November 7, 2024 • 33 mins
One of the year’s hottest investments? Bitcoin, which has surged on exchange-traded fund adoption as well as the return of the “Trump trade.” One way to go especially big on that bet is two new leveraged ETFs: MSTX and MSTU, which are 2X MicroStrategy—a company that’s already a highly exposed Bitcoin proxy.
Both ETFs effectively give investors a 4X exposure to Bitcoin. If that sounds volatile, it is: MSTX is the most volatile ETF in the US. Consider this space the “ghost pepper” of hot sauces.
On this episode of Trillions, Eric Balchunas and Joel Weber speak with Sylvia Jablonski, the CEO and CIO of Defiance ETFs—the issuer behind MSTX. They discuss how the product came into existence, what the Trump trade has meant for inflows, why there’s a modest rivalry with MSTU already, how investors are using options on the product and what makes a good “ghost pepper.”
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:05):
Welcome to trillions.
Speaker 2 (00:06):
I'm Joel Webber and I'm Eric Balchunas.
Speaker 3 (00:13):
Eric, lots of things happening in the world. You and
I were talking about things that have happened this year
that have been significant, though, and there's been, you know,
for the most part, not that much volatility. But you
want to one thing that has been really interesting since
the beginning of the year, how bitcoin has just been
on a tear. How much do you think ETFs have
(00:34):
had to do with that?
Speaker 2 (00:36):
Certainly, Look, I've i get booed at on Twitter when
I tell the bitcoin people that bitcoin would be trading
at thirty thousand dollars if warn't for the ETFs. So
right now bitcoin's around seventy thousand, and they don't like
to hear that. But I'm telling you, when black Rock
filed for the ETF last June, it was like basically
(00:59):
a year ago. It went up eighty percent on the anticipation.
Then when it launched there was a little pullback, but
it ripped further. So I think it's up something like
forty percent since then, so it's eighty plus forty. A
lot of the forty percent was based on how the
ets were taking in money, and this past couple of weeks,
it's been crazy. Like this whole area is to quote
(01:20):
the Paul Abdul song two steps forward, one steps back,
which I don't know if you guy, it's a deep
cut from like.
Speaker 1 (01:28):
The eighties right there. I know that I know the cut.
What does it mean here? I'm gonna I want to
hear you great question.
Speaker 2 (01:42):
Ye I forgot I went too far off the highway.
I don't know where I am.
Speaker 1 (01:46):
Yeah. No, so.
Speaker 2 (01:50):
That is really funny. That's naturally funny. I get what
you're saying. Hold on, okay, now I'm gonna answer that question.
Speaker 1 (01:55):
Yeah.
Speaker 2 (01:55):
So what I mean is like there's like two or
three weeks of like intense flow, and then there's a
little pullback. Then there's like a week or two where
there's some outflows. Then there's like two or three weeks
or a month of inflows, and so it's two steps forward,
one step back this whole time. But you are netting
twenty four billion in new net money, even beyond the
GBTC outflows. So twenty four billion, just to put that
(02:17):
into context. James and I safered on my team, we
thought these would get ten to fifteen billion in their
first year, so they're already nine billion beyond our upper band.
So I think that what happened here was just that
there was a lot of investors out there who were afraid,
even if they were casually interested, they were afraid because
(02:40):
of the FTX downfall. Who can you give your money
to in order to get this exposure. Well, long comes
black Rock and Fidelity, and it's like, oh, I know
these I can use all their products. I completely trust them.
So the ETFs brought trust and that was totally missing.
Not only that you got low fees and high liquidity,
So this is like major So it's not just that
(03:00):
there was a little rally. I just think this is
a a really powerful vehicle that a lot of people
just trust and like to use for this exposure. So
I'm not surprised as successful, but it's a little beyond
what I thought. And so there's been all these interesting
products now coming out that are ancillary. They aren't spot bitcoin,
but they do something similar and those are hits too.
(03:22):
So there's a bit of a feeding frenzy for anything
that's sort of Bitcoin related, and that's.
Speaker 3 (03:26):
What we're going to talk about today because that ancillary
products sure there's bitcoin, but there's also things like micro strategy,
and there's been multiple entrants and you when the first
one came out, you call it, Bloomberg Intelligence called it
most Volatile ETF.
Speaker 1 (03:47):
How come and how does micro strategy fit into all
of this?
Speaker 2 (03:50):
Yeah, you know, we've used the phrase hot sauce plenty
of times on this show. This is like a ghost pepper.
This is the ghost pepper of the hot sauce bucket.
Speaker 1 (04:00):
Okay, this is.
Speaker 2 (04:01):
Where you invest in it and you film yourself on
YouTube seeing how you react to It's very VOLTAIGJOL. So
to give you some numbers, we're talking like one hundred
and seventy one hundred and eighty percent volatility. To put
that into context, the S ANDP is like ten to
eleven percent, so it's like sixteen times the volatility of
the SMP. But there is definitely people who are hungry
(04:25):
to trade, and so this pushes the envelope on volatility.
But at the same time, it's not just some random stock.
It's a stock that a lot of the crypto world
really enjoys trading. And so if you think about it,
this was actually a clever way to make a four
x bitcoin ETF because MicroStrategy is two times the volatility
(04:47):
a bitcoin and highly correlated, and these are two x MicroStrategy,
so you're looking at a four x bitcoin ETF, which
is again a powerful concept because there's not just people
using this product. People like leverage bitcoin trading all over
the world. It's very popular. There's all kinds of derivatives
being used. So this again the ETF industry is famous
(05:09):
for democratizing stuff that might be happening elsewhere. So here
you have again a democratization of a very leverage trade
on bitcoin, which is popular elsewhere. So I'm not totally
shocked that's popular here. But these two products were instant
hits to the point where they're both around the top
one two percent in terms of all ETFs in volume.
(05:32):
I mean, so in other words, they launch and they're
instantly in the top one two percent most traded. That's crazy.
Speaker 3 (05:37):
All right, We're gonna speak with Sylvia Jablonski, who's the
CEO and CIO at Defiance ETF's particular mst X, which
launched in August this time on trillions.
Speaker 1 (05:54):
Do you want volatility?
Speaker 3 (05:55):
We got some volatility, Sylvia. Welcome back to trillions because
you have. As you reminded us, you have been here before.
Speaker 4 (06:04):
I have, and thank you for having me again.
Speaker 3 (06:06):
Great to have you back and in a new capacity
because I think last time you were not at Defince,
you were at Directions, and that was a number of
years ago. So welcome back to the podcast. Eric called
your product ghost pepper. How do you feel about that?
Speaker 4 (06:23):
I feel good about that.
Speaker 5 (06:24):
I actually which may be surprising to some, but I
actually think that that's an accurate description, right, and and
it could be you know, the range of descriptions for
Levered u versytfs in general, right, you have some that
are that are kind of like mildly spicy, and then
they go all the way off to ghost pepper. And
I would say that we're on the ghost pepper side.
So it's it is sort of the perfect recipe though
for a LEVERTYTF product. You have this high level of volatility,
(06:47):
as Eric mentioned, and you know a lot of a
lot of interest due to the underlying sector being crypto related,
and you know, low and behold it. It really did
take off. The good thing though, is that it's kind
of being used the way it's supposed to do. You
kind of see that volume in that turnover being quick,
you know, a day less than a day things like this,
and so in that sense, it's kind of okay that
(07:08):
it's ghost Pepper.
Speaker 3 (07:09):
Yeah, so when did you get the idea to be like,
you know, what we need is to effectively do what
Eric said, we need to go four x bitcoint Where
did you first identify that that would be a thing
that you would want to do.
Speaker 5 (07:22):
So this might be super interesting too, but the initial
name of our company, like when you look at the
founding documents, it was Crypto Beta LLC. And when we
were at you know, Direction working with Levered n versus
ETF products, the chairman and original founder Matt Belski was
talking about, you know how he was going to go
leave and start a crypto company basically, and it was
(07:45):
you know, sort of just way too soon. That was
that was a period of time where crypto was just
you know, taking off, but there was no sense that
you could put it in an ETF. You could put
it in like a democratized ropper that you know, a
black Rock was going to be launching a product on it.
You just couldn't get it out basically, right. And so
you know, for years we've tried to get into the
(08:06):
crypto game, but it was oftentimes that you know, we
were either too late or not the first mover when
it came to a bitcoin ETF or a levered bitcoin ETF.
And we knew that we couldn't compete with the likes
of a massive institution like black Rock, and so we
just started looking and thinking to ourselves, like, okay, what's
so bitcoin did really well, they're levered inmverse ETFs, there
(08:27):
are single stock ETFs.
Speaker 4 (08:28):
Where can we play? What else is crypto related?
Speaker 5 (08:31):
And we started looking at the performance of just the
micro strategy stock as compared to bitcoin and bitcoin ETFs.
And you know, throughout history we call it like four
x leverage, right, but throughout history it's been like six
times the performance of crypto in in trending markets or
three times kind of depending on you know, when you
run that comp and we saw the stock, we were like, okay,
the stock is up three hundred percent, right, and it's
(08:54):
it's a crypto company. It's it's democratized crypto built into
an equity, and so we thought, get this to market
levered up best crypto play.
Speaker 3 (09:03):
Ever, let's break that down just a little bit though,
in case somebody's not familiar with micro Strategy or it's
business model. I don't know if it has a business
model so much as it is just a vehicle for
bitcoin at this point, right, can you explain that?
Speaker 5 (09:14):
Yeah, so micro Strategy was kind of historically this this
software company, right, and you can argue that they play
an AI which I do think, you know, kind of
helps they have that.
Speaker 4 (09:22):
Overall AI theme.
Speaker 5 (09:24):
But Michael Salor's goal was always to kind of scoop
up as much bitcoins as humanly possible. And we just
heard them announce that, you know, over the next three
years you're going to be raising another forty two billion,
which is, you know, I think more than they actually
have in total right now of bitcoin. And so what
they try to do is create this this access point
for investors to buy their stock and have more crypto
(09:45):
exposure than they could ever get on their own, right, Like,
can you imagine having you know, forty two billion of
exposure to bitcoin? You can't do that on your own, right.
And and the fact that it's a stock, the fact
that it's you know, traded in the marketplace, it has liquidity,
it has transparency, you can get in and out of
it whenever you want. You know, people started buying it
to have exposure to bitcoin, and you know, then we
(10:09):
also noticed that people started trading it in and out
short term, and so we thought there would be appetite
to put leverage on it. And that's you know, kind
of how the ETF was born.
Speaker 2 (10:17):
Now, one thing interesting about this, and you know, we
call it the hot sauce arms race because there is
a lot of competition out there for this area. One
well one reason is, you know, they charge a little
more in the fees here and you just need one hit.
You know, we had Will Rindon Joel you know his
two X Navidia ETF. Guess how much money that makes
(10:40):
a year. I'll tell you sixty million dollars. You can
see the magnet to do this as opposed to like
trying to go into the core and complete against compete
against black Rock and Vanguard. So I totally get it.
Like and there's a you know, definitely a market for this.
So when you guys came out, you were one point
five X and then tuttle and then you launched that
(11:03):
one point seventy five X, which again is still pretty volatile,
given how volatile micro strategy is. But then Tuttle filed
for two X Matt Tuttle and t Rex and then
you guys launched. You get all this money really quickly,
all this volume. He launches, and I'm like, rarely, if
you're like four weeks late on a hit product, it's over,
(11:24):
Like you cannot it's the chip has failed. It's very difficult.
But he launched and kind of tied you. You both
got an equal amount of assets and volume, and then
you filed and now you're two X. I guess what
all took shape there? And is point two five x
extra volatility really that much of a deal breaker?
Speaker 5 (11:46):
I mean, so there's a little more to this story.
So actually we we had originally filed for two X, right,
And there are different rules that you have to meet
in order to launch an ETF at a specific leverage point.
We call that basically called a var test, and it's
kind of you know this this inside baseball stuff where
you know, you have to kind of like prove what
(12:07):
the value at risk is with the basket and the
index that you're comparing yourself to is and things like this,
and so there were you know, there are periods of
time before we launched where we wouldn't have passed the
bar test based on the index that we had been
using to you know, submit for var and so we filed.
We were approved at one point seventy five, but we
(12:27):
were right there with two beta, right, and then we
kind of thought to ourselves, like, let's get this product
out because this is hot sauce and people are going
to want this and trade this, and you know, and
as soon as we got it out, our clients and
traders started saying, you know, we want two X, we
want two X. And at that point the rex filing
was out there, right, we assumed that they were going
to launch the ETF, And before they launched the ETF,
(12:51):
we actually filed to update the leverage point to to beta.
But you know that takes sixty days, right, so their
launch came before our left change. And so I think
it was this interesting race, right because we knew we
had to get out because we also knew that the
two X wouldn't come into effect, you know, before they launched.
So we had the one point seven out, we gathered
(13:12):
all the assets. They came out with two and basically
everything our clients said was true that people prefer the
higher leverage point, and then you saw our inflows slow
down a little bit. You saw them kind of take over.
And now we've changed to two X and over the
last couple of days we're getting a little bit more
in terms of inflows than they are. So, you know,
long story short, I think the two beta mattered and
(13:34):
we're like, you know, sometimes we get praised for it
and sometimes we get criticized for it, but we're very
nimble as an ETF provider, like we don't take our
you know, we actually had the ticker I bit and
it was a short block ETF and it was out
around the time that you know FTX collapse, and you know,
all of this stuff happened. That ETF was up thirty
percent every other day and nobody traded it, right, and
(13:57):
we kind of knew, like, Okay, the market doesn't market
doesn't want this, and we moved on from it. You know,
Blackrock has that to Kurnah went a little better for them.
But you know what I would say is we knew that,
like we had come up with this awesome product, but
you know, the people wanted more, so we gave them more.
Speaker 1 (14:19):
How much has the Trump trade factored into what these enplosive.
Speaker 4 (14:22):
Books likes you think, you know, I think it's like
anything else.
Speaker 5 (14:26):
I always find this conversation so interesting, you know, when
it comes to like what's the what's the playbook for
the election, because like usually nothing happens for for if
you if you look like a six months to a
year out in the stock market, it kind of like
reverts to the mean after whatever reaction is there for
a couple of days, and then maybe as policies start
changing and things like that, you see, you know, you
see things happen over years. But there's certainly this this
(14:51):
thought that you know, Trump is obviously like Republican government
will be you know, less focused on regulations and things
like this. Maybe there's the there's more room for crypto
to grow and there's more leniency to have crypto you know,
invested upon different platforms and things like this. So and
the fact that he went to the crypto conference and
said I love crypto quinn, I think that's going to
(15:11):
help micro strategy. I think that's going to help bitcoin.
Speaker 3 (15:14):
When you think about where the year began, or even
let's go back even slightly longer. I mean, Eric mentioned
Sam Bakeman freed and the FTX thing. Yes, to be
where we are now and see the you know, the
crypto rally be where it's at. When did you think
you might, you know, looking ahead here there might be
(15:35):
something more that the world needed that could be a
micro strategy x ETF.
Speaker 5 (15:41):
I mean right then, you know, Eric said it like
the minute that those ETFs came out, all of a sudden,
there was there was this massive loss of just trust
right in crypto from retail investors and then for sure
institutional types of players that have you know, rigorous due
diligence and they probably had to get they're probably told
like get out of this now, right, But I think
you know, he made the point like as soon as
(16:02):
it became like democratized and it became launched by companies
that people trust, Fidelity, black Rock, we just knew and
right away we were like filing for things and trying
to find ways to get exposure to crypto and this
was you know a great idea that we landed on here.
Speaker 1 (16:16):
But does it matter that it's still not clear what
it's really for?
Speaker 5 (16:20):
So you know, we get this question a lot, like
sometimes we'll talk so much about the rise of crypto
and then somebody will say, hey, what is it?
Speaker 4 (16:28):
What do we do with it?
Speaker 2 (16:28):
Again?
Speaker 5 (16:29):
You know, why why is it here? And I think
it goes back to, you know, like there are two things.
One you can be and you can be an investor
because you believe in the utility of it. You believe
that it will be used in some way, whether it's
for trade, whether it's you know, digital gold, whether it's
an inflation hedge, whether it's because it's good to have
this decentralized asset away from central banks. And those are
(16:52):
you know, kind of like good reasons that people buy
into why they should hold trade by crypto. And then
there are other people that will just, you know, kind
of flat out tell us, I still have no idea
if any of that will actually come to fruition, but
I see that this is an asset class with a
high level of momentum and volatility, and so I trade
it for the technical reason. And you know, even like
(17:14):
the largest institutional clients will tell us like, my five percent,
you know, and you guys talk about this stuff a
lot too, right, five percent of your portfolio is to
have some fun talitate to an asset class that might
not be along your map and take a gamble at it.
Speaker 2 (17:30):
Yeah, no, the bitcoin is what is it for? I
went through a lot of this, you know, as a
tourist in that world. But I think also one thing
that opened my eyes was like in other countries, especially
the emerging markets, like the governments have just annihilated their
currencies like they're worth nothing. The US does that to
a degree, but it's not as pressing of a need here.
(17:53):
I just think over time, it's something that the government
cannot mess with because it is truly decentralized, and people
like to have a little of something that they can't
you know, mess with, you know, because obviously printing money
is a very easy way to solve problems, and so
I get that. I also think that it's sixteen years old, right,
The white paper was sixteen years ago, written by Satoshi,
(18:16):
and so I do call crypt bitcoin gold as a teenager,
you know, where they used to make those movies like
Young Einstein and stuff like that. This is like young gold.
So it's sixteen years old. You know, it's got attitude,
it's stealing the car, it's very volatile. So I just
think it's kind of the best of both worlds. You've
got this store of value. But you've got something that's
(18:38):
hot saucy in whereas gold is very boring. It can
go up, but it does. It's not a volatile which
is a plus for some people, but in this case,
I just think the hot sauce volatility is a feature,
not a bug in this case. Speaking of that, one
thing you guys have on mst X and MSTU, which
is tuttles is options. So think about this roll. You
(19:02):
can't get options on spot bitcoin ETFs. We do think
they'll be approved in the next couple of months, but
right now you can't do it. But you can get
options on what is effectively for x bitcoin, which just
shows you how sometimes regulation isn't as logical as you'd
like it to be. I mean, if you add the
volume of you two together, you trade like as much
as Netflix every day. I mean, this is clearly there
(19:23):
is a market to trade in this stuff, and I
wondered if you want to talk a little bit about how,
like who uses the options, what that's for, and how
that market has grown.
Speaker 5 (19:34):
Also, Yeah, sure, And another great point to just add
to what you said about, you know, kind of like
the teenager and gold, is that the two are also
in scarcity, right, there's a limited quality, limited quantity in
the world of both you know gold and crypto, which
is you know, digital gold, and I think that's why
(19:54):
they sometimes get married together. But so in terms of
the options, I think, you know, we have investors using
them for many many reasons, Like first it's to you know,
hedge their crypto exposure, whether it's Bitcoin exposure, whether it's
micro strategy exposure, whether it's exposure to our actual ETF.
Other times it's finding ways to get more leverage on
(20:15):
the leverage GTFU, and other times it's to actually you know,
get exposure to an underlying you know, crypto index. And
so the options growth has been massive. I actually have
never seen I don't think and this is like, you know,
coming from a past where I covered like nugget and
dust and like highly voltaile ETFs, I don't think I've
(20:37):
ever seen options lists so quickly on an ETF in
my career. And that doesn't mean that that's right, but
they happened incredibly quickly. They came out incredibly quickly, whether
it was like the weeklies, the monthlies, and you know,
so I think it's just another tool that allows you know,
traders to kind of manage this exposure. But I feel
like the options are used mostly by and I could
(20:59):
be wrong about this. I think like it's picking up
with retail, but just seeing the size of trays and
things like that, I think a lot of it is
like market makers too on the options. Yeah.
Speaker 2 (21:11):
No, to me, options are like like a bunch of
new colors to paint with. Like it's it just gives
you more. You can sculpture what you want a little more.
I get it. It's just gives you other dimension to
your investment. So you you definitely get get a little
of that artist there. I know, thank you. I've dabble.
Speaker 1 (21:35):
Yeah, I can tell it's another dimension there.
Speaker 2 (21:39):
Eric, we're gonna have bring your art to work day
that maybe we don't even want to know. Maybe some
things are vets left at home. One thing that me
and my team have debated so is that these were
(22:01):
such both of them were such an instant hit, and
it's weird normally like even the two X Navidia ETF,
which is really popular, it took like a couple months
for it to start to trade over like a million
dollars a day. You guys are in the hundreds of
millions after a week or two, it's weird. And so
we were wondering, is this because these are ghest pepper
(22:22):
like volatility, like they have just pushed the volatility boundary
to another place, or is it just the crypto crowd
loves trading around micro strategy, Like what's the bigger attraction
the heightened volatility? Again, it's the most volatile ETF in
America or the crypto part. Like, if let's say there
was a stock more volatile the micro strategy and you
(22:45):
two x that, do you think it would be a
hit just the same or is this more of a
as we said at the beginning, a spillover effect from
the popularity of bitcoin.
Speaker 4 (22:55):
I think both.
Speaker 5 (22:56):
So I do think that if you launched a more
volatile stock it would take oft in a similar way
because volatility for leverty like this, especially the secret sauce.
I think for a LEVERTYTF is kind of like a
retail sentiment and volatility of the underlying and a lot
of the ETFs that have that recipe have taken off.
(23:17):
The second thing is I think at first, when single
name leverage ETFs came out, it was kind of like
ho hum, right, we didn't see anything happened for a
little while. Like, I mean, there are a few of
them out there that are so good that still haven't
taken off. And I think that it's a newer concept
for retail investors to look at these single stock ETFs
and get into them. So I think part of it
(23:39):
is like seeing the success of that INNA video one
kind of opened up that marketplace.
Speaker 4 (23:43):
But you know, absolutely, like number one, I think.
Speaker 5 (23:46):
It's because it's crypto related and it's micro strategy, and
as Michael Saylor and number two, I think it's volatility.
At number three, I think it's because people have started
to embrace single name leverage gtfs. Like, think about all
of this time since that first single name ATYTF had
been filed, like nobody really put that much out into
the market, right, and now the filings have picked up
like crazy. I mean, your heart, it's hard to find
(24:08):
a name that doesn't exist. I mean we're always looking
at it and we're like, you know, dang, every ETF
is taken, right, So it's just also grown in popularity
and awareness.
Speaker 4 (24:17):
I think also.
Speaker 1 (24:18):
Helps that market as generally the market.
Speaker 5 (24:21):
Yeah, yeah, yeah, totally risk on Yeah, risk on and
and all that rates coming down.
Speaker 4 (24:25):
I mean that's part of the part of it too.
Speaker 2 (24:28):
Yeah, no, no doubt. This stuff definitely has more you see,
more products and more volume in a bull market.
Speaker 1 (24:36):
Yeah.
Speaker 2 (24:37):
That said, you know, like the triple leveraged cues have
hung around through many downturns. So if you get enough
volume in an ETF, you're pretty much set for life.
I think you guys are both good for a long time.
Some of the other ones I think are going to close.
Speaker 3 (24:53):
What about for UH traders when you when you kind
of have a chance to like see how the products
being you are there things that make you wins or
also that you're like, wow, that was like exactly how
you could have used it?
Speaker 1 (25:08):
Right.
Speaker 3 (25:08):
I'm curious when you when you have a chance to
see that, what's your assessment then?
Speaker 4 (25:13):
So if you asked me.
Speaker 5 (25:14):
This question, and like, like I kind of got into
this business in two thousand and eight, into the leven
number CTF business. So if you had asked me this
question like twenty eleven, twenty twelve, it would be it
would be a WinCE for sure. I think that you know,
the education at that point was pretty nascent. There were
investors coming into the products that didn't understand how to
(25:34):
trade them.
Speaker 4 (25:35):
I mean, now I feel like everyone gets it.
Speaker 5 (25:38):
Like the lever numbers, CTF providers have done such an
awesome job putting the education out there. The platforms have
the hey trade at your own risk, you know. So
the biggest thing is, like, do people understand that they
have to make a decision both on the direction of
the market and the direction of volatility, right because range
bound volatility is terrible for these things. Right, So when
you have range brown vall you want to be a
day trader. When you have a trend, trend is your friend.
(26:00):
You can hold it for a little bit longer. But
like every day understand that, yes, compounding is working in
your favor.
Speaker 4 (26:06):
But you're you know, kind.
Speaker 5 (26:07):
Of now have have more you know, apples in the
barrel than you did the day before. So I think
that I'm kind of like comfortable now with with you know,
kind of believing that the education is out there and
people know how to use the products, and we don't
promote them, and you know, we don't promote them as
like long term investments. No levern you know, like tunnel
(26:27):
doesn't do a direction, doesn't do appro Chares doesn't do it,
and so I think, like the education's out there. And
by the way, there's like this is so interesting because
around the time of the derivative's role, we.
Speaker 4 (26:36):
Did so much work to.
Speaker 5 (26:39):
You know, kind of like provide input on what we
thought levern Niversity tfs were and like the risk level
and things like that.
Speaker 4 (26:45):
I mean, there's way.
Speaker 5 (26:46):
More leverage and other things and other like even like
like fixed income products and futures and things like this
than there are in you know, levern Nuniversity tfs. And
also you know, they don't take up that much of
the daily trading. Like at the open the clothes people
thought that the rebalance must be you know, half of
the day's volume. It was like two percent. It was
not even two percent. It was like between one and
(27:07):
two percent. And so I think a lot of that
is now out there, and I'm kind of like less
surprised now people using them.
Speaker 3 (27:14):
All Right, Sylvia, how many products ETFs have you brought
into existence? And where would you rank this one when
you step back and think about your your trophies, your
hall of trophies.
Speaker 5 (27:27):
Yeah, I mean it's hard to say, Like I'm not
one to like take credit for for the ETFs that
our firms have launched, because there's so much like whether
it's a direction or defiance, Like there's so much back
and forth, you know, amongst like a million people who
work at the company, I would say we've had like
a defiance. We've had a sixty percent hit rate in
(27:48):
terms of you know, ETFs that become profitable, the ones
that you know some of them, some of the ETFs
we have are you know having you know, they're in
the ETF graveyard because they weren't profitable and people and
trade them. But I mean, this is this is definitely
our number one. This is definitely our number one.
Speaker 2 (28:05):
One. Other interesting thing about this, so we have two
X micro strategy here, but before these existed, believe it
or not, they had three X micro strategy in Europe. Yeah,
Europe's kind of weird, like they they're just I don't know,
the rules are just really relaxed for anything outside that
usid's program. So anyway, they have a lot of crazy
stuff over there, but nobody cares. Nobody's sure eight Ethnosi
(28:29):
it's and I always talk about how it's just the
wrong market you launch something like that over here. Man,
Look out right, So there's there's like a five.
Speaker 1 (28:37):
X q's in Europe.
Speaker 2 (28:39):
Have you looked at Europe for like ideas or I
just puts your take on like how the US culture
is just so much the appetite so much bigger for
this than in Europe where they have this and then some.
Speaker 5 (28:53):
Yeah, it's so interesting because I've you know again, I've
been like in lever number CTF for a long time now,
and I've traveled around the world, you know, whether it's
marketing products, are trying to get them listed on foreign
exchanges and things like this, and I can tell you
that like Asia ETF lovers all around Asia, you know,
you had like like Mexico loves leverage in Europe. Like
(29:16):
I mean, I've been part of this too, listing leverage ETFs.
Speaker 4 (29:19):
On the exchange there, on exchanges there.
Speaker 5 (29:22):
None of them ever took off and they were they were,
you know, two three four billion dollars ETFs in the
US and when we listed them overseas, nothing happened. So
you know, I don't know, it's it's interesting to me,
but we like it's funny because when we were gonna
launch mycrostrategy, we kind of looked at that and we
were like, well that's there, and it's it's like this
thing could could this thing flop because nobody's even touched
(29:43):
that thing. And yeah, it's just I just think that
there's a different level of risk appetite. There's a different
you know. I think that the mindset there is a
little bit different. It's kind of like say for retirement
forever here it's do that. But also you know, also
like retail loves training and day train and we have
like a big, you know, social media culture now around trading.
(30:04):
So I just think that they're I don't want to
say behind, but you know, the popularity has has fallen
behind the US and Asia for sure.
Speaker 1 (30:15):
Joel.
Speaker 2 (30:15):
I was actually in Europe recently and I have my
Hot Sauce PowerPoint slide which has like literally these Tabasco
containers with different Hot sauces in there. And when I
got to that section, I could tell like they just
they weren't. I could just feel they're like, I don't
really get a lot of this, And I said, this
(30:36):
is sort of like sports gambling, And I said, you
guys have gambling on your phones, you know. They just
like it's just a different culture there. You're right, Asia
though they love this stuff. In fact, they might even
be more into this than we are in certain Asian countries.
So it's just interesting sort of insight there into what
works in different countries. But I think it's interesting, like
(30:57):
if you launched a three x micro strategy here, I mean,
it would probably be a bigger hit than the two x.
Speaker 4 (31:03):
Oh we would have if we could, but derivatives rule.
Speaker 2 (31:08):
Could you launch an ETN that's three x, because like
reck Shares has a couple three x energy etns.
Speaker 5 (31:14):
Yeah, you know you could, But we've just found that,
like if you look at the assets and the levered ETFs,
they're just so much higher than they are in the etns,
and people worry about, you know, the counterparty risk, and
with this particular it's you know, it's hard to get
challenging to get swap exposure on very volatile underlying assets
and then so to get a bank to give you
a note on something you know as ghost peppery as
(31:37):
this is just challenging.
Speaker 4 (31:40):
So I just don't know that.
Speaker 5 (31:41):
You know, it would it would be like for that reason,
I think people would be worried about the risk of
the counterparty. We might not even find a counterparty, and
you know, the ETF is just a better vehicle for
this stuff.
Speaker 3 (31:51):
What other ghost peppers are you thinking about growing in
your garden.
Speaker 5 (31:56):
I can't tell you what we're doing just because it's
not public yet. But in the next two weeks yeah,
no for sure, but in the next two weeks where
you'll see some filings from Defiance and one of them
is inspired by mister Eric Valchunis himself. And I've been
like dying to tell what it is, but I can't because.
Speaker 4 (32:14):
It's not file.
Speaker 5 (32:15):
Yeah, but but keep an eye out because I think
it'll be it'll blow your mind.
Speaker 2 (32:21):
What it is. How do I talk about it doesn't exist?
Speaker 1 (32:26):
I don't know.
Speaker 4 (32:26):
You'll get it.
Speaker 5 (32:27):
As soon as you see the filing you'll be like,
that's it. That's the one, the one that's mine.
Speaker 1 (32:32):
I'll ask him. Sylvia Jablonski thanks for joining us on Trillions.
Speaker 4 (32:35):
Again, Thank you for having me, Thanks.
Speaker 3 (32:43):
For listening to Trillions until next time. You can find
us on the Bloomberg terminal, Bloomberg dot com, Apple Podcasts, Spotify,
or wherever else you'd like to listen. We'd love to
hear from you. We're on Twitter I'm at Joel Webber Show.
He's at Eric Baltunas. This episode of Trillions was produced
by Magnus and Rickson.
Speaker 1 (33:04):
Bye
Welcome to trillions.
Speaker 2 (00:06):
I'm Joel Webber and I'm Eric Balchunas.
Speaker 3 (00:13):
Eric, lots of things happening in the world. You and
I were talking about things that have happened this year
that have been significant, though, and there's been, you know,
for the most part, not that much volatility. But you
want to one thing that has been really interesting since
the beginning of the year, how bitcoin has just been
on a tear. How much do you think ETFs have
(00:34):
had to do with that?
Speaker 2 (00:36):
Certainly, Look, I've i get booed at on Twitter when
I tell the bitcoin people that bitcoin would be trading
at thirty thousand dollars if warn't for the ETFs. So
right now bitcoin's around seventy thousand, and they don't like
to hear that. But I'm telling you, when black Rock
filed for the ETF last June, it was like basically
(00:59):
a year ago. It went up eighty percent on the anticipation.
Then when it launched there was a little pullback, but
it ripped further. So I think it's up something like
forty percent since then, so it's eighty plus forty. A
lot of the forty percent was based on how the
ets were taking in money, and this past couple of weeks,
it's been crazy. Like this whole area is to quote
(01:20):
the Paul Abdul song two steps forward, one steps back,
which I don't know if you guy, it's a deep
cut from like.
Speaker 1 (01:28):
The eighties right there. I know that I know the cut.
What does it mean here? I'm gonna I want to
hear you great question.
Speaker 2 (01:42):
Ye I forgot I went too far off the highway.
I don't know where I am.
Speaker 1 (01:46):
Yeah. No, so.
Speaker 2 (01:50):
That is really funny. That's naturally funny. I get what
you're saying. Hold on, okay, now I'm gonna answer that question.
Speaker 1 (01:55):
Yeah.
Speaker 2 (01:55):
So what I mean is like there's like two or
three weeks of like intense flow, and then there's a
little pullback. Then there's like a week or two where
there's some outflows. Then there's like two or three weeks
or a month of inflows, and so it's two steps forward,
one step back this whole time. But you are netting
twenty four billion in new net money, even beyond the
GBTC outflows. So twenty four billion, just to put that
(02:17):
into context. James and I safered on my team, we
thought these would get ten to fifteen billion in their
first year, so they're already nine billion beyond our upper band.
So I think that what happened here was just that
there was a lot of investors out there who were afraid,
even if they were casually interested, they were afraid because
(02:40):
of the FTX downfall. Who can you give your money
to in order to get this exposure. Well, long comes
black Rock and Fidelity, and it's like, oh, I know
these I can use all their products. I completely trust them.
So the ETFs brought trust and that was totally missing.
Not only that you got low fees and high liquidity,
So this is like major So it's not just that
(03:00):
there was a little rally. I just think this is
a a really powerful vehicle that a lot of people
just trust and like to use for this exposure. So
I'm not surprised as successful, but it's a little beyond
what I thought. And so there's been all these interesting
products now coming out that are ancillary. They aren't spot bitcoin,
but they do something similar and those are hits too.
(03:22):
So there's a bit of a feeding frenzy for anything
that's sort of Bitcoin related, and that's.
Speaker 3 (03:26):
What we're going to talk about today because that ancillary
products sure there's bitcoin, but there's also things like micro strategy,
and there's been multiple entrants and you when the first
one came out, you call it, Bloomberg Intelligence called it
most Volatile ETF.
Speaker 1 (03:47):
How come and how does micro strategy fit into all
of this?
Speaker 2 (03:50):
Yeah, you know, we've used the phrase hot sauce plenty
of times on this show. This is like a ghost pepper.
This is the ghost pepper of the hot sauce bucket.
Speaker 1 (04:00):
Okay, this is.
Speaker 2 (04:01):
Where you invest in it and you film yourself on
YouTube seeing how you react to It's very VOLTAIGJOL. So
to give you some numbers, we're talking like one hundred
and seventy one hundred and eighty percent volatility. To put
that into context, the S ANDP is like ten to
eleven percent, so it's like sixteen times the volatility of
the SMP. But there is definitely people who are hungry
(04:25):
to trade, and so this pushes the envelope on volatility.
But at the same time, it's not just some random stock.
It's a stock that a lot of the crypto world
really enjoys trading. And so if you think about it,
this was actually a clever way to make a four
x bitcoin ETF because MicroStrategy is two times the volatility
(04:47):
a bitcoin and highly correlated, and these are two x MicroStrategy,
so you're looking at a four x bitcoin ETF, which
is again a powerful concept because there's not just people
using this product. People like leverage bitcoin trading all over
the world. It's very popular. There's all kinds of derivatives
being used. So this again the ETF industry is famous
(05:09):
for democratizing stuff that might be happening elsewhere. So here
you have again a democratization of a very leverage trade
on bitcoin, which is popular elsewhere. So I'm not totally
shocked that's popular here. But these two products were instant
hits to the point where they're both around the top
one two percent in terms of all ETFs in volume.
(05:32):
I mean, so in other words, they launch and they're
instantly in the top one two percent most traded. That's crazy.
Speaker 3 (05:37):
All right, We're gonna speak with Sylvia Jablonski, who's the
CEO and CIO at Defiance ETF's particular mst X, which
launched in August this time on trillions.
Speaker 1 (05:54):
Do you want volatility?
Speaker 3 (05:55):
We got some volatility, Sylvia. Welcome back to trillions because
you have. As you reminded us, you have been here before.
Speaker 4 (06:04):
I have, and thank you for having me again.
Speaker 3 (06:06):
Great to have you back and in a new capacity
because I think last time you were not at Defince,
you were at Directions, and that was a number of
years ago. So welcome back to the podcast. Eric called
your product ghost pepper. How do you feel about that?
Speaker 4 (06:23):
I feel good about that.
Speaker 5 (06:24):
I actually which may be surprising to some, but I
actually think that that's an accurate description, right, and and
it could be you know, the range of descriptions for
Levered u versytfs in general, right, you have some that
are that are kind of like mildly spicy, and then
they go all the way off to ghost pepper. And
I would say that we're on the ghost pepper side.
So it's it is sort of the perfect recipe though
for a LEVERTYTF product. You have this high level of volatility,
(06:47):
as Eric mentioned, and you know a lot of a
lot of interest due to the underlying sector being crypto related,
and you know, low and behold it. It really did
take off. The good thing though, is that it's kind
of being used the way it's supposed to do. You
kind of see that volume in that turnover being quick,
you know, a day less than a day things like this,
and so in that sense, it's kind of okay that
(07:08):
it's ghost Pepper.
Speaker 3 (07:09):
Yeah, so when did you get the idea to be like,
you know, what we need is to effectively do what
Eric said, we need to go four x bitcoint Where
did you first identify that that would be a thing
that you would want to do.
Speaker 5 (07:22):
So this might be super interesting too, but the initial
name of our company, like when you look at the
founding documents, it was Crypto Beta LLC. And when we
were at you know, Direction working with Levered n versus
ETF products, the chairman and original founder Matt Belski was
talking about, you know how he was going to go
leave and start a crypto company basically, and it was
(07:45):
you know, sort of just way too soon. That was
that was a period of time where crypto was just
you know, taking off, but there was no sense that
you could put it in an ETF. You could put
it in like a democratized ropper that you know, a
black Rock was going to be launching a product on it.
You just couldn't get it out basically, right. And so
you know, for years we've tried to get into the
(08:06):
crypto game, but it was oftentimes that you know, we
were either too late or not the first mover when
it came to a bitcoin ETF or a levered bitcoin ETF.
And we knew that we couldn't compete with the likes
of a massive institution like black Rock, and so we
just started looking and thinking to ourselves, like, okay, what's
so bitcoin did really well, they're levered inmverse ETFs, there
(08:27):
are single stock ETFs.
Speaker 4 (08:28):
Where can we play? What else is crypto related?
Speaker 5 (08:31):
And we started looking at the performance of just the
micro strategy stock as compared to bitcoin and bitcoin ETFs.
And you know, throughout history we call it like four
x leverage, right, but throughout history it's been like six
times the performance of crypto in in trending markets or
three times kind of depending on you know, when you
run that comp and we saw the stock, we were like, okay,
the stock is up three hundred percent, right, and it's
(08:54):
it's a crypto company. It's it's democratized crypto built into
an equity, and so we thought, get this to market
levered up best crypto play.
Speaker 3 (09:03):
Ever, let's break that down just a little bit though,
in case somebody's not familiar with micro Strategy or it's
business model. I don't know if it has a business
model so much as it is just a vehicle for
bitcoin at this point, right, can you explain that?
Speaker 5 (09:14):
Yeah, so micro Strategy was kind of historically this this
software company, right, and you can argue that they play
an AI which I do think, you know, kind of
helps they have that.
Speaker 4 (09:22):
Overall AI theme.
Speaker 5 (09:24):
But Michael Salor's goal was always to kind of scoop
up as much bitcoins as humanly possible. And we just
heard them announce that, you know, over the next three
years you're going to be raising another forty two billion,
which is, you know, I think more than they actually
have in total right now of bitcoin. And so what
they try to do is create this this access point
for investors to buy their stock and have more crypto
(09:45):
exposure than they could ever get on their own, right, Like,
can you imagine having you know, forty two billion of
exposure to bitcoin? You can't do that on your own, right.
And and the fact that it's a stock, the fact
that it's you know, traded in the marketplace, it has liquidity,
it has transparency, you can get in and out of
it whenever you want. You know, people started buying it
to have exposure to bitcoin, and you know, then we
(10:09):
also noticed that people started trading it in and out
short term, and so we thought there would be appetite
to put leverage on it. And that's you know, kind
of how the ETF was born.
Speaker 2 (10:17):
Now, one thing interesting about this, and you know, we
call it the hot sauce arms race because there is
a lot of competition out there for this area. One
well one reason is, you know, they charge a little
more in the fees here and you just need one hit.
You know, we had Will Rindon Joel you know his
two X Navidia ETF. Guess how much money that makes
(10:40):
a year. I'll tell you sixty million dollars. You can
see the magnet to do this as opposed to like
trying to go into the core and complete against compete
against black Rock and Vanguard. So I totally get it.
Like and there's a you know, definitely a market for this.
So when you guys came out, you were one point
five X and then tuttle and then you launched that
(11:03):
one point seventy five X, which again is still pretty volatile,
given how volatile micro strategy is. But then Tuttle filed
for two X Matt Tuttle and t Rex and then
you guys launched. You get all this money really quickly,
all this volume. He launches, and I'm like, rarely, if
you're like four weeks late on a hit product, it's over,
(11:24):
Like you cannot it's the chip has failed. It's very difficult.
But he launched and kind of tied you. You both
got an equal amount of assets and volume, and then
you filed and now you're two X. I guess what
all took shape there? And is point two five x
extra volatility really that much of a deal breaker?
Speaker 5 (11:46):
I mean, so there's a little more to this story.
So actually we we had originally filed for two X, right,
And there are different rules that you have to meet
in order to launch an ETF at a specific leverage point.
We call that basically called a var test, and it's
kind of you know this this inside baseball stuff where
you know, you have to kind of like prove what
(12:07):
the value at risk is with the basket and the
index that you're comparing yourself to is and things like this,
and so there were you know, there are periods of
time before we launched where we wouldn't have passed the
bar test based on the index that we had been
using to you know, submit for var and so we filed.
We were approved at one point seventy five, but we
(12:27):
were right there with two beta, right, and then we
kind of thought to ourselves, like, let's get this product
out because this is hot sauce and people are going
to want this and trade this, and you know, and
as soon as we got it out, our clients and
traders started saying, you know, we want two X, we
want two X. And at that point the rex filing
was out there, right, we assumed that they were going
to launch the ETF, And before they launched the ETF,
(12:51):
we actually filed to update the leverage point to to beta.
But you know that takes sixty days, right, so their
launch came before our left change. And so I think
it was this interesting race, right because we knew we
had to get out because we also knew that the
two X wouldn't come into effect, you know, before they launched.
So we had the one point seven out, we gathered
(13:12):
all the assets. They came out with two and basically
everything our clients said was true that people prefer the
higher leverage point, and then you saw our inflows slow
down a little bit. You saw them kind of take over.
And now we've changed to two X and over the
last couple of days we're getting a little bit more
in terms of inflows than they are. So, you know,
long story short, I think the two beta mattered and
(13:34):
we're like, you know, sometimes we get praised for it
and sometimes we get criticized for it, but we're very
nimble as an ETF provider, like we don't take our
you know, we actually had the ticker I bit and
it was a short block ETF and it was out
around the time that you know FTX collapse, and you know,
all of this stuff happened. That ETF was up thirty
percent every other day and nobody traded it, right, and
(13:57):
we kind of knew, like, Okay, the market doesn't market
doesn't want this, and we moved on from it. You know,
Blackrock has that to Kurnah went a little better for them.
But you know what I would say is we knew that,
like we had come up with this awesome product, but
you know, the people wanted more, so we gave them more.
Speaker 1 (14:19):
How much has the Trump trade factored into what these enplosive.
Speaker 4 (14:22):
Books likes you think, you know, I think it's like
anything else.
Speaker 5 (14:26):
I always find this conversation so interesting, you know, when
it comes to like what's the what's the playbook for
the election, because like usually nothing happens for for if
you if you look like a six months to a
year out in the stock market, it kind of like
reverts to the mean after whatever reaction is there for
a couple of days, and then maybe as policies start
changing and things like that, you see, you know, you
see things happen over years. But there's certainly this this
(14:51):
thought that you know, Trump is obviously like Republican government
will be you know, less focused on regulations and things
like this. Maybe there's the there's more room for crypto
to grow and there's more leniency to have crypto you know,
invested upon different platforms and things like this. So and
the fact that he went to the crypto conference and
said I love crypto quinn, I think that's going to
(15:11):
help micro strategy. I think that's going to help bitcoin.
Speaker 3 (15:14):
When you think about where the year began, or even
let's go back even slightly longer. I mean, Eric mentioned
Sam Bakeman freed and the FTX thing. Yes, to be
where we are now and see the you know, the
crypto rally be where it's at. When did you think
you might, you know, looking ahead here there might be
(15:35):
something more that the world needed that could be a
micro strategy x ETF.
Speaker 5 (15:41):
I mean right then, you know, Eric said it like
the minute that those ETFs came out, all of a sudden,
there was there was this massive loss of just trust
right in crypto from retail investors and then for sure
institutional types of players that have you know, rigorous due
diligence and they probably had to get they're probably told
like get out of this now, right, But I think
you know, he made the point like as soon as
(16:02):
it became like democratized and it became launched by companies
that people trust, Fidelity, black Rock, we just knew and
right away we were like filing for things and trying
to find ways to get exposure to crypto and this
was you know a great idea that we landed on here.
Speaker 1 (16:16):
But does it matter that it's still not clear what
it's really for?
Speaker 5 (16:20):
So you know, we get this question a lot, like
sometimes we'll talk so much about the rise of crypto
and then somebody will say, hey, what is it?
Speaker 4 (16:28):
What do we do with it?
Speaker 2 (16:28):
Again?
Speaker 5 (16:29):
You know, why why is it here? And I think
it goes back to, you know, like there are two things.
One you can be and you can be an investor
because you believe in the utility of it. You believe
that it will be used in some way, whether it's
for trade, whether it's you know, digital gold, whether it's
an inflation hedge, whether it's because it's good to have
this decentralized asset away from central banks. And those are
(16:52):
you know, kind of like good reasons that people buy
into why they should hold trade by crypto. And then
there are other people that will just, you know, kind
of flat out tell us, I still have no idea
if any of that will actually come to fruition, but
I see that this is an asset class with a
high level of momentum and volatility, and so I trade
it for the technical reason. And you know, even like
(17:14):
the largest institutional clients will tell us like, my five percent,
you know, and you guys talk about this stuff a
lot too, right, five percent of your portfolio is to
have some fun talitate to an asset class that might
not be along your map and take a gamble at it.
Speaker 2 (17:30):
Yeah, no, the bitcoin is what is it for? I
went through a lot of this, you know, as a
tourist in that world. But I think also one thing
that opened my eyes was like in other countries, especially
the emerging markets, like the governments have just annihilated their
currencies like they're worth nothing. The US does that to
a degree, but it's not as pressing of a need here.
(17:53):
I just think over time, it's something that the government
cannot mess with because it is truly decentralized, and people
like to have a little of something that they can't
you know, mess with, you know, because obviously printing money
is a very easy way to solve problems, and so
I get that. I also think that it's sixteen years old, right,
The white paper was sixteen years ago, written by Satoshi,
(18:16):
and so I do call crypt bitcoin gold as a teenager,
you know, where they used to make those movies like
Young Einstein and stuff like that. This is like young gold.
So it's sixteen years old. You know, it's got attitude,
it's stealing the car, it's very volatile. So I just
think it's kind of the best of both worlds. You've
got this store of value. But you've got something that's
(18:38):
hot saucy in whereas gold is very boring. It can
go up, but it does. It's not a volatile which
is a plus for some people, but in this case,
I just think the hot sauce volatility is a feature,
not a bug in this case. Speaking of that, one
thing you guys have on mst X and MSTU, which
is tuttles is options. So think about this roll. You
(19:02):
can't get options on spot bitcoin ETFs. We do think
they'll be approved in the next couple of months, but
right now you can't do it. But you can get
options on what is effectively for x bitcoin, which just
shows you how sometimes regulation isn't as logical as you'd
like it to be. I mean, if you add the
volume of you two together, you trade like as much
as Netflix every day. I mean, this is clearly there
(19:23):
is a market to trade in this stuff, and I
wondered if you want to talk a little bit about how,
like who uses the options, what that's for, and how
that market has grown.
Speaker 5 (19:34):
Also, Yeah, sure, And another great point to just add
to what you said about, you know, kind of like
the teenager and gold, is that the two are also
in scarcity, right, there's a limited quality, limited quantity in
the world of both you know gold and crypto, which
is you know, digital gold, and I think that's why
(19:54):
they sometimes get married together. But so in terms of
the options, I think, you know, we have investors using
them for many many reasons, Like first it's to you know,
hedge their crypto exposure, whether it's Bitcoin exposure, whether it's
micro strategy exposure, whether it's exposure to our actual ETF.
Other times it's finding ways to get more leverage on
(20:15):
the leverage GTFU, and other times it's to actually you know,
get exposure to an underlying you know, crypto index. And
so the options growth has been massive. I actually have
never seen I don't think and this is like, you know,
coming from a past where I covered like nugget and
dust and like highly voltaile ETFs, I don't think I've
(20:37):
ever seen options lists so quickly on an ETF in
my career. And that doesn't mean that that's right, but
they happened incredibly quickly. They came out incredibly quickly, whether
it was like the weeklies, the monthlies, and you know,
so I think it's just another tool that allows you know,
traders to kind of manage this exposure. But I feel
like the options are used mostly by and I could
(20:59):
be wrong about this. I think like it's picking up
with retail, but just seeing the size of trays and
things like that, I think a lot of it is
like market makers too on the options. Yeah.
Speaker 2 (21:11):
No, to me, options are like like a bunch of
new colors to paint with. Like it's it just gives
you more. You can sculpture what you want a little more.
I get it. It's just gives you other dimension to
your investment. So you you definitely get get a little
of that artist there. I know, thank you. I've dabble.
Speaker 1 (21:35):
Yeah, I can tell it's another dimension there.
Speaker 2 (21:39):
Eric, we're gonna have bring your art to work day
that maybe we don't even want to know. Maybe some
things are vets left at home. One thing that me
and my team have debated so is that these were
(22:01):
such both of them were such an instant hit, and
it's weird normally like even the two X Navidia ETF,
which is really popular, it took like a couple months
for it to start to trade over like a million
dollars a day. You guys are in the hundreds of
millions after a week or two, it's weird. And so
we were wondering, is this because these are ghest pepper
(22:22):
like volatility, like they have just pushed the volatility boundary
to another place, or is it just the crypto crowd
loves trading around micro strategy, Like what's the bigger attraction
the heightened volatility? Again, it's the most volatile ETF in
America or the crypto part. Like, if let's say there
was a stock more volatile the micro strategy and you
(22:45):
two x that, do you think it would be a
hit just the same or is this more of a
as we said at the beginning, a spillover effect from
the popularity of bitcoin.
Speaker 4 (22:55):
I think both.
Speaker 5 (22:56):
So I do think that if you launched a more
volatile stock it would take oft in a similar way
because volatility for leverty like this, especially the secret sauce.
I think for a LEVERTYTF is kind of like a
retail sentiment and volatility of the underlying and a lot
of the ETFs that have that recipe have taken off.
(23:17):
The second thing is I think at first, when single
name leverage ETFs came out, it was kind of like
ho hum, right, we didn't see anything happened for a
little while. Like, I mean, there are a few of
them out there that are so good that still haven't
taken off. And I think that it's a newer concept
for retail investors to look at these single stock ETFs
and get into them. So I think part of it
(23:39):
is like seeing the success of that INNA video one
kind of opened up that marketplace.
Speaker 4 (23:43):
But you know, absolutely, like number one, I think.
Speaker 5 (23:46):
It's because it's crypto related and it's micro strategy, and
as Michael Saylor and number two, I think it's volatility.
At number three, I think it's because people have started
to embrace single name leverage gtfs. Like, think about all
of this time since that first single name ATYTF had
been filed, like nobody really put that much out into
the market, right, and now the filings have picked up
like crazy. I mean, your heart, it's hard to find
(24:08):
a name that doesn't exist. I mean we're always looking
at it and we're like, you know, dang, every ETF
is taken, right, So it's just also grown in popularity
and awareness.
Speaker 4 (24:17):
I think also.
Speaker 1 (24:18):
Helps that market as generally the market.
Speaker 5 (24:21):
Yeah, yeah, yeah, totally risk on Yeah, risk on and
and all that rates coming down.
Speaker 4 (24:25):
I mean that's part of the part of it too.
Speaker 2 (24:28):
Yeah, no, no doubt. This stuff definitely has more you see,
more products and more volume in a bull market.
Speaker 1 (24:36):
Yeah.
Speaker 2 (24:37):
That said, you know, like the triple leveraged cues have
hung around through many downturns. So if you get enough
volume in an ETF, you're pretty much set for life.
I think you guys are both good for a long time.
Some of the other ones I think are going to close.
Speaker 3 (24:53):
What about for UH traders when you when you kind
of have a chance to like see how the products
being you are there things that make you wins or
also that you're like, wow, that was like exactly how
you could have used it?
Speaker 1 (25:08):
Right.
Speaker 3 (25:08):
I'm curious when you when you have a chance to
see that, what's your assessment then?
Speaker 4 (25:13):
So if you asked me.
Speaker 5 (25:14):
This question, and like, like I kind of got into
this business in two thousand and eight, into the leven
number CTF business. So if you had asked me this
question like twenty eleven, twenty twelve, it would be it
would be a WinCE for sure. I think that you know,
the education at that point was pretty nascent. There were
investors coming into the products that didn't understand how to
(25:34):
trade them.
Speaker 4 (25:35):
I mean, now I feel like everyone gets it.
Speaker 5 (25:38):
Like the lever numbers, CTF providers have done such an
awesome job putting the education out there. The platforms have
the hey trade at your own risk, you know. So
the biggest thing is, like, do people understand that they
have to make a decision both on the direction of
the market and the direction of volatility, right because range
bound volatility is terrible for these things. Right, So when
you have range brown vall you want to be a
day trader. When you have a trend, trend is your friend.
(26:00):
You can hold it for a little bit longer. But
like every day understand that, yes, compounding is working in
your favor.
Speaker 4 (26:06):
But you're you know, kind.
Speaker 5 (26:07):
Of now have have more you know, apples in the
barrel than you did the day before. So I think
that I'm kind of like comfortable now with with you know,
kind of believing that the education is out there and
people know how to use the products, and we don't
promote them, and you know, we don't promote them as
like long term investments. No levern you know, like tunnel
(26:27):
doesn't do a direction, doesn't do appro Chares doesn't do it,
and so I think, like the education's out there. And
by the way, there's like this is so interesting because
around the time of the derivative's role, we.
Speaker 4 (26:36):
Did so much work to.
Speaker 5 (26:39):
You know, kind of like provide input on what we
thought levern Niversity tfs were and like the risk level
and things like that.
Speaker 4 (26:45):
I mean, there's way.
Speaker 5 (26:46):
More leverage and other things and other like even like
like fixed income products and futures and things like this
than there are in you know, levern Nuniversity tfs. And
also you know, they don't take up that much of
the daily trading. Like at the open the clothes people
thought that the rebalance must be you know, half of
the day's volume. It was like two percent. It was
not even two percent. It was like between one and
(27:07):
two percent. And so I think a lot of that
is now out there, and I'm kind of like less
surprised now people using them.
Speaker 3 (27:14):
All Right, Sylvia, how many products ETFs have you brought
into existence? And where would you rank this one when
you step back and think about your your trophies, your
hall of trophies.
Speaker 5 (27:27):
Yeah, I mean it's hard to say, Like I'm not
one to like take credit for for the ETFs that
our firms have launched, because there's so much like whether
it's a direction or defiance, Like there's so much back
and forth, you know, amongst like a million people who
work at the company, I would say we've had like
a defiance. We've had a sixty percent hit rate in
(27:48):
terms of you know, ETFs that become profitable, the ones
that you know some of them, some of the ETFs
we have are you know having you know, they're in
the ETF graveyard because they weren't profitable and people and
trade them. But I mean, this is this is definitely
our number one. This is definitely our number one.
Speaker 2 (28:05):
One. Other interesting thing about this, so we have two
X micro strategy here, but before these existed, believe it
or not, they had three X micro strategy in Europe. Yeah,
Europe's kind of weird, like they they're just I don't know,
the rules are just really relaxed for anything outside that
usid's program. So anyway, they have a lot of crazy
stuff over there, but nobody cares. Nobody's sure eight Ethnosi
(28:29):
it's and I always talk about how it's just the
wrong market you launch something like that over here. Man,
Look out right, So there's there's like a five.
Speaker 1 (28:37):
X q's in Europe.
Speaker 2 (28:39):
Have you looked at Europe for like ideas or I
just puts your take on like how the US culture
is just so much the appetite so much bigger for
this than in Europe where they have this and then some.
Speaker 5 (28:53):
Yeah, it's so interesting because I've you know again, I've
been like in lever number CTF for a long time now,
and I've traveled around the world, you know, whether it's
marketing products, are trying to get them listed on foreign
exchanges and things like this, and I can tell you
that like Asia ETF lovers all around Asia, you know,
you had like like Mexico loves leverage in Europe. Like
(29:16):
I mean, I've been part of this too, listing leverage ETFs.
Speaker 4 (29:19):
On the exchange there, on exchanges there.
Speaker 5 (29:22):
None of them ever took off and they were they were,
you know, two three four billion dollars ETFs in the
US and when we listed them overseas, nothing happened. So
you know, I don't know, it's it's interesting to me,
but we like it's funny because when we were gonna
launch mycrostrategy, we kind of looked at that and we
were like, well that's there, and it's it's like this
thing could could this thing flop because nobody's even touched
(29:43):
that thing. And yeah, it's just I just think that
there's a different level of risk appetite. There's a different
you know. I think that the mindset there is a
little bit different. It's kind of like say for retirement
forever here it's do that. But also you know, also
like retail loves training and day train and we have
like a big, you know, social media culture now around trading.
(30:04):
So I just think that they're I don't want to
say behind, but you know, the popularity has has fallen
behind the US and Asia for sure.
Speaker 1 (30:15):
Joel.
Speaker 2 (30:15):
I was actually in Europe recently and I have my
Hot Sauce PowerPoint slide which has like literally these Tabasco
containers with different Hot sauces in there. And when I
got to that section, I could tell like they just
they weren't. I could just feel they're like, I don't
really get a lot of this, And I said, this
(30:36):
is sort of like sports gambling, And I said, you
guys have gambling on your phones, you know. They just
like it's just a different culture there. You're right, Asia
though they love this stuff. In fact, they might even
be more into this than we are in certain Asian countries.
So it's just interesting sort of insight there into what
works in different countries. But I think it's interesting, like
(30:57):
if you launched a three x micro strategy here, I mean,
it would probably be a bigger hit than the two x.
Speaker 4 (31:03):
Oh we would have if we could, but derivatives rule.
Speaker 2 (31:08):
Could you launch an ETN that's three x, because like
reck Shares has a couple three x energy etns.
Speaker 5 (31:14):
Yeah, you know you could, But we've just found that,
like if you look at the assets and the levered ETFs,
they're just so much higher than they are in the etns,
and people worry about, you know, the counterparty risk, and
with this particular it's you know, it's hard to get
challenging to get swap exposure on very volatile underlying assets
and then so to get a bank to give you
a note on something you know as ghost peppery as
(31:37):
this is just challenging.
Speaker 4 (31:40):
So I just don't know that.
Speaker 5 (31:41):
You know, it would it would be like for that reason,
I think people would be worried about the risk of
the counterparty. We might not even find a counterparty, and
you know, the ETF is just a better vehicle for
this stuff.
Speaker 3 (31:51):
What other ghost peppers are you thinking about growing in
your garden.
Speaker 5 (31:56):
I can't tell you what we're doing just because it's
not public yet. But in the next two weeks yeah,
no for sure, but in the next two weeks where
you'll see some filings from Defiance and one of them
is inspired by mister Eric Valchunis himself. And I've been
like dying to tell what it is, but I can't because.
Speaker 4 (32:14):
It's not file.
Speaker 5 (32:15):
Yeah, but but keep an eye out because I think
it'll be it'll blow your mind.
Speaker 2 (32:21):
What it is. How do I talk about it doesn't exist?
Speaker 1 (32:26):
I don't know.
Speaker 4 (32:26):
You'll get it.
Speaker 5 (32:27):
As soon as you see the filing you'll be like,
that's it. That's the one, the one that's mine.
Speaker 1 (32:32):
I'll ask him. Sylvia Jablonski thanks for joining us on Trillions.
Speaker 4 (32:35):
Again, Thank you for having me, Thanks.
Speaker 3 (32:43):
For listening to Trillions until next time. You can find
us on the Bloomberg terminal, Bloomberg dot com, Apple Podcasts, Spotify,
or wherever else you'd like to listen. We'd love to
hear from you. We're on Twitter I'm at Joel Webber Show.
He's at Eric Baltunas. This episode of Trillions was produced
by Magnus and Rickson.
Speaker 1 (33:04):
Bye
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