Ep 16 - July 31, 2024 - Bitcoin as a US reserve asset?

Welcome to another episode of the weekly crypto check-in recorded on July 31, 2024. I'm your host, Robert Sportout. I'm joined by my co host, Andres Sundate. How's it going, Andres?

Hey, Robert. Good. Good. Final day of summer for me. Kids go back to school tomorrow. So, we've been trying to keep them busy these last, couple weeks, but, it all starts back up tomorrow for us. Yeah.

So, I there's probably parents that feel all sorts of different ways about this, but is this a is tomorrow a good day or bad day?

No. It yeah. I mean, I'm excited for them, and and we got we got up to the campus to meet some of their teachers. So, yeah, it's you know, it'll be easier probably to work from home during the day, of course, without the 3 of them and their friends and stuff. But, yeah, I mean, summer always marks the transition because, you know, any parents that are listening, or will listen can relate.

Yeah. Now now there's a strict bedtime. That's right. Yeah.

Yeah. Early

wake up calls. Yes. Yes. Cool. Well, our first topic here is, the state of Michigan adds Bitcoin ETFs to its pension fund. You know, this is they're not the first one. I think the third one, if I'm not mistaken. And, you know, it's admittedly a small investment, but that's how they all start. Right. They reported it at $6,600,000 of an investment, in, I believe, ARCs e ARCSD, that's the Bitcoin ETF.

going something going on there in the upper Midwest, because, curiously, the state of Wisconsin's investment board was one of the first pension funds to report their pension fund added a, about a 10 basis point position, at the end of May in their 13 f filings, at least, that came out. They had about a 150,000,000 more or less at the time investment between the BlackRock ETF and the Grayscale, trust. So I don't know. I don't know what it is with the upper Midwest. I'd love to see some of these, additional state pension funds and endowments get into it.

Yeah. Yeah. You know, it's it's as you're talking, I was kinda thinking, like, I would have never picked the Midwest to be the first, probably towards the end be if I would had to have guessed. And I'm surprised that California is not I just kinda always assume as a technology forward thinking state that maybe they would, but, obviously, very different strategy can be employed by the people working at this respective funds.

Yeah. And and and sometimes with the bigger pinch is the ones in California come to mind, like Cousters and CalPERS, the the dollar amounts are so big that they, like, they got criticized for a long time for having pulled out a hedge funds, at CalPERS. This was 5 years ago or so, but their rationale was, you know, it was such a small allocation that in order for it to be meaningful, they would've had to invest significant dollars and it was very difficult to to invest those size of dollars in hedge funds at that time without sort of influencing the market or being a big share of those managers' assets. So Yeah. It it you know, I I think that there's probably gonna be more pensions and endowments and foundations to to invest.

Mhmm. Yep. So, our second topic you kind of alluded to a bit, but, so there was a Bitcoin conference this last week in Nashville, kinda ran into the weekend, and lots of big names there. You had, RFK Junior speaking. I believe that was on Friday. You had Trump speaking on Saturday. You had, senator Loomis, speaking, I think, at actually, after Trump on Saturday. And Michael Sailor was there. All sorts of names. So we got a lot of news to talk about in this particular bullet point.

Is it a stand up?

I'm just like, why 2045? Why 13,000,000? Like, there's no backup of any of this, and it's just to catch headlines. So maybe I should just ignore him and pretend he doesn't exist because it does kind of irritate me that this this ends up being news, and there could be better structured stuff out there. So

well, nothing like talking your own book. You know, we know we know MicroStrategy has, obviously, a a bullish long, whatever you wanna call it, position on Bitcoin. So Yep. Yeah. I mean, he's talking his own book and, obviously, is a big big big bull here. But yeah. I mean, there's a lot to cover with this conference. Obviously, he he seems like he was one that was out to make headlines, but then there was even more for those in attendance.

Yes. So, RFK actually gave a pretty thoughtful speech when he was talking. You know, he's obviously a candidate for president this fall, and he was saying how, he would order the DOJ and US Marshals to transfer the approximately 200,000 Bitcoin the US Treasury holds, to be held as a strategic asset. And this he was the 1st really to comment on this, and then, like, it seemed like everyone else that got on stage had their version of this kind of talking point. So Trump, Loomis, and I believe there was a 4th person that was a little less consequential.

Regardless of price. I mean yes. Right. I mean, he probably take questions from the crowd, but so so we're gonna start building a stockpile or build a a a reserve of It's okay. Correct. Sort of the

you know, his point was no other country you know, the US should be the home of Bitcoin. There should be no other country that has dominance over Bitcoin. Okay. Fine. Great. Set that aside. Like, where's the money gonna come from for this? You know, for for a country that is, albeit, already having trouble paying its bills, when I was having to create more money. This this seems odd. We're not there's not been anybody for the longest period of time saying the US should buy more gold.

know, it

just blows my mind. Like, there's some smart people in that community, but, like, they it's such an echo chamber and granted it was a conference for Bitcoin, so you have to understand the context. Right. It was just,

yeah. It's hard it's hard to get anybody to talk about, you know, the use case of Bitcoin. Right. It's always store of value. It's always a strategic asset.

It's a new concept. We, you know, we just figured that part out, but I don't know. The you know, I'm kinda going through the different points here that we had. So another thing that RFK said that I actually found kind of intriguing was he would, direct the IRS to treat Bitcoin as an eligible asset for 1031 exchange into real property. Yeah.

That's not the craziest proposal that came out of this show. This one can

it's pretty normal. If he had just said that, it might have felt crazy, but, he said all these other things that actually made that one seem tone, toned down. So we, you know, it's it it was fun. I I obviously wasn't at the conference. I was watching it through Twitter over the weekend and just and then watch the live stream when Trump was speaking. You know, he got up there and he was, like, talked about his reserve, and then he's like, oh, I would direct, on day 1, I would fire Gary Gensler.

And the

crowd erupted. Like, in you know, obviously, people within crypto know everyone hates Gary, thinks he's done a terrible job. I think Trump probably had an idea that Gary wasn't great and the crypto community didn't like it. I'm sure somebody kind of brought him up to speed, but when he said it, the crowd was so overly excited that I think it took him off brought you know, caught him off guard, and he kinda went back to that talking point. You know, Trump's gonna play the crowd, of course.

So Yeah.

It was Yeah.

I mean, I think it's Obviously, yeah. It was, as you call them, big Bitcoin Maxi conference.

Right. You

know, I I did see I did see, some highlights from several of the speeches. Didn't, didn't Matt Hogan from Bitwise also speak at the conference about about yeah. There was enough of of big crypto luminaries. Well, clearly, it it's moved into the mainstream. And I even saw a headline that Harris, Kamal Harris's vice president has has said, she wants a reset with the crypto community.

know you know, many of the things I've read about Kamala Harris and potentially, like, what her platform's like. You know, the people in the crypto community that have been asked to be part of a roundtable with her are basically given ultimatums like, I'm not gonna come to your roundtable unless you fire Gary Gensler and, officially stop chokepoint2.0. Yeah. Chokepoint2.0. You know, obviously, that hasn't happened as of this recording.

I'm I'm curious. The folks that are that that you think are going to the conference, are they going there to learn, or is it sort of like a love fest for anybody that's in crypto? You just talk about your holdings, and you talk about where you think it's going and listen to these luminaries.

I think there's there is, there is some technical stuff that happens where, like, people are trying to figure out other ways to use Bitcoin, But I think it's very much

a love fest, a

bit of a, a Yeah. You just I I don't know. Just being happy together, I guess. I don't know how else to describe it. Right. Right. It it's you know, Bitcoin's not used for tons of different things. So it's like there's admittedly not much to talk about besides, oh, I want the price to go up. Do you want the price to go up? Yes. You know, around the circle.

Yeah. I'm sure there's yeah. I'm sure like any hobby or interest or investment, you know, whether it's cars, antiques, wine, gold. Right? You can you can probably find a conference organizer who's willing to put a big festival on, charge people to to come and, of course, the city of Nashville. Love to have those guests. Love to have those tourist dollars.

Oh, for sure. For sure.

Yeah. So Awesome. Well,

so our next point actually, I'm gonna go to the 4th point because it kinda does tie back. So when Trump was talking about, you know, he would direct the treasury to hold those 200,000 Bitcoin, as a, you know, reserve asset. You know, he he said that as part of his speech. Literally, I think, like, few days later, one to me, on that was the 30th. So, yesterday.

Yeah.

Assuming no. My dates are wrong here. I'm sorry. They had this right. I must have closed the tab.

It was

on Monday. The point yeah. Monday. The point is is the the whoever's a custody in those assets, those Bitcoin currently, moved them to a new wallet. They hadn't moved them forever. So it's like, okay. Now we have these kind of games happening on top of all this. I was like, you know what? I I should have not been surprised. I should have expected it to happen.

I might say no, just because it's I I think he's gonna wanna go out Biden's gonna wanna go out with out this big cloud. And he's gonna pardon his son, but he's gonna wanna go out without this big cloud, hanging over him to Yeah. To try to, you know, give give, Harris the best odds he can of, of winning in November.

Yeah. I guess, potentially, they could do it after the election during lame duck.

Yeah. That's true. Yeah.

They could do it then.

Yeah. But we have that's when all the pardons happen. Yeah. And and all the shenanigans. Yes.

Yeah. So, anyways, we will see. So our 3rd topic here at grayscale e ETF outflows, is hit has hit 2,000,000,000 in 6 trading days, at fast and furious pace. The joke is by the end of next week, they will be at 0. You know, I haven't looked to see what their total AUM was before.

It's not going in the right direction.

None of their products are. I mean and we're we're gonna get to the thing down below where they've launched another Bitcoin ETF, which just I their strategy, I would love to have just been a fly on the wall, to hear them talk about how they how they do marketing of their and pricing of their assets or their offerings. So, so we you know, pretty aggressive there, and, you know, we'll see if, you know, how long they hold on. That's again a 2 and a half percent fee. The, I guess we might as well jump to it.

I haven't done enough, I guess, research on, grayscale. When they launched the exchange traded products, like version 1

Mhmm.

These higher fee products that were in trusts.

Private trust. Yeah.

Right. They were they were higher fee. They were 2 2 a half percent or more. Right? Obviously, these index products, these ETFs are selling for 15, 20, 25 basis points. Right?

Right.

They're losing money or they're losing flow they're losing dollars, outflows. Mhmm. 1, because there's a cheaper product that's available, 10 x Right. Cheaper. Right? So you can save 90% in fees. Right.

That is no different.

That's no different. Right? So so part of this is just kind of like a fee arbitrage. Mhmm. Do they that they do they offer, I guess, an investment case to your knowledge for why folks would consider staying in the ETP, that's, you know

I I haven't I haven't seen any besides, you know, the thing that we've talked about before. Just like some of those investors in that product have such a capital gains that they may not wanna pay to get out. And the other way you get in and out of these now is cash. There's no in kind. If if it would be really fascinating to see, you know, at some point, it sounds like we will get to a point where the SEC has its head screwed on straight and allows in kind, creation and redemption.

Well, according to their website, the ETH, this is the Ethereum ETP. Yeah. They Gap AUM as of yesterday was close to $7,000,000,000.

Okay.

So they were at 6,900,000,000 as of 7:30. And, you know, what you said that they they've they've seen 2,000,000,000 of outflows over is that the prior week?

6 trading days. So

Okay. Yeah. So at that at that clip, yeah, that Yeah. By by the end of August, it should be sooner. Right. They're yeah. They're gonna be yeah. Now, who's picking up these assets? The question is, are we seeing, on the other side, these dollars flowing out fully, not always, but some flowing into other airline products?

When I looked, it wasn't at at 2,000,000,000 yet for the grayscale, it was at 1a half. But even still, at that number, there wasn't a total amount of inflows on all the others that would account for 1 and a half $1,000,000,000. It was, like, 1,200,000,000. So maybe some people are holding money back for taxes. I don't know. But it's, it was functionally net net zero there or close to

it.

So Interesting. Yeah. So I don't know. It's again, Grayscale, they were long criticized before these e t ETFs were launched for just being high fees for not a great reason. It was they just knew they they were the only game in town and they could charge function what they wanted. And they continue to, treat their, their clients in the same way they always have, which is fascinating to watch. So

Well, and then you look at the the the GBTC, the this is the this is Grayscale's Bitcoin product. The gap AUM in that one is almost 16,000,000,000 in GBTC. So way down.

That was up at Yeah. Here 70,000,000,000.

Right.

They they have bled a lot, and that was a that product was around much longer.

So Yeah. It looks like it's been around. Some of them been around well, they yeah. Since, what, 17, 18, something like that.

Right. Yep. Or

5th in 15, it looks like, is when it was first

For the quarter. For the

for the yeah. For GBTC.

Yeah. Yeah. So Cool. So our last topic, we kinda shift gears here. And, you know, I've long talked about you know, crypto gets interesting for me really when you start to be able to use it for real things. It's not just a pure speculative asset.

Right.

In this case, the news item is California with a technology, provider have digitized 42,000,000 car titles on the which blockchain was it? On the, sorry, I do not have well, I'll find it in a minute. But it the cool thing about it is is their whole ideas are trying to, reduce fraud. They're trying to increase the speed at which they can reissue titles in when they change ownership and, do all the things. It was done on the Avalanche blockchain, and you said so that's AVAX, a v a x, for those curious at home.

gonna say, I you said 42,000,000 and I I was gonna joke, but that so when are they gonna do everything outside of LA? Because that's about as many cars as I think that the people in LA probably think there are on the road.

Yeah. People would think that 42,000,000 titles, and I wanna say that they said that there was 41,000,000 peep 39,000,000 residents. So, you know, there's more than 1 car on a ratio basis there, but, it's, you know, you'll be able to use a mobile app to claim ownership of your title, and start the transfer process. So it's not more than just Digite. Like, they're actually gonna, like, start to try to use that, in a way that you would think that they would eventually do.

I yeah. I don't know what's more shocking, that it's the Department of Motor Vehicles that moved first here to adopt blockchain technology to digitize car titles or, you know, if it's the state of California, because like we talked about, you know, they haven't they haven't been as aggressive or progressive when it comes allocating into the asset class like Wisconsin and Michigan, but really cool to see a real commercial use case.

Yeah. So Yeah. Yeah. It's, you know, we should be talking about these every episode or once a month. It's not quite that clip, but I look forward to seeing all the different use cases. You know, obviously, there's more states that can do this than you have part, house deeds or property deeds, and all sorts of real property that has ownership attached to it. So

Yeah. I would think yeah. Just about any any government document like this. Right?

Yeah. Contract, all sorts of stuff could end up Yeah.

All all yeah. All kinds of all kinds of documents, which, you know, I feel like when you've you and I probably first started talking about, this, and you've been, you know, in blockchain, digital assets, crypto for much longer. But I remember when we first started talking about some of the very basic potential use cases, these were the kinds of things that you were telling me that, you know, you could do. And when I think you first start getting into blockchain and crypto, you hear about this stuff. And then, you know, for some people, they go down the rabbit hole and they start becoming investors, and you start getting into tokens and NFTs and all this, all this other stuff.

Yeah. You know? And then you'll see

Where did I put my title? I know I paid my car off. I know I no longer have a note, but where's the actual document? Right.

Now you just have to figure out which app to use to to to, open on your phone.

Yeah. Actually, no. No. No. Is it easier or is it harder?

Yeah. Yeah.

Yeah. So Cool.

Well, that's cool. Well, thanks for joining us on this episode of the weekly crypto check-in. If you wanna stay updated on future episodes, you can find us on any podcast player by searching Teton Crypto Capital or weekly crypto check-in. Take care. Thank you.