James Seyffart on $ETH ETF Approval!

Transcript

Bankless Nation, we've got a a breaking live stream. We've got uh James Safford over here. He is an analyst at Bloomberg. He is an ETF expert and we just got some incredible news. Um exciting news, I think, for the crypto community. James, what just happened? Yeah, I mean the SEC came out and just accelerated and approved um every ETH filing that got in their 194. So, this is a 19B4 order. And what that really is, it's a rule change proposal. Basically, all these exchanges, they had to do this with the Bitcoin ETFs, too.

You have to basically submit these filings and ask the SEC to change a rule. In this case, the rule is we want to trade Ethereum ETFs. In the case of Bitcoin, it was we want to trade Bitcoin ETFs. And the SEC has to go through and basically say this is allowed. So, this is the first step. There's two two main steps before these things can be begin trading. And this is number one. So, this is the number one. It's also the big one, right? because it's the thing that has been the uh um SEC has been reluctant to say. So that's the 19B. I think we've got some of the issuers on the screen, but I think there's maybe more. Um you mentioned, did you say 17 19 something like this?

We've got a number of them on the screen. No, no, no. That's all of them plus the Grayscale Mini, but actually hashts didn't didn't um submit a 19 before. Um so they're not actually going to launch one. It doesn't look like Okay. So, are there more issuers, fewer issuers, or is this pretty much similar to the issuers for the Bitcoin ETF? There are less issuers here. Um, and especially if you take into account, so right you if you include Grayscale. So, Grayscale, everyone's been talking about that Bitcoin mini trust. I'm not sure if you guys are familiar, but essentially they're they're spinning out 10 or 15% of GBDC into this smaller ETF. Um, it's called the Grayscale Mini Bitcoin Trust and such, right?

Exactly. We don't know exactly the fee. I think they I think people are saying it's going to be 15 basis points, but it's going to be the lowest fee. Um they're doing the same thing with ETH. Um and they filed that in here. Um so that's also going to launch at some point in the near future. Um but uh essentially Grayscale is going to launch two of these things. I don't know if the ETH mini trust is going to be included. I haven't had a chance to really dive deep into this filing since it just dropped, but I've skimmed through it. There there's a lot here to go through. Um, there's 23 pages. So, uh, as soon as we get off of this, I'm going to basically have to dive into that.

Okay. So, when you say boom approved, you're talking about all of those filings, uh, were just approved all at once. I I think this is, um, this is pretty crazy because of the setup here, which is it was like Friday of last week. It looked like none of this stuff was going to be approved, right? Like you didn't see any movement on your side as you're going through the the paperwork and stuff. Here, here's a tweet from uh, Friday, which is, "It's just not happening, guys. Sorry." And I think you tweeted that, James, because like it didn't look like it was happening. I I guess the the broadest of questions here, did the SEC just do like a 180 on this or like what is going on?

How did we get from here, it's not happening, there's no signs of movement to Monday, suddenly it was I think either you or Eric Balchunis had tweeted this out where Yeah. your your probability of approval just just shot up to 75% on Monday when like on Friday it was like near near zero. Yeah. So early afternoon we started to hear rumblings and we were like this can't be true. Can it like can this actually be happening and like we were scrambling. So we know people that are like somewhat in the process. Some people are like outside but kind of know what's going on. We have a lot of people we talked to in the space. Obviously there's a lot of signs and tea less we read but we also have sources that we're talking to to try to make sure we're getting this stuff right. And we had one

or two people tell us yeah something's happening. And then we got more and more people be like yeah this is insane. I can't believe this is happening. Um and that was Monday afternoon. And that's when so Eric and I actually were on the phone for like 30 minutes going over like fine tooth comb about exactly what we wanted to tweet because we knew it was going to be market moving. We actually offered it to Bloomberg News and and they didn't want to put it out there yet. So because they because it seemed so tenuous, it seemed so last minute but we trusted our sources. Um and obviously we were we were very we didn't think it was going to happen as you see. I tweeted that on Friday.

Life comes at you fast. What explains this? It's the it's the political winds. It has to be like people are trying to say this was always the case. Like that is not what happened here. This is a complete shift. Um from what I understand specifically the division that approves those 19 B4s is they're called the division of trading and markets. They're they're mainly worried about fair, efficient, orderly markets. Like that's what their whole thing is. And with these 19 B4s, they want to make sure there's no fraud, manipulation, things like that. So these ETFs, these products can't like help other people commit fraud and manipulation or get stuck with other people doing fraud and manipulation. That's what most of this is about. Um that division from what we're here didn't like know about this until late last week. Like they were under the assumption they were denying.

So like it's not like the SEC knew this was going to happen all the time. We've I based on everyone I'm talking to this is a complete political shift. And if you just look at everything else that has happened here, like you look at some of the polling for the elections, you look at the SAB121 votes in the House and then the Senate, and then you look at what happened today with the Fit 21 act, which is a market structure bill for for crypto. Um Trump saying he's pro crypto here and like there's so many things that point to like the the Dems basically decided like we can't go this way. So I'll be interested to see um at some point we'll get there was probably a vote on this. Um so the last last vote was like um 3 to2, right? And Gendler was the kind of breaking tie vote

because the what is it? The the commissioners have to vote. Each of the SEC uh commissioners have to have to vote and uh two voted no for the Bitcoin ETF. Three voted yes and the third was uh Gary Gendler. So did this break a similar way or do do you know yet? We don't we don't know. We don't know though. At some point we'll find out. I don't know exact timelines of that. Uh it's not on the site now from I just checked like literally 3 seconds ago. ood. Um, essentially the commission is a five member commission, two Dems, two Republicans, and then usually whoever the president is at the time gets to pick the commissioner, which is usually a tiebreaker. So the commissioner gets to decide where things go. Um, but it's not impossible to have people break. Um, so it'll be very interesting to see how

this goes down. Um, so Lizaraga in Craw, the two Dems other than Gendler, and if one of them, which I there's no way it was Craw, she wrote a descent letter. She might have she she voted no on that. And then she wrote a descent letter. Lizaraga did not join her in that disscent letter uh for approving spot bitcoin ETFs. So it's theoretically plausible that Gendler was planning to deny and the other DM commissioner wanted to do it. But there's we this is all just speculation. So it'll be interesting to see. So you think this was politically motivated and that's how it seems. This is how most of the crypto community is is sort of uh interpreting this. But it would also be odd and I don't expect anyone at the SEC to acknowledge this least of all least of all Gendler. If that's what really happened, if what

really happened was like some phone call that uh he got or the SEC got that told them that, hey, this is not worth uh losing an election over, that won't be acknowledged, I've got to imagine, because the SEC is supposed to be politically neutral. It's supposed to be a merit-based regulator that looks at the law and approves or denies these things based on their reading of the rules and the law and doesn't get involved in the politics. So, that would be contrary to what they say. I can't imagine they would say, "Hey, it looked like um you know, Biden was going to lose lose an election here or it could cost him some votes and so therefore we decided to approve it." Right.

I So I mean supposed to be is the key word you use there, right? And I don't think it's just about the presidential election. I think there's Senate and House elections that people realize they actually care about this. I don't remember exactly who tweeted it, but it's like I don't know if the numbers are right, but there's thousands of people who are very staunchly pro crypto at the very least. like so and it's an orders of magnitude greater than the people that are staunchly anti like they're they're very vocal but there there's just not many people that care about it in a great way and I think that kind of got through in the last month or so um and they couldn't let the Republicans do an endound on them on this on this piece right um do I think the the Dems are going to come around

and just be completely pro- crypto now uh absolutely not are they going to be as staunchly against I don't I don't think so I think this is a tide shift um a compete a complete pivot uh a 180 um from the dems here. I mean James this feels really good to a lot of people listening and the crypto community feels like um in a world where we don't feel like we have much political agency feels like we really had an effect like the crypto vote the crypto uh community had their voice heard in DC maybe turned the tide on this on as late as Friday this wasn't going to happen and then things changed and now it's happening likely due to politics. Um, I want to ask you the question though as to when these ETF products might become available because you said there's two pieces and uh you

said the 19B4 filings were all approved today, but there's another piece I believe before we could start getting the these products out there into like Fidelity accounts and to the RAAS and all of this. Um, what's the time lag from here until these products actually get released in the market? One, you're 100% correct. And two, the real short answer is we have no idea. That's a lie. We have some idea, but we really don't know. Um there's there's not a ton of precedent here, obviously. Uh but even if you asked me Monday morning like, is there any way they can approve? I would have said no way. They don't have enough time to do it. There's just not enough time to do it. It usually takes weeks if not months to get an approval order. Um but I guess they can work fast when they have to, right,

when they're up against deadline. Um so the other process is they need the S1 approvals or the prospectus documents, offering documents depending on what you're used to hearing. But they're just the documents that have all the risk disclosures exactly how the trust is going to operate. Anyone involved with the fund, that's what's going to be in these documents. And the SEC's division of corporate finance, which is another division, not trading markets, this is a separate division that has to go through those with a fine tooth comb. And these documents are hundreds of pages in many cases. So this is not something that's going to happen overnight. Um I think if they really want to accelerate it, the the gap between the 194 approval and the S1 approval could be weeks. Um but there are plenty of examples of this taking months. like there's examples of it

taking 5 months. Um I think they'll be faster than that. Uh the Bitcoin ETFs for example, we know they started in early October and then they were approved in early January, which is 3 months, 90 some odd days. Um I think it'll be fast. Like I said, uh I just don't know. We we'll have a better idea in the coming week or two. Um but we just we just don't know yet. So we don't quite know when exactly the pipeline will open to all of this capital. though that said um this does feel like Ethereum is is is it's clearly in the territory of commodity. Now if if the SEC is even capitulating on this and um like approving a spot Ethereum ETF, it's going to be basically impossible for the SEC to come back later and argue

that Ethereum was an ETF all along. I I want to ask the the question of what we might expect with respect to inflows. And I think the the Bitcoin ETF has performed above and beyond even what some of the like the biggest bulls were predicting in terms of inflow. Am I right in saying like I'm I'm looking at a screen here. Are we at like close to like 60 billion in terms of total uh AUM and market cap? Are these numbers correct here? Uh yeah, those numbers are correct. They're like 59 billionish right now. Um gold is 13 billion. Gold is like what like 90 billion something like this. Like we're in it's around 100. It's just shy of 100. I think.

Okay. So, what do what do we expect if we've got benchmarks for Bitcoin? It's just like just launched this year and we're already at like 60 billion. Gold is 100 billion. What do we expect for Ethereum? Do do we have any way of knowing this? Yeah. So, I mean the two things is one a lot of those assets came over with GBTC, right? So, GBTC came over with like 30 billion in assets when it converted. Um, so like just going on assets isn't necessarily the strongest way to do it because that's like a massive head start, right? So if we go on flows, I think that's the the better way to do it. And if we look at ETH, which is converting, that has about 11 billion in assets. So that converts over, that's 11. But if you just look at flows, the net flows to the ETFs so far in the

first, how many months are we in four months of trading? Um, almost five, um, they're about 13 billion. I think the number the flows that are going to come into these these Ethereum ETFs are probably going to be something like 20% of the flows that went into Bitcoin. And I'm going to explain those numbers. So my colleague Eric Junus thinks like 10 to 15. I think more like 20 um who actually percent of the flows. Yeah. So if say was 10 billion. So we're talking then we're talking about a billion to two billion maybe um of flows that would come in over the first couple months.

Um, and some people were like jumping down our throats like that's crazy. It's going to be way higher. But I think people are just those those Bitcoin ETFs, those flows were they broke every single record in the book, right? Like first almost the fastest to a billion. They were the fastest to um 10 billion. IBIT did it in 49 days. The previous record 49 trading days. Previous record was like 650 trading days. That's like three years. So like they did it and it's just not even comparable, right? So like those numbers even if you do 10% that's a very successful launch. But the reason I think 10% is if you look at ETH versus the market back of Bitcoin it's what 30% right now. Um I think the number is going to be less than that ratio for a few reasons. One

you lose less with a Bitcoin ETF or Bitcoin going into an ETF rapper than you do with ETH going to ETF rapper. The first and obvious one is none of these allow staking. So, like you're giving up that staking yield by not staking your ETH if you're just holding it as an investment. The other thing is there's a lot more utility with ETH. Like you guys, you're going to use things to do different DeFi protocols, NFTts, you name it. Like it's just way more there's way more utilitarian value of of an Ethereum uh token, right? In my view. So, like that's just going to decrease the interest in ETH as an ETF rapper.

That's my personal view. So, that's why I think you have to discount that again 30% of the the Bitcoin size. I think it's going to be less than that number. I just don't know how much less. Um, so what does that come out to? So if we get the the 10 billion from just like Grayscale kind of converting over, what does this come out to like about you know like 15 billion all told something like that compared to Bitcoin 16 billion? Yeah, 10 to 15 probably 10 to 15 in that range. Is it also fair to say that um Tradfi and like the institutions understand Ethereum less like relative to Bitcoin? And what what do you think the education campaign is like that's going to happen? Because we we saw this we saw it with um you know once Fidelity had a Bitcoin ETF. It was

sort of like all these papers and just like learn about Bitcoin. All of this uh educational material kind of went forward. Do you think something similar will happen? And do you think that there's some opportunity for Ethereum to be more broadly understood as a result of this? because maybe Tradfi just like doesn't understand it in comparison to Bitcoin. Yeah. So, I think that's part of it, right? There's just um less interest I guess I would say overall from my experience talking with people in the Trady world. Um in the institutional world, there's just less interest in ETH. Like it also easier to understand like digital gold, call option, a store of value. The ETH story is way more complicated in my view. Um digital scarcity is very simple to explain. It's

like way simpler to explain Bitcoin and a lot of people like when they hear crypto, they just think Bitcoin in the space. Not all. There's plenty of people that are educated. Um there are plenty of people that are interested in this. I think there's going to be a lot of people that are going to look at this and be like, "All right, I already have Bitcoin at a part of my portfolio. I should diversify my my digital asset exposure." And now that ETH are coming, I'm going to put some money in there. There are some people obviously that are going to think that they prefer ETH over Bitcoin. Um but I just think those numbers aren't going to be like massive, I guess, is the answer. But at some point, who's saying that can't change? But right now, based on all of my experience and interactions with

different people, there's just less demand. And if you look at what happened um so in Hong Kong, they launched Bitcoin and ETH, um ETH is that they have the assets uh 20% a little less than 20% I think is the number. I haven't checked in a couple days of the Bitcoin ETFs. Um and if you look at the Ethereum futures launch here that happened in early October of 23, um they did nothing. Like I had very low expectations for the futures ETFs and they did way they did even worse than my expectations as far as flows goes. Complete duh. No one really even cared at all. Um so I think that just kind of is all pointing to the fact that this is going to be um not as big as as the the Bitcoin launches.

It's going to take longer for Tradfy, I think, to understand Ethereum. It's got some more complexities. And uh two two more questions, James, and then I'll let you go. part of that education process probably the the upside of that for something like Ethereum is that it gets a couple shots at this. So, first of course there's the vanilla Ethereum ETF and then at some point there's got to be I imagine a staked version of an Ethereum ETF. And once you get into a staked version of an Ethereum ETF, then you start getting into a different narrative conversation, I would imagine, which is like, hey, yield bearing productive asset type of of conversation. But realistically, how far are we away from some sort of next approval of a um yieldbearing Ethereum staked ETF? Is that is that like months

out? Is that years out? Does that require another round of approval process? What do you think that looks like? So, one, it probably would require another round of approval process. These do not allow staking these 19B4 orders. So, I believe you would have to file another um you would have to go through the SEC again to basically say that can we use staking and they're not allowing it right now. One of my theories be even back when we thought these ETFs were going to be approved was we had low odds of these getting approved, but I I had extremely low odds of these ETFs allowing staking. I never expected that to happen. Not initially. One of my pet theories is everyone I'm sure you remember back in early May, late late April, everyone's like, "Oh my god, they're going to go after Ethan, call it

a security here. That's why Guns are talking to Consensus. That's what the consensus lawsuit that they filed were trying to say." That's what Joe Luben literally thought. He was like, "They're coming after Ethereum as a security." And I I think he might have been right about that before the the political tides changed. I think they were dotting their eyes and crossing their tees and trying to look for a way. My theory was I I never really thought they were going to call ETH security in what they were going to do as denials. I think they were going to kick it down the road. It opens up a massive can of worms with the CFTC with the futures market. If they call it a security and they're deemed correct, you have to shut down the futures because the futures are the ETH futures on the CME are registered as commodities

futures. So you can't you you that's not mess. Yeah. So the futures would be delisted then the futures ETFs would be delisted. My pet theory, and I've I've said this in podcasts before, is I thought they were going to basically try to thread this needle and say that ETH itself they're not going to call a security, but stake ETH might be a security. And they obviously have problems with stake ETH. You look at what the in Coinbase lawsuits, the Kraken lawsuits, you look at all these different things, they do not they think staking is is a security, and I I don't think they're going to give that up um anytime soon. So that's that's broadly my expectation. Um, so we need some clarity and obviously with the changes right now going on in Congress, maybe that like provides and speeds up

some of that clarity. Well, that's right. It does it does feel like the individuals can think what they want, but it sounds like they can bend to the political pressure as well. Okay, so la last question for you James and then I'll let you go. I know you want to run through these uh like filings. Are there any other ETFs uh on the horizon particularly this cycle? So people see Bitcoin, they see uh Ethereum. This is happening like relatively close months apart. So then they think, what else uh could get an ETF? Is anything close or like can you just refresh people on how this actually works and like how it would happen, what signs to look for? Yeah, before I even get there, I I want to hit on something that I just thought about. You asked about the security stuff. Um these things are commodities

based trust shares. So the SEC by approving these is explicitly saying they're not going to go after ETH itself um as a security. Um, so, uh, that's one thing I would just say real quick because they the part of the approval process here is they're approved as commodities trusts. Like that's this is pretty much a done deal. Um, I will say personally I believe the ICO was a securities offering, but that's that's a long time ago. That was eight years ago now, right? Yeah. Yeah. Yeah. Yeah. Um, and then so what's next? Um, not much. I don't I don't think anything's happening remote anytime remotely soon. Um, you need a regulated futures market. a fedally regulated futures market or something or surveiled futures market uh before you can get an ETF. That's clear. I I

skimmed the document that was in there blatantly. Um so the reason these are getting approved is because of the CME ETH futures market. Um there's a lot of questions about what's going to be deemed a security or commodity with these other assets. There are some that are like pretty much accepted as commodities here. Like ironically enough, Doge is almost certainly not going to be deemed a security. Make the same argu Litecoin is probably in the same camp. um no way to know for sure, but those theoretically have the the less hard regulatory approval um path. Um but also like are are they is a CME really going to launch uh Doge futures?

Maybe. I mean, Coinbase, I think, might be trying. Um those would be theoretically um CFTC regulated. Um so that could satisfy that. The next one that most people would think about is is Soul, which I saw I've seen a lot of um talk about that. Again, you need a regulated market unless like even if the even if Congress steps in and does something and clarifies what's a commodity and what isn't. Like even if these things are deemed to be a commodity, it's not just getting approved because it's a commodity. The SEC needs somewhere they can surveil. So, you need to get some spot markets under surveillance with the SEC um or you need a regulated futures market. And even then, it's it's not like you get futures and then you automatically get the ETF. Like, you need some history.

these these these futures listed in 2019, I think, or something like that. It's like 20 I don't even know when it was. It might have been 2021. But you need like you need you need more history. You need significant capital there. Like if there's $100 million in like some like I don't know some random tokens futures contract um and it trades like a little bit every day. Like that's never going to get approved. Like they're looking at one minute candles for correlation to approve these things. and something that's not trading enough or doesn't have enough assets is not going to help them, you know, surveil and look for fraud and manipulation. So, um I don't think that part of this is ever going to change no matter what Congress does, but they could theoretically push some of this along.

Absolutely monumental week here, James, with the approval of the Ethereum ETF, the second uh crypto asset to be approved in the US of as an ETF and and clearly demarking both Bitcoin and Ethereum as not securities, which is something that we've uh wanted um certainty from and clarity from our regulators for a very long time. So certainly bullish, also bullish that we can politically push things in the right direction. Is there anything else you would leave folks with? Any other lessons from this or or the week? You you got to be exhausted, man. You gonna get some uh rest after all this or what?

What are you doing next? Uh I'm gonna be reading these documents which pages of Sounds exactly. This is probably not the week you thought it would be. Huh. Different week. No, not at all. But I will be in consensus next week. So, uh in Austin. So, are you going to be there? I know. I obviously know David will be there. So, David David is uh scheduled to for a boxing match. So, and I'm scheduled to be there from the comfort of my office actually live stream that. So, I'll be there. But uh if he if he's there, I'm sure he'll be there and he'll say hello. James, this has been great. Where can folks follow you for uh future updates, too?

Yeah, I mean, if you have uh if you're a terminal client, um that's the I have like a whole bunch of clients responding to me, so I have to reach out to them right now, but uh that's the fastest, easiest way, and quickest where I'll reply. Uh after that, for people who don't, um it would definitely be Twitter. I'm fairly active there as probably you and many people know. So J S Y FFF, we share a little bit of our research and our work and and immediate update stuff, but our the real bulk and body of our efforts are unfortunately behind the payw wall of the Bloomberg terminal. Um so if you have access to one, that's where you can find us easiest.

Amazing. Well, thanks so much, James. Thanks for keeping us uh up to date on all of this and uh on a successful week. You know, I get congratulations. Another ETF in the world. I know you're an ETF maximalist, so it's a it's a good thing from your perspective and and we uh certainly appreciate it at Banklist as well. Yeah, thanks for having me. Good to see you Ryan. See you later. All right.