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- [00:00]
Ben Carlson
Today's Animal Spirits Talk youk Book is brought to you by grayscale. Go to grayscale.com to learn more about all their various crypto offerings and research. Again, check out grayscale.com to learn more. Welcome to Animal Spirits, a show about markets, life and investing.
- [00:17]
Michael Batnick
Join Michael Batnick and Ben Carlson as they talk about what they're reading, writing and watching.
- [00:22]
Ben Carlson
All opinions expressed by Michael and Ben.
- [00:24]
Michael Batnick
Are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon upon.
- [00:32]
Ben Carlson
For any investment decisions.
- [00:34]
Michael Batnick
Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.
- [00:43]
David Lavelle
Welcome to Animal Spirits with Michael and Ben. It is Wednesday, July 9, 3:45 Eastern and Bitcoin is bitcoining. It is very close to hitting an all time high. It's been an unbelievable journey with this, with this thing. As I said to David, unfortunately for many years I laughed and that's okay. Can't go backwards and at the time probably was worthy of being laughed at. But people kept pushing, strong voices, strong opinions and listen, they won credit where credit is due. You may not like it, but you know, if you were one of those people who thought it was rat poison, a scam, going to zero malware, whatever, stop, it's over day one.
- [01:23]
Ben Carlson
So do you remember in March 2020, intraday, at one point it had fallen 50%, I think in 24 hours. And it was at like $5,000 in the pen in like the height of the pandemic. It's pretty wild that how much it's up since then. And you're right, it is the Rasputin thing where every time it's pronounced dead, it just keeps coming back.
- [01:44]
David Lavelle
You know, you don't, you don't hear that anymore. Like invest enough so that if it goes to zero, you won't be that mad. I mean, obviously now that that is off the table, you would think that the exponential gains are likely a thing of the past. It's hard to imagine a trillion dollar asset class. How big is bitcoin?
- [02:02]
Ben Carlson
I'm just thinking crypto in general is over a trillion.
- [02:06]
David Lavelle
It's hard to keep going.
- [02:07]
Ben Carlson
So one of the things that we got into this conversation, so we talked to David Lavelle, who's the senior managing director, global head of ETFs at Grayscale and 2.2 trillion.
- [02:16]
David Lavelle
Oh my God. My bad. I was not familiar with your game.
- [02:19]
Ben Carlson
Is that crypto in total or bitcoin?
- [02:20]
David Lavelle
No, Bitcoin.
- [02:22]
Ben Carlson
Okay. Wow. I guess that makes. But he was making the case that, hey, listen, volatility should come down over time. And that makes sense to me too. But obviously, if the volatility comes down, so should the returns, which from such a high level. Duh. Of course, if it kept growing at these levels, it would overtake the stock market and real estate markets in a flash, essentially.
- [02:44]
David Lavelle
Yeah. Which seems. I would say. Let's just say that seems improbable. Bitcoin is now 65% of the total market cap of crypto. But one of the things that I think about when just talking to people outside of crypto, regular, regular investors, normies, as they're pejoratively called, even though it's not going to go up a thousand percent a year or anything like that, it still has the potential for outsized returns. Like, I guess you don't know this, but it would be highly unusual. I can't imagine what would have to happen for the S&P 500 to double in the next three to five years. Right. Like, what would even. I mean, I guess maybe AI. Something. Something.
- [03:24]
Ben Carlson
Oh, I could. I could make the case for that.
- [03:26]
David Lavelle
Okay.
- [03:26]
Ben Carlson
Three to five years. Yeah.
- [03:27]
David Lavelle
Okay, fine. But you could very easily make the case that bitcoin would. Would double and double again without any, you know, revolutionary news other than just adoption. Because it's.
- [03:36]
Ben Carlson
I think at the very least, you could say this is a 247 asset that has more volatility. From a portfolio management perspective, which is the way that I look at things, if you have a highly volatile asset like that, it can. Even if the returns are lower, you can still make the case that rebalancing around it intelligently can add to the diversification of your portfolio.
- [03:56]
David Lavelle
Like you did.
- [03:57]
Ben Carlson
Yeah, it makes sense. Yeah. See, I'm rebalancing. I did rebalance. I also think you said it's 65% of the crypto universe. There was a lot of people just in crypto, not outside of crypto, who were basically saying, listen, bitcoin is nothing. All these other protocols are going to leave it in the dust and see later. And I think that's one of the more impressive things to me that, like, listen, Ethereum is digital. What did people call it? I can't remember.
- [04:22]
David Lavelle
Digital Legos.
- [04:23]
Ben Carlson
Yeah. Or just. It's. It's like if you were investing in the Internet before it started, that's what Ethereum is and all these other defi protocols and just wait. These things are way more useful. They're going to supplant Bitcoin. The fact that that hasn't happened, I think is even more impressive, like, in the strength of its brand as a digital store of value, whatever you want to call it.
- [04:40]
David Lavelle
Well, one of the things we didn't mention with David, it's like, well, what is bitcoin even? It's a brand, and it is a $2 trillion brand. It's very obviously has a lot of believers.
- [04:48]
Ben Carlson
Just like gold is a brand. Right? Same thing, kind of.
- [04:51]
David Lavelle
Okay. Anyway, this was a very good conversation with David Laval. David has been in the ETF world for a long time, so he comes at this with a much different perspective than a lot of the traditional bitcoin conversations that we've had. So here we go. David, welcome to the show.
- [05:15]
Michael Batnick
It's great to be here. Thanks so much, guys.
- [05:17]
David Lavelle
All right, you're not 19, which means I'm guessing that you started your career as a tradfi gentleman. So how did you. How did you find your way into crypto at Grayscale?
- [05:27]
Michael Batnick
Yeah, look, I am a long time kind of ETF guy. I've kind of sat in every leg of the ETF stool, as I like to say. I've traded these things and built trading business. I've lived in an exchange and built an exchange business. I've been an asset manager. And when the opportunity arose and Grayscale called me to say, hey, we're going to make this final push to get the Bitcoin ETF over the finish line. You know, I took that opportunity to move from one disruptive technology in finance, which was an ETF, albeit 30 years ago, to kind of the next disruptive technology, which was, you know, crypto. And so it was a marriage of my kind of ETF expertise with Grayscale's kind of crypto expertise that put me in a position to innovate. Now, the joke is that for two years, I was the only global head of ETFs that couldn't get an ETF launched. Uh, so, you know, that was a little unsavory as I was kind of battling along and trying to get all the pieces of the puzzle in place. But we certainly persevered, and it's been an exciting, exciting run.
- [06:22]
Ben Carlson
Yeah, obviously it took longer than most people expected, but now that it's here, from my perspective on the outside, it seems like the rollout of crypto ETFs has gone just great. Like, it doesn't seem like there's been any hiccups. How have you seen that rollout play Out.
- [06:38]
Michael Batnick
Yeah. Well, listen, when I was at NASDAQ in 2013 and got my first look at, you know, a firm showing up to, you know, NASDAQ offices and saying, hey, we want to launch a Bitcoin etf. So, you know, some people think it's been four, five, six years. You know, it's been a lot longer than that. And so, you know, I think there's been a lot of blood, sweat and tears by the entirety of the marketplace. And you're right, it has been a screaming success by, you know, any measure. But I think most people kind of take a look at the AUM growth and say, wow, like, the AUM growth has shown that this has really been, you know, incredible. And by the way, it has. But, you know, I like to point to a number of different aspects of the market that needed to be put in place. And it wasn't just the AUM growth that just showed up. It was many large scale firms across the entirety of traditional finance that needed to show up and do their job so that on January 10th of, you know, 2024, this actually would functionally work. And that was exchanges, it was, you know, ETF administrators, it was custodians, it was trading firms, it was, you know, liquidity providers, authorized participants. And by the way, we were doing something that had never been done before in the market. And I think people tend to kind of skip over that part. And it was really an incredibly exciting experience for, you know, kind of the ETF geek and me. And I think it gave a tremendous amount of critical credibility and validation to the market when, you know, some of the largest banks in the world are on the sideline for so long on crypto and maybe even talking, you know, negatively about it. And then when this opportunity arose, you know, firms showed up with a lot of energy to make sure that it was going to work because there was a real commercial opportunity. And that has certainly, you know, proven to be the case.
- [08:22]
David Lavelle
If grayscale didn't sue the SEC and win, was that like the final green light for everybody to go? Like, how instrumental was grayscale in getting this done? And do you guys get enough credit for, for doing that?
- [08:34]
Michael Batnick
I mean, I'll let you guys determine whether we get enough credit for it. People give us credit, you know, with, with some frequency and regularity and we appreciate that. But it was, it was really a critical, it was a really critical time in the market. I mean, I don't think I need to go through all the bits and bytes of, you know, what was happening and what was transpiring with the last administration in terms of the negative attitude towards, you know, crypto generally. And it wasn't just the, the Bitcoin etf, but Grayscale happened to be a firm that had a couple of things that had a lot of conviction and has a lot of desire and it had the capital, you know, to really actually, you know, stand up and say, this is right, this is what investors want. And typically I always talk about like when, when there's kind of a disagreement between, you know, industry and a regulator, it's typically that the industry is saying, I'm being over regulated. And in this case it was very unique and I've talked about it so many times that we were on the same side of the table with the sec. We wanted this product to be in a, you know, more sophisticated regulatory regime. We wanted this product to be in an ETF wrapper which was listed on, you know, the New York Stock Exchange. That is a highly regulated organization. And so we were, we were asking to be, you know, further pulled into regulatory perimeter, which is something that I think is another thing that's kind of glossed over. So we were really pleased that we answered the call from all of our investors and that we, you know, were able to, you know, achieve something that was really monumental not only for the crypto industry, not only for the ETF industry, but for the entire industry.
- [10:09]
David Lavelle
The irony that Gensler thought that he was protecting investors from not allowing you all to convert GBTC from a closed end fund that traded at sometimes wild premiums all the way to a wild discount and was really through no fault of your own, at the epicenter of the crypto meltdown with all of the borrowing and all of the leverage. And had that just been converted into an etf, a lot of the fallout that we saw in whatever year that was wouldn't have taken place. Is that fair or my manufacturing history.
- [10:44]
Michael Batnick
Here's what I would say. ETFs have historically done an incredible job of tracking the underlying assets that the ETF wrapper is holding. And that was the case for, you know, S&P 500 in the beginning into international equities, into commodities, into currencies, into, you know, all sorts of index based products that, you know, were cutting apart the fixed income market and subsector of the fixed income market and international markets that are hard to access. And then now crypto. And I think that the ETF has proven to do an exceptional job of that with all of the hallmarks that ETFs have brought to every single investor transparency, cost efficiency and the like. So we're really pleased to have had the opportunity to really innovate in that way. Listen, we've been innovating for over a decade. And you know, 12 years ago, the concept of creating a 33 Act Delaware Grantor Trust that held Bitcoin with the ultimate goal of turning it into an ETF eventually was seeing around several corners, not just one corner. And it just happened to take a while to get it into an ETF wrapper. And look, we're committed, we're 100% committed to crypto. And that's why we are continuing to desire to innovate in the space now.
- [12:00]
Ben Carlson
That we have the Bitcoin etf, we have an ETH ETF and a bunch of them, obviously. And a lot of, there's a lot of money in them. There's more money coming in all the time, it seems like. So where do we go next with these things? What else is coming?
- [12:13]
Michael Batnick
I mean, first of all, it hasn't even happened with the Bitcoin ETFs yet. That's my premise.
- [12:20]
Ben Carlson
Well, you think we're just scratching the surface.
- [12:21]
Michael Batnick
We're scratching the surface. Let's just use some simple numbers, okay? The vast majority of the assets that have come into the Bitcoin ETFs have been self directed investors. And the ETF has historically been an incredible building block for wealth managers. So that's your RAAs, and that is your, you know, kind of global wealth managers. You know, firms like Morgan Stanley and Wells Fargo and UBS and Merrill lynch. The process through which those wirehouse platforms diligence and approve products to be allowed on their platform so that advisors can make allocations has not really matured yet. And so if we, you know, take that $30 trillion. Right. Of a market that hasn't really adopted the Bitcoin ETFs and we say maybe we get a 1% allocation, that's 300 billion, that's like nearly three times what is currently in the Bitcoin ETFs. So, you know, I think there's a tremendous opportunity for growth in Bitcoin alone. But listen, I wasn't dodging your question. I was just making sure that we, that we kind of add to what the opportunity here is. ETFs have long democratized access to asset classes, which typically means you've got an institutional grade exposure that then can move all the way down to the self directed retail investor. The difference with digital assets, if we have a barbell approach we've got like self directed enthusiasts and some of the smartest institutional investors in the world that had allocated to crypto. And now we're kind of compressing towards the middle, which is really the advised market or the wealth managed market or the financial professional market. And so that's what we're seeing with kind of, you know, Bitcoin and that's also what we're seeing with Ethereum. Now the to read through your question is like, what's next? Well, we have seen that there are dozens and dozens and dozens of applications to the SEC for new single token exposures. And everyone's like, hey, what's going to be the next, you know, crypto ETF that comes to market? And I had long been saying that you, I thought that it was going to be a multi token product and I still think that could be the case. But the reality is there is a very swift change in the winds. There was a regulatory headwind that turned into an industry tailwind. And all of that translated into a tremendous sense of urgency for asset managers like us to be developing products and to be putting regulatory filings in to continue to innovate for this kind of next wave of product development.
- [14:55]
David Lavelle
Did the success of the ETF surprise you at all? Just in terms of how long did it take to hit $100 billion? Like not that long.
- [15:02]
Michael Batnick
It was, it was, it far exceeded my expectations. I thought it was going to be huge, but I thought huge would have been 25 to 50 billion. I, I really had strong conviction that we were going to be 100, 200, 300 billion in ETF in Bitcoin ETF assets eventually. I did not think that we'd be at 100 billion within the first year. It was really, really remarkable. But I will tell you what was also remarkable is how incredibly efficient and wonderfully the market performed. I think that I have long championed ETFs as an incredible disruptive technology that brought tremendous value to every investor with a tremendous amount of fairness. Because an institution that buys an ETF and a self directed investor that buys an ETF both have the same exact experience. They pay the same fee, they go to the market to buy it in the same exact way, they have the same access to the same liquidity. And to see that happen with digital assets in the form of Bitcoin was really, really remarkable. And I think another thing is to say I've innovated in ETFs in a long time and brought different asset classes into an ETF wrapper and for the first 15 years of that, it was constantly talking about, well, what's the underlying exposure, what are the critical characteristics, how does that underlying asset behave? And then how is the ETF going to behave? And in this case, it was all focused on the underlying asset. And the ETF was a point of credibility and a point of resilience. That I think was a different kind of way that the ETF innovated, which is really exciting and it's really delivered for investors.
- [16:43]
Ben Carlson
You mentioned the fact that retail was here first. It seems to me like this is the first really big asset where the first mover advantage has gone to retail, not institutions. Usually it's institutions get there first, then it trickles down a little bit, maybe to advisors. And then retail, this was the opposite. And I remember when bitcoin first started taking off and 2017 was the first real time that retail and people got really excited and word of mouth spread. A lot of people said, just wait until institutions get into this. It's endowments and foundations. And now it almost seems like, yeah, sure, that'd be great. But we're. It seems like it's more about advisors now. And that's like the next big opportunity. Does that, does that make sense to you?
- [17:22]
Michael Batnick
Yes. I mean, I can't think of an example where retail has been kind of the greatest driver of that demand profile. In another asset class. We joke all the time that people think about S&P 500 exposure as the most plain vanilla equity exposure. In 1993, when it came out as an ETF, that was an institutional grade exposure. Think about how hard it was to manage to the S and P without all the access to the data that we have right now. So yeah, I think that's a great example. But to answer your question of what's next, it's certainly the advised market, but I don't know, maybe. It was two months ago I was speaking at a conference that was a collection of state treasurers and there was about $3 trillion in the room in state treasury assets. And they were seeking the opportunity to figure out how they can amend their charters so that they can not only hold cash on their balance sheets, but also hold some bitcoin. And when talking about volatility of bitcoin or how they would handle the volatility, their answer was, well, it might be volatile, but it doesn't devalue. And their concern around having dollars on their balance sheet is eventually that those dollars are going to devalue and that will be net negative for their Treasury. And Net negative for their constituents. And so I think that it's absolutely next on the docket for advised market and the advisors to incorporate it into asset allocation for their clients. But then additionally it's going to move into the real institutional markets, which is treasuries and pensions and endowments and foundations and insurance companies. It's just a matter of time.
- [18:52]
David Lavelle
One of the things that you don't hear people say these days is bitcoin is useless or it's going to zero. And I think there's a widespread acceptance that it is now a legitimate investable asset class. And I said to Ben, I don't know when it was maybe a year ago, whatever, it doesn't matter. What is bitcoin? What is the use case? And what if the use case is a. It works in terms of just doing what it's going to do with the blocks and the ledgers. Like that part of it is proven. It's tried and proven and it works. Okay, so that's accepted. And so what is, is an alternative. I hate, I don't know how to say other than store value because that implies that like, you know, there's some sort of guarantee or it's not volatile. It is like, obviously it's, it's. But, but that's what it is. And it is, it is an asset class and it is part of a, it is a growing part of people's portfolios. And if it's nothing else other than that, like people, you look for the killer consumer use case. That's, that's not what bitcoin is.
- [19:50]
Michael Batnick
Yeah, no, I, I think I, I'll throw a couple of things. It's the same size. It's roughly the same size as the high yield market. It's a bonafide asset class. Right? That's just bitcoin. Right. So there's like a good example when people are like, well, how big is it? You know, and what does that matter? That's big. To, to answer your question. And, and people quickly go to a digital store of value because it like makes a little conceptual sense to them. They can wrap their hands about around something being a little more tangible. So this of value or digital gold. I think bitcoin means different things to different people. And you said something very, very smart, very wise, very, well, very smart, very wise. But you alluded to the fact of this use case. And the problem is this is a disruptive technology, that its first use case is kind of useless to most Americans. And so think about this like the Internet or A smartphone, right? These are things that came in the market and I remember getting my first smartphone and saying to myself, this is amazing. I don't to carry an MP3 player and a phone. This is genius. I didn't look at it and say this thing's useless because I can't get a car to show up in front of my house whenever I want it and take me wherever I want to go. Right. But the concept of digital money, when you live in a country that has a relatively stable financial system and you know, monetary policy and currency, it's kind of useless.
- [21:09]
David Lavelle
It falls on deaf ears. Because I'm like, well, I have falls on deaf ears. I have Venmo. What do I need that for?
- [21:14]
Michael Batnick
But exactly. But if you needed to, you know, engage in frequent cross border, you know, money settlement or you were in a country that you couldn't trust, you know, your, your, your monetary policy or the currency, you know, obviously you would have a significant use case to it. So I think there's a little bit of this, like, ah, you know, this thing's not really useful to me. And so it took a little bit of time to just kind of accept it as an allocation to your portfolio in the form of a digital store of value.
- [21:40]
David Lavelle
When did you get it? Because like, for me it took me years and frankly when I first bought it, it was a hedge against me lighting myself on fire because like a lot of what the crypto people were saying, but I thought that there was a good chance that they were going to be right in terms of number go up. And I'm a very, very pity, spiteful, envious person. And I said, I just, I got to protect myself from myself. And then the more I thought about it and the more that there was proof that it was going in the direction like my thesis. Honestly, I'm a, I'm a dollar lover. But my thesis was there's just, there's gonna be more demand than supply. And that, that was really all that I needed to get to have that sort of conviction. When did it click for you and what was it that did it?
- [22:26]
Michael Batnick
Well, the first, the first answer that is my wife would have told me that I wish it clicked when I first saw it in 2013. She reminds me with somewhat regularity that it didn't click.
- [22:35]
David Lavelle
Oh yeah, dude, I remember in 2013 we were, we were literally cackling, laughing.
- [22:40]
Ben Carlson
Yeah.
- [22:40]
David Lavelle
And for years, unfortunately, I mean I.
- [22:42]
Ben Carlson
Wrote the rule filing fun of it back then.
- [22:44]
Michael Batnick
Yeah, I know, I, but listen, I was like happy to write the rule Filing and happy to put something in front of and happy to be an innovator. When I was at NASDAQ building out an ETF franchise, you know, as the David against Goliath of the New York Stock Exchange, I just didn't put five grand into it. Right. Listen, it clicked, it clicked in 2019, 2020 when I got this thing in my head of like I'm no, you know, macro economist, but the demand inputs, right are going to, can only increase and the supply is fixed. It's like just that simple. So the price is going to need to increase. And, but the whole concept of volatility, and you mentioned it, volatility is only really indicative of the fact there hasn't been full adoption. It's volatile but it doesn't devalue. And volatility like the amplitude right of the ups and the downs is going to decrease as more and more people adopt it.
- [23:39]
David Lavelle
You think so?
- [23:40]
Michael Batnick
I do, I absolutely think so. It's not going to be, you know, it's not going to be an asset that doesn't have volatility. But the volatility is going to go from 70 to 50 to 30 to 10. Right. It's going to go lower and like other commodities it will have, you know, peaks and spikes of volatility. But overall those amplitudes are going to decrease over time as more and more users adopt it.
- [24:05]
David Lavelle
I hope so.
- [24:06]
Michael Batnick
I mean here's what I always say about like ETFs when you have an ETF like whatever, even S&P 500 or you know, high yield bonds or whatever it might be if you have a non correlated user base that's accessing that vehicle. So you have retail investors and institutional investors and short term players and long term holders. The more diversified the user base is, the more they offset each other because their time horizon of investment and their need to access liquidity is usually against one another. And that's going to happen with Bitcoin as well.
- [24:38]
David Lavelle
The non correlated user part, I failed to mention earlier that like I just, I saw the, the religion and conviction in these maniacs and I use that not, not pejoratively in this case. I've never seen anything like that with, with, with anything related to investing. Like I've just never seen diamond hands in any other instrument.
- [24:59]
Michael Batnick
Yeah.
- [25:00]
David Lavelle
Other than Bitcoin. So all right, you all have filed for something that is maybe we'll get approval in the next, however many, you know, whatever. That's not for me to speculate on. But you all are bringing other products beyond Just beyond just the tried and true. What do you guys got in the hopper?
- [25:20]
Michael Batnick
Yeah, I mean, listen, we have a number of products that are currently trading in the over the counter markets as private funds that are quoted over the counter so people can buy and sell them. And we have a desire to uplift many of those to become, you know, exchange traded products, just like we did with our Bitcoin fund and just like we did with our Ethereum fund.
- [25:42]
David Lavelle
So when you say uplift, I'm sorry, does that mean, is that a conversion? I'm not familiar with that term.
- [25:45]
Michael Batnick
So people tend to say conversion. I like to say uplift because we're not actually changing the fund at all.
- [25:53]
David Lavelle
When in the Pooh Monocle.
- [25:54]
Ben Carlson
Yeah, exactly.
- [25:55]
Michael Batnick
So, so we are, we are going to move it from the over the counter markets and we are going to uplist it to a national stock exchange where it will trade as an exchange rated product. So we have a number of filings in front of the SEC right now that are endeavoring to kind of up list.
- [26:09]
David Lavelle
How does that work? Is it like a, do they, is there like a committee vote? Like, or like yay, nay. Like how does that literally approval process work?
- [26:17]
Michael Batnick
I mean, listen, you're talking to a guy that probably can go deeper on this topic than anybody. So I'm going to go, I'm going to, I'm going to, I'm going to, I'm going to, I'm going to, I'm going to wax on poetically for a moment. So listen, you show up to the New York Stock Exchange, you say, hey, I want to launch an etf, it's Dave Shares and I'm going to launch the S&P 500 fund and we're going to weight it by the Alphabet. They're like, oh, you're going to have a bunch of, you know, global equities and we have a generic listing standard for that thumbs up. You wait 75 days and essentially you get a rubber stamp of approval because it kind of meets the generic listing standards that are already been approved by the SEC and the NYSE and NASDAQ and CBOE have the ability to bring products to market that are generic. When you show up with something that's innovative or novel, like a Bitcoin ETF or like an Ethereum ETF or like a multi token ETF like gdlc, what happens is the exchange says, all right, we don't have generic listing standards for this, so we need to go to the SEC and we need to ask them permission to amend our Listing standards so that we can permit this product to be listed and traded on our exchange as an exchange traded product. That's essentially what happens. The way you actually do that by statute is the exchange files a rule filing called the 19 before rule filing to the SEC, asking them for permission to change the listing standards. And it has a statutory 240 day clock. And so you put the rule, the exchange puts the rule filing in. Typically you wait 240 days and the SEC, you know, makes a decision on whether they want to give you a thumbs up or a thumbs down on that rule filing. And so, you know, we've done that a lot. I did that when I sat in an exchange. I did it for a lot of issuers. And now we've done it, you know, as grayscale. And in the case of our bitcoin fund, it initially got a thumbs down. We challenged that decision. So the actual lawsuit was us challenging the decision that the SEC made, which they said, no, you can't change that listing rule and you can't trade that product as an exchange traded product. And we challenged that decision in the D.C. circuit Court of Appeals, saying that the SEC acted impermissibly. D.C. circuit agreed with us. And that's why, you know, we were able to persevere.
- [28:30]
David Lavelle
What was that like? What was that time like for you? That must have been some hell of a whirlwind.
- [28:35]
Michael Batnick
You know, I'm 25, you know, look at me, you guys can see me. No, I'm kidding. You know, no one else can see me. No. It was both exhilarating and exhausting. And I had both never worked so hard in my career. But, you know, the spread between how hard we were working and how calm I was about what was going on had never been wider, which I concluded just meant that I was old. But the truth was we had high conviction. We had a very strong team working on this, and we really believed that we were right. And we were proven that we were.
- [29:12]
Ben Carlson
I think a lot of people would be surprised. I remember when things first started heating up in 2020, 2021, after the pandemic, a lot of people were kind of thinking, well, bitcoin's going to get left in the dust by all these other protocols and tokens. I can do do this stuff better. And defi and bitcoin, the brand, I think somehow has just remained much stronger. But. But I'm sure there's people who are thinking about ways to diversify within crypto and sort of what's next. So how do you think about that diversification piece that if people want to worry that, well, someday bitcoin might be knocked off its perch somehow or just on a relative basis. So how do you all think about the diversification piece within crypto?
- [29:52]
Michael Batnick
Well, the first thing I would say, if your listeners take one thing away, I would say there are tens of millions of tokens out there, and that is complex and that is confusing. And whenever you hear the word token, replace it with software. And that helps make it more digestible, I think for the general public and the general user and certainly for financial advisors and self directed professionals. And so the concept of having tens of millions of tokens out there is a little bit daunting. The concept of having tens of millions of pieces of software out there is a little bit more palatable for most people. And there's good software and there's bad software. And so the concept of diversifying, I always say that like, not every asset manager is created equally, not every ETF is created equally. And so you need to make sure that you're partnering with the right people and you're choosing the right products. And if you're going to consider diversification, you better consider diversification in partnership with someone who actually understands the space. And we're 100% dedicated to crypto and other firms are 100% dedicated to crypto. And that's a really important place to start. You need to be educated and you need to make sure you're making thoughtful decisions. Some of the products that we have brought to market, that are diversified are really parsing that there's bitcoin and then there's everything else. And if I was to go one step further, there's bitcoin, there's stable coins and there's everything else. And figuring out what that everything else is and exactly how you're going to kind of parse that together takes a level of sophistication and a level of dedication because in a nascent asset class, things are moving incredibly quickly. And the products that we have brought to market, we have high conviction in and we've done a lot of work on and the tokens that we are supporting and bringing single token products to market, we've done a lot of diligence on and listen, like, you know, we have dozens of products in market because we just don't bring every product to market on every protocol that's, you know, a hot item for a day. I'm really proud of the research team we have, I'm really proud of the product development team. We have here. And I'm really proud of the dedication that we're able to, you know, bring a level of credibility to the marketplace. And, you know, we like to think we're the adults in the room and we operate with an incredibly high level of, you know, institutional integrity, you know, compliance, focus, and really how you regulate it. You sum up grayscale in one line. It's we meet investors wherever they are on their crypto journey, and then we deliver them a regulated product that fits their need. And that can be different things to different people.
- [32:19]
David Lavelle
Last question from me. The ETF is certainly the easy button. A lot of people don't want to create a wallet or even go on to coinbase. The spreads are wide. But the flip side is if there is a buying opportunity, people really like to ape in, as they say, and buy the dips in these tokens. You can do that over the weekend if there's an event, and you can't do that today, at least with an ETF. But it is, I would say, highly probable that 24. 5@ Robinhood, for example, will be 24. 7 pretty soon. And ostensibly that will include these ETFs. And if and when that comes to pass, the average person probably will have little need for the physical tokens. Is that, is that fair?
- [33:12]
Michael Batnick
Yeah, listen, like, the ETF market has been a proven collector of liquidity. And so even if we went to a 247 scenario, those trading hours in the US market will have higher liquidity than in the hours outside of that, you know, those, those trading markets. And I think that's something that people should pay pretty close attention to. What I can say is that the advised market and, you know, the, the I will say the things that trump liquidity and the ability to kind of buy those dips 24 hours a day is the ability to have a very efficient and a very organized and very coordinated portfolio of all your assets. And so when you start talking to people who have real money to move and you talk about high net worth, ultra high net worth individuals, the concept of them having all their equities and bonds and stocks and ETFs over here and then like their crypto over here, where their financial, you know, manager or their advisor doesn't have full transparency into it is really unsettling. And the concept of the, you know, generational transfer of wealth or God forbid, like something really tragic happens to me and nobody has my, you know, my private keys is a really unsettling thing for high net worth and ultra high net worth and the ETF solves for that, and it happens to be cheaper and more transparent and easier to access. And that's really comforting. And so there are certain things that kind of trump the liquidity that you're talking about that are really resonating with our investor base.
- [34:44]
David Lavelle
Well, David, I want to thank on behalf of investors for fighting the good fight and getting it through and allowing the ETF to be a much, much preferred and easier vehicle for everyday investors. So if people want to learn more about Grayscale, where do we send them? How do they find you?
- [35:00]
Michael Batnick
Grayscale.com I highly encourage everybody to take a look. We've got a ton of educational resources, and we're happy to support.
- [35:07]
David Lavelle
All right. Great job. Thank you.
- [35:08]
Michael Batnick
Thanks so much, guys.
- [35:11]
Ben Carlson
Okay, thank you to David. Remember to check out grayscale.com to learn more. Email us animalspiritscompoundnews.com.