Oct 23, 2023

Bitcoin (BTC) is close to $31,000 and continues to gain ground, taking bullish cues from traditional rate-sensitive assets like gold.

Video transcript

Bitcoin is nearing $31,000 taking bullish cues from traditional rate sensitive assets like gold. What does this mean? So joining us now to discuss the crypto markets is three IQ President Chris Matta, welcome Chris, good morning, Jane morning Lawrence. Great to be back. Good to see you. So Bitcoin uh is up about 15% over the this October so far, October is almost to an end. Uh A lot of that is enthusiasm about what might come, namely a potential bunch of spot ETF S in Bitcoin. Um Do you, what, what are your short term uh expectations here? What what do you think is happening? Is the market uh a little too bullish for its own good. Uh No, I don't think so. I mean, obviously there's been an onslaught of regulatory concerns over the last year, you know, rightfully. So in many cases with, with the FT collapse DC G, but then also some things like XRP, obviously gray scale, I think a lot of these cases are still starting to come closer to completion, which is bringing more regulatory clarity, more comfort. It allows institutions to feel a little more comfortable about allocating to the ecosystem. And now that's happening at a, at a similar time when there might be regulated vehicles to actually allocate into, especially with the gray scale case going favorably. And it looks like the probability of Bitcoin Etfs getting approved is inching ever higher in the final months of the year. And Ether futures ETF has has recently got approved and it seems very likely considering the gray scale precedent that Ether Spot ETF S will also get approved um sometime next year. So I think these are all really great tailwinds um for the space over the next, you know, 12 to 24 months. So, uh let's talk interest rates here because interest rates are, are, well, it'll be uh it, it seems like we might get a little bit of a pause uh with Jerome Powell uh and, and the fed seeing the bond markets kind of doing its job for it uh in many ways, letting interest rates rise as the people sell off bonds, um particularly the, the far dated uh uh bonds here. So what exactly is happening then in the E market? How are, what's the interplay between interest rates and what's going on with E? Yeah, so it's been really interesting actually over the last, you know, 6 to 10 months, obviously, the, the DFI space has, has cooled off a bit. But uh on the Ether platform, there's been a huge surge in real world assets. Um mostly treasuries, but essentially, there's a handful of crypto entrepreneurs that have brought treasuries onto the ether network and other blockchains to make it more accessible for crypto native folks to get exposure to the heightened interest rates in stratify. And so we've actually seen billions of dollars now allocated to these, to these vehicles. And I think it's interesting because that had to happen during this bear cycle. But I think longer term, this will be a really pivotal moment for the space because more assets, more real world assets are coming on chain. Um And that's going to be a real tailwind for the space to be a crucial part of the capital markets, infrastructure as other asset classes potentially start to get brought on chain as well. And you kind of have this competing technology with uh maybe traditional markets and hopefully an integration over time, many uh stratify institutions are also looking at uh tokenized uh real world assets too. Um And so for us, you know, at three A Q, it's really interesting because we um we obviously have uh E three ETF in in other jurisdictions like in Canada, um which while the the US is still working through approving spot ETF S um Canada has been very forward thinking around um even pushing the envelope further our spot Ether ETF S are now the first in the world that are staking as well. So I think Ether with the the transition to proof of stake um passing through that staking yield to investors and having some of these natural demand use cases like real world assets. These are going to be tailwinds for, for investors to allocate over the next cycle. Jen likes those compliments to Canada. I always do, always got to get some nice Canadian compliments into this show. The regulators in Canada, I have been, I have been blown away by how progressive they've they've been around topics like this, like the complexities of staking and educating themselves and putting frameworks in place to allow asset managers to bring, um, you know, things like staking to market, especially when you, you know, put that alongside of other regulators like in the US where, where those even just spot ETF vehicles haven't been able to break through. So it's been great for crypto exchanges to um they've had uh uh uh infrastructure in place and rules in place to allow retail investors to stake. And now asset managers like three IQ are able to do the same thing while, you know, in the US, as you know, with the coin based litigation and uh a lot of the retail staking platforms have been shut down and, and obviously those aren't really available through regulated exchange traded products today. Chris maybe do a little bit of a comp compare and contrast for us. You talk, um you're speaking very highly of working with the regulators in Canada, but we saw a handful of exchanges leave Canada earlier this year because they said it was tough to work with regulators there. Tell us a little bit more about your experience. It sounds like you've had a better experience than some that we've heard about in the news. Yeah. Look, I'll say I've worked with global regulators all around the world. It's never easy. It's very costly. This initiative I'm talking about where we launched an ether staking ETF has been a year and a half in the making. So that's a long time, a lot of investment, legal, legal costs, and a lot of education and collaboration with the regulators to find structures that make that work. That said there is an inherent openness, I think from the Osce and other Canadian provincial regulators to understand, learn about the space and potentially put more rules in place. So when we finally came to the finish line, they published a series of rules for asset managers to ensure that they were taking the appropriate steps and understood the risks of something like staking. And they've done this in a whole variety of different areas but things like the appropriate due diligence and reporting requirements and risk disclosure and ensuring custody remains in cold storage. And there is dedicated validators. These are all very technical things, but the regulators were comfortable understanding learning these technicalities and making sure to put a fair rule set in to enable um asset regulated asset managers like ourselves to um to launch products. So I think it takes a certain type of a firm, a certain type of pedigree folks that come from, you know, tr that understand the regulatory framework to kind of work arm in arm and, and spend the time to, to the regulators and, and ultimately come down on a compromise with a, with a framework that works for everyone. You know, you, you, you, I kind of want to go back a little bit to interest rates here because you, you brought them up as almost tailwinds for the E market and, and for development. But how are they headwinds in the sense of higher interest rates making AAA higher hurdle rate for each staking and for returns. Can you explain a little bit more? Uh what do you think the long term impact will be when it comes to staking uh in the E market? Uh particularly uh what do you think the impact will be as rates either stay high, stay steady or go even higher potentially? Yeah, of course, I think all risk assets are, are obviously impacted by the, the elevated interest rates. And so when when investors are looking at their cost of capital and if they're evaluating ST or the E staking yields have decreased over time, since proof of stake has really ramped up. And that's mostly a result of the network coming up to scale. There's been a lot more validators at events of the network. So while it started um uh post uh post merge around, you know, 8% it slowly moved down closer to 4% and that will likely continue as more validators come onto the network. But to your point, if there is, you know, competing interest rates, especially even on chain through like some of these on chain treasury products that I mentioned, it may result in investors allocating capital towards, you know, treasuries or other high interest bearing assets. But I think in light of the broader kind of negative macro sentiment right now, you mentioned earlier, Lawrence, the budget budgetary pressures with with the multiple global conflicts, you know, rising interest rates and just general inflationary pressures. I think there's been a move towards assets like gold like like Bitcoin like Ether, I mean, we we heard Larry Fink's comments about flight to quality and and including Bitcoin in that statement. So I think that narrative will will hopefully keep some some positive momentum for crypto assets even though Ether staking yields may be declining over the long term. Chris, I want to come back to the three IQ Ether ETF, talk to us about the demand for staking in the ETF and how it's going to work. Yes. So it's really interesting in an ETF vehicle. There's this complexity around you have daily creations and redemptions and for those that may be a little more technical about staking staking. There is a bonding and un bonding period. So there's liquidity challenges. So these are all things that I mentioned before that we worked with the regulators. Obviously, our focus at three IQ is bridging that gap between traditional finance and the crypto space and making the asset class more accessible. So bundling in staking into a vehicle that you can create and redeem unlimited quantities on a daily basis. There's there's obviously operational and liquidity challenges with that, but we've optimized that we are, we are going to be ramping up staking to probably about 50% of the assets initially and hoping to increase that closer towards 100% over time as things like liquid staking um become more regulated and more liquid. We're able to pass through um the yield from that the the staking yield to the actual unit holders. Um It won't be passed out as a dividend, but it will accrue to the net asset value of the fund and essentially provide enhanced performance um for those investors. So it's, it's a really interesting um a time where investors that are that are buying e are now getting boosted performance over just the price of E but are actually getting that staking yield accruing to the net asset value of the fund. And, and like I said earlier, this is the first Ether ETF in the world. There are some exchange traded notes ens in Europe that have different staking components, but this is the first, you know, true exchange traded fund that, that has this and that's a distinction in counter party risk. But essentially, you know, the ETF is is fully segregated assets in the unit holders name. So there's a, there's a lower counter party risk threshold than some of the other vehicles globally. So it's a really, it's a really huge innovation. We're dropping our management fees to zero to promote the product obviously flows globally just generally into into crypto is is muted as Lawrence mentioned earlier, but you know, the best products get built during the bear markets. And as some of these market sentiments shift and there's more flows towards crypto. We're hoping to really capture that especially with really innovative products like staking integrated entire E three TF. Chris, congratulations on the launch of the new pro product and thanks for joining us this morning. It's always a pleasure. Thanks for having me talk soon. That was three IQ President Chris Matta.

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