Don't F This Up: Bitcoin ETF Edition with Hunter Horsley from Bitwise

28:27That didn't happen. Here we are 12 years later, and we're still talking about real world assets, and we're just not there yet. What I didn't imagine, because Ethereum hadn't come around. In fact, when Emil told me about Ethereum back in 2015, I don't really understand it, the smart contract element. Once you see that, you can't unsee it, because it's such a mind-blowingly big concept. I mean, it's like, if you now look at the next where NFTs are going, Solana's compressed NFTs, there's a million NFTs for$100 to mint. That means that's all of ticketing. It's so disruptive. People can't understand that yet.

29:11So I can be booking a hotel room. It can be on an NFT. I can't make it at the last minute. I sell it to you. You can use the hotel room. The hotel doesn't lose margin. Nobody's got cancellation fees. We can do that for airlines, sports tickets, concert tickets. So we get a much more efficient use of capital. So things that I didn't imagine were to come. DeFi, yeah, we kind of got that because it was a finance-y thing to start with. I didn't think NFTs were the thing. I thought it would have been the financial system because that was the most broken thing of all. That's even why Satoshi started this, and we haven't done that bit.

29:55RAOUL PAL, MD, PhD Right, right. Yeah, yeah, yeah. It's taking the long way around. It's interesting. That makes me think a little bit about another pattern in tech with some of the, in some ways, public blockchains are a democratizing system. People sometimes call them permissionless or open, but anyone can participate in most things that are built on a public blockchain. In the tech analogy, if you think about some of the democratizing platforms, if you think about YouTube allowing anyone to broadcast video, or you think about Airbnb allowing anyone to start a hospitality franchise, or you think about Uber allowing anyone to become a driver, you don't have to get a taxi medallion for$200 ,000.

30:40with each of those sort of democratizing platforms, the first thought that all of us humans have is, okay, you have YouTube, when is the nightly news or when is Jay Leno or Jimmy Fallon going to be streamed on YouTube? And what has so often been the pattern is that you actually get sort of the long tail of use cases and content that was not able to access the prior rail. You know, the Italian grandmother from Sicily making sardine recipes to an audience of 10 ,000 people, the person putting on makeup and reviewing their favorite cosmetics, somebody opening packages and commenting on the boxes, You know, things that would never go on to a cable network because the audience is just not big enough.

31:37But it, you know, can go on on a democratized platform like YouTube. And then over time, that causes because that's differentiated content that's not on the old platform. It's a long tail of content. You can't access that on the old platform. People have to go to the new platform to get it. It builds an audience. And then, you know, you fast forward, you have a billion people on YouTube and Saturday Night Live says maybe we'll put Saturday Night Live on YouTube. But in some ways, it's the conventional stuff that comes last. And only after the emergent new stuff, the long tail builds the flywheel such that the pre-existing.

32:16Hey, everyone. We're going to take another quick break and hear a word from our partners. And then we'll be right back. As you know, crypto is on the bull run. We're transitioning from crypto spring to crypto summer. It's when things get exciting, but it's when everybody loses their minds. And your one job in a gift of a bull market is not to fuck this up. So one of the key ways of not doing that is to educate yourself. And we passionately believe in education at Real Vision. And one of the things we're doing for you, which is absolutely free, is we've got Real Vision's Crypto Academy live, which is two days of programming to help you not fuck it up.

32:59And I think you're going to find it really valuable. And again, it's free. If you're interested in joining us and leveling up your knowledge, ready for the crypto bull market so you don't fuck it up, then join us, realvision.com forward slash get ready. It's as simple as that. It's free. You get everything that you want. If you are a Real Vision member, you get this already, so you don't need to do anything. Also, if you are a Crypto Academy member, it's also included in your package, so you don't need to worry about that. Anyway, realvision.com forward slash get ready and don't fuck this up. I guess it's the people with nothing to lose and everything to experiment, driving innovation.

33:39Yeah, yeah, yeah. I think that's a great way of putting it in. It might be the Italian grandmother because there's a bunch of people who love her cooking and she's known in town, but that makes total sense, really interesting. RAOUL PAL, I just want to say on the ticketing comment, I think that that was so interesting to me if you think about it through this lens, you could imagine, totally imagine that use case where you could transfer things that give you admission over a blockchain very seamlessly. If you take this principle that we're talking about, then what you might imagine is that Ticketmaster will be last, and something emergent will be first.

34:14Actually, what we've seen as an emergent behavior is that NFTs are serving as an admission to various things. In some ways, NFTs have become tickets to get admission to a content or an event. That didn't exist before you had this democratized platform to allow that. I think that that fits the framework. of, and I saw this very interesting thing in DeFi land. I think a lot of people thought about security tokens or tokenized securities or real world assets on a blockchain. And if you take this mental model and apply it, you would say, what is an asset that is not already readily accessible through the existing securities rails, the existing market structure?

35:02And you would look there. Money market funds are pretty widely available, and they are coming on chain. but they're pretty widely available. I saw this project, I think it was last summer, where somebody had tokenized a Patek Philippe and borrowed$35 ,000 against the Patek Philippe. You can't do that through your prime at Goldman. That got my attention because that fit this pattern of couldn't be done on the old rail, emergent, and can be done on the democratized rail. Again, I think that those types of things are so interesting when you think about a new platform. RAOUL PAL, And the other thing most people don't think about, it's weird.

35:44I see it a lot because I end up on podcasts like this morning at 7 AM, I was podcasting India. I've done most countries in the world now. This is the only global homogenous investment product or asset class. It's the same in Delhi as it is in Lagos, as it is in Sao Paulo, as it is in New York City or San Francisco. We don't have that. There's gold, but gold, the average person can't go and put 10 % of their paycheck in gold without crossing a gigantic bid off a spread because they're using the local gold dealer or jewelry in India's case and stuff like that. Or in the Middle East, you have to go to the souk.

36:29The spreads are like 50%. But the same price in the same asset with the same growth and the same upside and the same disruptive nature is available to everybody at a fraction. 10%, anybody can put 10 % of their paycheck in anybody. We've never had that. You can't do it in anything else. So the TAM of this as an investment product, forget all the technology we can build, as an investment product, the TAM is 5 billion people. RAOUL PAL, JR.: It's the number of people with the internet. How disruptive is it? I know a lot of people think of it for money and Bitcoin and getting around the central banks.

37:14I'm just thinking it's an equalizer for investment opportunity. Somebody in Ethiopia can make a 10x return the same as the Wall Street hedge fund manager. That's the democratization of this thing. It's massive. RAOUL PAL, JR.: I think it's an exciting thing. Everyone has finite time in their day, in their week, in their life, and it's exciting to to participate in, uh, in a vision of the future that has, has characteristics that you think could, could, uh, make the world better. And I think, I think that's an example of a dimension in which, um, you know, innovation has historically been an opportunity only for QPs and, uh, and, um, you know, a small subset of people.

38:07But to your point, um, uh, there, there are 5 billion people around the world who could have, uh, read your point of view on Solana a year ago, and participated just like the most institutional client of a global macro investor. So I think that that vision of the future is exciting as well. RAOUL PAL, And also, there'll be a bunch of people here saying, yeah, but you're missing the philosophy of the space. But it's not, because the number go up drives narrative. And what you do is you educate people the moment they buy it, because it moves a lot up and down. They want to understand why. Before you know it, they start to understand how broken the system is, how the internet needs its native system of money, store of value, ledger system, and all of that.

38:53Before you know it, we're all working towards a common goal in all of these countries. Again, the behavioral incentives, it's basically behavioral economics writ large, done in a way that we've never seen before. It's this unifying concept that everybody coalesces around. Yeah, I totally agree. I think that there's something really fundamental about capitalism, about open markets, about incentives, human nature, and the power of all those things. I totally agree. At a lot of early software companies, people think about some of these types of things in a way that almost seems that's too trivial or that's too shallow for such a rich topic.

39:43PayPal in its early days was a vision around beaming money over the internet in the early parts of the internet. But it was just too hard to articulate why that matters, why you should create an account and a password and fund it. It's just not everyone has time for an essay They have pros on every new thing. And so they figured out that the way to capture people's attention was send them free money. And if you - Paid authority, right? Yeah. And so you could say, well, that is demeaning. If this is really important, then people will sit down and educate themselves. You shouldn't have to have such a shallow hook.

40:26But I think there's a lot of demonstration that people are busy. And you have to meet them where they are and have a sort of simple starting point for engaging them. And from PayPal, it was you could invite a friend and send them, I think it was$15 for free. And everyone understands why$15 is interesting. And then they start asking questions. And next thing you know, they're beaming money over the internet. And so I think that in that same way, investors are ultimately seeking returns. They might be doing that in a very diversified manner. They might be doing that through a conventional portfolio or more diversified institutional portfolio, but that is the basis of investment.

41:11I think that your mental model that the opportunity is very relevant, even if sometimes people it seems too shallow. RAOUL PAL, MD, PhD So let's talk about something that I'd love to hear your thoughts on, because I think everybody's thinking through this. what is the philosophical thought behind the ETF versus the self-custody, the vision we all had versus ETFs? How are you thinking that through? Because at a superficial level, there seems to be a big dichotomy. It's like, yeah, but you were supposed to be giving people self-sovereignty, and now you're giving it to Bitwise and bringing in BlackRock.

41:51And it's like, What the hell are you guys doing? How do you think through that? Yeah, I think about this. There's a lot of technology DNA in the firm, and we're friends, I'm personal friends with a lot of founders building decentralized open source systems, and I recognize this tension. I, of course, am of the opinion that they all coexist. I think that just because somebody uses a credit card doesn't mean that cash becomes irrelevant just because somebody uses a bank wire or a money market fund doesn't mean that the credit card becomes irrelevant. Just if somebody uses Venmo or Apple Pay doesn't mean that, you know, I think that different options make sense to different people in different contexts.

42:36And the more options that people have, the more likely they are to interact with the underlying use case or asset or context. So in the case of a Bitcoin ETF, I think it's an incredibly productive thing for making it possible for a lot of people who either don't have the time, comfort, or just really the permission within their firm or the capability within their firm to participate in this space otherwise. And that can either be an introduction or it can just be a way that they, in that context, can participate and wouldn't have. I think it is very additive. I think the additive nature of it versus it being a competing feature is why I think so many in the crypto community recognize it as an important moment.

43:28It's building a bridge that is additive and incremental versus just moving TVL from one platform to another. RAOUL PAL, Go on. RAOUL PAL, Go on. I was just going to say, I have thought about this a lot, though. And one thing we did with BITB, the Bitwise Bitcoin ETF, is we announced we're donating 10 % of the profits to open source Bitcoin development organizations. We've been working on this for several months. It's OpenSats, Brinks, and Human Rights Foundation. And one of the thoughts we had there is related to your question and this topic. And our view was, if a Bitcoin ETF is successful, then the people who are building Bitcoin should be successful.

44:12They should participate in that. It shouldn't just become somebody's P &L and get siphoned off. It should accrue back. And that is also good for the investor. The investor who is getting exposure to Bitcoin through an ETF wants Bitcoin to flourish. And part of Bitcoin flourishing is these other dimensions, some of which the Bitcoin core developers and other open source developers facilitate. We thought about that a lot, and we're really excited about that feature and a vision where if BITB and a Bitcoin ETF is successful, it can contribute to the ecosystem in that way. You had another thought.

44:51RAOUL PAL, Yeah. How I've come to terms with this, because it's an interesting question, and I get it. I think of crypto land like China, pre-WTO. It's this big economy, doing stuff, growing fast, starved of external capital. The WTO agreement comes, the largest trade agreement the world had ever seen. And what it allowed was capital to flow from the traditional Western world, where all the savings were, into China. And it ignited the story of China. So here we have Fiat world with all the money, this fast-growing, crazy Wild West of crypto land. And this is a trade agreement. So what you've done is set up a trade agreement that can make the passing of capital.

45:49Now, this is not immigration into this new world. That would be wallets. It's tourism flows. It's not even FDI, which would be VC, but it's just a trade deal. You're allowing an RAA to now do their business in crypto land and take advantage of the different rates of return. For me, that means this space, crypto land, grows. The more capital you feed it, the more opportunities that it can fund, the more people like yourselves can move and solve another problem, move the space forward. We're grateful for the renting of the capital from Fiat World, because with that capital, we can build even more.

46:34To me, this is how you build an entire system. You have to fund it, and you have to fund it with traditional capital as well. I love the WTO analogy. And I also note, I think one mental model that people have on the Bitcoin ETF is it's a way for long-only investors and financial advisors and RAs to participate in the space. I'd also note that it has an amazing impact on IRAs.

47:06We serve RAs, so the same letters, different order. Self-directed retirement accounts that have seen between Tuesday of this week and today, if you want to access Bitcoin in an IRA, the fees just came down 90%. If you take BITB, which is the lowest cost Bitcoin ETF in America, and compare it to the products that were available there before. I think that's a huge benefit, which could mean that more individuals feel comfortable putting in a retirement account. But the other thing I was going to mention is it also is relevant for traders and hedge funds and institutions that want to take tactical views at various times.

47:42And that's also very productive because that brings in more liquidity. It diversifies the underwriting and risk transfer of the asset class, which I think is also very helpful. An asset class can have insane volatility if all of the participants think the same thing for the same reason at the same time, and then everyone buys at the same moment, sells at the same moment. I think if you can start to have a more diversified mix of liquidity and types of investors, it also will help mature the market. I think that's another thing that's enabled by the ETF because it's such a compelling instrument.

48:18ED HARRISON And also, that's the reason I set up exponential age asset management, the asset management business where the fund of funds is our main vehicle investing in digital asset hedge funds. Because I looked at that space, and I've been in the hedge fund space for a long time. There's$4 trillion in traditional market hedge funds. There's$4 billion in crypto hedge funds, maybe five. And I'm like, well, that is not a market. We don't have liquidity that we're used to. To provide the kind of liquidity required, you need those nimble traders with different types of time horizons that are driven by different types of behaviors to create market depth.

48:59And I'm like, well, if there's too few of them, then there's going to be a lot of alpha, because they can make a shit ton of money because there's no competition. While in traditional markets, returns have come down over time because everyone's competing with each other. So again, I saw that problem as another way because, OK, the markets need capital. The hedge funds don't have it. And there's a lot of people who like the returns of hedge funds, different type of return profile. RAOUL PAL, Yeah, absolutely. And I think all these things come together and are part of the story of the chapter of Bitcoin and crypto that we're in now, which is the maturation of the space, bridging in these different perspectives, bridging in these different market participants, these different strategies and objectives.

49:41And that leaves the tapestry of a much more robust capital market. So I agree with that point about hedge funds and alpha strategies as well as being really productive to the efficiency of the space. RAOUL PAL, Yeah, because you and others have used hedge funds as ways of bootstrapping whole products, which is great, because they can allow for correct functioning of markets, which is, hedge funds get a very bad rap, but 99.9 % of the time, the markets wouldn't function without Citadel and Virtue and these firms, right? They just wouldn't function. RAOUL PAL, Absolutely. Absolutely. Absolutely.

50:19I totally agree. RAOUL PAL, I'm going to ask you the usual round of questions of which everybody wants the answers to. First thing is, how much capital do you think the whole ETF complex is going to raise over the next 12 months? Because people are thinking about the inflows, what does it mean for them? So what's your range guesstimate? RAOUL PAL, JR.: Yeah. Well, I haven't looked at volume since we started this conversation, so I don't know where the number is. I think across all of the products, there's pretty healthy volume today, at least as I looked earlier. BITB had traded over$100 million, which we're really excited about.

51:04I'll give you a quantified answer to the question and then a qualitative answer to the question. The quantified answer is that a piece we put out to clients from our CIO was$55 billion over five years.

51:22Part of the basis for that is leveraging the analogy of the gold ETFs coming to market. And it's not a perfect analogy. But I think one of the things that it helps with is grounding in at least a starting point. And the gold ETF is transformative for the gold market, as you know. 10 years of bull market afterwards really matured the market and pulled a lot of ability for people to participate in. But the gold ETFs gathered maybe$2,$3 billion in the first year,$3,$4 billion in the second year. I think it wasn't until year six that they had a$10 billion year. I think similarly, with the Bitcoin ETF, I personally do not think it is$100 billion category in one year.

52:08I think it takes a bit more time than that. Now, having said that, I know that there are a lot of different numbers that people put out there. Today is really exciting because we began to get to see what that actually is. And anecdotally, the principle that sits beneath, I think, some of those numbers is for a lot of investors who are investing for the first time, now, of course, there are traders, there are people who might rotate out of a more expensive product into a cheaper one in their IRA. But for investors who are allocating for the first time because of an ETF, actually, let me share a stat.

52:45We do a survey every year of financial advisors. For six years, we've been doing this. The last one we completed maybe a week ago, 88 % of financial advisors in the survey said that they were waiting for Bitcoin ETF to allocate to the crypto space. I think that there's a huge participant that has not been present and now can, but many of these investors are not the types of people who cancel all their meetings on Thursday, January 11th, because they want to make sure they buy the Bitcoin ETF 120 minutes after it comes out. Not everyone who buys an IPO buys it within the first three hours. And I think particularly for at least on the long side, some of the investors in a Bitcoin ETF, they have investment committees, they have client meetings, they have all sorts of things to navigate around.

53:41We have a number of clients that we're talking to who are extremely excited about this finally arriving. And so they've set up a meeting in three weeks because they want to prioritize it. And that's the timescale. So I think that the Bitcoin ETF story is going to be a very important one. And it's going to play out. Certainly, it is already playing out today. I mean, very vibrant, open. I'm excited by the response we're seeing. We'll see AUMs at the end of the day today for the first time on the Bitcoin ETFs. But I think that this is a story that's going to play out over the course of several months, and I think will be very significant.

54:21RAOUL PAL, JR.: Also, as we talked about earlier on, the number go up is a very strong narrative to get people in. It's launched at the right time, the halving cycle, the macro spring. It's like it's a perfect timing to launch an ETF. As you say, it's not instantaneous. That's the IPO order book that's being filled today, and a few people. Really, it's after that, the people who are like, okay, what does this mean? It goes down the pipeline of the RIAs, the asset managers. We've got just irritating to see Vanguard as yet stopping people using it. It's not on Merrill Edge yet. Northwest Mutual, there's a bit of reticence still around.

55:05We need to clear that all up, get that going. RAOUL PAL, I think because it's where it is in the cycle, it probably does better than people expect. What that means, I have no idea. Is it like 25 billion this year? Probably okay. RAOUL PAL, I don't know.

55:26We'll have more visibility into that very soon, though. I will say that the amount of interest today has been pretty substantial. Previously, our estimate was 55 billion in five years, but I could see this year being more substantial than we expected. Obviously, I agree with you that the setup in the background, rates potentially coming down, the halving could be quite productive for people to enter. That would be great, by the way, because another thing is that you have clients on the asset management side, we have clients, everyone wants their clients to do well. Nobody wants people to stick their neck out there and invest for the first time, and then the first part of the experience is to be down.

56:14Even if they know about the volatility, they do have a long-term time horizon. It makes it a little bit more jarring. I'm very excited for 2024. I'm very excited by the response to the ETFs, and we'll have to see if it's over or under on 55 billion. RAOUL PAL, MD, PhD, PhD. ETF? Because the market, you know what the market's like, it immediately went from, okay, we've got that one, where's the next one? Astonishing. Yeah, astonishing. I was surprised by that. I'm at best 50-50. Look, I'm not omniscient. We definitely have a very long track record of working on ETFs many years. Again, we've launched many first-of-a-kind products.

57:00The first Ethereum linked ETFs in October, Bitcoin ETF now, the first crypto equity ETF,

57:10BATW, there are just some elements of Ethereum that are different.

57:17With the Bitcoin ETF, there was this court ruling, and that ruling had implications relative to prior rejections. There are no prior Ethereum ETF rejections, and an ETF can be rejected for any reason. So for those who have the logic that there are now Ethereum futures ETFs, and the same logic from the journey with the Bitcoin ETF applies, which is if you're comfortable with market manipulation risk relative to CME futures that price on spot, then you should be comfortable with spot. But there's no rejection on the basis of discomfort with market manipulation on the price of Ethereum. And in prior rejections for the Bitcoin ETFs, there were other issues.

58:05It was qualified custody, market debt, a variety of things. So my mindset, having worked on this for many years is be a productive partner to the SEC staff. They work really hard. Anything is possible, but nothing is for sure in either direction. It's not for sure that it won't happen. It's not for sure that it will happen. And I have yet to see a crypto ETF that was for sure. RAOUL PAL, Nothing in cryptos for sure, my friend. It's been a hell of a ride. Just to sum up, you've gone live today, the code is BITB. RAOUL PAL, BITB, that's right. What's the fee structure? You've got the 10 % incentive to pay back to the community of Bitcoin Core devs.

59:04RAOUL PAL, BITB, I'll give you the rundown very briefly. BITB is the lowest cost Bitcoin ETF in America. We're really proud of that. It's the Bitwise Bitcoin ETF. And we think that we've constructed a fantastic product. We've been managing digital asset portfolios for six years now. The portfolio manager here joined us from BlackRock. She managed a quarter of a trillion dollars across fixed income and equities. It's not a bunch of young people from Facebook at Bitwise. It's a combination of technologists and risk manager from Millennium, fund admin controls from WisdomTree, trade settlement and operations, 15 years of BlackRock.

59:47We've tried to bring an exceptional group of people together and then give them the context where they can singularly focus on crypto. And I think now I have the benefit of doing that for a long time. And I think we have a great track record that I'm very proud of, of navigating a lot of developments in the spaces over the years. That flows into BITB. From a distance, I think it's totally fine for investors to view these as very similar products. Underneath the hood, there are some differences. For instance, the way that the portfolio management is done, the execution and accessing of liquidity to buy or sell Bitcoin on a creation or redemption, there's actually quite a bit of dispersion and heterogeneity between the products.

1:00:27There are some products that use Coinbase Prime. And then there's another class of products, at least as disclosed in the S1, and this can evolve. There are other products that use OTC liquidity providers as their primary. BITB uses OTC liquidity trading counterparties as the primary. And then as a failsafe, has Coinbase Prime capabilities, but only if the OTC markets can't provide execution. And our point of view is that allows us to access the deepest liquidity. We have managed portfolios through bull and bear markets, moments of market stress. And liquidity is that thing you do not worry about until you worry about it.

1:01:08And we have the most OTC trading counterparties, at least as of the S1s. Again, it can evolve. We have more OTC trading counterparties than any other Bitcoin ETF for a lot of traders, professional investors. RAOUL PAL, Is that because you've run such large index portfolios already from the other products? Are you using similar mechanisms that you've learned from over the years? RAOUL PAL, Yes. We have the benefit of relationships with these firms. We have the experience of trading in March 2020. We were trading portfolios then. We were trading portfolios in, was it May of 2022 or June, when the market was down 40 % in a month.

1:01:48We have relationships. We have the experience. We take it very seriously. So you can see in the S1, OTC trading counterparties for us, there's five that are named. It's more than any other ETF. Flow Traders is a counterparty for trading Bitcoin. Chain Street subsidiary is a counterparty. Falcon X, B2C2, and I can't believe it, but there's one that I'm forgetting. and it's actually one of the bigger ones. Oh, excuse me, Cumberland DRW, of course. So that's a way in which it doesn't matter to most investors, but I guess the point is we're a crypto specialist. It's our job to understand this space very deeply through the combination of experience and singular focus.

1:02:38And BITB is us taking all of those learnings and trying to construct the very best product possible. And because we see this as a very simple strategy, management fee of 20 basis points, we've waived it to zero for the first six months, up to the first billion. So it's the lowest cost between ETF in America. But we've constructed something here that we're really, really proud of in terms of the quality of the product. One final question on the mechanics, because I know a lot of people will be thinking about this. So if somebody buys a share in the market today, when does the actual matching Bitcoin purchase happen?

1:03:15How does that process work? RAOUL PAL Yes. So we may venture here into a level of ETF nuance that may or may not be interesting to people. So I'll try to map it out. But if I see your eyes glazing over, Raoul, I'll understand. RAOUL PAL I'm genuinely interested to ask Eric Belchinis this earlier. I'm like, how does this actually work? RAOUL PAL, MD, Sure. So imagine a mutual fund. People can make a subscription, send money, get shares, or they can make a redemption, send shares, get money. An ETF is like that, except the only people who can do that, the creation or redemption, is an authorized participant called an AP.

1:03:58There's just a few of them. For us, we have three that are listed. It's Virtu, Jane Street, and Macquarie are the APs. shares trade in the secondary market, and that can just be people trading amongst themselves. Let's say that there are more buyers than sellers. There are more people out there trying to buy shares, and the people who have them don't want to sell them. There starts to be a premium on what the buyer is willing to pay to get a fill. If that premium starts to rise, the AP, BITB, say, McQuarrie or Virtu, steps in and fills the trade. Say you're going to buy a$25 share of BITB that's backed by$25 of Bitcoin, and somebody's offered to pay$25.50, a 1 % premium.

1:04:47McQuarrie sells them that share. They take the$25.50. They pocket the$50. They take the$25. They send it to the trust. The trust sends them back the share. And they made that spread as compensation for performing the service of an AP. That's the fundamental relationship between the secondary market, the AP, and the trust. Because these are cash created, when the cash comes into the ETF, then the portfolio manager needs to take that cash and turn it into Bitcoin, in the case of the Bitcoin ETFs. The particulars depend on the ETF. I haven't deeply read every S1. But generally, people are executing against a reference rate.

1:05:38For many of us, that's the CF Benchmarks New York variant Bitcoin reference rate. and are trading either through, it could be Columbia's Prime, it could be through the OTC counterparties to try to achieve that reference rate price. And that generally happens towards the end of the day, because that's when the AP knows how many creations they're going to do. RAOUL PAL, Then you're looking for the imbalance, the balance, what the APs have done, and everyone trying to settle up towards the end of the day. RAOUL PAL, Exactly, exactly. Because the AP can cross. They could sell someone a share, and then they could sell a buyer a share, and then there's a seller out there, and they buy the share from the seller, and they use that to settle their inventory.

1:06:27So hopefully, that made sense. RAOUL PAL, My guess is it's going to change slightly the structure of markets, because we'll probably have, much like you see in stock markets, you tend to get moves at the end of the day, because everyone has to balance books. We see it already from derivative books, but we'll probably see it from ETF books because we've seen that in equity markets too, I guess. I think that's quite possible. Yeah. Yeah. And also, for those who are really interested, the S1s, you can read the prospectuses. And this is described pretty, it's one of the beautiful things about an ETF.

1:07:03I mean, everything is laid out. You have to really want to read through it all. But it is information that's out there in the prospectus as far as how the procedures for striking NAV and so on and so forth. RAOUL PAL, MD, So listen, well done again, not just for Pudgy Penguins, but for going through this whole journey. You have, you know, Bitwise is an authentic crypto-native asset management firm. And as that, you've been one of the most successful in raising assets. You've been in this whole game. You've kept us up to date at Real Vision with how this process is going and how complicated it was.

1:07:40When people are getting overexcited, you're like, no, no, we're nowhere near there yet. We've still got these problems to solve. I'm eternally grateful for that, what you do for the space and what you've done. I just really want to wish you luck now because it's an asset management battle. You built it from the ground up as well. You should be immensely proud of what you've done. It's all to play for. It's just the start of the journey, my friend, not the end. RAOUL PAL Thank you. That's really kind. Also, to say we're unbelievably excited. We're so excited to have this product for investors and grateful to get to play a role of contributing to pioneering things in this space and driving some of the elements of the vision that you and I discussed today forward.

1:08:21Really thrilled about it. Thank you for the kind words. RAOUL PAL Get some rest now. RAOUL PAL Right on. Cool. RAOUL PAL All right, my friend. Great to see you. RAOUL PAL Great to see you too. I'll talk to you soon.

1:08:37All of us together are living through the death of an old world and the birth of a new one. This is a fourth turning, but this is not the fourth turning of demographics or politics. This is the birth of the new technological age. This new world has a world of 3D printed rockets, crypto payments in space, discussions on the rights for humanoid robots, machine intelligence that may outperform our own. simulated worlds where autonomous AI agents write code for other autonomous AI agents. It's a world full of opportunity and full of difficulty too. You see, we are living history and it's happening much, much faster than any of us can comprehend.

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