00:00The SEC issued a memo delaying the debut of several prediction market ETFs, a surprising
00:04move given how accommodating SEC Chair Paul Atkins has been when it comes to digital innovation.
00:10Vildana Hyrek covers digital assets for Bloomberg. James Saifert covers ETF funds and
00:14alternatives for Bloomberg Intelligence. They join us now for more. Vildana, I want to start
00:18with you. What's in these ETFs? So it was only a matter of time really before prediction markets
00:25were going to be tied into the ETF wrapper, right? Or for somebody to try to figure out a way
00:30to tie
00:30prediction markets into the ETF wrapper. Everything is ETFified these days. And so what they were going
00:37to be is binary bets. For example, will Republicans win X, Y, Z election? Yes or no. And so what
00:44you
00:44were going to be betting on is, you know, you were taking a side. However, things have just slowed down
00:51a bit maybe in that process. A lot of people still think that these ETFs will eventually come
00:55to market. But the SEC maybe is fielding some questions for the issuers who are behind the
01:02filings for these. OK, James Saifert, come on in here because you you understand sort of like,
01:06well, everything about ETFs and, you know, how you securitize this stuff or how you create
01:12derivatives from it. If what if what Vildana is saying, you know, was supposed to happen and
01:18doesn't doesn't happen, what is the underlying product that actually allows that is being wrapped
01:24up in ETF that allows people to make that bet? Yeah. So most of these filings are specifically
01:29looking at using swaps. So the underlying asset on those swaps. So the derivatives,
01:34the underlying asset on those swaps are going to be Cauchy prediction markets. So they were going to
01:38use whatever Cauchy was saying to basically generate the swaps that they would, you know,
01:42enter into with banks. But like Vildana said, I think there's been some concerns. I think they'd be
01:48mostly OK with the things that have been filed thus far. I think the main concern from the SEC at
01:52this
01:52point is like stopping, drawing a line somewhere. They don't necessarily want, you know, 2027 Super
01:58Bowl ETF winner ETFs. James, would you classify prediction market ETFs as perhaps more speculative
02:06than leveraged ETFs, maybe 3x or 4x because we have 2x already? I put them all in the same category.
02:12These are trading products. I mean, there are some ways that you can use this to hedge certain things.
02:16That's definitely what people will use them for. I mean, it also kind of takes away the third,
02:20fourth derivative nature. So like if you're trying to predict what's going to go on in the Senate or
02:24the House and then get third, fourth order effects, like it's really hard to get that. Whereas this is
02:29like I can just bet on what I think is going to happen in this election and maybe there's some
02:33specific thing that I care about. But like if you're trying to gather like what stock is going to do
02:37and respond in what way, it's very hard. And people have made livings doing that wrong.
02:44Vildana, I want to go to Bitcoin. Vildana leads, by the way, the crypto cross-asset team.
02:49So she knows all about everything. Talk to us about the significance of the $83,000 mark.
02:54Why is it good news and bad news, it seems? Yeah, it's something really interesting happening
02:58in crypto markets with Bitcoin in particular. So we had had a sort of mini stealth rally,
03:05I was calling it a couple of weeks ago, where Bitcoin was slowly inching higher.
03:09You know, in the past, we've known it to have these sort of explosive moves up or down.
03:13It's been it had been inching slowly higher towards the $80,000 level and around $80,000,
03:22$82,000, $83,000 is where a lot of Bitcoin ETF investors break even. And so the idea is that
03:31when the price is getting to around that level, that a lot of investors, those Bitcoin ETF holders,
03:37are actually selling out. So all of the little mini rallies are getting sold. So, you know,
03:43it's good news and bad news, as you said, like you're getting the rally part, but then
03:48the comeback again, as we're seeing with the price level currently.
03:52Yeah, James, jump in on this and talk to us about what you're seeing when it comes to price action,
03:56especially with the Bitcoin spot ETFs.
03:59Yeah, I mean, no matter how you slice it, anything in crypto, including the crypto ETFs,
04:04trade very technically. So you get to these like 200 day, 200 week moving averages. It's very hard
04:09to push above them. And once you get above them, there tends to be a lot of momentum also going
04:13to the downside, as we recently saw. But yeah, like like Vildona said, we've seen a lot of selling
04:19on these things, particularly looking at 13Fs. Granted, the data is from March 31st at this point,
04:23but we we saw selling across pretty much every single holder in the ETF cohort.
04:26We're going to spend a good portion of the program talking about the price action and talking
04:30about prediction markets and Bitcoin. So I do want to just go back and end, James, where we
04:34began today. And this has to do with, of course, prediction market or prediction ETFs. If you go back
04:41to what you were telling us about the underlying product, why would would somebody what is the
04:48market for that, given that it's so easy to make a bet on a prediction market? Like, why do they
04:53think
04:53there would be demand for a product such as this that's traded as an ETF, when many people would
04:58argue it's easier to just, you know, download Kalshi and do it there?
05:04Yeah, I'll take the complete opposite side of this.
05:06Please.
05:07And emphatically, this is an area that we think could be another massive new category. We have
05:11these derivative buffer ETFs. We have all these single stock ETFs that people were asking,
05:16why do we need them? I can't tell you how many people were telling me that I was way too
05:19bullish
05:19in the demand for Bitcoin ETFs, because anyone who wanted Bitcoin could open a Coinbase or Gemini
05:24account and get exposure to it. If you just take these things, part of what ETFs do is they
05:28democratize exposure to different things. They just make it really easy. A lot of people have
05:32brokerage accounts. It's just going to make it super simple to get exposure. And it opens the door
05:36for people like advisors to, you know, possibly put this in a client portfolio. Like I said,
05:41these are more trading vehicles, but I think never underestimate the ability of the ETF wrapper.
05:45Just be the easy button, really, to make any sort of trade.
05:50Well, Donna, when you talk to sources, what do they make of prediction market ETFs? Because
05:53to James's point and to Tim's point, prediction markets is already retail. What's the point of
05:57wrapping retail into a retail product?
06:00Well, there's a couple of ideas, and a lot of people actually will say exactly what James just
06:04said. I know we all love ETFs, and we love talking about ETFs, but, you know, they are popular
06:08for a reason. Like the cheapness, the ease, it's the one-click, you know, characteristic,
06:13the inherent characteristic. Exactly. I think the way it's been described to me is that you're,
06:20let's say you are taking a side on one of those bets, like will XYZ win XYZ election way out
06:25in
06:25the future. You're doing it because you're hoping to gain the, you know, the upside on that until
06:33the November election, instead of doing it like, you know, two or three days before the actual election
06:39happens. So it would be a bet on what you think is the right outcome, the wisdom of the crowds,
06:45that type of thing. But again, it is the ease of trading, the cheapness of ETFs in general.
06:51On the other side, maybe for institutions, it's a way to add something to their portfolios or to hedge
06:57certain positions using these ETFs. Again, they have not launched yet. It's been slowed. The process
07:03has been slowed down. So we'll see how it actually plays out. But a lot of people are saying exactly
07:08what
07:08James is saying. So James, it raises the question about what Vlad Tenev has said recently of Robin
07:13Hood, that prediction markets are an asset class. Is that true in your view? Yeah, I tend to think
07:21it will be largely true. Like I said, there's going to have to be a line drawn somewhere with things
07:25that have true economic outcome. Obviously, this is probably going to be a Supreme Court battle between
07:29these platforms versus, you know, sports betting markets like FanDuel and DraftKings that don't want
07:35this to go into their states. The CFTC is on the side of these prediction markets. I don't know how
07:40it's going to
07:40play out. It might end up needing Congress to get involved. But at the end of the day, I do
07:44think like
07:44it's particularly even if we just take sports out of it. I think these, you know, election markets and other
07:48economic indicator markets, even on stocks, you name it, I think it will be a big category in a new
07:54way for people to
07:55make trades and hedge things.
07:56you
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