ETH ETF: Bullish or Bearish? | Alex Thorn & Matt Hougan

I don't know what the flows will be in the second half of the year but I expect that we'll see an acceleration as those account platforms come on and as the inevitable Tailwinds behind crypto right now which are massive push us to new all-time high prices I will also add I expect 2025 flows to exceed 2024 flows welcome to bank list where we explore the expectations around the incoming eth ETF with two guests each

from an ETF issuer Matt Hogan from bitwise and Alex Thorne from Galaxy both Matt and Alex have been doing some market research to put together an analysis of inflows for the ethereum ETF remarkably their numbers come pretty close to each other uh these aren't random guesses these are educated guesses and each one comes to the show today to give their numbers and show their work some of the things that we discussed with the guest today how much demand will there be for the eth ETF will the eth ETF overperform or underperform expect ations what about the eth E trust from grayscale is that

going to come and kill the party like it did with the Bitcoin ETF some other topics as well the Solana ETF from Vanek was that real or just a Hail Mary what's going on with that and overall what about the market as a whole are we bearish bullish or confused about the state of the crypto Market more broadly this is the episode I think we need I I guess if you're into uh if you're not into bullish episodes on Bank list maybe maybe skip this one okay because this was definitely a bullish episode but it's a good response to a lot of the narrative that's going on like price pric is going down people are getting bearish there's a lot of bearishness in

in terms of sentiment being expressed in particular on the ethereum ETF like it won't amount to anything yeah but we we uh dive headlong into that so we actually make the make the be case as well and get both Alex and Matt to respond to that so there's a bit of back and forth and I think listeners should strap themselves in and make their own conclusions at the end of this episode let's get to the episode with Matt and Alex but before we do we want to thank the sponsors Bas Nation super excited to introduce you to Matt Hogan and Alex Thorne Matt is the CIO over at bitwise one of the eth e2f issuers Alex Thorne

is head of research at Galaxy digital another issuer of the eth ETF Matt and Alex welcome to bankless thanks for having us I'm excited to be here thanks for having me so we've had both of you guys on before both Matt and Alex uh before the Bitcoin ETFs were approved and started trading to ask the same question that we are asking today how big will the demand be for the eth ETFs and as we watch the Bitcoin ETFs be become approved and start trading I would say like both of you guys like pretty much nailed your predictions both

you guys were like pretty close to each other's predictions and they were like you know more or less like dead on uh so we're bringing you guys back to ask the question but for the eth ETFs how much demand will there be for the eth ETFs that's going to be the bulk of the content the conversation here today uh but first before we get into the uh actual ETF uh like metrics that we can talk about just want to talk about the the approvals we're going to releasee this podcast episode on Monday the Monday which I believe is the 1 with uh the Bloomberg boys with their tentative uh over under date their 50-50 date

being the tomorrow July 2nd I'm wondering if you guys have any like alpha or information that you might be able to share about speculation on when the eth ETF might actually go live and start trading Alex you have any any uh Alpha you can share us yeah I mean I I was very surprised I think like many people with the abruptness of the process and um but now you know you've seen multiple issuers file amendments there are still amendments to be filed you know this because we don't have fees for many of these um you know

prospective filings I think only one maybe has it so far um so there there's got to be more but they could those could be the final ones um if you start looking at the the Delta between the various versions and amendments it's pretty minimal we don't see a lot of changes is being made in the latest round of amendments that came out this is the exact tea LEF reading that we were doing back in November December uh of 2013 it seems like issuers have really copied the Bitcoin s1s on a

variety of the issues that had been tricky create redeem process the stuff that the mechanics of it that really had to get uh figured out so this is all to say David that I I think we're close I had when when in May when the sort of pivot the abrupt uh 19B four process uh really sort of kicked off on a Monday and was approved on a Thursday I thought maybe like earliest you could see would be August just because of how many rounds there had been uh for the Bitcoin ones but um they seem to have picked up

from a you know much further starting point and so I I'm going to go ahead and just straight up guess next uh next week so the week of July uh 7th or 10th whichever that week is sometime then they actually trade keep in mind we have a holiday uh this week right with July 4th so you lose a even if they maybe get you know if the SEC were to say these are all done we don't need to do anymore it's still Pro I would bet they don't trade uh this week so could be next week um could take longer though of course Matt Vibe check how's that how's that

Vibe with you yeah I think that sounds right my birthday is July 8th that'd be a nice birthday launch uh launch then so I think you know they could be any day I think that's right uh issuers are waiting to hear from the SEC and many expect it to be the last round and then they would file and launch a day or two after that as Alex mentioned we have a funky week uh with the half day on the 3D and then the day off on the fourth so this would be a chaotic week for those

to launch but this is crypto in the SEC so you never know we might get that but I think I think I'm I'll put the overunderwear [Laughter] I can't disclose that I can't but hopefully you all have been enjoying the commercials they were fun the team did great J yeah those I have to say too Matt those ethereum commercials were excellent very funny you guys also had the interesting

man in the world too didn't you yeah we did the most interesting man for Bitcoin we we had to figure out something to do in the uh the e space and yeah we've gotten great feedback they've been fun and there're more to come there more to come there's new characters coming as well yeah I don't know if people have actually I'm I'm sure this must have been part of the inspiration and maybe it's you know maybe I'm dating myself a little bit but they were very reminiscent of those old Mac Windows ads oh uh with the sort of really buttoned up Windows guy and I for the comedian that was the that's what I saw when I saw it was like I'm a Mac I'm a PC

that yeah you know what in that case I I actually read like way back then um some people had Sympathy for the PC they they thought he was like fun and like cute it's like it was it was back firing a little bit for Mac but I I don't see that with the trafi guy he he kind of just like in the bitwise commercials he just kind of annoys me so uh yeah I think you guys have maybe done a better job than uh Steve Jobs way back then I love it I love it I don't hear that very often but I'll take that one any day all right so so VI Vibes are good sounds like we're getting it sooner rather than later may maybe not this week but uh

optimistically sounds like it sounds like next week which I'm just fine with uh again want to get into the actual metrics of the measuring of the flows but uh I actually want to talk about your guys' methodology first for doing so just the the data Gathering process for how you guys have made this U guess and I want to make put emphasis on this this is an educated guest you guys are not just like licking your finger sticking up to the winds and like picking a number you guys are gathering data you're doing uh some some market analysis I'm guessing uh and I kind of

want to just like get some insight into that process so we know what this like educated guest actually actually looks like uh so maybe Matt we can start with you just what does the data Gathering um process look like what are the data inputs into this educated guest yeah I love that you frame it that way because the reason I wrote my piece was I was frustrated um not by uh what galaxy and Alex had done which I thought was great but but a lot of the takes I saw on social media which were just people sticking their finger in the air and saying it's going to be zero it's going

to be $100 billion it's ridiculous there are starting points to look at so I really focused on two sets of starting points one is just the relative market cap of Bitcoin and eath I think it's incredible that people didn't look at that and the reason I looked at it is I was speaking with an advisory firm that has you know over a hundred billion dollar of assets and the first thing they mentioned to me was that they were uncomfortable with just Bitcoin and they really wanted to diversify they would be more comfortable with their advisor

allocating if they could build a diversified basket and it just hit me like a ton of bricks that the starting point for many investors is going to be the market cap weight which is about a 3:1 ratio right now now some people want Bitcoin only some people want eth only there have good arguments on both sides but the naive starting point is the market cap so that was the first point and then I thought to myself well there there e uh ETP markets internationally in Europe and Canada uh among others and

they're not identical to the US market those those ETP Market markets operate a little bit differently but they're not completely irrelevant so let's look abroad and when I looked at the AUM it almost lined up with this market cap weight it was a little bit lower which makes sense to me because Bitcoin was first and some people just click the box and move on but they were 22 or 23% by assets and from there it's some pretty simple math and you arrive in my perspective I mean the number I got to was $15 billion over the next 18 months

but what you arrive at more fundamentally than that is that yes there's going to be significant demand for these etps I could be off by billions of dollars here or there but it's not going to be zero it's not going to be a 100 billion it's going to be really significant you know 10 15 20 in those ranges um and that's how I got there David Alex you sent me a pretty robust uh research report from from Galaxy maybe you could talk about when that's

going live if that's going live uh and talk about some of the methodology that that you went into creating that report yeah so I it's it's just really interesting because I had a similar reaction to Matt when watching people and Charles You Chuck on my team who actually wrote this report he and I were been debating this now for a couple weeks and laughing that we wrote Our version of this for Bitcoin months before they launched this one we just published on our website today we sent to our clients and counterparties on Wednesday the same day Matt wrote his so I actually didn't see his until after we

had published it came to a very similar conclusion also used things like market cap waiting I think you know when I think about how institutional allocators or financial advisers are going to go get in get exposure to crypto I think it's pretty unlikely that they're going to choose to just own the Bitcoin ETF and then you start to say okay well if I'm doing 1% crypto 2% it's probably some waiting and usually Market capab waiting is where you might start we also looked at things like the ratios between the bit coin open interest on CME versus

the eth open interest on CME right that's an eight that's one where bitcoin's much larger but it's 8 8.4x eth but also the aps for the Bitcoin ETFs use CME Futures to hedge so you presume that would go up if eth Futures uh eth spot ETF launches open interest across all exchange bitcoin's only 2x bigger uh daily Futures volume on CME it's only 4X bigger anyway we looked at the funds that we looked at the grayscale trust before uh launch leading into launch and their relative

sizes it that came down to us about an overall average of 3.2x right so that we sort of work with 30% as a multiplier which by the way is basically the market cap waiting so the idea and and we talk about a whole bunch of stuff about we look obviously now now that we have empirical data from the Bitcoin fund launches like that's our sort of starting point so we say okay what if they perform proportionately the same as the Bitcoin ones now that would be great performance cuz the Bitcoin ETFs I think

really came out of the gate very strong uh frankly surprised everyone we we kind of got the number and price relationship right but actually we said those 14.5 billion for the Bitcoin ETFs were going to come primarily from the wealth platforms and only 20% or so of the total reported 13f filing shareholder uh was you know hundred million investment manager bigger so like I think it was mostly retail so that further colored you know I know that people are very pessimistic I and maybe we'll talk about

why um and I acknowledge these things the timing and and other things related to it but if we look at it and just say what if they are as big we come to we didn't look past like through the end of the year basically we just said we'll look at the first five months of Bitcoin and predict the first five months of eth but we said a billion a month and net inflows or 5 billion over five months it's really not that much different than 15 over 8 months which is what Matt came to and I think the the story I'm trying to re partly because I think people have

so vastly underestimated the retail demand the demand on on brokerage platforms and people's tax advantaged accounts and their brokerage windows and their 401ks um I just think it's more our report is more about saying like you know maybe people are overthinking this maybe they're kind of midc curving this and what if it's kind of like well ETF good you know that's one data point that we have with the eth ETF that the Bitcoin ETF did not have is the Bitcoin ETF uh so maybe we

could really double down on that conversation uh like the Bitcoin ETF I think we were all surprised with the demand uh and now we're kind of extrapolating that to the eth ETF maybe that gets balanced out by the fact that the eth price is higher now because of the success of the Bitcoin ETF so maybe those things cancel out but just really maybe Alex we could just double down one more time like what what did we learn from the coin ETF that informs the eth ETF yeah well we we see the total net flows or actually we see inflows let's just start there you see inflows into

all the newly launched Vehicles right and then of course that's weighted against the outflows from the grayscale Bitcoin Investment Trust um and we expect you know there's obviously the ethereum uh version of that eth I don't know what it's like ethereum grayscale ethereum trust probably people expect outflows from there too but I would also say part of the reason for outflows in addition to people having played that trade of trying to collapse the discount to nav on gbdc it's also because the fees really high it's it's they're they're still charging 1.5% 150 bips on

gbdc when all of the other issuers were in the you know you know High Teens to like mid2 range and and also waved them almost all of them I think waved the the the fees for like the first six months or to some threshold or something like that so much cheaper Vehicles launched that caused a lot to come out of gbdc so obviously we say hm eth is a similarly structured product it had a pretty large discount that collapsed leading in to what we expect as a conversion so we expect there's outflows there from people just closing

that trade that they did right where they they you know they short Futures and they long the the the Trust In order to collapse that discount to nav and the trust so outflows we know there'll be outflows so now that's why we're talking about net inflows right but now we start calculating them we also have the whole first quarter those 13f filings to me were very telling like you have had like the top seven or something of the Bitcoin ETFs by AUM were not really heavily institutionally owned I mean sure there's some big names a couple of them are above 20% of the filings right

you have to make these filings if you're an investment manager that uh has more than aund million in in assets that you know hundred million Raa or wealth manager isn't that big right so like this would capture a lot of that right and only about 20 25% % on the on on the big ETFs had to had to file that that mean that tells me that most of that uh those Shares are held at fidelity.com erade TDM trade right like Schwab the

retail brokerage platforms and well I mean look hedge funds and and institutions can also use those platforms but if they themselves are reportable hundred million do or more investment managers doesn't matter where they have it they would still report so so you're thinking like I'm thinking it's a lot of people that like crypto already like they liked Bitcoin similarly I think there's at a minimum a proportionate amount of people maybe market cap weed that like eth probably fewer than Bitcoin but still a lot and

there are people with a lot of money in these accounts you can pull data on like separately managed accounts or 401K balances think about the and then also you start thinking about the the so I think a lot of the ownership is on those platforms in the hands of regular people and that really surprised us I think that there was that much demand coming from there because we can all buy Bitcoin for years I've been buying Bitcoin for I didn't need an ETF like people that want to buy Bitcoin it's possible Right but I don't know you start to say well you know I did go in and buy some of the ETFs in my in my tax

advantage account where I wasn't able to buy Bitcoin so you you just to me it's like one of the main learnings here was to caution against underestimating it cuz I think we did underestimate the Bitcoin ETFs even though they were even though some plenty people said they were going to be be great I mean I also thought they'd be great but not that fast right so that's that's sort of what underpins I think that's probably the main learning I have from the Bitcoin ETFs Matt how does this analysis Vibe with you is that align with your your thinking anything you want to add yeah I think that's right I think it stretched

our Overton window of what an ETF could do I mean before these ETFs the most successful ETF of all time gathered $5 billion in its first year and we're at you know 15 in six months for the Bitcoin ETFs so I think it re-calibrated how successful this could be I think what Alex mentioned is right there was a lot of retail demand I think a lot of retirement account demand and let's be honest crypto works really well in that setting it's a long-term investment with potentially very high gains that can be

protected from a tax perspective that's that's three big boxes to check and I think you saw significant flows into that space so yeah taught us that this is a successful space it expanded how successful it could be and now it's also created a class of traditional investors who own crypto in a brokerage setting and I think a lot of those people are going to add eth on top of their Bitcoin ETF exposure okay I do want to get to the eth flows uh metric I know Alex kind of dropped the answer but uh maybe if

listeners weren't paying attention we're goingon to say I'm goingon to going to ask that for that in a bit but I'm going to continue to drag this out because I have one side quest I want to get down are there any estimates about the next few months of the Bitcoin uh ETF flows or are we now in the world of we'll just see it as it happens uh right now we're in a bit of a lull it kind of seems like the broader crypto Market is priced to the flows trying to see what the flows are doing next and the flows haven't haven't done a lot we've had some small up dayss some small down uh down days but overall I think we've like established an equilibrium in the

Bitcoin ETF flows uh do you guys have any takes for over the next like two three six months of the flows for the for the Bitcoin ETF any sort of uh do you guys have any estimates about that Alex start with you yeah I I do I don't have any hard numbers but I would say what we're waiting for I think I think it's fair to say we've reached a bit of an equilibrium I mean there's definitely been some independent registered investment advisors that have come in so you have some financial advisers right but I think all the issuers this is one of the weird things about the ETF the

eth ETF timing the issuers I I think Matt will know this as well are all quite busy doing diligence with all the big wealth platforms right now to get their ETFs onto those platforms right those are the flows that I was always talking about that I know Matt and the team at bitwise has always been targeting like this is the the giant like piece of the pie you know I think we we think it's 20 $40 trillion in either bank or broker dealer wealth management platforms right so we're talking about like Morgan Stanley is the one that's been in the news a lot it's

been reported many times by Bloomberg and others so it's not that they are they they've been actively looking to add these like quicker than most they're I think they are the biggest so um but they're they as far as far as I know it hasn't been reported that they have yet right so for Bitcoin flows like from a non um you know outside of catalyst for btcusd spot Bitcoin I would say it's we're waiting for more platform access they haven't really arrived yet that's the crazy thing about these like this is to me it really is mostly a retail

phenomenon and so when to the extent that that changes right to the Domino's fall for these giant platforms to start allowing their advisers to solicit and sell these things and con you start seeing model portfolios get constructed and it people start telling the story that Matt's talking about about the long-term benefits then I I think that probably creates a whole whole new wave of of demand that's who I thought these were for like I said we could all already buy Bitcoin you know yeah yeah I think that's right um

every indication I have of that audience is that demand from that space is accelerating already um you know we're seeing increasing winds from that space I'm sure is seeing increasing winds from that space and uh as mentioned we expect to you know open up major new markets at the Morgan Stanley Wells Fargo Bank of America's UBS of the world and I would just click down on that $40 trillion number you know we're seeing sort of Two and a half% emerge as an average allocation two 2 and a half% of $40 trillion is a trillion dollars right

right we've done 15 billion it's nothing I don't know what the flows will be in the second half of the year but I expect that we'll see an acceleration as those those account platforms come on and as the inevitable Tailwinds behind crypto right now which are massive push us to new all-time high prices uh as we move to the end of the year which I think we will see I will also add I expect 2025 flows to exceed 2024 flows and I think we're going to

build yeah year after year for a number of years uh there are two reasons for that one is these wealth platforms coming on board and the institutional Capital unlocking and the other again to point back to data gold ETFs are the closest analog to this Bitcoin ETF launch they were enormously successful out of the gate they were the most successful ETFs ever at the time and year 2 flows exceeded year one year three exceeded year two year four exceeded year three all the way up to

year seven when you open up new asset classes it's a multi-year phenomenon so I do think we'll see accelerating Flows In 25 and Beyond Matt if you had to give an ending for uh what the Bitcoin ETFs are in in terms of their overall like maturity like where if we're at the ninth inning then they are as like mature they've totally their their wine has aged they're good to go like what in what inning are we in yeah we're like we're like maybe at the bottom of the first um maybe ETFs are ETFs are Slow

Burn business I mean I point back to those gold ETFs they took one year off in year eight and then they re accelerated again their highest year was 2020 16 years after they launched you know institutions need to buy trillions of dollars of crypto right now they own zero and ETFs are going to be a primary vehicle so I think yeah maybe it's the bottom of the first and the the the home teams coming up all right so let's go ahead and get right to the punch here uh estimating the flows for the eth ETF we talked about some of the analysis the

market cap waiting what does that actually get us like what can we reasonably expect uh at launch maybe and then also just uh five six months into the future Matt let's start with you yeah so I think at launch is the thing I'm the squirel about because there's a big question in my mind how fast the money comes out of eth and whether there is some significant net outflows that could even exceed inflows for a short period of time I don't know that that will happen

that didn't happen in Bitcoin but I do think people have sort of realized that that trade is inevitable and they're going to make that Swap and so maybe they accelerate the pace at which they make that Swap and so people know what you're talking about eth is the grayscale uh trust with um like ether embedded inside and the projection is that will kind of like bleed out that will be a source of outflows for uh the like uh ethereum ETFs in general yes that's right and there are two types of investors in there right there are

investors who want to be long eth and they will probably sell the higher cost product and rotate into products from bitwise and Galaxy and then there are people who are just playing the Arbitrage trade who have bought e because it's trading at a discount to its net asset value hedged themselves and are just waiting for that discount to disappear if there's a conversion and then they'll exit the e space so the thing to worry about is whether those people exit and do new investors come in

fast enough so I think in the in the few weeks around launch I think it's possible for a variety of scenarios to happen I actually have low confidence exactly what will happen in the few weeks around launch I think as we get to month two 3 four five and six this flood of money that's going to come into the space is going to make itself felt you know I think we I think we could easily be at you know at 5 six billion by the end of the year in net flows and I think it could Accelerate from that in 2025 ju

just really quick cuz I we do want to bottom line some those estimates but like the uh eth e grayscale trust issue this already played out to David's Point earlier we've already seen the script run uh with Bitcoin of course you know Bitcoin had gbdc and that was a grayscale product and the same sort of net effect uh happened here and I remember there was consternation or concern before the launch of the actual trading of these products and people asking these same questions is can't can't we just take what happened to to

bitcoin and just like copy paste apply it to ethereum and just like as Alex was saying uh not mid curve this thing just like hey you know this already happened let's just like play it back for ethereum and just a slightly lower market cap I think that is the base case I think that's the base case um I would note that Bitcoin sold off after its launch for a few weeks and then it rallied sharply to new all-time highs again I don't actually if I had to make a base case analysis I don't expect that to happen I expect

there to be enough new investors come in to offset it but I just think investors should be prepared that the few weeks around launch will be an interesting period with lots of Shifting Dynamics the long-term story is $15 billion is going to come into these ETFs and push us to new all-time highs and I think that will happen rapidly but you have to keep the long story separate from the very shortterm chos and by the way for Bank list

listeners you know we yeah the famous saying that just like most um disagreements in crypto are over time Horizons so when you see different like banter disagreements on crypto some of it's just a Time Horizon and I remember in January after the launch of the Bitcoin products when uh you price of Bitcoin went down the Bears came out in Storm and was like see it was sell the news we told you and then boom off like a rocket in in in in the weeks after that so just to get super clear on your estimates for inflows then Matt then we'll turn it to to Alex so you think

possibly like you 5 billion or so in inflows in the first you know 5 to six months but then ultimately your analysis over 18 months is what like 15 billion something to that effect 15 yep 15 billion by the end of 2025 okay and do you feel like that is a base case estimate or is that leaning more conservative or is that leaning more uh optimistic and what are the things that could pack uh in One Direction or or another either either you know cause your estimate to be you less bullish than it should be or like more bullish

than it should be I it it strikes me as slightly conservative because I think the market is underestimating the scale of the Tailwinds behind ethereum for which I would focus on the changing regulatory environment in Washington and what that means for this ecosystem the after effects of den den the denune upgrade and what it means for the ecosystem I just think the ethereum ecosystem has these massive Tailwinds behind it and if we see those manifest in real organic growth uh in the space

over the next 12 to 18 months as I think we will then I think my estimates will be low so so I I guess I'd consider them conservative slightly conservative for that reason okay let's get to Alex's estimates and so uh Alex you kind of gave some of these estimates uh early in the show but I I want I want to get you to underline it today and I think it's important maybe to to say that both of you arrived at these estimates of inflows independently right so like you were you were not talking like you you know uh you didn't cop each other's work

this is not a case of plagiarism here you just crunch the data on your own but you resulted in a uh a similar calculation I believe uh Alex what what is kind of your end result estimate and over what time Horizon for inflows and the same question to you is this like a a base case estimate is it is it more towards bullish or or more bearish and what are the puts and takes yeah it is pretty remarkable because I've seen so many bearish takes which is one of the things that I was cognizant of as we were preparing this over the last week and a half or so um and then

saw Matt's thread literally like an hour before or after we emailed this report directly to our people I was like that's actually like he says 15 over 8 15 billion over 18 we come we didn't look past basically the end of the year we just said in our study we're just going to look at the the length of time the Bitcoin ETFs had exist which I when we first started writing it was 4 and a half months we updated the data and make it five months right so you think of July plus 5 months that's through the end of the year so we'll just look at that right but you know five billion