What the Ethereum ETF could mean for ETH inflows

Transcript

GM good morning welcome to the milk Road show The Daily crypto show that's as satisfying as being the king of your neighborhood after setting the fastest run time for a segment on Strava I'm your host Jay Hamilton and today we're talking what can we expect from the eth ETF when it goes live likely any day now and here to guide us is Matt Hogan CIO at fitwise who's put together an analysis of predicted inflows for the eth ETF and these aren't just random guesses these are educated predictions based on deep analysis Matt welcome to the milroad show oh man I'm so excited to be here that's a high bar local lended on Strava is a is a real feeling so you got some of those I bet you I

know you're a runner I'm not gonna comment not gonna com it but uh but no it's really great to be here excited to talk about it excited to talk about eth and where we're going with that awesome let's start with what are your thoughts on when we think this e ETF might go live we thought it was going to be this past week didn't happen all right now everyone's saying next week are we going to keep pushing back when do you think this is going to happen yeah the magical thing about that is I can honestly tell you that I just don't know the the the way that I you know I'm as as Insider I guess as you could be on this in that bitwise has a filing with the SEC but the way that this works uh is you file uh an amendment an S1 which is the

prospectus and then you get comments back from the SEC and then you file again that's how you communicate with the SEC there's no like back channel it's you publish and file and so the stage we're at now is we're waiting to get comments back once we get comments back we'll then know are they the FI is this the final round and so launch will be two days after we file another update or a day after we file that or is there another round what I do think I could say confidently is we're moving down the track the the comments are getting fewer and fewer and so that's a very good sign but yeah even from the bitwise position I just I I don't know but you know hopefully soon it's important to

remember again we got spoiled with the Bitcoin ETFs where uh things moved at an exceptional rate right really fast back and forth uh lawyers exchanging drafts in a in a day this is moving at a more normalized ETF rate so yeah I would be I would be surprised if it were Monday um but it could well be next week if we get good feedback or it could be later or there could be some unexpected jaunt uh that's just where we are okay app appreciate your honesty there uh okay so um before we jump into your predictions on inflows and your thoughts on how that might impact the eth price I just want

to talk a little bit about how you have gone about this analysis because one thing I think that I really hope our listeners understand is we unfortunately are very used to on Twitter seeing people make bold predictions based upon a single chart or a few data points and this is the opposite of what you and your team are doing you're doing deep analysis based on multiple data points so can you just give us some background about how you went about doing this analysis and what data points you use yeah absolutely we you know it frustrated me to see what we saw on Twitter which felt like people you know sticking a finger into the wind and just putting out numbers this size that size it'll be huge it'll be tiny what we did

is we decided to look at the data so where we started was just by looking at the relative market cap of Bitcoin and ethereum we know how investors responded to the Bitcoin ETFs they have 50 billion on in assets they've pulled in 15 billion we knew they were successful and that's a reasonable proxy for how they'll you know respond to athere everywhere you look where investors can buy both they buy both why would it be any different here and that looked like you know the the eth ETFs would be about a quarter of the size so that's one data point but then we're you know a little myopic here in the US we think we're the only country on Earth but actually Bitcoin and ethereum ETFs exist in other

markets they've been in Europe for a long time they've been in Canada for a long time those are mature markets they're not exactly like our Market but they're not that dissimilar um you know I come from an ETF background so I'm very familiar with these markets so we looked over there and what did we see we saw that in Europe uh eth ETFs were 23% of the combined Market of Bitcoin and eth and in Canada they were 22% the thing about these numbers is they're all basically the same 25% 23% 22% they're within the margin of error and while you know extrapolating from any one data point is risky extrapolating a bunch of data points that all tell you the same thing is

pretty good so that was that was how we sort of built up our analysis from there after you do that you just look at you know the trajectory on bitcoin ETFs are on and you can do some simple math to get to your projection of net inflows and that's what we think when you mention looking at the Bitcoin ETF what are the major takeaways or lessons we learned from the Bitcoin ETF that we can apply to expectations for the eth ETF yeah first of all it was just a historic success I know everyone says that but I want to emphasize that I was the CEO of etf.com you know I worked in that industry for 15 years um the fastest growing ETF of all time gathered five

billion doar in its first year on the market these ETFs have done 15 billion in six months it's incredible it's not just like beating the world record it's it's it's sh scattering it it's destroying it it's Inc I mean it's 3x in half the time it's unbelievable so one thing we learned is there's a huge amount of demand but there are a couple other things that I think would point to that are are are pretty important um the first is there's been demand independent of price people forget bitcoin price went from 50 to 40 when Bitcoin ETFs launched and for what it's worth for all we know that could happen on eth as well there could be a sell the news event but still the inflows came since then the price has been up it's been down it's

been sideways we had inflows we had 2.6 billion in inflows in Q2 right so we also know that investors are going to allocate almost regardless of what happens in the market that's really important and then the other thing I know from ETF history is that the first year is actually the hardest for ETFs usually ETFs don't Sprint out of the gate they like walk a little and then take a break and you know they take time to get going if you look at the Gold ETF which is maybe the closest analogy it had a great year one it pulled in a billion and a half in assets but in year two it pulled in 3.3 and in year four it was 4.9 like that's the trajectory so the other thing I know is that these

things will build over time so that all informs what I think will happen with the EFS which is there will be demand it'll be significant and I suspect it will build over time well let's use that to get to the million-dollar question here which is what do do you expect to see and I would love it if you could frame this as shortterm medium-term longer term like maybe like first few weeks by the end of 2024 and then by the end of 2025 yeah absolutely so I'm glad you asked that because the first few weeks who knows who knows that's the thing here here here's the dynamic in the first few weeks that I think it's important to

understand you have this grayscale product the grayscale ethereum TR trust ethe which has $10 billion in assets and a lot of people have been piling into that because it was trading at a discount and it's no longer trading at a discount and so there is an Arbitrage play those people aren't necessarily long-term Buy and Hold eth investors and so we can expect some of that money to come out and you have to find people to backfill that and because we already went through the same exercise with gbtc the grayscale Bitcoin trust there's a part of me who think thinks people are going to do it faster this time it's the second time around right and so I do have this worry in the back of my mind

that the first few days could just be funky we could see big inflows one day and outflows the next day it's going to be noisy someone's going to write a news article that said the eth ETF failed you know the price could fall just like it did with Bitcoin it doesn't have to be that way it could just soar out of the gate you know that's equally possible but I think I think there's so many crosscurrents on that first week that it it's it's anyone's guess I know that's not a lot of comfort I wish I could tell you it's going straight to the moon but but you make a good point there that I think everybody forgets that the Bitcoin that bitcoin price fell in the first few weeks after the Bitcoin ETF it's like we all forgot that that is our memory is so short term in crypto uh

and an all investing for that matter but that that is that's what happened there so why wouldn't we expect for a similar thing to happen here that is exactly right and people wrote tweets they wrote articles this thing was a dud I told you um oh guess what it's the best performing ETF of all time by 3x like no it wasn't a dud take a little bit of a longer view so yeah I do think that's really important for people to remember that said on the six-month view I think we're going to end the year with you know multiple billions 3 four five billion in net inflows regardless of what happened on eth part of the reason for that is what

we saw with the Bitcoin ETF right if you take you know 25% or 30% of 15 billion dollar you end up with a large number right multiple billions part of it is I just think the second half of the year is an extraordinary setup for crypto you have the Tailwinds from these ETFs launching you have the Tailwinds from trafi really moving into crypto you have the Tailwinds from the US political process I just think it's going to be a great half so you know could we see 3 to five billion in net flows I think that's definitely possible and then I think 2025 will be bigger than 2024 and our prediction was we would end 2025 with 15 billion of net flows into the eth ETFs

which is really significant for an asset of East size um so that's what I think that's what you know that's what every data point we look at uh tells us and also what we hear from investors talking about eth there's a lot of interest from the people we talk to and would you say that your predictions are low medium or high estimates like and what what could impact your predictions in One Direction or another yeah I think I think they're low medium they're not low they're not low there's definitely a world where we underperform this that's a world where crypto enters a new winter uh where we get the wrong turn in the US elction

where we get you know significant negative legal events and you know defi is continues to be sort of a pressed from a regulatory perspective there there's a world where these things are well and truly not successful um but I think the I think there's a larger right tail which means a larger positive you know potential outlier outcome than there is a left tail like a negative outlier outcome and there there are multiple reasons I think that one is that eth really appeals to to traditional investors in a way that Bitcoin doesn't tell us more about that yeah I mean one way to conceptualize it is not every investor has an allocation to Gold but every investor has an allocation to

Tech and I know I'm vastly oversimplifying and uh driving the Maxis crazy on both sides of this equation but many people conceptualize Bitcoin as as a form of like digital gold and many people conceptualize eth as a new sort of global supercomputer a new platform for tokenization stable coins Etc and um if you think the long-term investors in an ETF are more trafi than Crypt native and that's debatable but I think long term there's a huge well of trafy assets you could see you know outsized interest in in in eth um and then you could also see outsized interest if 2025 is a

runaway train for crypto if it's just a huge bull market that definitely will feed into itself yeah no and that fits very much with our beliefs here at Mo Road it's difficult not to be too bullish right now in my mind uh I I often find for all of our listeners that uh it's I'm always trying to take both sides and I'm always trying to present the bull in the bare case but uh I'm about as bullish as I think I've ever been in a long time right now for multiple different reasons and all of our listeners would know we we make this show every day so there's a lot of things we talk about I'm not going to reiterate them right now now here's the big question I have for you Matt is what does all of this do for the price of eth

and I know this is the question that our listeners want to know the answer to uh where do you think we end up and is are your predictions for the E price of eth just simply based upon what happened with Bitcoin because that's obviously a quick copy paste uh tell us what you think will happen yeah again with the caveat that short term I think literally Anything could happen I think there's a a big lesson to be taken from Bitcoin which is injecting new sources of demand into an asset with relatively limited sources of Supply or inelastic supply generally drives the price higher the second thing I take away from the Bitcoin ETF is that um happens and then hits it head at the

all-time high which I think makes behavioral sense right there are some people who are waiting for all-time highs to sell and we've seen Bitcoin bump its head on $72,000 a few times um if I put those two together I have relatively High conviction that eth will drive to its previous all-time high and bump its head against it a few times and then the question is does it break through that level and move to a significant new place I think if we get the kind of demand that I'm saying if we get these you know billions of dollars this year $15 billion do over 18 months I absolutely think it goes goes through

previous all-time highs and probably works its way toward a $10,000 level over time if the eth is in a bull market um if we don't get those kind of inflows then I think the opposite is the case but that's what I would that's what I would Su volatility around launch if we see inflows straight up to all-time highs bouncing its head and then the question is can it break through that barrier and if it does there's a lot of room to run above it I like it I predicted e price would hit 10K by the end of 2024 if I were to sit back and look at that again i' think I'd adjust it to be more 8 to 10K feels like the range that I think we could be in assuming as you said that we're in the

Bull Run that I think is going to come in Q4 of this year uh so I'm I'm With You Christmas might come early for us there could be a really nice end to 2024 as you said no one knows what will happen in the short term and I'm equally uh not concerned but preparing an expectation that I think it will be a bumpy ride for the first few weeks um if we were to ask you to play Devil's Advocate to yourself and your own predictions what's the worst case because I'm not seeing anybody say zero like even the the Bears out there are seeing on the low end I'm seeing a billion probably maybe a billion and a half so it's nobody's saying zero what do you think are the worst case scenario

here yeah something like that a billion dollars you know um it's not going to be zero and the best arguments that the be case has are the eth Futures ETFs were a dud out of the gate which is a observable fact that is worth considering and these ETFs won't have staking and some of the early adopters in the Bitcoin ETFs were retail direct investors retail investors in this situation might choose to own eth in a different way and stake it and so those are um you know we we bake those risks into our analysis that that that drags down what would either be an otherwise higher prediction um but those are things that you should you should think

about like could it be a billion dollars and everyone's like eh we've been waiting for this Catalyst forever and now it was nothing and and enters like a a typical crypto um sort of depressive phase I you know that could happen that's that's that's that's a thing that could happen who's buying the Bitcoin ETF and the ETF it's something that I don't think those in crypto talk a about I'm sure in your world I mean you're looking at it every day and uh but in crypto we don't talk about so much and I'm not sure we really understand who the buyers are here we talked recently U maybe a few weeks ago coinbase had their crypto Summit and we talked about how coming out of that there was a real

message that oh institutions aren't really here yet we all thought they were but they might not be in the way in the scale that we thought who is buying this yeah it's a really interesting question so there there three groups in the Bitcoin ETFs and then I'll tell you why it's an interesting question and uh and and what I think will happen over time so uh there hedge funds who are using Bitcoin ETFs as a trading tool there are retail investors uh and then there are some of what we would call institutions which I think are better classified as investment professionals because their family offices their financial advisors their institutions those are different audiences if you look at the Bitcoin ETFs the majority of it are owned by

retail like that's just the reality it's it's it's roughly 80% the the reason it's interesting is there two things happening there actually the Bitcoin ETFs are being bought by institutions at a level we've never seen in ETF history So 20% of 15 billion is $3 billion $3 billion six months would also be a record right so institutions are moving into these ETFs faster than they've moved into any other ETFs it's just that they're carrying along this massive retail crowd alongside of them right so so so sort of like two successes one is so big it's overshadowing this I expect

over time that ratio will move towards 50/50 you know bitwise Prime we have a lot of uh retail investors who own our products but we primarily serve Financial professionals and we can track those winds because those are our sales people talking to people and they buy the the pace of those winds is accelerating so I think you know in a year that'll be a 50-50 range but I do see this take that there's no investment professionals that's not true it's just they're overshadowed by the size of this retail crowd actually on their own massively successful right and I think that gets missed in the data and why is retail buying an ETF when they could buy bit coin on chain

and then I think that sort of tees up the next question which is okay if you can get yield on eth which you can't do on bitcoin but you can get yield by buying it on chain and then staking it is that would that lead to similar numbers do you think is there or are people going to just go the onchain route versus the EF route yeah I think there are two answers to that one is no matter how retail you are and how Crypton native you are you can't buy Bitcoin in your retirement account except in an ETF right um and uh I think the other reason people buy the Bitcoin ETF as opposed to doing it directly is honestly it's an incredible deal like 20 basis points for institutional custody

and training good luck getting that as a retail investor right good luck the beautiful thing about ETFs is they let retail investors own the same assets as the largest institutions in the world right I own ETFs that the Harvard endowment owns right it's crazy but we've both chosen the same vehicle that's the beauty of ETFs so even for a retail investor who could do this on their own the Bitcoin ETFs are incredible deal okay what does that tell us about eth well the first category is still true right if you want to invest for a brokerage account or an IRA or retirement account you can't do that on chain just not going to happen and there are plenty of crypto native people who want that exposure in that area so that's still there the the the

staking thing is a question I don't know how it's going to play out from one perspective you would think that would dampen demand I think that's valid the other thing is two-thirds of all eth is unstaked right so the majority of investors are happy owning eth without staking it and so yeah could it could it like could it from a data perspective could carve off a third of that half of retail demand yeah yes yes it could that's why you don't expect these ETFs to match their market cap weight right I was I was averaging like 22% their market cap weight would be like 26 27% that

discount is is in part this but I think what the media gets wrong is like oh they don't sake no one will buy it that's just not it's not true with eth again two-thirds is unstaked right so I I think they're going to do just fine I I agree I think I think we're going to be looking pretty good so if we zoom out your predictions are 3 to five billion by the end of this year 2024 uh 15 billion by the end of 2025 that looks pretty good to me Matt I like the sounds of that if we take a step back uh I want to get your take on the salana ETF there's been a few applications like two now vanic and 21

shares uh is this a hail marry by them or is this likely to come soon uh where where's your thoughts on that first of all great firms friends of mine um uh friendly competitors I guess is the way to way to way to phrase them um I think it's a low probability high impact uh filing is how I would think about it if you look at ETF history there's never been a commodity ETF approve not just crypto but anywhere that didn't have a parallel Futures market so the gold ETFs gold fut fut Market silver ETFs silver Futures Market Bitcoin ETFs Bitcoin Futures Market but it's not the law that that has to be the case and so I think the

way to interpret this is you know regulatory attitudes toward crypto are changing in Washington and they could change more in the next six months and there's certainly a scenario where we sort of fundamentally rewrite what is possible and there's no legal requirement right that's why I said it's a a low prob probability um high impact it's not a silly filing it's not a press grab they're filing because they think they can launch and they should be commended for that but it is it is at the same time counter history right and therefore under the status quo looks to me really unlikely not impossible but unlikely um but but the status quo may

change um yeah once somebody files what is the timeline that the SEC has to give an answer by yeah 240 days which to save you the math is something like February 22nd based on when they filed which you know if there's a election outcome or they replace the the commissioner of the SEC that would be under a new commission regime so um yeah you know I don't know what their strategy was but I have to assume that they did that math uh as I did and um and thought about it right I mean again these are great firms they're ETF leaders they're making smart decisions long-term you think we'll see

a salana ETF and other token ETFs definitely yes longterm I think we will if you look again look in Europe they have a lot of ETFs and guess what the people who bought them gained exposure to the asset which has either gone up or down like perfect nothing happened nothing blew up they work the ETF rapper works really well so I think you know we've entered the ETF era of crypto longterm we're going to have multiple assets we're going to have index products we're GNA have you know all sorts of innovative ideas and uh that's going to be great for investors right we have to remember that not every investor is going to use an ETF but the

alternative to regulated products for some investors is going offshore to unregulated exchanges where like bad things can happen so um these are great for the ecosystem and yeah we're going to get more final question Matt uh when you zoom out and look at the state of the market right now we've got tech stocks at all-time highs and then crypto trailing and not doing so well it seems to be a bit of a weird you know we're in a choppy Market it's been a weird few months here what do what do you expect to see for the rest of the summer and heading into the end of the year yeah you I've I've written about this I think what's happening in crypto is all the long-term

news is really good ETFs institutional assets regulatory changes technological progress It's the Most constructive long-term Outlook I've ever seen and all the short-term news has been negative it's Mount goau it's the German government selling it's Silk Road selling it's uncertainty around the election and markets hate uncertainty and so that the short-term negatives are pressing the long-term positives but the difference between them is the short-term negatives are oneoff non-recurring events and the long-term positives are recurring ongoing things and that's just a beautiful thing for long-term investors um it's not a

guarantee we're you know up only I'm not saying that there's plenty of risks out there but the the sort of risk weighted setup from my perspective as you mentioned is amongst the most positive I've ever seen it in crypto um I could be wrong but it looks it looks pretty great sounds good to me Matt thanks so much for joining us today for everybody listening in if you have not seen one of bit wise's commercials and ads I don't know if you guys I'm sure you guys got another one coming out in the next few weeks when this launches but if you haven't seen these ads you got to go go to YouTube right now and watch these ads because they're they're fantastic and send them to your family they're a great way to describe crypto for those who don't know Matt thank you so much to you and your team for

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