures based e t F that's currently on file that's not forty Act um and full disclosure, my firm represents that represents to uh to curi um um that registrurant. But real quick, just it walk us through what does the forty Act have it's quote protections Because again there has been interviewed a couple of times about this very question, and he keeps saying the word investor protections over and over.
What is what do you get under the forty Act that you don't under the UM You get a whole host of both portfolio requirements and governance requirements like, for example, and a forty Act funds must have a board UM that largely made up of independent board members. UM. It's required to have an audit committee UM. It's required UM.
There are substantive limitations on what the fund can do withouts portfolio UM, such as limited limitations on leverage, limitations on transactions with affiliates UM, which is a huge governance, huge governance third rail for the forty Act UM. So it's though, so that entire structure is something that the SEC views as being fundamentally for the benefit of investors UM.
So Gensler is clearly expressing this view that all other things being equal, it is preferable for this type of novel product to come out first under the forty Act that essentially requires the product to be futures based rather than physical physically UM, and there are other reasons as to why UM a physical bitcoin e t F A t F as a practical matter couldn't really be under the Forty Act even if it wanted to, primarily relating to custody requirements under the Forty Act, which there aren't.
There aren't really viable solutions for a Forty Act fund to comply with right now. Clearly the Forty Act has more protections. Again, sort likes it, and we're just gonna live with the Forty Act for a while. So Katie, let me turn to you, and you wrote another article about the next in line. You know, Betto has a great head start, and we know it's tough talk about what's who's in line and what we might see launched in the next couple of months. Well, Valkuru was able
to make it out of the gates the same week. UM. We're waiting on van x, so they were expected to launch this week. They haven't yet, So it's gonna be interesting to see what goes on there, especially because I mean, the pro shares the Valkyrie funds, their expense ratio is
about basis points. The van Neck Fund is sixty five basis points, so nominally lower, and I mean it is filed as a C corporation, so that gets into some interesting tax implications which could dent performance, but not onally if you're just looking at expense ratios and management fees, that's a cheaper product. So it's gonna be interesting to
see if that's a way that they're able to differentiate themselves. Um. But going back to differentiation, I think it was James that brought up the fact that you know, pro Shares has already had to roll out into out beyond the front month contract. And I'm curious, you know, given that we are approaching the role, um, given the pro Shares has rolled out already into other months, I mean, will there roll out of the front month be less painful than it is for Valkyrie in terms of you know,
how much that cost is. I don't think it will hurt them more. Um, it's possible, I mean we could, this thing could go wonky with the bitcoin futures market at this point. But honestly, I mean, we're just gonna have to wait and see. Anyone who's saying they know exactly what's gonna happen, Uh, it's probably lying or lying
to themselves at least. Um. This one crucial thing about these e t f s that probably is different than what people remember with U S O or V x X or x I V. Those were all like basically rules based. These are active, so they can sort of really time the role and when there's good opportunity to roll without much friction. Um. But I will say, just if you have half of your portfolio in November already, I would argue you're probably going to see less effect on the role than one who has all of it in.
But we did have we have a sample set of this BTCFX, which is the mutual fund that was launched three months ago, that's been that's rolled a couple of times, and it's not bad. It looks like ninety bits to a hundred basis points of frictional cost over what it was it three months. That would translate to about seven percent annualized, which is precisely where Mike mcglond and others have put the sort of annual role costs. But that seven is not nothing, and if you were to put
that as the expense ratio, that would seem very expensive. Right. So this is the real issue with this uh easy t s being used long term, I would also say it could be way worse. So like from from July when those things launched until until now, the role cost is Eric has said has been very low. But if you go back a full year, if those things had launched last September, it'd be would be trailing bitcoin by
right now. So we basically when bitcoin goes parabolic and goes in these huge bullish runs, um, what happens is the contango can increase. And I don't want to get too wonky, but essentially it just means the next month is way more expensive than the current month. And what happens is you have to sell the current month at a lower price and then buy at the higher price. And that's why you want to perform. So like if if bitcoin goes parabolic, depending on what happens with the
futures market, you could seriously lag. Now the opposite can happen when it goes in the scops direction and a huge downturn to so and I will say though that a lot of people, like we talked to McLoone, he'll say, well that when you're looking in the past, or wasn't nearly as much liquidity. He thinks that a lot of
this bring liquidity, which brings arbitrage. That said, we had pro shares on two or three months ago about the mutual fund, and they brought up the point, which is a fair one, although they're like, look if bitcoins on fire and you're in, you're in. You're up a hundred and fifty instead of a hundred and seventy. I mean, you know you're not going to be that bummed out. It's not like the way USO would trail spot oil and you would have had the call right oils up,
but you're only up like five. That's the I don't think you'll see that. But look, this is part of the ish, part of the imperfection of this product, and you'll have to compare it against other products. I will say with these ETFs, there was the rolling gets is a fair point, but the trading costs and these are going to be one basis point and that is going to pretty much I asked cheaper than any other exchange. So I think that the trading crowd will probably use
these more than the buine hold. Katie, I want to bring this back to you because if I'm interested investing in bitcoin, sure an E T f sounds great, but this all sounds really complicated. When I'm I'm just gonna go buy some bitcoin with my robin Hood account, why do I need to buy an E t F futures based product? So who's actually going to be using this thing? Yeah, that's a great question. I think from like the retail
investor perspective and individual investor probably doesn't make sense. I don't know why you wouldn't just go to coin base or robin Hood or PayPal or any other of these
platforms that offer crypto and buy it there. Um. I mean too Eric and James's point that this is more a product for traders, I think it would also be a product for professional money managers who have mandates that they can't trade, uh, you know, crypto derivatives, but they don't want to be buying physical bitcoin or maybe they're not able to in some way. So I think there
is an audience for them. And I mean just looking at how much demand, how much money has been absorbed by these funds already, clearly you know there has been an audience that's materialized. Who it actually is, whether it is retail traders that are going to get burned by these rule costs and other things that remains to be seen.
And I would jump in and say that if you're looking at these traditional like crypto things like uh coin base or f t x or these other things, that their transaction costs are higher, but there's no like custodian costs, So that's a huge thing. There's no long term, ongo on term, long term ongoing costs. On the other side is things like robin Hood and PayPal and Square. You technically can't actually take the crypto off of those exchanges like they have to stay within those ecosystems, so that's
a detriment. And the other thing aside you've mentioned professional portfolio managers, people that are managing ETFs I want to invest in bitcoin and mutual funds. The other side, as advisors, until recently, there was really no easy way to get access to bitcoin, and advisors managed twenty plus trillion dollars in any um. If you're an advisor, you want to put one percent of your clients money, five percent, maybe a little bit, you're not. There's there's some options out there,
there's new there's new technology. Companies on Ramp is one that's trying to build an ecosystem where people can do invest directly in crypto. But if you're only investing one percent of some of your clients money, like the easiest way to do that is through assist through an e t F. Basically, this is this is gonna be the way you're gonna do it if you're if you're willing to invest in the futures et F. So even one percent of twenty plus trillion or point oh one percent
of twenty plus trillion is a big deal. This is going to be a debate for the next year. Probably should advisors by this and it will be going on and on, and I think for traders it's a much more clear value proposition. We wrote a note basically saying that this is just one step, and probably if you fast forward to five years, there's probably gonna be something like a total crypto market et F that's physically backed U the fee or will have it down to twenty
basis points. It will trade it a penny spread, and it will be fifty billion dollars. You know, it'll be messy getting there, And I think biddo is just the first step on this long road. That's what e t s do. If you look at any other as a class. They're dirt, cheap and highly liquid, and that's wh why why people like them. We haven't gotten there yet here And I think that leaves me one more question for Jeremy, which is, this is the question we're getting all the time.
I love to get your take on it. Is in order to get to that sort of E t F utopia, the SEC does have to approve spot E t F S. What do you think is a decent timeline for Gainser to come around a little bit and accept the thirty three Act. Well, that's tough to say, just because based on his recent UM, based on his recent comments, including an interview he gave to Yahoo yesterday, UM, it doesn't
seem that there's any indication that he's there. But as we've seen, um, as we saw over the summer, um by when he essentially gave the green light to the futures forty Act E t f S and they were in the market shortly thereafter. UM, um once he's capable of changing his mind, um fairly quickly. UM. And if that happens then UM, it would still take a while for the gears of the SEC to grind the products through because of the statutory timelines around the ninety before
rule changes that are required. But um, you know, but but if he but but I think at this point, UM, it's really dependent on when he feels that the spot market is developed enough and safe enough for UM to support an e TF that holds it directly rather than through the futures UM intermedia understood. Yeah, I'm ball parking at it, like two years at this point probably, but we'll see. But one quickie, Uh, moving back to the forty Act, there has been a couple of filing that's
been a little more exotic. Uh. There's a slightly levered one and there's a negative one x or inverse bitcoin future strategy. I mean, is there any reason to think these won't get approved given their forty Act and track futures.
I mean, I'm expecting they probably get through, right. Well, Um, I don't know that we I don't know that we can say yet, just because you're right that in that both they're the use of leverage and inverse UM the exposure is within the bounds of what's permitted under the recently adopted Derivatives Rule UM that essentially finally allows other sponsors to offer um leverage and inverse e t s
without specific exempt of really from the SEC. UM and obviously they're they're using the forty Act futures UM then UM, that is, that's the means which the SEC has already blessed. But it's impossible to know at this point whether the SEC is going to allow them to proceed. Um. I
think we'll will know probably pretty quickly. Um, just because we saw with the ether futures products that were filed and then withdrawn within a couple of days that the SEC staff has ways of making it known when they're when they're displeased with something. Yeah, yeah, yeah, why did that happen? Because we are starting to get people wondering if there will be an ether futures et F like why did why did the SEC push of it? Just
because they were like, hey, baby steps? Probably I don't have any any specific UM transparency into that into that conversation, but it makes sense that it took them several years to get comfortable with bitcoin futures and the ether futures are newer, so so I think the history of e t s has been a progression in a series of baby steps. So it's not that shocking that UM the SEC would at this point not be comfortable with the
ether futures. And it's also possible that UM. It's also possible that at some as that market develops, they would change their minds on a dime like Genzler did over the summer. All right, Jeremy, I'm gonna give you the last word with the question we ask all new guests on Trillians, what's your favorite et F ticker. I have a soft spot for cut Um, the old Google buyer
claims as Guggenheim timber t f Um. I did work on that one way back when, and I'm no longer working with that product after it was sold to after the t F business was sold to invest Go a couple of years ago. But I just thought it was, you know, elegant and got the message across pretty well at all. Isn't you like would right? That's the competing one. I like wood. But you know, as we've talked about before, the thing that is else of the verb is pretty
good verb down everything. You know, that's a that's a that's a solid one. So we're gonna leave it on that, Jeremy, James, Katie think so much for joining us on Trillions. Thank you, thank you, thank you so much. Thanks for listening to Trillions until next time. You can find us on the Bloomberg terminals, Bloomberg dot com, Apple Podcast, Spotify, and wherever else you like to listen. We'd love to hear from you. We're on Twitter. I'm at Joel web Show. He's at
Eric Faltunas. This episode of Trillions was produced by Magnus Hendrickson. Francesca Levi is the head of Bloomberg Podcast. Bye.