The Last Trade E048: Navigating the ETF Era with Hong Kim of Bitwise

Brian Cubellis (00:00.334) We're live gentlemen, what a week the time to be alive It's feeling exhilarated feel like bad boys I Don't feel any different I don't feel you're Jesse this Stanford MBA turned into a bad boy by association in the Bitcoin space. Yeah, that's right I don't feel any different than I did last week, but I suddenly I government seems to like what I'm interested in a little bit less. It's a timely week for Hong to join. You got Hong Kong ETFs, you got the Hoseki announcement for the attestation. So a lot of good stuff happening, but then also, yeah, a lot of interesting dynamics happening at the state level and their interest in Bitcoin and money service business and money transmission. Brian Cubellis (00:56.814) Absolutely. Seeing the Senator Cynthia Lummis put out that tweet of like, come and get it, I thought was still kind of encouraging in a way. Like, those types of memes of like, come and get it, like, what are you going to ban math, or people memorizing 12 words in their brain. Type of energy always existed, but ultimately, these things do require. a lot of people to believe in it, to have real resistance and political power. And I do think I'm grateful that we are taking on this fight now than like four years ago or eight years ago or yeah, this having this epoch feels like there's enough understanding and broad awareness of the value. And there is a lot of people that are holding it as well. So yeah, we're more kind of prepared. than ever to take on some of these fights. So, yeah. It's kind of beautiful. It's kind of beautiful how Bitcoin grows just ahead of, you know, what it needs to be in order to keep ahead of the threats, to be large enough to overcome the barriers that pop up. And, you know, to your point, like four, eight years ago, maybe this doesn't work out well, but I, you know, I am heartened by how... many people in power and particularly in the financial sector like with the ETFs and now we have Alexa Blackrock on Team Bitcoin and that's going to be enough for us to stick up for freedom of speech and property rights. I don't know though. I mean, as much as I represent firms in Wall Street, et cetera, I don't know if those firms are what we can really depend on. I think ultimately what we depend on is the open source developers that are doing writing code and maintaining code bases for interests beyond just their financial motivations and a community of people that maintain the network, run nodes, do self -custody, use Bitcoin as money in a way that kind of brings opportunity to themselves. Brian Cubellis (03:24.174) And that's like. the, that foundation and that foundation, being possible and continuing to be possible, I think is a premise. and then, everything kind of builds on top of that. Yeah. That's, and that's, that's very powerful coming from your position. You should introduce yourself after obviously, yeah, we just jumped in, but this notion of, it's everything, right? Like it's the banks that just came out that are holding, you know, shares and ETFs and their influence. But then to your point and where it's powerful is because you have vested interest in the existing market structure that requires, you know, custodians and all the things that are the opposite of what you described. But at the end of the day, I think what Bitwise has been very interested in being a native firm to the industry and recognizing that there are certain ways that you can map financial products to the protocol that benefit everybody. And that's what we've seen a lot of Wall Street traditional players have gone away from. And there's this other dynamic and Marty, I want to just drop this because if we want to pick it up on at some point during this episode and I won't name the name, but if you remember a few years ago, we're sitting at coffee with a notable person building this space and he referenced that the way Bitcoin wins is not via like privacy tools. Like people say, and we can all go and there's not a stance on privacy tools or not and being anonymous. It is by having a movement and people mobilizing around a movement because that's what's powerful. So rather than being secretive and hiding, you're out there and you're basically explaining this is what we're doing. This is what we're building. Similar to how Hong opened up with, I haven't seen that tweet, but Lama saying, come and take it. Like, look, this is what we're here because this maps to everything constitutional, whether it's like a commodity and Bitcoin and all the things, free speech and all the things that we know that there's nothing wrong that we're doing foundationally. Brian Cubellis (05:13.87) I think that's the story and the narrative that we want to rally behind versus some of the other things that are happening. I think they're relevant, but it's getting people and the preservation of wealth and all the things we know that are being built here. That's how we get a movement around that and preserving people's capital and storing it versus some of the other things that get lost in the shuffle. Yeah, come and take it. And I agree. I think we need both. I think we need the tools, the code that enable people to preserve their privacy against an encroaching state that wants more control over individuals. But also we should not be afraid to be unabashed advocates for Bitcoin, which represents freedom and sovereignty. in the digital age, particularly as it pertains to money. I mean, last week's episode with Peruvian Bull, right before, I mean, we recorded that on Wednesday, Tuesday or Wednesday, last week before anything that, before everything that happened last week, towards the end of last week began to happen. And to juxtapose that conversation with how we're starting this conversation today, it's hilarious because it is abundantly clear. that the incumbent financial system is woefully overburdened with debt. The central banks of the world and the governments are losing control both of their monetary and fiscal policies. And individuals and in aggregate societies around the world need a solution to a problem created by governments and central banks. And Bitcoin provides that solution. And we shouldn't be afraid to advocate for that solution. advocate for using it in a sovereign fashion. I think personally when you add up everything from Samurai, the DOJ, response to the tornado cache, motion to dismissal, the FBI warning that came out right after Samurai, Roger Ver's arrest, cache app under attack, it seems like... Brian Cubellis (07:31.022) moves of desperation, everything all at once, in a basically strong arm attempt to scare the shit out of everybody to keep them away from building this sovereign technology. And to me that signals it's similar to a wounded animal that is trying to project strength at its most vulnerable, when it's most vulnerable. And so, well, it is very scary and they're people that are rightfully scared out there with all these actions, I think you should read between the lines and notice that the state, particularly in the United States, is very vulnerable right now. And I think they recognize that Bitcoin is an exit valve that people are going to opt into, and they're trying to scare people away from the exits and keep them in the ship to go down with the ship. Brian Cubellis (08:25.838) My heart really goes out to the devs that are mostly just building open source tools that they think are good for people and people's privacy. And there's having to make very hard decisions. Phoenix wallet leaving the US, heartbreaking. But you can't really blame them. That's the hard part, I think. Like, I think it's easy to say that like, why don't you take a stance and blah, blah, blah. But like, a lot of the... If you look at Venus particularly, I think they had something like a hundred million dollars or they have something like a hundred million dollars tied up in lightning channel So that's a lot of capital at stake So that again, I agree with you. You can't can't fault them No, they're not the ones that fall, you know It is it is disheartening to see kind of the scare tactics really bring a lot of scare to these people that Just trying to build tools for individual sovereignty, but that's just the world we live in. It's a little, the timing is a little funny to me, Hong, because you and I were at the MIT Bitcoin Expo a couple of weeks ago. We had lunch together and got to chat then. And I was on a privacy and custody panel and we were talking about the importance of privacy tools and, you know, and whether or not they're legal. And, and. Obviously, the perspective of the panel was that there are some gray areas, but overall privacy is protected. And then fast forward a couple of weeks, and suddenly there's moves against developers who are just trying to produce open source privacy tools for people to utilize if they want. It's kind of... a bit of a shock in terms of the timing right there. But Hong, we need to let you introduce yourself here and... Yeah. Yeah. Brian Cubellis (10:36.458) amazing. Yeah. Hello, everyone. Thanks for inviting me to share a bit about Bitwise and my journey. I'm the CTO and co -founder of Bitwise. I started the firm with my co -founder, Hunter Horsley, who was the CEO together seven years ago. And we've been on a journey to be a bridge between Bitcoin and the TradFly world. So making it easier for people to get exposure to Bitcoin from the existing kind of traditional financial system. I know it kind of ties to kind of the stuff that we're talking about, but I think my view and our view has always been that it is still valuable to make it easier for people to have their first taste and first step into Bitcoin. We think of it more as a type of funnel, increasing that type of funnel and making it safer and more efficient and effective. Yeah, we've been on that journey for the past seven years. We've worked on a Bitcoin ETF for the past six years until it was launched this year. So it was an incredible moment for our firm and excited to see it out live. And yeah, my background is in software security. I'm from Korea. I did software security research. in the Korean military for a few years and then started the firm with Bitwise, Hunter, my co -founder. We're a 60 -person firm, offices in San Francisco and New York, and all based in the US. We're primarily focused in the US market. And I have to compliment you guys. We talked to a lot of people about Bitcoin and the most common charts that get brought up. are from Bitwise. And when we're talking to folks and they want to say, hey, I saw this cool presentation and look at this particular chart, what do you think about this? More often than not, it's from Bitwise. So you guys are doing great work about promoting Bitcoin as an asset class and being at the front of the ETF charge right now. Yeah, I think. Brian Cubellis (12:53.358) What's really impactful and I didn't know you're gonna come out with that tag Hong transparently of like the self custody and all that dynamic is that you understand it. Like you fundamentally rock it in the sense of that has to exist. And in the same way as like, I don't think on the other side of that people would say on the hardcore Bitcoin side would say, well, like ETFs or pulled asset vehicles don't need to exist. And I foundation, I fundamentally don't think that's true. I think they both play off of each other, right? Like you can't have a scalable, there's not a scalable way for people to get. all eight billion or however number large cohort hundred million to get exposure in the same way that if that's the only position, I think you guys recognize it. Probably a lot of the ETF providers don't believe that if it was all there, that's, that's the same set. Yeah, yeah, yeah. We totally don't have to be down on your brush. I think maybe speaking back to the top of the conversation is helpful is that I totally believe that everyone that is willing and capable of doing self -custody should go in that direction. But I believe in increasing the top of the funnel, making it easier for people to take the first step to start caring and paying attention to Bitcoin because they have some financial exposure to it. Just because we provide ETFs and they are custodial solutions doesn't mean that that is what I think is what everyone should be doing or with all of their Bitcoin. The main goal is, let's put it this way, we're trying to increase, ultimately, people go down a rabbit hole and we're trying to get people to enter that rabbit hole and to make it, right now, before ETFs, the world we're living in is like, okay, how does someone buy Bitcoin? Well, you have to open up an account at Coinbase or et cetera. and then you need to go through all this onboarding and then you need to usually wire money. And then that's when you can finally buy $1 ,000 or $10 ,000 worth of Bitcoin. And if you can make that conversation into, okay, I'm convinced, but then I just open up Schwab or Fidelity and then get $100, $1 ,000 or a million dollars, depending on what your wealth level is, with the two taps, that's just so much easier. And it will, the conversion. Brian Cubellis (15:16.558) of like the amount of people that will like take the first step can be increased tenfold. And I think that's what we're seeing. I think people underestimated like, it's still like, like you can buy the coin so many different ways. Why do we need an ETF? Well, we saw that about $12 billion net of GBTC outflows flowed in the first three months. There's like $12 billion that we're like, I'm like thinking about doing it, but it's like a little too hard. And I'm not like going to go through all that, like opening up accounts and wiring money. managing another thing. And we would rather have those dollars engage and convert over to being in the economic zone of Bitcoin rather than the economic zone of YAR. And of course, it is still not the most ideal thing. And if everyone had their Bitcoin in Bitcoin ETFs, then Bitcoin in the system and network would not work and it would not be any different from gold. But I think there is definitely room and value for the spectrum of kind of where people can begin and where people can end up. And always there's people that are going to be earlier parts of their journey and always more dollars that are still stuck in the old system and making it incrementally easier for those dollars to change position is still very valuable. Can you double down on some of that? Like you mentioned the long road. I think we all have known, you know, Marty, I think he's been around for a very long time and the ETF, what was it? The Winklevias since like 2012 we're trying or whatever of like what - 2014, yeah. 2014, like what that road was like and then the kind of surprising things that have happened in the past, call it three to six months, both maybe positive and negative or just anything that stands out on things that, since these have been approved, what you guys are been pleasantly surprised at and also maybe even - less so. Yeah, so it was really like a decade, 10 years of the industry looking to launch a Bitcoin ETF. And the SEC has been denying them year after year. Bitwise is kind of amongst the issuers finally ended up launching Bitcoin ETFs, Wiggle Austin's ultimately stepped off. Amongst the issuers that are currently here, we've been working on it for the longest. For six years, we had three different filings along those six years. Brian Cubellis (17:36.906) And yeah, the last one was one that was approved. I think there is a bit of a meme that like, like Bitcoin ETF, so where something launched when BlackRock showed up. And the reality of the matter is that it wasn't like that. It wasn't like, finally, Wall Street is interested in an SEC kind of caved. The vested interests to try to kind of push Bitcoin away from and keep it away from the people are much stronger than kind of what an individual company. like Black Rock kind of showing up and push over the line. The reality of how things happened was that the ridiculousness of kind of like the goalposts that kept moving on the SEC side piled up and at some point, just Grayscale decided to sue the SEC. And that lawsuit went up to the second appeals court in DC and three very respected judges ruled unanimously that... the SEC was on the wrong side here, that they were acting arbitrarily and preciciously. And if you read that order, the final order, it's just scathing. You just couldn't imagine that that's what the three judges of their level were writing about, the national financial regulator. But the BlackRock filing was around in August, and the order came out in October. But reality is that around May or so, There was an oral hearing that was available to the public. And if you listen to that, it was very clear that the judges were going to rule in favor of Grayscale. Whenever the SEC lawyers said anything, they were like, my God, what are you saying? You're not making any sense. How can you have approved the futures products and not approved the spot products in this very arbitrary way? And so it's more like the BlockRock kind of saw that, listened to that, and then decided that they wanted to have a piece of the pie. And then... But really it's that the judicial system ruled that the SEC was acting in bad faith here and that they had to approve a product. And I think that lesson is a little bit timely in the current moment because I think even I, when I started Bitwise, I think I had a certain kind of rosy view of how the world worked and how regulation worked and how the political system worked and that you just keep working in good faith. Brian Cubellis (20:05.294) We did so much research. We had probably over 30 meetings with the SEC over those six years and hundreds of pages of research that we published publicly and more privately and just did everything that we were asked to do. And ultimately that had no bearing on this outcome. And I think that's just a very sobering reality of how the world works. And that sometimes you just have to go again. It's a really sad reality, but sometimes you have to go against the national financial regulator in the United States to get what is fair, not even asking for something that is completely a favor for us, but just to get fair treatment for Bitcoin as every other asset. And yeah, so that was kind of the journey. And I think probably the biggest. kind of like lesson that I've took away from going through that journey. We can talk more about the launch, but yeah. Yeah, very interesting. When you talk about the futures product that the SEC did approve, that was back in 2017. Yeah. So that was right at the top in 2017. There was some speculation, there's always been some speculation since then that the existence of the futures product potentially gave a vehicle for large interest to short. What's your perspective on that? because you would be closer to bad information. That's CME futures. Yeah, just to clarify. CME futures, which is the kind of regulated futures contracts, started trading in 2017, you're right. But the specific thing that the court was pointing out that the SEC had no kind of consistency over is that I think in 2020 or so, they approved, or 2021, they approved a ETF. Brian Cubellis (22:06.318) based on the futures product. So the holdings of the Bitcoin ETF, for example, BITO is the largest product by ProShares, holds the futures contracts as the underlying, and it is an ETF that is regulated and trades on stock exchanges, and the SEC approved. And the SEC was making arguments around, we can't approve Bitcoin ETF because the markets can be manipulated, et cetera, et cetera. And the court's opinion was, okay, markets might be manipulated, et cetera, et cetera. But if that's the case, then why were you okay with the futures product? And you're saying that spot product is not okay. And there's just like a number of these things that are kind of inconsistent. And that's kind of the, yeah, the main thing that ultimately was like so obviously not consistent that the court ruled against the SEC's disapproval of spot products. And I guess, I mean, maybe this is an impossible question for you to answer, but do you think that that... was self -serving that there was some interest in having a futures product in order to potentially stymie Bitcoin's growth by being able to short more effectively? Or do you think that was just like a random thing where for whatever reason they justified futures and they couldn't come around to accept the spot? No, I think when you to kind of like when thinking about regulators, etc. I think we like the reality is that people in the leadership positions of those agencies do change and administrations do change. And the BITO and also even within just one time period of like, let's say, Genzer's time, the beginning of Genzer's time and now is a very different climate, like pre -FTS and post -FTS. The kind of the way the Democratic Party engages with Bitcoin has changed a lot. So I think a product that is futures based that most people know is not going to have as much of kind of like the blockbuster success that spot products have. I think it was less threatening or like a massive problem to like approve that. And also the political climate was very different. And then things change and then goalposts change and priorities change. So. Brian Cubellis (24:32.589) The reality, yeah, it kind of exposes that like, if the decisions aren't really made on a consistent kind of rule based on law, but rather is made more on kind of where the political direction is leaning, then it's very hard for it to be consistent. And from the court's perspective, looking at that is very frustrating. So I think that's why we're having a lot of success in the judicial system, because the court is looking for consistency and a... kind of agency actions that move based on the political wind is very hard to be consistent. Yep. And maybe switching gears back to the approval, we'd be very curious, like on your side, what you guys have seen from, because there's a lot of different narratives around, it's retail, it's pent up institutional adoption, you know, the RAs are coming, like what you guys have seen since then. And then because you've been out in the market so long, telling the story of Bitcoin, how has the narrative changed around like lack of interest, you know, FUD that comes up and is it still consistently the same? It's just every, it's, you know, different formats of it or are they, have they gotten past certain things and is it new stuff? Like curious how all those conversations are tying together now. Yeah, a lot of good questions. Just to, so post launch, we're now about three to four months in. The first month there was immediately a fair amount of success where there was about 9 billion of inflows into the new products. But there was a lot leaving GBTC. So about 3 billion was net new. And everyone kind of recognized that as successful, but ultimately people thought that that was kind of the end. It was like, OK, we had some kind of like big latent demand, and then it kind of quieted down. But then the... I think month two and three was really surprising for people where the GBTC outflows roughly started to plateau, but then the inflows into the new products continued in full force. And then we saw another $10 billion of net new dollars, even despite the outflows, come into these products. And the most recent month, I think, end of April, things have quieted down a fair amount. And now we're kind of at a bit of a steady state. Brian Cubellis (26:58.029) And so it's really like in some ways to think about the Bitcoin ETF moment. I like, I think we otherwise often talk about it as like an IPO moment. I think people think of it, there's a tendency to think about it as like an event, like, it happened and went like in any kind of market event. But the reality is that it is more like a state change. It's more like a company going public where like before the IPO, it's all private market liquidity. And then, after the IPO, you have access to public market liquidity always. And I think that is closer to the ETF moment for Bitcoin. So that Bitcoin now has access to public market kind of liquidity and public investors being able to access it in the same way that they access any other asset. And that capability can live with us forever. And also, I think that's really exciting as like someone who wants a For Bitcoiners, because always in kind of market mania, whenever that is in 2017 or 2021, et cetera, always the thing is people just want to buy Bitcoin, but their way to access it, the avenues become bottlenecks. And then things start to break. Like GBTC was an example of that. It had so high premiums that people started trading hedge funds to trade that. And then those hedge funds blew up. And then we have 3Aero Capital, we have Luna. and then all of that problem in our hands. FTX is another example. I think people just want to buy Bitcoin, but then it's not simple and straightforward. So then people set up scam operations to take those dollars. And then we had a problem that we had. So what's really exciting about the Bitcoin ETF moment from my perspective is that forever, what we have now is that we don't have any trouble, kind of the net new dollars coming into the space that we just simply want to buy. Bitcoin, Schwab and Fidelity is not going to have trouble taking in $10 billion over a few months. Even if that was $100 billion, that's not a problem. And so what we've seen is that since then, the market moved up about 50 % in prices, and we're here. No fuss, no crazy scams popping up, no things breaking down. And I think that's one exciting aspect of Brian Cubellis (29:21.613) Bitcoin need to moment that I think about. You asked about who's buying. I think largely a lot at the beginning was self -directed retail investors. And even though that cohort has had ways to access this space for a long time, ultimately people still do have retirement accounts, 401ks, or people that still had some more money in their brokerage account and hadn't made the move to move it over to Coinbase or so. And those dollars kind of easily moving over to Bitcoin ETFs, I think, was a large part of what the $12 billion were. Another category is, our actually kind of main client base is actually wealth managers, like financial advisors. And financial advisors market breaks up in many different ways, but there's kind of an independent financial advisors. They're called RIAs. that aren't tied to any kind of platform or home office and they can just make decisions by themselves about which products to buy. Those RIAs have been moving into Bitcoin ETFs pretty quickly. And then where a lot of the other dollars is in the wirehouses like Morgan Stanley or UBS or Wells Fargo, et cetera, or these larger banks, broken the old platforms, those platforms are still very much in due diligence. We've had a few kind of really the earliest movers make some moves there after like two or three months of due diligence and those are finally starting to land but really those channels still have not mostly been live yet so it's kind of crazy to think about from the Bitcoin perspective when we're on Twitter and like the Bitcoin ETF is so old news but for the largest kind of wealth management platforms. They usually do diligence with products for like six to 12 months and they're like sprinting towards it and like putting Bitcoin ETFs in private queue, but still largely have not gone through that yet. So we're having kind of the first conversations with that, those worlds just now. And just to kind of put it to perspective, like why that is important, I think we, in the U .S. and kind of in the investible dollars world, Brian Cubellis (31:45.549) Let's say kind of self -directed individuals manage about four to five trillion dollars. And that's a lot of money. But still, it's not the largest pool of money. And that's mostly the money that's engaging with Bitcoin so far. Another four or five times larger than that, about 20 trillion or so, is ultimately managed wealth. So people that ultimately delegate the wealth and investment decisions to financial advisors. And that pool ultimately like has largely been unable to access Bitcoin because if it's hard for like individuals to access or open up accounts into all these things, if you have like 30 to 50 clients, you're not opening up Coinbase accounts for each of them. So then that has been a large kind of roadblock for that audience and kind of the ETF makes it very easy to fit into the workflows. So yeah, anyways. That was kind of trying to paint a picture a bit about how we think about what's kind of like the meaning for state change here, the audiences that have taken the first step, but kind of the exciting road ahead on the kind of larger pools of dollars that are opening up to Bitcoin, trying to access through these products. That was awesome. I love how you characterize it as a state change. I think on this show, we've talked about how it's kind of before ETFs and after ETFs is going to be a major demarcation in the life of Bitcoin. From my point of view, that was mostly because of the narrative in TradFi and in the broader society about Bitcoin, because we've lived for 15 years in a world where Bitcoin, whenever it's talked about in TradFi or in the media, has been negative. It's always been about how it's... illicit drug money on the Internet and whatnot. And then now we live in a world where Wall Street is incentivized to promote Bitcoin ETFs and talk about how it makes sense for anybody's portfolio. And that has a cumulative effect that has a societal level effect over time as the Overton window about Bitcoin shifts from this is risky drug money on the Internet to Brian Cubellis (34:08.301) this makes this a digital gold and everyone should own it. And, you know, that before ETF after ETF is that state change. I think that's an even better metaphor for for it. Yes. What I want to make clear, though, is that like state change on liquidity or like financial access is what I'm what I'm putting in. Ultimately, the value of Bitcoin isn't coming from the ease of financial access. I think the value of Bitcoin has always been there as a neutral, sovereign non -government money that is global and interoperable. And that has always been the case. But it was always kind of up against a kind of a tougher challenge to grow as kind of its economic bandwidth because it was kind of unfairly limited to private market liquidity. And then now we're just figuring out like, now it just is able to get out of that discrimination and be on even footing with gold, even footing with real estate. Like you've been able to buy real estate in ETFs forever, gold in ETFs forever. Like it's just on an even playing field now and in public market liquidity. And that is exciting. But yeah, also just wanted to kind of clarify when they're about to say change. Yeah, the public market liquidity part is such an important part of understanding why the ETFs are huge. The other thing I wanted to dig in there though is like, it has been interesting trying to understand the behavior of how customers are engaging with the ETFs because a big question for me has been, will the ETFs exhibit the same kind of reflexivity of demand that we have seen? with Bitcoin in general in the past on Coinbase or whatever crypto exchanges. And very interesting that obviously we saw the GBTC outflows and then a really good month or so for all of the ETFs with a ton of inflows. And then in the last month where the price has been stuck at prior all time high around high 60s. Now for the last week or so we've had like very little. Brian Cubellis (36:31.213) inflows, zero net flows in BlackRock's product in particular for the last four days, I think. And so that sort of to me says that we are seeing classic reflexivity of like when the price is going up, there's more demand. And when the price is not going up, there's less demand, which I think it's been a philosophical question of like what type of demand will flow into the ETFs? Is it? Is it baby boomers who are sitting on a bunch of wealth and then they keep hearing about Bitcoin going up and they tell their wealth manager, you know what, it's time let's buy some Bitcoin? Or is it the RIAs who are saying we're going to slowly methodically scale into Bitcoin for you. And that's kind of independent of whatever's going on recently with the price of Bitcoin. Any thoughts there? Yes, definitely. I think it's a blend of all the above where in some cases it's going to be a client saying that I just want exposure to Bitcoin. Like I've been convinced, like my friend has been talking to me about this and I want to hold this thing. In some cases, we're starting to see real kind of model portfolio allocations. So a given kind of advisory firm can have a new view about the macro and say that Bitcoin deserves to exist in model portfolios, 2%, 5%, et cetera. And they just... have discretion over their clients' assets and they move in and that kind of is just kind of a consistent allocation. But then another reality is that ETFs are also trading vehicles for like hedge funds and so. So if an existing kind of track by hedge funds that is like, I wasn't really going to do much here because I don't want to set up another infrastructure to trade Bitcoin and open up these accounts with these like shady crypto exchanges. And then now they have the asset. readily available in the existing infrastructure. And then as they trade everything else, as they trade gold, real estate, oil, they can just trade Bitcoin. And then those types of flows and activity is merging into it as well. The reality that the ECS is a very neutral vehicle that all sorts of people can trade and move in and out from. So we'll see a lot of different behavior. Brian Cubellis (38:49.549) that kind of is ultimately mixed into the final inflow and outflow that show up. But as a blend, I would say, there's a good chance, ultimately, the kind of advisory channel, the financial advisors, or even individuals, like mostly they're buying, and a lot of people are buying in retirement accounts, et cetera, these are sticky dollars. So I do think that on balance, it would be less reflexive and more kind of steady, because it's just more of a portfolio allocation. than like, shit, like my friend told me about this and like I have this app now and this app sent me an alert that says, price is going up, let me buy. So more people, it's kind of a more steady kind of portfolio allocation type of dollars net than I think the existing kind of retail crypto exchanges. I mean, another aspect that is nice is that it's also, yeah, not part of that kind of like. There is a way in which retail crypto exchanges are a little bit more casino -like. They show you price charts, they send you notifications. It's not just Bitcoin. They see all these coins there and they kind of feel like something else is going up and you should buy that, et cetera. And none of that exists in the Bitcoin ETF world. Or like in brokerage, you can decide whether to buy it or not, but it's a little bit more calm world in a way. Yeah, so I think that is also a plus. So that's the thing. That's the thing that was like kind of naive personally, and I think even just us being native to the industry, it's like we really wanted Bitcoin. So we figured out how to go buy it. And it wasn't that hard. You got to sell some assets or move them over to a Coinbase or whatever the app is and figure out how to buy and then move it to self custody. Most people don't go through that progression for something that they may want a little position in. So they just naturally are like, ask her, I don't want it. You have to really want it in a similar way. Like I think about it as like a Bovada or like some gambling website. You have to really want to go and find out how to gamble online to make it make sense. And most people just aren't there. They're not going to like go that they're going to DJ into gambling or go and try to find how to buy Bitcoin versus if it's in a brokerage account and you can click a button, it's a natural like first order. And you touched on like change of state. It's like, Brian Cubellis (41:11.309) when you change states, you change planets, you have to acclimate to the new environment before you kind of go and start to like size in. So it makes complete sense that we kind of like have this state change. You have a having, you see like what's currently happening on the like more geopolitical government side of things. So you're going to have this volatility, but over time that state will consistently go up into the right with larger pools coming in. Another thing I'll just add is that ETFs is ultimately, again, like not the thing that is generating value here or like, It is not what makes the asset valuable. So it's, flows will come in when more people believe Bitcoin is valuable and flows will go out when more people believe that it is not. And there's a natural reflexivity to people's beliefs because like when the price is going up, more people are tend to believe in it. But ETS is not the thing that convinces someone, they're like, Bitcoin is now valuable. So I think... we will just see kind of inflows and outflows add with the whole market. And ETS is what makes it easier for people to dabble and kind of move in and out in some ways. But yes, it will just kind of be part of the whole reflectivity that already exists. And just one more thing that I would say is to kind of just highlight that a little bit is that I think... Even the state change, I think there's a sense that we have kind of like, because the station has been made, everyone that kind of would allocate as a result of that would have already done so or not. But as I said, the large platform is still very much early in their digital gens. And the gold ETFs, I think, is a good example. GLD launched as the first gold US ETF in 2004 and had the blockbuster success in the first week. brought in about a billion or so in inflows in the first three days. And that was more than any other ETF in the past, and it broke all records. And then in the next three months or so, it brought in maybe another 300 million. So it kind of looked like, OK, we brought in a billion at the beginning, and the next three months brought in another 300 million or so. And then, OK, now this thing is over. The reality is that for the next eight years, it had positive inflows that were mostly Brian Cubellis (43:31.949) growing so that the next year had like three billion inflows, the next year's had like five billion inflows, and then it got to 10 and then it got to like 15. And it just like kept going for another eight years until it had its first outflow year. So I think when a thing goes through a state change as kind of like accessing public market liquidity, not everyone decides and not everyone makes moves immediately. It just is a trickle to kind of saturate that market like, the thing becomes from going from not possible to possible, then... kind of saturating that whole opportunity. In the gold case, it took about a decade and Bitcoin usually things move faster, but it's still going to take years. So I think to see the full extent of like the net new dollars that will flow into this asset class as a result of public market liquidity, I think we're very early in the innings and each cohort will like have a different moment in which they take the big step or they might kind of wait until there's like... another mania to decide to prioritize this thing. But it's just going to be a long road ahead. And I think that's a good thing. Yeah, yeah, it's an encouraging thing that even with kind of a small amount of engagement is already kind of the has brought in a meaningful amount of kind of economic bandwidth to the network and that we still have a large pool of dollars that we haven't touched. Totally. It. It's really, it's so beautiful how it's playing out. And like, you can really just see how this continues through the combination of the cumulative effect of the ETFs being out there and Wall Street talking positively about Bitcoin and it becoming part of society. At the same time that the halvings keep occurring, increasing scarcity keeps causing the price to drift upwards post halving and the 12 to 18 months post halving. triggering the bull market and forcing the next cohort, the next slice of the bull of the bell curve of technology adopters to pay attention to finally dip a toe. And they probably dip a toe with the ETF. And then maybe they move on to self custody as they get further down the rabbit hole and learn more about this asset. And just those two trends playing out of increasing access to the bull market. Brian Cubellis (45:56.813) global pools of capital that are sitting in analog assets to date, whether that's equities, bonds, real estate, art, whatever. ETFs are a big part of that story, increasing access to that world of value at the same time that Bitcoin's endogenous mechanics will keep driving the price higher through increasing scarcity and forcing the next slice to pay attention and make that switch themselves. Yes. Given that we're kind of all saying positive things about ETFs, I think it's also worth kind of noting the negatives. And one of the main product flaws at the moment is the fact that you can't withdraw in kind. Yeah. And that's something that I'm really hopeful that we can improve upon soon, because if not, then... the gains will lead people to be stuck. They might learn more, they might want to do self -custody, but then being stuck in the ETF product as the vehicle because of the vehicle structure would be much worse than exchanges. And so, the other aspect that the SEC has made incredibly arbitrary decisions on, they've said... In -kind creations and redemptions and these types of things are common and available in all of the commodity ETFs like in gold, you can do that. There are gold ETFs where if you say that you want to withdraw in the actual gold coins and they will send those gold coins to your door. So it's not that in -kind redemption should not be possible or they should be illegal or it's impossible for the ETF structure to support those things. But just the SEC at the moment has made a kind of an arbitrary line saying that. in -kind redemptions in kind of spot Bitcoin form should not be allowed and that it has to go through cash. And that's kind of, kind of, if you put it into perspective of the whole thing of like this, all the actions that are being taken against self -custody and kind of the sovereign peer -to -peer transactions, then it kind of makes sense that that is a position that the government is taking. Brian Cubellis (48:17.997) But it, but it is an arbitrary position and we need to fight for it. What about the other side? We've, we've you're remiss. You were gracious enough to bring out some of the negatives. So the other one would be custody and 90 % of the ETFs being with a single custodian. How do you guys think about that in like long -term? Yeah. That the custodial aspect is definitely a problem, but, but, but I think that like, I think about it closer to. We still think the custodial services have kind of a role to play in the onboarding step. Like if somebody's buying Bitcoin on River and they're buying like $50 or $100, like does it really make sense that we force them to like buy a hardware wallet and like go through cold stores, all these things? Like not really. I think there is a step kind of even in like the like financial and transactional sense, like... I think we want to get to a world where everyone is running like lightning nodes and such in a self -suffering way. But that requires a lot of upfront investment to open up channels and pay the on -chain fees for that. And I think that the direction that the muting wallet, for example, is going makes a lot of sense to me in the sense that in the beginning, you can use eCash through like Fediments, federations and such. And if you're just like putting in a hundred dollar balance to send like some... few dollars to your friends or whatever for payments, then that's kind of fine. But when you are actually saving up and you have more and you're actually in a Bitcoin economy and you're paying rent through it, et cetera, et cetera, and really the volume and your balance grows, then definitely you should consider if the kind of custodial convenience and trust assumptions is what you want to live in. But... there is kind of a reality of that custodial experience at the beginning of the funnel, enabling kind of the financial transaction cost to be lower to make it easier for someone to take that first step of $100 or $1 ,000 without incurring all the costs of being fully custodial, self -pustodial. And I think about ETF in a very similar way. Like, is there a value in being a river or a coin base or a kind of... Brian Cubellis (50:39.917) that type of custodial first step that you can dabble into. Yeah. And I think ETFs are the ultimate, easiest first step that you can make if someone take. You don't have to open up accounts, you don't have to wire money. It's just already there where all of the rest of your money is. You don't have to worry about any kind of new system that you need to learn besides just building some conviction about Bitcoin. And then you can take the first step. And then ideally, If that balance grows, you learn more, you buy more, you learn more, you buy more, and the price goes up. And at some point you're sitting on an amount of Bitcoin that you're like, why? I have these new different beliefs and I have so much of my network in this thing. And they can take it off of the ETF and kind of incline to draw away. Then I think it has now just kind of blended into the same kind of on -ramp, like on -ramp and off -ramp that we kind of think of as the existing custodial services. And they do have a role in kind of the journey that people play. Currently, unfortunately, they can be stopped with capital gains. And that is definitely an aspect that I think is problematic and we should try to improve upon. But I don't necessarily think that the existence of custodial kind of first steps is bad. Brian Cubellis (51:57.085) Stepping stones. And Hong, so we've seen the now the Hong Kong ETFs being launched and correct me if I'm wrong, but they are going, they do allow in -kind redemption. It seems like that is a differentiator, a competitive edge perhaps that Hong Kong ETFs would have over US based ETFs in the global capital landscape. Do you think that that will require a response from the US? How do you see that playing out? Not really. The reality is that the financial markets, US is king. US is not self -conscious or insecure about any other market. It's just the order of magnitude larger than anything else. Hong Kong, Europe, you can point to any market. It just doesn't compare. And the SEC and the... Financial regulators in the US don't think that they take cues from anyone else. Like every other financial regulator does. Like I'm from Korea. The Korean financial regulators are always looking at US financial regulators and looking at, what are they doing? Like, what are they doing on all these different things? And like, I would guess that there's a Bitcoin spot, Bitcoin ETF in Korea is more likely now because we have one in the US. But the US financial regulators do not think that they have peers and rather that they just make their own minds. And... The whole world has had Bitcoin ETFs for many, many years. And that had no bearing on whether the SEC thought that it was justified or not or worthy or not. And they ultimately kept rejecting until they were forced to approve them by the court. So like just the like it's just not comparable and it doesn't really have much of an effect on what they see. Yeah. It's a fight that's going to have to be won through different means rather than natural competitive forces. Yeah. I mean, the reality is that we think that the US has all these problems and it does and it's like struggling and it is. The reality is that it's still doing so much better than anywhere else. Like the US financial markets are stronger than any other market. And that trend has actually been in the upward direction than in the downward direction. So with all the problems that it has, it still is so dominant that it's not really feeling any competitive pressure. Brian Cubellis (54:26.189) Like, we should change our regulatory approach because we're under this competitive pressure. Must be nice to be king. Yeah. Yes. I guess that's the question is the weight of the monetary and fiscal malfeasance. The overall hubris at some point lead to collapse. I mean, they're making it very hard. ETFs had to struggle. Obviously, we had the attacks in the last week, but Bitcoin is an idea. Time has come. People will get it. There will be bumps in the road. will be hurdles to overcome. Bitwise, Niff's that very well, working at this for more than six years. It's an exciting time to be alive. I'm very happy to be here right now, even though it's chaotic. Excited to be here. One thing that I just highlight about in the broader conversation that we're having, I think it's so important to support our open source devs. And I think in some ways that... It's kind of crazy to me that that is a controversial thing sometimes, these days it feels, but like... Brian Cubellis (55:45.325) We've been working on this thing for six years and we've been gaslit so many times. So I didn't really believe it when I thought, when everyone, well, it was looking like it was going to get approved and I had a really hard time believing it. But then ultimately when it was becoming sure that it's happening, I think one of the first things that I gravitated towards trying to make sure that we can build into the product of our ETF was that it would have a profit sharing with the debt. And I think that's that kind of like tragedy of the commons where a lot of people hold Bitcoin, but then nobody feels that they are kind of they should pick up the bill in funding the development and maintenance and security of the work that is just necessary for the network and asset to exist is a thing. And in some ways, it's a thing that an ETF like structure can actually be a bit helpful in because just the way that it exists. it pulls a lot of the Bitcoin together and we take fees. So we already take fees. So then sharing those fees to a direction that helps everyone's Bitcoin become more secure and resilient is just good for everyone, including ourselves. And so, yeah, we decided to share 10 % of our profits to devs and put a fair amount of thought into it. I think I understand all the concerns that people have. But so we decided to do it through organizations, nonprofit organizations that already do that rather than us making arbitrary decisions about who which dev to donate to. We chose three open sats, HRF and brink rather than one because one, if we the product grows a lot, then that can also create biases. And they're all no strings attached to donations. And that was stated from the beginning in the press release and has been consistent with all the orgs. And so that, I think, was something that we took very seriously and put a fair amount of time into leading up to the launch in arranging with all those organizations. And yeah, I believe very strongly that it's important and is a differentiator for our product, I think, as well. Brian Cubellis (58:09.773) So if people have been meaning to want to support, devs and they just kind of like haven't, don't have an easy or didn't, didn't ask on it. And they have some, you can test in their 401k or something, or their, or their retirement accounts. Then I think, already TF, unlike the other top three, by Blackwell, fidelity and art are supporting that. So I love people to consider that feature as well. Yeah. And Jesse, you were on the. We're on the hook. Matt's been pinging us about, you know, we need to support open sats, but we'll have to pick one because Stan Drucken Miller isn't backing us. So we have to pick one out of three. We can't do all three, Hong. But all jokes aside, insanely, to your point, it's crazy you have to bring it up simply because if the tools don't exist, this thing doesn't work. Found like full stop. And Marty alluded to wrapping up is that. Things are very positive. We have to look at what they're doing, not what they're saying. And so what they're doing here or what's been seen is the ETFs exist. Banks are stepping in. Central banks are stepping in. And that if you mirror this, I like the analogies to like, it's obviously a different order of magnitude, but similar with piracy and torrenting in like the late 90s and early 2000s. And that The infrastructure and the technology is there. You cannot stop it. Now you have to develop the tools around it and map it to the world. And now it's here. It's never leaving. And it's certain parties that are doing things, whether it's malicious and we can debate if it's malicious and how you tout it and how you get licensed. Like we still have to exist in the rule of law. But at the end state, this isn't going anywhere. These things exist. There's capital markets forming. There's revenue being derived from it. And so now we just have to figure out how to make it to make sure that it's commercial from a large scale. But we've already played this out via open source software and tools. And that's where I think ties into your point about like the developers the software providers We have to like lean in and provide services and value around it because that's how this thing makes it to the other side Also, just lastly like leveraging the capabilities that are like core to the Bitcoin blockchain like things like proof of reserves should be table stakes like every ETF should be publishing the addresses and be Brian Cubellis (01:00:22.573) kind of taking advantage of the inherent properties of Bitcoin that you can privately secure them, but also be publicly auditable. What about multi -institution? That's native. We can get into that about. No, Marty, yesterday I was just playing around. Yeah, yeah, yeah, yeah. Please help convince the SEC that multi -institutionist custody is a thing that is possible. But anyways, yeah, like I think we should always be pushing for what's the what's natively possible and not kind of, yeah. That's also an aspect in which I'm proud and excited about RETF is that we can be the kind of champion of those things and push the boundaries and envelope the conversation about like, you can do it. You can do it for the reserves. Like you can't say that you can't when there's a $2 billion product out there that is doing it. And the kicker is you're incentivized to do it because it's the best product. It's not about ideologic. It's literally, you show your reserves, now you can prove that you have the asset. Yeah, I think it's definitely in line with us. I think it's, yeah, it's in our self interest as well. Yeah. You guys are partnering with Hoseki to do that, correct? Yes. So we do just publish the addresses directly on our ETF site as well. But currently Coinbase doesn't have a way of allowing us to sign signatures that say like, that attest to the fact that those addresses are owned by us. We're just making a claim. So then Coinbase kind of... extends that attestation in a private format to Hoseki and then Hoseki is saying that yes, these addresses that Bitwise claims to have are indeed, at least in their private kind of verification with Coinbase, true. So they're kind of bridging the part of the trust model that currently cannot be done in a public kind of trustless way. It's just a limitation that the Coinbase custody has. You should be able to sign to the graph messages but put that at the moment so it's kind of a way to bridge that and still give more kind of public audit ability to people That's very commendable in both parts the profit share with open source devs and no string attached Contributions and then leveraging bitcoins native properties to Brian Cubellis (01:02:45.709) Trailblaze improved to the rest of the financial industry that's getting acclimated with Bitcoin that there's a new way to do things is a new asset, new ledger, a new accounting system that gives you more powers that were not possible in the previous financial system, the common financial system. We are building a whole new system. It's not gold. Like it's a different thing. And we should like leverage the ways that it's different and treat it differently, not just Yeah, it's just the same number on a chart that everything else. Well, Hong, really appreciate you joining us today. This was a fascinating conversation. I think you're an example of somebody who's doing things the right way and is approaching Bitcoin with what I would argue is the earnest philosophy and really understands why this asset exists in the first place and the power that it has to give not only institutions but individuals as well. And it's good to know that at the layer of the world where the ETFs are being created and distributed, there's individuals like you that really grok this stuff because we need people like you in positions of power within the world of traditional finance. We're trying, we have about 5 % market share. I mean, we have 2 billion in assets when BlackRock has 15 and Fidelity has 8. So we're trying to survive and continue to be relevant so that we can champion these values and still build a profitable business for ourselves, that we can continue to do that sustainably for a long time. And so yeah, it's ruthless. Public markets are ruthless and that... And if the incumbents competing with them is also not an easy task, but that's what we're here to do. So I'm excited that we have a foothold and are at the table in the major leagues and that we can try to compete and to demonstrate that people do care about these features and that people do care about the ethos and that you can build a better Bitcoin business doing so. Brian Cubellis (01:05:02.573) Hell yeah. Hell yeah, brother. Appreciate you joining on. Enjoy the rest of your day. Jesse, you want to end with anything? No, that was great. We're all on the same team doing, you know, trying to trying to get the right values of Bitcoin to be celebrated, embraced, adopted, and for those values to win. Brian Cubellis (01:05:33.069) See you guys next week.