The Last Trade E032: New Year Narratives: AI & ETFs with Matt Dines
Jan 5, 2024
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Matt Dines (Expert in AI and ETFs) joins the hosts to discuss the impact of AI on the economy and job market, challenges and understanding of building large language models, the shift in allocations and the need for training, the disconnect between the stock market and the economy, the introduction of Bitcoin Depository Receipts, the involvement of global institutions in the Bitcoin market, the importance of Bitcoin UTXOs and the geopolitical advantage, the increasing interest in Bitcoin among Wall Street investors, the anticipation for the future of Bitcoin and the structure and liquidity of ETFs.
AI automation is impacting the job market, displacing workers but also creating new opportunities.
Approval of Bitcoin ETFs will lead to increased capital inflow, price discovery, and market participation.
Bitcoin ETFs provide a regulated avenue for institutions and individuals to invest in Bitcoin.
Liquidity and size of the ETFs will determine their success, while cash settlement strengthens the market making industry in Bitcoin.
Deep dives
The Impact of AI on the Job Market
AI technology is having a significant impact on the job market as more tasks become automated and certain jobs are rendered obsolete. This is reflected in the data, with a decrease in the number of people quitting their jobs and a decline in hiring levels. The shift towards automation and AI tools is creating a shift in the workforce, with white-collar workers particularly susceptible to job displacement. However, there is potential for individuals to adapt and create new opportunities by leveraging AI tools in their own ventures. It remains to be seen how this transition will impact the overall job market and the need for initiatives like universal basic income.
The potential impact of the ETF approval on capital allocation
The approval of the Bitcoin ETFs is expected to lead to a significant inflow of capital into the market, as institutions and investors gain easier access to Bitcoin exposure. This increased demand for Bitcoin is likely to amplify price discovery and contribute to upward price pressure, especially considering the upcoming halving event in April 2024.
The importance of the ETF for institutional investors and financial markets
The ETF provides a viable and regulated vehicle for institutional investors to allocate a portion of their capital to Bitcoin, resulting in increased liquidity and market participation. It also offers a familiar and accessible investment avenue for individuals, thanks to its structure as an exchange-traded product that can be easily bought and sold through traditional brokerage accounts.
The potential impact on portfolio managers and advisors
The availability of the Bitcoin ETFs empowers portfolio managers and financial advisors to allocate a portion of their clients' portfolios to Bitcoin. This offers a new avenue for diversification and potential returns, while also meeting increasing demand from clients for exposure to the digital asset. The ETFs could also attract net new assets from retail investors looking to take advantage of the potential upside in Bitcoin.
The need for caution and potential risks
While the approval of the ETFs is expected to have positive implications for the Bitcoin market, investors should also exercise caution. Price volatility and the potential for retracements should be anticipated, especially in the initial stages after the ETF launch. Poor timing of entries and exits may result in losses, underscoring the importance of proper execution and risk management strategies.
Importance of Liquidity in ETFs
One key factor in the success of ETFs will be liquidity, specifically the bid-ask spreads. The ability to maintain tight spreads, preferably just a penny, will be a crucial differentiating factor among the 13 firms offering Bitcoin ETFs. This liquidity will also serve as an early signal for which firms are winning in this competitive market. Additionally, the size of the ETF will play a significant role, as investors are more likely to allocate their funds to larger funds with higher assets under management (AUM). The ability to attract more capital will further enhance their ability to capture the spread between production cost and market price.
Cash Settlement and Bitcoin Domiciliation
The Bitcoin ETFs will be settled in cash rather than through in-kind redemptions. This means that authorized participants (APs) will not directly handle Bitcoin, but instead settle in cash by adjusting share counts. The portfolio manager of the ETFs will be responsible for buying and selling Bitcoin into the spot market, crossing the bid-ask spread each time. The value will flow to spot market makers in UTXOs and dollars, strengthening the market making industry in Bitcoin. The regulation authorities have chosen cash settlement to ensure containment and eliminate potential integrity issues in cross-border commodity trade. Moreover, by domiciling the Bitcoin within the United States, regulators aim to prevent capital flight and attract more capital into the country's financial system.
The Last Trade: a weekly, bitcoin native, interactive podcast covering where Bitcoin and traditional finance meet on a macro scale. Hosted by Marty Bent, Jesse Myers (Croesus), Michael Tanguma, and a special weekly guest host.
Join us as we dive into what Bitcoin means for how individuals & institutions save, invest, and propagate their purchasing power through time. It's not just another asset - in the digital age, it's the Last Trade that investors will ever need to make.
0:00 - AI
50:50 - Job market
1:12:50 - Bitcoin depository receipts
1:19:00 - ETF
1:31:55 - ETF approval
2:15:00 - Predictions for next cycle
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