Mar 25, 2024

David Duong, Head of Institutional Research at Coinbase, joins CoinDesk with his analysis on the crypto market's recent price action and state of spot bitcoin ETFs amid GBTC selling pressure.

Video transcript

We see that the probability of an E ETF being approved is actually super low. Now, I mean, previously about a year ago, it was somewhere around 80%. Now, it's gone down to around 17%. Um Maybe like it's been playing with 17 to 20%. But I would say for the most part, I haven't changed my view. I still think that the odds are in its favor. Uh You know, like for me, the only way it can actually be rejected is if easy, if is, if the SEC actually firmly came out and called this a security. It's Monday, March 25th, 2024 and this is market staley a show where we get into the minds of some of the smartest and most experienced investors, traders and analysts. I'm Jen Sani. Before we get into our discussion today, let's take a look at today's prices according to coindesk indices at 8 a.m. Eastern time. Bitcoin was up just over 2% at $66,818. Ether was up about 1.5% at $3435. And the coin desk 20 index was up 3% at 2590 points for more on the market's action. Let's bring in head of institutional research at Coinbase David Dang David. Welcome to the show. Hey Jaren. Thanks for having me. Of course, it's always a pleasure having you here, especially as we start to see some green in the markets this morning last week was was kind of depressing. If you're a markets watcher, talk to us about what happened and what you expect to happen from here. Overall, I think these Pullbacks within uptrend cycles are to be expected. And that's like for any asset class, right? I don't think cryptos uh particularly uh exceptional in that regard except to say that I do think that in previous cycles, we've seen Bitcoin give back like 30 to 50% of its gains. Um But comparatively, these moves have actually been pretty shallow. Uh I think the cryptos uh market's attention is just fixated on the flows over the fundamentals. So, you know, we saw that spot, Bitcoin ETF G at the first week of like real net outflows. Uh you know, in the, at least in the first few months, but definitely probably like since inception. And I think probably a lot of that had to do with actually uh probably some force selling pressure that I think is associated with genesis. But it's kind of hard to say at this point, but it just seems that the timing is very suspicious in my mind. I want to talk about Genesis in just a second, but you just mentioned previous cycles, talk to me about looking at this cycle and comparing it to previous cycles. Is there enough data? Especially since this Bitcoin ETF s have been introduced this cycle when you're comparing them, are you seeing information that is useful? I think it's really hard to generalize just because there are so few moments to actually draw from. And so when people kind of talk about major events happening, like the having and they kind of overlay the performance charts with those kind of like those kind of marks in them. Uh I myself am kind of just skeptical just because the performance if you actually go back just like, you know, and I do a very, you know, just small test of like six days before six days after really, you can't draw a lot of patterns from it. Like the first event was kind of a throwaway anyway, just because it was the first one that happened and no one knew what to expect. But even when you did, you have all these other macro factors that kind of interfered in that. And I don't think those things were a distraction like the pandemic, for example, there was real amounts of liquidity that kind of flowed through the market and that effectively changed things. And I think the same thing is going on right now. With the ETF S because they are real uh that's a demand sync for this asset class that didn't previously exist. And I think that's also changed the structure of the supply and dynamic uh supply and demand dynamics. OK. Let's get back to Genesis now before we forget and go into the having uh talk to us about the selling pressure. Is it coming from the bankruptcy estate? I know there's 35.9 million G BT shares, G BT C shares. Sorry, that are a part of that. Um What are you seeing there? So it's kind of tough to say that this is where the G BT C selling pressure is actually coming from. Uh you know, you can kind of say like, hey, we've had about $2 billion worth of outflows of the last week, Genesis had to sell worth about $2 billion worth of shares. Like are those two things the same? I mean, they had permission from the US banks of support since mid February to actually offload these shares. Um but what has changed is that there is a proposal out there that's been agreed with creditors to actually uh have 70 at least 77% of this, I believe uh actually be changed exchanged in kind. Now, you know, that's separate from the around 30 31 million shares that are actually associated with Gemini and you know that was a separate settlement and those all were gonna be paid uh with like in, in kind and probably within the next few weeks. But, you know, I, I think that it does kind of for me seem like this was the actual sell period. And if that's gonna be the case, then the market effect should actually be neutral because that means that they need to buy back the Bitcoin at some point. Uh They just don't have the cash yet. I think now that those trades are settling on the G BT C side. That's why we're starting to see kind of some recovery in the markets here. Tell us a little bit more about that 77% in kind. What does this mean for folks who are watching markets? Sure. So this was actually reported by the Wall Street Journal, I think on the 18th and effectively, they're saying that there is an outstanding creditor back proposal uh that returned those customer holdings in Bitcoin instead of cash. And the court approval actually said it could be paid either or so in, in effect, they could have just taken out the cash and actually paid out to clients. But you could see how that could potentially be to the detriment of the uh the creditors themselves. So I think that right now like what is fully clear to me is, is that inclusive of the other 31 million G BT C shares that they're discussing with Gemini, for example, but I don't believe that they are either way, it does suggest that it is the majority holdings that Genesis holds are going to be paid out in Bitcoin. And if they are, that means that they are selling GB DC and buying Bitcoin, so that means performance itself should be net neutral. Now, we mentioned the having just a few minutes ago and I want to get a little bit deeper into it. I know that you had a report that looked at past HS and you brought in the ETF data similarly to how we did at the beginning of this conversation. What are you expecting to happen? Um After the having, do you think it's priced in? Are we gonna, are we gonna stay in this price range for a little bit longer than some people maybe expect? I think that's the big question everyone's asking and the challenge I have is that people are looking at the having in a very like linear way, which is to say that they're basically saying like, hey, look, this is the man coming from the ETF S and I think that was why the flows actually disturbed so many people last week because they're saying like, have, have, have the flows, has demand for the uh for the ETF S actually stalled here. Is that a big concern? Um But you know, they comparing that just to one side of supply, which is the miners, they're saying like, well the miners actual new issuance of Bitcoin is going to be reduced by half. So if demand is increased so sharply because of the ETF S going into that limited supply, this is a huge boon for crypto. You are a huge boon for Bitcoin in particular. But crypto in general, I'd say that that's only one part of the story like supply obviously comes from multiple sources. And we've seen that if you even just look at the short term supply, which is really the active supply that's moved within the last three months, that has increased over the last quarter to like uh to the last few months in the beginning of 2024. So just the of course, uh Bitcoin issuance alone doesn't really speak for the 1.3 million Bitcoin that has made its way onto the market from those active sources. Now, that said we have seen that that has been absorbed pretty well, not just by the ETF S but probably by the community as a whole because you're seeing that even though the amount of Bitcoin hitting exchanges has doubled, uh the actual amount that's actually still left over is still something closer to like 80,000 Bitcoins. So really, it does show that like all of that uh Bitcoin that's been making its way on exchanges have been bought. But I'm just saying that it's not just the supply come from miners alone. We have to think about what the price point is where people will be willing to actually sell their shares and keep in mind that almost everyone now is pretty much in the money with their Bitcoin. So we're in real price, discovery territory in terms of not really knowing what the behavior is gonna be. Do you have any opinions on that, that you're willing to share? I think that we're gonna see continued upside. Uh, you know, like my overall thesis for the year was we're gonna start seeing a lot of inflows in January and February that played out pretty much as I expected. And that's why we wrote Constructive uh in early February, for example. But uh before we got into March, I was already saying that I was worried about particular headwinds coming in from the macro side, from the fact that I think that a lot of capital employment has already taken place. And that's not to say that more couldn't happen. And I think a big part of that has to do with the fact that for the most part, a lot of people missed this rally. I'm really talking about retail here, but we know that uh you know, retail were, they, they were under position, not just in crypto but pretty much in a lot of risk assets. They weren't, they didn't buy into equities last year, for example. And now there is a real catch up that we're seeing happen. And if we're thinking that there's another $6 trillion worth of capital that's still stuck in money market funds. For example, I mean, like once that's unlocked, I think, which is gonna happen later in the year when the fed really starts cutting rates. For example, I think that this will represent the, the next upside for an asset like Bitcoin and David. Just before I let you go here, I have ask you about this. Helene Braun is our host on Markets Daily on Wednesday and Thursday. And her reporting recently revealed that Black Rock says they're not seeing as much client demand for an ether ETF or for Ethereum. Um that along with some other new stories suggest that we may not see an Ether ETF in May. What's your perspective there? Yeah, this is tough and, you know, just last week we got the news that there was an inquiry uh to the Ethereum Foundation from an unidentified state authority, uh that they were, they, you know, they wanted information, but of course, that was super vague. No one has any clue about. I think people are speculating about who that quote unquote state authority could be. But I think that, you know, there are sources out there that I'm sure our listeners are familiar with or just jumping to conclusions that this is the sec and that these are the grounds on which an E ETF is going to be rejected. Honestly, I think that all of that is just, you know, just too speculative, right? Now to actually draw any real conclusions from, you know, we've seen that the probability of an E ETF being approved is actually super low. Now, I mean, previously about a year ago it was somewhere around 80%. Now, it's gone down to around 17%. Um, maybe like it's been playing with 17 to 20%. But I would say for the most part, I haven't changed my view. I still think that the odds are in its favor. Uh You know, like for me, the only way it can actually be rejected is if easy, if is if the SEC actually firmly came out and called this a security and that would go against what the CFTC has already said that this is in fact a commodity. Um And I don't necessarily think that they want to have an interagency fight about this. So I think that it's still gonna go through now, the timing of that, I think it's gonna be more challenging around the May 23rd period, which is when Van Eck is going to have uh their final deadline. But I still think that, you know, we're talking about greater than 50% odds here beyond that. I think that we are also seeing that some of the headlines have been in East favor. Like the fact that Blackrock wants to have this new uh Tokenization Fund, uh Biddle, I believe it's called, I think that that's being built on Ethereum, for example, So I think that that's going to be very supportive for e there's other sources that are gonna be helpful as well. So I wouldn't necessarily rely on just this. But if we're seeing that this uh uh the approval of the ETF has been priced out, E is doing fairly well, all things considered David. It's always a pleasure having you on Markets Daily. Thanks so much for joining the show. Thanks a lot, Jen. That was head of institutional research at Coinbase. David Dang. That's it for today's show.

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