It's fascinating that they decided to launch their own product because Morgan Stanley doesn't have that many products.
What's more indicative is the seven and a half trillion number you said, which is what really matters, right?
They have a lot of money, of wealth that they're managing.
They have trillions of dollars in assets, even at a 1% allocation on average across the board or even less than that.
It's meaningful buying theoretically that could come into Bitcoin.
And now we've seen over 2 billion come in since February 23rd.
So things are starting to perk up or at least stop the, you know, the bleeding or hemorrhaging as we saw.
Bitcoin, it's kind of like gold in the sense that like sometimes it's really correlated to one thing and sometimes it's not correlated at all.
So for the first few months of this year and towards the end of last year, it was very correlated to software stocks.
I'm sure that will stop. It's kind of slowed down now.
I think quantum actually is affecting because I get questions on it from institutional players.
So maybe they're not causing people to, you know, dump all their Bitcoin, but it might be hindering potential demand.
We're in a bear market right now. Bear markets aren't just measured in price.
They tend to have, you know, this sideways to down length of time.
It takes months, if not longer, before things really settle.
Maybe we have already seen the bottom.
Welcome back to Over the Horizons.
I am here with James Safer.
This is his second appearance on the show.
He's a senior research analyst at Bloomberg Intelligence.
James, thanks so much for joining me today.
Yeah, thanks for having me, Joe.
Happy to be here.
Absolutely.
Let's kick things off here.
Lots of crazy things going on right off the bat.
I wanted to ask you, we're three months into 2026 now.
I read up that you had two major predictions as far as crypto ETPs were concerned heading
into the year.
first that we would see well over 150 new ones over the course of 2026.
And secondly, toward the end of the year or into next year, we would see a ton of those
products liquidate.
So now that we are three months into the year, we've seen some crazy price action on Bitcoin,
45% down from the highs.
How can you sort of assess both of these calls and where the state of the market is more
generally?
Yeah.
So on the liquidation side, there's nothing to write there.
That's definitely at least 12 months out from when I wrote that.
So it might even be longer.
It depends basically how long these issuers...
If you want to go with a rough estimate, we'll say it's $300,000 a year to run an ETF, right?
So you get it launched.
It's going to cost you $300,000.
That might include launch fees and stuff like that, but it's a lot of money.
It's not something you can just do.
So if you're going to launch it, you need to get assets and flows.
So there's probably some bandwidth or time with that.
These issuers, when they're launching these products, they're like, okay, we're going to give it a year.
We're going to give it a certain amount of time.
And if it doesn't work out, we'll back away.
Other bigger issuers that have other successful products, they might leave these things out there longer to like,
You know, if it hits the right place, right time, there's say some, you know, crypto coin
that's in the top 30.
They launched an ETF on it.
No one cares about it.
Some big news happens in the crypto world.
It jumps up to top 10.
All of a sudden, they're the only one with an ETF that's holding it.
So if they can sit there and wait and hopefully like strike while the iron's hot and get enough
assets, it's successful for them.
So who knows?
So I mean, as far as the liquidation side, who knows?
As far as the launching side, we're right on schedule.
Definitely over 100 are probably going to happen.
We've seen a whole bunch come to market late last year.
There's still some coming to market now.
The launches have kind of slowed for now.
I think people are waiting for the market to settle in, but they're still launching all
these different types of products.
And we're seeing a whole bunch of altcoins, a bunch of yield options come to market, derivatives
based products.
There's a lot of filings for index and actively managed products.
So T. Rowe Price, which is a legacy, real old school, active discretionary manager is
going to be launching an actively managed crypto ETF.
So all this looks mostly on track for now, but we won't know for quite a while if I was correct or not.
Fantastic. Yeah, no, it remains to be seen.
And I would wager that if Bitcoin remains in the doldrums for a substantial portion of this year, we'd probably see some of those bodies float to the surface.
So speaking of like, you know, Bitcoin is down 45 percent from the highs.
ETF holdings have managed to hold up pretty well.
I put out a tweet just before you and I went live here that I was looking at the price compared to the AUM.
and across all the spot Bitcoin ETFs,
the AUM is only down 9% from the October highs
compared to Bitcoin's price at 45% down.
So very clearly the ETF holders are hanging tough.
What would you attribute that to?
And what do you think the significance of that is
as the market matures
and sort of the market structure changes?
In a few words, boomers are diamond hand holders.
I mean, really that's what it comes down to, right?
When these things were coming to market,
people were telling us
they're going to be soft hands in the market.
They're going to sell at the first sign of trouble.
And that's just not how long-term investors operate, particularly the ETFs. People who are
investing in ETFs for the most part, they know what they're getting themselves into and they're
smart investors and they're allocators. So I think part of it is one, people just know the asset
they're buying. And like what you said is correct. So from October 10th to February 3rd-ish, there
was about 9 billion that came out, right? That's a lot of money. But when you take into account what
happened before that, a lot of money went in. And now we've seen over 2 billion come in since
for every 23rd. So things are starting to perk up or at least stop the bleeding or hemorrhaging,
as we saw. Who's to say if it's going to continue going forward? But at the end of the day, not a
ton of money has come out. And the other part of it is the people who are buying this, one,
like I said, know what they were buying. And two, probably right-size their position. These people
aren't putting Bitcoin as 50% or 90% of their portfolio. This isn't 100% of their net worth
where they have to sell because they're worried about having enough cash. This is probably
single digit percentage allocations with our portfolio. And what most advisors and people who
are doing this as long-term investments are probably going to have like a set strategic
allocation, whether it's 5% or what have you. So if you bought at 60,000 and it went up to 120
and it was time to rebalance, you probably sold a bunch to bring it back down to your target
allocation. Theoretically, if you were up there and you bought it down to 120 and it dropped in
half, you're going to be buying more. So I think that it actually might be contributing to some of
resilience. I know a 50% drop isn't very resilient in prices, but considering what we usually see,
like in a bear market pullback for crypto or Bitcoin in general, 70% is what typically happens
and which would put us like, you know, in the $40,000 range. And we're not there yet. I'm not
saying we're never going to get there, but right now it looks like things are just holding up a
little better. And particularly these ETF investors are holding up very well. Well said. Yeah. It's
been, it's amazing to see because it's been very stair-steppy since the ETFs were launched, you know,
in early 2024. And a lot of folks were saying and have been saying, and it seems to be the case,
that Bitcoin's volatility has dampened substantially since the passive flows from these ETFs has sort
of begun to dominate the market. And a lot of folks were questioning what is going to happen
once you start to see a decline, once you see Bitcoin's sort of first bear market with the ETFs
as a major player in the space. And now that you're seeing it, right, they're hanging tough.
And so it's pretty cool to see that everybody's thinking beforehand, which is that, you know,
They're sort of very diamond handed, very methodical, very long term holders.
That's exactly what's playing out.
So it's pretty cool to see.
Speaking of the Bitcoin ETF specifically, and then we'll shift gears into some other topics.
Morgan Stanley, one of the most well-respected regarded financial institutions globally.
Very big news.
So we've known this for a couple of months now, but they just amended and they're approaching their spot Bitcoin ETF filing and launch.
What's the significance of Morgan Stanley choosing to launch their own spot Bitcoin ETF in terms of institutional legitimacy and capital access?
Obviously, they have like seven and a half trillion dollars in advisor AUM.
They're also hiring for a bunch of crypto related roles.
So what's the significance of them choosing to create their own spot Bitcoin ETF?
Yeah, so I don't think it says more that much about the institutional side of it.
I mean, we already have BlackRock involved, some of the biggest, largest asset managers.
Banks are allowing their advisors and wire houses to put this into client portfolios.
So I think that has mostly been settled.
It's interesting that such a large bank on Wall Street is doing it.
What's more indicative is the $7.5 trillion number you said, which is what really matters,
right?
They have a lot of money, of wealth that they're managing.
And like I said, these people that are using the ETFs or advisors, they're not putting it
in massive portions of portfolios.
So they have trillions of dollars in assets, even at a 1% allocation on average across
the board or even less than that, it's meaningful buying theoretically that could come into Bitcoin.
Now, obviously, not all of those accounts are going to buy Bitcoin. It's going to be probably
a minority. It's probably going to be a single digit allocation for most of those people.
But just having this out there is pretty impressive. It's fascinating that they decided
to launch their own product because Morgan Stanley doesn't have that many products. I think
they don't have many products with their own branding. They have Parametric and Eaton Vance.
I believe they have 15 in total.
Yeah, they have Parametric, Eaton Vance. There's another brand that technically is owned by Morgan
Stanley, but it doesn't have the Morgan Stanley branded ETF. So that's interesting. I mean,
they're putting their brand on the line here. And they also filed for Ethereum and Solana ETFs.
So it's interesting in the fact that one, I guess they think they can do just as well as these other
issuers are, and they can get their own advisors and brokers to put the client money in there
rather than going to a competitor like BlackRock or Bitwise or you name it.
Fantastic. Thank you for the color there. So I want to shift gears here and talk a little bit
about the current macro environment.
So obviously, a couple of weeks ago,
we decided to invade Iran.
We decided to begin strikes.
That has escalated.
Bitcoin was doing quite well.
It was doing decently well.
It recovered from its $60,000 bottom.
And then two days ago, major escalation.
Israel decided to strike actual energy infrastructure.
So not actual like holding facilities for gasoline
and crude and other things like that,
but the refineries specifically.
So the actual production facilities,
that caused massive panic and it caused gold to roll over in its sharpest move since what we saw
a couple of weeks ago. Gold is now down 8 percent. Equities are continuing their decline.
Bitcoin is obviously also reversed course, not specifically an ETF question, though I suppose
you could speak a little bit to that. But how are you interpreting this reaction as the war
sort of starts to get going here? And what does it tell you about current market positioning and
investor sentiment. Yeah. I mean, I've decided I'm going to be a geopolitics expert and energy
commodity expert. No, no. I'm not an expert on this stuff, but I'm happy to comment on it through
the lens of energy and what I'm seeing. So obviously, energy prices are going through the
roof. It's surprising, honestly, that it's not worse considering how impactful this could be.
So basically, the markets seem to be mostly expecting this to subside in somewhat of a
short-term nature. Obviously, I'm not going to pretend to know whether that will be the case.
The gold thing is fascinating
because like you said,
it has been a massive sell-off.
There is selling in the ETFs.
Largely, what it has to do is
people tend to think of gold
as a hedge against inflation
and it really isn't.
It's not that great of a hedge against inflation.
Over longer time periods, it is,
but over shorter timeframes, days, weeks, months,
it's not.
It kind of beats to its own drum.
What it is a hedge is against currency debasement.
So it has a negative correlation to the dollar for the most part and it has a negative correlation or it is correlated to real yields So basically what actually happening absent inflation
So if real yields are going up, that's bad.
People are going to leave gold because there's no yield in gold.
And right now what you're seeing is a very strong dollar over the last few last week or two, a couple of weeks, which is bad for gold.
So that's impacting it.
And then obviously real yields are also going up because they're basically pricing out cuts.
So basically the market isn't expecting cuts to happen because of what's happening with
energy prices and things along those lines.
So all of this combining, and I think part of it also has to do with just like reversion
to the mean for gold.
Like it's gone up so much that there are people that are just like, all right, I'm going to
take my profits now.
Things aren't looking good.
And you kind of get momentum in commodities pretty standardly, right?
So I think all of those are contributing to what's happening there.
Obviously, yeah, I won't pretend to know exactly how this is all going to play out, but that's
the way I've been watching.
And it has been fascinating that Bitcoin, you know, it's held up pretty damn well.
I mean, it's funny, depending on like what time frame you want to look at, like if you
go back six months and look what's happened since October, Bitcoin has looked awful.
But if you look since what's happened with Iran, Bitcoin's actually looked better than
pretty much everything else, considering it's holding up decently, although it is down today.
So fascinating to watch, depending on what narrative you want to use, you can argue that
it's awful at doing X, Y and Z.
Or if you want to use a narrow time frame, it's also very good at doing X, Y, Z.
And really, it's almost always way more complicated than that. Bitcoin, from my point of view, has continued making higher lows, which is a positive sign. Who knows what that means? But if if this thing goes on much longer, Bitcoin does trade like a risk asset for the most part. So if you see, you know, equities and all that, everything else kind of fall out of bed, I wouldn't expect Bitcoin necessarily to hold up particularly well when that happens.
absolutely yeah i know it seems like a lot of the initial sell-off was freely front-loaded to
bitcoin it um happened well in advance of the the iran situation but as you mentioned if equities do
continue to roll over i would expect us to challenge those levels uh much lower um question
for you with obviously not a geopolitics or energy expert but speaking about brent specifically the
move is completely insane and we went from i think you know close to 70 a barrel at the end of last
month. Now we're over 110 or close to 110. I can't check the terminal because of my VPN that
I'm on right now. But that said, you know, speaking about demand destruction, obviously,
like oil prices as oil goes. So so does the direction of the U.S. economy. If oil prices
stay here for much longer, what do you think is going to happen? What do you think is going to
happen to investor sentiment? How are people going to start allocating and things like that?
Yeah, I mean, one one thing I've noticed is people really don't understand how energy markets work,
particularly people commenting on Twitter because it's a global market and these things are
different. There's different types of crude that you can get, all these different contracts. And
people just think that because it's always tends to be correlated, that it's always going to be
correlated. But when you have massive supply disruptions, you're going to get things going
in different directions. Spreads are going to widen. There's different costs for when you're
breaking things down, whether it's going to be gasoline or jet fuel or kerosene, you name it.
All these spreads are going wild. It depends not only what's coming out of the ground,
It depends on what refineries are doing.
So it's honestly fascinating.
The one thing I would say is like, if you look at gas prices and you go back to like
2008 when everyone was really concerned, the dollar amounts that we were talking about
then are kind of similar.
So if you kind of inflation adjust or adjusted for wages or what have you, like fuel prices
are really low.
Like even right now, they're comparatively low to what we were used to seeing.
To get to the numbers that we saw in like 2008, 2009, we're looking at like over $200
a barrel type of stuff, right?
I'm sure I'm not the first person to say this.
So obviously, when you increase the cost of energy, everything goes up, the production of goods, the transportation of goods, the transportation of people like all of this is bad.
So then all of a sudden, if your cost of doing all these different things is going up, you're going to be spending less.
It's not good for the economy. So at some level, there's like a perfect level where like, you know, there's enough money around for these exploration, exploration and production companies to like build new wells and bring on new new supply.
But also not enough, not so low that they can't do that or not so high that it hurts demand.
And right now, like I said, things are not that bad.
Like as far as prices are concerned right now, like you would think you would expect it to be worse if you told somebody that straight from use would be closed for weeks on end and there's no end in sight right now.
You would be like, OK, things should be two hundred dollars a barrel like that might make sense.
One hundred and twenty, hundred fifty dollars a barrel.
Again, I'm not an expert, but I mean, if this goes on for a very long time, things could get a lot worse.
But I would also say I think the Trump administration knows that.
So they're definitely playing into this calculus.
I don't know how much of it, but they have their goals, whatever they may be, and they're
going to try to reach those goals.
And then they're going to probably try to find some way to get to an off ramp.
But obviously, Iran is attacking other infrastructure from Qatar and all these other Gulf states.
And it's just not good.
It's not good at all for the global economy.
Certainly not.
If this were to persist, right, looking at different sectors, obviously, you have your
ear to the ground as far as ETFs are concerned.
How do investors tend to behave during periods of tremendous uncertainty?
this. Obviously, during the initial shock, like the escalation we saw two days ago,
the correlations jump to one, right? Everybody sells, everybody wants to get into cash.
But as these things persist in months, weeks turn into months and so on and so forth,
where do investors tend to hide out? So right now, I can tell you where the money is going
in ETS for the most part. One, a lot of people had done a hideout in cash. If you go back to COVID,
everybody was selling anything they could to get to cash, even bonds were not doing great
because people just wanted cold, hard cash.
And that's kind of what we're seeing.
The dollar is doing really well.
But if we're looking as far as investments go,
one, people are using put options heavily.
There's a lot of put options being bought right now.
Two, we're seeing, if you look over the last,
call it three to four years, basically since COVID,
tech sector ETFs on the equity side
was the number one sector getting all of the money.
Like every quarter, without fail,
tech sector was the number one quarter for ETF flows
if you were to break it into sectors.
And then all of a sudden, in the third quarter of 2025,
we started seeing some other sectors do well. And then the fourth quarter, so through December,
through the end of 2025, it happened even further, but tech was still number one.
This year, tech is number right now. So far in the first quarter, we're almost at the end of the
first quarter. We only got 11-ish days left, 12-ish days left. The leading sector pulling
in money is energy, then industrials, which is also defense and things like that, and then materials,
so metals and mining and other real assets. And then the fourth sector, as far as we track it,
is thematic ETFs. And within there, it's infrastructure, it's natural resources. So
basically, it's like people are trading, they're not buying, you know, bits and technology and the
mags. They're buying real assets, things that move atoms and stuff like that. So that's where people
are going to. Usually, they also tend to go to utilities, but they're not doing that right now.
It probably has something to do with rates and stuff like that. But for the most part, it's been
fascinating because, like I said, tech has been the number one sector for flows forever. And right
now, it's energy, obviously, benefiting from what's going on, industrials, materials, and then
the thematic ETFs doing well are things that are kind of correlated or go across those three
different sectors, honestly. Perfect. Speaking specifically about atoms and sort of the software
apocalypse that we began witnessing late last year and we're still sort of witnessing to some degree,
couple of the investor behavior that you just spoke about, right? People tend to hide out
in energy and real things rather than sort of in the bits. Do you think that this is a shift that's
going to sort of dominate 2026 and into 2027 where investors are more so focused on real tangible
things rather than sort of software products or even things like Bitcoin maybe and the rest of
the crypto space or do you think this is something that's more temporary yeah I don't know it kind of
depends on what's going to happen here with Iran and the Middle East I would say first of all but
I will say we've been seeing a broadening out from the top of the the you know the mag 7 the
top of the U.S. stock market, really. We saw it with international stocks doing way better last
year, particularly after the tariff tantrum. International ETFs were taking a lot of money.
Small cap and mid cap ETFs were catching up. There's basically been this broadening out of
the U.S. stock market. So maybe not as much money was going to the large names, but it was funneling
down to these other areas. So we're seeing valuations come up in other areas outside of tech.
So I think broadly speaking, that's a good thing. It's been like 15 years that people are like,
the tech sector is too big. The top of the index is too top heavy. And now we're seeing a broadening
out and people are freaking out about it. And I'm kind of like, however it's happening, it's
probably a decent thing that we're seeing this broadening out into other areas of the market.
As far as Bitcoin goes, you're right. One that I wrote earlier this year about how Bitcoin has been
scarily correlated with software stocks due to SaaSpocalypse, if you will. Bitcoin, it's kind of
like gold in the sense that sometimes it's really correlated to one thing and sometimes it's not
correlated at all. So for the first few months of this year and towards the end of last year,
it was very correlated to software stocks. I'm sure that will stop. It's kind of slowed down now.
What was interesting to me is initially like the software stocks are getting bought
hand over fist because everyone's trying to buy the dip and people weren't really buying the dip
in the Bitcoin ETFs because I think they were just afraid it was going to go down further.
But that changed at the end of February. And now we've seen a decent amount of money come back into
the Bitcoin ETFs, whether it's people rebalancing, allocating, trying to call a bottom, at least a
short-term bottom. That's what the flows were telling us. But I won't pretend to know.
If I knew the answer to that question, I probably wouldn't be an analyst. I'd be a portfolio
manager. My guess is we're going to see a consistent broadening out here. But I will say
there are names in these other sectors where their PE ratios and forward valuations are getting
pretty high themselves. So it'll be interesting to see how investors handle that and what happens
with their earnings over the coming year. Right. Absolutely. Talk a little bit about the makeup
specifically of those who are purchasing the crypto ETFs now specifically and why the behavior
in ETF AUM differs so substantially from actual spot Bitcoin price and in what institutions see
that sort of, I guess, retail doesn't see. All right. So I have a lot of thoughts on this.
So you have to stop me from rambling. I apologize in advance. But one, as you said,
if you look at the on-chain metrics like Checkmate and all these other people that are writing a
Rational Root, all these people writing about on-chain metrics. I'm not one of those people.
I look to other people through their expertise. It's the OGs that we're selling. It was like,
people were like, oh, why is the price going down? It's like the call is coming from inside
the house. Look at the on-chain metrics. People are dumping their coins. And good for them. I mean,
it's people with hundreds, if not thousands of Bitcoin that are selling some of them,
not all of them, at least as far as we can tell, onto exchanges, right? They're taking some of the
profits Ironically with the ETFs we have seen net selling Like I said there were outflows in in the fourth quarter So investment advisors and hedge fund managers are the largest note holders that we know who hold the ETFs And they sold a little bit in the fourth quarter I suspect they also sold a decent amount for the first half of the first quarter of this year
2026. Though we won't ever know. We just get quarterly answers. We know what they held on
December 31st, 2025. And we're going to know what they held on March 31st, 2026. But we get it on a
a month and a half delay, 45-day delay. So when we're looking at this stuff, it's like we don't
actually know what's happening real time, but I can kind of back into it. And I will say that
the numbers that we do have at the end of September 2025, we knew the number was like,
we knew 27% of the holders of Bitcoin ETF assets here in the US. That number's dropped to like 25%
because we saw some net outflows. So what the real answer is, most of the holders of these
things are retail investors. It's not necessarily the advisors. It's not the hedge fund doing the
basis trade or making markets in these things. For the most part, it's retail investors that
are holding these things. And they're the ones that are diamond hands. And like I said, I think
for the most part, people who are seeking out these ETFs in their brokerage accounts, one,
know this thing is prone to massive sell-offs and two, are right-sizing in their portfolio.
Again, it's probably not massive, massive portions of their portfolio. And if it is,
they know what they're buying at least. So I think all of those things are contributing to
what we're seeing here. But if we look at one second, I have this data in front of me.
So Bitcoin, we know there are the Bitcoin ETFs, they're almost 2413F filers. And it accounts for
like 8% of the market cap of Bitcoin as of the end of 2025. And we know 24 to 25% of the holders.
So if you look down the line of Ethereum, Solana and XRP, the numbers kind of fall off a cliff as
well. But ironically enough, XRP is heavily bought by retail, not 13F filers. Solana, on the other
hand, is heavily owned by institutions. We know 50% of the Solana ETF holders by institutions.
And Ethereum is about 27%, so more similar to Bitcoin. But all of those things, they don't
really give you exactly a clear-cut picture of exactly what's going on, but it's good to
kind of gauge exactly who's buying these things. Absolutely. And it sort of makes sense intellectually
why, you know, retail holders who are buying spot Bitcoin have such a fundamentally different
investment behavior than those who are buying ETFs, right? Those who are buying the ETFs are
passively allocating every two weeks into their retirement account. They're not planning on
touching these things and getting a penalty for the next several decades, you know, and they don't
trade in and out of these things. And they often take up a really small portion of their portfolio.
Whereas like, like you mentioned earlier, the retail investors buying spot Bitcoin, throwing
it into their cold card or what have you, they're usually putting 50, 60, 70% of their net worth
potentially into it. And so even though they like to speak about being diamond handed,
the large amount of their net worth that's in, it sort of forces them to become forced
sellers during sell-offs like these. Yeah. And I would also say there are plenty of
people trading these ETFs heavily, right? The volume on these things is impressive.
The options volume in IBIT alone is extremely impressive. It's extremely liquid market. And
hedge funds are using these things pretty heavily. They're making markets in them. So
there is a lot of trading. It's just that it's not the bulk of the holders, I guess,
is what I would say. Right, for sure. As far as hedge funds are concerned, let's chat about that
for a little bit and talk about specifically the basis trade. Like taking a look at the Bitcoin
ETFs or just the other crypto ETPs more generally is one of the reasons that they are so stable and
the AUM doesn't really decline all that much is because they're using these to create, to make
markets, to do things like the basis trade. And also as far as like the makeup of the holders for
these assets is concerned, what percentage would you say is held specifically by hedge funds versus
everybody else. Okay. So hedge funds are pretty, they're the second largest holder. So they,
so I'll give you investment advisors as of the end of 2025 held 14 billion and hedge funds were
6.6 billion. So they're a pretty decent size holder of these things. Whereas the ETS were just over
$100 billion at the time, right? So as far as the basis yield goes, ironically, I think it has
near zero impact right now because the basis is so low. Bitcoin basis, when I last wrote about this,
which was literally yesterday, is like 6%, right? At the end of 2024 and into 25 and plenty of times
during 25, that number was well into the double digits. Hedge funds are going to be interested in
using these ETS for that basis trade to arbitrage those yields when they're in the double digits.
They're not really here in the single digits. So a lot of the outflows that we've seen, I think,
has been because people are like, all right, now this thing is going below 5% on a basis yield
basis. There's no reason even for a hold of this because we can get risk-free yield in a treasury
at 4% roughly. So they're not concerned with going through this trade. And the same thing is true for
Ethereum. Same thing is true for Solana and XRP. They formerly had massive basis yields. They do
not anymore. So I think they have almost virtually zero impact right now on what's going in the flows,
aside from probably contributing to some of the outflows that we saw from Bitcoin and definitely
from ETH. ETH had its yield was a little higher going from the end of the summer into the fall
of this year. So I think some of the outflows from Bitcoin, from ETH, the fact that they are now
staying low, lower for longer, I think that contributed to some of the outflows from the
hedge funds. Gotcha. Yeah, that certainly makes sense. I want to ask you about Jane Street.
One of the it's for some reason, whenever Bitcoin's price declines, everybody wants to create a story as to why it's happening.
And to some degree, it makes sense, like it's sort of a traumatic response to what happened in 2022 when we had a million and one successive explosions from different bucket shops all around the world.
But in 2026, it just seems to be in 2025 into 2026.
It just seems to be good old fashioned selling, de-risking event.
But people are trying to create a scapegoat, a bogeyman as to why Bitcoin has underperformed everything else.
So can you talk a little bit about what Jane Street actually does and sort of dispel this myth?
If you believe it's a myth.
Otherwise, if you believe that there was actual price suppression going on, please feel free to explain.
But for the viewers who may not be aware, talk a little bit about that.
Yeah. So, I mean, for the most part, they're market makers.
They do have some prop money, I believe.
But what they're doing is they're just putting constant bids and ask out in the market.
It is weird that mid-morning, almost every day, you tend to see this massive dump and people are calling it the Jane Street dump.
I won't say that. I mean, maybe there is somebody out there kind of suppressing price. But for the most part, like I said, if you look on chain, people are dumping their coins. Like it's supply and demand. If there's enough people, the price will meet it, right?
So one, they have like extremely advanced technology to do to make a lot of money just constantly being out in the market offering to buy and offering to sell at prices that are slightly far apart, like barely far apart.
So they earn only that little bit in the center.
And it's almost a money printing machine for them and other people who are very good at it, namely Virtu and Citadel and GTS Securities and some of these other firms that are out there making markets in anything.
So, yeah, I'm not a buyer of this idea that Jane Street is, you know, causing Bitcoin's price suppression.
Ironically, Eric Bouchoudis, my boss, is a little more like tinfoil haddish on this.
But, yeah, I don't know.
They're out there to make markets.
They're constantly going to be offering to buy, constantly going to be offering to sell.
And those prices are going to be a little bit far, like just a little bit apart.
And they're going to make the difference in the middle there.
And I just don't know.
maybe there's some people within Jane Street that are just getting even more selfish and trying to
get make as much money as possible. But yeah, I don't know. I just can't imagine that they would
be doing this, but I've been wrong plenty of times before. It made no sense to me why Sam was so
greedy, SBF. So maybe there are people out there, but I'm going to say, yeah, I don't necessarily
believe this whole idea personally. I'll have to have Eric on the show next so we can both wear
tinfoil hats and we'll chat about that. Fantastic. Well, James, one of the other things,
sort of piggybacking off of this, and we talk about software stocks briefly, is what has driven
the correlation between Bitcoin and software stocks? And maybe in your view, what has kind
of driven the sell-off in Bitcoin more explicitly? Some folks said it was quantum risk, but if it was
actually quantum risk, then Bitcoin would have, quantum stocks probably would have soared while
Bitcoin declined, but both of them were correlated to one another. So it's not necessarily quantum
risk. And it's not, you know, Bitcoin native selling exclusively either. It's not something
that happened on October 6th.
Now there has been some sort of systematic selling
because some sort of market-making shop,
Wintermute was the most commonly cited one,
having blown up, right?
So it's not like a systematic selling regime.
What do you think has caused this?
Is it just pure de-risking Bitcoin
still being treated as a risk on asset
or is it something deeper than that?
So there's a few theories here.
One, obviously, people have been saying
it's a high beta tech stock, Bitcoin that is,
for a long time now.
Some of it has to do with like,
if you're holders of the same things,
If you're highly levered in mag seven and software stocks and you're a big believer in Bitcoin, you know, Silicon Valley, those types of things.
If you're all holding the same stuff, if one goes down, the others are likely to go down because they're going to have to sell to, you know, handle whatever they have to handle.
That's one theory.
I guess that's possibly true.
I think quantum actually is affecting because I get questions on it from institutional players.
So maybe they're not causing people to, you know, dump all their Bitcoin, but it might be hindering potential demand.
And so there's plenty of other people out there who have talked about this that, you know, people aren't going to, you know, if they were considering putting this as an allocation of their portfolio, maybe they're not like, like I said, dumping their Bitcoin.
Maybe like I'm going to wait off until I know more about this quantum risk or, you know, Bitcoin Core decides to like do something with BIPs 360 or what have you.
Right. The other part of it is obviously something bad happened on October 10th.
You can blame whoever you want. You can say that it was Binance's fault for the way to index pricing on some different assets.
Things blew up.
People had hedges on different exchanges.
They got stopped out of trades here.
And so that means their hedge wasn't on when they were going down.
They thought they were going to be fine.
So whether or not Wintermute themselves or just people in general who trade on leverage
and stuff got blown up, it doesn't really matter.
People got blown up.
And I think that hurt things.
The other part of it is like there's still plenty of people out there that believe in
the four-year cycle completely.
And so at some point, it's like a self-fulfilling prophecy.
If enough people believe that in the four-year cycle and it's going to happen and all those
other things, October 10th, all the other stuff I talked about just contribute to it combined with
all of that. I think there's some truth along all of those things as to what caused the price
collapse. But man, it was an aggressive, aggressive collapse. Talk about taking the escalator up and
the elevator down So yeah I won pretend to know exactly what caused this but some of it is just like this asset tends to trade on a very technical and momentum way And momentum was going down and it just continued to go down And there was just no stopping it at that point And then you take into account all those other things I
just talked about. Those are all my theories. That's kind of what I think has happened. I don't
think it was one single thing. I just think it was all of those things. And we're in a bear market
right now. And I mean, how cold is this winter going to be? I don't know. I won't pretend to
know. I won't know how long it's going to be, but bear markets aren't just measured in price.
They tend to have, you know, this sideways to down length of time. It takes months,
if not longer before things really settle. Maybe we have already seen the bottom. At least we have
near term, but I'm not going to pretend to know. Fantastic. One thing I do want to ask you
specifically about Bitcoin's price action, not where we're going, but what may be happening,
you know, 5, 10, 15 years from now, the way that this asset's going to behave. You know,
it wasn't five years ago that the Larry Finks of the world were saying that Bitcoin was,
you know, this terrible, horrible asset and you should avoid it. And Brian Armstrong was sort of
one of the biggest advocates for BTC and a bunch of other stuff. But these days, it seems a little
bit flipped. It seems like the biggest proponents and biggest advocates of Bitcoin and other crypto
products are not the heads of Bitcoin and crypto specific companies, but they're institutional
leaders, right? And given that, given that this is the sort of going trend, obviously, it has had
some sort of impact on Bitcoin's price action at the margin. We saw a much more stable bull market
than we ever had before.
And even though we did see
a pretty substantial price decline,
most of the ETF cohort sort of hung tough there.
Over the next 5, 10, 15 years, what have you,
obviously, as the ETF holders
become a larger proportion of the buyers
on any given day,
a larger proportion of the actual holders of this asset,
it's going to become a more stable asset, right?
That's been evidence over the last couple of years.
And if this persists, it certainly will continue.
Are you also of the belief that given the higher prominence, if you will, of these ETF holders as it declines in volatility as a result of that, do you think that that's also what's going to change Bitcoin's correlations so that it's no longer traded like a risk on high beta tech stock?
Or is there something else in your mind that would have to occur in order for Bitcoin to finally break its correlations and trade differently, right?
Trade more in line with what its monetary properties allow it to.
Yeah, I mean, one, the quote you're thinking of from Larry Fink is an index of money laundering. Obviously, he's changed his tune there. And one thing, when you ask about who are the holders of these things and what's happening, I do want to point out, like, I just came back from an ETF exchange conference. It's Exchange ETF. It's a conference for the ETF industry. And so many people were talking about tokenizing ETFs, tokenizing stock, you know, stable coins, changing the rails, changing the way you're tracking who holds these things, your custody.
Issuers are looking, talking with index providers in the crypto space.
Things are firing on all cylinders from the TradFi point of view into building in this space, not just with Bitcoin, but also crypto more broadly.
So I think all of those things are net positive for the crypto industry.
Obviously, the Clarity Act will make that a lot cleaner if they can get that passed through, which Bloomberg Intelligence is pretty positive on.
They think it could happen in this year.
We're 60% odds, I think, technically.
my colleague down in DC. So that'll be positive. And then what was the main point of your question?
I forgot where I was going with that. Do you think that it's going to,
like the higher amount of ownership from this ECA? I remember now.
It's going to be the thing that changes its correlations or will it have to be something
else? Yeah. When I wrote that piece, I was talking about before where I talked about the
high correlation to SaaS software stocks. I basically also included the thing where like,
it has all of these properties that are as good, if not better than gold in every metric you could
think of aside from being a stable value or at least having a lot less volatility.
And the volatility is going down over time.
I don't know if it'll ever get to that level.
I think it will always have some level of volatility, which is honestly a good thing.
People view this more as a portfolio diversifier than anything, at least in my world.
And like I said, if you're rebalancing when it goes way up or way down, that's technically
good.
You get good risk adjusted returns, things like Sharpe ratio.
So all of that, I think, is positive.
Volatility is going down, which again, I think is ultimately positive for the gold narrative.
But people like to trade this thing.
It's a risk asset.
There's only 21 million.
So it's cap supply.
So there's not a lot of the only way you can adjust supply to meet demand is or vice versa,
adjust demand to be supply is by selling coins.
There's only 1 million coins left to be mined or less now.
So in other commodities, you can drill more, go to new places and build new things.
It might take months or years to get that online, but you can do it.
there is no way aside from other people selling the assets they already own on exchange to adjust
to those things. So I think anything that's going to have a cap supply is going to have some level
of volatility. But yeah, overall, like you said, we never had a blow off top, which makes me feel
somewhat possible that we won't have like a blow off collapse down below that 70% level I was
talking about earlier. But I mean, I guess it remains to be seen, but you're right. No matter
how much you or I or even BlackRock argue that this asset is a digital store value, it's a hedge
against currency debasement, the market doesn't, they don't care. The market doesn't give a shit,
right? It's down, it's down 50% and they don't care. So until the market, you know, starts to
agree with UI, BlackRock, Bitcoin maxis, you name it, it's going to be traded like a risk asset,
at least in some way. And honestly, right now it doesn't matter because it's still not that
correlated to stocks. Yes, it's somewhat correlated. It goes up to, you know, 0.3%, I mean, 30%.
For the most part, it sits around 20, 25%. If you look over the last 10 years,
that's a pretty uncorrelated asset to risk assets in general. It has plenty of inusyncratic,
unique things that happen to it that affect what happens. So yes, under the surface,
all the ETF holders might cause it to be slightly more correlated. But I mean, the data isn't
showing that it's like some massive correlation and it does everything over the entire time the
ETS have been out.
It's correlated to tech stocks.
That's not true.
There's been plenty of times where it showed up as pieces of stability like it is right now.
Very well said.
I want to ask you a little bit about index rebalancing.
Tomorrow, the S&P 500 is slated to rebalance, I believe.
So talk a little bit about the significance of that.
I know you had recently put out a piece about it if you want to touch on it.
Yeah.
I mean, there's over $10 trillion in passive products that track the S&P 500.
So any sort of changes going into or out of that index can move a lot of money around.
So two of the names going in, they're getting upgraded from the S&P mid cap, are related.
They're basically, they got investments from NVIDIA because they're rated to the data center supply chain and things like that.
So that's two things going on.
Vertiv is another company.
And actually this company called EchoStar is going in, which is basically kind of, most of its value comes from its holding in SpaceX, which is unique.
I don't even know why they're going in there.
But yeah, on March 20th is what's known as the triple witching.
It's when a bunch of options contracts settle, futures options, futures themselves.
A whole bunch of stuff is going to happen tomorrow.
And the S&P 500 is rebalancing.
All these things are going to happen.
We're going to see massive, massive amounts of volume.
And you take into account what I was talking about before.
There's a lot of put options out there in the market on the index, on stocks themselves,
all of these things.
It's going to be a fascinating day in the markets tomorrow, particularly around the close.
But yeah, that's all I would say for the most part.
There's not a lot going on there as far as crypto related goes, but it's going to be crazy.
It's going to be fun to watch.
Probably be some fireworks.
Probably be some fireworks indeed.
James, thank you so much for coming on.
We managed to cover quite a bit.
As the name of the show suggests, Over the Horizon, one of my favorite things to talk about is what's coming up next.
You know, over the next three to six months, one year plus, you can talk about ETF developments.
You can talk about Bitcoin specifically.
wherever your mind is at, what are the big things that you see on the horizon that you feel are worth
talking about? So if I want to stick with ETFs, I would say, and I'll stick with crypto, I'd say I'm
most excited to see what's happened. There's a whole bunch of these index products coming to
market. Obviously, most of the money right now is in Bitcoin specific products. Morgan Stanley is
going to launch their Bitcoin ETF soon. So it'd be interesting to see how that does compared to the
fact that we already have 11 on the market. This is like a very saturated market, but they have
captive demand. We call it a BYOA, bring your own assets. So that's something I'll be watching
because that should launch within the next, I would say weeks even based on what we've seen
from the filing recently, but time will tell. The other side of it that I'm paying attention to
within crypto, which again, isn't going to be massively impactful to Bitcoin itself,
but I think anything that helps the industry will probably be positive for Bitcoin development. I
don't think Bitcoin itself needs the Clarity Act, but the industry as a whole will benefit from the
Clarity Act getting passed, hopefully, or theoretically, that'll be a positive catalyst
for the space. But yeah, as far as this world is concerned, I'm most excited to see where the
demand is for these index-based or actively managed crypto ETF exposures, whether or not
they garner interest from advisors or retail investors, you name it. But yeah, I mean,
sticking with that, obviously, the thing that I'm most impactful in watching is what's going on in
the Middle East, but I don't know how, I have no prediction on what's going on there and what have
you, but that'll have the most impact on anything we talked about today. Markets more broadly, the
economy, you name it. Excellent. James, thank you so much. Yeah, you know, obviously you and I can
monitor the situation, but we're definitely not going to pivot to Middle East and energy and
wartime experts. Speak for yourself. I'm now transitioning to be an expert there, just like
everybody else at Crypto Twitter. Exactly. Once every two weeks, whenever the current thing changes.
James, thank you so much for coming on, man.
It was a blast as usual.
Before we sign off here, where can people find you if they want to find more of your work?
Yeah, obviously all of my work is on the Bloomer Terminal.
So if you have access to Bloomer Terminal, you can see anything I'm writing.
That's where it's all going to be.
But I do T-Summit with charts and a little bit of data on Twitter.
So J-S-E-Y-F-F.
And then a little bit on LinkedIn as well, too.
So you can find me any of those places.
We have a weekly TV show on Bloomer TV called ETFIQ that I help with and am on pretty regularly.
But mostly you're going to find me on Twitter if you don't have access to a Bloomer terminal or X, I should say.
If you have $25,000 a year roughly lying around, I would highly suggest buying a terminal so you could read James's work.
But if not, you can find him on X and that will be linked in the description here.
James, thanks a lot.
Thanks, Joe. Thanks for having me.
And then there's a point which does nothing.
Bitcoin is something like that.
Bitcoin is 17 years old.
18 years is a $2 trillion asset.
I could care less with Bitcoin trades for.
It's just a matter of the money, the money, the money.