Blocktime
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Blocktime
Episode 31: Fred Krueger on Bitcoin ETFs: Bridging Traditional Finance and Digital Currencies
Fred Krueger, former Wall Street trader and current Bitcoin enthusiast, who joins us to dissect the potential seismic shifts these financial products could bring to the currency landscape. As Fred seamlessly bridges the gap between the traditional finance sector and the digital currency space, we delve into how Bitcoin ETFs could revolutionize investment strategies and mitigate common misunderstandings plaguing both camps. If you've ever wondered about the intricacies of ETFs or the significance of recent court decisions and BlackRock's ETF filing for the future of Bitcoin, this episode is your treasury of knowledge.
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Welcome to the Block Time podcast produced by Riot Platforms, where we take a deep dive into topics relating to Bitcoin, bitcoin mining and the grid. Today we've got an awesome guest, fred Kruger. Fred welcome. Fred has emerged as an expert on the Bitcoin ETFs and a commentator there, so excited to have him on. Welcome Fred.
Speaker 2:Thanks a lot, Pierre.
Speaker 1:Happy to be here. So I first started seeing your tweets like it feels like this year, maybe early last year, and it quickly followed you because you had some interesting insights and, I think, a differentiated perspective on the ETFs from other commentators. So I'd be really curious to rewind and hear about your background and your career and how you ended up commenting on Bitcoin.
Speaker 2:Yeah, so I'm kind of an unusual bird up here. So I have two backgrounds. One is I've been involved in finance in the early part of my career quite a bit, so I was on Wall Street as a trader, a prop trader, at pretty much the top firm on Wall Street, which is Solomon Brothers, in the late 80s, early 90s in Greenwich Capital, and actually was even moved to Paris to trade in Greenwich Capital. So I have a lot of experience with Wall Street and I've kept in touch with Wall Street and I'm a frequent trader and I consume that world, that news. And I'm also a Bitcoiner and I started, like everybody else, with not so much conviction about Bitcoin per se. So I've played around with other cryptocurrencies, but really since 2020, I've just been 2019 really is when I got the conviction and then since 2020, I've spent a really full time on Bitcoin and so I think I saw something when this ETF came out that and I wasn't very involved in Twitter at all, I just wasn't tweeting, not interested. But then when this ETF came out, I got very, very excited and it's not like I suddenly decided to buy more Bitcoin, but I suddenly felt like at least I could add a lot to the discussion Because I felt like I felt that both the Bitcoiners and the finance guys didn't have an understanding of what was about to hit them. So, basically, I started, I put a video just like this, in the same room, in the same position, just like this, and I sort of said hey, I'm Fred, you know, listen, I'm a Wall Streeter and a Bitcoiner and let me tell you what I think is likely to happen when these kind of ETFs, if these ETFs and I thought they would happen, but I couldn't be sure, right, and nobody could be sure. But I said, listen, I think this is going to be the biggest thing in my recollection to ever hit Bitcoin. And so that was sort of my thesis and I basically just tried to amplify that thesis over and over. And a lot of people have listened to me and it's fun kind of being part of that discussion.
Speaker 2:I'm not here trying to be a pro-podcaster or anything. I'm not selling trading courses. I'm not. I don't have any sponsors. I'm just a guy, right, I'm just a guy with a bunch of Bitcoin and I want to see Bitcoin win, right, that's my mission here. But I really think it's important to educate other Bitcoiners, but also other Wall Street, other investors, I would say really right About what the CTF means, what it's likely to mean for the price of Bitcoin going forward, and so that's been sort of my unique voice. Now other people also kind of have kind of jumped on it and I support all that the more the merrier. But I really wanted to kind of bring that part of the thing to the discussion and I felt I still feel that a lot of Bitcoiners are pretty hostile to some of these ETFs. So, as you probably know, that's right.
Speaker 1:I often get labeled as a maxi purist, but it's true that I do look at the ETFs as kind of less than self custody. Right, but I think I've moderated my view by reading your insights and so I think you've contributed a lot of value in that regard. So I'm curious you mentioned the Wall Street guys are missing something and the Bitcoiners are missing something. Do you want to walk us through on both kind of what? Okay?
Speaker 2:so let's start with the Wall Street guys. What are they missing, right? Well, what they're missing is they're looking at this as okay, we have literally thousands of ETFs right, there's 3000 ETFs out there, right? There, literally, is one new ETF launching every day.
Speaker 1:Could we pause and explain what an ETF is for the folks out there.
Speaker 2:Sure, so an ETF is an exchange traded fund, right, and it's different from a mutual fund or an index fund, right. It's a fund where you basically are given a percentage of the fund. If you own the ETF, it's essentially you own the spot ETFs. There's different kinds of ETFs as well, but if you own a spot ETF, you own basically a share of the Bitcoin that the ETF holds, right? So it really is a one-to-one correspondence more or less, and we can get into a little bit like where that the slippage may be on a day-to-day basis, but essentially, for all intents and purposes, you own the underline right Now. You can sell that and you own this underlying in an extremely tax-efficient wrapper, right? That's very important. So if you hold this ETF, if you buy, say, the iBit ETF, right, and you buy this ETF and you buy it today and you hold it for a year, it's just an ordinary. It's a long-term capital gains transaction and it's extremely tax-efficient, right. If you own a mutual fund that owns Bitcoin, that mutual fund could generate tax to you even if you didn't actually get the benefit of that tax, right? So mutual funds are not tax-efficient. They also have very high fees typically, and these ETFs have very, very low fees. So it's a very low fee, very tax-efficient way to own an asset. And these ETFs have really been taking over the financial world and it's not just a one-year, two-year, five-year thing. They've been taking over the world over the last 20 years. Okay, so, just as an order of magnitude, right, there's $10 trillion worth of ETFs in the world today, $7 trillion of them in the US, right? The first ETF was an American ETF for soybeans, and there's about $10 trillion of these ETFs. Now, the interesting thing is, if you go back 20 years, there was only $300 billion worth of these ETFs. So this thing has gone up 30X over the last 20 years. So one of the things I like to say is a lot of people say Bitcoin's eating the world, and I also say ETFs are eating the world, right, and Larry Fink from BlackRock has also said ETFs are eating the world and to some extent, I think Bitcoin is just there for the ride, right? So this is the perfect sort of vehicle to own something like Bitcoin in. It's a very standardized vehicle, right? So you have ETFs for everything at this point. You have ETFs for the S&P 500. You have ETFs for mid-cap stocks. You have ETFs for mid-cap Indian stocks, right, so you have ETFs that'll go up. You have ETFs that'll go down. So you have ETF for single. There's an ETF that all does is own Tesla and you can say why don't I just buy Tesla? Because it's an ETF, it's a little bit, it's more standardized. So this standardized package is sort of taking over.
Speaker 2:This is the package that sort of won the financial kind of you know the financial product wars Now, because there's so many of them, and you know, when the pure Wall Street people were handicapping Bitcoin, they were like, well, ok, this is some cool new asset, great, and you know it may do $10 billion, right, in sort of total flows in year one, and that was sort of viewed, as you know, that would be a successful ETF. Right Now, I immediately said whoa, whoa, whoa, wait, this is something completely different than another like Indian mid-cap ETF, you know, or you know platinum ETF or a gold ETF. So this is something completely different. Right, this is the best asset class in 13 of the last 15 years. Right, and you know, this is an asset that most investors, for a lot of reasons, just couldn't participate in, right, they didn't want to do the self-custody. They can't do it. The advisors can't recommend this product. The advisors can't recommend that you hold this thing in Coinbase. The advisors don't want to recommend something like the grayscale Bitcoin trust. So there's a lot of reasons why these people haven't owned it. So there's a pent-up demand for this asset. They've never had this asset and it's, you know, arguably one of the most exciting assets, if not the most exciting asset class. You know right now, right, that you can sort of invest in.
Speaker 2:So I immediately said wait, wait, wait a second. These Wall Streeters do not know what they've just they've got you know. Now, I think Larry Fink knows what he. I think he has a pretty good idea what he's brought to the world, right, larry Fink being the CEO of BlackRock. But I don't think the average investor has really any idea. The average sort of ETF kind of watcher has no idea. And so and to a large extent, this has not even played out yet. I mean, most people, most investors, still don't even know about this ETF. You know the advisors, they haven't even formed an opinion on it yet, right? So I think Wall Street's in a. It's a completely new animal for them. They haven't been following, kind of our journey. We've been following this asset for a long time, right, but not these guys. They're unaware of the asset, right. So that's Wall Street.
Speaker 2:Now the Bitcoiners. I appreciate and I'm you know I am in a I'm not going to knock self-custody, right. I appreciate our self-custody. I you know I'm in an avid multi-sig. You know CASA diamond user. You know I've gone through every single iteration of self-custody known to man. Right, I built Bitcoin wallets. You know I understand the tech. I understand, I understand the math of the Bitcoin white paper and all the rest. But I can tell you that the Bitcoiners don't, a lot of them don't appreciate the difficulty that most people have in doing what they they were able to do.
Speaker 2:Right, you know you figured out how to custody your keys. You figured out. You know you figured out your treasurer, your ledger. You know you figured out custody. Right, this is not something that the average boomer investor is ever going to figure out. You know. It's just not going to happen. And you know I've I've kind of I'm still hopeful, right, I'm still hopeful that we're gonna see good self-custody solutions and fasts L2 solutions. I have tremendous hope for this, right. But I think right now, over the next couple years, what I think is going to get the most traction is going to be these ETFs. So that's kind of where I really think that people should realize that this is a gift from God, or a gift from Gary Gensler specifically, right?
Speaker 1:Well, let's talk about that part which is kind of the history of the ETF for Bitcoin, which started more than a decade ago with the Winklevye twins filing for the first Bitcoin ETF, and it just getting repeatedly denied, not just by Gary Gensler but by his predecessor as well.
Speaker 2:Oh, yeah, yeah. So I mean, look, this is obviously people, a lot of people have tried to these ETFs, and there's not just the Winklevye, right, there's been, I think there's been like 10 of these things that were just denied. You know, I may even be undercounting, you know, but you know they were just application rejection, application weight weight rejection, application rejection. Now what finally kind of tipped the scales, was the GBTC court decision, right. So the GBTC basically sued the SEC and said listen, guys, you can't deny us the CTF because you've already accepted the fact that we have a closed end fund and you can't. It doesn't. It makes sense, you are not protecting the average investor by not allowing them to have an ETF. And the judge said you're right, you're right, we side with you, gbtc. And I think after that that was shortly after that, not that long after that BlackRock came out and said we're filing for an ETF, right. So you have two things that happened. One is you had this court decision and the second thing you had is the largest asset manager in the world who said you know what? I got this, I'm taking it from here, right.
Speaker 2:And I think the minute they saw BlackRock say we're gonna lead the charge on this. Then a lot of other people said, well, wait a second. If BlackRock's coming in, yeah, I'm in. I'm Fidelity, I'm in. I'm Franklin Templeton, I'm in. I'm Bitwise, I'm in. I'm Arc, I'm in. So a lot of people saw that as a symbol that this is probably gonna happen now, right, and it did so. I think. I definitely think it was a narrow victory. I don't think I don't think it was a given that it would even happen, but I think it's a tremendously good thing for Bitcoin.
Speaker 1:Yeah, and before the GBTC product, I mean it had quite a life, which was a life of premium and then slowly decaying, kind of the 50% discount, I think was the bottom.
Speaker 2:Yeah, I think it never quite hit 50. I bought it actually at down 45%.
Speaker 1:Yeah, that's a good answer.
Speaker 2:It was actually my best trade I think I paid if I remember correctly just by memory, right, I think I just paid $8 for that in January of 2023. I paid eight bucks, or maybe it was even seven, I can't remember, but it's gone up four. It went up four times earlier. Now it's probably up six times. So, yeah, I mean it's. So I captured the 3X move from Bitcoin from the absolute low of January right 16,000, right. But I also captured the 2X move of the discount going to zero. So it's been a fantastic trade. That was a great trade. It wasn't the majority of my Bitcoin, but it was a great trade.
Speaker 2:Now, before that, as you mentioned, there was just for the readers or the listeners. You know this was the only way really to play Bitcoin. If you wanted to buy it in your brokerage account, say three, four years ago, right, there was no other way to do it and you had to pay up and you were paying a premium of, you know, sometimes as much as 20%. I know people have paid 20% for it and so and those premiums were the highest at the time when Bitcoin was pretty high too, right. So you know, there are people there are quite a few people who are still not in the money.
Speaker 2:On GBTC, right? Because if you bought GBTC when I think the if you bought GBTC back in early 2021, early, sorry, early 2020, you were 21,. You were paying $40,000 for Bitcoin, but then, with the premium, you're sort of at 60,000. So you're still not in the money, right? So you're still not in the money. There's a lot of people like that, unfortunately. So it was. It wasn't a good. I don't think it left a good taste in a lot of people's mouths, you know. And then for it to trade at such a discount did not leave a great taste in people's mouths, unfortunately.
Speaker 1:Yeah, and it got pretty big. I mean GBTC had a substantial size to it.
Speaker 2:Yeah, I mean at the peak GBTC, right, okay, right at the in January, gbtc had 619,000 Bitcoin in it. Right, that was its peak. Being a closed-end fund, it couldn't liquidate it. All right, you couldn't take money out. It was a hotel, california, you know, you check in, you don't check out the Roche Motel. Right, you could sell the GBTC, but there was no, there was nothing driving that arbitrage to zero.
Speaker 2:Before this, before this ETF, etfization of the GBTC. So you know, so I think there was a lot of pent-up selling that people wanted to sell. You know, some people had gotten locked in that trade for a year and a half and they were finally getting back to break even and they're like just get me out. You know, and I think things made matters worse when you know they found and they said part of the reason they said they even said you know we are gonna, we need this ETF, and one of the reasons we need this ETF was so we're gonna deliver, we're gonna pass on these savings to our customers. Now they were charging 2% and they said we're gonna give and they reduced it just to 1.5%. So I think a lot of people were like, oh my God, okay, so you won the ETF and you're not passing any of the savings back to us. Now, the next highest priced ETF is like 40 basis points, right, so they're already three and a half times as much as the next one. So what do you think?
Speaker 1:is their thinking on the GBTC side to keep the fee so high?
Speaker 2:I mean, you know, I think they're viewing this thing as it's sort of like you've got a mature cow and you're gonna milk the cow for as long as possible, you know, and then you're gonna eventually cut rates. But you don't have to cut rates now.
Speaker 2:Might as well milk the cow for another five years, because people are lazy or there's tax implications from converting to a different ETF, I'd say it's mainly tax implications right, but you know there are quite a few people who did, who are in it at a profit and they're not gonna sell like me. Like you know, I own a bunch of GBTC. I'm not selling because I don't wanna take those capital gains.
Speaker 2:Might be another argument to have the IRS kind of recognize like kind exchange between yeah, no, I was really hoping for that right, Because then I could just and I think that was the entire goal, right Like that's one of the reasons that BlackRock was pushing so heavily for it. Right, because they realized that if they got the like kind of exchange, then basically all that BTC would just leave GBTC, I mean, it would just overnight go to BlackRock, right.
Speaker 1:But I do believe the GBTC itself was like pushing for in kind, which I don't quite understand, but I do think they were that's interesting and so when we look at kind of the dynamics of who has come out ahead, obviously it seems like BlackRock is number one at this point. Is it because of the reputation of the firm, their size, Like? How do you think winners and losers get picked in the ETF race?
Speaker 2:Well, you have to sort of look at sort of the financial landscape, okay. So who's the biggest player in the financial landscape? It's actually not even BlackRock, it's Vanguard, right? So 30%, one third of every dollar investing goes to Vanguard. Now, vanguard does not like Bitcoin, vanguard does not like gold, for that matter. They're sort of like, eh, we'll allow GLD, but we don't like it, and for a long time they didn't like ETFs either, right? So Vanguard has this very kind of purist view of how people should invest and they think that everybody should invest in basically American stocks, like literally, now they have some international stuff, but it was sort of an afterthought, right. They're sort of like you should invest in America by America and by index funds. That was their idea and from 2020, from 2020, that was absolutely the right trade and, as a result, indexing is just taken off and 30% of all these dollars goes to Vanguard.
Speaker 2:Now the next biggest player is BlackRock, and BlackRock has specialized in the CTF. But BlackRock has basically led the sort of financialization and making all these kind of cookie cutter, eye shares, products, whatever you want. They've got an app, there's an app for this, there's an ETF for this and it's a BlackRock ETF, right. So they're kind of the apple of ETFs and they're ultra competitive. They're a little bit like Amazon we're going to have the lowest rates, we're going to have free shipping. That's sort of BlackRock right. They're the Amazon of ETFs and nobody can compete with them, except for Vanguard, right. So really they're the leader outside of Vanguard. And then you have Fidelity, which is a much older, I would say, more archaic firm, right, which was known in the 80s for the Fidelity Magellan fund. But Fidelity is kind of big but on the way down. Blackrock is big, but still going way up, right. So, and really BlackRock doesn't have any competition other than Vanguard. That's its only real competition. So BlackRock is going to win this race.
Speaker 2:I mean, it was obvious to me that BlackRock was going to win this race. But it's sort of like saying who's going to be number two in e-commerce? I don't know, it doesn't even matter, right. Ebay, maybe? I don't even know who's going to be the number two search engine, duckduckgo, I don't know, but BlackRock owns kind of this category of these ETFs. Some of these firms are pretty big Franklin Templeton is a big firm but they're primarily like bonds, municipal bonds. They've got a bunch of ETFs but they're very old school right and they are doing particularly great on these new ETFs. Now, on the other hand, bitwise has kind of emerged as a kind of crypto-native solution and arc right and both very crypto-native, really understand this stuff very well and appealing to kind of a younger generation, and both of them offering very aggressive fees right. So they're both doing pretty damn well right. Four kind of smaller players right. But this is not going to be a winner-take-all. It's going to be a winner-take-most, but I think just between BlackRock and all the others, the flows have been just extraordinary.
Speaker 1:Because at first we saw some outflows from GPTC and people were like, oh, this is sell the news. But then it seems like the wind caught the sales.
Speaker 2:Yeah. So the way I look at it is, everybody went right before this thing started coming out. Right, there was a lot of people saying, ok, what do we think these flows are going to be? And then people put out these numbers like $10 billion and $15 billion. Standard Charter put out $50 billion.
Speaker 2:Now then we saw this sort of unexpected GBTC selling right. Now some people said they'd expected some, but nobody expected the amount that we had, right. And now we have sort of a reporting issue. Right, because now we have really some part of this which is totally unrelated to ETFs. Right, it's just there's a window. Sam Bankman-free, the FTX estate, is now selling, but they could have been selling Bitcoin if they happened to have Bitcoin in the bankruptcy, right, they just happened to have GBTC, right. So it really has nothing to do with the demand for these ETFs, and so there has been a little bit of movement from GBTC to some of these newer ETFs.
Speaker 2:But overall there's been net, net well over $10 billion of new demand, fresh version money that's come into this market over the last five weeks, and we are running our run rate right now, for Wall Street is on the order of 100,000 Bitcoin per month.
Speaker 2:That is how much the run rate is for funds, and you can pull this up if you go to Byte Tree and they have a great sort of Bitcoin flows thing on Byte Tree, which not only includes the US ETFs but all includes all foreign ETFs as well and other ETP products, including future stuff. There's been 100,000 Bitcoin a month run rate would be the highest run rate ever into Bitcoin, right? So, just as an example, the last time we got to even 80,000 Bitcoin a month was in September of 2020. Now the thing about that is Bitcoin was at 15,000 back then. So in dollar terms, in Bitcoin terms, it's the same number. In dollar terms, it's three times as much. So we have, we're having just I mean, the amount of cash that's coming into this stuff is much bigger than we've ever seen, ever, and so who would you say is where is that cash coming from?
Speaker 2:So, ok, where is it coming from today and where is it coming from down the road? Those are sort of two separate questions, right? So I would say the long-term channel for this stuff is wealth advisors, right? So? And then I'll just back up a little bit, talk about how kind of the market's changed, right?
Speaker 2:So, when I was on Wall Street, there was a lot of active managers, there was a lot of mutual funds, right? Still, things like this Fidelity, magellan, peter Lynch, all these kind of people like that and hedge funds right, very active managing. This stuff has moved very much to passive management. So you have a lot of these kind of ETFs and it's almost just like a menu of ETFs. It's sort of like you go to McDonald's we'll take a little bit of that, a little bit of that, a little bit of that, right.
Speaker 2:And you have this new class of advisors, right? And these advisors are paid a very small commission, but they're not paid on a per-trading basis, right? They're just paid 20 basis points or 10 basis points on the assets that they manage. That's how they make money. So the way that they position themselves is listen, we just take our 10 basis points, we're cheap, it doesn't matter, you're going to make 10%. We take 10 basis points, that's 1% of your money that you're going to make, or 2%, and it's not a lot, and we're totally aligned with you. Right, we have no incentive for you to put you in products where we make money and you don't, right?
Speaker 2:So the rise of these advisors these advisors look for ultra, ultra cheap stuff. Right, that's what they do, right? So these advisors now control upwards of $100 trillion. So we're in this new world of passive management. But which passive buckets gets chosen is now chosen by these advisors, right. And so now these advisors have this new thing that they can put in their clients portfolios, right, which is Bitcoin. Right, some of it they're just going to put into their client's portfolio, some of it they're going to recommend right to their clients portfolios.
Speaker 2:But it's going to take them a little bit of time. It's not like the ETF comes out and they're just like, ok, bam, you guys own 2% of Bitcoin. No, now these guys are going to. They got to get their materials ready, they got to understand it, they got to get comfortable with the redemption process and all the rest, and it's going to take a little bit of time, right? But so that's the long term thing. In the short term, anybody with a fidelity account right now can easily go and buy these ETFs, right, you don't need to go through an advisor, so you have the sort of retail platform. The retail availability is there right now, today, right. But some people would have said, well, retail had the option to go to GBTC before, right.
Speaker 1:Even like that, but I would still argue Coinbase.
Speaker 2:Yeah, right, robinhood. So Robinhood and Coinbase definitely for the younger generation, right, they've already had that right. So anybody who's under 35, yeah, sure, I get it right, but anybody who's over 50 is not using Robinhood. Ok, it's just a really age truncated thing. And I've got to tell you my vintage of kind of investors. I've tried to get people onto Coinbase and people are like what is that thing? And I'm like it's a very legitimate thing. And they're like, hmm, some crypto startup. And I'm like, no, it's a public company, it's not a startup. And they're like well, I heard bad stuff about these crypto companies, so for them to send money to Coinbase is a real stretch. And I know I'm making my generation sound pretty stupid.
Speaker 1:No, it's not stupidity, right.
Speaker 2:But it's the fact they're not comfortable with it, right. And the reality is, as you get older and you have some assets, you really get very stuck in your ways, right? And the last thing you want to do is hold up your passport to a webcam and do a biometric KYC Because you don't even remember it. You did something like that 20 years ago, but when you opened your Schwab account, or 30 years ago or 40 years ago, and maybe that was in the office right, A physical brick and mortar location where you were with someone from the company.
Speaker 2:In many cases, yes, or you might have, like a I've opened, like I have an account at Goldman Sachs, for example. Right, how did I have an account at Goldman Sachs? I sold a company back in 2000 and Goldman Sachs knocked on my door and, as they do, they're there to come to you and they say, hey, mr Kruger, great Welcome to Goldman Sachs, let us handle some of your. You know what I mean. So let us set this account up for you. Just write down your details, we'll take care of the rest. Right, so that kind of white glove treatment is so different from enter your social security number, hit Enter, do KYC. So they call it relationship banking. But it is very true, right, it is all about relationships and it's usually recommended by a friend to get to have some broker to handle you. They call on you, they personally take you out to lunch or dinner, they buy you seats at the baseball game or the basketball. That's the old way of doing business, right, and those habits are hard to break. So this is part of the problem. Before, and I think you know I think I'm not the only person to make this point, but I think Vijay Boyapati made this point earlier in a podcast I'd listed the other day, but he said look, these guys are not going to be allocating 20 or 30% of their net worth to Bitcoin, right? They're going to be allocating us like one or 2%, right? So for them to go through all that effort to allocate one or 2% just doesn't seem worth it. You know, now, if you're sitting there with your Fidelity account and you're like, ooh, new product, fbtc okay, let's take a little bit of that, click, click, click, click. Okay, and now I want $100,000 worth of FBTC, you know one minute. You know one minute, you're done. So you know, I just think that that's the thing that the Bitcoiners have missed, right, they've missed how hard it is going to be to convert those rich people. I think they've done better job a little bit with sort of millennials. And you know, just in general, right, in general, onboarding millennials has been easier, right, I think, for all these products. But onboarding the 45-plus older wealthy generation has proved to be incredibly difficult and that, I think, is unfortunately, that's the generation that actually has 90% of the money right now. Right, so you know, I've been to El Salvador twice. I'm in favor of you know all these things, right, lightning, self-custody, mobile wallets, everything right, but I got to tell you, el Salvador, they're not going to be buying hundreds of $500 million of Bitcoin a day. They own probably $300 million total. The country owns $300 million of Bitcoin total. You know Bitcoin and Fidelity bought that yesterday. So you know as much as we like to do this.
Speaker 2:I think there's a. You know there's. There is a, there's a room to kind of say, okay, guys, let's take the philosophy and all the goodwill and everything you want to do and let's just talk numbers here. Right, like, how many, how many lightning wallets are you getting? Okay, you love lightning, I know you like lightning, but like, how many lightning wallets, how many reviews are there? What are the top lightning wallets available in the US today? Okay, wallet of Satoshi, no longer available in the United States. Right, phoenix, okay, I checked it on yesterday 40 reviews, 40 reviews on iOS. Okay, this is 40 reviews. You know, like we're not talking Instagram here, you know where. You know reviews 25 million, you know so, you know. So these things are.
Speaker 2:They're nice experiments, I would say, but they're not really moving the needle at this point and, and I think you know, we can continue to experiment and you know, there, there will be some. I'm pretty confident that. I'm pretty confident that as Bitcoin becomes more valuable and there's more of a Bitcoin story out there, and as better solutions from a user interface perspective get, get adopted, and and just as time passes, I'm confident that we will get to more general adoption. But I think right now, actually, adoption is going to happen with rich people. It's going to happen with the 150 million Americans who are owned stock. That's, that's your target market right now. You know.
Speaker 1:And so when, when Bitcoin, if Bitcoin evolves from store value to also being a medium of exchange, do you see a future where you would be able to send a lightning payment from your brokerage account that you know is doing in kind conversion from the ETF, kind of like you do with a money market fund? You can have a checking account, right, you can have a debit card linked to your account. Do you think that's part of the future?
Speaker 2:Well, look, I mean, I think who does it the best right now? Right, and I would say Cash App does it the best, in my opinion. I think, overall, the user experience of Cash App is pretty hard to beat, you know, but it's only in America, right? And? And even I'd be interested to see what percentage of Cash App users even have gone into the Bitcoin tab, but you know what I mean. Like it's not even. It used to be more, they used to have a big B on the bottom of it and it used to be more prevalent. Now you have to kind of go poke around to find it right, but they've got a great user interface and they've got a great lightning implementation and that's about as good as it gets. Are we going to see easy in kind movement from something like these ETFs to Cash App? Not right now. Maybe in a couple of years we're going to see some in kind movement, probably, you know. Is it going to be supporting lightning? I don't know. I mean that's a big question, you know. I think you know it's probably, I would say, it's going to be even longer right? I mean, you know Binance supported lightning when Last year, you know, six months ago. So you know, I think this stuff is going to take a while.
Speaker 2:I am very bullish on I think I'm very bullish on, you know, at some point, these Layer 2s, and I don't mean just lightning. I do think that Layer 2s on Bitcoin are going to work right, and I don't know exactly know what that looks like yet, right, but I do I've seen enough recently that I'm pretty excited about that that I do sort of see a world where you know you're not going to be, we're not going to have some of the limitations of lightning with channel, just the complexity of lightning, the user interface problems with lightning and some of the you know, just inability to, you know, just to find channels to move the liquidity through. I think some of that stuff is going to get solved with other means. I think it's all very theoretical right now and we don't know how that's actually going to play out, but I'm somewhat optimistic over the next four to five years that I think it'll get solved. So I do believe that Bitcoin will be the store of value, and not just the store of value, but it will be used as a medium of payment, or I believe Bitcoin is fundamentally going to become the next money, right, and I think that's, I think, if you study Bitcoin enough, that's why you want to be a Bitcoin, right, because you realize that you know we've just invented, we've invented the money.
Speaker 2:And I think there's sort of two phases to that. The first phase is it becomes the means of exchange in the digital world right, so you know, and that digital world is becoming bigger and bigger and bigger. Right, so that digital world could mean an NFT type thing, right, but it could also mean just paying for somebody's service, right, like a contractor. You know that's effectively a digital good at this point, right, and or could mean, you know, watching a movie. It could mean a lot of things, right. So I think the share, the digital world share, versus the pure physical world, is increasing, and I do think that the first thing Bitcoin has to do is win the digital world, right. If Bitcoin can be the de facto currency for the digital world, then that's huge already. Right, that's enormous.
Speaker 2:And then once and I think that may take, let's just say it takes a decade for that to happen right, and I think you know it may be lightning, but it may also be something else.
Speaker 2:Right, it may be, you know it may be running on wrapped Bitcoin on Solano, right, but in a sort of very trustless way, right, you know, with ZK rollups and everything else.
Speaker 2:Right, it may be, who knows it might be on ETH I don't think so, but you know but some form of fast Bitcoin, very trustless, fast, very scalable. You know, I think we have to get there. If we're going to have a billion people use Bitcoin, we're going to have to do something like that, right, because Bitcoin just on layer one is not going to work at this current block size for more than 200 million people, and just the math does you know you've got 200 million transactions right now that Bitcoin can handle in a year. That's your maximum. Pretty much Now you can. You might be able to get a little bit more if you start bashing transactions and doing this and that, but you know there are. There's a fundamental limit of, you know, the Bitcoin that we know right now how much, how many users it can have, can have on kind of mainnet and you know, even on lightning you're going to.
Speaker 2:You know you have the on ramps, off ramps and so on, so so I think we're going to have to get something else to scale up, but I think it's going to happen and I think that, regardless of how it happens, I think Bitcoin will be the unit of account of that world, right? So I feel like we need a unit of account, right, and we don't want to have 10 currencies, we want one currency. You know, we want to denominator things in something, and I don't think it's going to be in US dollars. That's my bet, right? I think that I think we're going to go to a Bitcoin denominated standard. Now, is that delivered through custodial things like Coinbase? Is it delivered through RAP things? Is it delivered through lightning?
Speaker 2:I don't know, you know, but I do feel like that that stuff's going to happen and then, once that happens, it's not that far of a stretch for it to happen for Adams as well, right?
Speaker 1:Right.
Speaker 2:Once you get the bits going, then the Adams can follow.
Speaker 1:And on the payment side, you know there's this tension between custodial solutions, non-custodial solutions, which kind of mirrors the conversation on the store value side of custodial versus non-custodial or, you know, self-custody. So one of the risks that Bitcoiners always point to is hey look, the government is going to seize the Bitcoin from these ETFs. Well, do you think you know what probability would you assign to that, or do you think it's just kind of a silly?
Speaker 2:I think, look, I would say that probability went down since these ETFs came right. I think the fact is this is you know, somebody said on my Twitter they were like this is kind of not when they're fighting you, but they're joining you, right? So guess what? Now you have, blackrock is effectively a Bitcoiner, right? So I think the chance is less of that, and I think there's for a lot of different reasons.
Speaker 2:One is I think these big players are now economically incentivized to make this stuff work, right? You know, even the banks right now are sort of saying well, we don't want your crypto regulations to apply to these ETFs, right, because we want to provide services to these ETFs. So you know, we're anti everything except for we want to make some money on these ETFs, right? So that's one thing. And then the second thing is I think we're going to see, in a matter of a couple of years, we're going to see a significant percentage of Americans who actually own Bitcoin, right, and I think that's going to make an actual difference when it gets to a law that might ban Bitcoin. And you know, people have estimated this number of Bitcoiners or crypto people, and I kind of I agree with Tom Lee. I think it's a lot smaller than some of these estimates have been. You know, if I had to guess, I would say there's probably a couple million Bitcoiners worldwide.
Speaker 1:Yeah, that sounds right.
Speaker 2:I would say we're not in the tens or hundreds of millions of Bitcoiners. We're not there. We're maybe in the single digit millions of Bitcoiners In the US. There might be a million of us, a million people in the country. That are size. We were loud, but we're not a blocking vote.
Speaker 2:But if 10% of the stock accounts start owning one of these ETFs because it's starting to do really well, I would say 10% of Americans own Apple. I mean 10% of Americans own Google. Now they own them either independently or they own them through S&P 500, because these things are in the S&P 500. So I think that that's likely to be a really great thing for Bitcoin advocacy in general is to get people to the care, because if you have $2 in a non-custodial wallet because you filled out some quiz about on Coinbase, that does not make you a Bitcoiner. You have to have some actual value in it. You have to have some skin in the game. It's sort of like, and then you do care. It's like you start really caring. I mean, andrea Sampsonopoulos had this great video I don't know if you've seen this one. It was called Blockchain for Bananas. He says look guys, you can do all these different things and you probably don't care at all about your security. But once you start buying a couple thousand bucks, you get really interested in security really quick and it's amazing how that happens. And I think that if you start having $10,000 in Bitcoin, you start really caring what some politicians are going to say about Bitcoin. So I think this is net net going to be very good for controlling people, possibly doing what you're suggesting, but also just encroaching on some of this new stuff that we're seeing with the miners. Like you've got to just do some inventory here. We like to see exactly everything you guys are doing, and not that we're going to do anything, but we just want to just keep tabs on you a little bit. Or you have a self-hosted wallet. We'd like to know the address of that, and can you click this box saying that you in fact own it?
Speaker 2:So those kind of like I would call them they're pretty egregious kind of overreaches by the government. They could get away with that last year, but now we're already getting a little loud that they're realizing that you may not be able to get away with that that easily and I think another couple of years of ETFs and I think you will not be able to get away with that. So my hope is this broadens adoption out and it's not going to teach. Are these people going to go and get non-custodial wallets if they own the ETF? Most of them won't. They will not, but they'll start caring about Bitcoin. They'll start talking about Bitcoin. They'll start telling their kids about Bitcoin. They're like dad bought some Bitcoin and it's up a lot, and my dad's like, okay, great, and so maybe I'm going to show my dad, I'm going to one up my dad. Okay, great, I got this cold card here. So I think the next generation is going to get much more interested in that.
Speaker 2:I think it's going to be a positive force for Bitcoin. If we get these boomers guys, we're allowed. I mean, we love to talk and we love to talk about that. We bought Nvidia or Google or we bought this house 20 years ago for $200,000, and it's worth four million right now. So you want those stories, you want people coming to the telling those stories at the Thanksgiving Day next year, and so I think it's all positive. It's very positive for the Bitcoin narrative and I do think that, look, let's acknowledge that some of the stuff that we've done, we have done.
Speaker 2:I'm saying the Royal, we, but, like some of the stuff that we as Bitcoiners, hasn't worked right. It hasn't. It's well intended, right, but it didn't have the consequences that perhaps we hoped. Right? Michael Saylor great, he bought some Bitcoin fantastic, but he wasn't very effective in trying to get his other fellow CEOs to buy it. That I can see. Elon Musk bought some for Tesla. Then he sold it.
Speaker 2:So, a lot of the stuff that we've done, it's just you have to try a lot of things with something works right. But I just see a lot of things have been tried over the last four to five to six, eight years. Right, a lot of things have been tried. Some of them have been complete and other scams, right, or whatever. I'm not even sure, but, like I'm not sure, celsius was a scam, but whatever, it didn't work right. It didn't work right. It sounded good. A lot of people joined it. I mean, I put some money on Celsius, I took it out on time, but, but it's a lot of things have been tried, not a lot of. You can't really point to a lot of things that have been super successful other than Coinbase and ETFs, in my opinion.
Speaker 1:And do you actually see the ETF market eclipsing the spot market in terms of volumes, and what implications would that have?
Speaker 2:Well, I think it's. I think there's there's two things One is we need to get derivatives on ETFs first for that to happen, right? So I mean, I think the derivative market's always bigger than the the spot market, right, and and I definitely think that once we have, you know, options on I bet, for example, right, that's going to be, that's going to be a huge thing, I think it's going to be. It may not eclipse the stock market, the eclipse the exchange market, but I definitely think it'll be significant enough in its own right. Right, and, you know, subject to the fact that it's not going to trade 24-7, it's going to trade, you know, it's going to trade during, during, kind of New York hours, right, and, and it's going to be completely regulated, and I think it's look overall, I think it's a very good thing and I think it's. I think we're going to see a lot less volatility day to day, I believe, but not so much because of the technical characteristics of ETF versus exchange, but just because I think that the buyers are different, right, the person who is trading, who, the person is buying a perpetual on bitmex, you know, and who's Jumping into something at 50 times leverage, right, you know, bitcoin moves 2%, they they're wrecked right there at the route of they're out there that they're taken out right now. That's a. That's a. That's an extremely volatile position, right.
Speaker 2:On the other hand, you take somebody who's, you know, a dentist, or you know a guy owns a bunch of car dealers and he puts 2% or 3% of his net worth in Bitcoin and he looks at it once a month like you know he, you, you almost have a 10,000 acts difference in kind of leverage, right? Is it 1% of their net worth versus a hundred times their net worth, right? So you know, I just think that you know it's going to be. Once you get into this, it's a very good thing to get these more steady hands. You know, long-term money, asset allocator money I think it's going to be that'll be a fantastic thing for overall. You know Bitcoin and I think we're sort of seeing that with just the price action right now. Right is I think you know just these Buying waves of buying, you know, every day and still can go down. You know we had the hot inflation number. Market went down great, but you know it probably would have crashed, you know more 7,000 points.
Speaker 2:You know, previously right, but now there's all this buying coming in.
Speaker 2:You know you got these asset allocators buying.
Speaker 2:So I think that the, I think that the the characteristic of this thing is going to change a little bit and and I feel like, you know, I think it's going to be a there's going to be a psychological challenge for the Bitcoin community too, because, you know, this whole idea of we're Bitcoiners and we do this and we were different and we're kind of these like well, okay, you know you, you were different, right, but you know, now we've kind of entered into this more mature, you know, we're not in college anymore, you know. You know we're, we're into kind of the adult world and you know, and we have these people who are May not care or may never read the white paper ever, you know, and that's kind of okay, you know. And so I think some of us are gonna have to come to a little bit to grips with, kind of our own identity as Bitcoiners, because I know that it's it's a little hard to accept that okay, sort of like selling your company. You know somebody. Somebody else is in charge now, right.
Speaker 1:Yeah, and it's also like cars, right, like most people drive cars, but they're not car guys. You know they're not into wrenching on their car.
Speaker 2:Oh yeah, exactly. And, and I think even like, if you look at cars, right, they like cars were much more important ten years ago, twenty years ago, now. No, nobody cares that much anymore, right, it's the symbol of the car, doesn't matter.
Speaker 1:You sir gave me a look. He's a car guy, oh.
Speaker 2:Yeah okay.
Speaker 2:Look, you know I used to, I used to love cars, but you know, look, you know I'm I honestly don't care. Right now it's like if I'm in a Tesla or a Prius, I just To me it's looks like uber has kind of commoditized that experience, right, and now it's just, it's just, it's a ride. You know, and I feel like this whole thing about we're Bitcoin, we got to do things our way and and you know we're, maybe we're gonna stop war. You know we're gonna change. You know we're gonna change the way money printing works or this like Maybe you know, but you know it's sort of like it's kind of out of your hands now. You know, I mean, you're, it's not. This is not like this little project, it's going mainstream. That's kind of what you wanted, right, that's. You know, we've all been saying we want this thing to go mainstream, we want people, and then finally it does go mainstream and everybody's like whoa, whoa, whoa.
Speaker 2:These guys don't even know about this, like they don't even know about self-custody, they haven't read the white paper. Come on, guys, they don't have any right to own any Bitcoin. You know what are they gonna do? They're gonna, they're gonna sell our bit. They're gonna, they're gonna take our Bitcoin, they're gonna sell it. No, no, it's like they have exactly the same right to have Bitcoin. That you do, right, and they. You know the fact that you were early and you, you understand self-custody or the Bitcoin standard or whatever your claim to. You know, your claim to your identity in Bitcoin is the reality is it's probably gonna play out a little differently than you probably imagined, right, and you know, probably El Salvador is not going to take over the world. You know it's probably gonna be rich Americans, to be honest, to end up with most of the Bitcoin. That's kind of my get my gust feel. So, you know, I think, and I think this is not a bad thing, you know, for rich Americans rich, just Rich people, like rich people, are gonna pick, figure this stuff out.
Speaker 1:That's what I think and if they don't, maybe they won't be rich for long.
Speaker 2:Yeah, other other people, other rich people will take that, will take that. So, look, I think it's it's all super, super positive for Bitcoin and you know that's that's really what attracted me to this ETF thing and you know, it's get. It's kind of what makes me want to get on podcasts like this or something. It's just like I think it's really positive. I think everybody should be pretty jazzed about it and it's not completely risk-free. I'm not gonna say it's completely risk-free, but it's. It's a great trade-off, right. I mean, you know the difficulties of Getting people on these new platforms and so on. Is is so big. This is gonna make things so much easier and and we really need Bitcoin to become this mainstream financial asset, you know, and just if it's just another asset, that's great, that's fantastic. You know that we kind of want it to be a little bit more mundane, in my view, you know, and a little less special.
Speaker 1:Well, so I'm pretty. Yeah, I don't know if being the same size as, like, the S&P 500 ETF is mundane. From one perspective it is mundane, but from another it's like, wow, this is a huge macro asset.
Speaker 2:Right, well, it's yeah, I mean it's, it's not the size of the S&P 500, anything ETF or index or anything else yet and look, but it's just, it hasn't it? It has an amazing way to go right and and, and I think you know, again, if you look at it relative to other ETFs, you're, you can you can be a little misled, because you know it is pretty. It's already pretty good. I mean, these, these are already in the top. I think the top 7% of all ETFs I bet is in the top 7% already by market cap. But I think it could go much, much higher, right? I do think that you know, overall, bitcoin could, could potentially rival, you know, the S&P 500 in terms of my market cap. It's possible, right. But now there's a clear path to get there, right where we you know I was talking to people in 2017 stuff like it was just all Fluff. You know, we had no idea how we're gonna get there, sort of yeah, yeah, oh yeah, everybody's gonna use these self custody wallets.
Speaker 2:No, you know, that's just, it wasn't gonna play out the way we thought it was gonna play out right now.
Speaker 1:I've got one last.
Speaker 2:I'm not.
Speaker 1:Sorry, I've got one. One more question before we wrap up at the top of the hour here, which is kind of a fun one. Do you think the halving is priced in?
Speaker 2:I Don't think the halving is important. That's my view. So my view is relative to what we're seeing here. You know, the halving is very clear. What it is? Right, it's 450 Bitcoin per day, right? That? That's the. That's the impact of the halving 450 Bitcoin per day. That's 15,000 Bitcoin a month, right, 15,000. Now we're gonna do 100,000 Bitcoin this month on these ETA, on this stuff, and and I don't think it's over, you know. So, the halving price, then I don't think they, I don't think the ETFs are priced in. To be honest, that's what I would, that's how I would answer that question. So does that violate? We should be at 100,000, right?
Speaker 1:now with the, with the ETFs, forget the halving.
Speaker 2:The halving doesn't matter. Even I don't think the halving is a big deal at all compared to these ETFs.
Speaker 1:How do you think about if the efficient markets hypothesis as someone who's been in the markets for a long time?
Speaker 2:I don't think. It's not like there are people who can take advantage of this stuff. This is a new. It's not like, oh, I think Bitcoin is going to be going up, so I'll buy Bitcoin. No, like you. Literally the people who could, nobody can buy bit because there's no possibility for arbitrage right now. Right, there's. These people did not have access to this and and I think it's everybody's still way underestimating this, this entire process. So I think the markets are right now very inefficient. So I don't think I think the the efficient market hypothesis Currently, right now, is not true for for Bitcoin.
Speaker 2:So, you know, I would say we're probably gonna be in an exceptionally great period. I mean, I really feel like the next four years in particular are gonna be Amazing on a risk return basis, you know, probably the best we've ever had, in my opinion, because we suddenly have this clear new buyer, this clear enabling technology, which is the ETF wrapper. You know massive amounts of dollars coming in and all the other conditions that that we're good for Bitcoin, which is government deficits, money printer go burr. You know financial irresponsibility, wars, everything else. So we have the perfect background for for Bitcoin, probably with some form of interest rate cuts at some point this year. So we got the perfect backdrop, but then we have this major catalyst, which is this ETF wrapper. So I think this is an amazing opportunity for Bitcoin to really go 10x from here. I definitely think that's possible and and, and I think it's kind of kind of breaks it's gonna break the pattern of of havings and everything else. I think it's.
Speaker 2:I have no idea what it looks like after four years, but I feel like four years from now it'll be a mainstream. Yes, you know, it'll be much more mainstream than it is now, and probably the having will it might make a little difference, but it's not gonna be this monumental thing where it dropped 75% the year before the happening. Yeah, I don't see that anymore. So I, you know, I don't I'm not saying that it can't drop or anything. Right, because you know, having lived through the internet, right, yeah, the end, you know, and if the internet kept on growing from 99 to now, right, straight line growth of adoption and everything else, right. But the NASDAQ crashed in 2000 and didn't recover, didn't hit the back to the 2000 level for 2010. So you know, the underlying technology can progress.
Speaker 2:So my, my general thesis for what's gonna happen is, we're gonna have a fantastic four or five years right now, maybe six, maybe doesn't even take into the the account the next happening at all just go and then Then we might have, you know, maybe you know, maybe more. Maybe it's like the S&P 500 where you have a 20 year bull market. We don't know, but it's possible we have some kind of long-term bear market. I just feel like this whole cyclicality thing Might be a little little old in the Little old. You know it may not play out that way anymore, but anyways, I do think it's. You know, just to conclude, I'm I'm very, very constructive and positive on the next, in the next four years, and I think everybody, everybody should, should be a little optimistic here. You know, I'm not saying rush out and put all your money in Bitcoin, but I would say the, the optimistic story is pretty good right now. So you know, if I could just end with that note of optimism, that's kind of where I'd like to end it.
Speaker 1:Well, I'm a permable, so of course I agree with you and I really appreciate your time today. And coming on to the block time, all right, we'll catch you later.
Speaker 2:Thanks, thanks, have a good night, bye.
Speaker 1:Thank you to everyone who tuned in today. That was a great conversation with Fred. We look forward to seeing you again next week. Don't forget to subscribe to the podcast. Check out our YouTube channel as well, and share it with your friends and family, as they probably have lots of questions about Bitcoin and these new ETFs. Have a great week, you.
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