Second Order Impact of ETH ETFs | Roundup

So I'm trying to decipher what's priced in and what's not. I, I look at it from a medium to long-term perspective, and what I see is this pivot in, in politics and regulatory regime is, is massive and should not be, uh, discounted.

It, it—

what it does to me is it doesn't necessarily mean we have to go up in price tomorrow or next week or next month, but But what it does is it removes, in my mind, that, that worst-case outcome of like, actually, Gensler's going to go scorched earth banning all this stuff.

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Xyz/rewards-station.

All right everyone, welcome back to the Roundup. Santi is missing this like uber bullish Roundup we've got here, so we had to sub in the GOAT, Quinn Thompson from Lekker Capital. Quinn, welcome to the show, man.

Thank you. I know it's, uh, probably disappointment, not as good-looking guest, so everyone's gonna have to listen to this one on, on their Apple Podcasts instead of the—

I see. I'm just excited because, uh, Mike usually has you on, on, uh, on the margin, and I hope stolen. I can't let Mike have the better roundups than us.

So yeah, he's got some competition within the Blockworks community now. So, uh, you know, maybe if I like this one better, I might have to protest.

Yeah, we're taking you. How's life, man? How's the week been?

Good, good. I just came back from a trip to New York. I was up, up your neck of the woods for a week. It was beautiful, great time of year, but good to get back and back in the saddle.

Any like favorite meetings or people you saw?

Released a pod with Pomp yesterday. That was fun. Had kind of a good mix of crypto meetings and met with a couple traditional macro guys as well, which was fun to, you know, I like to stay rooted in both worlds, so it's helpful for my process. But yeah, super successful, productive trip.

How's the fun been since launching? Good, good.

We went live last Wednesday. Officially on the 15th. So exciting time, launched on CPI day. And then, you know, obviously, uh, I went on my crazy person rant last week on On the Margin, getting bullish. So things have been good. Uh, let's, you know, knock on wood. I'm getting some, uh, traction on my views here. So, you know, now's probably the time to start fading whatever I say.

The Twitter's been good. The Twitter's been ripping. Yeah, I like it. Honestly, the If you just followed your calls the last, like, probably 6 to 8 months, you would have made a boatload of money. So that's why I wanted to have you on, is because I'm in a group chat with you and I'm going to not bury the lead here. And you said, if you gave me a blank sheet of paper, told me to write down the most possible bullish things to happen in the next few months, I don't, I don't know if I would have even drafted this list. What am I missing? I'm like basically said like I'm uber bullish and I've seen you be bearish. I've seen you be bullish. And this seems like the most outsized amount of bullishness I've seen from Quinton Thompson. So let's, let's get into it. Two big topics for today. ETH ETF, obviously. And then a lot going on on policy and politics. Obviously, the big one this week was FIT21. But then there was SAB121 last week. There were some more like quiet things like the chair of the FDIC resigned. Toxic workplace stuff. So let's, let's start with the ETF. So this week, I mean, the big tweet that kind of set everything off was Nate from ETF Store said SEC decision deadline this week on spot ETFs. SEC must approve both the 19s, which is like the exchange rule for exchange rule changes, and the S-1s, which is the registration statements for ETFs to launch. Technically possible for SEC to approve 19s, whatever, etc. That was May 19th. So that was, I think, Sunday. And then Eric Balkunas comes out. Eric's the senior ETF analyst at Bloomberg. Him and James Seyfried have become kind of like the ETF guys. Eric comes out with a banger tweet, 3:20 on Monday, says, update, James and I are increasing our odds of a spot Ether ETF approval to 75%. Up from 25%. Hearing chatter this afternoon that the SEC could be doing a 180 on this as it's increasingly a political issue. So now everyone is scrambling like us. Everyone else assumed they'd be denied. See Nate's tweet below for probability order of events. But again, we're capping at 75% until we see more. Market was like slightly slow to respond. I'd say ETH had like a nice, like, I don't know, 3 to 5 to 7% bump and then it rallied. I think— I don't know what it's at today. I actually haven't checked the prices today. Um, but I think it pumped around 20%. So dude, give me the, give me the like macro meets crypto view of this. Like, how are you looking at this? Uh, pretty big news update and from your seat.

Yeah, no, the, when it hit, I mean, it was just like scrambling to know if it's, uh, if it's, they got hacked, you know, I was right. I was messaging James and those guys like, tell me you didn't get hacked. You sent me a picture with a shoe on your head. Uh, so, but you know, it's obviously been confirmed through the issuers and a lot of things since. But kind of backing up a little bit to last week, I felt that the positioning was just completely one-sided. I mean, I had no clue and I thought my base case was the ETH ETF was a 2025 event, uh, just post-election when the regulatory regime changes. Um, but last week and coming into this week, even Monday morning, I, I was just getting very constructive, um, relative to where asset— crypto asset prices were trading, uh, relative to the rest of the macro sentiment environment. Um, so I thought, you know, people were overly, uh, defensive. And, and, you know, the thing I said last week was it's a huge, uh, week of events with Nvidia earnings, which is big for traditional risk assets and stocks and the ETH ETF. And barring— I said barring catastrophic news, it's likely a pivot point to the upside for these assets. And NVIDIA is up pretty big today, I think. And obviously neither of these were catastrophic news. The thing I'm thinking about going forward is we've had this huge rerating, like up 30% or whatever in ETH and up in the broader in the broader, you know, industry. So I'm no longer sounding like that crazy person. There's a lot of other people now. So I'm trying to decipher what's priced in and what's not. I look at it from a medium to long-term perspective, and what I see is this pivot in politics and regulatory regime is massive and should not be discounted. It— what it does to me is it doesn't necessarily mean we have to go up in price tomorrow or next week or next month. You know, there's a lot that needs to be sussed out. The ETF might not even launch for a month. These bills that are going through the House and Senate, you know, have a lot of work and likely revisions before they get into final form. So these are more longer-term catalysts, but what it does is it removes, in my mind, that that worst-case outcome of like, actually, Gensler's gonna go scorched earth banning all this stuff. Like, 2 months ago, I was bearish ETH/BTC for the reason that I didn't think the market was estimating how that— that, you know, I thought there's a higher likelihood that he would actually go scorched earth on ETH to try and, you know, dig his heels in. And, and that's— that outcome's been taken off the table. So you, you think Okay, if our downside potential was -50% for this asset, or, you know, whatever your case may be, I think those— that bottom, you know, 25 to 50% worst-case outcome of the probability distribution is off the table now. So, you know, that, that changes your, your expected value to the upside, and I think the market's reflecting that, um, whether or not it's immediately uh, you know, extremely positive for price. I think there's going to be other macro factors and micro factors that play into that. But to me, overwhelmingly positive. Like you said, you know, you couldn't really think of much. And it's democracy at work, really. Uh, you know, the people— it's all stemmed from Trump, you know, putting his foot down as pro-crypto. Clearly that resonating with voters and, and in the polls and, and the Democrats realizing they have to compete. And then all of a sudden out of the woodwork, you had 70-some Democrats, you know, in the House siding with Republicans on these topics. So it's really, really positive to, to go from this like political hot button rivalry where Republicans and Democrats just took sides for ideological sake to making it a bipartisan win-win. So that's what I'm looking more forward to. Yeah.

By the way, guys, we are, we are recording this Thursday morning, which is a tough time to record this because today is actually the VanEck deadline. So today, later this afternoon, we will find out if these things are getting approved. So we are just going to assume this bad boy is getting approved. But it's very possible that this doesn't get approved. Again, 75% chance from the Bloomberg guys, not 100% chance. So We'll see what happens Friday, but don't beat us up if some of our takes are wrong. Yeah, this was interesting. So if you talk to folks over— if you talk to folks last week and even over the weekend, this was definitely not happening, right, until this kind of came out. And then the ETF guys, you know, they basically heard whisperings and said, look, something's happening over there. I don't really know what's happening. And then it came out. So the SEC basically said, look, to all the, to all the applicants, here are your, here are the comments on your 19B4s. Get us new updated amendments by tomorrow morning, right? 10 a.m. And that was, you know, I think so. Then they basically had to scramble overnight. It sounds like talking to some of these teams, they pulled some pretty, some pretty fun overnighters fueled by Celsius. And now they've, you know, they got their applications in, they got the, the amendments in, and then today's the deadline. So if they approve, they're only— the only approval here is the 19B-4, right? And then we're going to need the S-1. So my understanding here, correct me if I'm wrong, is this could— so they approve the 19B-4, then there's the S-1, which is the registration. So even if the 19B-4 happens, you still need to do the S-1s. And so we might not even have— we probably won't have an ETH ETF live in the market until what, June, July, August, maybe, maybe like September, post-Labor Day, something like that.

Yeah, it's, it's definitely not tomorrow like the Bitcoin, you know, there was many months of preparation on that side. So it shouldn't— when they remove the staking, that's a huge element that should speed things up. Uh, I think that's consensus at this point. So a lot of it can just be Ctrl+F, search, replace BTC with ETH. But then there's obviously the risk factors and things. So I'm optimistic that it's like one month out, but I am no expert in this.

Nice. So I think there are two big stories in my mind here. One story is this is— it's not just an ETH ETF, like bullish ETH story. This is— this is an SEC retreating story. This is the combination of FIT21, which is kind of like— it felt like kind of the House taking back control a little bit over the SEC, saying, well, look, we're in charge here. And then this story, it's the SEC. It's really a story of the SEC retreating. But this is also a story of, um, a move like this that's so drastic is not an internal mid-level SEC person changing their mind. I don't even think this is coming from the top of the SEC. I don't think this is Gary just getting right. If it's not coming from the mid, mid-level SEC person, then you're like, okay, maybe it's coming from the top of the SEC. Well, we know Gary, he's not changing his mind on this. So that means it's coming from even higher than that. It's coming from a White House official. And the story there, I think, becomes— look, I think they were kind of caught offside realizing that, okay, I don't know how many Americans own crypto. I think it's somewhere around 50 million Americans own crypto. Let's say 30 million of those are voting, or like, let's say 50 million Americans own crypto. Let's say 40 million of them can vote. Let's say 10% of those or 5% of those live in a— let's say 10% live in a swing state. So that's maybe 40, maybe 40%, or maybe it's higher than that. Maybe it's 20% live in a swing state. So, so now it's 8 million people live in a swing state and maybe 10% of those are one-issue voters right now. You're talking about like a million people who are— they're trying to get a million people in swing states to vote on crypto or to vote for them. And if they realize that crypto is the issue, I think they were really caught off sides here. And between like, you know, the op-ed we had 2 weeks ago and a lot of Selkis's stuff and the Trump Mar-a-Lago event and these and the Trump coins and the SAB-121 and FIT or SAB, whatever it was, and FIT and this thing, it's like it feels like there's— this is no longer an SEC conversation. There's something at the top happening where they realize they were caught off sides.

I don't know what you think about that, but yeah, I think, you know, I've heard some discussion in the industry as to like, how can this be that mean? If we agree it's just a political chess game, how can we be that excited about the change that potentially might come? You know, I think some people have said it's just, we're just kind of the poker chips on the table being be moved around to benefit the parties. You know, to some extent that's true, but that's also how democracy works. When enough people speak up and it's finally heard, the voices that it's an important topic, I think, I think that's just how, how things evolve and how change evolves. And it takes time. I mean, financial systems, money, wealth. These— this is for a long, long time been, been a single issue for, for many voters, right? Like, people vote on taxes all the time. People vote on financial freedoms and their ability to, to choose between different service offering and accessibility. So it's not that strange, um, but, uh, I do think I do think it's, it is pretty timely. Obviously it's all coming from like Gensler, as, as recent as this week released that letter opposing, you know, these, these latest, uh, things, bills passing through the Congress. So it's clear it's not him. Even some of the supposedly the staffers were shocked at the 180, and the issuers are saying that it's the, out of any ETF they've worked with the SEC ever, it's the most frantic scramble they've ever had. So It's definitely the case that, um, Biden, you know, he, he can barely stand up and talk now, so like they're going to be pulling out all the stops. But look, we'll take it. These are wins for the industry. And, and, um, there's a— the worst part about it is they've been, um, you know, making out all the best actors in our space look like the worst, right? So they have suits against Coinbase, Uh, Robinhood, Uniswap, ConsenSys. I mean, these are the most stand-up organizations in the industry. Meanwhile, you know, Gensler was buddy-buddy with, you know, some of the worst people. So it's just like a kind of righting of the ship in my, my book and, and what needs to happen for us to evolve.

Yeah. Did you see the Hayden tweet?

There was like a Uniswap cop—

there's a Uniswap copycat on like— that was, uh, running ads on like subways or taxis and like had their billboards plastered. And he's like, So you're telling me like they're coming after us, they're not coming after this like clearly scam company.

So yeah, and that's really what everybody's asking for, right? I mean, Coinbase has been saying that for like a million earnings calls in a row. It's like, guys, just give us a rule book to play by. We're going to play by the rules. We're a $50 billion company. We're not going to jeopardize our enterprise. We're going to play by the rules, but like, just give us— there's no rules to play by. It's, it's positive steps. And, and obviously, the, the read, read between the lines around potential stablecoin bills coming and, and other areas we can get agreement in, in DC. It's, it's going to be a big catalyst down the road.

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Kinto is a safety-first layer 2 that features user-owned KYC and native account abstraction to solve what are probably the two biggest problems in crypto. One, security, and two, user experience. I'm an investor in Kinto. I've known their founder Ramon for a long time. Ramon the other day sent me a message on Telegram and said, you got to try this onboarding. I'm super proud of it. Please just go ahead and try this out. Tell me what you think. It is the most magical, seamless onboarding experience onto an L2 that I've ever had. You can, you can try it out. It's Enjin, E-N-G-I-N. .kinto.xyz. I would really recommend going through the whole onboarding flow just to see what the future of crypto can feel like and what it probably will look like in the future. Go onboard, engen.kinto.xyz. Let me know what you think. And if you want to chat with their founder Ramon, happy to make the intro. This episode is brought to you by Mantle. Mantle is an L2 backed by one of the industry's largest treasuries. At the time of recording, it's valued at $4 $1.4 billion. The Mantle ecosystem engages in a lot of early-stage exciting projects such as Athena and EigenLayer, and they give out actually the rewards to the Mantle community. There are two airdrops I want to tell you about. The first one, it was with Athena. They offered 2.5 billion Athena shards to holders of their native token MNT. So the reward station program distributes these presale token allocations to MNT holders who stake the tokens. The second one they have going on is with MISO, M-I-S-O, that gives out over 90,000 MISO tokens worth about $50,000 today. That starts on April 25th, runs through May 2nd. If you want to check that out, you got to stake your MNT and you can check out the reward station at mantle.xyz/rewardstation. Big thanks to Mantle for sponsoring Empire. Take me into, take me into the markets. So like this news hits I can pull up the chart. So if you're looking at the ETH chart here, ETH had been— let's see this. So ETH was, you know, back in March was flirting around $4K, just hit some like huge resistance around $4K, flirted around the like $3,250 range for a little bit, fell below $3K in early May. Like, ETH sentiment was real low. I think actually Mike had a very good call May 18th. On, I think Friday or Saturday, said, look, ETH feels like a ripper of a buy here. I forget the exact words, but like sentiment is just too low. I think sentiment has been low probably since January. Like ETH sentiment has been like tough all year. Mike had a really good call on this one. But yeah, if you look at the chart, I mean, ETH pumped from $2,900 up to— I mean, what are we at? What are we at today? $3,800, right? So we had a massive move up. There was some interesting stuff on like, I think vol doubled, the Coinbase premium. Joe McCann was talking about this, right? The price on Coinbase versus like the Tether price on Binance, kind of a signal of institutional capital. If you're a good institution, you're probably trading on Coinbase. Yeah, like biggest Coinbase premium he's ever seen. So take me into like what you saw just like in the markets this week.

Yeah, it was funny. Mike and I had dinner on Sunday night and we were talking about what if this happens and what the market's positioned for it. Again, it was just to that point of, uh, of everything being offsides. It was the last— I rotated out of my last Bitcoin, um, late last week into mainly ETH and SOL. And, um, it was the, you know, first time I hadn't owned Bitcoin in a long time. So I think, yeah, as mentioned earlier, it's, it's less clear in, in the immediate term, you know, how bullet, you know, at the end of the day, this is a very positive catalyst for ETH, but we still need— ETH won't just go straight line up with the rest of the market not going up. So we need that broader environment to be supportive. And I think the, the things, pieces of the puzzle are there. Let's see if it continues. Probably the thing I have the greatest conviction on is, uh, that this— I don't really see this being that positive for Bitcoin in the near term. Um, you know, there's some nuances to if the ETH ETF gets approved today but starts trading next week versus in a month or two, you know, what the market does in between there. And there'll be some volatility, of course, and, and moves to shake people out in both directions, I'm sure. Um, but ETH really, like you said, since, I mean, it's been 8 to 12 months of just straight down only for, for Ethereum relative to Bitcoin. And there's a number of reasons, right? Solana really kicked things off there as, as competition. It captured all the attention and, and activity given the low fees for smart contract, uh, layer 1s. So all the meme coins, a lot of the NFTs and You know, it really just was in my book that Solana move, a lot of it was a re-rating to fair value for Solana relative to where it should be, less so a knock on Ethereum as an asset. You know, Ethereum's still been building here with a lot of L2s and other innovations. So I think that combined with then the Bitcoin ETF was like this double whammy blow for ETH. That just kind of threw it to the wayside. You know, people were like, all right, if I want to be in a safe asset, I'm going to be in Bitcoin. And we have the benefit of the institutional inflows coming. You know, there's $60 billion sitting in Bitcoin ETFs today. And then, uh, if I want something further out the risk curve, I'm going to go into Solana. That's where the memes, that's where the NFTs, that's where everything's happening. So it suffered from this like middle child syndrome. I think that's, you know, it's a different story today, right? So for the last 6, 8 months, the market's been trained to fade these ETH-BTC rallies. And here we are though with a much different fact pattern right now. Uh, you know, we're in this broader bull market environment where, uh, smart contract, you know, layer 1s usually do better than Bitcoin just given there's increasing on-chain activity and fees. And better revenue profile. And that wasn't the case, but now you have Bitcoin and ETH on equal footing with ETF accessibility. And I think that's the core component here. So over the next month, whether that's, you know, my highest conviction is probably ETH BTC up, and that could be at different times from BTC being down more than ETH, right? So You know, let's— there's going to be some funky stuff that happens today around the actual approval and extreme volatility, but I think over the next 2 months, ETH/BTC settles higher than, than where it is today.

So ETH/BTC hit a— so ETH/BTC topped out when top of the, top of the market November '21, has been riding it down since, bottomed at like what, 0.45.

Yeah, exactly. Which was like the peak, kind of pre— the pre, you know, in '21.

Yeah. So we're sitting at 55 today. What do you think, like, if you look out maybe towards the end of the summer or end of this year, what do you think BTC finishes at?

Yeah, it's, uh, it's hard to say, you know. It's gonna— it's gonna depend on that— that flows to the ETF. And in some ways, it's almost better if the ETF gets released in a, in a month or two because it gives these issuers and teams time to start marketing the product in the same way they had 3 to 4 months to market the Bitcoin ETF to institutions, retail, high net worth advisors, RIAs. So, you know, if it goes— the sooner the ETH ETF goes, the probably the more it's a sell the news because there might be a little bit of air pocket here between like Oh, the issuers just found out they're launching and they have not done any work on it. And when it goes live, um, and be— before the flows actually start coming. But the one thing I'm thinking hard about is when— what, what the Bitcoin ETF launch did not have is $60 billion of capital sitting in, you know, the— let's call it adjacent sister ETF for the asset, which I'm referring to the $60 billion sitting in Bitcoin ETFs, right? So ETH is about a third the size of Bitcoin, obviously less volume, you know, needs, requires less inflows to move the price the same amount, just given the relative size. And if I'm trying to get conviction around what percentage I believe that's sitting in the Bitcoin ETFs would perhaps rotate into the ETH ETFs. I don't think it's, I don't think it's 50% or 30%, but I don't think it's zero. And there's a number between there that could be actually very impactful and potentially even offset the bulk of what we might see from ETH outflows, you know, in the Grayscale side. So that's where I kind of come up with, I have a hard time seeing like ETH really meaningfully outperforming Bitcoin from here. Um, and you know, I guess the, the true answer there lies in how important that is.

Hmm. That's interesting. What do you— what are some other, like, outside of ETH BTC, what are some other, like, second-order impacts from this? Like, I'd be curious to get— I mean, you can take this anywhere, anywhere, anywhere that you want to go. Like, I'm curious what you think will happen to staking post the ETF, like impact on something like a Lido. Curious how you think about maybe coins that the SEC was targeting, like something like UNI, does that get a move? Maybe something like— there's a, there's a way to play this about what's the next ETF that's coming. I was watching CNBC and they were talking about the Solana ETF. I think there are other ones that people could be shocked by. There are things like XRP, like a Doge ETF would not surprise me, which might seem ridiculous, but I mean, Litecoin ETF, which seems the most ridiculous, but like I wouldn't put it past people. So I don't know, just take me through like how you think about second-order impacts of all this.

Yeah, the, the big devil in the detail is, uh, when the SEC approves, assuming they do, what— how they delineate between— because they will have to say, acknowledge that Ethereum or unstaked Ethereum is a commodity, not a security, if, if this goes live. So As we know, that's been regulated by the CFTC and out of the SEC's purview. So it'll be very interesting for the rest of the industry to see how they delineate between calling unstaked Ethereum a security or a commodity, and if they maintain their stance and that staked ETH or the act of staking ETH is a security. My guess is that they, um, point to the yield and things like the active participation of the investor having to take action to stake the ETH in these components. But that's really, that has the most knock-on for the ConsenSys, the Uniswap, the Coinbase, the Robinhood cases. And there's a tightrope to walk there because there's a little bit of incongruence there. I mean, it's a new asset. There's never been anything like it. So it makes sense that it wouldn't be the most clear-cut thing to opine on. But the industry just is looking for clarification. The follow-on ETFs, it's, it's, I mean, it's, I feel like I've seen more about Solana upcoming Solana ETFs than I have about the ETH ETF at this point. And it's like, that just is, shows you where sentiment is, right? That shows you like how overlooked ETH has been as an asset. And Where positioning is, it's, you know, probably a lot of people talk in their book. There's no way a Solana ETF is going to happen without Solana futures, right? So that's what, that's the basis of all this. So actually, in my opinion, like those, some of the legacy alts that you mentioned probably have a better chance, particularly ones that are proof of work still, like Litecoin or Bitcoin Cash or Doge. You know, no one really cares about them, but they've had Grayscale trusts exist for some of the longest, right, next to Bitcoin and ETH. And Coinbase has filed, uh, Coinbase has filed for, uh, you know, futures trading with the CFTC for some of these assets. I think Doge, Litecoin, BCH, some of that. So I don't see a reason they couldn't be, you know, like, I think they just need the futures up and running, and then I think I think I don't see a reason those don't become ETFs. Like, Grayscale have had those trust vehicles for a long time, and, uh, some of them are actually quite large. That, that, uh, the ETC Trust, I think, is 10% of Ethereum Classic's market cap. I mean, that's massive.

Really? Wow.

Yeah. So, so who's out here buying—

like, who's buying that?

That was when Barry was shilling.

You know, I know that's Barrycoin, but like, who's buying that?

Well, no one, but that's why, because the discount on those trusts are like, I don't know what they're at these days, but they're ridiculous. So there's probably some interesting things to do there. Yeah, I'm sure some funds in space are looking at it.

What about you got the Pudgy poster behind you? Like what? I think in Mike's tweet or maybe it was in another one, it's like, look, the the move here is to start thinking about the second-order impact of some of this stuff. And where his mind went immediately was NFTs. So I'd be curious how you think about what this will do for whether it's the meme coins, the NFTs, like longer out on the risk spectrum.

Yeah, I mean, I had this big NFT thesis in, in at the start of the bull in like October, and I piled in, um, Pudgies being my favorite. I Memes captured— I mean, memes have like overtaken as the, the speculate speculative vehicle of choice this cycle. So I, it's not really something I want to fade, just given it's a more liquid version of an NFT to speculate on, and you can kind of have the same memetic characteristics as NFTs. I love Pudgies because there's an actual business being built, and I actually think it's a more interesting, uh, play than most protocols in the space. So, um, but finally it's like I'm not— I'm finally like excited to be an ETH holder again. I, I wasn't for like 8 months, so that makes me happy because anything denominated in ETH should, should do decently well. Um, we've seen obviously memes on, on ETH run harder than memes on Solana lately. Um, yeah, I, I think though, broadly speaking, you know, people aren't dumb. Like, so like the market's not going to just blindly ape SOL because there's a SOL, like there's probably not a SOL ETF coming. So I think we need this banana zone environment to tee off before we really get the full prolonged bump and the longer tail stuff. ETH, you know, Uniswap's caught a bid, Lido and ETH DeFi's caught a bid. So Let's see how those stick. I'm a little skeptical, right? Because like, it's pretty different. The read-through here, Stacks, you know, it was a big Bitcoin beta play into the Bitcoin ETF. There's basically one Bitcoin beta play in that Stacks. Like, there's not really anything else. For ETH, there's a trillion fragmented ETH beta plays. So there will definitely be some winners in there. I, I just don't think it's as like close your eyes, throw a dart at the artboard and you're going to win scenario as it might have been.

What about Coinbase? Coinbase, Coinbase and/or Robinhood?

Yeah, over a medium term, those, those businesses, again, I, I think of it similarly where it takes this, this improvement in regulatory stand, you know, positioning takes the bottom 10 or 20% worst-case outcomes off the table, most likely. Robinhood crypto is just still a fairly small percentage of their business. I think it got up to like 30 or 40% of revenue in the previous bull. It's probably like 10 to 20 now or something. So they have a bunch of other things that you have to take into account when looking at it. They would stand to benefit if we see a prolonged movement in the meme stocks, right? We've seen a little blip in that. I kind of think it comes back again this year, but not something I'm like, it's kind of just a hunch. It's not, it's not necessarily high, high conviction. Coinbase, like we talked about all the things that came through, right? In this, in this new political stance is like a potential stablecoin bill. The potential for banks to custody digital assets. So Coinbase could acquire a bank and that would lower their cost of capital and operate on an even playing field with the Wall Street institutions. And then obviously the ETH side and staking, Coinbase is leading the way with these other futures for different alternative assets. So they just launched that gold and gold and oil futures, which I'm not sure how many crypto traders are trading gold and oil. Uh, I look at them for my macro processes. I don't really trade them that much. So I— it's just cool to see though, right? Like, I think that's like the whole long-term thesis of tokenization of every asset is like they're stepping into that arena and showing what can be done and how efficient these things can be traded and the data and transparency involved. So I just love what they're doing over there. Um, you know, and Circle IPO would be huge. I think base case probably for a lot of people was that the Circle IPO couldn't happen until there's a regime change in Washington, but maybe that's pushed up too. And then Coinbase would be the biggest public market beneficiary of that, given their ownership stake in Circle and, and how much they benefit from the growth in USDC. So there's a lot of good, a lot of good things to like there. Um, the thing to maybe be more cognizant of for Coinbase and Hood is just, uh, they do trade more with crypto, you know, they trade more with traditional macro and equities than tokens do. You know, there's that relation, uh, given the equity beta within. Um, so there's other factors you have to look at besides just their correlations to Bitcoin.

Yeah, yeah. I mean, I'm biased because I hold coin, but, um, I mean, I just think like this Coinbase play is such a ridiculous no-brainer at this point. Like retail, retail is just starting to come back into the markets. Coin makes a coin— if you look at like Coin's earnings, earning reports, the profit margin they make on retail is pretty ridiculous. The— I mean, the ETH ETF, obviously, like stablecoin bill coming, Coin and Circle are like pretty joined at the hip. SEC changing, changing their, like, I don't know, just, I don't know, change. I don't know if the SEC is changing their belief on crypto, but like someone is pushing the SEC to change their belief on crypto. Biggest risk for Coinbase has usually been like SEC litigation. FDIC chair just stepped down, which we can talk about. He was behind Chokepoint 2.0. So like, that's pretty big. I think they're pushing into— I've seen Brian tweeting about banking a good amount. That's very interesting. And then actually, there was a— I think this went under the radar a little bit, but Coinbase Derivatives expanded. I think it was last week or the week before, Coinbase Derivatives expanded to include oil and gold futures. So they're launching retail-sized oil and gold futures on June 3rd. So this is just like, if you think about the RWA narrative, like commodities are the RWAs that you've been waiting for. So like, you know, on Coinbase, you're gonna be able to trade oil, gold, crypto. You got to assume one day equities. So I mean, talking my bag here because I own Coinbase, but like, so just want to be like overly descriptive about that. But like, man, it feels like a ripper right now.

Yeah, it's funny to me, the You know, everybody— the Bitcoin ETF was a sell-the-news event. Clearly the hype was just for the, for the short term was overdone, but the flows were— surprised everyone. I mean, even the— everybody— the, the Bloomberg guys are generally the closest here to things, and, and even blew them away. So I, I see once again, um, and the other, you know, there's that component where everyone now still Everybody I talked to in New York in the last week, they're like, oh, that's great news that we're getting an ETH ETF, but it's going to be a flop. No one really expects the flows to be that good, citing either less understanding of ETH as an asset relative to Bitcoin, or it's more complex, or just less demand broadly, which there's some fairness to given ETH futures ETFs haven't done that well. But the other component, which— so I just wouldn't fade BlackRock, right? Like they're going to find a way to get some money in this thing. They did, they did with Bitcoin. Um, they're going to do it again. So I wouldn't fade that like, like people are doing. Um, the other thing that I find interesting is I read in a lot of the equity research that, that the street puts out on Coinbase that, you know, everyone's very concerned about two things with that business, which is the compression of their margin on the retail side. So institutional trading is the vast majority of their volume, obviously just size, but they, they can charge way less because there's much more competition on on the institutional side. And, and retail is their higher margin but less volume, and then where they generate most of their profit from. So, um, people look for that to compress over time, which it will. But, you know, Coinbase has done a tremendous job. They've actually gained market share over the last year, uh, as they've been able to kind of just create better products than, than what else out there, expand internationally. And the other side of it is people you know, kind of looking at Coinbase as, as a detriment, you know, the, the ETFs as a detriment to their business because volume's going through, um, going through the ETFs instead, which also to some extent is legit. Um, but they also benefit, right, with the custody they, they provide. They're the largest custodian to the Bitcoin ETFs, likely to be the same for, for ETH. If there's ever ETH staking, it would likely have to go through Coinbase. So I think there's a lot to like and just Broadly, like, more eyeballs on the space is, is good. We're, we're still very much in a positive-sum game where a win for ETFs or anything in the industry is a win for everybody. So we're not mature enough yet as a space where, like, it's, it's that kind of sharp elbow. So I, I think definitely the tailwinds are there, and you can make a pretty big bull case over the next 12 months.

Yeah. Should we talk policy? Sure.

We're both experts on it.

So, yeah, yeah, we are the two best people to talk about this. So I'll give my best explanation of what's happened. Basically, TL;DR, one line: Democrats have pulled a big 180 since Trump endorsed crypto a few weeks ago. Trump endorsed crypto a few weeks ago, Mar-a-Lago event. Since then, it feels like Dems have pulled a complete 180. Why they're doing that, I don't know. Got to assume they're realizing that the anti-crypto platform is not the right platform. So last week was SAB 121. The big story here was 12 Democrats kind of voted against the Democratic Party, joined the Republicans to veto SAB 121. SAB 121 is a reminder— we talked about it last week on the Roundup with Case— but if you are a bank right now, if you're a bank and you hold assets, the way that you make money on those assets is you just charge fees. You don't actually have to put those assets on your balance sheet. SAB 121 said you actually have to put that crypto on your balance sheet as a liability. So because it's a liability, you then need the assets to actually match those liabilities. So what that's going to do is it's going to drastically increase your capital requirements to offset the liability. And if you think about how much— what that actually means, like let's say you have $10 billion of crypto that you're holding for someone, or even $1 billion of crypto that you're holding for someone, that's $1 billion in liabilities. You now need the capital to on the asset side to match the liabilities, it just becomes too expensive. So you're basically outlawing— what's AB121 would have done would like just completely outlaw any bank from ever being able to custody crypto. So it wasn't actually saying it's illegal to hold crypto on your balance sheet. It just made it so ridiculously expensive that no one ever would have ventured into it. There are a couple of banks lined up to custody crypto like BNY Mellon, for example. They've been ready for like a year or two. They're not doing it because of things like SAB 121. So the veto was pretty big. I think it's now on the— I think it's on Biden's desk. Does he vote or is it— where is it, Quinn? Do you know? Is it on Biden's desk?

Yeah, they still might veto it. Yeah, though we'll see. I don't know when that's supposed to come. All right.

We got to have— so that was SAB 121. We got FIT 21 passed the House, big passing of the House. Now it's on to the Senate. Passed the House by, I think, I mean, much wider margin than I think anyone thought would, would pass. I think it was 71 Democrats voted with the Republicans. Huge margin of victory. The initial response was like, boom, beautiful, good. I even tweeted this out. I was like, what a win, blah, blah, blah, blah. I think if it like the good sentiment right out of the gate was like, look, if this passes, It means crypto companies can come home. FIT provides clarity on what is a commodity versus security and how DEXs are classified. All we've ever wanted is just some clarity on regulations. This is— I saw some people tweeting, this is the biggest step forward to crypto legislation ever in the US. This is a dagger to the SEC. Another one, we know, you know, we now have bipartisan support for regulatory clarity on crypto, right? Long crypto, long the US, long innovation, etc., etc. That was kind of the sentiment yesterday. Woke up this morning, sentiment seems like, you know, we had Gabriel Shapiro, Lexnode on Twitter, tweeting out, you know, FIT21 illustrates just how easy it would be to psyop everyone into supporting something that we don't actually like because it's, quote, symbolically good for crypto. How do you know it won't pass the Senate? And what he's saying here is, I think the under— I think it was maybe David Hoffman was tweeting like, look, yes, FIT21 is not something to be excited about in terms of actual policy, but that's fine because it's not actually going to get passed in the Senate. So the House vote today is really just a vote of confidence in crypto. And Gabriel, I think, is duly pointing out, look, like, why are we betting on the Senate to like make this thing a better bill when, you know, like, and, you know, let's say this thing does, let's say the same bill is proposed, let's say it doesn't get passed, same bill is proposed again next year. Like, how are we going to backtrack and start to criticize this thing? And I think as Stephen Paley said, look, I finally forced myself to skim the FIT21 bill and I do not like it at all. It needlessly creates more jurisdiction for the CFTC over spot and a walled garden for incumbents, among other things. But you dipshits keep asking for new laws. So I don't know if you have Again, we are not probably the best people to talk policy, but I don't know if you have thoughts on this one.

Yeah, I talked to a couple lawyers in my network. I think that it did sound like, uh, similar feedback. People are split. Um, it's, it's, it's one of those things, like, it— again, it's the first time, it's a new asset class, it's a new industry, there's new— everything's new about it. And, uh, it, it's— there's not a clear-cut path to to what the regulation should be. And it's, it's, these frameworks are actually very complex. Like if you, if you try and draw up what, what should occur here, it's, it's not straightforward. So, um, I think that the hoopla in the industry is, is like, finally we, we're being talked about on the main stage and we're being heard. Our voices are being heard and, and people are paying attention to us. So that, that all feels good, right? Like everyone's like really excited. But I, I would bet, uh, less than 1% of people actually read these bills and what's inside of them. Yeah. And even smaller number of those who read 'em probably actually understand all the nuance of everything in there. So yeah, I, I believe the lawyers that there's a lot of things that need to be worked out. So it's probably good that it doesn't pass right away and it gets input from, from all the industry leaders. But resounding positive step in the right direction just to get, get this stuff on people's radars. Yeah, in Washington. Uh, but you know, first, there's always going to be a lot that changes between the first and last iterations.

Yeah. And if you're— I mean, I guess the last counter to this would be like, if you think about the CFTC, everyone's like, yeah, we want the CFTC, not the SEC. But if you remember, the, the CFTC were the, were the folks who you know, behind the OokiDAO attack. That was pretty, pretty gnarly attack. You know, like it's basically just taking out people who are posting in the governance forums. That's a pretty ridiculous thing. So I think the most interesting part of the bill, there's this 5-pronged decentralization test to determine whether or not an asset is a digital commodity. I honestly need to read through it and like actually understand it better, but like I would recommend— well, I'll put a link in the show notes to this tweet thread that somebody did. I think it was Dr. Jasper, but I would read through the thread, especially if you work at a protocol. I would expect all protocols to pay very, very, very, very close attention to this test. It's like his name is Jasper the Friendly Ghost on Twitter. He did this like whole overview of it. You got to assume like every L2, every DeFi app, like everyone is paying attention. To this new, like, 5-pronged decentralization test. One of the things in there was like, I mean, I skimmed through it. It's like, yeah, like, based on this new test, like, a majority of the L2s, a lot of the native tokens with admin rights are just these, like, multisigs.

They will—

they would be deemed a security based on this new test. So I got to assume people are paying pretty close attention to this.

Yeah. Yeah. It all, all this too, the funny thing is it hinges, you know, there's big change coming in November. So, um, depending on the outcomes of that and obviously all the jockeying and positioning that, that's going to happen before that, like by the time these things actually get passed into law, the political regime could be different. We could have two new heads of the CFTC and SEC and maybe their roles will be reversed and who likes crypto and who doesn't in those, right? So hopefully for everybody, we have, we have Hester, uh, taking some prominence and, and give her all the power. But, you know, careful what you wish for, I guess. That is, uh, yeah, you never know.

I mean, there was a time when we were, we were wishing for Gary, Gary G.

Yeah, yeah, exactly. And then he—

and there was a time when everyone hated Jay Clayton, and then Gary came in. We're like, man, I wish, wish Jay Clayton back. So, um, Give me your take on just the election. Like, you, you follow a lot of these, like, the polls pretty closely, and you follow— you're just like a good macro thinker. It's like zooming out from crypto for a sec. Just like, give me your honest take on the election, your read on what's going on here.

Yeah, I, um, I, I actually don't like politics too much. I only, I only, um, you know, really form views where it affects markets, and, and it's really election years is about it that does, um And actually, I'm a believer that Trump or Biden doesn't really matter. They're actually very similar. I think over an 8 to 10 year period, I think the result would be the same no matter who you elected.

Specifically for crypto you're talking here?

Uh, yeah, for everything really. I'm not a big believer that either. I think the system kind of is, is, um, the path has kind of, you know, been set and, and it's just the path you know, the destination set and the path is the volatile thing that might change based on who gets in there in the short term. But my view is, I think Trump wins. I think I do believe with what Vivek's speculation is that they move the debates up to the earliest there's ever been a presidential debate to— is that thunder in New York?

Thunder in New York. It is dumping right now. Nice. That's crazy, actually.

I think, I think Vivek's speculation is right that they're moving the debate as early as they've ever done in presidential history so that if Biden flops, it kind of gives the Dems a reason to slot in Gavin or Michelle Obama or something. Because like, I think it's becoming very evident, it's almost roles are reversed, right? In previous elections for Trump, it's like, Trump, you're gonna win, just don't be an idiot and say something that you're going to lose. Uh, it's almost reversed where it's like, like, just let Biden talk because he's, he's, you know, people are— it's gonna, you know, just don't, don't open your mouth. So, um, I think there's a lot of combination of factors. If you go back and look at populist years, uh, in the '70s when there's high inflation and these types of environments, it's actually really bad for incumbents. Um, like, significantly, statistically significantly bad. Relative particularly to normal environments where incumbents win upper 90s percent of the time. There's a lot of 8-year terms, uh, in these inflationary populist periods. There's a lot of 4-year terms and lack of reelection for incumbents. So that's just like, there's a lot of like, like structural things going on, um, and reasons for that. And then you look at the inflation problem still here, the southern border, I think, you know, that's gonna help Trump win Arizona and Nevada, which are two huge swing states. And he really only needs one Pennsylvania, Michigan, um, or Georgia after that. And so when you boil it down to how the Electoral College works, there's a pretty strong case to be made. Um, and something, you know, there's gonna be a lot of stops pulled out to, to compete, but it's looking to me like he's gonna win. And, and, you know, the markets are a little bit trading off that the polling swings. So that's good for crypto, it's good for business, it's good for, uh, you know, regulatory red tape getting cut. I, I truly don't think it changes the direction of the markets that much. Like, uh, I see like a liquidity problem on the horizon after like 2025. Um, like things—

what do you mean? What do you mean by that, Quinn?

The last 2 years, the the US economy has significantly outpaced the rest of the world. Europe, UK, Japan, China, everything's been much slower than the US, and everyone's sitting here like, why has this happened? Why has this been able to occur? And the fiscal spending by the US is the answer. We're running large, large deficits that we'd only spend like during wars and recessions. So it's pretty clear to me that that's the reason for this economic strength and separation. But then the second-order question is, well, why can we just print a ton of our sovereign debt and our currency stay strong? And if anybody else in the world did this, their currency would fall apart, i.e., Japan, i.e., emerging markets. And the answer to that, in my opinion, is the, the, some of the liquidity facilities that the Federal Reserve put in place during COVID and post-COVID, which which primarily the reverse repo, they actually stimulated so much in 2020 and 2021 that they built up a $2.4 trillion reserve stockpile of excess at the Fed that they started drawing down in October 2022. And if you look when risk assets bottomed, it was October 2022. And that's coming to an end later this year where eventually then they'll have to issue all new debt directly into the market and won't have this liquidity buffer. Um, so there's things like that in the background that I think play, play effect here. And who's president doesn't really change these things. Um, but you know, you can look to— I think I'm also looking to 2016, right, as like the market reaction to Trump's win. Like, you're getting that, you know, rates went up because there's higher growth expectations, banks performed well, oil and energy performed well. But then the kicker is to look at what sustained throughout his presidency and where were those just one, two-month blips on excitement about his election, or were those faded and ultimately didn't come to fruition? So really, really interesting time for the markets, and there's a lot of game theory and positioning things that go in here. And, um, you know, it's— I'm just excited that the industry is no longer the laughingstock and And, um, nice to get a little bit of, uh, you know, clarity on, on the regulatory front. Definitely.

Anything else, man?

I don't think so, man. I've been hearing my own voice way too much. So, uh, just wait. Disclaimer to the listeners, I got a couple of things right here in a row, so I probably should start fading whatever I'm saying.

What are you guys talking about on, on, uh, On the Margin tomorrow?

Probably, uh, probably more macro, you know, you guys. I was looking forward to Santi being on here so we could, uh, you know, we come at things very, very different from the investment side. He's way deeper and smarter on a lot of the stuff. And, um, we'll have to do this again.

I know, I don't know, he's on, uh, he's on some, some vacation somewhere. These VCs, man, these VCs, can't trust the VCs. I want their hours. What do you, what are you investing in out of the fund? Are you doing just like all liquid stuff? Like what's the allocation like crypto tokens versus like things like Coin or Robinhood? Yeah, I do both.

So it varies time to time. That could be all cash, I could be all invested, I could be all tokens, I could be all crypto equities. It's like just where I see the opportunity right now. I think, um, I am biased towards I think tokens at this point. Um, let's see, on the equity front, I think there's other risk factors there. Um, but I do have some allocation on that side, and, and, um, I've been, yeah, like, kind of lucky on some of those calls last week to move out the risk curve into things other than Bitcoin. And I'm, yeah, I think things are a little more fully priced now for like the immediate term. So kind of watching this, this political and stuff and other factors around the macro to see where we go in the near term. But yeah, I'm hoping for bananas on summer as much as anyone, man. It's— There you go. I hope Raoul's right. I want to see his revenge tour.

I had a call with Raoul last week and I was like, dude, no, you are a master of these little one-liners that like just get everyone rallied around a thing. He's like, dude, that's the name of the game, baby.

Yeah. Yeah. It's fantastic. It's fantastic. So good, so good. I messaged a buddy, I was like, I guess one of, you know, the meme coin expert in my network. I was like, you gotta— like last week or week and a half ago, I was like, you gotta make a Banana Zone meme, this thing is gonna go viral. And sure enough, someone did beat us to it though. I, I, uh, I'm not a meme coin guy, so I, I didn't get, uh, on the opportunity. You got your little WIF thing in the back. Yeah, I support, I support the crypto vibes, you know. I think it's fun and it helps You gotta, you take things serious, but you gotta have some fun too. So lean in a little bit. True.

Quinn, pleasure, man. Appreciate you coming on.

Yeah, thanks for having me, Jason Yanowitz. All right.

You heard about Sei a couple times. Just want to give them one last shout out. Big thanks to Sei for sponsoring this episode of Empire. There are a ton of reasons to build on Sei. If you want to get in touch with them, you can reach out to me. I'll put you in touch directly with the team. You can also get in touch with them on Twitter @SeiNetwork. Can follow the journey at Sei Network. They are currently live. They've got Sei V2 on public devnet today. Mainnet goes live later in Q2. Really excited to have Sei sponsoring and partnering with us on this episode of Empire.