Crypto comeback? 9/9/26

0:00BETF Edge Podcast is sponsored by InvescoQQQ. Let's rethink possibility. Invesco Distributors Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest insights on all things exchange traded funds, you're in the right place. Every week we're bringing you compelling interviews, thoughtful market analysis, and breaking down what it all means for investors. I'm your host, Dominic Chiu. So what's driving the recent crypto comeback and is it sustainable? Here's my conversation with Zach Pando, the head of research over at Grayscale Investments, along with Michael Butchella, who's the managing partner at Neo Classic Capital. Gentlemen, thank you very much for taking the time to be with us here at ETF Edge. I'd like to start maybe with a bigger picture of you, and for that I'll turn to you, Mike, on this. The Bitcoin run-up. It's been fast and furious, but again, you have to kind of see where we came from. We're still a long way away from the record highs that we've seen.

1:00Is there anything to the price action lately that makes you feel as though this is somewhat sustainable? Yeah, so I guess the way that I think about Bitcoin's levels here is we had some pretty significant leverage, right? That was August 19th washout. So we had short-gum liquidated. We had pretty decent follow-through on spot, spot in the ETF buying, which was good to see because that's very healthy in terms of building sort of building out of base. And then what we also saw was an increase in options open interest, particularly with Calls Q. And while we also saw a decline in futures open interest, so leverage was reduced while spot buying increased and then upside buying was increasing. So that to me indicated that there was real demand to own Bitcoin incrementally from here, we're still down on the year, we're still well off all time highs. The next levels to watch are roughly 83 to 86,000.

2:03We have a lot of long-term supply to chew through. And if we get past there, we're in pretty good territory. And if you look at Bitcoin relative to the rest of the market, it's in a lot healthier position. I think I said earlier on the program, altcoin open interest in leverage is getting a little bit worrisome. So overall leverage open interest is about the same as it was before the October 2025 crash. And so I don't necessarily take that as caution or a flashing red light that we're about to head into a collapse in the market. I'm just saying you want to tread carefully and in this environment, maybe just incrementally accumulate your Bitcoin and then be a little bit more cautious as you go out the risk curve. An interesting Zach, because this conversation as well, has centered a lot on the price action in Bitcoin. We haven't spoken relatively as much about some of the other larger coins out there, namely Ethereum, maybe Ether and Solana,

3:04maybe XRP and others. We have talked a little bit about hyper-liquid. So when it comes to what's been driving the price action, there have been some macro factors at play. So what in your mind has been the reason why we've seen other than the technical stuff that Mike referred to, are there fundamental reasons why from a macro perspective, people have gotten back into cryptocurrencies? There are. And it's really the same two fundamental drivers that have been pushing the asset class forward for a long time. Number one is demand for scarcity. We have risks with theot currencies created by unchecked government to debt growth. That's driving investors into scarce assets, whether it's physical gold or digital Bitcoin. But that's only half of the story for digital assets. The other half is regulatory clarity for blockchain technology and integrating blockchains into mainstream finance. And that's been moving ahead as well. Now we'll talk about the Clarity Act in a moment. There is some uncertainty there. But even with that piece of legislation aside, the key regulators and the White House,

4:06the SEC, the CFTC have been bringing regulatory clarity to the industry regardless. And this benefits the rest of the ecosystem, particularly the smart contract space, like Ethereum and Salana, perpetual futures, platforms like hyperlake with these benefits from regulatory clarity in addition to that scarcity or debasement trade, if you will. So it's both of those things, demand for scarcity and portfolio diversification, as well as regulatory clarity for the industry and assets. So let's follow up Zach with that because you brought up clarity because I've mentioned it in the introduction here. How much is the momentum that we've seen in cryptocurrencies contingent upon clearer, clarity in terms of the regulatory framework around cryptocurrencies is the Clarity Act crucial to the longer term success of cryptocurrencies, especially when it comes to the US market and its investors. Regulatory clarity in general is absolutely crucial. This is financial technology. We need a clear rulebook to protect investors, protect consumers, to protect the financial system itself.

5:08We don't necessarily need the Clarity Act, that specific piece of legislation. We've been very encouraged by the recent steps by the CFTC, for example, to approve perpetual futures here in the US market by the SEC for laying out some ground rules around transfer agent changes, around issuance of crypto tokens, what's called RIG, a crypto. So we're getting that regulatory clarity through agency guidance rather than through legislation. For stablecoins, we went a legislative path, got the Genius Act last year. That was a great step forward for stablecoins. We may be taking a different path forward for the rest of the industry, but I think we are still getting that clarity and it absolutely is crucial, encouraging we are seeing it every day with the announcements from these agencies. It's interesting, Mike, because the last time we spoke, we were on CmbC air for power launch, and it was just around the time when there were some kind of last minute hiccups and path on the Path for the Clarity Act to get some real momentum. And we had talked a little bit about just how important

6:09the Clarity Act is. I wonder since then, have you maybe altered your view in some way or not at all about whether clarity and that Clarity Act is something that we really do need for this next leg of the markets to go higher? Yeah, I think it's kind of towards what Zach was saying, is I think we're kind of in this unbundling phase of the areas of regulation that we're looking to push forward. So I think back then I had said, we'd love to see the Clarity Act move forward but we've done just fine without government direction in the past and we will continue to do it and move forward. And I think we have the right folks lobbying, obviously, everyone has their own thief terms and people are going to love you for the things that interact most kindly with their just in business lines. But I think generally speaking, we're in a very good environment where the private sector is doing a very good job in forming the public sector on what we're trying to do. And I think we're getting progress.

7:10I still unfortunately don't see a likelihood that we get the Clarity Act passed in your term. And then obviously we had into midterm elections and that could obviously solve a number of things, including clarity. But I think generally we're doing just fine educating the government, the public sector and regulators and I think we're going to continue to get support from those who are open to having productive dialogue with us. Now Zach, speaking of that dialogue, the regulatory framework is important here as well because it does provide at least some guard brails. People feel a little bit more comfortable. One place that they've seen a lot more of that happen and really evolve quickly is in the world of exchange traded products that track many of these crypto assets. It's broadened out the total addressable market to investors and traders who aren't necessarily crypto native but want to have some kind of exposure and you've given them by the framework that we have

8:11more vehicles by which to do so through traditional markets, centralized markets. Grace scale is one of those people, is one of those firms that has offered these types of products. So how much has this dynamic around regulatory scrutiny been helped by that cooperation with regulators on issuing these exchange traded products and it is that big for the driver of this next leg higher? Yeah, absolutely. Grace scale has been one of those players that's had a long engagement with regulators on these topics. You think back to the first ETF filings for Bitcoin were in 2013, they didn't come to market until 2024, almost 11 years later. So it was a lot of process to bring those first products to market. But we've had a streamlining. Now I think thanks to some of the current regulators. Last year the SEC created something called generic listing standards which gives an asset manager like ourselves a pretty clear roadmap on when and where and how we can issue new ETF of products. So we're broadening that exposure for our clients.

9:11One of the great things about these products is they're kind of the easy button for crypto investing. There's lots of different ways to buy crypto, no wrong way, necessary way to do it. But you have to solve some things for yourself. Where do you get the liquidity? How do you custody these assets? How do you do your taxes in your estate planning? The ETFs package, all of those solutions into a single product, oftentimes at low cost, a product. So they make it very easy for investors. They've had a great success, as you know, since the Bitcoin ETFs are launched. I think ETFs will continue to capture a rising share of the crypto asset class because they make investing in these assets straightforward for anybody. Now Mike, another big point about this whole process is access to these markets and the way that ETFs and ETPs have kind of done so and propelled this kind of current leg. We've also seen a lot more of a variety of these ETF products come to market tracking, not just Bitcoin, but other parts of the market as well because the regulatory framework has been loosened is not the right term, but it's allowed for more of these products

10:12to come to market in a quicker fashion. I wonder how much you think investors and traders who are not necessarily as deep into crypto as you and Zach are, Mike, to go and maybe get more into places that are not just Bitcoin, but to other places that people talk about maybe in the news, but maybe don't talk about as much as Bitcoin or either. Yeah, it's funny you mentioned the Bitcoin ETFs. I was actually in Switzerland in the mountains, the day they first started trading in 2024. So it's a nice little conor password and it's also nice that Zach and I both ex-Goldman colleagues saw our alma mater issue a new approval for, I think a call of writing Bitcoin ETF today. So a lot going on in this space, I would say we probably need to get, we need to be quicker to allowing further ETF distribution or creation and distribution. It unfortunately, I think the lack of clarity, not the act is clarity broadly, led to an over issuance of public company,

11:17of public holding companies of the long tail of all coins and led to what was a bubble in digital asset treasury issuance last year, and a lot of the structures are very toxic and a lot of retail got burnt on those. And so I think from my perspective, you have really, I would say good stewards of capital. So before the hyperliquity ETF was issued, we had Hyperion DeFi was the first to come along and buy hyperliquity in a public company and really engage with the ecosystem, make strong investments and I say act very responsibly as a fiduciary for the shareholders. And then you had per hyperliquity strategies and then you had the hyperliquity ETF issued and you have this much more neutral safe exposure. That was, you know, suited again by, you know, more responsible digital asset treasury holding companies, the long tail where people really wanted this obscure exposure was what led to a lot of retail pain because these, so a lot of these digital asset treasury companies

12:19that happened last year came to market. They were again, just really, really toxic structures when you pick when you lifted the hood. And that was unfortunate and it wasn't necessary. So I do think the more ETF issuers become comfortable surrounding the assets that they'll issue ETFs in, the better environment and more transparency that will have from the investor base. So that's something that I think is interesting. Obviously it's options market develop, option market develop, futures markets develop. There's a lot more opportunity to have yield enhanced strategies, which is an interesting area of the market. And I think could work for, you know, a lot of folks, again, Goldman, I don't think it was approved, but they filed ETFs today. Yeah, I mean, speaking of, I mean, these yield enhanced funds, Goldman is very active in these days with the acquisition of innovator capital and neos and everything else. So that's a big point. The last point I'm going to ask to you, SAC here. The ETF product market and exchange traded products market

13:21has led to maybe the ability for retail investors and traders as well as financial advisors to quote unquote allocate, right? On a systemic or more systematic basis, do you find at a company like Grayscale that you are seeing more activity from people who are not just taking shots about buying and selling but are programmatically every week or two weeks or month putting money to work in a certain crypto or basket of cryptos? That's absolutely the change that's taking place. And it's not only the products that are changing, it's the investment strategy, it's the investor types that have changed over time. And this allocation trade, I think is what is beginning now that is catalyzed by some of the other things that we've been talking about the Treasury, buybacks, Fiat, currency risk. Investors are looking at, how do I build a diversified portfolio? I have a lot of equity concentration, a lot of AI concentration. Where can I start to spread things around that give me a different type of exposure? Crypto gives you a unique exposure to an asset class

14:22that is built on a new technology that's integrating with the financial system to digital scarcity. And so that type of allocation trade, if you will, is exactly what's happening in the ETF structure, a great way to do that for so many types of investors. Now it's time to round out the conversation with some thoughtful analysis and perspective to help you better understand ETFs with our markets 102 portion of the podcast. Zach Pandle, head of research over at GraceGale Investments, continues with us now. Zach, Zach, thanks for sticking around. Let's pick up this conversation for the podcast along the lines of where the online show for ETF Edge ended. We had talked a little bit about the regulatory aspect and how much that would be a factor in the future growth trajectory and speed for cryptocurrencies overall. The CFTC is much more involved these days. The Securities and Exchange Commission, SEC, is a lot more involved these days.

15:22But they've been more involved in a way that has maybe made innovation and product rollout a little bit less stressful. I guess that's the way that you put it. How much do you feel is, oh, that's an accurate statement. And how much do you feel is, though, that kind of regulatory softer touch is necessary for the crypto markets to keep progressing the way that they are? Look, I think that's absolutely accurate. And GraceGale has been one of these players that has been engaged with regulators for such a long time on these issues. And we're thrilled to see that streamlining of the process. And if you look back two years ago, President Trump came into office a ran with a mandate from voters to bring clarity to digital assets here in the United States. And I think the administration has been absolutely delivering on that. There's been a lot of pieces along the way. Some of it is rescinding old rules that didn't make a lot of sense. Some of it was bipartisan legislation in Congress, things like the Genius Act for stablecoins.

16:23Now we're going through a different phase where regulators are tackling lots of rules modernizing our financial system and finding a way for blockchain technology to fit in. A great example, slightly boring topic, I think for most people is transfer agents. You know, and it's the last time we thought about that. But this is what modernizing our capital markets is all about. We do need to find a way to change the rules, to bring in things like 24, 7 trading, instant settlement. These are the benefits that blockchain technology brings. And so the regulators are going one through one tackling each of these issues. It's made an easier job for players like Greyscale to operate in the space. And hopefully it brings value to users. That's the point at the end of the day. I'm more efficient, more resilient financial system supported by this new technology. Custodians, transfer agents, all of these types of things are constructs of what people would call centralized finance. And it kind of maybe works a little bit against the, maybe some of the notions around the use cases

17:23and the benefits of cryptocurrencies and blockchain on a decentralized format. But in many ways, it also allows more people who are not as in tune with the industry or the market to become participants. So how exactly do you think the industry is balancing the centralized aspect of markets for crypto versus the decentralized ethos that many want cryptocurrencies to have? Where are we in that kind of evolutionary cycle? It is a spectrum. I think we balance it with a lot of lawyers is the answer. Look, the technology is amazing, but it has to be compatible with the rules, the laws of the United States and any other jurisdiction that we operate. And there are lots of specific rules. Once you start digging deeper into the structure of the financial system, whether it's around custodians or transfer agents or exchanges and best execution price, all these types of things. So whether we're going to tokenize a stock, tokenize a ETF, we can use that new technology, but it does need to fit into the framework of the rules.

18:24And that's really where the industry is today. It's figuring out how to get to an optimal place, an optimal place that gives us the best value of these tools while remaining compatible with the rules and protecting investors and other institutions along the way. It's an exciting process and expensive process with the lawyers, but I think we're going to get to a very good outcome and a new and improved financial system with public blockchain technology really at the foundation in the future. So speaking of lawyers, rules and regulations, we had talked a little bit about the regulatory aspect of this, about whether or not you needed a little bit more regulatory ease in order to stay at the forefront for cryptocurrencies. From a big picture standpoint, America is in an interesting position right now, where it is very much a leader in many of these kind of frontier or emerging technologies. I can think of things like artificial intelligence and data centers. I would put crypto in that kind of general realm as well. Do you feel as though, and I say a, because it's debatable whether the US

19:24is the outright leader in some of these, or whether or not other people, institutions, countries, sovereigns are better equipped? Does America need to be a little bit different in the way that it views these types of products and these technologies in order to be the leader, instead of a leader in many of these kinds of industries? You know, there are really two sides to this coin, if you will. On the one hand, the US is an incredibly dynamic, resilient, large scale economy, so many innovative entrepreneurs, writing clear rules now to bring this technology into our financial system, modernize the financial system, other countries will follow those rules. So the US will be a leader in digital assets in the same way it's a leader in these other industries. The other side of the coin, though, is that the US dominant position and the dollar's dominant position in the global financial system is ours to lose, and it is actually part of the Bitcoin and crypto story.

20:25We have a changing world driven by debt and deficits by foreign policy choices by the needs of other countries in their own development path. That's putting pressure on the current system. And so one of the reasons that our investors look to digital assets, and they see that changing world, and they're looking for a way to express this view in a portfolio. How do I take a position in an asset class that isn't tied to just one country, one system, one set of rules? How do I try to express something that's more global in nature? And crypto is intriguing to many investors like that. So the US story has two sides to the coin. It will be a leader, no doubt about it. It'll be an innovator. So many great technologists will come from this country. At the same time, in my personal view, the dollar probably will lose some ground in the global financial system as a store of value, as a medium of exchange. And one of the things that will pick up a market share is the digital assets ecosystem. All right, because you open the door or window to it, you mentioned a small slate of different potential catalysts

21:29in the marketplace. You talk about geopolitics, the debatement trade, so to speak, deficits and debt. Interest rates are a big deal right now. We have the Fed kind of at a crossroads, trying to figure out whether it should raise or lower rates based upon economic conditions. We have the Treasury Secretary being active in the longer term debt markets for US sovereign debt. These are a lot of different variables, a lot of moving parts. What do you think the balance of all of that means for cryptocurrencies going into the last part of this year? These of e, by the way, another big factor, which is a midterm election cycle that could also potentially add a little bit more volatility to all markets. You're right, there are so many moving parts at the moment. Let me touch on a few things. First off, the Treasury buybacks. I think I would encourage people to think of this as policymakers treating the symptoms because they can't cure the disease. The symptoms is high interest rates. The underlying problem is structural deficits.

22:32And regardless of the midterm outcomes, we're not likely to deal with those challenges. We're still going to have unchecked a deficit growth, almost regardless of the outcome. That drives investors to scarce assets, physical, gold, digital Bitcoin. When you think about the interest rates and their impact on digital assets, I would say it's diverse. This is not just one asset, not just Bitcoin, any more but lots of different types of assets. Bitcoin, think of it kind of alternative currency like gold and how you might think about the effect of interest rates. But stablecoin, stablecoin issuers like a circle. They actually benefit in the way a bank does with net interest margin when interest rates move higher. So think about the specifics of the asset in the digital assets ecosystem and how it might behave. And then on midterms, it'll raise a lot of different issues that touch on our ecosystem. A big one will be privacy. AI technology is amazing, but it is raising a lot of privacy questions for people. Those questions are definitely being asked in the crypto ecosystem, bringing forward things like ZCash

23:35and other privacy preserving cryptocurrencies are very much in focus. So quite a lot of moving parts. This is what we help our clients navigate, leading with education, trying to walk them through each of the steps of their confident allocating capital to digital assets. How far are we away, Zach? Because grayscale does a number of these types of products right now, not necessarily for mass market distribution, but for certain types of investors and participants. There has been, I guess, an evolution of some of these ETF markets or ETP products, right? Exchange-trader products to kind of portfolio-wise, if you will, baskets of cryptocurrencies and then allow you to buy kind of units or shares in a basket or portfolio of different currencies. So it could be cap weighted in which Bitcoin becomes a massive part of these portfolios. It could be a little bit more actively managed and more custom indexed. What exactly do you think that next evolution is

24:35for the crypto-exchange-traded products market, given all of the factors that we've talked about, given all of the regulatory constructs that are currently in place or could be in place to the best of your visibility? When do we start seeing more product come to market that is not just say a Bitcoin ETF or Ethereum ETF or a Solana ETF and become more kind of like baskets, if you will? I think evolution is exactly the right word to be using here. When people approach digital assets for the first time, they tend to think of specific use cases. Well, Bitcoin is digital gold, or I've heard of stablecoins, but I'm excited about perpetual futures. We encourage people to think about it as an industry and an asset class. You have, it's a roughly $3 trillion asset class that today, a mid-size alternatives category, lots of different interesting assets. We think people should take a diversified approach. Capture Bitcoin, capture Ethereum, capture hyper-liquid in the same diversified portfolio.

25:35I think that's the direction of travel. Education still needs to continue. I think people are still coming up the curve on exactly how all these pieces fit together and in fairness, products still need to come up. The curve, one important question is around staking, for example. Some blockchains allow staking, which produces a yield or a reward rate for investors. We can't do that in every single product today that holds back some of these capital allocations. But Grayscale continues to be a leader in this, pushing to innovate wherever we can in line with the guidelines that we get from regulators and cooperatively with regulators. But as you get more product efficiency, as you get more education, we think that ultimately that's the direction of travel. A diversified portfolio approach alongside other alternatives like venture or private equity should be your crypto sleeve, not just a Bitcoin, not just an Ether, but a diversified portfolio. And one final question before we let you go here. We had talked during the online show for ETF Edge, Michael Buchella had brought up the idea

26:37of yield enhanced products. It has been one of the biggest drivers of new ETF issuance in traditional markets. In other words, buy a NASDAQ 100 ETF that has an options overlay that sells covered calls and generates a certain kind of yield for it. Do you think that that kind of yield enhanced strategy view can translate effectively into cryptocurrencies as well? I understand that it necessitates a more active and mature options market in order to make those things happen. But do you think that the crypto industry is moving towards a yield focused type environment as well? We are already seeing that. And I think one of the attractive things about crypto for these alternative income strategies is relatively high volatility. So of course, volatility means a risk in an investment portfolio. But when we're talking about option income strategies, it means also the income, the preview of income that you are receiving. So with all the usual or disclaimers

27:38about understanding option products and working with your financial advisor, we do think that this will be a popular category. Grayscale is offering a Bitcoin option income products today. We think that that'll expand to other altcoins, some of which have meaningfully higher volatility and therefore higher potential premium income. So absolutely, popular category and traditional finance we're seeing that bleed over into digital assets today. All right. Zach Pandal, a grayscale. Thank you so much for taking the time for this ETF 102, markets 102 portion of this podcast. We appreciate it. My great pleasure. Thank you. All right. Thanks for listening and join us again next week or just head over to etfedge.cmbc.com. Over the last few decades, technology has transformed our world in amazing ways. Through it all, invest go QQQ ETF has connected investors to the forefront of innovation.

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