Talk Your Book: What's the Latest in Crypto?

16:00And so while, of course, it's not as exciting as when there's crazy price swings on a daily basis and the exuberance that comes with really high increases in price, you know, that's always very fun to be in that world. But I have been able to spend a lot more time with the pullback in prices to research topics like tokenization, to research things like stable coins. And that is, to me, very reminiscent of the pre-ETF world where, of course, now we're operating eight products in market, over eight products, eight tokens in market. So we do have that kind of recurring things that we have to pay attention to, the daily rolling of the ball up the hill, but there is more time and less franticness to being able to study what is to come and build cool things and innovate.

16:46Michael Batnick:I don't know if this is bad. I mean, it's going to sound bad coming out of my mouth, but maybe there's some benefits that I'm not thinking about. So in 2019, I guess 2021, whatever it was, everybody wanted to work in crypto. It was like the exciting thing. It was new technology. It was disruptive and all that sort of stuff. And AI has clearly taken the baton and ran with it. And so all of the smartest dorks are now going to work on AI projects. Is that bad? I don't know why it would be bad. Maybe it's bad. I don't know. What's your take on what's happening in the industry? I don't think it's bad.

17:20I think that there are these percolating topics that have a lot of adjacencies. So I view the recent buzz topics, it includes prediction markets, it includes AI, it includes tokenization, crypto. I think that there's a lot of continuity between these things. For example, I actually attend an options conference and I'm a very traditional finance person by background, but I find myself working in crypto. I work for a crypto ETF issuer. I go to an options conference where all the talk is about how these options can empower the back end for prediction market ETFs. So I'm seeing a lot of convergence in these flavors of the week.

18:03I think some of them are definitely going to stick for the long term. And like I said, this has been a good opportunity for us to really be able to dig in and understand what's going on under the hood because there is less to have to monitor on a daily basis in terms of crazy price swings. So I think, you know, of course, there will be some transfer of where talent wants to go based on what is most popular at the time that they're looking. But I think that there is a lot of overlap in all of these topics.

18:31Michael Batnick:Tokenization. What do you think is a reasonable timeframe for us to be like, all right, this is just not a thing. It's a thing that we keep hearing about, but it's not actually happening. Because I feel like that's where it is now. It's definitely buzzy and people are talking about it. And I understand that things don't happen overnight, Right. But give us what you think is a reasonable time frame for this happening. Is it like by 2028, is this going to be a thing like a think thing? Yeah, it's a great question. I think tokenization has edged and flowed as a topic right now. It's definitely flowing hard.

19:06I think that part of that, though, is because we have seen these, I would call them almost like utility providers, like the exchanges, like the DTCC leaning into it. And so I think that the progress is the train is leaving the station, if you will. Now, it's always going to move slower than we would like, but I have sensed the momentum really picking up. I think that it's possible that we could have a lot more clarity via the Clarity Act on some of the necessary prerequisites for this in the coming months, quarters, sometime this year. And that will really catapult things forward.

19:42Ben Carlson:So what is the main selling point for the tokenization? What do you think that's going to bring investors? Is it going to be lower costs? Is it going to be quicker speed of transactions? All of the above? What do investors get out of that? I think right now the biggest selling point that I hear, and again, it's very nascent. So this is like 1.0 of what will probably become like 10.0. But some of the selling points that I hear of right now are really the 24-7 liquidity, the ability to settle instantaneously. It's all of these features that one who has had their first trading experience with a digital asset has come to expect, and they actually are demanding that of traditional finance.

20:22So I think that those are the initial selling points. I think in the future, you might start to see exchanges or other venues such as a Coinbase or a Robinhood. places that you initially thought of as more as hosting one or the other will start to be something that you can buy both equities, crypto, any sort of asset in. And I think that having the tokenization element is what is going to help to bridge that gap.

20:49Michael Batnick:Which tokens do you think are going to benefit? Let's just assume that tokenization does become a thing. Does this have to be, or would you think that it would be bullish for some of the blockchain-based coins that this runs on? I think it definitely will benefit the blockchains that win in the application of who is tokenizing what. It is unclear really how that will all play out, but there are some blockchains, I won't necessarily name them, I don't want to play any favorites here, but there are some that have been thrown around by some of these service providers. And I think that is why they've been popular in the news recently is because some do think that they could blow up in a good way if they are kind of the chosen way to approach tokenization and other projects like that.

21:34Michael Batnick:So how about this? Altcoins. Is the fact that altcoins are in a winter, maybe dead forever, who knows? Not all of them. But is that maybe good for the space in the long term, cleaning up a lot of the things that people like me traditionally laugh at and say this is like complete nonsense? I think it could. Like I said, I think crypto is maturing. And I think that along with that comes less traction for the flavor of the day type token, but it is fun. We have to go, you know, a nod to the roots. That was a way that crypto got a lot of eyeballs on it at one point in time. But yeah, I do think that there is not necessarily as much excitement and enthusiasm for meme coins right now as there is for Bitcoin, Ethereum, what we've come to call the blue chips.

22:22I will say that as more and more tokens become ETP eligible, we are seeing kind of a top 10, top 12 or so that are accessible to the markets in this really familiar wrapper. And in order to organize that for investors, we do now have a product that is the top five by market cap. It actually excludes memes and stable coins. And I think that that is attractive because for those who want to get into crypto are overwhelmed by the number of assets that are now available in ETP format, but do want to screen out what you described as what you might mock. This is the product for them. That's ticker GDLC.

23:01I think it's a good way to organize the market. It captures about 90 percent of the crypto ecosystem, and it's a very streamlined way to avoid those types of tokens.

23:13Ben Carlson:So Michael talked about stuff dying. And I think over time, that's been my thesis on Bitcoin and crypto in general, is that every time it goes through one of these periods, people write it off and say it's dead. And then every time it seems to come back. And the narrative shifts a lot too about what it's going to do and what it's going to lead to. And I actually think that's a positive, that there's still enough people who believe in it that even when it feels like, man, the news couldn't possibly get any worse, it still comes back. Do you think that people have moved on from that a little bit?

23:41Ben Carlson:it's like, listen, this is a much more mature industry now. Even though crypto, compared to other things, hasn't been around very long, it is more mature. And I think having the financialization of the ETFs is part of the reason for that. Totally. I think the ETFs were the catalyst that kicked off all of this progress, whether that's the actual advent of the ETF all the way to the regulatory clarity that we are now kind of reaching the final end stages of. Now, the Bitcoin ETFs are over$90 billion in assets. I don't think that you can really argue with them not being here to stay. For context, that's about a third of the size of the gold ETF market.

24:21It's double the size of silver. So they really are able to stand toe-to-toe with these traditional assets in ETF form. And we're seeing continued adoption of the ETFs, not only from those who were previously on the sidelines, but we're actually seeing some more crypto native holders of tokens start to embrace them as well. So even though the price of Bitcoin itself might be down, there are still real life use cases for why one might be porting their assets into these products.

24:49Michael Batnick:You don't really hear too much about Web3 anymore these days or NFTs or a lot of the consumer-facing type of stuff. Do you think that ship sailed? And just because that didn't happen, I would say like I'm not a crypto-as-no-use case person. This is not just. when I saw it was flat on a night where futures were nuking and took comfort in it, that's a huge accomplishment. That's not nothing. This thing didn't exist 20 years ago. And now I'm genuinely looking at it to determine how scared I should be. But there was talk about more than just that, about there being consumer-facing products. I forget who was the blockchain-based internet pod company that, what the heck was that called?

25:44Michael Batnick:It doesn't matter. But things like that, is that ever going to be a thing? I was actually talking to someone about Bored Apes earlier and we were like, oh, remember when those were a thing? It is crazy some of the hype that you see around various elements of any developing area of the economy. I think punks are still worth like six figures. I think the floor is still that high. Yeah. So do you have one? No. You seem to know a lot about them. Above my pay grade. I would say though, I think that where this is moving is more utility and infrastructure build than any of the kind of shiny objects of like an NFT as an example.

26:24So I see where value could go as building rails on which we operate apps and real value add things for our lives. But that won't necessarily be as showy as some of these previous applications were, such as NFTs. It's going to be more the boring stuff like stable coins where we thought it was a snooze, but it's actually going to change our lives.

26:47Michael Batnick:Bitcoin is a very weird asset. There was the digital gold narrative that we discussed. And then more recently, it was trading like in lockstep with software stocks, which I think makes sense. One of the things that I worry about with Bitcoin is the ETF was such a clear and obvious potential catalyst. And it's really hard to foresee, obviously. It's really hard to foresee what the next catalyst is. but, and also I'm very aware of the fact that Bitcoin can go up$13 ,000 in a day just because, and then the price is driving and then we're creating all sorts of like whatever narratives. I understand that that could change on a dime, but right now it is hard to see what the next catalyst is.

27:35Yeah. And that is something that traders are saying too. I don't think that that's necessarily a sentiment that you have alone. But I do think that a lot of this regulatory clarity could be the next momentous driver. Like I said, people sit on the sidelines when they don't have clarity around what the rules of the road are. And while it won't necessarily be obvious one-to-one Bitcoin adoption as a result of it, I think you could, one, see a spike in the price of Bitcoin because it's adjacent and it's progress. And two, I think that you'll start to see real development and real infrastructure build as a result, which will inherently leverage Bitcoin, leverage Ethereum, and some of these protocols.

28:15Ben Carlson:How about on the ETF side? So you said you have all these different, you know, single token ETFs now. What else do, and that's been opened up, you know, in recent years because of legislation, what else is coming on the ETF front for, you know, there's a staking, there's a single, there's the more, you know, you have the more diversified ones, like what else is coming in the ETFs? Yeah, we actually launched a product this morning in European hours. So I had the joy of getting up at 3.45am to see it off into the market. We launched an Avalanche product, which we're excited as our eighth single token asset to be in market.

28:48But what is to come on the ETF front? So the generic listing standards have been a way for issuers to have clarity, like I keep harping on, about what assets can be ETF eligible. They are really a living, breathing set of rules. And And so you will continue to see more tokens come into eligibility. You'll continue to see more assets issued in ETF form by issuers like Grayscale and our peers. But there's less impact each time we do that in the sense that we're not reinventing the wheel. There's really a firm playbook for this now. Now, another area in ETF land that is picking up steam is in kind.

29:26So in the same set of rules or same time frame as the generic listing standards coming to market, we also had in-kind clarity. The SEC determined that these products could facilitate creations and redemptions in-kind, whereas they had previously mandated that that had to be in cash. And at first, the market was like a little bit mixed on their reaction to this. We'd been operating these in cash for quite some time. They already had penny widespread. So by most measures, that's as efficient as you can possibly get. But in the recent months and quarters, we've seen some crypto native holders of token start to express interest in moving their token into the ETF.

30:08And the reason for that is because they're then able to get some capital efficiency like margin and collateral. And so we've been very pleasantly surprised to see this application for in-kind, as well as other, I would say, more routine practitioners who have really started to lean into it. In-kind is generally considered to be the most efficient way to create or redeem any ETF. And so this does represent more progress in that way as well.

30:34Ben Carlson:That's interesting. So there are a lot of people who are seeing the benefits of having the more traditional finance backbone to their holding, as opposed to having it in cold storage or whatever it is on their own. They can kind of outsource that security. And like you said, that's interesting. And that's institutions or individuals or both? It's both. It speaks to this continuity, too, between traditional finance and more crypto-native participants. So we see crypto natives going into the ETF, and then we see more traditional players getting into digital assets via things like tokenization and stable coins.

31:10So like I said, I think the theme here is all continuity. And I think that's where we're really going to continue to go in this year.

31:16Ben Carlson:Okay, what else has you excited these days? Let's see. What else has me excited? I think I'm personally really interested in tokenization. I have been studying it. I would say I am trying to dabble in it. I am not sure what will necessarily be the highest and best use of it, as we discussed earlier, but I'm very curious to see where this goes. So that has me excited. Hang on. So do you think we need a platform like Robinhood to get individual investors interested in that kind of thing? What would be the way that that's expressed in the market? I think it's going to come down to some of this regulatory clarity.

31:53Right now, a lot of would-be U.S. participants are on the sidelines. They're trying to figure out what they can and cannot build and what investors will be able to buy. Even what is accessible to a U.S. investor remains somewhat ambiguous. So I think that, or not necessarily ambiguous, but restricted. And so I think that that is going to be what is necessary. Back on your question, I think as an ETF practitioner, I'm very excited about this in-kind stuff. Generally, in-kind is only accessible in all ETFs to more institutional counterparts with very, very high amounts of the underlying asset. I think that we're going to see in the coming months the ability to break that barrier down and help smaller holders get the ability to access the ETF primary market, which is pretty unique.

32:40I've worked in ETFs for about 12 years, and I have only in the past six months or so really, with any sort of reality, embraced the fact that an individual might be able to access the primary market. So to put my ETF hat on, that's what I'm excited about there. Interesting.

32:58Ben Carlson:Okay, for people who want to learn more about Grayscale, where do we send them? Grayscale.com. Please reach out. All right. Thanks, Krista. Thank you. All right. Thank you to Krista. Remember, Grayscale.com. To learn more about all of their different products, email us animalspirits at thecompoundnews.com.