Bitcoin’s Wall Street Takeover: ETFs, BlackRock & The New Era with Eric Balchunas

Jackson Mikalic (00:02.114) All right, welcome back to The Last Trade. I'm excited for this one. I'm excited for many of our episodes, but I am particularly excited for this one as well, because we have Eric Balchunas joining us from Bloomberg, and I'm joined by my co-hosts Brian Cabellus and Michael Tanguma. So Eric, before we get into your background, I do just want to say I appreciate the work that you're doing. It seems like, so the three of us, Brian, Michael, myself, we've been building in the Bitcoin space for a while. and I came across your name first as really the... leading source of information as the Bitcoin ETFs started to actually have some momentum even before approval and then after approval. And so I would say for anyone who's not familiar with your work, definitely check out Eric's ex profile because Eric, it's a breath of fresh air, I must say, because there's so many accounts on X that just post like crazy stuff all day, all caps. They don't actually read anything that they're posting and you kind of take the opposite approach where you post signal and you have some of the best research reports. on the ETF complex for Bitcoin, inflows, AUM, really where Bitcoin sits today, the ETF complex, or IBIT in particular, being the 20th largest ETF. So Eric, really appreciate your work. Thank you for joining us today. It's an honor. Eric Balchunas (01:21.379) Yeah, no thanks. I'm glad you enjoy that account. I enjoy doing it, so it's mutual. Jackson Mikalic (01:28.842) Awesome. Well, yeah, let's get into it then. So I think for the three of our sake and the audience sake as well, we'd love to just hear a little bit more about your background. I know you've been at Bloomberg for a long time. It seems like you've had this meteoric rise in popularity with covering the Bitcoin ETFs and you've probably seen how much fervor and passion there is in this space. So we'd love to hear just a quick snapshot of your background at Bloomberg and then take us to kind of the time when you started to have more of your eyes on the Bitcoin ETFs kind of around the approval, et cetera. And then we'll get into where we are today. Eric Balchunas (02:05.337) Yeah, I started at Bloomberg in public relations, believe it or not. I went to college for journalism. And then after 9-11, I moved to Jersey. And I wanted to transfer out of the New York office. And the only thing they have in Jersey is Princeton, and that's the data office. So I went from PR to data, which I still think I'm the first and only employee to ever make that move in history. you know, there was a writer, I forget his name from the seventies, and he talked about going from Harvard into the army. And I feel like this was a similar move. You know, you think you're like going to all these parties and PR is a great way to get like near the top of the firm quickly, you know, and then data is like literally like the factory, you know, that is where the terminal is made. So it was actually a really good move from my ego and also to learn how the company was made, you you got to put the data on the terminal, that's what we sell. So I spent 15 years in data. I'm surprised I, I'm surprised I made it that long. It wasn't totally a perfect fit, but ultimately I then got into research, which is a combination of data and PR and journalism. So I'm actually using all of my facilities in research and the research group was started at Bloomberg maybe like 15 years ago and it was stocks and bonds and then like I don't know when we bought the Barclays index unit and they got us some headcount and the guy who ran Bloomberg intelligence had seen me around doing TV and being the ETF guy internally and said, why don't you cover for research? So since then I've been doing ETFs and then I obviously got introduced to Bitcoin and crypto first in 2013 when the Winklevoss filed for their Bitcoin trust. People forget they filed when it was under a hundred dollars of Bitcoin. I should have just bought a shitload of Bitcoin then and I wouldn't be talking to you. would be, or I'd be on with a, with a complete face covering and sunglasses. So you wouldn't know my identity. maybe then I would give the interview, but, I would, I, I blew it off like everybody else. I, it was like, the way I look at pickleball, you know, it's for other people. I just don't get it. And, Ultimately though, I kept covering the saga of the approval. And then when black rock filed in 2023, Eric Balchunas (04:27.021) That was a meteor moment, moon landing moment if you're an ETF analyst, you're like, what the hell just happened? And from then on there, it was off to the races. And as Jackson pointed out, I use Twitter a lot and I found quickly that a lot of people had stopped covering crypto since SBF. Like there was a dearth of coverage in both the reporter and the analyst world in the mainstream. There was only the trades it seemed like. And I found a James and I say James safer to my team. found a huge opportunity to develop this new audience by giving like real information about, I call it ETFs planning and sec splaining. Cause there's whack jobs out there who just say anything literally. like, I'm like, where's your source? And then they don't even reply. and so people would look to us for like the truth and we, also had good sourcing and we also were, we had a good feel for what was gonna happen and how big it would be. And then when the ETFs came out, the flows were onto, that's really where we specialize in. So we were able to provide not just the data, but also like really experience color on what it meant, know, relativity, you know, those kinds of things are powerful from someone who's been in the industry for years. And so I think that's sort of where you probably followed me after I started covering the crypto stuff. It got to the point where I would post about like a dividend ETF and the crypto people would be like, dude, what's this? So it was mostly a blessing, but a little bit of a curse, but I've enjoyed it. It's a great, it's really younger, more, you know. It's just a very diverse, younger, energetic industry. And I think it's given ETFs this like new jolt of energy. So I know for me covering it 20 years, that's why I like covering ETFs though, because it sends you to every place in the world. But this was like a really massive, interesting journey to this world. I mean, this was like a whole new asset class being onboarded into ETFs and it's, Eric Balchunas (06:46.615) really been exciting. Michael Tanguma (06:48.959) Yeah, I think to Jackson's point, I think you and James have a very tempered take from this that really helped and tempered in both directions, like being open to the craziness and looking at it from their vantage point and saying, well, let's think about it from the everyday or the grand mall, like they can't do this stuff. But also not being kind of stuck in the mud as we've probably seen where the vanguards are the easy ones to pick on of like, there's no interest or demand for this. Eric Balchunas (07:17.294) Yeah. Michael Tanguma (07:17.515) And it's an interesting, that whole notion of the mimetic nature of the world we live in and the meme stocks, but then in particular is like been a big substrate of Bitcoin's growth for 15 years. Think about Trump, like how much he appreciates and enjoys that engagement similar to yourself on Twitter. Like there's some serotonin hit and yeah, it's just been fascinating to watch. And then like the easiest example, there's probably, you can go through a whole hundreds. over 100 in a list of crazy like misconceptions, but the most recent one with the in-kind redemptions, it's like, people think they're gonna be able to park Bitcoin and send it out. And it's like completely nonsensical from a pure logistics perspective, like Fidelity or Coinbase isn't sending Jackson his ETF shares in a Harbor wallet, like from a compliance and OFAC perspective, it's so insane, but that's what people believe when they see this and then everyone posts in all caps this stuff. Eric Balchunas (07:52.119) Yeah, yeah. Eric Balchunas (08:03.341) No, no. Eric Balchunas (08:09.751) Yeah, yeah, no, I also learned over the approval process, there is just such a demand for Hopium that there's not enough Hopium to fulfill the demand. And so the tweeters and the trade publication people end up leaning into offering Hopium. remember that coin telegraph tweet that said the BlackRock ETF was approved? Brian Cubellis (08:36.699) Yeah. Eric Balchunas (08:36.929) and like the price went up and it was all like some intern read something on a telegram or something. So there is, I've seen it firsthand in both the headlines in the trade publications and then also with the tweeters. On the flip side, the mainstream media leans negative and just continues to see, I think they underrate it and underestimate it. So this interesting dichotomy, I feel like James and I are in the middle and I find... It feel, we feel comfortable there, but I also have gone to a couple of conferences and I think I recommend people who cover this. I'm like, you should go to these conferences because you're going to see massive energy. went to token 20, 49 in Dubai. There were like 15,000 people there. The average age was probably 29, 30. I mean, I felt like the boomer. call me on Twitter, like Brian Cubellis (09:28.077) You Eric Balchunas (09:28.441) They call me boomer and suit all the time. And I'm like, a I why I do wear a suit on Mondays for the TV show, but otherwise I'm not wearing a suit. I'm Gen X. And honestly, I try to tell them ETFs are pretty punk. mean, Wall Street doesn't love ETFs. They're cheap. They don't make any money for Wall Street. So when I go to the crypto conferences, I sort of try to present ETFs is like, you should be careful not to underrate the power of the ETF. is a kick ass. Brian Cubellis (09:41.883) You Eric Balchunas (09:56.313) vehicle that's going to be hard to disrupt, especially for the tokenization stuff. That said, this is that industry is just full of it's young, international, vibrant, and real tech oriented. And I felt going there similar to how I felt when I first went to ETF conferences in like 2006, 2007. And since I was like, this is kind of the future. And so that really helped bring me on. in terms of being someone who takes it totally seriously. But at the same time, the industry itself is good at making fun of itself. Like when I would get into a fight with somebody on Twitter and like I could see people jump in and be like, yeah, this guy's insane, you know, like, or when the price of Bitcoin goes down, like, like, let's say it has a sell off of like 20%, people will put a McDonald's on themselves in their profile picture. And so I do enjoy that. self-deprecating humor that is mostly there. You don't find that as much in TradFi. So I like that. There's some features of it that I'm, you know, find that fit my personality. That said, I do think that there is a large underappreciation for how much has happened over the past 30 years in traditional finance to bring costs down. So I think the crypto assets themselves are like really powerful and interesting. But the, you know, the intermediaries, I think they have their hands full with, you know, BlackRock and Schwab. These companies are live in a terror dome of the ETF world, which is it's a tough place to compete. So I think there's like, I think both sides, you know, it's almost like a generational gap and a cultural gap as well. And I've really enjoyed going between I think both sides. underappreciate things about the other sometimes because they do get into somewhat of a tribal state of mind. But there's a bleeding in, but they're coming together. It's like a marriage, whether you like it or not, especially since Trump won. And I feel like we're going to find a lot of blending of the two worlds over the next 20 years. Michael Tanguma (12:13.547) Yeah, one thing to call it, because Interjection has a number of ways to take this, but there's a theme that's playing out here when you reference going from PR to the data room or trade fight of crypto. And this is how we built this business. It's like, and this is a crude version of when two disparate ideas come together and collide. That's when they have sex. Like when they have sex, like that's when the magic happens. Like that's the beauty of life. It's like, you have to have different parts of your brain working together to really like come from a frame of reference that the market has never seen. So there's a lot of alpha in what you're describing and how do you actually build the right way. And we've been in the early hobbyist phase. This is like what jobs really picked up on early is there was people putting computers together, but it was like, how do I actually make the most like democratizing access to a really nice power machine? And that's where we're at. And then we're still early like 1990s and the internet in this boom. And there's just no shortage of ways to like democratize and provide exposure in a way that people. Eric Balchunas (12:57.571) Yeah. Eric Balchunas (13:01.315) That's what it feels like. It feels like I started my career in the mid 90s. Pretty old. And I feel like this is internet stocks, at least the blockchains. Bitcoin is kind of a unique special thing, although that kicked off the blockchain companies. But it all feels like the 90s internet where... You know, these companies are, you're not quite sure who's gonna grab the most market share, especially within the blockchain area. know, Bitcoin is such a unique thing. That's, again, I separate the two. That's another thing that there's this tribal warfare sometimes, especially with the Maxis, where if you say crypto and you actually mean Bitcoin in there, they get so pissed off. They're like, Like, it's like, I'm trying to think of a metaphor where like, they're like, don't, do you dare call me that? Jackson Mikalic (14:05.42) Eric, could I? Eric Balchunas (14:05.443) Don't associate me with those plebs. Anyway, it's really funny, that thing, but I do use crypto to mean everything, and then I'll use Bitcoin separately, but I do agree with them that Bitcoin is kind of a special case. Jackson Mikalic (14:24.43) Yeah, 100 % Eric. So yeah, there's a lot that we could talk about, a lot of different directions we can go in. I think important though, so you do mention your GenX in your Twitter bio. Is that because people are calling you a boomer so often on Twitter? But seriously. Eric Balchunas (14:40.605) No, I actually I put that in before because I like you know, if you're reading these Wall Street Journal or Financial Time, anytime they write about generations, it's always Millennials and Boomers. And they might mention Gen Z. It's like we're just forgotten like Gen X. It's like, you know, I was like, dude, look at all of the great music we produced, the great artists, artists, the great athletes, Tiger Woods, Tom Brady, like we've produced the greatest shit. you know, between people who really came into this work, you know, to came into the prime from 90 to 2000, like the nineties. I just feel like Gen X is, I'm proud of my generation and it just feels like underrepresented. So I throw that in there. That way people also know to, to get ready for some of my metaphors, which tend to be eighties and nineties heavy. Jackson Mikalic (15:30.382) Awesome. I love it. all right. So you took us like 2013 Winklevoss twins dismissed Bitcoin as most people do on the first pass. And then so you kind of took us to your rise in popularity because you had the background and professionalism to cover the Bitcoin ETFs. I'm curious when the ETFs are starting to get momentum and you guys are tracking ahead of approval. So summer 23 and then into approval 2024. What was your thoughts? Like were you already kind of convinced on Bitcoin? as an asset class, as an investment? Did you understand the thesis or did you kind of have to understand that in real time as you were digging deep into the ETF complex? Eric Balchunas (16:10.125) Yeah, real time. James knew more than me, so I could always lean on him a little bit. sometimes, you know, again, he's a millennial. He doesn't have the same reference points, but he's really good. But ultimately, I've had to learn in real time everything. Like, I used to do a show called ETF Friday every Friday, and I just was covering ETF starting in 2007. And they'd be like, we're not going to cover small caps today. We're going to do VIX because the VIX went up. I'm like, what shit? So I'd have to sometimes be a quick study on like, what is the VIX? What are VIX futures? So ultimately in my coverage of ETFs, I would just download books from Amazon constantly. So I did that with Bitcoin and with the blockchain stuff. And it just became a quick study, enough to get me by. And then over time going to conferences, know, context clues. So I really learned it all on the fly. And I think I underrated a couple things with Bitcoin. I underrated how much Satoshi was standing on the shoulders of giants. I've written a book about ETFs and I've written a book about Vanguard. And in both those cases, a lot of shit happened. You talk about that connection of two ideas. In each of those cases, a bunch of stuff happened before that idea was able to happen. You know, there were a lot of technological advances. There was a community, a scene. These were smart people. They were real libertarians. And so when Bitcoin was birthed, it was almost like it it had just taken like 80 % of what was out there, added 20%. And that was it. That's why it became the one. Same thing with Spider. Spy's the first ETF. There were index participation shares. There were multiple attempts. at similar things and obviously index funds had existed for 20 years. And so in each of these books I've written, it has that same consistency. When something is a big hit, it's never someone hitting their head in the toilet. Like I think the average person thinks like this dude Satoshi just threw put a magical coin on the internet. It's so much deeper than that. And it's honestly a real it's it's also a Eric Balchunas (18:33.389) the indestructibility of it as a truly decentralized thing and how to make incentives work. There's so much that goes into that design to pull it off and to pull off something that's decentralized and totally secure. It's worth something. I mean, that alone. So I underrated that part for sure. And I underrated the scarcity. I guess I just never thought about it, but. The idea that only 21 million Bitcoin can be mined and they were almost at that point. I mean, they're only like coming out in little tiny drips at this point. Well, just for all intents and purposes, what is it? 94 % of the Bitcoin are done. like, that is powerful too, because in every other commodity, they have a way to get the commodity. This is one where you don't have that. And so when you have these, you know, kind of things, you hear something back there? Is that just me? Oh, Anyway, so those are some of the things I underrated about Bitcoin that I've evolved on a lot, and it's made me take it even more seriously. And then with the flows into the ETFs, that's been, you know, something that has been pretty mind blowing as an analyst because they've broken like every conceivable record. But you could have those flows and have me still not respect Bitcoin. You know, I... that could happen. And I think there's probably ETF analysts out there that feel that way. They're probably like, God, I wish this wasn't a hit. But for me, I've, you know something else that we've noticed, again, James and I are working on a book about this, but we've interviewed all these people, two things we've noticed. It's rare that someone goes deep into studying it and doesn't increase their allocation. Like I've never seen somebody go, yeah, know, this is fucked up, I'm gonna go back to stocks. they typically get more into it. It's like there's a direct correlation between the amount you learn and the amount you allocate. The other thing is even people who say to recommend 1 to 2 % for a normal person into Bitcoin, they themselves are like 20 % or more. And this reminds me of ETFs. I would interview these institutions about their usage of hedge funds and all these like expensive type stuff. Eric Balchunas (20:53.143) And I would say, do you, do you use this stuff in your personal account? They'd be like, no, for my personal account, I just use cheap ETFs by Vanguard. But they wouldn't do it at their job. And I love those disconnects and I find it here with some people. I think they're afraid to tell anybody to like follow them into being like 20, 30 % because just in case it blows up or there's a problem, they don't want to hear it. But it is interesting that there's that gap. So those things also, you know, make me respect it and understand it more. But I am the classic case of somebody who kind of got at least half orange-pilled. I don't think I could be fully orange-pilled because I am a Bogle head. I wrote about Jack Bogle and Vanguard, and I'm a true index fund guy. I like cash flows. So by being a true index fund investor and really appreciating stocks, bonds not so much, but mostly stock investing, especially US stocks. I'm never gonna sell all that. And so I do feel like being a bogey head and understanding, you know, why stocks are good investments, it gives me some level of vaccination from being totally orange-pilled and being like, I'm done, know, sell everything, put it into Bitcoin. I'm not anywhere near there. So that's where I am now. Michael Tanguma (22:15.435) Well, there's so much there. This is like watching, I would have said Boomer, but you said clearly said GenXer. This is watching GenXer in real time. Get Orange Build and go through that because a couple of things you referenced and Jackson pulled up, there was a Cornell study. And this is something that we need to get better on our side about is like most people do, they've heard of Bitcoin, but they've never, they don't know there's only 21 million. And that's like, foundational to the whole thing that the finite scarcity. the second most people hear that there's only 21 million, it naturally means that there's some value there potentially value if it's valued at 100k and then it's just like underwriting that personally. The thing you mentioned about the one way street, there's a lot of weight because I've been in this space professionally since 2019 20 but then was trying to get in back in 2018 was interviewing with a lot of the Genesis guys back in the day and they're all still around somewhere like so not only is it mental and personal capacity from a balance sheet, also professional capacities. Like people don't come into this space and leave, like it's just there. And where that ties into, there's the component of everything you described about the shoulder of giants. You can basically, if you switch the word, it's gold. Like what we're watching today is gold. If you think about thousands of years when people figured out. gold had relative value. Well, it didn't happen overnight. There was all these different people trading different rocks and then other people were trying to scam them out of other rocks. And then ultimately money has this liquidity profile and the more liquidity gets more liquidity and it's the ultimate market or the ultimate protocol. And so that's what we're talking about here is that you only get that once, that finite scarcity. And so to your point about not being the ultimate maxi where I was joking is like, that's where you will get because all you're going to want is equity that delivers more Bitcoin. So we have a whole venture arm that's just Bitcoin denominated. We only invest in companies that produce more Bitcoin and deliver it back. And that's where you get at the, when you go far enough down this rabbit hole is you're like, wait, I want more Bitcoin. And so you're ultimately invest in things that deliver more Bitcoin because that's kind of just the rational thing to do is if you're long Bitcoin as Michael Tanguma (24:24.107) So anyway, that kind of is, it's very interesting how you've kind of gone through that and you're probably right there in the middle, but there will be a part when you come out the other side because you're honest with yourself, which is amazing because most people aren't honest in your shoes and they'll be like, thing's just an asset and I just need 4%. And to your point, a lot of people don't tell people to do anything more than that simply because most people can't handle the volatility. And so if they don't have the level of knowledge and research you've done, then they're gonna sell or they're gonna sell when it doubles when we know this is like a longer game than. Eric Balchunas (24:53.453) Also think the, I think the volatility shook out a lot of the casual tourists who bought it because Tom Brady advertised it in FTX and that whole last, and I don't think they're coming back just yet. I think a lot of the newer investors are from the more, you know, intelligent retail wing and advisors who buy the ETFs. Cause ETFs are usually bought by smart people, not like dumb game stop type investors, but more like intelligent, logical retail. And so I think Bitcoin's getting better owners and I think it will bring the volatility down. Not that it won't ever have a huge sell off. It had to have some black swan event I think. I don't see anything in the future that is such a huge wall of worry. It's mostly good narratives. you can't rule out a black swan. But I do feel like most people who buy it through the ETF probably are like 2-3%. And which is good is because they have this boring core Vanguard funds that they consider for like the real stuff So this is like a small hot called hot sauce on top and I think that gives them more intestinal fortitude to withstand some of the volatility Even if they're not orange-pilled if they don't get this I you know, I also think there's a place For Bitcoin if you're just somebody who gets pissed if you missed out later It's almost like I don't even understand it, but I don't want to have FOMO later And that's fine. know, people invest in certain stocks and there's thematic ETFs that are the same thing like uranium. Like, okay, it's not really represented in my S &P 500, but like, I don't want to have FOMO if we go completely nuclear for energy, I'll buy a uranium ETF just so I don't kick myself later because I had that idea. So I do think- Michael Tanguma (26:37.909) We call those, we call those spike coiners, spike coiners real quick because you brought it up before we jumped. So what happens, what happens if, yeah, got, my mother-in-law was a spike coiner because she couldn't, she couldn't let it work out. Eric Balchunas (26:41.145) White corners? Dude, that is really good. Eric Balchunas (26:49.849) We gotta write that down. Eric Balchunas (26:55.673) There's a guy we interviewed for the book who is definitely a spike corner. mean, he, that's really good. That's spike corner is really good. We have a section of the book called suit coiners, which is like, which you can guess what that is. Spike corner is pretty good. Michael Tanguma (27:01.204) Yeah. Michael Tanguma (27:09.619) Yeah. I wouldn't consider you a suit corner. I think you passed after this combo. You're not a suit corner for sure. But real quick, what happens if North Korea hacks Coinbase? Eric Balchunas (27:19.513) I appreciate that. Eric Balchunas (27:23.681) Yeah, no, this is the kind that's a black swan in my opinion. Now, this Coinbase issue is interesting. At some point, if somebody hacks, you know, XYZ third rated Ethereum exchange, that's the exchanges problem and the investors problem. But if Coinbase is almost the size where it would be everybody's problem, the government would have to step in, I think. Michael Tanguma (27:52.213) And print more Bitcoin? Eric Balchunas (27:53.921) I don't know. They'd have to, there's a point where I think if something gets. Michael Tanguma (28:00.779) How would they print more Bitcoin? Eric Balchunas (28:05.421) Well, let's go over this. If somebody hacked Bitcoin Coinbase, first of all, in this day and age, don't you think they'd find them pretty quickly? I I just watched that. I mean, can't they, trace the wallets? You don't think they'd be able to deduce. Michael Tanguma (28:23.509) What if they hacked it and burned the keys like in Iran? Eric Balchunas (28:28.013) I mean, this is a lot of money. like, would the people never spend the money? Michael Tanguma (28:36.051) I meant like burned the keys like I know this is long tail, but like Yeah, yeah, and never you they they were just for fun Eric Balchunas (28:38.617) In other words, hack it and just burn the keys and never use it. Just for fun. Would this be like an Ethereum Maxi who just wants to fuck with the bitcoiners? Like, what would your motive be? Just mayhem? Michael Tanguma (28:48.819) No, I'm joking partially just because, yeah, no, no, I'm partially joking just because that's a thing. I think the overarching deal, and this is a real philosophical thing that the suit coiners don't get, is there are no bailouts in Bitcoin, like full stop. Now, if you have a certain size, Eric Balchunas (29:09.741) Mm-hmm. Well. Michael Tanguma (29:14.739) then you might have the balance sheet of somebody to step in. But the core idea is everyone's long-term view of the asset is up into the right. So at a certain point, your balance sheet can't step in. And so the bailout is the government printing more dollars to buy Bitcoin in the open market. It's kind of like a proxy for FDIC. It's like, sure, you'll get made whole on your 250, but they're gonna have to print a bunch of money. So you're really losing out in purchasing power. This is why the, go ahead. Eric Balchunas (29:39.161) I mean that, but, okay, first of all, would this hack be the cold storage of Coinbase or the hot wallet? Michael Tanguma (29:47.563) Well, it doesn't necessarily have to be Coinbase. Fidelity is another great example because if you say Fidelity holds 20 % of the ETFs and the market cap goes to a million dollars per coin, so what does that put us at 10X from here? So that's $20 trillion. Well, Fidelity holds, let's just say they hold 20 % of that 20 million, so they have $4 trillion. Fidelity loses the assets, right? Fidelity. Eric Balchunas (30:11.085) Well, let's go over the losing of the assets. You're saying somebody's gonna hack into the cold storage. Michael Tanguma (30:18.623) You gotta be careful Eric because I'm gonna tell you that six months ago, Fidelity lost all their clients' data. It's all like all open, the most secure thing that they would have. Eric Balchunas (30:24.781) That's different than, so again, but in your scenario, are we talking about hacking into cold storage? Michael Tanguma (30:31.179) Um, well, there's multiple levels of hacking the cold storage. There can be collusion. Cause the idea is the, the core idea is like an ROI return increases with time, meaning it can be a 10 year game. Like there's a lot of different, um, and the easy example probably is simply we've never seen an exchange last longer than X. Eric Balchunas (30:55.383) Yeah, I mean, look, over time there will be a dilution of the custodians because Coinbase was early and like the most legitimate at the time that all the ETF started, but Fidelity is doing, I think, their own and somebody else, like Schwab is gonna let actual just crypto trade on that they're gonna trade. The banks can now custody it. And the custodian fees for Coinbase, they don't print them, but I believe they're pretty hefty. In the ETF world, they're always competing on like cutting fees. And like we've seen on the stocks and gold world, an issuer will move from like, don't know, JP Morgan to State Street to save like two bits. So I think over time, Coinbase will lose some of that business. So I do think there'll be a natural dilution in the gold world, what they do like GLD stores the assets in London, but IAU came around and said, hey, we're gonna store it in London, Toronto and New York. So like there'll be probably a time where they evolve into storing it into different places just to minimize that outside black swan risk. The other thing is most of the Bitcoin is in a cold storage, not a hot wallet, which I think the last hack, I forget the name of it, but it was a hot wallet that got hacked, it wasn't in cold storage, which is I think easier to hack. Again, I'm a little out of my area here, but ultimately though, I think when it comes down to this, if you're an ETF investor, you have to look at the track record of a BlackRock and Fidelity. And yeah, they're not perfect, but you either trust them or you don't. And I think for the most part, people trust, that's why them coming in was so big, because they are lending their brand and trust to this area. And they're not fucking around, man. I mean, they're not like gonna, they're gonna take every precaution necessary. But yeah, it's definitely something and then quantum obviously is a risk down the road and there's just like, you know, it's a it's something that people have to consider and so if someone wanted to go and get their own wallet We totally advise that like if if this is something that even worries you a little or if you're in Bitcoin Because you think there's gonna be a societal collapse and we're gonna go into Mad Max world. You want your own wallet? Michael Tanguma (32:53.781) Yeah. Eric Balchunas (33:19.619) So we tell people, if you are one of those people, gold has the same thing. There are gold bugs and there are the truly paranoid. And there's actually an ETF that lets you get your gold delivered to you. They do have retail redemptions and there's a gold that stores the gold in Switzerland only because just in case these other Western countries have known to take the gold. So I think the Bitcoin ETF space will evolve to kind of account for some of what you're saying. and to appeal to possibly the real hardcore paranoid. Michael Tanguma (33:53.227) Yeah. So I think we're both probably saying the same thing because I think we do trust, you know, think Fidelity and Coinbase being hacked and all that's very long tail risk. I think the best mental model to use is what we're describing is like if we were using email and we're explaining the internet and it's like, well, I don't get it. And it's like, well, yeah, because we don't know what it looks like. And so the angle I'm referencing here is today, the way you're talking about ETFs and how most people talk about ETFs is the pre-coiner person buying one, two, 3%. But if we go down the logical progression, you're in the middle of, you ultimately will have anywhere between 20 to 80 plus percent of your wealth in Bitcoin. And when that happens, it's the same thing of if you want fire insurance on your house. Like this is the progression of like how this plays out because of... Eric Balchunas (34:39.351) Yeah, but your progression, is this the person increasing the allocation on their own or just that Bitcoin went up so much it actually ate up their portfolio? Michael Tanguma (34:45.951) Both. Both because they're looking basically how it's performing against everything else. But so let me just finish the thread. that's the logical progression for, like you said, that most people as they get more educated, they increase their exposure. And so what happens there is very similar to like why you buy house insurance. You don't expect for your house to burn down, but if it does, you can't get knocked out of the game. And so the logical progression for the hardcore people, and this is why half of the two trillion sits on those hardware devices. I'm not saying that's the right move. I'm just explaining to you the rationale is because for 15 years, the only way to actually know that your house wasn't going to burn down was to sever the internet connection. And if somebody is holding 80 % of their wealth, the rational thing to do is not to leave it with a single custodian. Because even if there's 0.01 % that could happen, if it happens, you lose all of your wealth. The last thing I'll say is we've never seen digital scarcity. our whole entire life. So we actually don't know how to manage it. And two trillions fundamentally different than 20 trillion. So to expect that some firm like a BlackRock knows how to do it is just kind of doesn't make any sense or fidelity. Eric Balchunas (35:50.433) Yeah, I don't know, wouldn't go that far. Like BlackRock and Fidelity have both hired people from the crypto world. But also the other thing is, again, this is something that has been totally a worry with gold. When gold ETFs came out, they were thoughts they would like rob the trucks or people didn't think the gold was there. And then the gold has been... Michael Tanguma (36:10.891) While the government robbed all the gold, that's the point. Eric Balchunas (36:13.293) Well, that was in the 20s. But the gold isn't like, I get you. That's what I'm saying. If you go, if you're somebody who even starts to talk about how FDR confiscated gold, get your wallet, get your own wallet. You should do this on your own. should, and then print the phrases on dog tags and then bury them in three different spots in three different countries. That's the route that, there's a Bitcoin investment path for everybody. Michael Tanguma (36:18.517) or about a hundred years, a hundred years later. Eric Balchunas (36:47.117) But to your point, if we look in a world where it's like 80 % of most people portfolios, I'm sorry, that is America's problem. Jackson Mikalic (36:58.744) Hang on. Eric Balchunas (36:58.883) Like it almost becomes too big to fail at that point. Jackson Mikalic (37:02.498) So can I jump in here for a second? Eric Balchunas (37:04.183) So, but I don't disagree. I probably give a little more faith to the Black Rock Infidelities of the world simply because they do have a track record and. Brian Cubellis (37:16.133) But you're not really trusting BlackRocker fidelity. You're ultimately trusting who they've outsourced it to, which is Coinbase. Eric Balchunas (37:20.025) Yeah, well, of course. Yeah, but you're I'm trusting them to pick good partners. Eric Balchunas (37:28.725) That, mean, real quick, at the end of the day, you know, and we've gone over this for years in ETFs. Every now and there's like the huge sell-off and like some ETF sees a discount that's not normal because a market maker wouldn't make the market. And so over the years, I have come to this conclusion that the ETF is but the thing here and beneath it is a whole ecosystem that has to, that works every day using market makers and APs and all this shit. And at the end of the day, Jackson Mikalic (37:29.356) All right, so. Eric Balchunas (37:58.807) The ETF gets the blame, even if something over here was the problem. And they know this. Jackson Mikalic (38:06.158) So I think we're like all kind of on the same page here. And I also would say that this is just the function of Bitcoin being a newer technology, a newer asset class. Right. So we're still in the early stages of figuring this out. I think we should remember as well that the ETFs have only existed for 18 months. And prior to that, right, people were doing what Eric said. You stamp your seed phrase in steel and you distribute it in multiple different geographies, or you just leave your Bitcoin on a Coinbase account. I think what we need to do though is kind of go back to what I think is one of the biggest stories in finance right now and would be very remiss not to talk about it and that is just the meteoric rise of the Bitcoin ETFs. Like we kind of jumped over what I think is one of the most critical stories and what most people outside of this Bitcoin ecosystem and you know, investment community are talking about. So Eric, I would love to go back to this maybe before we go into more discussion around custody and in kind redemption, some of the things we wanted to talk about because you, like I said at the top of the episode, you and James have done a phenomenal job of tracking all of this. And so you've covered extensively the success of IBIT in particular, the fastest growing ETF by a wide margin in terms of major milestones for assets under or management, it's now the 20th largest ETF. Yeah, that's a great chart. 20th largest ETF. And I don't think we need to move that much higher in the Bitcoin price for it to be the top 15, top 10. So I'd love to just hear your thoughts. Like, can you help contextualize the success of the ETFs? Because I still think it's not fully appreciated. And I think you're the perfect person to kind of take us from January of 2024 to about 18 months later, July of 2025. Eric Balchunas (39:40.632) Yeah. Eric Balchunas (39:59.161) Yeah, so I can't understate, overstate it. It was the greatest launch in the history of ETFs. Since day one, really, just right out of the gate. I'll give you like maybe two or three stats and then, you know, I won't over talk it because the stats will do most of talking, but the Bitcoin ETFs have 153 billion. Okay, that's just almost as much as gold ETFs have and they've been out 20 years, right? That's just about where gold is and that's 1.5 years. So that right there, gold to me would be their bogey because it's a very similar type of trade, store of value. So to be tied about with gold, there was a time where it beat gold and gold had a run, but they're kind of in the same ballpark already, right? We think they'll triple gold ultimately. The other thing is iBit alone is the fastest ETF to $80 billion. It did it in 341 days. The next fastest was like 1600 days. So we're talking over four times faster than any other ETF. And the other ETFs that got there that are around that 1600 day mark are from Vanguard and BlackRock, right? These are like mega ETFs. There you go. VU, IFA, I mean these are studs. Those are both in the top 10 of all ETFs. So if your record is... If you're that much faster than these studs, it's not like those other ETFs were flashes in the pan. They were like, they're legit legends still. So that's a good sign. It means you are four times faster than a legendary ETF. The other stat is now, as you said, iBit's now 20th in the top. It's the 20th biggest ETF. And that is interesting because of the other 19 on the list. The next youngest is like 12 and a half years old. And iBit's one and a half year old. So it's like a toddler hanging out with teenagers. That's insane. And then to add more, around the 88 billion mark, which is where iBit is now, it becomes the most profitable ETF that BlackRock has. Number one, it's rate, you know, let's just assume it goes to 90 in the next couple of weeks, it will be the most profitable. And then they have... Eric Balchunas (42:20.089) 1100 ETFs around the world. So that's insane. So those are all just very, the other stat that's really fascinating is if you look at the holders, the only people who we know hold it have to file a 13F, which is you have to have over $100 million. So it's like medium to big size fish have to file. Amongst those filings, the iBit has like over thousand filers represented in only the first five quarters. And if you add them all of them together, all the Bitcoin ETFs, it's something like 1600 different institutional filers represented. If you take some other ETFs launched in January 2024, they're gonna have like 10 to 20 filers, right? That's almost more impressive because it's easy to get little retail investors to bite on something new. It's like getting, know, if you ever gone fishing, it's easy to get minnows and small fish to bite. harder to get the medium sized fish and really hard to get the big fish. It's the same thing for ETFs. Big fish need volume and like legitimacy and big brand, it takes a lot. But these ETFs have gotten medium fish early and a couple big fish. And that normally doesn't happen until a year three or four. everything that would normally happen in like 10 years has happened in a year and a half. Jackson Mikalic (43:47.372) Yeah, I mean, that's a great recap there. And one thing too, so it ties into what you just, one of the points you just mentioned about BlackRock's ETF being the most profitable ETF. And you said over a thousand ETFs in their complex as a firm. And then something you mentioned earlier is about incentives, right? And how Bitcoin aligns incentives over time. And I'd just be curious your thoughts on Larry Fink, not him in particular, but him as an edge case or an example where seven years ago, right? Bitcoin is an index for money laundering. And now whether he actually understands Bitcoin or he believes in its merits as an investable asset. He is a proponent of it because it is the most profitable ETF that his firm offers. So just curious like what you're what you think the implications are for this for traditional finance. And I'll just tie this in right before I hand it over. I'll tie this into one thing that Brian flagged ahead of this call as well with T. Rowe Price doing layoffs more recently and they're a firm that really hasn't adopted Bitcoin in any meaningful way. Not to say that's the sole reason but I'm curious to hear the dichotomy in your opinion between firms that embrace it and firms that choose to continue to ignore it. Eric Balchunas (45:01.273) Yeah, you actually just gave me an idea of Bitcoin. Eric Balchunas (45:07.881) Okay. Sorry, thank you for that. T-Row, by the way, is... Bitcoin would have helped T-Row, you know, or something, but they were late to the ETF game and they were late to find an answer to passive and Vanguard. Some of these old legacy 1990s mutual fund companies were just late to deal with the massive disruption that was Vanguard low cost and ETFs. That said, the stocks that these mutual funds own went up a lot and have offset a lot of the outflows. So T-Rose still makes a ton of money, but they lose customers because a lot of the assets become more Mirage assets than actual new customers. Fidelity is probably a good example of somebody who got hit by that same problem, but they did go heavy into crypto and I think it's helped them. They also went heavy into some other things. And I think Fidelity and BlackRock are two examples of firms where because of the Vanguard effect, and I wrote a book called The Bogel Effect, that's the guy who started Vanguard, because so many people have gone to cheap index funds for their stocks and bonds, it's robbed Wall Street of a lot of money. And so over the years, the firms that have thrived and managed to deal with the Vanguard effect best are ones that have been real aggressive. I call it hustle points. They're diving for loose balls. And Larry Fink is the ultimate hustle point CEO. I would say BlackRock is the equivalent of like a 12 year NBA All-Star who still dives for loose balls. That is how you handle dealing with Vanguard. That's how hard Vanguard is to deal with because they're basically a nonprofit. Anyway, BlackRock I think went into Bitcoin for two reasons. One, opportunism, you they have this public stock. know BLK is the ticker. They have to appease shareholders. So as they cut fees to appease to investors, they gotta also make money to appeal to shareholders. They gotta serve two gods at once. And Bitcoin allowed them to get a new source of revenue because a big thing they were into that died down a lot was ESG. so Bitcoin became like a new opportunity set for them. They also, I give him credit for just keeping an open mind because there's other people who have the same goal, but either their brains are closed or their politics is so strong they're just. Eric Balchunas (47:28.089) they still crap on it. At least Larry Fink was like, me rethink about this. Let me listen to some of the younger people, because there's one guy in his firm, Robbie Bichnik, who by all accounts deserves a lot of credit. He came from XRP. But it took him like seven, eight years internally there. I think he was, I want to say he was hired in 2013 or 2015, something like that. So he was there for a long time before they filed for a bit, but I'm sure, he was in people's ears talking about it. so ultimately though, BlackRock was smart to hire him, right? That was pretty good foresight to hire somebody from that world and just bring them on board. So I think BlackRock deserves a lot of credit for being flexible and having, you know, that mental liquidity. But ultimately, I don't know. I can't peer into Larry Fink's brain to see if this was how genuine this was. But I will say, One thing that I have in my slides when I do Bitcoin presentations at these conferences is I show, I talk about BlackRock being massive and it wasn't just the ETF. Larry Fink himself went on CNBC and Fox Business and the stuff he was saying was seemingly radical coming from Larry Fink. He was like, hey, if you think the government's, know, totally debasing your currency or if there's gonna be like, like this is a way to protect your money. I mean, that is pretty crazy. And then you've got these Wholesalers like Jay Jacobs. I'm telling you who could sell ice to boomer Eskimos He's like down in Brazil talking about Bitcoin with that purchasing power of the dollar chart You know since the Fed came out. I mean he's like this is like serious orange pill type type stuff, but he's delivering it through institutional language and Boomer tones and boomer dress. That's why that I think that certain suit suit corners is perfect And that to me is very powerful. And that is also what you don't see with gold. I don't see anything like that. I go to all the conferences. don't see any, nowhere near the excitement and wholesale firepower aimed at gold. They all have gold ETS, but there's nobody talking like this and nobody doing this. you can't overstate the importance of BlackRock. In my opinion, Bitcoin, and again, you could disagree with this, it has two eras. Eric Balchunas (49:52.025) It's almost like BE and AE, before ETF and after ETF, but you could almost say BB before BlackRock. When that filing hit, the price was $28,000 or something. It immediately caused a buy the rumor rally of 100%, so it doubled just on the filing. Then when the ETF came out, people thought, okay, that's it. It'll be the sell of the news. And it went back up. So I did the math. It's up something like 280 % since that filing. It never looked back and I think the ETF also legitimized it because remember when the filings were out and it hadn't been approved, there was a question of whether any APs would be willing to name themselves in the documents. Because if you can't have an AP, you wouldn't get it approved. But Jane Street stepped up and you got to thank them because they filled in that AP slot that was crucial. After the Bitcoin ETF came out and it was hugely successful, the other big banks were like, you can put our names in there now too. And so, know, Christian Leightner has a great phrase in that 30 for 30 documentary called I hate Christian Leitner because he was like kind of a prickly guy on Duke in the 90s, the basketball player. And he was like winning cures all. Like you may think I'm a dick at practice, but when we won that championship, like we were all friends again. And this is sort of what Bitcoin I think is doing. It's kind of cured a lot of the skepticism and like second guessing. Then you throw in the Trump election and it's a done deal. I think Ultimately, it's been completely mainstreamed. There's no stigma attached at all. And really, I think the only people who are continuing to crap on it or not use it are just, you know, either they've just made an investment decision that they do think it's going to eventually go down, which is fine, or there's a anchor bias issue where they attach it with Trump and they don't like him, or they attach it with SBF and they think there's just too much fraud. And that's... You know, that's their problem, I guess. But the big blob of like financial mainstream ecosystem is pretty much diving in. And I think the ETF started that snowball. Michael Tanguma (52:03.263) Yeah, I think we tend to agree. There's the notion of nobody wants to catch a falling knife, especially institutional capital or wealthy capital. And the ETF was that first like signal that this is coming. I think it's kind of remarkable when you think about we got to $2 trillion market cap with no regulatory clarity and it's starting to get clearer. How do you think about the ETF exposure and then what we're seeing this past year with the treasury and public listing exposure and just thinking through you know, how is that proxy happening is, you know, the, the assumption or the thing we kind of go with is the notion of it's hard to put Bitcoin in a bucket, right? You have a 60 40, and then you have this commodity sitting there. And some of the assumption is that it's easier to put an equity with Bitcoin exposure into that. And that's some of the demand. Is that what, how you think about it? Or how do you think about the fervor? Cause it feels like it's just pick, it's just starting. only at 120 K. We've have a lot more room to run there. Eric Balchunas (52:53.431) Yeah. Eric Balchunas (52:56.973) Well, know, MicroStrategy filled the void that was there for because there was no ETF. They became the surrogate ETF for a while. Makes total sense. And Strategy is just like this very unique situation. These other treasury companies though, I do wonder how much, I don't totally get it given there are ETFs, unless you're just a fan of the CEO. But I've heard one thing where it's a way for like OGs to kind of like get their Bitcoin off chain a little bit and then get shares of the company and then they can better manage cashing out a little bit if they want to rather than moving old coins. I don't know, I've heard that is one reason to do it. But I don't see any of them getting too big. I think MicroStrategy will be dominant and these other ones will, I don't know. My only thing is leverage is a double edged sword. So if you're going to have leverage, it'll help on the way up, it'll hurt on the way down. And I do worry about that a little bit. Now, the other side of it is, I think most people will pick an ETF. I mean, if you look at the assets, I mean, the ETFs as a whole have 1.4 million Bitcoin as a group. think MicroStrategy is only half that. The other treasuries are Nickel, Dime, Rounding Errors. So they have double all of those already. So think most people prefer to get one for one. I want to buy the ETF and just have a track Bitcoin. And that's always been the case in ETS. People love that direct physically backed exposure if they can get it. That's why the Bitcoin futures ETFs weren't really that big of a deal. And so I think those will dominate. But where are they in the portfolio? That's a great question. There's a lot of answers to this. Personally, I think a lot of people are losing faith in bonds because the AG bonded X hasn't kept up with inflation. doesn't even hedge you that well in sell-offs anymore. So I think bonds may take a little haircut. Also, if you are trying to hedge inflation, this could be seen as a store of value and be in your alternative bucket if you have that. But it's a little volatile still. So it also could be replacement for some mag seven stocks. Bitcoin is just highly unique in that regard. Personally, I would probably trim my equity portion just to be safe because I don't... Eric Balchunas (55:19.797) No, you cannot rely on it as a hedge for your whole portfolio, or if the stock market implodes, it may go down just as much. And so I think you have to look at it as a hedge for the global money printer and a technological opportunity. because of its volatility, I think you'd have to put it in alts or equity. But there are certainly other parts of the portfolio that are losing some of their appeal, and namely bonds. And so there's a lot of opportunity right now, I think, for this whole world to sort of get into that 60-40 portfolio in the next several years. But generally speaking, we have this chart called the Modern Portfolio. And we have it. says 85 % cheap beta, which would be like stocks and bonds and Vanguard index funds for like three basis points. So it's like beta. You know what mean? You know what beta is, right? OK, so cheap beta. And then 15 % hot sauce. And that would be like. I think crypto would fit in there perfectly. You could put, you know, single stock investing in there. You could put like thematic investing. There's things that you just want to speculate on that aren't covered by that cheap beta that give your portfolio a little spice and a little flavor. And to me, Bitcoin, that's why Bitcoin I think is stronger than gold in the modern portfolio, because it can play that role of store of value, but also play the role of hot sauce, which is in high demand right now because a lot of people have married Vanguard. index funds and are committed to wait 30 years. But in the meantime, they do want to make it a little more interesting because that's kind of boring to wait 30 years to compound. So to me, Bitcoin actually checks two boxes. And that's why I think it's got more appeal than gold for the time being. That gold had a good first quarter, though. You can't lie. But that's why we think it'll triple gold. But those are all good questions. But I don't think the Treasury companies are going to like grow that big relative to microstrategy or the ETFs, in my opinion. But it is interesting. Brian Cubellis (57:20.687) Yeah, bucketing conversation is an interesting one. think you described it well in that like it is a multidisciplinary, multifaceted asset. You can look at it in various ways. And I think that has been a driving factor in the sort of traditional finance persona being unwilling or just struggling to comprehend like, where does this fit? How do I look at this? And then typically the answer is just like, I'm just going to ignore it. and pretend it doesn't exist. I think, you know, going back to what you were saying around the willingness to have an open mind about it, like that this is something that's always fascinated me about Bitcoin because like everyone's heard about it over the past decade. At some point, somebody said something to you about Bitcoin and you probably just brushed it off. And then it 10Xs, you hear about it again. That creates a real psychological bias in your brain. that you missed it and well now I can't buy it now, it's 10xed. So I'm gonna continue to ignore it. And I think that proclivity or that psychological bias is even stronger in the Trad 5 professional brain because they have an air of sophistication about them and in many cases, rightfully so. They have invested for a living and some of them have been very successful in their own right and various other asset classes. so that, seeing it, missing it, Eric Balchunas (58:29.678) Yes. Brian Cubellis (58:45.691) perhaps multiple times, creates this ingrained bias against it. And it takes a real sort of humility and shot to the ego to say, maybe I was wrong. And Larry Fink is an example of this, whether you think he genuinely believes in or not, that's at least how he's talked about it, is that I had this realization, I realized I was wrong. Most recently there was a Philippe Lafont from CO2 who had a very similar commentary around it, just like... The most important quality you could have as a successful investor is the willingness to say, if I am wrong about this thing? And I think that is the biggest thing holding back the TradFi brain is they're not willing to say, what if I was wrong about this? Because to your other earlier point, if you actually look into it in a genuine way, you come out the other side wanting exposure. And so I think that's just a fascinating thing about Bitcoin because that is the adoption story. what drives price over time is education, people realizing what this actually is. And we know the supply is finite. So as that education increases, demand increases and the price goes up. Like that is the whole story in my brain. So it's fascinating to just think through how that evolution is occurring and how the psychological factors at play are progressing. Yeah, go ahead. Eric Balchunas (01:00:05.793) One quick note to that, that is if you just view it as hot sauce or like a tech stock you missed out on, I do think there's another component here, which is debt and the money. you know, if you really dive into the amount of money that's printed and how we left the gold standard in the seventies and then how it really escalated in the past 20 years, you can get pretty scared if you look at that. You're like, you know, because everybody knows governments are irresponsible and they're going to throw money at any problem. Like who wants to be like held back by like the amount of money you can print and the amount of money that it takes to pay off just the interest now on the budget is like the second item. Once you get there, I think that's a front door for anybody, regardless of what the price is at that moment, because if Bitcoin is attempting to solve that problem, then we'll That's why it's more than just you it. Then you didn't miss it because we're just at beginning of a lot of this. So I find that if you're like an MMT person, like Keynesian on steroids, you probably look at Bitcoin as like you're like a novelty of, know, a Ponzi scheme, whatever. But if you look at that currency debasement and the potential for inflation and what happens to money, and because stocks are a little long in the tooth, they've had a 20 year rally pretty much, their evaluations are really stretched to historical levels, you kind of open up your mind like, well, I know the government's never gonna stop adding to the debt, I believe that. Doge came along and gave it a good shot. There was a lot of political will, it couldn't even do it. And so you're like, well, will something that is scarce and hard and the government can't get its grubby hands on it. Like it cannot dilute it. And just something, just something, anything that is undilutable by the government is a powerful proposition if you go through all that. Then it becomes something where like, well, maybe the price isn't that high. So I do. Eric Balchunas (01:02:26.577) Because you're like the debt is just getting started. We don't even know how crazy this is going to get because the amount that grows per year is crazy. And in America, it's not even that bad. The other countries, it's like crazy. I really am somebody who I'm not a full like hawk, but I do think this experiment of running up this much debt, irregardless of how much GDP we have, is not something I'm really comfortable with. so Bitcoin and gold or something like that, or even like art. or real estate to a degree. These are these hard assets that I think help people have some comfort. But the thing with all those other assets, it's really hard to get those unless you're... A lot of those other assets are a pain in the ass or for really, really rich people. Like who has access to like a Picasso painting? So I think Bitcoin is like a democratized version of one of those sort of real assets that can be undilutable by the government. And that to me is the... front door where you don't blow it off anymore. In my opinion, mean, I, you know, people have other theories on this, but that, that alone is enough. And then you think, well, if more people think like me and they buy it for a store of value and the volatility comes down, then it has a shot of fighting chance to be a currency too. But I will say that the interface has to get way better, you know, to go get a wallet and then they got to make it like, and it's also expensive. Michael Tanguma (01:03:31.327) Yeah. Eric Balchunas (01:03:55.297) I'm sorry, but even 40 basis points to like exchange your dollars for Bitcoin is a ripoff. I'm used to one basis point in the TradFi world. So I think as the exchange rates come down and the volatility comes down and the interfaces are as easy as using fantasy football, then you might be having a talk about it being a global currency. So I think this store of value is like maybe the first step. So that's why in this project we're working on, one of our thesis is is that the ETF, it isn't responsible for all this, and obviously it didn't make Bitcoin, but it kicked off what could be this nice chain reaction of making it legitimate, the adults are here, you can feel safer, and then it got more mainstream, better owners, seems to store value, volatility comes down, and ultimately it's a currency. This is not Definitely gonna happen. But if you trace it, it's you could honestly have this pretty logical chain of events That started with the black rock filing Michael Tanguma (01:04:53.504) A link. Michael Tanguma (01:05:04.843) So we don't have to go back there, but you can't do any of that if it's in the ETF, you can't use it as a currency, but either way, the core component is you went through the logical correct progression that is absolutely correct as long as Bitcoin enforces a fixed supply of 21 million. Like that's the rational outcome is that. like as long as that stand. Eric Balchunas (01:05:20.249) Yes. what do you how would that change? you wouldn't you need 96 % of people to say let's Michael Tanguma (01:05:28.203) It won't change because it's just not the rational thing. Like we all don't want our money to be debased. So it won't change. so, but your one just easy quick because it's an easy one to dismiss, but it makes logical senses in the same way, like when you transact for gold or any fixed asset, there's like whether it's operations compliance or you want the security around it. So you naturally are going to pay something because nothing in the world's free. Eric Balchunas (01:05:31.885) Yeah. Yeah. Michael Tanguma (01:05:52.715) there's a reason where whether it's transaction fees or custody fees cost more today nominally than they will in the future because the Delta between your cost versus the appreciation is not like it makes zero sense to like bite over 40 bits when the price is appreciating that a keger of 49 % year over year. So as the market grows, not only just like the internet, everything will become a lot easier to use all those costs will be easy. And this is the part of the The suit corner is sometimes a pejorative in the sense of like it's shit coiners with suits. So like they're going to steal your money. And the reality is it goes back to crypto. Like the idea is have enough humility that not you, but just in general, if we got to 21 million finite scarcity, like that's the zero to one moment of similar how gold came about after being built on whatever happened before that, that you can figure out everything else, meaning how do you transact? How do you secure it? you don't create other ones like that. And so anyway, I'm just kind of sharing with you. I think you know these things, you're coming through it in this book, but this is the rational outcome. And the alpha is in this middle part of saying, this is where the market's going. You can't tell people to put a dog chain, a dog tag on it because that's not commercial and feasible. But also when you get far enough down the other side, because you've already worked through this, you're mentioning government and unsustainable and debt, but you also said before they're going to bail out Coinbase. Like those two things are completely juxtaposed. And so anyway. Eric Balchunas (01:07:13.815) Not really. mean, part of the, it would be ironic if there was a Bitcoin bailout, given that Bitcoin was birthed in the middle of the bank bailouts. But no, I'm just saying that in the case of like a hack at the size that you're talking about, which would be, it would be the biggest robbery in the history of the world by like what, 50-fold? Michael Tanguma (01:07:20.629) How would that look? Eric Balchunas (01:07:41.913) I just think the press and the government and the FBI and the amount of resources that would be put on that would be so monumental that it would overwhelm the situation. It would be front page headline for weeks. This would make it an emergency. That's all I'm saying. Because in that hack with the lady who was doing the wrapping, Jackson Mikalic (01:08:06.798) Do it. Eric Balchunas (01:08:11.513) crocodile tear whatever what's her name lady crocodile yeah and the couple the Bonnie and Clyde couple that like first of all they only hacked I think it was a couple billion which is still a lot but and it was from some it wasn't a mainstream exchange but they ultimately couldn't spend their money they couldn't really get the Bitcoin out Jackson Mikalic (01:08:15.906) I forget her name, I know who you're talking about. Is it the Bitfinex stuff? Eric Balchunas (01:08:38.975) Ultimately though, they did some things that were traceable and they got busted. And that made really big news. And that was only a couple of billions. So you're talking about a trillion dollar theft. I just, you know, in the ETF world for 20 years now, people have been worrying about ETFs, this, that, and the other. And some people will be like, well, ETFs hold junk bonds and the junk bonds could go illiquid in a huge crisis. And the ETF would then trade at a discount and... I'm like, okay, fine, it trades at a 2 % discount. But I'm like, no, what if it's a prolonged? I'm like, dude, at some point, you're creating a picture of World War III, and we're gonna have bigger fish to fry than the fucking junk bond ETF. So you could take these scenarios to a point where they're so big and crazy that they would become such a bigger problem than just, should I use the ETF or not? I just... Michael Tanguma (01:09:23.861) it. Michael Tanguma (01:09:36.203) I think the easy example just to make it more rational is, because you said this earlier, I forget the number, but it was like five to 10X. The largest robbery in human history happened in the digital asset world that nobody talks about. It was the Bybit hack. It happened the past 12 months. It was 1.75, roughly billion. The largest other hack was Iraq, golden Iraq, and then some painting in Paris, which were like 30 to 50 million. And this one was, you know, 20X, I think 20X. Point being is if we all agree this grows, then that means sovereign adoption grows. We're gonna start settling trade in oil and other things. It would just be a sovereign though to take it. What are we gonna go like? We're gonna go start a nuclear war with Iran or whoever took it. Like there's a lot of progressions where it doesn't have to be an individual not worried about stealing it because that's where this all goes. And again, it's not to say like this is crazy. It's more of the rational thing for investors as their exposure goes from three to 25%. You just, if there's 10%, 2%, 0.1%. That's, just, I'm mainly sharing like, this is gonna become more of a narrative as Coinbase goes from 800 billion to 1.8 billion, because you already hear it in your, or 1.8 trillion, you hear it in your circles, people's uncomfortability with Coinbase's concentration. Imagine the price doubles, that's just gonna increase, and there's not that many world-class custodians to actually pick up the scraps. You don't want a net new custodian to do it either, because they don't have a track record. Eric Balchunas (01:10:39.203) Yeah. Eric Balchunas (01:10:44.345) Yeah. Yeah. Eric Balchunas (01:10:58.615) Yeah, two counterpoints. One, I think if it grows and gets to be bigger part, I think the regulations will adapt to that because it'll be more, you know, people, even the people in Congress be like, shit, this is like 50 % of my portfolio. I think, you know, you have to have faith in the system a little bit to sort of adapt to some of that change. The second thing is, you know, whether one of the thing about having your own storage. Now I know if you are doing it for somebody and you're like putting their stuff in really safe places. think there's always going be a market for that. mean, there's a market for Swiss bank accounts to this day. But for somebody to have a little bit of Bitcoin in a cold storage and then walk around with it, I think, A, like I think in the LA fires, some people lost their Bitcoin forever. There's Bitcoin and the one guy who's trying to get his Bitcoin out of the Scottish dump for like 10 years. The ETF does fix that, you know, you know, I would say your firm fixes that also. But if you get too big and people know you have Bitcoin, then you get like a safety issue. Like you said, you want to get your finger chopped off. So I think there is this tension between wanting to not have, wanting control, like safety over yourself versus safety over your Bitcoin. But I think that's a personal decision. It's subjective. It also depends on how much true trust the system and BlackRock and these other companies. And I think everybody will make the choice that's right for them and businesses will pop up to cater to different types of people with different needs. I'm a little skeptical on a situation where Bitcoin is 80 % of normal people's portfolios. Coinbase gets hacked. It's a $4 trillion hack, which would be like, what? Eight million times the biggest robbery ever, something like that. So. Michael Tanguma (01:12:50.987) Well, yeah, think to be fair, before it gets to 80%, I can promise you it'll be figured out because nobody's going to park 80 % in that scenario. To give you a little sneak peek from the regulatory, specifically SEC, when this next cycle, call it four years from now, five, three years from now, something like this will, and it doesn't have to be any of these people, the key holders, they don't even have to be this firm. Eric Balchunas (01:12:58.391) Yeah, yeah. Michael Tanguma (01:13:14.443) But this will effectively be the way it's set up because we've had ETF providers, Bitcoin ETF providers behind closed doors to tell us this is bulletproof. The problem is it melts brains because how do you go to the SEC and you go from explaining Bitcoin to explaining no institution has unilateral control and this scales proportionally. So don't get fixed on the number of keys because you can have five institutions have three of five have to agree before any assets move. Eric Balchunas (01:13:19.395) Yeah. Michael Tanguma (01:13:38.505) It's just kind of like where we see the market going eventually when an ETF holds a trillion dollars. It's the rational move to not. Eric Balchunas (01:13:41.72) Yeah. I mean, honestly, you should pitch this to the ETF issuers. I'm sure if an ETF came out and said, hey, we're gonna be like IAU where they hold it in three different vaults, we're gonna hold your Bitcoin with three different custodians and these custodians will have, that may sell. I mean, that level of security may be a differentiator to the list of ETFs out there. I bet that, you know, we could see that. But. Michael Tanguma (01:14:06.687) Yeah, I think when they're looking for marketability, I know we have to run, but when they're for marketability right now, everyone, nobody got fired. Nobody gets fired for going to Coinbase. So that's where we're at today in the process. Eric Balchunas (01:14:16.023) Yeah, I do agree. think Quaid Bay's, it's too much of the custodian market. I would like to see it get spread out more. One other quick thing, that three keys, that reminds me, I was like this guy, Jamie Catharwood, I think his name, he's like a real historical financial guy. And we've had him on the show, and every time we think something's new, he'll say, in the 1800s, your three key thing, they used to have these locks. with gold or bonds in them, I think, and they had three different keys, and like three different banks would send a person, like a three lock, a three key, that's it is. Yeah, no, they used to use that back in the treasure chest days, yeah. Yeah, anyway, that's what that reminded me of. Michael Tanguma (01:14:53.333) Yeah, that's what this is in digital form. That's how I explain it. Yeah, I love that. I love that. That's how we explain it to the boomers is like there's a lock safe or there's a safe and there's three different locks. Eric Balchunas (01:15:06.413) I could see a movie where the guy cuts the arm off of like the two guys with keys and then he, know, like some crazy shit. But there's also, is there a movie where like multiple things have to be done at the same time to, maybe it's mission impossible, but this idea of like three keys going into the same lock at the same time is a powerful visual that I think people with consumer security will respond to. Brian Cubellis (01:15:11.041) You Michael Tanguma (01:15:34.475) at. Jackson Mikalic (01:15:34.776) Well, unfortunately we've had time and Eric, we're gonna have to have you back on if you agree. If Michael didn't scare you away today, hopefully I'll have you back on in a few months or maybe toward the end of... Brian Cubellis (01:15:42.469) You Eric Balchunas (01:15:42.969) No, look, I this fine look I I appreciate all this this is keeping me sharper and you know almost everybody in the ETF and I do call these podcasts where it's just straight like I own Bitcoin ETFs made number go up. I love you. But some in a lot of cases like people do have businesses that compete with ETFs and they're not perfect. I just think they do check a lot of boxes for people and we try to you know, make sure that people know but like I will give you this one story. The street.com ETFs got so big for like all these reporters were covering them and the media got a little ahead of itself and they write stories like here's five ETFs to play Amazon earnings. And I was like, you know what, just buy Amazon. It's okay. Like the ETF is not the solution for everybody. I love it. I dedicate my career to it, but there's going to be cases and things where people have different needs. know, private equity is probably better in Brian Cubellis (01:16:28.123) you Eric Balchunas (01:16:42.322) a different rapper or something else. So, you know, there's Michael Tanguma (01:16:45.899) We personally believe ETFs, everything's good for Bitcoin and ETFs are ultimately good. And so we see that as the gateway. Can we kind of hold you to when this book comes, this is one of the first places you come talk about it because we'd love to have you on because it sounds like the ETF is the beginning of the book and there's a whole progression of how this permeates every part of society. And that's kind of where we think this all goes. Eric Balchunas (01:16:59.713) Yeah, sure. This is good. lot of these topics are... Yeah. Yeah. Eric Balchunas (01:17:11.449) Absolutely. We're focusing on the since ETF because all the other books written, there's so many books. They didn't, they don't have any of that. So we're trying to cover the financialization of it. But it's like hitting a moving target. Whenever we hand it in, it's like eight months, little publishers like, my God, that's like eight years in like Bitcoin years or whatever. And it's like, I'm not sure how we're gonna deal with that. But we're doing our best. I know three keys. Yeah, no, mean, look, there is a section on security and it's Michael Tanguma (01:17:32.437) Now you need a new chapter on the three keys. Brian Cubellis (01:17:34.947) You Eric Balchunas (01:17:40.121) pretty small, maybe you got me thinking maybe I'll reach back out and try to evolve that a little bit because I do want the reader to know all the possible scenarios. Like we're not, you know, we're trying to give people every bit of information so they can be the jury for themselves. Michael Tanguma (01:17:56.245) Yeah, the reason why I'm a stickler on this is because I've seen everything happen and everyone new comes in and they believe it can't happen again and it just continues to happen because we've never seen Digital Bear asset independent of if it's BlackRock or if it's Mt. Gox. Eric Balchunas (01:18:05.155) Yeah. Eric Balchunas (01:18:08.857) Have you ever had a coin based person on your show? Brian Cubellis (01:18:11.865) I worked at Coinbase for 12 months, Eric. So I did, yeah, before joining OnRim. Eric Balchunas (01:18:14.639) you did? Okay. Are you like, so are you, you like the guy who was building the Death Star who gave the plans to be like, wait, the Death Star is actually like, you can blow it up guys. Brian Cubellis (01:18:26.715) Ha Michael Tanguma (01:18:27.787) What's scary about the Coinbase thing is I've talked personally to their head of institutional, very well known guy in the space he probably met. He has no idea how they custody the assets. When I explained what we do, he's like, why aren't we doing that? This is genius. And I was like, all right, we gotta go. Brian Cubellis (01:18:41.275) You Eric Balchunas (01:18:41.591) Yeah. Yeah, I mean... Michael Tanguma (01:18:45.513) It's a complex space. It's super nuanced. And so that's the problem is that like, it just takes so much time. And it's the whole notion of proof of work. You had a whole career to like dedicate pre ETF. So then you're coming up to speed on the Bitcoin and you're the best in the cloud in the world to do it. There's very few financial institutions that also deeply understand Bitcoin. And so and then also when you think about the project, the trajectory, and then ultimately, what does an individual want? Because somebody that's holding like our type of client that has anywhere between millions to quarter billion. Eric Balchunas (01:18:54.67) Yeah. Michael Tanguma (01:19:14.741) They just need a number of different things because it's the majority of their wealth. And that's not what TradFi builds. TradFi builds omnibus wallets and they say, hey, trust us, bro. And that's just not gonna work in this world. And people are gonna, that's how we're gonna make all our money and the businesses we invest in. Eric Balchunas (01:19:28.823) Yeah, I mean, you should say there's an outside possibility it may not work in this world. think like it's a little definitive. Ryan, why is he trashing your former company so much? Well, listen, you should have the, you really need to have the Coinbase person on. I'd watch that. You need the guy guarding the Coinbase vault. Michael Tanguma (01:19:36.821) I will make any bet publicly here and I'll give you 10 to one odds it won't work in this world. Brian Cubellis (01:19:43.419) I'll allow it. Brian Cubellis (01:19:50.779) would love to. Michael Tanguma (01:19:51.797) I love it, Eric. Well, thanks for humoring us. Eric Balchunas (01:19:58.713) Come on, and that's my TV. Michael Tanguma (01:19:59.015) Well, see, you're actually, but you're helping because like there's no way on planet earth, everyone, anybody knows how Coinbase customizes it in the same way Fidelity, in the same way Mt. Gox sells CS or Genesis, because it's an operational security hazard for anybody to actually know how it's done, which by definition means you can't actually park all your money there. Jackson Mikalic (01:20:18.867) Now Eric. Michael Tanguma (01:20:19.142) You give me enough time, Eric, you'll become a client. If you give me enough time, you'll become a client and then you will have another chapter because you're gonna realize, I'm telling you, like the ETF providers have told us this thing's bulletproof. It's just nobody gets fired for going to Coinbase, so everyone's gonna do that to start. Eric Balchunas (01:20:33.497) Well, listen, we're actually interviewing the BlackRock guy in a week. I'll definitely put this at least over to him and press him a little more than I probably would have. Michael Tanguma (01:20:43.76) Yeah, and the reason why everyone will push hard against it because it goes back to the mental model of traditional finance. You got to have eyes and hands on the asset because then you can do the things you want with it. And so it's the same way the internet, it's going to take a digitally native firm that understands Bitcoin deeply to build a new world in the same way it took Netflix, the way to re-change how media is distributed, not blockbuster. It's really that simple. So there's no reason why. Black Rock or Fidelity would win the new world. it's really, if you think about this as that radical, that mental model is as simple as that. Like they're not gonna win in the new space because they just, it's just not rational. Eric Balchunas (01:21:19.107) Dude, mean, BlackRock has the most Bitcoin besides Satoshi in a year and a half. I mean, that's pretty winning. Charlie Sheen here. That's winning, dude, I'm sorry. yeah, no, I would say this. I would say there's room for multiple winners. Michael Tanguma (01:21:26.758) But it's a $2 trillion asset that's, it's two trillion. Brian Cubellis (01:21:31.007) Ha! Michael Tanguma (01:21:32.358) I meant the long game. I meant the long game. The long game. Michael Tanguma (01:21:41.254) Of course. This was a great pod. I appreciate Eric, you humoring us with this. Brian Cubellis (01:21:41.285) That's That's Very true. Eric Balchunas (01:21:45.293) Yeah, no, it's good. Yeah. Yeah, all right. See you guys. Good talking to you. All right, bye-bye. Bye. Brian Cubellis (01:21:46.469) Yeah, this was a blast. We'll have to have you back. Jackson Mikalic (01:21:49.405) Yeah. Thank you so much, Eric. Really appreciate it. Michael Tanguma (01:21:51.014) Thanks guys. Brian Cubellis (01:21:52.187) Take care.