Bitcoin ETFs: Bullish or Bearish? with Alex Thorn

Bankless Nation, we have a very simple question today. Is the Bitcoin ETF a big deal or not? That is the topic, that is the agenda in today's conversation. We are entering this episode and the price of Bitcoin is over 34k. So I think it just kissed 35k earlier today. David, are you feeling bullish, man?

I'm I am fairly bullish. And after almost two years of just be chewing glass in this market right now, I'm not prepared to be hurt anymore. And so if the Bitcoin spot ETF gets approved and it's not bullish, I need to know now.

To get that glass ready to put back in your mouth. I think that's the question. And honestly, we have the perfect guests to help answer that question. We have Alex Thorne. He's the head of research at Galaxy Digital. He's published a ton of fantastic research about this. And we're counting on Alex today, David, to be objective about this. Okay. He's not just going to tell us uh the bull case for the Bitcoin ETF, of which we know there is one. We definitely want to hear about that. Don't get me wrong, Alex. I know you're listening. We want to hear about the bull case, but we also want to hear the what if you're wrong case, the bear case for the Bitcoin ETF as well. And we got to find out is this thing priced in? Is there a mountain of capital out there waiting to chomp on Bitcoin? That's the question in today's episode.

Certainly, certainly. And we're gonna get right to that question. But before we do, we need to hear from our friends and sponsors over at

Uh all right, David. One other question I think we have going into this episode with Alex is I know we're gonna talk about the Bitcoin ETF, and that's uh Bitcoin has certainly been on a run recently, but there's also like word of an Ethereum ETF as well. So if this is if the ETF is bullish for Bitcoin, what about Ethereum? So I've not picked Alex's brain on this. I want to talk about that as well. Any other questions from you going into this episode that we you want to answer?

Yeah, I really just want to drill down on the is this this is not a is this going to get approved or not? I think uh generally we're making the assumption that this will be approved by January of next year because that is when the earliest deadlines are up. The question is, what is the magnitude of capital that is waiting to purchase and why? And really, how does a spot Bitcoin ETF change the market structure of crypto at large fundamentally? Uh and then what are is the how big is this before after a moment? So these are kind of the high-level questions that we're gonna get into with Alex right after we talk to some of these fantastic sponsors. Bankless Nation, I would love to introduce you to Alex Thorne, the head of research at Galaxy Digital, leading a team of researchers focused on unpacking the market development in crypto and producing information for both internal and external audiences. And also before Galaxy, Alex was the director of blockchain research at Fidelity. So he's a veteran of straddling the trad world and crypto. Alex, welcome to the show.

Yeah, David, Ryan, great to be here. And uh great to be with Bankless Nation. Thanks for having me.

So the big question on my mind's, on Ryan's mind, on probably all of our listeners' minds is what is the spot Bitcoin ETF going to do to the markets? We saw the the false start, the fake start with the accidental slip of the coin telegraph tongue not too long ago. But then all of a sudden people have reconsidered as to what position, what side of the field that they want to be on, uh and people have considered themselves offsides. And that's where we've seen a lot of the price action in Bitcoin as of recently. But like I said, Alex, I'm not ready to be heard again. And so if the if we don't get a bunch of buying pressure post uh spot Bitcoin ETF, I'd like to know it as sooner rather than later. So just the question to you is how much interest is in the spot Bitcoin ETF? And how do we even measure this? I'll throw those over to you.

Yeah, it's a good question. We try to answer it. Um, I I will say we definitely don't know. Uh we hear about a lot of interest. I think primarily the the the

segment that we focus on are advisors in particular. So the and those are an independent advisor, you know, Alex Thorne, like

advisor with a storefront, but I don't have a back office. So I use Fidelity, Pershing, or Schwab and others, these platforms. Those are independents, or it's an advisor that's affiliated with the bank or broker dealer. So the big banks, most of them help a wealth management division.

Right. Those are that's a big segment. When we add all of that up, that's about 47 trillion in AUM.

Wait,

Um

can I make sure I understand that, Alex? Yeah, 40 that that's a big number. So you've got a chart here from your uh fantastic Twitter thread, and I think it has some of the numbers that you were just mentioning.

that this chart in the in the tweet is sort of the next step where we then

discount that total AUM, but we're using as the top line number

this 47 trillion, which is the total AUM of these three channels broker dealers, banks, and RIAs.

This these are the three

Yeah, 48 trillion.

48 trillion. Okay, okay. Can you can you break these channels down for us? I want to make sure the the bankless audience actually understands. So registered investment advisor. David and I call that that's like the Edward Jones guy that you know was a coach on your stocking team kind of person, right?

Yes, except Edward Jones is in the broker dealer segment because they are a broker dealer. So that a bunch of those big names are in that BD or bank segment. Whereas the the RAAs, we're what we call them RAAs here. All of these uh advisors at these platforms are registered investment advisors. But what we mean is more independent ones, literally like Alex Thorne advisor, right? Like

All right.

by himself.

So can you break these down by by line items? I'm actually just going to describe the table because some people will be listening to this on the podcast. They won't see the glorious visual that you could see on YouTube. If you go subscribe to the Bankless YouTube channel, everyone. But let me just describe this and then you can kind of break down uh these categories and who they actually are, because it's very clear I don't understand uh who they are. But we've got a total of 48.3 trillion dollars US wealth management. Okay. And the breakdown, the the categories that compose that 48.3 trillion. I said trillion with the T is number one broker dealer, 27 trillion, number two, bank.

11.9 trillion, number three, registered investment advisor, RIA, 9.3

trillion. Together, that equals 48 trillion assets under management. This is all US wealth. That's like actually, first, before we dive into those specific categories, US wealth management. Is this all our money? Is this all of the American people's money?

So this doesn't include um self-directed accounts. So like if you have a Fidelity account with an IRA and that you manage yourself, that's not included here, right? If you have a brokerage account that you manage yourself, that's not included. This doesn't really include 401ks, which are not included, right? Like a retirement accounts. This is really like when you pay someone to do investing on your behalf.

Okay.

Okay. So this can be this is this is the amount of wealth that is under the discretion of somebody who's in charge of managing other people's wealth who could potentially press the buy button on a spot by corn ETF.

Yes. And it doesn't also it also doesn't include funds that you may buy, like a mutual fund, which is actually discretionary, right? Like the fund portfolio manager invests that money for the fund. But for you, if you just have it on like an in an IRA that you manage yourself, then that would be non discretionary. So, yes, this is discretionary advising on behalf of other people.

Well, that's interesting because I do have a Fidelity account and uh I could purchase some spot Bitcoin ETF and that wouldn't be included here because that's self-directed.

No, and that's a major, I would say that's, I don't know if it's the biggest. We didn't look at that segment. And the reason is that we thought that the wealth management industry, these three segments you've described, Ryan, are the the segment that will get the most net new accessibility to Bitcoin exposure from the ETF.

Right. Because you can already go buy Bitcoin on Kraken, right? You don't have to like buy it in the Fidelity account with ETF. I mean, you could, I mean, you may, but it's you've been

I can and I do, Alex, except that I have these um like legacy 401k accounts and legacy IRA accounts from like previous employers and other things I've I've set up that are managed in Fidelity, and I don't have a clean way to port them over to Kraken right now. So but that is one category. But overall, you're right. Okay, so I intro I interrupted you though. Could you describe these three categories broker dealer, bank, registered investment advisor? Who are these?

yeah. So so the broker dealers are right, SEC and Finra registered broker dealers. That's a specific

uh thing they can they can buy and sell securities. They can do a variety of things, right? Offer securities, I believe BDs can do. Not an expert to be clear in the actual compliance difference necessarily between these, but those are the big firms you know about. Morgan Stanley, right? All all of the big banks, most of the big banks are broker dealers and they fall in this category for us. Then you have maybe smaller banks, think of like a regional bank, maybe can't offer their own securities, but they have wealth managers, right? They have a wealth management program. So your local bank, you can go in there and they've got, you know, some offices on one side of it that are people that will help you invest, right?

Um, and then the like I said, the registers and investment advisors, there's even another category of those types of advisors that they're just not affiliated directly with the broker dealer or a bank.

They tend to use these more um

Sort of white label-ish platforms. I don't remember all of the list of firms that offer them, but I know Fidelity does because I worked there, right? It this is sort of a white label version of Fidelity.com, but it's meant for advisors. So they can do sub-accounts, manage multiple portfolios at the same time, right? It's sort of just white labeling the back office and UX infrastructure for advisors. Um and I think Pershing, Schwab, others offer that service as well. So that that's basically um what we're looking at, right? Because if you're an RIA that has an entire back office, like you're most likely a bank or a broker dealer anyway, right? So those are the categories that that we looked at. And again, we we wanted to be conservative.

I absolutely think there will be retail demand for a Bitcoin ETF if it's if it's you and your IRA, Ryan. Um, like you may want to buy it there, right? Um

we just we felt that you could already buy it elsewhere. And so um it it trying to be conservative, we just focused on this channel that really doesn't have access um at the moment. I can explain why they don't have access if that's interesting also.

Do do explain why. So uh broker dealer, the bank, the registered investment advisor, why can't they log in crack in and buy spot bitcoin? Why can't can they buy um micro strategy? Can they buy like um you know GBDC, like the grayscale trust?

Yeah, they they may be able to buy some of the

um like Bitcoin aligned equities, whether it's the one you mentioned or maybe mining stocks, right? I think that that is they they probably can buy straight equities, but those are pretty inefficient vehicles in the scheme of things for them, right? They're not directly Bitcoin vehicles. Um, there's other factors that go in there.

Um the OTC products or the even the cash settled Bitcoin futures based ETFs that exist.

Those are not on the bank broker dealer platforms, by and large. Those advisors that are that that work for those banks and broker dealers that

do client portfolio management and advising and investment management under the banner of those bigger firms, they can only put their clients into investment options that are approved by the bank and the broker dealer. And

Wait, so they can't buy GBDC? They can't buy the Grayscale Trust right now. Are you telling me?

no, not really. Um, maybe uh with a specific exception, but they would have to go through typically an exception process. In fact, I'm not aware of any of those that actually allow their advisors to put.

end clients into the trust products or the cash settled ETF, future-based ETFs.

Um, again, like I think, you know, if you brought like a client, if you were the advisor and you brought a client that was going to put a ton of money with you if you let them do that, the bank or broker dealer might make an exception, but they're not offered on the menu.

They're just deemed too risky to esoteric.

It could be a variety of things. Yeah. I mean, suitability in general could be a reason. I think I know of several, for example, of those bank broker dealers that don't allow cannabis ETFs or stocks, right? I don't know why. Do they not like cannabis? That's there could be any there could be a variety of reasons, right? So it could be that they're too costly, they're not suitable, they could be um, you know, bad. I don't know. They just don't make it through a process, but those have a process. It is possible, I'm not sure, that the registered independent investment advisors that I talked about being on like the Fidelity platform or Pershing or Swab Schwab or these other ones, they may have better access because those platforms, they're not actually.

Um, like affiliated with the platform, right? They're they're just sort of buying it as a vendor. And so the platforms, I think, care much less about specifically what they're able to buy.

Um, but as you notice, and as you read, that is the smallest of the three segments we looked at. And we took that into account also when you know the the tweet that you showed before, the first one, um,

that's actually us then ramping up what we think the adoption will be per year. And you'll see that we have higher adoption levels in that independent segment than in the others, right? So,

um, and that's for that reason, right? Like if you if you look in the first column, year one.

We're basically handicapping the total AUM of each the of each of these three segments by our estimate of how much

total AUM will be able to access it, just purely be able to access it, right? So we're saying only a quarter of the AUM at the broker dealers, which is the biggest segment that we looked at, only a quarter will even have it turned on in the first year, right?