Jan 18, 2024

Grayscale Investments CEO Michael Sonnenshein breaks down the significance of spot bitcoin ETF approval in the U.S., and weighs in on what happens next.

Video transcript

Good afternoon and welcome to first mover on coin desk on this show. You get all of your top crypto news headlines and interviews with industry heavy hitters. We have a jam packed show today. We're talking to Grayscale Ceo Michael Sonnenschein and there's a secret project going on at meta mask. We'll chat about that at the end of the show. But first, let's take a look at what's going on in the news today. A judge is facing the decision on whether or not to toss out the securities and exchange commission's case against Coinbase. The ruling will hinge on whether the transactions in any of a dozen crypto tokens should be classified as an unregistered security. The exchange and securities commission agreed in a Wednesday court hearing that the tokens themselves aren't securities sec. Lawyers argued that each trade to an investor buying into a token ecosystem in which the purchaser is hoping to share in its gains making it so that these transactions could be considered investment contracts Coinbase. On the other hand, said that these are secondary market trades in which no contract is in place so they can't be securities. The judge's decision is expected to come in the coming weeks. But no timeline has been set. Former president and front runner in the Republican leadership race. Donald Trump has promised to ban central bank digital currencies during a campaign stop in New Hampshire. Let's take a listen. As your president, I will never allow the creation of a central bank digital currency. I didn't know. You know, so I'm very well, New Hampshire, very smart people, very uh very current, you know what they're doing. Such a currency would give a federal government, our federal government, the absolute control over your money. CBD CS are digital versions or tokenized versions of cash that are issued by central banks. They may or may not use Blockchain as an underlying technology. And Solana based meme coin dog with hat makes a comeback. The coin based on this super cute pup in a beanie rose as much as 50% to 48 cents in the past 24 hours before retreating. This as trad five firm Franklin Templeton alluded to the W hat meme in an ex post late on Wednesday. Spurring sentiment. Other meme tokens like used car pop, catt and K pop also spiked as much as 50% according to data from tracking service, bird eye. Part of the recent appeal could have stemmed from Solana Mobile's announcement of a new phone in the works which is expected to ship in 2025. Ok. Today marks one week since the spot Bitcoin ETF in the United States started trading. You'll remember that 11 asset managers got the green light by the SEC to offer the product in what's been a 10 year long journey. Now, one of the pivotal moments leading up to this big event was Grayscale winning a court battle against the SEC last year. Greyscale, Ceo Michael Sonnenschein sat down with coin desk chief content officer Michael Casey and Crypto Councils for Innovation, Ceo Sheila Warren for the Money reimagined podcast. Let's take a listen to a little bit of their conversation when we got that phone call last week that the SEC was ready to approve our 19 4 and declare S3 effective. Um We were ready it, when did it come in? Uh I think it was in the afternoon. Yeah. Yeah. Yeah. Yeah. Um And you know, like, you know, in typical gray scale fashion, there was no panic, everyone was calm, everyone knew their role and, and, oh, no, seriously. And we had more rooms and tabletop sessions and readiness exercises. We were ready to go. Um And so it's, it's really just been a fantastic experience. And then we actually were fortunate enough to spend the first day of trading for G BT C on NYCR A on the floor of the New York Stock Exchange. So, um you know, just such a historic building, seeing the trading volume, it completely surpassed our expectations, right, that first day of trading G BT C did $2.3 billion of notional trading volume that day. It was the ninth most actively traded ETF in the United States. Yeah. So it just, you know, blew past our expectations. So this is people moving there. How did it work? Is converting from their existing G BT Cotc to the, the new ETF? Well, so actually wouldn't say conversion is the optimal word. It was actually really just an uplifting. So if you were a G BT C shareholder, that Wednesday, the last day was on OTC markets, you just simply woke up Thursday and your shares were instead traded on the New York Stock Exchange, right? Companies, you know, move exchanges all the time. So investors had no action required of them. There were no consequences um of the uplifting other than the fact that it was now traded on NYCR A and obviously as an ETF, um I mean, obviously big numbers being thrown around some people talking about $100 billion market that emerged in this. But you know, it, it, it's been, you know, we had that big run up of the price came down. Uh It's fair to say that it hasn't sort of taken off uh broadly for, for the broader market necessarily. Um How do you read that? I mean, what is the, what, what, how do you expect sort of the non crypto crowd to come into this and as it as it goes forward? So I think there's two things I'd say there. Um Number one, I feel like it's too early to make any definitive judgment call on kind of what the earliest days of this are going to look like. Um We had two days of trading, we then had a holiday weekend, um just had our third day of trading, right? And so some people have already kind of called for, well, Bitcoin pricing. This was already priced in right after gray scale won its lawsuit earlier last summer, investor optimism took off. That's why you saw this material rise in Bitcoin prices over the back part of 2023. I'm not ready to quite say that it was kind of priced in, but that's certainly a narrative that's out there. Um The other thing I would say in is kind of the opportunity that we're so excited about is now investors have choice, right? And one of the areas that I think is gonna be most interesting for Bitcoin ETF S in the US is really the advised wealth market. So over $30 trillion of advised wealth in the US. So the fact that those types of assets, those types of allocations need product need um things on the at their brokerage firms that are approved that they can actually put their clients into this now opens up the opportunity to that entire audience. And that's one of the areas of growth that we're really excited about. A lot of focus on the fees. Fee, war of sorts. I mean, some of the other ETF S have come in at very low fees, like 0.2%. Uh, um, you guys are like, 0.02 right. So, you guys are, some of the ETF issuers are just way better, right? Yeah. But you're, you know, I mean, you've come down a bit but you're still at 1.5 right? So, I mean, how do you expect to win that battle? So when I think about the landscape of spot one ETF that we have now leading up to this event, we made a commitment to investors. We'd lower fees and we delivered on that commitment, we lower them by 25% and we are at 100 and 50 bips. Um G BT C coming to market had $28 billion of assets. Uh It's trading hundreds of millions of dollars a day now. It's trading billions of dollars a day, very diversified base of investors, tight spreads. Um And I think as a result of that, you know, the market um in the value that G BT C brings, I think is really reflected in its price. I think when you look at some of the other new issuers, um you know, they don't have assets, they don't have um a base of investors, they don't have a track record of doing this for 10 years, the way that we do kind of developing ourselves as a crypto specialist. Um And so there's an incentive for them to get assets and their products start getting those track records and that's great. It's like a liquidity premium, a history premium. I think that's, you know, some of the things you could certainly look at fee is definitely going to be an area that investors focus on, but is not the only area when you, there's lots of products on the market for similar exposures fee is one choice liquidity track record. Who's the firm behind it? There's a lot of factors that go into it. And um I think what we're also seeing is for a lot of the firms, they're, they're issuing these products with such low fees or with fee waivers that um I'm not sure how much it actually signals their commitment to Bitcoin or to these products. Um But rather they see the investor demand, they see how large G BT C has become and what the market reception has been to it. And perhaps, you know, this allows them to, you know, deepen relationships with clients by having something new and something differentiated that they've never been able to start conversations with clients with before Grace Scale has a case. It's making for its superiority over these other ones that is not necessarily just about fees. You've got this history, you've got this liquidity. But again, you've got, you know, if you're going to attract that retail audience, you know, name like blackrock, you know, a name like Fidelity, how are you gonna compete with it? It's education. Um It is definitely education even just being a Davos this week, I'm, you know, talking to some of the most educated, you know, people in the world that have had tons of experience personally and professionally, there is still not only such a knowledge gap. Um And I think gray scale as a crypto specialist asset manager can actually be that bridge that actually can fill that gap for the investment community. And that's really what we've always led with, to us that is going to be the driving force behind getting investors comfortable. They're not gonna action investment into things they don't inherently understand or aren't inherently comfortable with. So it has to start with education, this is not just another gold product or another S and P 500 instrument, this is an entirely new asset class. And I think we've never seen a better investor reception, not to mention an environment where investors are eager to learn about it. You know, a couple of weeks ago, our team did an initial wave with the Harris poll and actually looked at voters that are intending to vote in the 2024 presidential election. And some of the outcomes of that are actually two important outcomes. One was that over half of those that intend to vote. Um Believe that crypto Bitcoin is basically the future of, of finance, right um which is pretty staggering number and even more staggering is that four and five of the people surveyed that are intending to vote again, believe that as they kind of look ahead into this next presidential election. Um and thinking about their candidates being informed on these new technologies that crypto more than anything needs sound regulatory frameworks around it. You can catch more from this interview along with thoughts and commentary from super thinkers, Michael Casey and Sheila Warren on the Money Reimagined podcast. That's this coming Wednesday. You can find it on the Coin Desk podcast network. I will always take an opportunity to self promote. Go check that out. It's on every podcast platform at the top of the show we heard about the spot. Bitcoin et F's early success from Grayscale Ceo Michael Sonnenschein. But these next metrics indicate the price correction might not be over. Let's take a look at the chart of the day. The chart of the day is presented by crypto.com, the leading crypto platform trusted by over 80 million users worldwide. Bitcoin prices fell as low as 15% after the much anticipated ETF listing last week with outflows from Grays skills. Bitcoin Trust products said to be contributing to the downward pressure data provided by blackrock fidelity and bit wise shows that volume cumulatively crossed the $500 million mark earlier in the week with Coinbase, the custodian for several of the providers seeing record high OTC desk transfer volumes. Despite this crypto quant, further downside risks remain in a note shared with coin desk. The on chain analysis firm said quote, several on chain metrics and indicators still suggest the price correction may not be over or at least that a new rally is still not on the cards and quote. They added that short term traders and large Bitcoin holders are still doing significant selling in a context of risk off attitude. Let's move now from Bitcoin to the Ethereum ecosystem. There is a secret project going on over at meta mask and it could shake up how Ethereum works. I'm intrigued. So joining us right now is Deputy managing editor of Tech and Protocols. Sam Kessler. Sam. So nice to see you. Good to see you. It's been a little while I miss the hash days. We all do. We all know R I pr IP. All right. Tell us, tell us about the secret project, what's going on. Yeah. So Meta mask, which is um one of the biggest crypto wallets. The biggest crypto wallet by far on Ethereum um is um putting together this secret project where they're changing the way that the app works. So conventionally, um when you're using a crypto wallet and when you're transacting on a Blockchain, more generally, what you do is you submit a transaction. So you want to trade some tokens, you'll go to unis swap a decentralized exchange or sushi swap another decentralized exchange and you go to one of these, you choose the, the specific specific exchange you want to go to. You say, hey, I wanna sell these tokens. You find the specific price that you're gonna sell those tokens at. You don't want to go above this price below this price. You specify a bunch of different things, bless you. You specify a bunch of different things and then um what you end up doing is um submitting a a transaction um that you know, does what you specified. But now me mask and a bunch of other programs that are kind of following. Um Well, that metamask is more than one following are are switching to this idea of intents where instead of having to submit a specific transaction, what you do is you submit a general intent, the idea like, hey, I just want to sell a token um get me the best price and then meta mask behind the scenes through some mechanism that they're putting together. And that's what this news is about. Um you know, figures out how to route your transaction to get or you know, route a series of transactions to accomplish what you want to accomplish. Um I know that's like kind of a AAA jumble of a lot of different things, but hopefully that at a high level um explains it. So what does that mean for the end user folks who are interacting with meta mask? Yeah, so I mean, the two big benefits are first user experience. Now, you don't have to, you know, suss out exactly what the best venue is for a given action on a Blockchain. There's a million different ways to do different things and, you know, you don't have to do any of that leg work anymore. Um Meta mask can handle it for you in the future as this stuff rolls out. And the second thing for end users, um, So it's user experience. But the second thing is just price um fees. Um You know, all of those things that people are typically mindful of meta mask can take care of. They can help you avoid Mev bots maximal extractable value, you can look that up. But the idea of people in the Ethereum ecosystem front running your transactions, they'll help you avoid that. They'll help you get the cheapest gas, they'll help you, you know, find the best route for your transaction. Maybe you should arbitrage a bunch of weird ways to get a better price for your tokens. I mean, this is like one example, but there's a bunch of ways where uh uh ostensibly this should help you out, but there's also some risks. I want to talk about the risks in just a second. But how did you find out about this secret? And why is it a secret? Yeah, it's a good question. And the second part, the why is it a secret plays into some of the risk question frankly. But, um, you know, I found out about it from just Ethereum ecosystem. People who will not be named won't be named. Don't want to be named, um who kind of heard about this and for various reasons, you know, just wanted to give me, you know, bits and pieces of it. And then when I went to Meta Mask and I was like, hey, I know Xy and Z um first they were like, hey, no, um you know, please don't, you know, publish this until such and such a time. But, you know, they knew we were going to publish something anyway. And so they were willing to get on the record and the story that we published yesterday and specify the, the, some of the um you know, more specific details of the, of the project. And so that's why we know with 100% certainty. Um This is what's happening. OK. Now, before we take this home, tell us about the risks, the challenges that are presented with this. Yeah. So, you know, um I, I've kind of like given the explanation of this at a high level, it's kind of like a black box, right where it's like, now I put it in an intent and I say, hey, I want to sell my tokens. I want to do this, I want to do this and then Meta Mask handles it. What does that mean? What that means is they rely on third parties, a marketplace of third parties who auction against one another through some, you know, complicated mechanism in order to get the privilege to carry your transaction or your series of transactions or figure out what your transactions should be from point A to point B. Now again, that, that's confusing. It sounds like this kind of like a morphus thing. But what really matters at a fundamental level here is that meta mask, the biggest crypto wallet on the thee and behind you know, so like the line share of transactions in decentralized finance on the the biggest decentralized finance ecosystem is now making a fundamental change to who and how it routes your transactions where now it and at least this mechanism it's routed. Um It's creating has a ton of leeway over how it decides to funnel different transactions from users. So say, and, and I'm not saying this at all but say meta mass for whatever reason behind the scenes decided that it was going to somehow configure its mechanism to route all trades to unis swap. There's reasons why it would do the opposite of that, but you know, say it decided to do that. That would be a big problem for users. Now, meta mass in this story explains a lot of ways why um you know how this is not centralized, this is not vertical integration, it prevents specifically against the case that I've mentioned right there. But this is something that we'll be taking a look at and the mechanism that they're putting together to assure neutrality is going to be closely scrutinized to avoid the sort of outcomes of, you know, centralized control, monopoly and also regulatory capture the idea of regulators looking at something like this and being like, huh there's a company that in some form or fashion has a big chokehold over where transactions flow in this really valuable ecosystem. Um Yeah, I it's complicated but really important as you're explaining the risks. I know two different stories, two totally different things. I was just thinking about Ledger Recover and the backlash that they received for that product because of uh centralization. Do you think that once this is launched, we could see similar backlash just from, from users. Yeah, so the Ledger recover case, which is a crypto wallet. Um there was like a bug or not even a bug but a capability in their software where, you know, there's a sort of backdoor situation people could go in and essentially by hacking people in a certain way, get their tokens in a manner that Ledger said it specifically prevented against. This is a little bit different because the code for this theoretically is all going to be public in in um in a way that should prevent against such a surprise. Um But it is similar um from the standpoint that the marketing of this product is going to need to match the way that it works in actual, you know, day to day, you know, execution. So if meta s says we're creating this incredibly neutral, credibly, neutral and incredibly neutral platform where anybody can join in, it's permissionless, anybody can carry user, any third party can join to compete with one another to carry user transactions in a way that is, you know, neutral and balanced and so on and so forth. But then we realize that hey, some of these third parties are way more powerful and therefore accrue in the way that this system is constructed. A lot of the power. Again, we're being vague here because we don't have all the details and this market hasn't shaken out yet. But if that ends up happening, that is out of alignment with the marketing. And so people are gonna want to take a close look at it and might be concerned. Sam, thank you very much for joining me and explaining that story to us. I'm sure you'll be watching closely on next development. So we'll have you back on to tell us about the latest updates. Yeah, good to see you, Jen. Thanks for having me that was deputy managing editor of tech and Protocols, Sam Kessler. And if you just love the way he explained that article, check out the protocol podcast, that's on the coin Desk podcast network everywhere. The podcasts are available. That is a wrap for first mover this morning. Thank you so much for watching and thank you to our guests. If you like what you're seeing, go back and watch previous first mover episodes. We won't fault you for that. We'll see you tomorrow. Same time, same place.

Learn more about Consensus 2024, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to coindesk.consensus.com to register and buy your pass now.