FULL TRANSCRIPT

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Speaker 2 (00:00)

Welcome everybody to today's discussion. My name is Slava Rubin. I'm one of the founders here at Vincent, your platform to be able to get educated about all things alternative investments. Today we're going to be talking about crypto, not only just Bitcoin, but beyond Bitcoin. Believe it or not, there is beyond Bitcoin here in crypto world. I have two amazing guests, experts in the field. We have Zach from Grayscale and Sean from Fundstrat.

So we'd love each of them to give their own background. So Zach, take it away.

Speaker 3 (00:28)

Hey, Slava, thanks. Great to be on with you and everyone else here today. Zach Pandl, I'm head of research at Grayscale. Grayscale is the oldest and largest crypto dedicated fund manager in the world, managing about $35 billion in crypto assets across a range of product types. And we are based in Stamford, Connecticut. Great to be on with you today.

Speaker 1 (00:49)

And I am Sean Farrell, head of digital asset strategy at Fundstrat Global Advisors. We are an independent research shop. lead the crypto arm. Some of you may be familiar with our macro work, which is headed by Tom Lee, also now chairman at Bitmine, the leading Ethereum digital asset treasury company, which I'm sure we'll speak to in a bit. But my primary role is

you know, to help guide institutions and retail investors through crypto market cycles by offering them actionable insights on tokens and crypto linked equities.

Speaker 2 (01:27)

Excellent. Thanks guys. So let's go on to the next slide, which is of course a word from our compliance department, which is nothing in this presentation should be construed as an offer to sell securities or a solicitation of an offer to buy securities. All investments involve risk and possibility of loss, including loss of principle and neither past performance nor forward looking information is a guarantee of future results. And in case that wasn't enough, there's the next slide, which I'm not going to read, but you can take a look at.

In short, this is not financial advice. Do what you think is appropriate with it. Seek your ⁓ own advice. Let's move forward.

So for today's agenda, we're just gonna set the table. Zach's gonna give that for us. We're gonna then talk about some of the latest trends. We're gonna be moving quickly from one topic to another. And what makes this most interesting is you, the audience, because you're here because you wanna learn and figure out something. So if you have questions about anything, you can use your actual question process below, which is just throw in your questions and I'll be looking to try to track those and incorporate them at the right time.

⁓ I do think it's a very interesting market just because things do look like they're going even more risk on. There's even more discussion about ⁓ rates coming down. And in general, crypto is a little bit more of a risk on asset. So it is a pretty exciting time to be thinking about what to do with crypto, Bitcoin and beyond. Let's go to the next slide. Which is this is quite interesting.

Many of you who are in attendance have already filled out this form and have told us who you are and what you're looking to accomplish. So what's interesting is we have kind of a half bullish crypto market perspective and almost half neutral, not too much bearish, which is interesting. The experience level is a little bit advanced, but mostly still beginner.

or a decent amount intermediate. So thanks everybody for joining. I do know that Zach and Sean are experts. So I too would be here if I was intermediate trying to get to advanced. Interesting accredited investors, quite a few, way above the US average. So we have quite a few accredited investors in the audience. And what's most fascinating in my opinion is a strong majority of you are actually thinking to invest into crypto in the next 12 months.

So the real question is what should you be investing into when and why? And I really think that's just great background for this conversation. So Zach, do you want to set the table for us as to what does it mean to be thinking about crypto and a world beyond Bitcoin?

Speaker 3 (04:01)

Yeah, absolutely. And if we could just pull up that first slide to talk through it, that's perfect. Thank you, Slava. As your survey showed, people come to crypto with a wide range of different experience levels. And we're going to talk about a bunch of different specific topics today. But just wanted to make a couple of opening comments to make sure everyone was on the same page very briefly here. But to table set, as you said, this chart shows the total market capitalization of the crypto asset class.

And essentially we've come from nowhere 10 years ago to a $4 trillion asset class today. To put that number into context, and maybe I'll use ⁓ numbers from the alternatives space and for the purpose of ⁓ your listeners, the private credit market, which gives so much attention, that's a $1.5 trillion asset class. The global hedge fund industry is a $5 trillion asset class.

So at $4 trillion, crypto is no longer a tiny curiosity in the global financial system. It's a meaningful chunk of the global financial system. And now I would consider it a mid-size alternatives asset class and being incorporated in many more portfolios. The commonality of the crypto asset class, as many people on this call will know, is a type of technology called the public blockchain. Everything in the crypto asset class is somehow tied back to that

technological innovation that's all about peer-to-peer exchange of value on the internet. And we can go into deep detail on that if we like. But this technology underpins everything that's in the crypto asset class. The largest and first public blockchain is Bitcoin. And Bitcoin is a particular use case of that technology. And Bitcoin you can think of as a type of sound money or hard money system.

It's not exactly like anything ⁓ else in the financial system today, but probably the best metaphor for what Bitcoin is, is digital gold. And the same types of things, the same type of macroeconomic imbalances and risk to fiat currency, risk to inflation that drive investors to gold, drive investors to Bitcoin. I spent 20 years as an economist and strategist on Wall Street, and that's what drew me into crypto, is that Bitcoin is that kind of macro asset being driven by these

macroeconomic imbalances. That being said, the biggest misperception of the crypto asset class is that everything else in the asset class, all the things in the peach shaded area of this chart, are kind of wannabe bitcoins, other blockchains that want to try to achieve what Bitcoin has achieved but haven't quite gotten it. know, Seancoin and Zachcoin and Slavacoin, all trying to be like Bitcoin. That's a common misperception. What's happening in the rest of the

the of the asset class are all the other applications of public blockchain technology beyond this digital gold use case. And these are things like stable coins, tokenization, NFTs, prediction markets, decentralized finance. I'm sure you've heard all of these terminologies to some degree. That's sort of what is happening in the rest of the crypto asset class. So you have this diverse asset class all based on public blockchain technology.

And it's driven partly by macro factors, like macro imbalances driving demand for digital gold, and partly technological factors that are more like FinTech investing, and that's sort of the rest of the asset class. So a big midsize alternative asset class with a lot going on today. And we're going to talk about many of those things I hear today. So that's where I want to just table set the conversation in Slava.

Speaker 2 (07:37)

Okay, perfect. What's really helpful here is the navy or whatever the color is, is the Bitcoin here. And the peach is kind of what we're talking about is the world beyond Bitcoin. So how do you think about in terms of, well, let's just put some numbers out there. How many options are there of things to buy beyond Bitcoin? You know, is it five or five million? How many do you think are out there?

Speaker 3 (08:03)

Yeah, that's a great place to start. There are literally 50 million unique tokens in the crypto asset class or digital assets space today, kind of overwhelming number of things. And many of those things are not maybe the best investment idea, but there are 50 million different things for investors to sort out. So how do you approach something like that that has so much value?

Speaker 2 (08:28)

Let's pause there for a second. 50 million.

Speaker 3 (08:31)

Literally 50 million.

Speaker 2 (08:32)

So 50 million and without going into details here, you're referring to like the platforms like Pump.fun that are allowing anybody to create any token they want, which is then becoming just like a total toy sort of thing. How many of those 50 million not to overwhelm people do you think that our audience should actually be remotely thinking about? Should they be thinking about 40 million, 4,000, 400, 40 or four?

Speaker 3 (09:00)

I would say a number in the ballpark of 50 is maybe what people should start to have their head around. For example, grayscale, we have probably the broadest set of investable products for institutional investors, accredited investors in the world. And about 40 different tokens of that 50 million, only 40 of them make it into grayscale products. So maybe that 40 plus a few more, 50-ish, that's about the relevant universe for most investors today.

Speaker 2 (09:30)

What do you think, Sean, about how many of those tens of millions should the average listener be trying to wrap their head around? 4, 40, 4 million?

Speaker 1 (09:42)

Yeah, I'm probably in a similar boat as Zach, probably in the 50 to maybe 100 range. That said, if someone out there just launched Zachcoin and Seancoin on Pumpfun, I'd probably include that in that universe of assets.

Speaker 2 (09:56)

As like the most popular most important ones that we should think about Sean. Yes. Okay, perfect. All right. We heard it here first in case somebody's you know, I just feel free to put in the Q &A will be sharing the link out. All right. Excellent. You know, we actually have a real time ⁓ question here, which I think is fascinating just to explain who each of you are. If you're comfortable sharing for each of you, what percentage of your net worth do you have in crypto?

Speaker 1 (10:00)

I'll be like

Speaker 2 (10:23)

or in public shares that represent crypto. So yeah, that'd be awesome just to get some perspective.

Speaker 3 (10:33)

Yeah, I'm happy to share that. For me, the answer is virtually all of the risk. Like everybody else, when you're investing in the US, you have lots of different particulars that you need to deal with, like tax advantaged accounts and these types of things. You can't get crypto into 529.

accounts, you can only get so much crypto into the grayscale 401k plan. So I do have other types of equity type exposures in those places where I'm forced to hold it. also trade some macro, I'm long sub yen at the moment, that kind of thing. And I have some low risk, safe assets. I think of it as sort of my family's resources and these things should happen to me. But almost all of my risk taking and my kind of core assets are invested in the

in the crypto asset class at this point.

Speaker 1 (11:25)

Yeah, I'm in the same boat once again, same boat as Zach. You know, if you exclude retirement assets, it's, you know, at any point, you know, between 100 and 150 % of my liquid net worth. But you know, yeah, I also do because, you know, crypto is so driven by macro events and ⁓ turns in macro, you know, I'll also periodically trade, you know, macro items like currencies or, know,

I'm on gold right now. ⁓

Speaker 3 (11:55)

True,

I have some gold, some silver, some copper, some cousins, some gold coins, things like that.

Speaker 2 (12:00)

Does 150 % mean leverage or?

Speaker 1 (12:04)

Yes, yeah, that's...

Speaker 2 (12:06)

All right, well leverage is a whole nother conversation, not one we're gonna be tackling today, but that is super interesting. All right, this is great. So Zach, so we're trying to understand how to wrap our head around, which it sounds like you guys are saying we should really be thinking about potentially the top 50 to top 100 tokens by market cap. And there's different websites out there to show that in order. So if it wasn't just by market cap, how do I think about

the various categories of options, because it's not just like number one, number 64. You know, in the public markets, there's kind of like energy or the tech or health or the industrials or consumer. That's how kind of the public markets we try to wrap our heads around as investors, analysts, et cetera. How would you suggest that as relates to crypto?

Speaker 3 (12:57)

Well, exactly. And thanks for the very clear setup. We think about it exactly like public markets. When you look at equities, we are typically dividing the equity universe up into the GICS system. That's a system created by S &P and MSCI that divides the equity markets up into specific industries, exactly as you mentioned.

we use virtually the same approach to understand crypto. And at Grayscale, we use a framework called Crypto Sectors that we developed with the other large index provider, FTSE Russell, that divides all of these assets up into six distinct market segments. And we don't need to go through each of these things. But it highlights the fact that you have very different use cases for these applications of blockchain technology. Bitcoin is one use case. And we think of that as a currency.

And because Bitcoin is the largest asset by far by market cap, think many people have the impression that the currency use case is really what the only thing that's happening in crypto. But really, that's just one application of that technology. And there are many other applications. The other important category I think that people should have heard at least once is smart contract platforms. So things like Ethereum, things like Solana, these are platforms for

smart contract based applications we can dig into that but that's the next largest category in this terminology smart contracts is probably something you're going to hear more and more about so many others

Speaker 2 (14:27)

Sometimes those are called the layer ones, just so people know when somebody says an L1, a layer one, they're often referring to these smart contract platforms, Ethereum being the most obvious and the largest at the moment.

Speaker 3 (14:39)

Mostly that's right. Technically Bitcoin is also a layer one blockchain. So there's sort of a way to think about it from a technological standpoint. There's a way to think about it from a use standpoint. This is a kind of use based categorization. But yes, oftentimes when people say layer ones, they mean things like Ethereum, Solana, Avalanche, other smart contract platforms. That's a kind of term from sort of more of the computer science term to talk about these blockchains.

Speaker 1 (15:06)

forget the layer 2s either.

Speaker 3 (15:08)

That's right.

Speaker 1 (15:09)

But yeah, if I could just add on this, I think an interesting framework that I use sometimes just to think about Bitcoin versus all of these other verticals is ultimately high level what crypto is. It's instantiating trust in software, which before we saw the double spend problem, we were never able to do. And if you just think about what a crypto network is, really just in many ways,

crudely put it a database, right? Basically accounting for who owns what, who is transacting with who, and it facilitates that commerce within this database, but it removes the centralized intermediaries from the equation. And there are different kinds of intermediaries. And so you can just think about these different sectors as different types of database managers that are being

disrupt it like currencies, Bitcoin, the database manager is the central bank. For maybe the financials vertical, the intermediary is a commercial bank. And you can just keep going down the line, AI, that would be your open AIs of the world. So I mean, that's just the framework I use. And I don't know if that connects with everyone, but I think it's...

it's helpful for me at least to articulate what we're actually doing here in these different verticals.

Speaker 3 (16:38)

I love that, just to build briefly, thinking about each of these categories as a way to disintermediate some centralized party, some centralized business or process. That's what we're trying to do with this decentralized technology. I love that framing, Sean.

Speaker 2 (16:53)

So for the audience, this is all not scripted. So I'm about to put the guys on the spot here. If you could only invest into one of these categories, and I know this is an artificial category created by Grayscale that Zach just presented, so it's an unfair question, but for the sake of being interesting and provocative, I'm going to ask it. You cannot invest into Bitcoin as part of currency. So currencies is things that are not Bitcoin.

So if you have your million dollars right now and you could only invest into one of these categories for the next 12 months, which category do you invest into? And you could only invest into one and let's for simplicity sake, for this conversation, say you get diversified basket of what's inside of it.

Speaker 3 (17:35)

Sean, I'm happy for you to go first.

Speaker 1 (17:36)

Appreciate that. Yeah, no, look, I think we've already seen some pretty good price action in the smart contract platforms of late. Started to see Eth and Solana both have performed Bitcoin quite a bit over the past couple of months. So from a risk reward perspective, I think I like this financials vertical. I think that you're starting to see some real traction at the application layer.

And by application layer, I just mean protocols that are not smart contract platforms. And with the regulatory tailwinds that we have, we're going to have more integrations and crossover between these financial applications and traditional financial applications. And I think there's going to be a new cohort of users that comes into the fold through more usable use.

user interfaces and these applications are generating a lot of real revenues and those are observable on chain. Also in line with the regulatory tailwinds that I just mentioned, lot of these protocols now are instantiating real token value accrual mechanisms into their frameworks and their design. So you're going to actually have protocols that

can deliver token holder yield and token holder value. And we're gonna start to have investors that can analyze these protocols with P &L and measure them based on P multiples. And I think there's a lot of good examples within that financials category to look at and that I'm intrigued by.

Speaker 2 (19:09)

love the clear answer. Thank you. Zach, which color do you pick?

Speaker 3 (19:13)

I love Sean's answer too, and I would echo that, that the purple color works. But maybe just to say something a little differentiated, I guess I would pick that maybe olive colored smart contract platforms that we were talking about, a diversified basket of those assets, I think, over the next 12 months would be very compelling. These are, Sean talked about really the financials use case and the regulatory drivers of demand for that and the fact that they're accruing revenue.

those applications live on top of the smart contract platform. it's maybe talking, you whether you invest in the applications or the underlying infrastructure picks and shovels sort of thing. So maybe I might go for the picks and shovels, which is that smart contract platforms, ⁓ a piece, the underlying infrastructure for those applications. They already been performing well this year in a world where the regulatory clarity for

digital assets in the US keeps improving and that's really what Congress is working on now. I think those assets could have a very strong next 12 months.

Speaker 2 (20:15)

Awesome, I'm gonna put you on the spot one more time guys. So for each of these colors, I want you to tell me the one asset you would invest into for the next 12 months or three, sorry, 12 months or three years, whatever time period. And if you don't like that category and you don't wanna pick a name, you could just say pass. So it's either the name and just the 10 seconds why.

or just say pass and you can't pick a basket. You're not allowed to say Ethereum and Solana, blah, blah, blah. You just have to pick one and tell me why or just say pass. Are you guys okay with this?

Speaker 3 (20:50)

I shouldn't name specific tokens along those in that way for a variety of.

Speaker 2 (20:55)

⁓ for compliance? All right.

Speaker 3 (20:57)

That and yeah, so Grayscale has products for almost all of these. ⁓ we like, there's a lot to like across the whole space. So I'm hesitant to do a particular ranking. Maybe Sean could pick it up, but I should hold my tongue on that particular question.

Speaker 2 (21:13)

Sean, what do you think?

Speaker 1 (21:15)

Yeah, I mean, I do want to be respectful of our paying clients and not cite anything outside of the core portfolios we recommend, but give some good examples within the financial vertical that we like. We do like Hyperliquid. It's the leading decentralized perpetual futures exchange that it was absolutely printing cash. did $1.3 billion in annualized buybacks in August.

there's a lot of structural tailwinds for that protocol. interestingly, know we're, I actually love to hear, I don't know if we have time for this, but if Zach has done work on hyperliquid, it actually is both an L1 and a financial application. So it would be interesting to hear how he categorizes that, but maybe we don't have time to actually get into the weeds there.

Speaker 2 (22:06)

Where do you put hyper liquid, is hype, which came out, I would say under a year ago, right?

Speaker 1 (22:13)

Well, it launched a couple of years ago.

Speaker 2 (22:15)

I'm saying as a token, as a token.

Speaker 1 (22:17)

Yeah, like nine months ago.

Speaker 2 (22:20)

Yeah, so again, we're talking beyond Bitcoin. So I think hype is a great conversation piece. Zach, which color is hype in your flow here?

Speaker 3 (22:29)

Yeah, it's a great question, great topic. I do think it's worth spending a second on. It is very buzzy and even well beyond the core crypto community. We currently put hyperliquid in that financials category. So how this system works is we think about the current de facto use of these protocols. Could hyperliquid blossom into something much more diverse than what it is today and become a

true competitor to Ethereum and Solana. Yeah, potentially. But today, its dominant use case is a perpetual futures exchange. So competing with Binance and other centralized perpetual futures exchanges in crypto. And it's just incredibly exciting that a product that is decentralized is able to see the type of volume, see the type of user growth that Hyperliquid has

seen today, I think it as an example of the kind of crypto industry eating its own cooking. You the whole point of this technology, as Sean was saying before, is to have decentralized tools, disintermediate centralized alternatives. And so we really need to see the crypto community itself use these tools. So it's exciting to see Hyperliquid take off. So we see it as a financials use case today because it primarily is a trading.

platform and it's taking a lot of market share away from centralized alternatives both in perpetual futures and now a bit to green spot trading as well.

Speaker 2 (23:57)

Okay, great. So we spent quite a bit of time on this slide, but I think between the table setting and seeing all the other options, we now can understand kind of where you can go beyond Bitcoin. What's interesting is beyond the actual asset, the access to the asset is changing as well, where the public markets are becoming an avenue to be able to go there as opposed to having to keep your own keys and lock it up in cold stores, et cetera. So one of the hottest buzzwords is DATS.

digital asset treasuries. think we have one of the experts here with Sean. Do you want to just give us some perspective on DATs? And just as a reminder, your partner, your colleague, Tom Lee, actually is running one of the most famous now DATs with Bitmine. So take it away.

Speaker 1 (24:41)

Yeah, that's right. think that, to be clear, he is chair, not involved operationally day to day, but he is a leader, the face of that franchise, so to speak, and that team is on a great job. And I think this blue line here is in large part thanks to their efforts. But yeah, so as you can see by this chart, DATs, Digital Asset Treasuries have...

done a phenomenal job of scooping up coin supply over the years. Everyone is probably familiar with MicroStrategy or StrategyNow. I'm going to call them MicroStrategy for I think into perpetuity. Saylor's probably not happy with me for that, but it is what it is. And now you have other DATs launching both for Bitcoin and for these other coins. There's plenty of ETH DATs, Sol DATs. We are seeing DATs for ALTs now as well. you know, folks are...

For good reason, very curious about what purpose they serve because often they trade at a deviation from the underlying NAV. But I think, you know, it comes down to a few things. One, access. I still think that there are plenty of traditional funds out there that do not have access to crypto exposure due to their mandate. I have talked with them, very large funds.

And the way they achieve crypto exposure must be through the equity universe. And this offers them some surface area to do that. The other is that through capital market operations and leveraging volatility in equity markets, these dats are able to actually acquire more coins over time in an accretive manner.

Not sure we should get into like the nitty gritty of how that happens, but essentially, when your stock is volatile, you can end up selling securities into the market at a premium to your underlying NAB, acquire shares, and over time you actually can increase your Bitcoin ETH sold per share. Strategy again has done an excellent job of this, Bitmine as well. Several other debts out there have also succeeded in this.

in doing this. also, you know, another reason to look to these debts in lieu of spot for some people, they really like the juice. I mean, this is a, you know, quasi leveraged way to achieve exposure to crypto. I will say, you know, the aggregate debt to equity ratio is not anything that concerns me, but some of these companies do have actual financial leverage on their balance sheet, like MicroStrategy, which does offer real leverage.

but there's also quasi leverage in the form of that's, you know, periodic multiple expansion due to retail speculation and speculation on, you know, future acquisitions of coins in these companies that have historically set a precedent of being able to acquire coins in an accretive manner. And then, you know, I think there's a third as we start to, I guess a fourth thing to consider with these debts.

You know, as we start to see these treasury companies launch for coins that are not Bitcoin, Eth or Solana, there is this service that they provide to investors in the form of education and advocacy. I think that there are a lot of protocols out there. You know, they have a foundation team, they have a labs entity and perhaps there are some conflicts there where, you know, or just

lack of resources where you can't be out there marketing the token 24 seven, but folks like sailor Tom, whoever emerges as the leading Solana debt, you know, cheerleader, they're out in the market, pitching their stock as any good CEO or chair should be. And, you know, more or less proselytizing for the potential benefits of this token and, you know, really introducing a new cohort of investors to

this asset class. And so, you know, I think that's, those are the main points and things to consider and the reasons that these debts exist.

Speaker 2 (28:45)

Thank you. How many DATs do you think are out there right now? You don't have to be exactly right.

Speaker 1 (28:50)

⁓ I mean, there's probably like 200. At one point I was, you know, I had a pretty comprehensive dashboard, I tracking every single one and it just got to a point where, you know, that juice was not worth the squeeze. And the reason for that is that, and I think we're seeing it right now, I do view this space as a winner take most or all type of space, at least for each individual asset within each jurisdiction. I think that, you know, the data set are...

the most liquid and have the best access to capital markets are the ones that are going to get flows, continue to get flows, see that premium expansion. Eventually we'll see some consolidation in the space, think. But I really cut down that, my tracker list. But yeah, just to answer your question, I think it's about around over 200 at this point.

Speaker 2 (29:45)

And if you had to predict 18 months from now, what is that number gonna be?

Speaker 1 (29:47)

18 months. Well,

Probably less. You know, like I said, think, really? Yeah, I think it'll go up. I think it'll go up and it'll go down. think we'll have some consolidation. think you'll have, you know, dats acquiring other dats, you know, just theoretically setting back if get to a point where, you know, you have strategy trading at 1.2 XNAV and you have another dap that is trading at 0.5 XNAV. If there's nothing,

to

too onerous about the opco or the operations of that 0.5 X nav dat, in theory, sailors should issue equity to purchase that 0.5 X dat. And so I think we'll see a lot of that type of consolidation at some points down the line. So that 18 month time horizon leaves me with lot of stats on today.

Speaker 2 (30:39)

Got it. And then how about, so that's probably within the same asset, like you're saying, Sailor buying the 1.2 versus the 0.5, probably within Bitcoin, but how about token number, market cap number 71, whatever that is, are they coming out with a debt in the next year? Again, we don't know which one that is, but I'm just saying, is that happening?

Speaker 1 (30:56)

Uh, yeah, like maybe the problem with these Dats is that you really need, you need liquidity in the spot market for them to actually work. so once you get beyond, you know, coin number, I don't know, 50 on coin gecko, you're really operating with a market that, you know, if a debt really wants to be successful and expand their coin per share, it's going to be tough because there's just not, not the quick before it.

Speaker 2 (31:25)

So let's talk about Bitcoin, Ethereum, Solana and some others. Obviously you all represent different types of organizations that might have some bias here, but I'm going to try to teed up. So I'm crypto curious. I'm trying to speak on behalf of the audience here. I'm trying to decide how I want to access a specific new asset class here. Do I go through DAT? Do I go through ETP or ETF? Or do I go straight to spot?

and hold it myself. So I know there's some considerations there, but can you guys spend a minute or two for the audience to think about how to enter through those options or feel free to add an option.

Speaker 1 (32:01)

Yeah, know Zach wants to go first. mean, he's, I think he's probably, he's probably biased in this situation, but, know, I, ⁓ I advocate for, you know, A, a diversity of custody solutions. So, you know, even those that are, you know, cypher punk individuals that like to hold spot either in a hot wallet or in a cold wallet. I think it's also useful to have some exposure via ETPs or via

that's anything in your traditional brokerage account. But look, for a beginner, I advocate to start just buying some spot. I don't know how to actually succinctly describe this, but there's something more palpable about buying spot crypto that you maybe send it around a bit to yourself and other wallets. You kind of get to understand the asset and something maybe clicks.

And so I do think that's probably the best place to start, even if it just in small amounts. But then beyond that, I think you just do whatever is right for your own individual operations and risk tolerance.

Speaker 2 (33:10)

Go for it, Zach.

Speaker 3 (33:11)

Yeah, I'm happy to pick that up. To Sean's point about trying things out, testing things out, if the goal is educating yourself about crypto, educating yourself about blockchains, there is no substitute from trying it out, downloading a wallet, sending a stable coin, these types of things. But I would consider that experimenting, learning. If we're talking about taking real hard earned capital and putting it to work in a context of portfolio,

In my view, the ETPs, which are ETFs, the regulators like us to call them, ETPs for crypto, these are going to be the best fit for the vast majority of investors. And why is that the case? Well, it's a lot of real simple things. One is you don't have to worry about managing your own keys or passwords. You have institutional grade custody. There's no risk that you forgot something or you have a

phishing attack or social engineering or any kind of risk that you have with your money is safely secured in this ⁓ structure. The second is cost. We run a very low cost of Bitcoin ETP. When you buy Bitcoin on a retail exchange, you're going to pay what are kind of like front end loads. If you remember the old kind of style of mutual funds or sort of upfront fees.

that can be a quite significant percent of your upfront capital. So when you compare on a kind of cost basis, the ETPs versus buying on exchange, oftentimes the ETPs will be quite a lot cheaper. And then lastly, again, when we're talking about real money, not kind of plain money, but like your real capital, you need to think about things like estate planning, rights of survival, tax planning, all those types of things. And the ETP allows you to build Bitcoin into the

any kind of a portfolio, whether it's a retirement account or a brokerage account with rights of survival that your spouse needs to have access to if something were to happen to you. All those reasons, security, cost, tax planning, estate planning, all those reasons are why large pools of capital, whether it's a financial advisor or an institutional investor like the Harvard Endowment, why they choose to buy through the ETPs. It solves a lot of those things for you.

And maybe I could just say one other thing compared to DATs. These digital asset treasuries, they can also solve some of these things. You can put them in a brokerage account or retirement account. But of course, there's an additional risk factor that requires some additional sophistication. You're not only betting on the price of Bitcoin, but you're betting on the difference in the premium or discount that the DAT trades relative to the price of Bitcoin. So it's introducing another risk factor.

All of those reasons that I just listed are why you see a line on the chart like this. You have seen incredible inflows into the ETPs since they launched in January of 2024, accumulating to almost $80 billion now across the complex. These are huge numbers. And these products were a long time coming. We knew that they would be popular with investors. Grayscale filed for this product in 2013.

It took a very long time to get there. We had to sue the SEC in order to get these products to market. We won that lawsuit. That's why these products are available and why they're so popular. So a long time coming, it's been a big battle to get them, and we're pleased to see how popular they are with investors exactly as expected. And for those really straightforward portfolio construction reasons, they just work for many investor types.

Speaker 1 (36:50)

Yeah, definitely. Definitely want to give Grayscale their flowers regarding all their efforts on getting ETFs across the finish line. It's a shame it took so long, but happy we finally got there. But yeah, definitely agree with Zach's perspective. I think it comes down to, terms of your choice of exposure, it comes down to, like you said, your size. Your time horizon, I think, is a big thing. I guess one last thing I would add, one nuance around.

⁓ you know, exposure methodologies or exposure medium is, you know, how active or passive you are. You know, I know folks that invest for a longer time horizon, you know, have their core portfolio and ETPs, because that makes sense for all the reasons Zach mentioned, but know, crypto does trade 24 seven. And so if you need liquidity for your risk bucket, whatever that is,

I actually think that having some spot exposure is very helpful. You know, in the event we have some kind of, you know, Tokyo Black Monday, like we had last August when, you know, Asian markets were open, US markets were not. And, you know, I remember being able to, you know, pair some risk and then put it back on before US markets opened. So I think that's one, you know,

As a devil's advocate, that's one nuance I would add, but overall, Zach, I think you summarized the benefits of VGPs quite well.

Speaker 3 (38:18)

I think that's a very valid point. Many investor types, many different types of goals with managing their money. The grayscale perspective is definitely trying to

introduced the broadest possible community of people to crypto. And the ETPs are kind of the tip of the spear in that regard. But I certainly am a believer in self custody and have coins in lots of different places. And I'm a heavy user of our ETPs and our private fund trusts and all those types of things. it really depends on the investor, of course.

Speaker 1 (38:48)

You

know what a great solution to that issue is really just to tokenize the ETPs, get them on chain traded 24 seven.

Speaker 2 (38:57)

think we're gonna get there in just a second, is, let's segue to that. Just give me a time for one question from the audience, which is, typically in the public markets, the price is supposed to be enterprise value, which is just the discounted cash flows. You could argue with meme stocks or Tesla or whatever, this is not true anyway. So it's all just speculation and a matter of what people feel it is. So that was all set up for

how do you actually price these assets? Now, Sean mentioned hyperliquid, they're making real money, it's gonna be easier to start pricing them the way let's call it the public markets do, but most of these are not really priced that way, and some of them have some crazy prices. So for the audience, how should they think about pricing? Is this too expensive? Is this too cheap? Is it just the right price?

What are the benchmarks? What are the approaches? How do you, Sean and Zach, think about pricing?

Speaker 3 (39:56)

If I could maybe just make, I'm sure we have a lot to share on this topic, but if I could just make one point abundantly clear is that these are not stocks. These are commodities. That's the most important thing to remember to begin with. So we wouldn't approach with valuing oil or valuing copper or valuing natural gas with a DCF kind of analysis. And you don't want to take that approach for digital commodities like Bitcoin, ETH, Solana, and many other things. Now, there's a lot of complexity in the space.

So this could be a long conversation. Often it is a long conversation when we go out in the world and talk to investors. Real simple, when we're looking at those smart contract platforms or something that has a lot of activity on top of it like a hyperliquid, we have a kind of framework to translate that activity measured as either users or transactions or fees paid into the value of the token. And I think you actually can do a lot of relative value analysis.

on that basis. we have a lot of published material that people would like to look at that. think that the bigger challenge, of course, is Bitcoin. That's the big thing standing that people struggle with. And Bitcoin is just like digital gold. And the question, I hate to ⁓ answer a question with a question, but it's how do you value gold? Gold is kind of valued on a supply demand basis. And the secular drivers of gold have to do with fiat currency risk and the cyclical drivers of gold.

have to do with the behavior of the Federal Reserve and what it's doing with interest rates. And we try to apply those same kind of concepts to valuing a Bitcoin. So Bitcoin, think of it like gold. Everything else, think of them kind of like usable commodities that we can kind of tie down to the activity. Like we're talking about hyperliquid with the activity that's taking place on these platforms and value them in those ways.

Speaker 2 (41:42)

Awesome. Anything else you want to add there, Sean?

Speaker 1 (41:44)

No, think Zach nailed it on the head. the space is becoming very diverse with different token models. think there are, not to come back to hyperliquid once again, but there is a token burn instantiated in the protocol. And so for that, you can actually value some kind of quasi, not shareholder, but tokenholder return, cash yield, something like that.

But there's also a commodity element because it's the hype token is used as gas on the hyperlinking with L1. So there's a lot of nuance involved. yeah, like Zach mentioned, Bitcoin is very tough. are ways to measure to value it relative to the cost basis of the network. So there are ways to value how frothy the network is because everything is on chain. You can get a sense for the aggregate cost basis of the overall network. And so you can get a feel for

how much potential supply overhang there is, if a lot of holders are in profit. But in terms of actually measuring Bitcoin, Bitcoin's value comes down to its monetary premium, its ability to serve as a long-term store of value in the same way that gold does. And so that's a bit more nebulous, so to speak.

Speaker 2 (42:56)

So you mentioned that you hold gold. We've talked about gold multiple times. We use digital gold. Let's just connect it even closer, which is what's the connection between crypto and gold and how those returns are going and how you think about what to put a dollar into today. Sean.

Speaker 1 (43:12)

Yeah, so I think over the past few weeks, people have been very on edge about the macro environment given the trajectory of the jobs market and perhaps uncertain what the next couple of quarters are going to look like. But if you go back to the beginning of 2023, gold and Bitcoin have had this. Now, they're not correlated on any

you short term time horizon, but they take turns. see gold front run and then you have a rotation into Bitcoin. And look, I view gold's performance, it just broke out, as gold front running the ultimate end game for the macro environment in Q4, and that is...

we're going to have a federal reserve that is cutting interest rates into above trend inflation and a okay economy. Now there are risks to that thesis, that being around the job market, know, rate cuts are, you know, can be bullish, they can be bearish. It depends on what they're, the reason that they're cutting and the economy, the state of the economy that they're cutting into. But, you know, should we,

avoid some kind of big wick down following Fed cuts. I the setup is going to be very constructive for liquidity sensitive assets. now Bitcoin holds this different level of risk. It is liquidity sensitive, just as gold is. Gold is inversely correlated to real rates.

I think that's a big reason why we're seeing gold do well right now, but it doesn't have the same risk premium embedded in it like Bitcoin does. And so that's why often you see gold front run Bitcoin because gold is front running those changes in liquidity, the easing liquidity conditions within the macro environment. And once risk, investors are comfortable moving that risk, out the risk curve.

That's when you see Bitcoin catch up. I think that that is what we're, we might be starting to see that right now, but what we're going to see over the next few months.

Speaker 2 (45:24)

So just to say simply back, gold front running Bitcoin, meaning that gold is a bit ahead on what Bitcoin is eventually going to do. So really it's a tell. It's not correlated, you're saying, on day to day moving exactly the same, but over the medium to longer run, you're saying they're pretty tightly connected. Is that right?

Speaker 1 (45:45)

That's right, yeah, cyclically speak, yeah.

Speaker 2 (45:47)

Okay, awesome. You already hinted at tokenizing the ETPs for Zach. Talk to us what that means. What does that mean? There's words like tokenization, real world assets. Can you dive in a bit into that and where that's all headed?

Speaker 1 (46:02)

Yeah, so I think a good way to think about tokenization is to first think about ETPs, ETFs. So ETFs were a major innovation in financial markets and essentially all they are is a wrapper, right? And they're rails through which people can trade stocks. You know, can trade securities in this ETF wrapper. And in the ⁓

in a similar vein, have efforts now to move securities on chain and tokenize these securities to be able to trade 24 seven on these composable interoperable platforms. And I think it's a very apt analogy. And we're kind of just stepping up upgrading from those traditional financial market wrappers to on chain wrappers, which don't have

global barriers which are instantly settled, are composable and are operable, I think will open up a lot of use cases for investors.

Speaker 2 (47:07)

Why is, I see private credit is seemingly the largest chunk here. Why is private credit the fastest to get tokenized? What's happening there?

Speaker 1 (47:16)

they are, there's the most demand to find exit liquidity for private credit funds. No, think, look, I think that's this private credit bubble. Actually, I think it actually is comprised of a lot of the, we saw figure IPO. And I think that a lot of the private credit here is ⁓ comprised of things like Helocs you know, figure IPO yesterday. And they currently have $12 billion in Helocs.

issued on chain. And if you go through the S1, they actually talk about all of the benefits of tokenization. Tokenization has allowed them to increase their time to process loans. So their time to process a loan from soup to nuts is about 10 days. The industry average is 40 days. Their cost is about 30 % of the industry average.

And so it's a major unlock from both an operational and a cost perspective. And so I think there was just a lot of clear advantages in the private credit space that made it more digestible to move those on chain first. And we're starting to see, I think, you know, we're going to see that be applied to the other, you know, asset buckets that you see listed here that only have a tiny sliver of this.

$30 billion bucket of RWAs on chain.

Speaker 2 (48:39)

Yeah, so the stocks is barely able to be seen. It's this green color. And our discussion is quite timely because I believe just a few days ago, there's NASDAQ just like is now filing with the SEC to actually get tokenized securities.

Speaker 1 (48:54)

Yeah, yeah, I you're seeing look, NASDAQ filed, they requested a rule change to enable them to list tokenized or tokenized securities that are traded on their exchange. I think you have BlackRock come out and talk about tokenization. If you go back to Larry Fink's letter at the beginning of this year, he mentioned two things, one was Bitcoin, the other is tokenization. So yeah, it's a big secular theme that I think a lot of institutional investors are traditional markets.

institutional investors are very interested in because of the reasons that I just outlined in my talking about figure is that there's a lot of things that you can approve by tokenizing assets. And I think it's also going to open up a lot of use cases around defining risk. think you're going to be able to securitize

different things more effectively and actually define risk in products in a more precise manner. Yeah, and I think, you eventually it will open up different ways to use these assets as collateral. Obviously, they're also traded 24 seven. And so, you know, it's, there's a lot of benefits to unlock with tokenization.

Speaker 2 (50:08)

So just to connect the dots here, and feel free to correct me if I'm wrong, but let's assume NASDAQ tokenizes securities, that all happens, it becomes common use case, that's sitting on top of some blockchain protocol, right? So they're actually sitting on top of either whoever they pick, right? So Ethereum, Solana, Algorand, Hedera, et cetera. So one of those is gonna be used as the underlying blockchain, hence additional usage.

and more growth and potential opportunities. Is that all right that I connected that correctly?

Speaker 1 (50:43)

Yeah, that's right.

Speaker 2 (50:43)

Yeah, so I just want to make sure the audience understands that these are real world things are not just real world things in a vacuum. Their potential for real world things on top of this blockchain universe. All right. That's right. A few minutes left trying to stick to an hour, but you guys are so good that we're just continuing to talk here. Let's move on to stable coins, which it's hard to believe that 57 minutes in we barely have said the word stable coin because it is one of the hottest words in the space. Again, Sean.

take us through stable coins. What's going on? What's the opportunity?

Speaker 1 (51:14)

Yeah, it is hot. think this cycle has had a few, it's been the institutional cycle. Institutional capital has been traditional financial market outside of crypto, external to crypto. That capital has kind of driven this market since the bull market started in 2023. And there've been a couple of pillars of that institutional cycle. One were the ETFs led by Grayscale, pioneered by Grayscale. The other were DATs, which we already talked about.

Um, and then the other is this tokenization stable coin mega trend that, know, we have been bullish on for a while and I think other folks are coming around to, and, know, at each pillar at each checkpoint, you know, we have macro clients and crypto native clients a lot in between, but we had a deluge of macro only clients show a lot more interest in crypto following the genius act being passed and that stable coin.

IPO and this has obviously been a big tailwind for stablecoins projects with the stablecoin space for the platforms underlying these stablecoins as you just mentioned a couple of minutes ago. I think that is a big reason why we saw ETFs, ETF inflows into Ethereum, ETPs, know, quickly outpace inflows into Bitcoin ETPs is because of this thematic tailwind.

Look, the aggregate stablecoin market cap right now is around 290 billion, which is nothing to shake a stick at. But we foresee that market growing to several trillion over the next decade. And as you can see here, there's significant traction from a commerce perspective. have, or from a transaction perspective, you have

aggregate stable coin volume already surpassing Visa, which is quite formidable. And especially for, you know, a technology that still is quite young and that I think has the potential for to 10 X over the next, next decade or so. And so I think stable coins, which, you know, I guess we haven't defined it yet. And it's just, it's, it's just, you know, a tokenized asset, but that asset is, is the U S dollar and that's used on chain.

And it benefits from all of the same attributes that we already defined via tokenization is that it's 24-7, globally settled, instantly settled, and I think has a lot of potential to revamp P2P and B2B payments. We're already seeing a lot of evidence of that. And from a macro perspective, I think it's a great way for the US to extend the dollar globally.

There's a lot of demand for stable coin exposure in the global south, and that'll expand as stable coins expand. And these stable coins are backed by and large by US treasury short-term debt. so if there is incremental demand for the US dollar via stable coins, that will implicitly create demand for short-term US treasuries. And that'll enable the

treasury to issue more debt at the front end of the curve and it should bring interest rates down as there is more demand. so it could help the U.S. from a fiscal perspective as well.

Speaker 2 (54:41)

So if we're long stable coin, what's the one suggestion you have as to how to get the exposure? Which vehicle would you put your money into to try to get long stable coin trend?

Speaker 1 (54:53)

Yeah, I would own the underlying platforms right now. So I think Ethereum is where the majority of the plurality of stablecoins are held at this point. A lot of the actual transaction activity takes place on the layer two, but there is some semblance of value accrual from that commerce that happens on the L2. And so I think that that is a good place to be. And yeah, it's obviously benefited from

from stable coin related tailwinds since that's Circle IPO. So that's something I'm interested in right now.

Speaker 2 (55:24)

Zach, any thoughts on that?

Speaker 3 (55:25)

Yeah, maybe just Slava, what you were mentioning before, connecting the dots. The work of like equity analysts is looking at these companies, trying to see which one is generating business activity, customers, revenue, earnings, right? The work of a blockchain financial analyst is look at these computer networks, these blockchains, and figure out which one is hosting the tokenized assets, the stable coins, processing the transactions. And ultimately, the ones that are doing the most of that are going to accrue the most value.

and drive the most price return to the underlying token. So that's what Sean and I are doing from a kind of fundamental basis all the time. so tokenized assets, stable coins, decentralized finance, Ethereum is the largest home for those things today. And so if you're looking for a single asset that best represents really the innovations in blockchain-based finance, Ethereum is the natural place for people to start.

Speaker 2 (56:20)

Awesome. Okay, last question, two predictions. Right now crypto is about a $4 trillion asset class. That's how we started with Zach setting the table. What do you think it is in 2030? So four trillion, what's it become in 2030? And the second is pick your favorite individual token and tell me what it's gonna be 12 months from now. You could make a BTC or ETH or Solana or whatever one you want. Just tell me what it's gonna be.

12 months as your prediction, obviously not financial advice. So, you the easy one is Bitcoin, because everybody likes to Bitcoins. But Sean, what do you think of the entire crypto asset class? 4 trillion today. What is it in 2030? About five years from now.

Speaker 1 (57:04)

Oof. I'll go with 15. Alright. No, there's no math behind that.

Speaker 2 (57:13)

Nice, perfect. So it's about five years and we're almost at 4X. I like it. then I'll come back to you on your single asset. Zach, what ⁓ do you think is the market cap of crypto in 2030?

Speaker 3 (57:26)

Well, I'm fortunate to have to run research at the largest fund manager in the space. But what that means is I have to be careful about what I say about these things because they're very closely related to our business.

Grayscale manages about 1 % of crypto market cap today. And so as the market grows that, you know, that would benefit our business. So I'm going to hold my tongue on this one today, but I do think I can confidently say higher on total market cap, but I'm going to hesitate to give you a precise number to all the rules.

Speaker 2 (57:56)

I asked the questions. It's okay. sorry, Sean was bold. That's okay. I get it. You have to follow rules. I understand compliance is a tough one. We started with our end of the getting so Sean, are you able to give me a Bitcoin or Ethereum or Solana or any token prediction?

Speaker 1 (58:10)

Yeah, I mean, look, we have targets for year end, you know, still formulating our 2026 outlooks and certainly want to reserve those for when the time is right and for paying clients. And, you know, but for year end, you know, we see Bitcoin getting a 175, ETH, my target is around 7K and Solana around 500.

Speaker 2 (58:34)

Amazing. I love it. Zach, anything you could share or back to holding your tongue?

Speaker 3 (58:39)

I think, well, I won't give exact numbers, but I think new all-time highs across the majors, you know, consistent with what Sean articulated. I'm comfortable giving guidance along those lines and be consistent with how I'm looking at the world.

Speaker 2 (58:54)

Amazing. Sean and Zach, you guys are incredible. Thank you for being good sports with all my tough questions. I learned a lot. I know the audience learned a lot. Thank you everybody for your questions. I know there was many other questions that people weren't even able to ask. You guys are great. Have a great weekend. This is recorded. We will be able to have this for the future of archives. And we hope to do it again sometime since we already got requests back channel. Thank you, Sean and Zach. You guys are great.

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