For this week’s news episode, Jacquelyn talks with Eric Balchunas, senior ETF analyst at Bloomberg, alongside TechCrunch+ editor-in-chief Alex Wilhelm. Balchunas is the author of The Institutional ETF Toolbox and The Bogle Effect. He also co-hosts Bloomberg’s Trillions podcast and ETF IQ show. Spot bitcoin exchange traded funds, or ETFs, have been a hot topic in the crypto community for many years, but have recently gotten more attention due to Jacobi Asset Management listing Europe’s first bitcoin spot ETF, almost two years after its initial approval. Meanwhile, the U.S. Securities and Exchange Commission recently delayed deadlines for bitcoin spot ETF applications. We dive into what’s going on with the bitcoin spot ETFs in the U.S., why it matters and the odds of the SEC approving one in the near future. We also talk about Europe’s first bitcoin spot ETF, how these investment vehicles in general could impact crypto exchanges’ trading volumes and what else is in store for them.
A podcast that unpacks and dives deep into the latest trends, drama and news in crypto with some of the biggest names in the industry to break things down block by block for the crypto curious.
For this week’s news episode, Jacquelyn talks with Eric Balchunas, senior ETF analyst at Bloomberg, alongside TechCrunch+ editor-in-chief Alex Wilhelm.
Balchunas is the author of The Institutional ETF Toolbox and The Bogle Effect. He also co-hosts Bloomberg’s Trillions podcast and ETF IQ show.
Spot bitcoin exchange traded funds, or ETFs, have been a hot topic in the crypto community for many years, but have recently gotten more attention due to Jacobi Asset Management listing Europe’s first bitcoin spot ETF, almost two years after its initial approval. Meanwhile, the U.S. Securities and Exchange Commission recently delayed deadlines for bitcoin spot ETF applications.
We dive into what’s going on with the bitcoin spot ETFs in the U.S., why it matters and the odds of the SEC approving one in the near future. We also talk about Europe’s first bitcoin spot ETF, how these investment vehicles in general could impact crypto exchanges’ trading volumes and what else is in store for them.
Chain Reaction comes out every Thursday at 12:00 p.m. ET, so be sure to subscribe to us on Apple Podcasts, Spotify or your favorite pod platform to keep up with the action.
Jacquelyn Melinek 0:01
Hey everyone, its Jacqueline melanic Welcome to chain reaction, a show that unpacks and dives deep into the latest trends drama and news with some of the biggest names in crypto breaking things down block by block for the crypto curious. For this week's Chain Reaction news segment, we are diving into bitcoin spot ETFs or exchange traded funds. As usual, a lot has transpired since our last News episode The former FTX CEO Sam Venkman fried had his bail revoked coin desk cut staffing by 16%. And recent record showed that world coin ignored initial orders to stop iris scans and Kenya but as I mentioned, we are talking about spot Bitcoin ETFs which have recently got a lot of attention in the crypto community and have been a focus for a number of years and this week we saw the Jacoby Asset Management listing Europe's first Bitcoin spot ETF almost two years after its initial approval. Meanwhile, the US SEC recently delayed deadlines for Bitcoin spot ETF applications. So America is kind of running on its own timeline. We have Eric Bell tunas here, he's a senior ETF analyst at Bloomberg and TechCrunch plus editor in chief Alex Wilhelm to get into it. And the reason I brought Alex on was due to his undying love for investment products and crypto more generally, he's been covering this space for about a decade. And Eric is literally a plethora of informational wealth on this front. He's written a book on ETFs and CO hosts Bloomberg trillions podcast and their ETF IQ show. So enough about that. Anyways, Eric, and Alex, welcome to the show.
Alex Wilhelm 1:36
Oh, yeah, I'm excited about this. We have like the expert here. Great to
Jacquelyn Melinek 1:41
be here. Yeah. All right. Awesome. So to start, Eric, what is going on in the Bitcoin ETF world and how is this kind of impacting the US crypto market?
Eric Balchunas 1:50
Well, there already are Bitcoin futures ETFs, but they don't have much in assets about 1,000,000,001 of them dominates Beto. So that does exist, but the spot is the holy grail spot. Bitcoin ETF is major advisors who are the biggest users of ETFs. They just like it physical. You know, there are gold futures. There were gold futures ETS, but they went extinct because everybody just gravitated towards the physically backed gold ETF. So gold ETFs now have 100 billion gold futures have none. So that should tell you that if Beto has a billion, you know, you're looking at many billions probably in the physical spot. And so it's a huge race. In the ETF market. The winner usually takes most sometimes all like Beto has 95 97% of the assets. And like 98% of the assets amongst Bitcoin futures ETFs. So the stakes are high, and there's nine to 10 people in the race 10 If you count greyscale, who is basically suing the SEC, that's part of the story, but the big big variable was Blackrock filing that two months ago, right, so you got BlackRock, Vanek ark, and a host of others, and all of them are seeking SEC approval. And they've all sort of introduced this new novel thing. Well, Blackrock introduced it, which is a surveillance sharing agreement with Coinbase. This they hope will satisfy the SEC concern about fraud or manipulation. And if it does, again, the question is, will they approve it? When will they approve it? And how many will they approve it once? Like, will one get out first or many? And this is the stuff we're covering. So right now we're at about a 65% odds that the SEC will approve one or more by the end of the year. And then if we go out next year, you know, the odds sort of slowly go up, because again, everything's evolving towards that. But timing is hard. This is about trying to figure out gear against his brain. But when one is approved, look, I don't think it's going to completely change the face of crypto, I think what it does, it just offers a portal for a big lump of money that largely would not probably deal with Bitcoin that might now and that would be the $30 trillion that financial advisors manage in America, and they manage a lot of the boomers money, and they are boomers themselves. And boomers have almost all the money in America. So if you could look at the ETF as a bridge from the boomer pot of money to crypto, not everybody's gonna cross that bridge, but certainly opening it up. You're gonna find some traffic there.
Jacquelyn Melinek 4:04
Yeah, I think bringing more ETFs especially Bitcoin spot ones would bring liquidity to the crypto market and kind of like those boomers that you mentioned, but when we have these major institutions like Blackrock filing applications for this investment vehicle, how is that kind of impacting the needle? You said there's a 65% chance of this happening this year. Why is it more leaning that way? Compared to the past?
Eric Balchunas 4:27
Yeah, well, we were 1% before Blackrock file, so BlackRock, I mean, look, they don't play. You know, this is a different company. This is Larry Fink. This is the biggest asset manager in the world, they run $10 trillion. They are just a company that is always very close to regulators very close to the government. These are is a major player in America, and they like to win and they like to bring a gun to a knife fight. They are just that kind of company. So when they filed it was like whoa, and they added NASA Back in there who had never been in a filing before and Coinbase. So our theory is that NASDAQ Coinbase. Remember Coinbase lists on that stack. Our theory is that BlackRock, NASDAQ and Coinbase all sort of got together and said Coinbase is willing to work with regulators. They could be the exchange that makes the SEC comfortable, and they're willing to share any information with NASDAQ, that could be fraud and manipulation. And that was a big important reason for the denial. So I think Blackrock saw a real good chance here. Now remember, Blackrock is also trying to make money. And if you have a spot Bitcoin ETF and you're first out, you're probably going to make some good revenue, because GLD to this day, is the fourth most revenue generating ETF, after 20 years, it's still in the top five. And if you are the one that's liquid, you have pricing power, that liquidity is really powerful. And so it would be a revenue generator for BlackRock, so I see why they're interested. And then Larry Fink going on Fox Business and basically like touting Bitcoin, like two weeks after this filing was another reassurance that Larry signed off on this filing, and he made drove it. And so I think that's really important information. There's other reasons we're in the 65% realm, but I will, I will give Blackrock a lion's share of that credit. A couple of things have happened. I won't go into the details, unless you want me to but you know, Blackrock had a vision and also, we on the team has stopped that this year, we there's been a lot of evolution on crypto, there's been Trad fi other companies doing different things. And so the post FTX world sort of looks like it's going to have traditional finance in it, and it totally survived FTX and then some, and so again, Bitcoin has had this, you know, real resiliency that I think is impressed just about everybody at this point. And so it's that kind of evolution and maturation, I think of especially Bitcoin, I know Kryptos a whole different scene, but especially Bitcoin that I think Blackrock sees as the time is right now.
Alex Wilhelm 6:58
So Eric GLD has an expense ratio of point 4%. I just looked that up. And I'm curious, do you expect the eventual Blackrock the coin spot ETF to have a roughly similar expense profile to that? Or is it gonna be in a different range?
Eric Balchunas 7:11
Our guess is 70 to 80 basis points to start, okay, because there's a relativity here if the GBTC is 2%. So I think Blackrock does some calculus and says, Well, and Beto is 95 basis points might even be 98. Anyway, it's over 90. So Blackrock is probably going to do calculus and go how much can we get away with? And still make it look like it's inexpensive? And I think they'll go 70, maybe 65? I think there's also some other costs with custody that are higher than gold. Yeah, I'd have to check into that. But I believe that's one of the reasons it could be a little higher than GLD. But over time, believe me, let's say Blackrock is the one that everybody trades, and it's liquid, and some people are gonna value that they don't care the fee, someone's gonna come out with a cheap one, like Vanek or somebody and they're gonna go okay, well, for us to be different. We're going to be cheap, we'll be 30 over time, and that may force Blackrock to lower its fees. We see this happen in every category of ETFs. Regardless of the opening expense ratio, there will be an immediate fee war and fee compression that will take place over three to four years. So right now with gold, I believe the cheapest one is 15 basis points. And even Spyder launched a mini me of GLD. That's cheap. So Blackrock may launch a mini me Bitcoin one that's cheap. So if you're looking for low cost, you'll find it soon, regardless of what the first one to come out at. That'd be my read on that.
Alex Wilhelm 8:29
Yeah. The reason I asked is I'm trying to figure out how much demand a spot ETF for Bitcoin could unlock that we currently don't see in the Bitcoin space. And the higher the fee structure, the less attractive it will be, as opposed to just buying and self custody. So I'm trying to figure out how much of an inflow context we can expect from this because, Eric, my understanding is when you have a futures ETF or essentially something in that area, it's a synthetic bet versus owning the asset itself, whereas spot ETF, the trust holder, BlackRock, we'll have to actually hold Bitcoin itself. So as more money flows into that there's greater overall demand for Bitcoin itself. So I'm just trying to figure out how, where demand will flow and then kind of in what context but that cost structure doesn't sound onerous to me. So it sounds like the door will be open for demand.
Eric Balchunas 9:09
Yeah, certainly. And this for an advisor, this wouldn't be their main part of their portfolio, this would be like hot sauce, like a small waiting on top. And we've seen in ETF land that advisors will pay up more for hot sauce, whereas they go real cheap in the core. So if you're only doing 1%, you're gonna have less fee sensitivity, especially if it's something that can go up in a hurry. Like I think bitcoins up at like 70% this year, that's gonna really like lighten you up in terms of how much it costs. So that's that one thing. The other thing is GBTC. At its peak at $40 billion, it charges 2%. And it's not even an ETF. It doesn't track the price of Bitcoin and it trades on no major exchanges. Think about that. So if it was able to get that much with that, think about a Blackrock branded SEC approved 65 basis point product, you could you could just imagine that would be very palatable relative to GBTC. So the cheaper it gets probably the more You know, that helps the cause. But I don't know if costs is important here as it would be for an s&p 500 ETF where you have to be like really dirt cheap to get any bids. Now, the other thing is, it's only going to charge one basis point to trade it. This is an underrated quality of the ETF that I think this is where Coinbase even though they're teaming up attract by an ETF could hurt their business a little because the ETF will charge you one basis point portrayed to mean think about it, that's basically free. Yep, check out any other exchange, especially for a small investor, you're gonna pay a lot more than that. And this is part of why people like ETFs, they're cheap to trade. So for example, ETFs only make up they only own about 8% of the stock market, but they make up about 20 23% of all equity trading. So people love to trade ETFs because they cost one basis point. It's also anonymous, nobody knows who's trading it. So institutions may even be attracted to a liquid spot Bitcoin ETF the way they are with GLD, in terms of it just being an easy way to get exposure at any crypto exchanges, or crypto itself or, you know, do the cold storage and have to remember 12 words for the rest of your life or whatever. I think the convenience factor here for most normal people, the ETF will will provide that as it has an other asset classes.
Jacquelyn Melinek 11:16
In lieu of the Bitcoin spot ETF, what have institutions been getting exposure through
Eric Balchunas 11:23
institutions, probably you're going to Coinbase has an institutional or Pro feature, and I think it's cheaper there. I think you can get bitcoin through fidelity, that's probably how they're doing it. I know, there's some like like on ramp and these other services that will like just do it for you. And these may certainly stay in business, I think the ETFs probably more additive, I think, if anything the ETF might draw from the crypto exchanges themselves a little because remember, an ETF would essentially bring the crypto exchanges onto the regular exchanges, because you could use New York Stock Exchange or NASDAQ, or any brokerage account to basically trade crypto. And that portability is also underrated. So again, we've seen that with GLD, and institution could buy gold bars if they wanted to, you know, it's not that hard. But they just like GLD, it's a ticker, it's liquid, it's on an exchange, they can go in and make a big trade in it and not move the market much either. And nobody notices that there's no impact costs. That's why whoever's liquid, the liquid one is going to be really powerful, because liquidity begets liquidity. And all of a sudden, you're trading to $3 billion a day, and that's going to attract big fish. So even the world's largest hedge funds like Bridgewater, they will use spy and GLD and some of these ETFs if they need access quick. And so I think institution, some of them will be attracted to the liquidity and the anonymity that an ETF would provide, versus buying it on their own or setting up an account at a different exchange. This ETF fits into the plumbing of all professional investors, I think, easier than buying Bitcoin on the side or through an exchange, like through a crypto exchange.
Jacquelyn Melinek 12:55
Yeah, I'd like to throw this to Alex, I see I'm nodding. And I see as gears turning. So I'd love to hear your thoughts on all of this. And like, how do you see this playing into the future and the current president, or what Eric has to say, even
Alex Wilhelm 13:08
I mean, the the idea that it's so cheap to buy into bitcoin using this potential investment product and trade it makes, it just seems so attractive and easy to use that I can do it inside of my fidelity account. And that, to me is crazy, because if I ever tried to tell my parents, okay, you know, getting closer to retirement, let's take a look at your portfolio. All right, now we're gonna make a coin base account. Now, here's your seed face, they're gonna laugh at me and walk away. But if I say you know, you need 1% of hot sauce in your portfolio overall, why don't you allocate X to this? You know, iShares ETF. Everyone loves hot sauce, I can actually see it happening. So while I've been skeptical for a long time, that institutional money is suddenly going to fire into the crypto world via any avenue towards any particular asset. In this case, I really can't see it that working out to think that I'm now confused about is if it's one bit to trade, this ETF, when it does eventually come out is Coinbase by supporting it effectively undermining its own trading business, which has historically been its largest revenue driver, because if this is as liquid as Eric says, it might become that I would never use Coinbase proper, I would just use this ETF and Coinbase must have done the math internally. But to me, that's a dangerous proposition given their revenue mix.
Eric Balchunas 14:16
Yeah. ETFs are powerful. They are disruptors, because they're cheap, liquid tax efficient. I wrote a whole book on them back in 2014. And I dedicated my career to them. I mean, I saw ETFs. I got ETFs as a data assignment in 2006. And I had covered mutual funds in the late 90s As a reporter, and I was like, holy moly, these things are like five evolutionary steps beyond the mutual fund. They're going to be a big deal. So I became an expert in all ETFs in the late 2000s. And I felt like a wave was gonna break. This must be what crypto people felt like 10 years ago, too, but and it did. ETFs have done that. And, you know, it's interesting, you know, crypto, I think sees itself as a disrupter. But I think ETFs are equally as disruptive because of the reasons I mentioned. In my book. I have a The first chapter looks at the advantages of ETFs. And there's like 12, you know, everything from low cost to flexibility you can short and ETF, right? It's very easy to short them. There's options on ETFs. They're tax efficient. Like I said, they're anonymous to trade, they're liquid, you can trade whenever you want during the day, they're convenient, you know, they package everything up, and they standardize everything is under rated advantage of ETFs, the way you like a USB port, you can use that on almost any computer standardization is important. So an ETF makes everything trade like a stock. And everybody likes the way stocks trade bonds are opaque market, no one likes a deal. They're going into the futures markets, a whole different thing. ETFs wrap up oil futures, physical gold bonds, Chinese local shares, and you just click a button on the exchange and you own that. And so they've standardized every single asset class that you can think of they've even at packaged active strategies. So we're even package trade some ETFs go long this short this use options, and it all trades like shares of Microsoft, which is the way people like to build and manage a portfolio. So that standardization is also I think, an interesting benefit. So again, ETFs continue to grow and taking the lion's share of the flows for all of those reasons. And I think they're gonna disrupt Bitcoin exchanges a little bit. I don't know how much, but I think Coinbase could make up in other ways. Again, if you're teaming up with BlackRock and their institutional business and whatnot, you're probably benefiting in other ways. It's probably a calculated gamble on their part, to be this company that sort of works with traditional finance the most, but I don't know the inner workings of that, but I'm certainly an ETF, I will say is going to threaten, especially the trading aspect of these crypto exchanges simply because one BIP is going to be a powerful low cost alternative.
Jacquelyn Melinek 16:42
I think it's also just worth acknowledging that trading volumes have been down across the board for all exchanges. And we've seen Coinbase like diversify their revenue streams, like through subscription services, other areas that you mentioned. So ETFs, while it's a threat, I don't think this is something they're not anticipating.
Alex Wilhelm 16:58
Yeah, I think that's very fair. I want to squeeze in one last small one, Eric. So one thing that I am aware of is that there has been some pushback against index funds as an investment category, that they're almost too passive, or that they lead to distortions in the market based on what's in versus what's not in them. And as someone who loves a zero cost index planks, I'm cheap. I'm curious if any of that kind of intellectual pushback against index funds in general might spill over into the ETF world? And therefore impact market demand for a Bitcoin spot ETF? Or am I crossing wires as it were?
Eric Balchunas 17:29
No, I mean, like, in other words, this whole idea of like the passive, Bumble as like some people put it never is that argument, including GLD, or gold. That's usually an argument at the stock market, people are like, is the tail wagging the dog like index funds? Are they distorting market and making price discovery harder? My answer to that is index funds plus ETFs, index mutual funds plus ETFs, that are the equity side, collectively own maybe about, you know, 18 19% of the stock market. So they certainly have an effect. Most of those investors, though, don't ever do anything. They're very buy and hold oriented. So if anything they have maybe made, there's less people trading, which means you could have more volatility if there's just less people trading. But overall, remember, like 20 years ago, remember the rap on individual investors was their behavior was awful, they would buy the hot mutual fund at the top, and then inevitably go down and they sell and their behavior caused them all kinds of problems. Well, along comes Bogle and Vanguard, and they make cheap index funds. And people are like, this is perfect. I'm never trading again, this is the best deal in town. And now people are kind of like complaining that they're not trading. And I don't know, you can't ever satisfy everybody. But I always have a big sniff test guy, if you look at a stock, and it has like an earnings, that's like awful that stocks gonna go down in a hurry. We've seen it many times, even though the stock isn't a bunch of index funds. So as long as like stocks are moving on good or bad earnings, or relative information like the CEO leaving, I'm fine with it. I mean, again, if that stops happening, that will be worrisome, because you do want stocks to be priced relatively correctly. But I always tell people index funds are simply riding in the backseat of a car that active players are driving because like if the s&p 500 You know, active managers love Tesla, right. So over eight, nine years Tesla grew and price grew and market cap, and then it was eligible for the s&p. Now if Tesla is not unlike by active, they're going to sell it, and it will eventually get kicked out. So the s&p is merely a mirror or it's mimicking what active managers are doing in terms of bidding up and down stocks. So in a way, indexing is freeloading off of that active behavior. Bitcoin is a whole different scene wouldn't be part of this conversation at all, in my opinion, you know, if anything, I think the question that might come up with this is, well, what if there's an FTX? How would that affect Bitcoin prices and the ETF and whatnot and you know, there are plenty of spot Bitcoin ETFs in Canada and Australia and Europe, and they've just moved through FTX fine, there are other exchanges, the market makers could use. The percent premium and discount moved a little more than average, because obviously, there's one place that liquidity dried up and there's a ball utility, but overall, they did a fine job. And we I've studied them because again, this is a big test case, how do they perform? So the good news let us buy bitcoin ETF is we already know that the work they have worked in other countries, the one in Sweden is like eight years old at this point. So there's been an incubator to provide us good analysis of what would happen in different good markets, bad markets, or like FTX scandal kind of situation.
Jacquelyn Melinek 20:24
Yeah, Eric, I'm glad you brought up the other Bitcoin ETFs that exist out there, because I think to wrap things up, I'd love to hear your thoughts on what do you think is next for Bitcoin spot? ETFs? And what are their news or parts of this sector? Are you watching that you think we should be following?
Eric Balchunas 20:39
Yeah, I think the next big thing is the grayscale versus SEC decision could come as early as Friday. They're now past 160 days, which is the norm for announcing these decisions. So we're now in like an outlier minority time period. That doesn't say they have to do it. But as it gets further, you get more into a minority in terms of when they normally announced them. So I think we'll hear soon on greyscale, probably within the next, I guess, a couple of weeks. That's huge. If grayscale wins. That's just more egg on the face of the SEC. It makes not approving it more politically untenable. And we do put a lot of politics into our calculus, Gensler if he feels the pressure that, you know, I kind of have to approve it, and then he's going to be able to look, you know, try to convert it into a win, you know, hey, I gave it to Blackrock are the adults in the room are now you know, helping us out. I just think that's really a big part of our calculus, also, Coinbase becoming more aligned with regulators all this is good news for that. But again, it really comes down to him. If it's a shock, where the SEC wins, that probably will lower our odds a little bit so that this decision is pretty important. And then moving on. After that, we look for just other bits of information, I get a lot of back channel information. That's how we were so confident on the ether futures. But that channel can be shaky, you know, some people are biased. They have ulterior motives. So we have to really filter out the back channel information we get. But we certainly think the ether futures approvals are an important step because they had made them withdrawal like five straight times before. And so that is a policy shift. So it shows that they can change, and they're in that direction of changing towards this approval. I thought they should approve 110 years ago. I mean, this is so dumb to be
Jacquelyn Melinek 22:18
things take time, you know, kind of. Yeah, I mean, too much time, perhaps. Yeah,
Eric Balchunas 22:23
maybe at least three, four years ago, I just think the ETF would help their cause of bringing the biggest, smartest, richest market makers are going to start touching these exchanges, because they're going to need Bitcoin to satisfy the ETF demand, they're going to like not deal with shady characters. So just by by having them in the market and wanting a piece of their action, you're gonna have to unshaded yourself to deal with them. So I had theorized that if the ETF had been out there, a lot of people could have been saved from FTX because they would have used the ETF instead, and the market makers probably would have sniffed out some shakiness before we even knew about it. So I think the ETF acts a little bit like a watchdog simply because the market makers aren't going to deal with you. If something's wrong, if there's like smoke, maybe there's fire. So I just think the ETF acts as a cleansing force in a way. So that's why I always thought the regulator should have been for this way earlier. But obviously, you know, different people have different views on this,
Jacquelyn Melinek 23:15
for sure. All right, awesome. Well, Eric, Alex, thank you for joining me today. And thank you to everyone for listening in.
Eric Balchunas 23:22
Great to be here. Thank you.
Jacquelyn Melinek 23:28
We'll be back next week with conversations around what's going on in the wild worlds of web three with top players in the crypto ecosystem. You could keep up with us on Spotify, Apple Music or your favorite pod platform and subscribe to our companion newsletter, also called chain reaction. Links to the newsletter and stories we talked about can be found in our show notes. And be sure to follow us at chain underscore reaction on Twitter. Chain Reaction is hosted by myself Jacqueline melanic, and produced by Maggie Stamets with assistance from Nishad Kulkarni and editing by Kel Bryce Durbin is our Illustrator and Henry pink Yvette manages TechCrunch audio products. Thanks for listening in. See you next time.
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