00:00Eric is dying. He has a question to ask about.
00:03Yeah, well, no, I have a prop.
00:04That's why I wanted to go first.
00:06This right here is a wallet.
00:09This is a cold storage wallet.
00:11It's not connected to the Internet at all.
00:13This was hacked.
00:15That's why this has rattled the faithful so much.
00:18Normally, a hot wallet is hacked, where you're connected to the Internet.
00:22This is sitting here, supposed to be in the safest possible spot,
00:25and they got $135 million so far from like 5,000 different accounts or something,
00:31and this has shaken the very core of what cold storage is supposed to be.
00:37I promise this is probably pretty good news for ETF issuers
00:41because you're like, well, we are bigger.
00:44This is a company that had five employees in Canada.
00:47Something was wrong with the code.
00:49Anyway, how are you looking at this,
00:51and have you been talking to clients about, hey, come over to BlackRock.
00:54We won't mess up your Bitcoin.
00:56Yeah, well, unfortunately, with that incident,
00:59it was a fairly sort of simple amateurish error that led to the vulnerability.
01:05I think that's important for people to know,
01:07and you had the graphic up about the rising number of crypto hacks.
01:11I think what's also important to recognize is that
01:14that is not a breach of Bitcoin or any other crypto protocol.
01:19Those are individual security mismanagement issues
01:23that happen from various individuals or providers, right?
01:26And so I think that what we've seen, frankly, since the start of the Bitcoin ETFs being available in January
01:33of two years ago
01:34was an overwhelming demand to be able to hold in a very simple turnkey trusted vehicle
01:41and not have to worry about all the unique elements of Bitcoin and crypto security
01:47that generally custody otherwise would require of an investor.
01:50So we've definitely seen the blockbuster launch of Bitcoin ETFs,
01:55although we've seen last week hashtags liquidate one of the ETFs.
01:58I mean, someone had to throw in the towel, maybe.
02:00But more broadly speaking, we've seen the evolution of the Bitcoin ETFs.
02:04How important are creation and redemptions in kind,
02:07especially when it comes to the Bitcoin ETF ecosystem?
02:10I know BlackRock has done it.
02:11We wrote an article last week.
02:12I'm wondering how much of your inflows, how much of that, the percentage, is an in-kind Bitcoin creation?
02:18Yeah, it's still a minority.
02:19More of it is new dollars coming in.
02:22But we've seen the amount of in-kind activity be a growing number over the three quarters now that that's
02:29been allowed.
02:30And we've been working quite hard to help bring the minimum down
02:35because there's interest in this from investors of all sizes.
02:39When we first started, $25 million was the minimum that you needed to be able to do one of these
02:44in-kind conversions.
02:45Now that's come all the way down to around $1 million.
02:48And hopefully one day it'll be accessible at any size.
02:51That's our hope.
02:53And so that's been great progress.
02:55Why is it so expensive?
02:56Well, it's about the size, right?
02:58So there's some manualness to the transaction that needs to be undertaken.
03:02And so it's about what providers are willing to support just to make the math and the administrative process work.
03:10So just to be clear, so if you're an early Bitcoin holder, you had some in a cold wallet,
03:15and maybe you want to move some over to BlackRock,
03:17if you have a million dollars in Bitcoin, you can just give it to BlackRock through an AP or a
03:23third party,
03:24and you'll get IBIT shares in return.
03:26And that's like a tax-free transaction.
03:28Yeah, so everything is intermediated, as you said, by an authorized participant.
03:32So that's the key.
03:33We actually don't have the ability to support that directly to investors,
03:37but there are a number of participants in the ecosystem who stepped up
03:41and who have been facilitating that for investors,
03:44and their willingness to do it at smaller and smaller sizes has been a really positive development.
03:51Yeah, I agree with you, and also that point about this whole hack wasn't a Bitcoin network.
03:56It was an intermediary.
03:58All the problems with Bitcoin are the intermediaries.
04:00That's why I think ETFs showed up.
04:02It's like, okay, hey, the adults are here.
04:04We're not going to mess this up.
04:05And so far, the ETFs have done a good job.
04:08Now, Bitcoin has come down, and the ETFs track the price of Bitcoin going down.
04:13And there are a lot of people who came in maybe at $100,000 or $110,000.
04:17They're underwater.
04:18You're probably the guy who gets the phone calls.
04:21You're probably the guy who has to talk to them if they're like, hey, what's going on here?
04:24How is that going?
04:26How committed are they?
04:27Are they starting to get shaky now that we've been around 65 for a while?
04:31Well, what we've seen consistently through these two and a half years is that the ETF investor base
04:35tends to be more of a fundamental long-term buy-and-hold type segment.
04:42And that's continued to be exhibited through this downturn.
04:48And, you know, everybody who comes into Bitcoin hopefully understands that it's a volatile asset.
04:54It's always been a volatile asset, right?
04:56There have been now five major boom and bust cycles.
04:59Each time, the cycle ends significantly higher than the prior one, but with a bumpy ride along the way.
05:06And so it's been the case in this one as well.
05:09So I think that we've seen sentiment turn in a noticeable but subtle way the last month or so.
05:17You've seen Bitcoin decouple from equities starting earlier in the year.
05:21For a while, that was hurting Bitcoin because equities, particularly AI, were roaring and Bitcoin was kind of flat to
05:29down.
05:29Then in July, when AI had the huge pullback, Bitcoin outperformed significantly.
05:35That decoupling is healthy because it's part of the thesis for a lot of people around Bitcoin as a diversifier
05:42and potentially a hedge against some of the left-tail risks that exist elsewhere in the portfolio.
05:47You also recently launched your Bitcoin premium income ETF.
05:50Talk to us about that and why would an investor want, I guess they would want income.
05:54But how big can that market be compared to just holding spot Bitcoin directly in maybe 45 seconds?
06:01Yeah, so BIDA, B-I-T-A, has been off to a solid start.
06:04We've seen quite a bit of interest.
06:06Obviously, it's not going to be massive out of the gate in the same way flagship products like iBIT, ETH
06:12-A, ETH-B have been.
06:13But it's solid and it's really investors who are looking to make a little bit of a trade of saying
06:19you're going to give up a tiny bit of the upside in Bitcoin in exchange for a mid-to-high
06:24teens target yield,
06:26dampen the volatility a little bit, dampen the downside risk.
06:29And so that's going to be a slow build that we've seen promising demand for.
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