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“I'd rather spread memes than genes.”

- Richard Dawkins

Thursday Mimetic Mailbag

Q: Wait. ETF flows are NEGATIVE?

Spot ETFs have been net sellers of bitcoin in four of the last five trading sessions with flows into the new ETFs being more than offset by flows out of GBTC (and maybe Coinbase and Canadian ETFs, too).

From a peak of about $1.2 billion after day four, net flows are down to $824 million after day nine and trending lower: GBTC still has $21 billion of AUM and Bloomberg’s James Seyffart guesstimates that it could lose as much as another 20% of that.

So, if TradFi’s RIAs don’t start working the phones hard enough to sell another $4 billion of ETFs, spot ETFs may soon become a net negative from their inception.

This is not what we were promised!

The surprise, I guess, is that less of the outflows from GBTC are switching into the new, cheaper ETFs and more are switching out of bitcoin entirely. (The FTX estate in particular.)

There is also the issue of all the bitcoin that was bought in anticipation of the ETF. 

Matrixport estimated buy-the-rumor frontrunning at $10 billion, which now looks like a huge number relative to net inflows of less than $1 billion.

Those longs are presumably being unwound alongside the GBTC sellers, so, all things considered, I'd say bitcoin has held up surprisingly well.

Q: Does the ETF even matter then? 

Not so far, no. 

But, longer term, I think it will mean more as the ETF slowly propagates the bitcoin meme among people that it wouldn’t otherwise have reached.

Laser-eyed Larry Fink, for example, now pitches bitcoin as “an asset class that will protect you.”

That is a message that would make even bitcoin maximalists proud, and Fink is delivering it to people who might otherwise never have known.

Similar messages from the likes of Michael Saylor have probably reached as many people as they were going to, but the baton has now been passed to Fink & co.

The current selling is likely concentrated to a small number of sellers (FTX and hedge fund arbs, mostly) while the buying is dispersed among new retail converts. So even on days where the number of bitcoin held is falling, the number of bitcoin converts is probably rising.

The latter metric seems more important to me: As the bitcoin meme continues to spread from brain to brain (a “mind parasite,” in Richard Dawkins’ phrase), it will continue to create buyers long after GBTC is done creating sellers.

Q: Will Fink & co do the same for Ethereum? 

Because ETH can be pitched as a productive asset, one line of thought is that an ETH ETF will be more appealing to TradFi investors accustomed to investing in stocks rather than a bitcoin ETF.

But, I don’t know. 

People like elevator pitches and bitcoin has an excellent one: Anyone can immediately grasp the concept of “digital gold.”

Ethereum’s message is more complicated and less elevator-sized: Is ETH ultra-sound money? A world computer? A settlement layer?

Vitalik sees this mixed messaging as a feature, not a flaw: “There’s space for a lot of [narratives] and that’s what makes it interesting.”

I agree, it’s interesting — but I'm not sure interesting is what ETF investors are looking for. 

Consider, for example, this post on the risks of “execution client diversity,” which the poster thinks could cause stakers to lose millions of staked ETH if a design bug in a “supermajority client” leads to a chain split prompting “quadratic inactivity leak.”

That sounds interesting! But complicated.

ETF investors don't want complicated.

Q: Should I unstake my ETH then?

Probably not. 

If stakers lose millions of ETH because of a bug in the client software that Ethereum depends on, holding unstaked ETH will make things only slightly less painful for you (and you’d be losing to inflation in the meantime).

Q: What do institutional investors want from crypto?

Institutional investors will want productive assets that look more like companies and don’t require them to learn about things like execution client diversity.

This, I think, would be the real unlock for institutional adoption.

If, for example, a project like Helium or Hivemapper really takes off, that will be proof of concept that crypto can uniquely enable new types of businesses. 

Institutional investors would not let themselves be left out of a potentially revolutionary way of creating value — if crypto starts looking like an emergent new form of capital formation, the biggest US investors will bully the SEC into granting them access to it (just like BlackRock bullied them into approving the ETF).

Q: Bitcoin’s a meme?

Yes, same as its analog counterpart, as Larry Fink explains: “It is no different than what gold represented over thousands of years.”

Gold is actually only about 80% meme, as it does have some industrial utility.

Bitcoin may be about to find some utility, too, with developers working on layer-2 solutions and other things that would make Bitcoin look more like Ethereum.

But like gold, bitcoin has a very meme-able and very successful elevator pitch — it should lean into it.

Q: What percentage meme is the US dollar?

That’s debatable, but I'd say about 0%.

The intrinsic value of the US dollar is its ability to extinguish tax debts — we pay a lot of taxes, so we need a lot of dollars. 

The dollar additionally gets a monetary premium because we need it to pay bills in the US and pay various other things outside the US (sometimes involving duffel bags, or tether).

It’s also worth noting that the dollar, contrary to crypto lore, is an appreciating asset: Dollars held in a money market fund earn above the rate of inflation currently, so you might hold them just for that.

“Monetary premium” is mostly a meme in crypto, but that doesn’t mean it’s a meme outside of crypto, too.

― Byron Gilliam

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