Organization & Compilation: Deep Tide TechFlow

Guest: Jay Jacobs (Head of U.S. Equity ETF Business at BlackRock)

Host: Anthony Pompliano (The Pomp Podcast)

Podcast Source: Anthony Pompliano (YouTube)

Broadcast Date: 2026-09-17

Duration: 50 minutes

Disclosure: The guest is the head of BlackRock's ETF business, and all products mentioned, including IBIT, ETHA, ETHB, BIDA, BAI, PWR, IDGT, ICOP, are managed by him, representing an insider's perspective on product promotion, so take it with a grain of salt. The host's program includes sponsorship segments for Lava Credit Card, Token 2049, and Simple Mining, which are unrelated to the main text and have been omitted during translation.

Key Summary

In this episode, the head of BlackRock discusses the Bitcoin ETF business, providing four useful pieces of information for readers.

First, he acknowledges that Bitcoin's volatility has compressed from about 80 to 35 to 40 and believes this compression is structural: ETFs and the options market have provided more ways for people to participate, allowing long-term buyers to enter and thickening the market. However, he insists that Bitcoin's underlying nature hasn't changed; it benefits when people are concerned about fiat devaluation and geopolitical issues, while stocks and bonds often perform poorly in that environment, preserving the value of diversification.

Second, the threshold for physical creation and redemption (exchanging real Bitcoin for ETF shares) has been lowered to $1.5 million, but the real driver for large holders to switch to ETFs is financialization: once Bitcoin is within the ETF structure, it can be used as collateral for loans to buy houses or cars, or to layer on options strategies. This is crucial for understanding the behavior of institutional investors.

Third, BlackRock's product discipline: only Bitcoin and Ethereum, as these two account for two-thirds to three-quarters of the total cryptocurrency market capitalization. The staked version of Ethereum ETHB and the covered call rental version of Bitcoin BIDA (selling covered calls for cash flow with a 30% position) are designed for people who want to hold coins but also desire cash flow.

Fourth, AI is already viewed internally at BlackRock as a macro factor, equivalent to GDP and interest rates. The real mismatch lies in the supply chain: large models are self-iterating 24 hours a day, and demand is growing exponentially, but it takes 4 to 8 years to bring a copper mine into production and 4 years for a semiconductor fab. His conclusion is to either buy a basket (BAI actively managed) or buy specific segments (electricity PWR, data center real estate IDGT, copper mines ICOP); diving deeper isn't something that ETFs can accommodate.

Highlights of Views

On Bitcoin's underlying nature:

"When people are concerned about institutions, geopolitical issues, and fiat devaluation, Bitcoin should benefit. In that environment, stocks and bonds often perform poorly."

On the real changes brought by ETFs:

"Before IBIT came out, many advisors and institutions could pretend that the topic of Bitcoin didn't exist. With IBIT, it must enter the discussion of asset allocation."

On why large holders switch to ETFs:

"We thought large holders wanted the security of institutional-level custody, but the bigger demand is for financializing Bitcoin. People who hold Bitcoin long-term want to buy houses or cars, and the ability to use Bitcoin as collateral for loans is a hard demand."

On product discipline:

"Bitcoin and Ethereum account for two-thirds to three-quarters of the total digital asset market capitalization. We have over 480 ETFs, but the product ideas we have rejected may be even more numerous."

On choosing ETFs:

"Now the number of ETFs in the U.S. is greater than that of stocks. Don’t just look at the names, which can be very misleading. Lift the lid to examine the structure and the market makers; the differences are significant."

Main Text

1. The Biggest Impact of ETFs: From "Can Be Ignored" to "Must Be Discussed"

Anthony Pompliano: The Bitcoin ETF appears to be the most successful ETF issuance in history. When you filed, I said it would be approved and would be a major industry event. Looking back now, what is the measurable impact on the industry?

Jay Jacobs: The biggest impact is the number of participants. Before ETFs, individuals had to open accounts on digital asset exchanges, which created friction; for many institutions, this was a direct prohibition; for financial advisors, the process was long and tedious. After IBIT came out, buying Bitcoin is as simple as clicking to buy the S&P 500 in a brokerage account.

Jay Jacobs: Another change may be even more significant. Before IBIT, advisors and institutions could avoid the topic; they couldn't buy it anyway. Institutional personnel always have a plethora of things to do; do you think they spend time learning about Bitcoin, or considering stock and bond allocations? Most choose the latter. After IBIT came out, Bitcoin had to enter the dialogue: how to view this asset class, whether to include it in portfolios. The discussions among the most discerning institutions have been significantly accelerated.

2. Volatility Reduced from 80 to 35, Will It Go Back?

Anthony Pompliano: Bitcoin's volatility has evidently compressed; it used to be around 80, now it's about 35 to 40. Some say it's because Wall Street entered the scene, others say it's due to ETFs, and some believe the root cause is leverage and options stacked above. Do you have any judgement on this? Will this compression continue?

Jay Jacobs: We don’t have a single answer, but several factors certainly contribute. First, the ETPs and the options market surrounding ETPs have been established, providing more ways to participate, thus thickening the market; some people want liquidity, and others want to conduct complex trades, all of which can be accommodated. Second, more participants have entered, leading to more research and a higher number of long-term buyers who can balance out the short-term traders. The more participants there are and the better the market liquidity, the easier it is to reduce volatility.

Anthony Pompliano: My friend Jordi Visser has a theory of a "silent IPO": Bitcoin has been quietly entering the market over the last year or two, with early holders transferring their chips to a new generation of shareholders, and ETFs are the main channel for this transition. Bitcoin is now more sensitive to interest rates and has higher correlation to certain assets. How do your clients currently classify it?

Jay Jacobs: The holding structure has indeed changed; more long-term buying and holding money have entered, which has compressed volatility. But we don’t believe Bitcoin's fundamental attributes have changed. It remains a global currency alternative that is decentralized, not controlled by any government, and can flow freely across borders, which is the source of most of its value. When people are concerned about institutions, geopolitical issues, and fiat devaluation, Bitcoin should benefit, while stocks and bonds often perform poorly in that environment. This diversification aspect has not changed.

3. Product Line Logic: Only Two Coins, But with Variations; Large Holders Switch to ETFs for Collateralized Loans

Anthony Pompliano: There are probably three paths in creating crypto products: completely avoid it; offer every kind of coin; or focus deeply on a very few. You choose the third option, Bitcoin and Ethereum, but also have staking versions and income versions. How do you delineate this line in your product offerings?

Jay Jacobs: The starting point is a fact: Bitcoin and Ethereum account for two-thirds to three-quarters of the total digital asset market capitalization, which is highly concentrated, while adoption is still very early. So we focused first on maximizing this largest pool. IBIT is the largest and most liquid Bitcoin ETP in the world. For Ethereum, we have the non-staked ETHA, and this year introduced the staked version ETHB, allowing investors to access staking rewards through the ETP structure.

Jay Jacobs: There's also BIDA, where we take about 30% of the Bitcoin position to sell covered call options, creating cash flow for investors. This is driven by client feedback: many like the long-term story of Bitcoin, but it provides zero interest and zero income, making it uncomfortable to include in a cash flow-focused portfolio. By connecting it to options income, we can keep the investors.

Anthony Pompliano: What about physical creation and redemption? Large holders can now exchange real Bitcoin for ETF shares. I often hear concerns about the safety of holding coins, such as cold wallet theft and physical security. Do many large holders feel that holding an ETF is safer than holding coins? True hardcore Bitcoin players might feel this contradicts the spirit of Bitcoin. What do those conversations actually look like?

Jay Jacobs: When IBIT first launched, regulations did not allow for physical creation and redemption, but it was later relaxed. My original judgment aligned with yours: I thought the primary concern was security, but security is only part of it; the bigger chunk is financialization. Long-term holders have a large portion of their net worth in Bitcoin, and they want to buy houses or cars; the ability to use Bitcoin as collateral for loans is a hard requirement. Some also want to layer on options protection or income strategies, or convert part of the Bitcoin risk into S&P 500 exposure. Once Bitcoin enters the IBIT structure, the possibilities expand greatly. The threshold for physical creation and redemption has also been significantly lowered, now around $1.5 million per transaction, much higher before, so the pool has increased greatly.

4. AI is Now a Macro Factor; The Real Mismatch Lies in Mines and Fabs

Anthony Pompliano: You discussed AI extensively in your mid-year thematic report. Previously, the market felt AI overshadowed Bitcoin, but now both seem to be back at the same table. Given the long industry chain of AI, what is your analysis framework?

Jay Jacobs: At BlackRock, we've started viewing AI as a macro factor for a few months now. Previously, people looked at GDP and interest rates, but AI adoption is now an equivalent variable: when AI slows down, the market feels it; when AI accelerates, the market benefits. It’s that significant for the overall price levels in the U.S. market.

Jay Jacobs: Many people still view AI as a technology theme, which is an outdated perspective. It involves healthcare, legal, consumer themes, and impacts almost every industry. Purchasing a healthcare fund doesn’t mean you've sidestepped the AI line.

Jay Jacobs: We've developed a framework for the AI value chain: power companies, data center real estate, chip manufacturing, data holders, large model developers, application layers, and platform layers, with dozens of companies worldwide spread across various segments.

Jay Jacobs: The biggest mismatch today lies in the speed differentials between supply and demand. Large models are writing code and improving themselves nonstop, 24 hours a day; corporations globally are deciding to increase their AI investments within days or weeks. The demand is exponential. However, on the supply side, it takes 4 to 8 years to bring a copper mine into production, and rebuilding data centers and electrical grids is hindered by copper constraints; even if optical interconnects replace copper, you'll need indium, which is a byproduct of zinc mining and takes years; even just needing more GPUs means a semiconductor fab takes about 4 years to turn operational. Demand is priced by the day while supply is some years out, which is today's biggest misalignment in the AI space.

Compiler's Note: Indium is a rare metal used in lasers and optical communication devices, with virtually no independent mines, mainly obtained as a byproduct of zinc refining. He means that even if the technical route switches to optical interconnects, the upstream materials are still constrained by mining cycles.

5. The Inside Story of the ETF Business: More Than Stocks, Names Can Be Deceptive

Anthony Pompliano: How detailed can products be broken down? For example, one ETF for memory, what about liquid-cooled chips? Breaking it down further can lead to thousands. How do you decide how deep to go?

Jay Jacobs: We have three standards. First, does it address a real need of the client? Is the exposure being defined something the client couldn't reach before? Second, is there a positive expected return? Bundling together worthless items is pointless. Third, can a high-quality ETF be created? When breaking down to only two or three names per sub-track, it no longer feels like an ETF, and it can’t be constructed as such; it becomes just a basket of small stocks.

Jay Jacobs: Therefore, our approach is: for those who want convenience, they can buy BAI, an actively managed AI ETF, overseen by Tony Kim, who selects stocks within the value chain; for those who want to be hands-on, they can choose segments, with electricity as PWR, covering companies involved in fuel for power generation, power generation itself, and distribution according to index rules, data center real estate as IDGT, and copper mines as ICOP.

Anthony Pompliano: The number of independent investors and self-directed funds is growing rapidly; do these individuals require the same products as institutions?

Jay Jacobs: This is one of the fastest-growing client channels. ETFs are inherently the most democratized tool; the products that retail investors buy in brokerage apps are the same exposures that global largest institutions buy. However, the end investors have very different profiles: some want laser-precise exposures with strong convictions; others, who have just saved their first $100 in life, only want something akin to a pension fund. Different products require different levels of education.

Anthony Pompliano: You must also have things that haven’t worked out? Externally, it seems that your Bitcoin ETF has succeeded and your AI has won. What keeps you up at night?

Jay Jacobs: Education can always be improved. Another real issue: Now the number of ETFs in the U.S. has surpassed the number of publicly traded stocks, and this year has seen a record for ETF issuances, with actively managed ETFs now outnumbering index ETFs. The choices are so numerous that investors find it impossible to select, and names can be misleading; a bunch of ETFs sound like AI ETFs or like electricity infrastructure ETFs. Lifting the lid to see what they hold and how the processes are designed reveals huge differences.

Jay Jacobs: For example, with BIDA, we specifically chose to use the 33 Act structure instead of the 40 Act structure. The 33 Act is the structure used for Bitcoin and gold ETFs, with the downside being that investors receive a K-1 tax form, which is a bit cumbersome, but offers better post-tax efficiency. We consciously opted for what we knew was more complex, then worked hard to explain why.

Jay Jacobs: There are also trading-level considerations. We do not act as market makers, but we do consider market makers' pain points when designing products. In the case of two ETFs with the same name, if one is backed by a large group of market makers, in times of market turbulence and tight liquidity, I bet the one with a thicker ecosystem of market makers will provide a better trading experience. Therefore, my advice is: don’t just look at the names.

Compiler's Note: The 33 Act and 40 Act refer to the U.S. Securities Act of 1933 and the Investment Company Act of 1940, respectively. K-1 is a tax form for partnership structures, more complex than a regular 1099 form, usually received in mid-March, making tax filing more cumbersome. The implication here is that structural choices affect post-tax returns, which ordinary investors may not consider before purchase.

6. Generational Transition: Parents Ask About Large-Cap Stock Funds, Children Ask About Bitcoin Funds

Anthony Pompliano: Here’s some data from our side. On our own wealth management platform, user assets are about 20% in primary housing, with crypto only 10%, while the majority is still in stocks. My audience is mostly from the crypto circle, and you might think 90% of them are into coins, but that's not the case. There is always a gap between narrative and data.

Jay Jacobs: This aligns with what we've observed. The millennial generation is the first tech-native generation, but social media isn't considered native for them; many had flip phones only in high school. Generation Z was immersed in social media from birth, and Generation Alpha will have a completely different way of engaging with the financial world than their predecessors.

Jay Jacobs: This has specific implications for business: advisors must serve two generations at once. The baby boomer generation of clients asks for your large-cap growth funds, while their children ask for your Bitcoin funds. One reason IBIT has been so successful is that advisors realized that the product lists they discuss with the two generations are different, and they need to bridge this gap. Moreover, there is a significant wealth transfer from baby boomers to millennials on the horizon.

Jay Jacobs: However, one thing will not change: the fundamental principles of portfolio management do not vary by generation; the old adages about risk and return remain, while the tools and asset classes evolve. What advisors need to do is to maintain their methods for managing money while learning to communicate effectively with each generation.

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