Ep 16 - July 31, 2024 - Bitcoin as a US reserve asset?
Welcome to another episode of the weekly crypto check-in recorded on July 31, 2024. I'm your host, Robert Sportout. I'm joined by my co host, Andres Sundate. How's it going, Andres?
Andres Sandate:Hey, Robert. Good. Good. Final day of summer for me. Kids go back to school tomorrow.
Andres Sandate:So, we've been trying to keep them busy these last, couple weeks, but, it all starts back up tomorrow for us. Yeah.
Robert Swarthout:So, I there's probably parents that feel all sorts of different ways about this, but is this a is tomorrow a good day or bad day?
Andres Sandate:No. It yeah. I mean, I'm excited for them, and and we got we got up to the campus to meet some of their teachers. So, yeah, it's you know, it'll be easier probably to work from home during the day, of course, without the 3 of them and their friends and stuff. But, yeah, I mean, summer always marks the transition because, you know, any parents that are listening, or will listen can relate.
Andres Sandate:You, you go from sort of an unstructured 3 months to kind of back to a formal structure. So that part of it is has its pluses and minuses.
Robert Swarthout:Yeah. Now now there's a strict bedtime. That's right. Yeah.
Andres Sandate:Yeah. Early
Robert Swarthout:wake up calls. Yes. Yes. Cool. Well, our first topic here is, the state of Michigan adds Bitcoin ETFs to its pension fund.
Robert Swarthout:You know, this is they're not the first one. I think the third one, if I'm not mistaken. And, you know, it's admittedly a small investment, but that's how they all start. Right. They reported it at $6,600,000 of an investment, in, I believe, ARCs e ARCSD, that's the Bitcoin ETF.
Robert Swarthout:Yep. I've seen other numbers that says it's 7.4. Whatever it is, it kinda doesn't matter. It's still a very small percentage of the portfolio and likely will be growing over time as they kind of probably buy into a position as as they, had sort of
Andres Sandate:going something going on there in the upper Midwest, because, curiously, the state of Wisconsin's investment board was one of the first pension funds to report their pension fund added a, about a 10 basis point position, at the end of May in their 13 f filings, at least, that came out. They had about a 150,000,000 more or less at the time investment between the BlackRock ETF and the Grayscale, trust. So I don't know. I don't know what it is with the upper Midwest. I'd love to see some of these, additional state pension funds and endowments get into it.
Andres Sandate:Of course, there's probably a lot more money, foundations, endowments, some of them that are private. Obviously, the Ivy Leagues, they may not have to report, the way the public pensions do, so it's hard to know. But, certainly, it does feel like and I know we're gonna talk about this. It does feel like there's a lot more, interest on the on the BTC side.
Robert Swarthout:Yeah. Yeah. You know, it's it's as you're talking, I was kinda thinking, like, I would have never picked the Midwest to be the first, probably towards the end be if I would had to have guessed. And I'm surprised that California is not I just kinda always assume as a technology forward thinking state that maybe they would, but, obviously, very different strategy can be employed by the people working at this respective funds.
Andres Sandate:Yeah. And and and sometimes with the bigger pinch is the ones in California come to mind, like Cousters and CalPERS, the the dollar amounts are so big that they, like, they got criticized for a long time for having pulled out a hedge funds, at CalPERS. This was 5 years ago or so, but their rationale was, you know, it was such a small allocation that in order for it to be meaningful, they would've had to invest significant dollars and it was very difficult to to invest those size of dollars in hedge funds at that time without sort of influencing the market or being a big share of those managers' assets. So Yeah. It it you know, I I think that there's probably gonna be more pensions and endowments and foundations to to invest.
Andres Sandate:These are just early movers. The state of Wisconsin has always been an early adopter. Their CIO, David Villa, but Villa before he retired, I think. But, yeah, it's cool to see.
Robert Swarthout:Mhmm. Yep. So, our second topic you kind of alluded to a bit, but, so there was a Bitcoin conference this last week in Nashville, kinda ran into the weekend, and lots of big names there. You had, RFK Junior speaking. I believe that was on Friday.
Robert Swarthout:You had Trump speaking on Saturday. You had, senator Loomis, speaking, I think, at actually, after Trump on Saturday. And Michael Sailor was there. All sorts of names. So we got a lot of news to talk about in this particular bullet point.
Robert Swarthout:And I guess the first one I I just find almost to the point where I just laugh at it is Michael Sailor was on stage, and he was apparently talking about the year 2045, and he has decided that Bitcoin will be worth $13,000,000 a token. Like, it you could have convinced me he was doing a comic, you know, just a comedy skit.
Andres Sandate:Is it a stand up?
Robert Swarthout:I'm just like, why 2045? Why 13,000,000? Like, there's no backup of any of this, and it's just to catch headlines. So maybe I should just ignore him and pretend he doesn't exist because it does kind of irritate me that this this ends up being news, and there could be better structured stuff out there. So
Andres Sandate:well, nothing like talking your own book. You know, we know we know MicroStrategy has, obviously, a a bullish long, whatever you wanna call it, position on Bitcoin. So Yep. Yeah. I mean, he's talking his own book and, obviously, is a big big big bull here.
Andres Sandate:But yeah. I mean, there's a lot to cover with this conference. Obviously, he he seems like he was one that was out to make headlines, but then there was even more for those in attendance.
Robert Swarthout:Yes. So, RFK actually gave a pretty thoughtful speech when he was talking. You know, he's obviously a candidate for president this fall, and he was saying how, he would order the DOJ and US Marshals to transfer the approximately 200,000 Bitcoin the US Treasury holds, to be held as a strategic asset. And this he was the 1st really to comment on this, and then, like, it seemed like everyone else that got on stage had their version of this kind of talking point. So Trump, Loomis, and I believe there was a 4th person that was a little less consequential.
Robert Swarthout:But, so he he believed that he believes that the US, if he was president, he would sign an executive order, directing the treasury to purchase 550 bitcoin daily until the US has a built a reserve of at least 4,000,000 Bitcoin. For those following along at home, that is just shy of 20% of all Bitcoins ever, that will be in existence.
Andres Sandate:Regardless of price. I mean yes. Right. I mean, he probably take questions from the crowd, but so so we're gonna start building a stockpile or build a a a reserve of It's okay. Correct.
Andres Sandate:Sort of the
Robert Swarthout:you know, his point was no other country you know, the US should be the home of Bitcoin. There should be no other country that has dominance over Bitcoin. Okay. Fine. Great.
Robert Swarthout:Set that aside. Like, where's the money gonna come from for this? You know, for for a country that is, albeit, already having trouble paying its bills, when I was having to create more money. This this seems odd. We're not there's not been anybody for the longest period of time saying the US should buy more gold.
Robert Swarthout:Why do we need more why do we need any Bitcoin? I I don't know. Obviously, I'm I sound very negative about it. I'm just confused. What's what's the point?
Robert Swarthout:You know, senator Loomis, who we've alluded to here, was up talking about she wants the US to to hold one name Bitcoin, and they should be buying it at some frequency to kinda get there over the course of 5 years. Great. Well, I already hold 200, so we gotta buy another 800. Like, she hers was, oh, the excess reserves that the Fed has would be where the capital comes from to buy it. I don't know.
Robert Swarthout:Possibly. It just that the Bitcoin community is so focused only on itself that, like, it it's just, I don't
Andres Sandate:know, it
Robert Swarthout:just blows my mind. Like, there's some smart people in that community, but, like, they it's such an echo chamber and granted it was a conference for Bitcoin, so you have to understand the context. Right. It was just,
Andres Sandate:yeah. It's hard it's hard to get anybody to talk about, you know, the use case of Bitcoin. Right. It's always store of value. It's always a strategic asset.
Andres Sandate:It's always, you know, up into the right. I'm, Yeah. I'm not, you know, I'm not, sure what the number would be, at the end of this podcast, but as it stands today, and I'm looking at fiscaldata.treasury.gov, our, US federal debt is at 35,000,000,000,000,000 with a t. So, you know, the idea, also, I think that senator Loomis mentioned is that, you know, we could pay off half of our national debt by investing in Bitcoin and using Bitcoin to do so. And I think you made the point offline like or we could just stop spending substantially beyond our means.
Andres Sandate:Yes.
Robert Swarthout:It's a new concept. We, you know, we just figured that part out, but I don't know. The you know, I'm kinda going through the different points here that we had. So another thing that RFK said that I actually found kind of intriguing was he would, direct the IRS to treat Bitcoin as an eligible asset for 1031 exchange into real property. Yeah.
Robert Swarthout:Like, you could see because, you know, if Bitcoin even does a portion of what these people at this conference think it's gonna do Right. There's a potential a lot of wealth created within Bitcoin. So a lot of these Bitcoiners will never sell their Bitcoin because, a, they're fundamentally against taxes and some all all the other crazy reasons. Right. If you give them the ability to, in some ways, unlock that value, put it out into the world, I could see I I could be on board with that concept.
Robert Swarthout:Yeah. 1031 or something like it.
Andres Sandate:That's not the craziest proposal that came out of this show. This one can
Robert Swarthout:it's pretty normal. If he had just said that, it might have felt crazy, but, he said all these other things that actually made that one seem tone, toned down. So we, you know, it's it it was fun. I I obviously wasn't at the conference. I was watching it through Twitter over the weekend and just and then watch the live stream when Trump was speaking.
Robert Swarthout:You know, he got up there and he was, like, talked about his reserve, and then he's like, oh, I would direct, on day 1, I would fire Gary Gensler.
Andres Sandate:And the
Robert Swarthout:crowd erupted. Like, in you know, obviously, people within crypto know everyone hates Gary, thinks he's done a terrible job. I think Trump probably had an idea that Gary wasn't great and the crypto community didn't like it. I'm sure somebody kind of brought him up to speed, but when he said it, the crowd was so overly excited that I think it took him off brought you know, caught him off guard, and he kinda went back to that talking point. You know, Trump's gonna play the crowd, of course.
Robert Swarthout:Sure. It was pretty cool to see him surprised. I you don't often see a surprised look on his face.
Andres Sandate:So Yeah.
Robert Swarthout:It was Yeah.
Andres Sandate:I mean, I think it's Obviously, yeah. It was, as you call them, big Bitcoin Maxi conference.
Robert Swarthout:Right. You
Andres Sandate:know, I I did see I did see, some highlights from several of the speeches. Didn't, didn't Matt Hogan from Bitwise also speak at the conference about about yeah. There was enough of of big crypto luminaries. Well, clearly, it it's moved into the mainstream. And I even saw a headline that Harris, Kamal Harris's vice president has has said, she wants a reset with the crypto community.
Andres Sandate:So it seems like everybody's globbing on right now to, you know, to make sure that they get their 2¢ in here with, with respect to the election and just, the amount of money that's that's being moved, into these races. Exactly. You
Robert Swarthout:know you know, many of the things I've read about Kamala Harris and potentially, like, what her platform's like. You know, the people in the crypto community that have been asked to be part of a roundtable with her are basically given ultimatums like, I'm not gonna come to your roundtable unless you fire Gary Gensler and, officially stop chokepoint2.0. Yeah. Chokepoint2.0. You know, obviously, that hasn't happened as of this recording.
Robert Swarthout:You know what? Maybe they're just pandering for votes. That that's probably what I'm inclined to think until I see actual some action taken, and things change. But it's a a crazy, I guess, 3 days in Nashville. I would have never thought Bitcoin, would be such a big thing in Nashville, but conferences held there and people seem to be enjoying spending some time there.
Robert Swarthout:So
Andres Sandate:I'm I'm curious. The folks that are that that you think are going to the conference, are they going there to learn, or is it sort of like a love fest for anybody that's in crypto? You just talk about your holdings, and you talk about where you think it's going and listen to these luminaries.
Robert Swarthout:I think there's there is, there is some technical stuff that happens where, like, people are trying to figure out other ways to use Bitcoin, But I think it's very much
Andres Sandate:a love fest, a
Robert Swarthout:bit of a, a Yeah. You just I I don't know. Just being happy together, I guess. I don't know how else to describe it. Right.
Robert Swarthout:Right. It it's you know, Bitcoin's not used for tons of different things. So it's like there's admittedly not much to talk about besides, oh, I want the price to go up. Do you want the price to go up? Yes.
Robert Swarthout:You know, around the circle.
Andres Sandate:Yeah. I'm sure there's yeah. I'm sure like any hobby or interest or investment, you know, whether it's cars, antiques, wine, gold. Right? You can you can probably find a conference organizer who's willing to put a big festival on, charge people to to come and, of course, the city of Nashville.
Andres Sandate:Love to have those guests. Love to have those tourist dollars.
Robert Swarthout:Oh, for sure. For sure.
Andres Sandate:Yeah. So Awesome. Well,
Robert Swarthout:so our next point actually, I'm gonna go to the 4th point because it kinda does tie back. So when Trump was talking about, you know, he would direct the treasury to hold those 200,000 Bitcoin, as a, you know, reserve asset. You know, he he said that as part of his speech. Literally, I think, like, few days later, one to me, on that was the 30th. So, yesterday.
Andres Sandate:Yeah.
Robert Swarthout:Assuming no. My dates are wrong here. I'm sorry. They had this right. I must have closed the tab.
Andres Sandate:It was
Robert Swarthout:on Monday. The point yeah. Monday. The point is is the the whoever's a custody in those assets, those Bitcoin currently, moved them to a new wallet. They hadn't moved them forever.
Robert Swarthout:So it's like, okay. Now we have these kind of games happening on top of all this. I was like, you know what? I I should have not been surprised. I should have expected it to happen.
Robert Swarthout:So the I guess, you know, a bit of a, a game we can play here is do you think that they, the current administration tries to sell these before, the, the election?
Andres Sandate:I might say no, just because it's I I think he's gonna wanna go out Biden's gonna wanna go out with out this big cloud. And he's gonna pardon his son, but he's gonna wanna go out without this big cloud, hanging over him to Yeah. To try to, you know, give give, Harris the best odds he can of, of winning in November.
Robert Swarthout:Yeah. I guess, potentially, they could do it after the election during lame duck.
Andres Sandate:Yeah. That's true. Yeah.
Robert Swarthout:They could do it then.
Andres Sandate:Yeah. But we have that's when all the pardons happen. Yeah. And and all the shenanigans. Yes.
Robert Swarthout:Yeah. So, anyways, we will see. So our 3rd topic here at grayscale e ETF outflows, is hit has hit 2,000,000,000 in 6 trading days, at fast and furious pace. The joke is by the end of next week, they will be at 0. You know, I haven't looked to see what their total AUM was before.
Robert Swarthout:I don't know what percentage 2,000,000,000 is. My guess is when we talked about it last Wednesday when we were only a day into trading, they had 500,000,000 in outflows in one day. So the pace obviously has slowed, from that first day, but it's a
Andres Sandate:It's not going in the right direction.
Robert Swarthout:None of their products are. I mean and we're we're gonna get to the thing down below where they've launched another Bitcoin ETF, which just I their strategy, I would love to have just been a fly on the wall, to hear them talk about how they how they do marketing of their and pricing of their assets or their offerings. So, so we you know, pretty aggressive there, and, you know, we'll see if, you know, how long they hold on. That's again a 2 and a half percent fee. The, I guess we might as well jump to it.
Robert Swarthout:The grayscale is they're also launching a new Bitcoin ETF today. They're calling it the mini me. I guess it's the not the official name, but what people are calling it on the street, of it, 15 basis points instead of the 200 basis points that their other one is, that is GBTC, and this one is just BTC. There's done they've done some conversion from the old one into the new one. Like, the strategy just blows my mind.
Robert Swarthout:Like, do they think they're gonna market, these mini ETF, with the lower fees and convince people that were in the older ones paying the higher fees that they're the same? I don't know. It seems rather odd.
Andres Sandate:I haven't done enough, I guess, research on, grayscale. When they launched the exchange traded products, like version 1
Robert Swarthout:Mhmm.
Andres Sandate:These higher fee products that were in trusts.
Robert Swarthout:Private trust. Yeah.
Andres Sandate:Right. They were they were higher fee. They were 2 2 a half percent or more. Right? Obviously, these index products, these ETFs are selling for 15, 20, 25 basis points.
Andres Sandate:Right?
Robert Swarthout:Right.
Andres Sandate:They're losing money or they're losing flow they're losing dollars, outflows. Mhmm. 1, because there's a cheaper product that's available, 10 x Right. Cheaper. Right?
Andres Sandate:So you can save 90% in fees. Right.
Robert Swarthout:That is no different.
Andres Sandate:That's no different. Right? So so part of this is just kind of like a fee arbitrage. Mhmm. Do they that they do they offer, I guess, an investment case to your knowledge for why folks would consider staying in the ETP, that's, you know
Robert Swarthout:I I haven't I haven't seen any besides, you know, the thing that we've talked about before. Just like some of those investors in that product have such a capital gains that they may not wanna pay to get out. And the other way you get in and out of these now is cash. There's no in kind. If if it would be really fascinating to see, you know, at some point, it sounds like we will get to a point where the SEC has its head screwed on straight and allows in kind, creation and redemption.
Robert Swarthout:I can imagine that that, the GBTC product dries up real quickly then because people could just move it to another provider that, you know, has the lower fee.
Andres Sandate:Well, according to their website, the ETH, this is the Ethereum ETP. Yeah. They Gap AUM as of yesterday was close to $7,000,000,000.
Robert Swarthout:Okay.
Andres Sandate:So they were at 6,900,000,000 as of 7:30. And, you know, what you said that they they've they've seen 2,000,000,000 of outflows over is that the prior week?
Robert Swarthout:6 trading days. So
Andres Sandate:Okay. Yeah. So at that at that clip, yeah, that Yeah. By by the end of August, it should be sooner. Right.
Andres Sandate:They're yeah. They're gonna be yeah. Now, who's picking up these assets? The question is, are we seeing, on the other side, these dollars flowing out fully, not always, but some flowing into other airline products?
Robert Swarthout:When I looked, it wasn't at at 2,000,000,000 yet for the grayscale, it was at 1a half. But even still, at that number, there wasn't a total amount of inflows on all the others that would account for 1 and a half $1,000,000,000. It was, like, 1,200,000,000. So maybe some people are holding money back for taxes. I don't know.
Robert Swarthout:But it's, it was functionally net net zero there or close to
Andres Sandate:it.
Robert Swarthout:So Interesting. Yeah. So I don't know. It's again, Grayscale, they were long criticized before these e t ETFs were launched for just being high fees for not a great reason. It was they just knew they they were the only game in town and they could charge function what they wanted.
Robert Swarthout:And they continue to, treat their, their clients in the same way they always have, which is fascinating to watch. So
Andres Sandate:Well, and then you look at the the the GBTC, the this is the this is Grayscale's Bitcoin product. The gap AUM in that one is almost 16,000,000,000 in GBTC. So way down.
Robert Swarthout:That was up at Yeah. Here 70,000,000,000.
Andres Sandate:Right.
Robert Swarthout:They they have bled a lot, and that was a that product was around much longer.
Andres Sandate:So Yeah. It looks like it's been around. Some of them been around well, they yeah. Since, what, 17, 18, something like that.
Robert Swarthout:Right. Yep. Or
Andres Sandate:5th in 15, it looks like, is when it was first
Robert Swarthout:For the quarter. For the
Andres Sandate:for the yeah. For GBTC.
Robert Swarthout:Yeah. Yeah. So Cool. So our last topic, we kinda shift gears here. And, you know, I've long talked about you know, crypto gets interesting for me really when you start to be able to use it for real things.
Robert Swarthout:It's not just a pure speculative asset.
Andres Sandate:Right.
Robert Swarthout:In this case, the news item is California with a technology, provider have digitized 42,000,000 car titles on the which blockchain was it? On the, sorry, I do not have well, I'll find it in a minute. But it the cool thing about it is is their whole ideas are trying to, reduce fraud. They're trying to increase the speed at which they can reissue titles in when they change ownership and, do all the things. It was done on the Avalanche blockchain, and you said so that's AVAX, a v a x, for those curious at home.
Robert Swarthout:But it's cool. You know, this is one of the many things, you know. I was surprised to see in some sense that they they did the entire state. You think they would have done some kind of pilot? I was
Andres Sandate:gonna say, I you said 42,000,000 and I I was gonna joke, but that so when are they gonna do everything outside of LA? Because that's about as many cars as I think that the people in LA probably think there are on the road.
Robert Swarthout:Yeah. People would think that 42,000,000 titles, and I wanna say that they said that there was 41,000,000 peep 39,000,000 residents. So, you know, there's more than 1 car on a ratio basis there, but, it's, you know, you'll be able to use a mobile app to claim ownership of your title, and start the transfer process. So it's not more than just Digite. Like, they're actually gonna, like, start to try to use that, in a way that you would think that they would eventually do.
Robert Swarthout:But, yeah, they're kinda out of the gate doing it, which is really cool. Well, I
Andres Sandate:I yeah. I don't know what's more shocking, that it's the Department of Motor Vehicles that moved first here to adopt blockchain technology to digitize car titles or, you know, if it's the state of California, because like we talked about, you know, they haven't they haven't been as aggressive or progressive when it comes allocating into the asset class like Wisconsin and Michigan, but really cool to see a real commercial use case.
Robert Swarthout:Yeah. So Yeah. Yeah. It's, you know, we should be talking about these every episode or once a month. It's not quite that clip, but I look forward to seeing all the different use cases.
Robert Swarthout:You know, obviously, there's more states that can do this than you have part, house deeds or property deeds, and all sorts of real property that has ownership attached to it. So
Andres Sandate:Yeah. I would think yeah. Just about any any government document like this. Right?
Robert Swarthout:Yeah. Contract, all sorts of stuff could end up Yeah.
Andres Sandate:All all yeah. All kinds of all kinds of documents, which, you know, I feel like when you've you and I probably first started talking about, this, and you've been, you know, in blockchain, digital assets, crypto for much longer. But I remember when we first started talking about some of the very basic potential use cases, these were the kinds of things that you were telling me that, you know, you could do. And when I think you first start getting into blockchain and crypto, you hear about this stuff. And then, you know, for some people, they go down the rabbit hole and they start becoming investors, and you start getting into tokens and NFTs and all this, all this other stuff.
Andres Sandate:But, but these are some of the real practical, real world Right. Everyday things that people can relate to.
Robert Swarthout:Yeah. You know? And then you'll see
Andres Sandate:Where did I put my title? I know I paid my car off. I know I no longer have a note, but where's the actual document? Right.
Robert Swarthout:Now you just have to figure out which app to use to to to, open on your phone.
Andres Sandate:Yeah. Actually, no. No. No. Is it easier or is it harder?
Robert Swarthout:Yeah. Yeah.
Andres Sandate:Yeah. So Cool.
Robert Swarthout:Well, that's cool. Well, thanks for joining us on this episode of the weekly crypto check-in. If you wanna stay updated on future episodes, you can find us on any podcast player by searching Teton Crypto Capital or weekly crypto check-in. Take care. Thank you.
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