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00:00:01
Off Chain 2/15/24: Our Killer ETF Trade, PLUS Sotherby's Lists an Ether Rock
217 Plays8 months ago
In this week's episode of Off Chain, we cover the following stories:
- Sotherbys is auctioning off an Ether Rock… we must be back!
- Inflows to Bitcoin ETFs reach new highs, powering a BTC rally
- The Ethereum ETF applications are coming in thick and fast - we share an interesting trade that could really pay off in the run up to the spot ETF approval
Recommended![CBDCs: The [Dark] Future of Money (Part 2 of 2) image](https://media.zencastr.com/cdn-cgi/image/width=112,quality=85/image-files/61fc0461fb20e00040aeb09e/5b9f1396-2a8e-418d-82a0-30fd00969266.jpg)
Transcript
Introduction to Bitcoin Market Trends
00:00:12
Speaker
Hello and welcome to the Decrypting Crypto Podcast. It's February 15th, 2024, and this is Off Chain, your weekly recap of the biggest stories in the crypto space. I am Matthew Housebarbie, and as always, I'm here with Austin Knight. How's the past week been, Austin?
00:00:27
Speaker
Well, we're up, Matt. Once again, good news in the world of Bitcoin. Also, how about this? Even better, CoinGecko is saying that they're predicting that the Bitcoin halving is going to happen on 4.20. Send it. Send it. Let's go. Yeah, it's been...
00:00:50
Speaker
It feels like we've been going up in Bitcoin price by almost like an incremental $1,000 per day this past four or five days. It's literally what it's been doing. It's been beautiful to watch. I've been getting...
00:01:06
Speaker
screenshots of the Bitcoin price in my WhatsApp from friends and it's been very lovely to see but it still feels like we're just getting started. Yeah. Which we're going to be talking a little bit about in today's
Exploring Bitcoin and Ethereum: ETF Impact
00:01:20
Speaker
episode. We're going to be talking about the BTC rally and Austin, you're going to be sharing a little bit around like the Bitcoin ETFs. I'm going to share a little bit around
00:01:31
Speaker
the Ethereum ecosystem as well. And we're going to, this is a bit of ETF mania this episode, but I'm going to share a little bit around the ETFs and also like an interesting trade that I think could be placed right now. And we'll break that down a little bit.
00:01:50
Speaker
And we're going to kick everything off with everyone's favorite topic, JPEGs of a rock. You know, it's the pinnacle of crypto. So without further ado, let's jump into our first story of the day.
00:02:15
Speaker
Sotheby's, the world-renowned auction house, which has been more than dipping its toes in the waters of crypto over the past, what, 12 months, is now auctioning off an ether rock. This, in my mind, means we gotta be back. This is the uber bullish kind of piece. And I think, you know, for those in the NFT space, when Sotheby started to enter the scene, I think early last year,
00:02:44
Speaker
in particular. You know, it was a real sign, stamp of approval of legitimacy, I think, and now this is like the kind of the love it or hate it of the of the of the NFT space in the crypto space at all. EtherRocks, if you're not super familiar with them, you might remember them from back in the peak of the bull run when
00:03:12
Speaker
literally these jpegs of a single giant rock that is literally a clip art image of a rock is what and there was a there were an NFT collection
00:03:27
Speaker
There's a hundred of them in total. They were one of the first NFT collections to truly be released. They were launched in 2017 shortly after CryptoPunks. But it was even before like, obviously before ERC 721 and 1155 were released. So before all these token standards were around, there were like a 100 collection.
00:03:53
Speaker
And yeah, they're just varying, very similar clip art images of rocks. And in the peak of the 2021 bull run, I think we had an episode when this happened, Austin, one of those rocks sold for 1.3 million dollars. So, you know, there's clearly provenance to them. And I just I love to see I felt like I have the
00:04:20
Speaker
a Twitter account that I follow that I think is just a bot that tracks any sales of ether rocks. And whenever I see tweets come up that a rock has been sold, I know we're back. And, uh, so it's great to see Sotheby's actually have an estimated, uh, sale price of between 500 to $700,000 for the ether rock in question. It's the auction started yesterday and it ends on the 21st.
00:04:50
Speaker
Let me see if I can actually see where the auction's at right now. I don't know if I can. I think it might be like a private auction. Yeah, it's a private auction. I don't know if I can actually see the exact price, but they estimate it to be between 500 and 700K, which is pretty interesting in itself. And this is...
00:05:18
Speaker
This is kind of interesting because I remember when the ordinals first came on the scene earlier last year. We did an episode all around the launch of ordinals and what the first project that I actually found when I started going down the rabbit hole and I literally went down the rabbit hole pretty much right after ordinals kind of paper was released by Casey Rudimer and Bitcoin Rocks was one of the first to kind of launch
00:05:48
Speaker
And that was just basically a nod to the fact that ether rocks are also synonymous with being an early project that holds provenance in the space. So I think it's kind of interesting. It's kind of funny. It's one of those things that you show this to people outside of crypto and they'll go, wow, crypto such a joke. And then, you know, it's, uh, it's, it's clearly not, but I love to see it. So, uh, what do you think Austin, you're gonna, you're gonna bid on bid on this ether rock auction.
00:06:19
Speaker
Oh, I don't know, Matt. I mean, you know, you're making me you're making me think here earlier. You said Sotheby's entering the NFT space was a mark of legitimacy for NFTs. And now I'm starting to think actually maybe Sotheby's entering the NFT space was a mark of illegitimacy for Sotheby's with their ether rocks. Well, you know, who knows? Maybe Sotheby's being able to auction off an ether rock actually legitimizes Sotheby's.
00:06:50
Speaker
Uh, by simply being associated with a truly legitimate campaign and project in, in, uh, not to be, uh, underestimated ether rocks. They have, uh, I mean, it's time and time again, they've held the value. So people care about it. Um, and it's, well, it's a really old original NFT project, right. And there's only what, like a hundred of them. Exactly. So yeah.
00:07:16
Speaker
Yeah, I think that's the kind of piece here. I mean, similar with punks, they are somewhat timeless in the short time.
00:07:26
Speaker
period of crypto. And they do mark a period of time that is ultimately and quite literally etched into the history of crypto. So regardless what you kind of think about this, you know, this is art and you know, it's in the eyes of the beholder. And I will say while I have no desire to own an etherock, I get it. Like I do objectively, I get it. And I think there is a lot of
00:07:56
Speaker
kind of people that are in the crypto space that would like to own an Etherrock. So I think it's one of those where they don't, it's actually one of the few NFT collections that just don't rely on an individual or a company or something like that, like delivering
00:08:18
Speaker
some kind of like utility, right? You look at like board apes, right? They have to keep that community going. It needs to remain prestigious to be a part of it. Ether rocks don't, they don't need to do anything. In fact, if they started doing something, I think it'd actually be detrimental to Ether rocks. I think that is the piece. They are just pure straight up collectibles and that's it. So yeah.
00:08:44
Speaker
Well, let's talk about legitimacy.
Bitcoin ETFs: A Shift in Investor Preference
00:08:46
Speaker
Let's move into the second story of the day and we'll dive into the Bitcoin ETFs.
00:08:55
Speaker
flows to Bitcoin ETFs have reached new heights and it's powering a nice Bitcoin rally. So if you haven't looked recently, yeah, Bitcoin is currently hovering around the 52K mark. Last week, it started at 42K. So that's that's a gain of greater than 20%. You're going to make me cry here, Austin. This is beautiful. I'm tearing up over here. It's getting emotional.
00:09:21
Speaker
Oh, yes. So why is this happening? Well, yesterday, the BlackRock ETF, known as the iShares Bitcoin Trust, received a $493 million inflow and now has $5.1 billion in assets under management. Just to kind of put this into perspective, Eric Balconis, Bloomberg intelligence analyst, tweeted, quote,
00:09:51
Speaker
iBit is popping off, took in nearly half a billion all by itself yesterday, showing an unusually strong second wind for a new launch, is now over $5 billion, which puts it in the top 7%
00:10:07
Speaker
of all ETFs by size in just 23 trading days. It's unbelievable. It's truly remarkable, isn't it? Yeah, it really is. The fact that not only has it gotten so large in such a short period of time, but that it's also outpacing its initial inflows, right? Like you usually expect to get a really big pop,
00:10:32
Speaker
Any time that a new ETF is launched, but the Bitcoin ETFs they're they're on pace
00:10:42
Speaker
to out-compete their original inflows right now. Fidelity Investments Y's Origin Bitcoin Fund, which is known as FBTC, they're approaching $4 billion in assets under management. So this isn't just like one big fish with the BlackRock ETF. In fact, iBit and FBTC are the fastest growing newly launched ETFs of all time.
00:11:11
Speaker
It's just wild. I think the really cool thing about this is actually, for most of us, myself included, the way these flows have played out has almost been in reverse, and it's just so much better this way. It was a slow start. Well, it actually wasn't a slow start. It's just we had
00:11:32
Speaker
the huge outflows of grayscale, GBTC, right? And that kind of put a bit of a gray cloud over all of this inflows that were happening elsewhere. But now, you know, it's, it is just like, it's relentless. And make no mistake, this is fueling the price action, right?
00:11:56
Speaker
Oh, yeah, absolutely. But you're right, Matt. I think that even the analysts are kind of surprised here. Across the board, what I was seeing is analysts saying that they definitely foresaw significant demand for the Bitcoin ETFs, but the net inflows have been larger than expected. And I think that that's the key there, the net inflows. Cramer is in disbelief.
00:12:19
Speaker
It is in disbelief right now. Yeah, I know. So you mentioned the GBTC that was sort of like pulling down the market a bit here because of all of the outflows that were happening there. And we covered that several episodes ago. But what's blowing the analysts away is the net inflows. So even if you account for
00:12:48
Speaker
the outflows from GBTC, still the net inflows are just remarkable. In fact, Matt Hogan, the chief investment officer at Bitwise said, quote, I actually think there will be a secondary acceleration in a few months when these get onto national account platforms. So, yeah.
00:13:08
Speaker
The outlook in general from analysts is positive. But what's happening with Grayscale's GBTC? Currently, they are actually sitting on the most cash. They have over $22.9 billion in assets under management. But importantly, that is down from $28 billion when it converted to an ETF on January 11th. And they've actually seen net outflows every day since then.
00:13:38
Speaker
The other nine US spot Bitcoin ETFs have more than offset the more than $6.5 billion of net outflows from GBTC. The net inflows for all 10 of those
00:13:53
Speaker
amounts to nearly $3.8 billion. So we've outpaced that $6.5 billion outflow to the tune of $3.8 billion in net inflows. And in fact, on Tuesday alone, there were $631 million of net inflows into Bitcoin ETFs.
00:14:13
Speaker
Wow, I've got a little bit of trivia for you, Austin, which for everyone listening, I have not primed Austin with the answer to this. What would be your guess on the total flow for gold ETFs in the same time period, or since the start of this year, sorry? You had to- You know what, Matt? I mean, it has to be in the tens of billions of dollars, right?
00:14:45
Speaker
That's what I would have thought. There's negative two billion in outflows. No way! Right? So when you compare this to what everyone says, like, you know, can it be a success compared to like the gold ETF? Bitcoin is absolutely destroying it compared to gold, right? So that
00:15:08
Speaker
I saw that stat today and I was like wow that that is like very impressive in when you consider that as like a general barometer. I just think that this cannot be underestimated. We were talking Austin when we before we started recording about how and I'm sure many of our listeners might have noticed this
00:15:30
Speaker
start to see some real changes in the trading volume and patterns that start to happen in like the price of bitcoin where you're starting to see this sync up a little bit more with the US market open times and a lot of trading activity happening around market open you know this is an
00:15:50
Speaker
a completely fundamental shift in the trading behavior around BTC that's being driven by the ETFs. Traders are adapting, the market's adapting. I think the fact that we had this slow start because of GBTC and now we're just letting rip, this is a very, very promising setup
00:16:16
Speaker
especially ahead of the halving, which we've been talking about over the past few weeks, right? I just think, I don't think structurally,
00:16:26
Speaker
we have been set up like this in the crypto space ever. And without becoming an it's different this time meme, I truly do believe that we have not been positioned better for a major rally. It's not to say that we will, but we are structurally set up in a way that we never had before from a liquidity level, from a demand level,
00:16:53
Speaker
and from a whole wider macro level to support an outsized rally in BTC in the wider space that that'll bleed over into. Yeah. Now, Matt, maybe this is a bit of a leap that I'm taking here. But thinking about those gold numbers, you set a net outflow of around $2 billion, the same period we had net inflows of around $3.8 billion into the Bitcoin ETFs.
00:17:22
Speaker
Do you think there could be some type of a relationship here where maybe some investors are pulling some of their exposure to gold and putting it into Bitcoin? It's an interesting theory. I don't know. It wouldn't surprise me. What I will say is maybe structurally on the gold side, I know that we were like on an absolute tear with gold. What was it, December? I think it hit like an all-time high, I believe.
00:17:51
Speaker
um so that that's probably maybe that's cooled off a little bit but um i mean it wouldn't surprise me you know like that there is a similar case to be made for both um but what is undeniable is that bitcoin is flavour of the month right and uh and i think it's just adding more and more
00:18:16
Speaker
legitimacy to this as a part, as an asset within portfolios that not only have we got all of these major financial institutions issuing ETFs, but also those investors are all in the green. What a great way to start your exposure to Bitcoin. It's pretty good, right? No doubt about it.
00:18:43
Speaker
All right, well, this is a nice jumping point. Why don't we jump off from BTC and jump into the wonderful world of Ethereum and what we think's to come. We've talked about the Bitcoin ETF, spot ETF applications.
Ethereum ETFs: Approval and Market Implications
00:19:03
Speaker
Next up, as we discussed previously, the narrative is going to shift heavily to the Ethereum spot ETF applications, which are coming in thick and fast.
00:19:14
Speaker
May 23rd, 2024 is the date that matters. It's the only one that matters. It's the final deadline for VANEX ETF approval. They were the first to file. And while it's not
00:19:30
Speaker
definitely the case, it's highly likely that the SEC will take a similar approach to what they did with the Bitcoin ETF and just approve or deny all of them on the same day. So we've seen Franklin Templeton, the beautiful laser-eyed financial institution,
00:19:49
Speaker
I love it. It's this great, isn't it? Their Twitter profile has got laser eyes. It's wonderful. They were the latest issuer to apply and they've joined VanEck, BlackRock, ARK Invest 21 shares, Grayscale, Hashdex, Invesco Galaxy, and Fidelity. In this end, we'll likely see more.
00:20:11
Speaker
We talk about laser eyes from Franklin Templeton. I think one thing that's been really great to see actually from both the Bitcoin ETFs, well in particular the Bitcoin ETFs and now also the hype that's coming from the Ethereum ETFs is
00:20:32
Speaker
the kind of level of engagement we started to see from these big financial institutions really getting deep into the meme culture of crypto and there's been some just great stuff on crypto Twitter like VanEck we've seen in particular
00:20:48
Speaker
with fidelity and also Franklin Templeton doing some really fun stuff. So that's a bit more playful, but it is useful. It normalizes this as an investment kind of vehicle. So why are we talking about Ethereum ETFs other than it's a potential big moment in the Ethereum kind of timeline.
00:21:09
Speaker
Well, here's why. I think there's something interesting here. And if you are a long-time listener of the podcast, you'll remember in November 2022, no, yes, November 2022, we talked about the grayscale Bitcoin trust being trading at a 40% discount to NAV. And we said at the time, wow, if you've got
00:21:40
Speaker
if you've got the stomach for it. Buying this trade now.
00:21:44
Speaker
could mean enormous upside if this thing ever gets converted into a spot ETF. Well, you know, that played out. Now, did me and Austin make that trade? Absolutely not. But, you know, but we would have loved to say we did. But I think there's a similar trade to be made right now or a case to be made around this trade. Of course, this is not financial advice, but I want to break it down because the same thing plays out here, the grayscale Ethereum trust. So ETH E.
00:22:14
Speaker
This right now is priced at a discount to NAV currently between 13 and 15%. Yesterday it was 15%. I think there's been some trading activity around this. It was 12.9% this morning. I think we're hovering around 13% now. And actually I should pause and say, what does it actually mean to be a discount to NAV? Well, if you buy shares in the Ethereum trust from Grayscale,
00:22:40
Speaker
a 15% discount to NAV. NAV stands for Net Asset Value. It means you're buying shares at a 15% discount to the spot price of ETH. So if Grayscale are successful in being able to convert the trust to a spot ETF, what you will see is that this discount to NAV will vanish. The reason why there's a discount is
00:23:04
Speaker
Basically just the uncertainty that this will not be able to be converted to a spot ETF so it trades at a discount. And if you believe that the one
00:23:18
Speaker
spot ETF Ethereum is going to be approved. And two, that Grayscale are going to be able to convert this into a spot ETF, well, means that you'll be able to sell with a locked-in gain of around 15% in ETH terms. So obviously the main risk is if this doesn't get converted into a spot ETF and or, you know, the ETFs are denied,
00:23:41
Speaker
In this case, the discount to NAV would grow and widen dramatically, meaning your shares would drop relative to ETH spot price. But I think if you feel like the same story is going to play out on the ETH ETF side as it did with Bitcoin, this could be a killer trade. I really like this. And I'm surprised that there's not a ton more discussion around it.
00:24:06
Speaker
You'll have to hold me honest here, Austin. And when we get to near the end of May, we'll look back and we'll see how this actually played out. Because I think it's going to be pretty interesting. Here's my prediction. And bear in mind, this is just my opinion. I have no insider knowledge. I'll just clarify this. My prediction is that the Ethereum spot ETF
00:24:30
Speaker
from VanEck and all of them are that are on the list, probably pending a few adjustments, are approved on May 23rd, 2024. Grayscale is allowed to convert their EFE, Grayscale Ethereum Trust, to a spot ETF, and I also believe that they will decide to maintain high fees, fees that are multiples, higher than the rest of the issuers.
00:24:59
Speaker
As a result, I think we see a large volume of outflows from ETH E similar to how GBTC happened in the first couple of weeks.
00:25:09
Speaker
From a combination of holders taking that sweet profit from the discount to NAV, so why would you not, and then rotating into lower fee issuers. I think like what we've seen before, Fidelity, BlackRock in particular will gobble up a ton of market share in the Ethereum spot ETF marketplace. Sorry, market.
00:25:34
Speaker
What I also think will happen, which will be different to the BTC ETF, is the outflow impact from ETHE on Ethereum's price will not be anywhere near as pronounced as when this happened to Bitcoin, because I think the market's going to anticipate this.
00:25:57
Speaker
We've seen this play out. The concern at the time was, holy shit, there's $28 billion worth of assets under management that GBTC holds, and shit, we're going to get continuously dumped on, and it's just going to keep driving down price. That's why we
00:26:13
Speaker
We drive down Bitcoin price to what was it, like 38K, right? And now where are we sitting today a couple of weeks after that? 52K. I think that the dip in price that we will still see, outflows will make an impact, make no mistake. I don't think it will be anywhere near as big as the impact it made on BTC.
00:26:33
Speaker
I think the reason why is the dip is going to be bought aggressively. And I think what that sets us up for is a supercharged ETH rally through the second half of the year.
Future Prospects for Bitcoin and Ethereum
00:26:45
Speaker
I've been saying for the past 12 plus months now that I love everything that's happening in the Bitcoin space. But ETH is my highest conviction bet that I've had. My bags have been packed.
00:26:59
Speaker
since around March of last year and this is the play for me and I think
00:27:07
Speaker
If we think Bitcoin has been good, if things play out here, I think ETH is going to get the mother of all rallies that come from this. And the biggest blocker to all this is if big Gary decides to try and lay down the law and deny the spot ETF. That would be harmful, no doubt. But if they don't, we're in really exciting territory moving off after that.
00:27:37
Speaker
Oh yeah, big time. Yeah Matt, I'll never forget sitting in a pizza shop in Boston with you in 2016 and you telling me about the fundamentals and the mechanics of ETH and how interesting it was and it's just amazing to see
00:27:53
Speaker
where we are now. So you say that your bags have been packed for a few months. I know they've been packed longer than that. Listen, Austin, I'm great at fumbling my bags as well. So don't make no mistake. But like I say with Bitcoin and the market being different this time, I am trying to be different this time. But there's a lot of exciting stuff coming. I think ETH has
00:28:19
Speaker
So when I look at Bitcoin, right, what excites me about Bitcoin, just while we wrap this up is, yes, we've got the BTC kind of ETFs approved. We have structural differences now, improvements in the flows of capital, the liquidity coming into the market. That is net, new and positive. And we also have some major catalysts in terms of narratives and economic changes.
00:28:48
Speaker
the halving, an economic and somewhat narrative change. Then we've got a few other pieces alongside this. We've already seen the impact of the likes of ordinals in terms of Bitcoin activity. I think that's only going to ramp up. And then I think we see an increased wave of momentum that comes in this surge in Bitcoin DeFi, which I think me and you are going to be talking a lot about over the next 12 months.
00:29:15
Speaker
And similarly, the same story is to be had from ETH. But the thing I love about ETH is, ETH benefits. It kind of rides under the wing of Bitcoin. When Bitcoin benefits from all this stuff, ETH largely does as well. It's like, you know, it's being dragged up by the scruff of its neck by Bitcoin. And that's beautiful. But ETH also has some incredibly big narrative plays coming its way alongside all of this, right? So you've got the ETH spot ETF.
00:29:44
Speaker
That, if approved, creates structural differences that we've talked about with BTC. Whole new layers of liquidity coming into ETH.
00:29:55
Speaker
Then we have an enormous narrative in the form of the restaking kind of whole meta that's going to be driven by Eigenlayer launching near the end of Q2. Again, perfect timing, similar to the Bitcoin halving around that kind of momentum kind of stage.
00:30:18
Speaker
Then alongside this, I think we have this other piece that personally is where I think it's going to be the most exciting area for institutional investors. I talked about this, I think it was a couple of weeks ago, with a staked ETH ETF. Much more challenging to get over the line, but I think that becomes a theme.
00:30:39
Speaker
And then amongst all this, we've got the modular blockchain thesis, data availability, we've got the upcoming Denken upgrades, all these pieces that are focused on scalability. And I just feel, and bear in mind, and we haven't even had rate cuts yet.
00:30:55
Speaker
It's just we're positioned well. It's hard not to be bullish here. I try to sense check myself in situations like this. I'm like, am I getting carried away? And I mean, objectively, yes, I am getting carried away. But we're positioned with so many
00:31:14
Speaker
kind of potential momentum waves, that it's just hard to get away from, you know, the excitement that this could bring. And I think that that is just delivering confidence in the markets, in the crypto markets specifically. And I think these two assets, Bitcoin and Ethereum, the bedrock
00:31:34
Speaker
of really the ecosystem are going to bring a lot of new capital in ways that they've never done before. And I think we're both expecting over the next 18 months to see new highs. And that, if it comes to fruition, is going to be great for everyone.
00:31:56
Speaker
No doubt about it. That fear and greed meter is inching further and further away from fear by the day. Oh, mine's like, you know, the needle broke on my meter.
00:32:08
Speaker
It's blasted off the edge. Yeah, it's great to feel this way. We deserve it. We've been in one of our several big bear markets. We've kind of really got out of now. So I'm excited for the year ahead. And Austin will get to spend it together. What a better way to enjoy it.
00:32:36
Speaker
Alright, let's wrap things up and yeah, we'll see how things play out and until then I'll speak to you next week. Talk to you then Matt.
00:33:04
Speaker
The contents of the Decrypting Crypto podcast should not be used and are not intended as investment advice. Please do your own due diligence before making any investment, cryptocurrency or otherwise.