Form PRE 14A THE 2023 ETF SERIES TRUST For: 25 March

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Analysis

The near-term industry vector is consolidation of custody and distribution rather than pure trading revenue: institutionalization (spot ETFs, banking partnerships, custody regs) will shift liquidity from high-frequency exchange flows into long-duration, off-exchange lockers. That reduces spot/derivatives volumes and fee pools for trading-native platforms while increasing recurring AUM-style fees for custodians and asset managers that can demonstrate regulation-ready controls. Expect a 20–40% structurally slower trading-volume base for retail-first venues if even modest institutional flows (1–3% of global BTC supply) move off-book over 6–12 months.

Regulatory tightening is the largest tail risk and a powerful catalyst on a 3–24 month horizon — outcomes range from benign clarity (boosting institutional adoption) to localized enforcement that raises compliance costs and KYC friction. A sharp pivot (e.g., bank custody disallowance or short-term enforcement actions against US-listed exchanges) could compress valuations of trading platforms by 30–60% within weeks; conversely, a clear custody framework for custodial banks would re-rate asset managers and B2B custody providers over quarters. Watch on-chain indicators (exchange withdrawals as % of supply) and liquidity metrics (basis/funding rates) as 1–2 week leading signals for flow shifts.

Second-order tradeable asymmetry: asset managers and regulated custody banks are under-owned and under-hedged relative to trading platforms. The market consensus prices in an unequivocally bullish ETF effect on all crypto-exposed names; it misses fee-shift mechanics and lending/staking contraction. Positioning that longs diversified, regulated custody/asset-manager exposure (benefiting from stable fee annuities and lower compliance beta) while selectively hedging trading-platform and CeFi lending exposures captures a convex payoff if institutional flows continue to secularly dominate retail activity over the next 6–18 months.

Key Decisions for Investors

• Pair trade (6–12 months): Long BLK (BlackRock) via 12-month 1–2x OTM call spread (buy 10–15% OTM, sell 40% OTM) / Short COIN (Coinbase) via 12-month 10–25% OTM put or equity short. Rationale: capture fee-shift from trading to custody/ETF distribution. Target: 25–40% gross upside on BLK leg vs 30–50% downside protection funded by COIN premium; max loss limited to call spread width.
• Long regulated custody banks (3–9 months): Buy BK (Bank of New York Mellon) or STT (State Street) 6–12 month call spreads (buy 10% OTM, sell 35% OTM). Rationale: these names will monetize custody flows and custody-tech services. Risk/Reward: limited premium outlay (~1:3–1:5 payoff if AUM custody flows materialize ~50–200bp of ETF assets).
• Defensive short on trading-native exchange exposure (3–9 months): Initiate a COIN directional short or 6–9 month put spread to hedge downside from fee compression and regulatory fines. Size to 20–40% of net crypto-beta; expected payoff asymmetric if on-exchange volumes fall 20–40%.
• Event-driven optionality on miners (6–18 months): Buy MARA or RIOT deep OTM 9–12 month calls (fund with sale of nearer-term calls) sized as a volatility/binary bet on a BTC price re-acceleration from ETF-driven flows. Rationale: miners are convex to price spikes and will benefit from higher spot and falling selling pressure. Risk: regulatory clamp on miners or sustained weak BTC keeps options worthless — limit allocation to <2% portfolio.