# Crypto ETF Divergence: Outflows, Leverage, and Regulatory Shifts

**Podcast:** The Milk Road Show
**Published:** 2026-07-02

## Transcript

there's a decent chance that we actually crack two trillion inflows this year to give you an idea of like how big.
This market is not just the 16 trillion number, and that brand new flow is not including asset appreciation or anything.
So where is it coming from?
Everywhere.
Bitcoin ETPs have seen record breaking outflows, but new crypto ETPs are launching all the time.
When will the capital come back?
And why are more and more investors choosing ETF products for their crypto investments?
Hello and welcome to The Milk Road Show, the podcast that knows that the tide comes in and the tide goes out, but holding Bitcoin will make you seasick.
I'm your host, John Gillen.
Today is Wednesday, July 1st.
We will be released.
This is a senior research analyst at Bloomberg Intelligence, specializing in ETFs, mutual funds, hedge funds, with a special focus on cryptocurrencies and digital asset products.
James is everyone's favorite crypto ETF analyst, and he's going to give us an update on that universe today.
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And without further ado, welcome back to the Milk Road Show.
James, how are you, sir?
I'm good.
Thanks for having me back.
Happy to be here.
Are you enjoying the soccer?
Yeah, yeah.
Yeah, I would say World Cup is probably my favorite sporting event, period.
Stop.
March Madness is up there, but that's every year.
So this takes a little bit of President Olympics, too.
Well, it's a special time for sports in New York, for sure.
James, I wanted to start this conversation with a look at the Bitcoin ETPs, ETFs.
People call them both things, but they're technically exchange-traded products, so I call them ETPs.
Anyway, we've seen about $9 billion of net outflows from the peak of these products.
And I'm curious your thoughts on this pullback here.
Is this just short-term sellers taking some profits or getting out of the market?
Is it consolidation?
Is it longer-term hands, like paper handing their bags?
What have you seen on these outflows here?
And what's your outlook on this for the markets here?
Yeah, I mean, it's actually worse than that.
We're over 11 from the peak now.
So the peak back in October.
Yeah, I mean, there's no profits to be had, to be honest, unless you bought these things like right when they launched for the most part.
That's being a little aggressive more than it needs to be.
But like what we saw here is obviously they peaked in 1010 along with everything else.
Then we had, you know, the leveraging event and ADLs and all that stuff.
And it kind of bottomed in the end of February.
Then we had a nice little uptrend for flows and performance even up until early May.
So they peaked at about $63 billion in net inflow since launch, which is.
Tremendous, like the best launch of all time.
Right.
And then we got down to like 53, 54, went back up to 60.
So we almost like reclaimed the all time high.
And now we're below that February level.
We're at like just over 51 billion of net inflow.
So, yeah, I mean, some of it is like the basis trade has completely unwound and it unwound like many months ago.
And it's just I think if you look at the futures open interest, it's that's going down as well.
So it could be some little bit of the basic trade, but it's mostly people are literally just selling.
And this is the worst that the ETFs have seen since they launched.
Nothing else is close.
So that pattern of trading you just described follows pretty closely the path that Bitcoin has taken.
So it seems to me like a lot of the flows are tracking pretty closely with the spot price.
Do you think that a lot of spot volume has shifted to these ETF products?
And what are your thoughts on that?
Why is it tracking so closely as opposed to moving?
like more independently?
So I would say two things.
One, no matter what you're doing on a long asset, whether it's an index or a single asset, like for the most part, ETFs in general, they tend to see more flows when it's going up and how flows when it's going down.
Like that, there is a somewhat of a positive relationship.
That is different for ETFs when they're levered.
So levered or futures roles, we actually see the exact inverse, like people would consider them trading vehicles.
So if we were seeing the opposite, I don't know, but like for the most part, I mean, the thing we talk about outflows, things haven't looked good since October, but from April of 25 through October of 25, these things took in 30 billion.
So we're not even close to unwinding all of those inflows from 2025 yet.
So yeah, I would say no matter how you slice it, it's kind of to be expected.
These outflows are probably a little worse than I would expect considering how well they held up up until like we hit 60.
And then you had a little bit of an uptrend and I guess people sold some profits there.
Like I said, we got up to 60 billion in early May and now there's just continued selling.
That doesn't surprise me, I guess, is the real answer to your question.
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Bitcoin is fighting to hold on to the $60,000 price level and I think maybe just losing it here today.
But have you seen anything?
Right, yeah.
We'll leave them alone.
They're making enough noise on their own.
But my question here is, have you seen anything in the flows on these products that have given you an indication that, hey, maybe this selling pressure is starting to...
find some exhaustion or do you think it's accelerating as we move through this price level?
Are you seeing anything that indicates one way or another whether or not this is accelerating from here, slowing down, forming a bottom?
What's your outlook on that?
Yeah, it's not slowing down.
If anything, it's accelerating.
So yeah, not what you want to hear.
I mean, the biggest buyers of this over the last year and a change has been Strategy, Sailor, and these ETFs, they've basically been taking in money.
rain or shine.
And honestly, we didn't see much in the way of outflows, even during the first pullback.
If you told me an asset was going to go down 50% plus or more, and it was only seeing $5 billion in outflows on 63 billion inflows, I'd say that's pretty damn good.
There's a lot of people diamond handing this thing.
And that's not the case, particularly since, like I said, early to mid-May.
If anything, they've kind of accelerated.
One of the biggest outflow days we've seen across the ETFs was June 25th.
We saw about 700 million come out.
in a single day.
Then the next day we saw 445 million come out, 232 million the next day.
And then yesterday we saw 223 million.
So, I mean, it's not slowing down.
If anything, it's kind of accelerating.
I think there's a whole host of, like, it's not just one reason.
One, it's what's going on with strategy.
People are obviously concerned about him potentially unwinding that.
Part of it also has to do, like, there's way more interesting things happening in the market right now, right?
You have AI, you have what's going on in space, you have a lot of things being built.
that is drawing interest from both a capital perspective and just an eyeball perspective that's taking away from this asset class.
And so I can make a whole bunch of reasons why I think it might be happening.
And it's not one thing, but I think it's a whole host of things.
You brought up strategy.
Strategy got a lot of attention and capital, as you said, with their STRC product offering, which was a yield bearing preferred equity, but was also giving people indirect exposure to Bitcoin.
Goldman Sachs and BlackRock have, I think just today, Goldman's ETF went live, but they're launching these covered calls, covered call based Bitcoin income ETPs.
Have you seen any talk, any attention around these assets?
Do you think that they're potentially specifically designed to compete with STRC?
What's your take on these new Bitcoin products that are coming to market here?
So I wouldn't say, I don't think they're designed particularly to compete with strategy or what.
What Shradi is doing with STRC?
I mean, maybe there's a little bit of that.
They see the interest there and they think they can kind of pull some interest away from there.
But we've had covered called Bitcoin ETS that have done decently well.
They have a decent amount of assets.
I don't really love the process here of doing these things because from my point of view, if you're going to invest in this asset, you're giving up some of your upside for some income.
Granted, you are protecting some of your downside.
You will outperform in a downward or sideways market.
But this asset is theoretically has a lot of upside volatility.
But there's a lot of advisors and people who love those tradeoffs.
And there are other ways to do this.
People are also doing buffer ETFs on Bitcoin and crypto assets and all these different things.
So there's a whole host of reasons why people would do this.
But obviously, when I talk to these issuers, whether it's somebody at Goldman or BlackRock.
clients are talking about it.
Like this is something they want.
They want like a toned down, less volatile way of exposure to Bitcoin.
And some of them, they have no desire to.
touch whatever's going on with strategy so yeah i think that it's a combo of like maybe they see something they can compete there but i think more of it is like they have actual client demand that they know is interested in a product like this we're seeing like just like a general acceleration in etf products etp products coming to market you know not just in crypto but in general but it hasn't slowed down in crypto i know you've talked about this before but like throwing spaghetti at the wall launching as many etfs as you can think of to see what sticks What's that divergence like in terms of the accelerating number of products at the same time we're seeing these outflows from the existing products?
What's the signal there?
What should investors take away from that?
So it's funny.
I call it the spaghetti cannon.
So issuers, it's not just crypto-related products.
It's everything, like single-stock levered ETFs.
We are seeing tons of them thrown at the wall.
One issuer launched 50 ETFs last week, a new issuer called Corgi.
A lot of them single-stock levered ETFs and things along those lines.
Those are those more trading vehicles I would talk about.
So they close like they're basically it's a very capitalistic system, right?
Like the ETF industry is a terror dome.
So they're going to throw spaghetti at the wall and see what sticks.
And some of these charge relatively high fees.
So you just need a couple of them to work out.
It's almost kind of like a VC portfolio.
Not exactly.
The hit rate hopefully is a little bit higher than a VC portfolio because the payoff won't necessarily be as high.
But yeah, that's the way people.
kind of look at this space.
I would say like, for the most part, there are some bright spots in like the crypto ETF ecosystem.
There are things that aren't seeing outflows.
There are things that are actually seeing inflows.
It's just that, you know, it's Bitcoin and ETH and some of these other ones are actually seeing some outflows.
So things have been around for a long time so that they have a much broader holder base, I guess you would say.
Whereas like the bright spots I'm thinking of, Solana and XRP, which launched in the bear market in October, November of 25, like things are already down pretty bad.
Hype ETFs just launched, which has actually been a bright spot in crypto.
overall and they've also done very well um so there are areas where like things are looking pretty good um they're just you know fewer and farther between and they're much smaller you're getting ahead of me here i want to come back to this but before we move on to that i want to ask about the ethereum etfs the the staking products have gone live and just you know like bitcoin has these these bitcoin income covered call strategies ethereum now has staking Do you think that that as an innovation on this product of being able to earn yield or returns within an ETF wrapper, is that a big unlock?
Is that something you think is going to get a lot of attention in the market?
What's your thoughts on that?
So I think it's not as big of a deal with ETH as it is with something like Solana because of the yield percentages we're talking about here.
I think if you had to launch a spot Solana ETF and you were not able to partake in whatever the 7% or 6 plus percent yield it is in Solana.
But obviously it matters a little bit, but still there's a bunch of ETH ETFs, including one iShares product that doesn't have exposure and it's still the largest, most traded product for ETH.
So I think part of that might have to do with the idea that it's a 1% to 2% yield, so it's not crazy.
There are some clients of these ETFs that don't want and have to deal with any sort of staking queue or they're worried about liquidity.
So basically there's options out there for whoever and whatever you want.
But it's not stemming the outflow demand.
I mean, I talked about Bitcoin before, right?
It went up into 1010 and it came down into February, actually had a pretty good run back into early April.
I mean, into early May.
Ethereum kind of had the same, but it was nowhere near the same level of comeback.
And that's like the numbers are smaller, but the percentage of outflows is much greater.
So the Ethereum ETFs peaked at about 15 billion and they went all the way down to 11 and a half and they barely, they didn't even get back up to 12.
And now they're down at 10 and a half billion.
So they've seen basically a third of the flows leave since inception.
And that's all happened since 10.
10.8, 10.10.
So yeah, Ethereum is struggling a lot harder, which also is happening in the regular underlying market.
As we mentioned before, there's kind of a correlation between what's going on with the underlying asset and what's going on with the flows of these ETFs, because obviously there's a lot of complaints about the narrative.
There's a lot of concerns about the competition coming at ETH that isn't necessarily coming for Bitcoin in the same way.
There's a whole host of reasons, but yeah, the ETH ETFs are struggling even though they have staking.
Okay, James, you talked about some green shoots in the crypto ETF space.
You mentioned Solana, XRP, Hyperliquid.
I want to get your outlook on those.
We don't have to do them all together, but if you want to, you can.
It seems like these, differently than the Bitcoin and the Ethereum products, have held up well.
Any particular reason you're seeing for that?
Or what are you seeing for these alt ETF products?
Yeah.
So if you look at Sol and XRP, they've seen like a little bit of outflows, a little bit of inflows, but for the most part, they've seen inflows, even as those other two assets, we were talking about Bitcoin and ETH, have seen like pretty serious outflows.
So these things, since their launch in October, November, I don't know the exact date, but I mean, technically there were some ETFs that launched under a different wrapper that provided exposure to these things starting back in like July and August.
But the real pure spot products, the real big launch that everyone was waiting for happened.
you know, during a bear market.
And they both XRP and sold both have over 1.6 billion in assets, and they really haven't seen any meaningful outflows, they've actually seen inflows.
I think part of that has to do with like, the people going into this know exactly what they're looking for.
Like, I could see people like not necessarily knowing this and just trying to buy Bitcoin and get an exposure to the ETF.
Whereas like, if you're going like further into the bag, and you know, the toolbox and trying to figure things out, and you're buying soul and XRP, you probably have an idea of what you're getting yourself into.
And they already knew is in a bear market.
So I think for all those reasons, for the most part, the people that are in there now know what's happening.
But if we do end up out of this winter and it starts taking off and then we go into another downtrend, I would expect to see outflows.
I think it's just that this holder base that has come in very early into these ETFs in the first six months of the launch or eight months of the launch, they know what they were getting themselves into and they're just trying to buy the bottom, I guess.
And then Hype as well.
They just launched a few weeks ago, a couple months ago.
And they've taken in 200 million during this absolutely brutal sell-off across everything else.
So they've also done exceptionally well.
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Yeah, I guess if you're buying, just like you said, if you're buying altcoin ETFs in the midst of a bear market, you kind of know what you're doing and you're going to be sitting in it for a while.
So that makes sense.
And Hyperliquid has been on a huge tear in the spot markets as well.
Have you seen any signs of that slowing down?
I think hype has had some, let's call it digestion in its price action.
Is it like no outflows, but just maybe stagnating inflows for hype?
Or is it just still incoming only?
Yeah, it was really hot from mid-May.
first one launched on May 12th, I think, somewhere around there.
And then by the end of May, they had already taken in over 100 million in assets.
So it was off to a hot start.
And they kind of hit 180 in the middle of June, and they kind of stagnated, but they haven't really seen outflows.
So they're now at 192 million of inflows by my count across three different ETFs.
So we had two ETFs launched since then.
So I mean, as far as anything is concerned, it's gone pretty damn well for these things.
Okay, well, it's good to see some green shoots, like you're saying, and we'll keep checking in with you on this as this plays out.
James, I wanted to get your thoughts on something.
This is just something I saw yesterday, so I want to get your take on this.
The SEC is seeking public comment, and they're talking about reevaluating their approach to ETF regulation after they've gotten a slew of prediction market ETF applications.
I've asked you about this before when you've been on the show, but they also said there's a rapidly evolving $16 trillion ETF industry here, and they're concerned about how.
to regulate that.
First, just where's that 16 trillion coming from?
Is that trading volume?
Is that assets?
And these prediction market ETFs, why is the SEC so concerned about these?
Just explain the situation to our audience.
What's going on here?
Yeah, I mean, it is assets.
So things are off to a pretty hot start.
I mean, if you look at the...
So last year, I'll just talk about flows real quick for the ETF industry as a whole, and I'll go back to your question.
We had a record inflow year for US ETFs.
It was 1.5 trillion almost exactly.
We're at $1 trillion through June 30th.
We're on track for a $2 trillion year.
And honestly, usually the second half of the year is bigger because December tends to be the largest monthly inflow that we see.
So there's a decent chance that we actually crack $2 trillion in inflows this year to give you an idea of how big this market is, not just the $16 trillion number.
And that brand new flow is not including asset appreciation or anything.
So where is it coming from?
Everywhere.
The ETFs are competing with a whole host of markets.
They're competing with single stocks.
I mentioned single stock leveraged.
Yes, which probably is part of the reason why they're considering trying to figure out how they manage this market.
Obviously, prediction markets, ETFs are a huge part of what they're looking at.
They basically explicitly talk about that.
I do think we can get into those in a little bit.
But also, it's just like they're competing with mutual funds.
They're competing with other Wall Street derivatives and options.
ETFs are like we like to refer to as their Swiss army knife.
Like if you're a trader and you want to get short term exposure and you want to trade, you can.
And if you want to put this in your retirement portfolio and buy exposure to an ETF for two bips and get exposure to the S&P 500 and hold it for 30 years, you can do that too.
And then there's a whole gamut of people in between that are going to be using this for different ways.
So advisors are the biggest users of these things.
So yeah, it's just a great mousetrap and it's a great vehicle.
And it's one of the reasons why I cover the space.
I've been bullish on ETF and the ETF industry for basically as long as I've been working in finance.
I went back and forth with you a little bit on Twitter about this, but you mentioned leveraged products.
And I would love for you to just like talk a little bit about the leverage that we're seeing come into the markets through leveraged ETF products and the expansion of that.
I saw somebody on Twitter saying that margin debt as a percent of GDP and as a percentage of or like relative to GDP and relative to M2 are at all time highs or near all time highs.
How are the ETF?
How is the ETF universe introducing more leverage and more access to leverage?
into the market.
So if you had asked me this question like a week from now, I'd have a lot more like hardcore answers because I'm actually starting to dive into this and I'm going to write a note on it.
But the answer is like you have these single stock levered ETFs and we've had leveraged ETFs on indices for a very long time now.
They do reset daily.
So it's a little bit different than margin debt because margin debt, like you don't have to reset daily.
These ETFs can be pretty complicated to understand because there's...
path dependency, because like I said, it resets every single day, whereas margin debt, you're just kind of exposed, whether it's going up or down over whatever timeframe you have that margin debt outstanding.
But that said, I mean, there's been an extreme explosion in both the trading volume, the assets, the flows into these things.
So one, it's heavily on the long side, like we're at record levels of ratio of long leveraged ETFs to an AUM to the short side of things.
So we're at about 16 times levered long ETF assets versus the short.
ETF assets.
So things are kind of at an extreme level, does tend to rise and fall with the market.
So obviously we've been in a pretty strong bull market.
It's an extreme bull market and AI and space type stocks in particular.
So that's kind of driving some of this.
So as things come out, it will naturally deflate, but we are definitely at relatively extreme levels.
And that's why people are getting kind of concerned.
But the other thing I would say is I talked about this before, right?
I was talking about how like there is a kind of a correlation between the flows and the...
the underlying asset, but with leveraged ETFs, it's the opposite.
So when the underlying asset in leveraged ETF does really well and you're long, you tend to see outflows.
People basically are taking profits and you see a lot of trading.
So for the most part, people are using these the way they should be.
They're heavily traded.
And you can see that as the trading volume is a percentage of the underlying assets, like people are trading them a ton.
And as they go down, that's when the money comes in.
So you have a lot of people trying to bottom call and try to get these massive pops.
And you also have people selling profits.
So there is like some level of healthiness underneath it.
But like I said, we are getting to extreme levels and it's concerning some people.
That observation there makes a lot of sense to me.
I'm really looking forward to your note on this because I've been wanting to get some more transparency into this.
So I'm looking forward to seeing what you write on there.
You talked about, I think you said space and AI related things.
When SpaceX launched, I saw you'd written a piece saying that there were at least 25 ETFs filed by 14 different issuers, many of which were trying to go live for trading on the same day of SpaceX's launch or shortly thereafter.
In the past, I've heard you talk about this spaghetti cannon.
Is this part of why the SEC is asking for comment and considering overhauling all this?
Are they trying to take the punch pole away from the party on some of this craziness?
What are you seeing here?
They might be.
We had issuers trying to backdoor their way into launching these leveraged ETFs on single stock SpaceX on the day of the IPO.
The SEC came in and halted those things that were trading.
They basically called all these issuers and said, you can't launch on the same day, and they still tried to do this.
It might be playing a factor in what's going on here.
It's definitely intriguing.
Like I said, we were just on the SpaceX ones.
I mean, there's, I don't know how many, there's like six or seven levered long and like four or five levered short ETFs that all launched on the same day or maybe within a day or two.
I mean, those things already, they took in a billion in flows.
So, I mean, within two weeks of launch.
So that's the type of money.
And these things charge.
So a normal ETF I mentioned, like the S&P 500, if you can get one of those for two, three basis points and get exposure to it.
So you get tons of money in there, it starts adding up.
But like these ETFs that I'm talking about, some of them are charging 1.5% on an annualized basis.
But like I said, they're heavily traded.
So people don't generally care about the fees as much.
But for these issuers, that's a lot of money.
So it's a cutthroat, like real push and pull industry to try and get a foothold.
But I think the SEC thing is more to do with the prediction market ETFs.
I thought they were going to launch.
It seemed like the SEC was getting ready to launch.
There was a lot of back and forth.
We can see this via filings.
And you can see the issuers are changing this document and this language around here.
And it means the SEC is going back and forth with them, almost certainly, and telling them, we don't like the way this is worded, or you need to add risk disclosures on X, Y, and Z.
And it looked like things were getting pretty close.
And then some weird things happened in the prediction market, particularly during the Maduro raid.
And I think somebody in the administration was like, I don't know if we want these ETFs out there.
I do think ultimately we will get them, particularly if they're on economic forecasts or finance forecasts or earnings reports and things along those lines.
I think what the SEC is trying to do is they need to figure a way to draw the line between some of those other more esoteric things that they don't necessarily want an ETF wrapper, particularly sports betting, those types of things.
Because believe me, if an ETF issuer can wedge themselves through a crack and get out with something that they think they can launch these products, they will do it.
That's kind of how we ended up with these single stock levered ETFs.
There was a rule that was...
made on leveraged ETFs.
And the lawyers are very smart and they figured out a way that fit with the rules to get these things out.
Even though, yeah, I think that's mostly what the SEC comments are about, but it might also have to do with some of this other stuff that they're just trying to figure it out because we're, I don't even know, I think we've seen over a thousand ETF launches this year.
Don't quote me on that, but we're at a record level of ETF launches where record levels of flows, record levels of trading, things are just really taking off.
We've made some predictions that we thought things might start to slow down the growth a little bit.
And we were completely wrong a couple of years ago because things have only accelerated.
in the ETF industry.
And part of it is the tent is growing, right?
Like you're not just buy and hold long-term.
It's all these other training vehicles we were just talking about.
This whole thing has the energy of somebody in a van behind a 7-Eleven being like, hey man, you want to buy some SpaceX ETFs?
Like I'm a little concerned about all of this.
James, I want to get your thoughts on this.
I won't ask you to guess what the SEC is going to do, but it's something else that's happening that's sort of like...
A big trend in investing and in financial markets is real-world assets, tokenization, moving these things on chain.
Theoretically, these things accelerate the speed of capital formation, and they take away a lot of the friction around some of these markets.
For something like the ETF landscape that's growing so rapidly and is experiencing this spaghetti cannon moment, do you think that tokenization is something that unlocks even more capital and liquidity and speed of trading?
Do you think it is kind of like an indifferent thing to the market, but just kind of helps support the infrastructure behind the trading?
How do you see that intersecting with the ETF space here as tokenization starts to take off?
Yeah, so near term, I think it's just another distribution avenue, right?
Like it's another distribution avenue to different levels of capital.
And that's like on the DeFi rails right now.
And I think right now there's a lot of testing going on about figuring out ways to do this and distribute their ETFs on chain.
But long term, I think it could be a true competitor.
You know, if you get a lot of these assets that are tokenized, you can basically create a pseudo ETF that is like a smart contract on some smart chain.
So that's kind of how I view it.
So right now, I think it's a net tailwind because it's just creating another way to distribute these things.
But there's no way to know for sure.
But I can tell you right now.
so many issuers are toying with this and trying to figure out ways to tokenize these things, put them on blockchains.
And if it's not like they're not, I don't think a lot of these issuers are expecting this to be like, we're going to earn so much money and it's going to help us make, pull in so much more assets because we do this.
A lot of it is just like they're testing the waters and trying to understand to see so they're ready if this is the way things go long-term.
And I do think some of this stuff is going to go that way long-term.
What is, in your mind, the right balance here that the SEC or just in general, the industry should shoot for in terms of balancing between enabling and encouraging some of this innovation that we're seeing and sort of like investor protection, limiting some of the risks?
Like, I mean, I guess this is kind of a big general question, but how do you think about that?
And where are we on that scale?
Are we limiting innovation?
Are we bringing in too many risks?
Or how do you see that in your own mind?
I actually like the way that this SEC is currently handling it.
I was very critical of the prior SEC admin and the way that they handled the launch of some crypto ETFs and some other leveraged ETFs.
But this SEC has found their way to put their foot down, including Hester.
A lot of these issuers, I mentioned, they tried to launch in different times and earlier as in the SEC was comfortable.
They keep also trying to file for 3x and 4x leveraged ETFs, which is like explicitly forbidden.
They're trying to find these loopholes to get it through.
And the SEC has kind of put their foot down repeatedly, like saying no.
And I do think like, Like I said, I'm kind of very libertarian minded in the way of these things.
Like if you can get them launched, it makes sense.
But there needs to be a line drawn somewhere.
Otherwise, people are just going to push it to the absolute limit.
And I think that's also what's happening with the prediction market ETFs.
Like the ones that have been filed have to do with like economic recession indicators and job losses and things along those lines, which makes sense in an ETF wrapper, I would think personally.
But like, do we need an ETF to bet on, I don't know, the Jets winning the Super Bowl in 2027?
Probably not.
And I think the SEC is just trying to figure out ways within the rules that they've set out that they can try to draw a line so they don't have issuers pushing beyond what they think is acceptable.
So right now, I'm a fan of how they've handled things.
I don't know what else they could do for the most part without going against the rules and regulations of what is already stipulated at the SEC and in other laws within Congress.
Yeah, I think they're trying to find that line.
And these comments that they're asking from the industry are part of that, right?
They're not going out there because they want to let everything through.
They're trying to figure out ways to do this without stepping over the boundaries of what they're allowed to control, I guess.
James, I'm shocked to hear that you're not a fan of Gary Gensler.
That's breaking news there.
So I'm just floored to hear that.
I do want to drill down on this, though.
You said you see the case for prediction market ETFs that have things to do with like...
economic indicators or outcomes related to the jobs market or et cetera.
Kind of give me a little more detail on what value you see there and why you think that's different than just sports betting as an ETF prediction market product.
And then what value that brings to the market if the SEC does allow those to move forward.
Talk to me about that opportunity there.
Yeah.
So, I mean, the main ones that are coming out first or were going to come out first have to do with political.
outcomes, right?
So the first ones that were coming out were, there's two for each one, and it was who's Democrats or Republicans going to win the Senate, Democrats or Republicans going to win the House, and who's in Democrats or Republicans going to win the presidency in 2028.
I think that is like you're betting on an outcome rather than like the second order effect of that outcome, which people get wrong all the time.
So investing has a lot more to do with that.
And if you want to hedge some sort of outcome because it affects something you're worried about, but not necessarily like you're picking a stock because if you've listened to everyone that felt when Trump was going to win the first time, the stock market was going to crash.
And it did initially.
But then obviously the exact opposite happened.
And if you positioned yourself that way, things went down.
And so there's a whole host of reasons where you would want this first order effect ability to bet on things like an economic recession or something along those lines.
So I think there's a pretty good use case for an ETF that does that, even though for the most part, the one criticism I do hear from most people is like, if people want to get exposure to this, they can open a Polymarket or CalSheet or whatever account and they can do it.
And which is the same thing I heard from people telling me that there wasn't going to be demand for Bitcoin or crypto ETFs because they can open a Coinbase account or Kraken or you name it, Gemini.
And that's kind of the way I view these prediction markets ETFs.
If these things do get out, I envision them being an absolutely smash hit.
Yeah, I think it's, I was kind of in that camp too, of being like, I don't necessarily see the value of putting a product that already exists in another wrapper, like, what's the difference?
But it's become very, very clear that there is a big difference.
And there's a much bigger market there for those products.
Yeah, people are willing to pay up for convenience.
That's why.
And they're willing to outsource some of those concerns and particularly outsource like self custody and things like those.
So they trust the name and the brand names of, you know, BlackRock, VanEck, Bitwise, you name it.
they're happy to outsource that because they're willing to pay up for convenience.
And you see that over and over and over again in the ETF wrapper.
There's plenty of strategies out there where like, anybody can out there and run their own covered call S&P 500 strategy, but they'd rather pay up a little bit and have somebody else handle it for them.
Gotcha.
Okay.
This is a crypto show.
That means I'm allowed to talk about crypto as much as I want.
I want to go back to Saylor and SCRC.
Strategy released a framework for how they're going to manage their capital stack, give themselves some options to continue to support SCRC, MSTR, sell some Bitcoin if they have to.
Has that moved the needle in your world at all?
Have you heard any people saying this is a good move, this is bringing some confidence back to the digital asset markets?
Are they kind of shrugging this off and be like, let's wait and see?
What's been the reaction for that or what's your own personal take on that?
Yeah, I would say like the people that are my clients for the most part, on average, aren't huge fans of what he's doing.
I think a lot of people are just okay with him doing what he's doing with the selling shares and the MNAV.
And I think a lot of people have concerns about like entering into with these preferred shares where you have set distributions that you need to make on a regular basis and there's no cash flows from the underlying assets.
So those are the main concerns I hear from people.
I mean, he has a lot of runway in time and length and his balance sheet absent Bitcoin dropping another.
I'm 80% from here.
So I think for the most part, people are paying attention to it, but it's not something that I'm getting a ton of questions on, maybe because people know I'm not like the expert on this.
But my view is I have no problem for the most part with what he's doing.
The one thing I will say is like, him and some other people at other companies like Strive and other things, they kind of refer to some of these assets as money market-like and T-bill-like and talking about rate curves.
I'm like, don't do that.
These are very much not those things.
And they like to talk about the duration and the vol and the risk, the sharp ratios and things of these things.
And that always just didn't sit right for me just because anybody who looks at this and understands markets knows that there's a lot of embedded risk in these things and acting like there isn't is...
not a great thing no matter what your intentions are to like keep it at some par level um so that's the one thing i kind of had a problem with but other than that i mean he's they're trying all these new things i'm not personally somebody that's gonna hold those and this is like a little bit out of my wheelhouse for my coverage um so i would say i don't get a ton of questions on it but yeah that's my two cents i guess gotcha okay well let's go back to your wheelhouse then we're going into summer Is there anything like I think a lot of people were looking forward to the SpaceX IPO is sort of like this big market event that was going to come.
We've gotten through that.
It seems like Anthropic and OpenAI may be waiting on their IPOs for a variety of reasons.
But what's on your horizon that you're watching for this summer in terms of a big market event, market catalyst?
It doesn't have to be crypto specific, but just like in your world, what's on the horizon that's a big blip on the radar that you're watching for as it comes closer here?
I mean, honestly, like I said, I am paying attention to the leverage, but we already talked about that.
And then the other, the ones I'm, I am also paying attention to, I wrote a lot about what's going on with the SpaceX IPO and the ETFs trying to track it.
I think that is the norm with those ET, remember we just talked about the ETFs tracking SpaceX and the levered versions launching one day after IPO.
We saw the same thing happen with Cerebris.
I think the same thing is going to happen at probably as big, maybe not as big as SpaceX, but same thing depends on when and what's going on with the market for OpenAI and Anthropic.
So yeah, those are the things I'm mostly paying attention to and getting ready for because SpaceX is getting added to the NASDAQ index next week.
It was just added to the Russell 1000 this week.
So there's a lot of things to kind of pay attention to on that front.
And then obviously, when you come back to crypto, you have to pay attention to what's going on in clarity.
It looks like they're going to get a vote in the House no matter what they do this summer.
It seems like that's going to – whatever, they're going to try to get the votes done before election time.
I think both.
Yeah, yeah.
I don't know.
We're like my colleague who's down in D.C.
and covers this stuff is mildly optimistic that it could get done.
But I think the general consensus is more so that they're going to make people go on record as voting against it.
And then the stand with cryptos, the other packs are going to be able to fair shake, are going to know where people stand and they're going to throw money against people who vote against it.
So I think that's we're going to get votes on that.
I mean, that would be another catalyst.
Like that could be the only thing that I could think of that could get us out of this because.
As we talk about like with bear markets and whatnot, they're measured in performance, return, downturn, and length of time.
And the last two lasted 350, 300, 400 days.
We're at like 270, something like that.
So we still got a long ways to go on time.
But like if you get a catalyst like Clarity Act approval, maybe it bumps things out of it initially.
But who knows?
I would say like for the most part, these things tend to take a while if history is any guide.
But obviously past.
It's not always indicative of what's going to happen going forward.
But those are the things I'm paying attention to.
We could have a little while to go through to wash out everything.
James Safeheart, Senior Research Analyst at Bloomberg Intelligence.
Thank you so much for being on The Milk Road Show.
I always enjoy our conversations.
I feel like I learn a lot.
And you're just very authentic and free-flowing with your expertise on these things.
So I know our audience loves us a lot.
Where can we send people to find more of you and your work online?
Yeah, I mean, the easiest thing is if you have a Bloomberg terminal, all of the research that I was just talking about is I write about it on the Bloomberg terminal.
So that's where you can see the most in-depth portion of my stuff.
I post occasionally on LinkedIn, but most of my stuff, I'll share some charts and data and debate with people on some of the stuff on Twitter.
So Twitter is probably the easiest place to get me if you're not going to, if you don't have a Bloomberg terminal.
So yeah, my Twitter is JSEYFF.
And I share, we can't share everything, but we share a couple charts from our notes every once in a while.
Always open for debate and people feel free to come rip me apart audience if you want.
All right, James.
Well, enjoy your holiday weekend and the World Cup and we'll talk to you again soon.
Thanks for being here, James.
Same to you, John.
Thanks for having me.
And thank you all for joining us.
I hope you all learned something today too.
So until next time, stay safe, stay educated, stay bullish, and we will see you on the next episode of The Millcroach Show.
Thanks for being here, everyone.
Bye.
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