- The launch of the E-Futures ETF is considered significant for the crypto market.
- Bitwise has launched two ETFs, AETH and BTOP, which have received lighter reception compared to Bitcoin futures ETFs.
- The launch of a spot Bitcoin ETF is anticipated, with recent developments suggesting progress towards approval.
- There are also discussions about the possibility of an Ethereum spot ETF, following the approval of Ethereum futures ETFs.
- A spot ETF is expected to have a much larger impact on the market compared to a futures ETF.
- The issue of contango and roll costs in futures ETFs is discussed, with the current market environment being different due to interest rates.

- The video discusses the current state of the futures market and the potential for spot markets to be regulated and offer ETFs.
- The SEC regulates securities while the CFTC regulates commodities, making it easier for the SEC to approve futures contracts.
- Spot markets, like the spot gold market, are unregulated, making it more complex to offer ETFs based on them.
- There may be a redemption mechanism for investors in spot products in the future, but initially it may not be available.
- The potential for an ETH ETF and staking of ETH in the future is discussed, with the idea of splitting staking yields with investors.
- The difference in flows between Bitcoin and ETH futures ETFs is attributed to the market environment and institutional interest.
- The current macro environment, including the bond market, is seen as playing a role in the stability of crypto prices.

- The focus in the crypto market has shifted towards institutional adoption and regulatory evolution.
- Major institutions like UBS and BlackRock are exploring tokenized bonds on Ethereum and spot Bitcoin ETFs.
- The market is expected to remain stable until the next major upward movement, with major downward movements likely behind us.
- Coinbase is praised for its ability to navigate the bear market and expand its product suite.
- The agreement with Circle and the ownership of USDC has seen a decline in market share, but it is expected to rise again in the next market upswing.
- The lack of regulatory clarity and decreased trading volume on U.S.-based exchanges have affected USDC's market cap.
- Wall Street may not fully understand the potential of Coinbase's L2 solution, Base.

- The potential of a centralized exchange like Coinbase's L2 sequencer is not widely understood by the institutional market.
- The ongoing lawsuit against Coinbase is not seen as an existential risk and is not a significant factor in its valuation.
- FTX liquidation and Mt. Gox supply overhang are not major concerns for institutional investors.
- There is optimism about the regulatory environment for crypto in the next 12 to 24 months, with bipartisan interest and understanding in Congress.
- The interim Speaker of the House is a pro-crypto advocate, indicating a positive shift in regulatory attitudes.
- Lawmakers and politicians are taking the time to learn about crypto and its potential, signaling a major shift in regulatory perspective.
- The current regulatory cycle for crypto is seen as a once-in-an-industry opportunity for a major shift in regulation.

- The speaker discusses potential risks and overhangs in the crypto market.
- One concern is the lack of widespread adoption of crypto by the general public, unlike popular apps like Pinterest.
- The implosion of Binance and the collapse of Tether are mentioned as potential risks.
- Lack of transparency in Tether's reserves is seen as a red flag.
- The speaker mentions ticketing as a potential killer use case for crypto outside of stablecoins.
- Stablecoins are seen as having a large untapped market potential.
- The speaker suggests looking at past breakthroughs, such as NFTs and DeFi, to anticipate future developments in the crypto market.

- The speaker discusses the idea of tokenizing Coinbase stock and using it as a gas token for their L2.
- They express excitement about the trend of tokenizing real-world assets and believe it is here to stay.
- The speaker mentions the interest of large financial institutions in tokenizing real-world assets.
- They highlight the shift from private blockchains to public blockchains for tokenization projects.
- The regulatory challenges and the need to work within legal boundaries are acknowledged.
- Different strategies for tokenization, such as working with off-chain entities or creating a company, are discussed.
- The importance of incremental progress towards automated KYC through on-chain identity is emphasized.
- The speaker recommends checking out Bitwise's products for accessing and securing assets.
- The conversation concludes with closing remarks and gratitude.

- The launch of the E-Futures ETF is significant for the crypto market.
- Bitwise has launched two ETFs, AETH and BTOP, which have received less attention than Bitcoin futures ETFs.
- A spot Bitcoin ETF is anticipated, with recent developments suggesting progress towards approval.
- Discussions about the possibility of an Ethereum spot ETF are ongoing.
- A spot ETF is expected to have a larger impact on the market compared to a futures ETF.
- The video discusses the current state of the futures market and the potential for regulated spot markets and ETFs.
- The SEC regulates securities while the CFTC regulates commodities, making it easier for the SEC to approve futures contracts.
- Spot markets, like the spot gold market, are unregulated, making it more complex to offer ETFs based on them.
- The potential for an ETH ETF and staking of ETH in the future is discussed.
- The difference in flows between Bitcoin and ETH futures ETFs is attributed to the market environment and institutional interest.
- The focus in the crypto market has shifted towards institutional adoption and regulatory evolution.
- Major institutions like UBS and BlackRock are exploring tokenized bonds on Ethereum and spot Bitcoin ETFs.
- The market is expected to remain stable until the next major upward movement, with major downward movements likely behind us.
- Coinbase's ability to navigate the bear market and expand its product suite is praised.
- The lack of regulatory clarity and decreased trading volume on U.S.-based exchanges have affected USDC's market cap.
- Wall Street may not fully understand the potential of Coinbase's L2 solution, Base.
- The ongoing lawsuit against Coinbase is not seen as an existential risk.
- FTX liquidation and Mt. Gox supply overhang are not major concerns for institutional investors.
- There is optimism about the regulatory environment for crypto in the next 12 to 24 months.
- The interim Speaker of the House is a pro-crypto advocate, indicating a positive shift in regulatory attitudes.
- Lawmakers and politicians are taking the time to learn about crypto and its potential.
- The lack of widespread adoption of crypto by the general public is a concern.
- The implosion of Binance and the collapse of Tether are mentioned as potential risks.
- Stablecoins have a large untapped market potential.
- Tokenization of real-world assets is a growing trend, with interest from large financial institutions.
- The shift from private blockchains to public blockchains for tokenization projects is highlighted.
- The importance of incremental progress towards automated KYC through on-chain identity is emphasized.
- Bitwise's products are recommended for accessing and securing assets.

In this week's interview Dan and Sam are joined by Bitwise CIO Matt Hougan and research analyst Ryan Rasmussen to discuss the exciting launch of a 2 Ethereum futures ETFs. They also discuss the prospects for Bitcoin and Ethereum spot ETF approval, Coinbase's low valuation and promising outlook, and promising use-cases for real-world adoption. 
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Timestamps:
(00:00) Introduction
(01:21) Eth Futures ETF
(10:20) “Hexens Ad”
(11:19) Regulatory Nuances of Futures Markets
(18:24) Perspective on Macro Environment
(22:53) Sentiment on Coinbase Role
(34:10) Supply Overhangs and Institutional Sentiment
(40:20) Crypto's Existential Threats
(44:45) Finding the Killer Crypto App
(50:38) RWAs and Tokenizing T-Bills
- -
Resources:

Bitwise
https://bitwiseinvestments.com/
https://blockworks.co/news/ether-futures-etfs-vaneck-proshares-bitwise-offerings

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Check out Blockworks Research today! Research, data, governance, tokenomics, and models – now, all in one place
Blockworks Research: https://www.blockworksresearch.com/
Free Daily Newsletter: https://blockworks.co/newsletter
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Disclaimer: Nothing said on 0xResearch is a recommendation to buy or sell securities or tokens. This podcast is for informational purposes only, and any views expressed by anyone on the show are solely our opinions, not financial advice. Dan, Sam, and our guests may hold positions in the companies, funds, or projects discussed.

What are the secular bull markets where we can escape this gray overhang of rising rates and spiraling inflation and a possible recession?

What are the secular trends that are strong enough to supplant that and surpass that?

And right now, crypto looks really good, right?

Prices are already up and we haven't even had the catalyst of spot Bitcoin launches.

You know BlackRock is already coming into the market.

And so I think investors particularly as they go into year end and they start to reset their portfolios for 2024 are going to look at the available choices and there's going to be this bright shining light of the best performing asset class of the year, which still has its brightest days ahead of it.

And I think that's going to drive some flow.

So I think it's setting up pretty well for us.

Welcome back to another episode of ZeroX Research.

Before we dive into today's episode, a quick shout out from our sponsor, Hexens, the most hardcore security team in Web3, pioneering in ZK and novel cryptography.

Hexens is trusted by tier 1 projects like Polygon, including their work on their new ZK EVM, Mantle, Risk 0, Lido, 1inch, NewBank, and more.

You will hear about them a little bit later in the show from Dan.

Today is October 5th, and we have an awesome interview lined up with Matt Hogan and Ryan Rasmussen from Bitwise.

I was thinking we could just jump into the big news.

Obviously the E-Futures ETF launches this week was pretty huge and Bitwise is included in that list.

So I just want to get your guys' take on how the launch has gone.

How have the flow has been and how big of an impact does this have for institutional investors?

I mean, zooming out, this is a big week for crypto in general.

I think we're entering the heart of the ETF era of crypto, and that's going to transform this asset class.

So we launched 2 ETFs, AETH, which is 100% Ethereum futures, and BTOP, which is 50% Bitcoin, 50% Ethereum futures, equally weighted and rebalanced every quarter.

And the reception has been certainly lighter than it was for spot Bitcoin or for rather for Bitcoin futures ETFs.

But we expected that and we're happy with the way they're trading.

We have significant interest from investors.

So much, much lighter than Bitcoin futures.

But that actually makes me hopeful for the people that are buying in today.

You know, you don't tell your friends about the trades you make at the peak of the bull market.

You tell them about the trades you make when the markets are quiet.

This is an indication that sort of mainstream investors haven't realized that we're in a new bull market in crypto.

They may not know that crypto is the best performing asset class in the world this year.

And that makes me excited for the people who are investing today.

And then in terms of the Bitcoin spot ETF that you guys filed for, I believe you guys posted some research in your refiled application.

Can you just walk us through like really why a spot Bitcoin ETF has been so difficult to get approved thus far and why you think maybe this time around might be different?

So the first spot Bitcoin ETF was filed in 2013 when Bitcoin was trading for about 80 bucks, I think.

So people have been waiting on it for a while.

And those who didn't invest waiting for Bitcoin spot ETFs to be approved have missed out on a lot of price appreciation.

From the SEC's perspective, there have been historically a lot of concerns with the spot Bitcoin market.

They won't let an ETF launch on any market.

They've been concerned about market manipulation.

The Bitcoin market has matured significantly since that first spot Bitcoin ETF was filed in 2013.

And recently, there have been a number of breakthroughs that make me think we're getting close to an approval.

1, of course, Grayscale won its lawsuit against the SEC.

The judge found that it didn't make sense to allow Bitcoin futures ETFs to launch and deny spot Bitcoin ETFs.

To BlackRock, the world's largest asset manager, which has a nearly perfect record of launching ETFs, filed to launch a spot Bitcoin ETF with a surveillance agreement with Coinbase in place.

And then, as you mentioned, Sam, we just sent in an additional 40 pages of research.

And what that research did was answer point by point every objection the SEC has raised over the history of denying spot Bitcoin ETFs.

So they've rejected, I think, 33 spot Bitcoin ETFs.

For each 1, they wrote between 20 and 100 pages of reasons they were rejecting it.

And we just line item all those rejections and then provided data driven responses to explain why the market is now ready to support an ETF.

So I'm optimistic that we'll see a spot Bitcoin ETF launch this year.

Of course, I can't speak to our filing or any specific filing, but the tea leaves are pointing in a positive direction.

And would you say that sentiment kind of is just isolated towards a spot Bitcoin ETF?

Because I did hear some rumblings around an ETH spot ETF as well.

Do you think like regulators kind of view those as 2 separate things like truly?

Or is it like, okay, like at this point, you know, maybe we just call them both a crypto asset that's fair to trade a spot

yeah definitely I think it's a little bit of both so on the 1 hand we did see an application for spot aetherium ETF get filed within the past month or so.

And that was the first time that we had an application for those be filed.

Now, I think you won't get to a spot Ethereum ETF before you get to a spot Bitcoin ETF.

It's, you know, Bitcoin, the oldest and largest crypto asset, Ethereum, you know, following that with the second being the second largest crypto asset.

But I think the market structure of both those assets is very similar.

And that's why we're seeing the approval of Ethereum futures ETFs this past week, you know, after Bitcoin futures ETFs were approved, you know, about a year or 2 ago.

And so we're seeing the evolution of both markets kind of follow the same path, which is Ethereum trailing by a few years.

And so I don't think we're a long way out from an Ethereum spot ETF once we do get the Bitcoin spot ETF.

But I think they look at them a little bit differently.

1 promising element of the ETH futures ETF being approved is that the market for ETH futures is clearly now at the same maturity level as the Bitcoin futures ETF or Bitcoin futures market was, you know, a year or 2 ago.

And so, yeah, we're seeing a little bit of a lag, but I think it's promising that we're seeing applications for SPA, Ethereum, ETFs.

Some of that could be a marketing play, but in general, I think, you know, you don't file unless you're pretty hopeful or there's a little, you know, some hope that you could get approved.

And so, yeah, I think we'll get there, but it'll be a two-step process.

I don't think the broader market has recognized the level of progress we've made towards getting spot ETFs launched.

I think they've been rejected so many times that people have come to believe, it's like the boy who cried wolf, that we will never actually, there will never actually be a wolf, we'll never actually get over the line.

But if you talk to the firms, not just bitwise, but other firms that are operating in this space.

It does feel different this time than it did a few months ago.

There's been commentary on Twitter, on social media about ETF issuers getting responses back on their prospectus, which has never happened before.

So I think there's reason to believe the market hasn't priced in or thought about the real probability that we may get 1 in the coming months, both first on Bitcoin and then eventually down the road on ETH.

Given the fact that these futures, I'm assuming that they're cash settled instruments.

So do you think it's fair to say that a spot approval would have a much more dramatic impact on, I guess, market dynamics than a futures 1?

What would you say, like everyone always talks about like how futures ETFs kind of hurt retail because you have to roll the contracts every month and then over time, you know, you get eaten at on a percentage basis, whether it's 3 to 5 percent.

Can you guys just kind of explain like that dynamic?

Because people talk about it, but I don't think anyone actually understands

A spot ETF is going to be orders of magnitude bigger than a futures ETF.

If you look in the gold market, which is the closest corollary, spot gold ETFs have about 100 billion dollars in assets under management and spot or gold futures ETFs actually have 0 because the only 1 that existed closed down because of lack of interest.

They'll use futures based ETFs until they have those.

But in the long run, those are the big dog on a scale of like 100x, right?

So they'll have a much bigger impact on the market.

You mentioned this issue of contango and roll costs, which historically has been true.

The way the futures markets work is they allow you to sort of buy an asset in the future and the price may be higher than it is today.

If Bitcoin's trading at $28,000, the futures contract for November may be at $28,100.

And because you're maybe typically, not always, but typically overpaying a little bit, you have this drag.

And it goes by that funny word you mentioned which is contango.

I will say that the market today is different than it was when Bitcoin futures launched in 2021 when we had these conversations around Contango.

And the difference is we're no longer in a 0 interest rate environment.

So the thing that people don't realize about futures ETFs is that when you have futures ETFs, most of the money is actually invested in short term treasuries.

You're getting 100% notional exposure to Ethereum, but most of the money is parked in treasuries.

When Bitcoin futures ETFs launched, that was earning 0.

Today, that's earning 5 and a half percent.

And so you have to offset some of that contango with this interest income.

And I think you'll see a little bit less slippage than you have in the past.

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But without further ado, let's get back to today's episode.

What is it about the futures market that regulators are like, okay, we can give investors this, which is what's generally described as a less desirable product for the reasons you just discussed, that a spot market isn't like...

What is it about spot markets that are like, hey, let's not give this to investors.

Regulated regulated is the answer to that question.

So the SEC, the futures market is regulated by the CFTC.

We, of course, have 2 big regulatory organizations in the U.S.

Governing investment products, the SEC, which covers securities, and the CFTC, which covers commodities.

The CFTC launched Bitcoin and Ethereum futures contracts a few years ago.

And so it's relatively easy for the SEC to say, well, you guys got this.

We're just wrapping up these regulated products in another regulated product.

That's different when you get to a spot product where the underlying market is not regulated at the same level.

The spot gold market is not regulated on 47th Street where you're trading gold bars.

It's not like the SEC is looking over their shoulder, right?

The spot gold market is unregulated market.

So you can have ETFs on relatively unregulated spot markets, but it's just harder.

So that's been the historical difference.

Do you expect there to be some type of redemption mechanism for investors or maybe institutional slash accredited investors for these spot products once they hopefully launch?

And I have a follow up question depending upon your answer.

Ryan, this is, this is deep geek ETF stuff, so I can't stop talking.

I expect in the future, there may be the ability to redeem on an individual basis.

Initially, that complication probably won't exist.

If you look at the gold market, sorry to keep using that analogy, but most of the products don't allow that.

But there is 1 that allows that because some people want to be able to redeem directly in an individual basis.

But I think that's like an added complication.

At this point, we're just trying to get over the finish line.

OK, And then piggybacking off that question is I could just see a world where there'd be an ETH ETF, the issuer would stake that ETH, 0 management fees, so it's super attractive to the investor, and then you just take the entire staking yield.

Do you think that's like a product that could potentially come to market in the future?

I expect, again, if we go stepwise, I think you'll see an ETH ETF.

And then I think you'll see them engage in staking as that market matures.

My hope, Sam, is that the product issuer wouldn't take 100 percent of the revenue, but rather would take a portion of it and allow a portion of it to go to the investors.

There may be that 0 percent expense ratio, and yet they're taking the staking yield.

But really, they should split it with investors.

They should get paid for the act of staking because it is work and it is risk, but it's the investors' money.

And so I think that's a clever idea, but it would be even more clever if we gave some of the investors some of that return as well.

Wait till they start pumping that through the Lido staking router and that percentage goes up only.

I'm sure Crypto Twitter will love that 1.

But I got 1 more ETF question and I hate to pivot back to the first question, but this just came to me.

It was, so we talked about flows and comparing the Bitcoin futures ETF to the new ETH futures ETF, and it was a pretty significant difference.

Is that attributable to the assets, like, you know, just institutional attention or demand for Bitcoin versus Ethereum?

Or is that more so just like, look, when the Bitcoin ETF futures launch was like October 21, Bitcoin was 60k, crypto is the hottest thing in town at that point in time.

And that's when the ETF launched, of course, there's more demand.

I'm sure the answer is like, you know, some combination of both, but curious to get your thoughts there.

I think it's mainly driven by the market environment that we're in today.

You mentioned that we're in a much different environment than we were in when Bitcoin Futures ETF launched.

And I think that has a lot to do with the amount of interest and the flows that we're seeing around the ETH Futures products.

We're obviously in a higher interest rate environment, so there's less appetite for risk assets.

Crypto obviously falls into that band of a portfolio.

And so it just is a good reminder of where we are in the market cycle.

And it's promising for what the future of these ETFs could look like for sure.

But I do think it's mainly a market environment situation versus institutional investor interest in Bitcoin over Ethereum.

So, we do get a lot of interest around Ethereum, especially now compared to a year or 2 years ago, there's many more questions that we're getting around Ethereum and even kind of longer tail assets than we were primarily getting around Bitcoin a few years ago.

And so there's definitely interest there.

I think there's interest for, you know, spot ETFs, like we've been saying, not all institutional investors even want exposure to futures products.

And so you have to kind of keep going down the ladder to get to those that are in this environment interested in futures-based ETFs for crypto assets.

There's a lot of hoops to jump through to get to those specific investors, which is why we're seeing less flows today than perhaps in Bitcoin futures ETFs that we saw back when interest rates were lower and the market environment for crypto in particular was significantly different.

It's going to land when we do turn the corner for this next bull market, but not super surprised, like Matt was saying earlier around the flows that we're seeing right now and I guess the lack of interest that there is overall in futures-based ETFs at the moment.

The nuance I would add on top of it, it has opened my eyes a little bit to the fact that sort of many traditional investors, not the 1 Bitwise works with, and We work with thousands of firms who have educated themselves on crypto.

But for many investors, it's still crypto.

And they probably don't know the difference between Bitcoin and Ethereum.

And there's a whole educational process to take place before they do more than just check the crypto box.

I think of course there are professional investors who are expert.

There are people who will debate not just Bitcoin versus ETH, but ETH versus Solana and on down the chain.

And I think that education process has to take place.

In terms of like the investment climate and just I guess the macro environment more broadly, how would you guys say investors are feeling?

And I guess what's your own take on how you think the next 12 months look like.

I know you don't have a crystal ball, but everyone in macro land is talking about the bond market.

And I think if you would have showed people a picture of the bond market and asked if Bitcoin would be trading where it is right now, 3 years ago, I think you'd be saying no, no shot Bitcoin and Ether trading where they are.

So just curious to get your guys's thoughts on that front.

You know, I think the macro environment is definitely playing a factor in where crypto is at today.

On the 1 hand, if you look at crypto specifically, I think we've just reached a kind of a floor of sellers.

Like everyone who was gonna sell pretty much has sold at this point, is what it feels like and what a lot of the data kind of indicates.

And so I think that's 1 reason why we're seeing prices more stable, despite what's going on with the bond market and with the broader macroeconomic climate.

On the flip side, I do think that crypto has separated itself a little bit from the macro environment over the past year or 2.

We were so tied up in the, you know, fiscal policy when COVID happened and the dramatic change in the velocity change of interest rate policy And so all of that kind of drove the returns of crypto assets.

Interest rates started rising very very quickly at an unprecedented rate.

We saw crypto prices and all other kind of risk assets collapse.

And so we're now seeing a little bit of a separation there as macro takes somewhat of a backseat, you know, compared to where it was before.

And people are focused more on, you know, institutional adoption, regulatory evolution, right?

And so we're seeing institutions come into the crypto market.

You think we just, we saw UBS recently announced that they're exploring tokenized bonds on Ethereum.

We're seeing, you know, obviously big institutions file for spot Bitcoin ETFs.

BlackRock, the largest financial institution in the world, you know, looking to get into the spot Bitcoin ETF market.

And so I think those are better long-term signals for where the market's headed.

I don't know if it's in this next year, because there's obviously a lot of questions around what the Fed's going to do with interest rates and where we're at today.

But I think there's some really strong tailwinds combined with the fact that a lot of sellers have already sold over the past year and a half, 2 years.

That's allowing crypto prices to sit at more of a stable level than they may be.

And so I think we're just going to kind of keep chopping sideways until we have that that next major leg up.

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How Bitwise is Unlocking Ethereum Futures ETFs | Matt Hougan and Ryan Rasmussen