On The Brink with Castle Island - Hunter Horsley (Bitwise) on the State of Crypto Asset Management (EP.224)

Episode Date: June 21, 2021

Hunter Horsley, the co-founder and CEO of Bitwise Asset Management joins the show. In this episode we discuss: Bitwise's recent $70M Series B fundraise and how he approached building a roster of unique investors Views on what is driving interest in cryptoasset products Decentralized Finance and how Bitwise is approaching constructing products to enable exposure to this part of the market NFTs and how Hunter contextualizes this segment of the market To learn more about Bitwise visit www.bitwiseinvestments.com. Follow Hunter on Twitter @HHorsley Sponsor notes:  Aave is a decentralized, open source, and non-custodial protocol where users can deposits and borrow digital assets, and earn interest on those assets. Head over to aave.com to experience and learn more about DeFi.

Today's episode is brought to you by AVE. AVE is a decentralized open source and non-custodial protocol where users can deposit and borrow digital assets. They can also earn interest on those assets. Head over to AVE.com, that's AAVE.com, to experience and learn more about Defi. Today on the podcast I set down with repeat guest Hunter Horsley, the co-founder and CEO of Bitwise Asset Management, one of our portfolio companies here at Castle Island. Hunter recently announced a big Series B financing round with some terrific new investors, and he and the Bitwise team have been busy launching a number of new products since the last time I spoke with him on this podcast. This conversation was a lot of fun. We talked about

defy. We talked about the state of the financial advisor channels. We talked about NFTs and a lot more. So without further ado, here's my conversation with Hunter Horsley. Brought down by bad mortgage investments, Lehman, which has 25,000 employees will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market. And the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more to Britain's ailing economy with a new

round of quantitative easing. You print a couple trillion dollars and all of a sudden people start to worry. So out of this worry, we have something called a Bitcoin. Bitcoin. Well, Hunter, welcome back to On the Brink. Great to be with you, my man. Well, I think there's a lot to talk about. A lot has happened.

I think you were the fifth person to ever be on the podcast when I was in your office in San Francisco. What an honor. When was that? It must have been a hundred years ago. Yeah, it was a couple of years ago. We were talking about a lot of big ambitious things and you guys have started to really tick them off. I guess the place to start would be congratulations on this recent financing. A lot of big names joining the ranks of crypto asset investors. So tell us a little bit about the series B that you just wrapped up. Thank you. And we're incredibly excited. So series B, we raised seven. It includes some great backers from tech, co-led by Alad Gill, Elector Capital, you guys participated, and also some renowned investors from traditional financial circles. So Henry Kraviss, Dan Drucken Miller, Kevin Warsh, Dan Loeb's Third Point, Daniel Ock, Lewis Bacon, just a really extraordinary group of people. And for us, BitWise is profitable. Bringing this group in, I think, helps signal that BitWise is here to.

stay that we're building a best in class institution. And it gives us the resources to double down on some of the things we're doing. So we're thrilled with the group we're getting involved and with how the round turned out. So I think you were super thoughtful with the round construction here. And maybe I want to poke in a little bit around just how you thought about that from your entrepreneurial journey here. You could have raised this from two or three funds, one fund even, but you made the conscious choice to go out and get these individuals on board. What was the strategy behind that? A few thoughts. The co-leads of the round, the Lodd and a Vichel Garg at Electric are incredible partners to an entrepreneur. You know them. They've seen multibillion-dollar

franchises be built from scratch. They've also seen Bitwise for a number of years and have a lot of context on us and they have a lot of conviction in crypto. So gave me confidence that there would be great partners who understand the landscape that we're navigating. And we're willing to be part of a bigger round, a round that was more than just them and wouldn't take all the space, which from my perspective is incredibly appealing because one of the unique opportunities we have as an independent company is that we can sell equity and allow other people to have ownership in what we're building and do that as a way of bringing some of the best people around us. And so as I thought about those inbound interest in a round, again, we're profitable, wanted to

increase the balance sheet, but wanted to minimize dilution. And as I thought about what an ideal round would look like, I thought, what are the perspectives that we could bring around the company if we did around and felt that one big keys, we have our background in tech, we have some of the best crypto investors involved, but if we could bring in some great investors from traditional financial circles, that would be really out of it. I love the way that you thought about it. And as an asset management firm, you have a great business model.

You depend on distribution to a large degree. And so I'm curious how you thought about the investor composition with an eye towards folks that could help you with distribution. And maybe we could use that as just a launching off point into the state of distribution for crypto asset based products at this point. So as you know today, Bitwise is the largest cryptocurrency index fund manager in the world. We primarily focus on the way we sort of describe it as long-term oriented investors. People who are not trading day-to-day, they're not necessarily looking at the price day-to-day.

they think about whether they want to include this in their portfolio and then they make the allocation and they want to understand what's going on but have a different relationship to the investment. That means for many working with the financial advisors. So we focus on working with financial advisors, investment professionals as it relates to the round. As you know, as everyone follows the podcast knows crypto has really grown up over the last few years. And whereas previously it was a small portion of advisors who were willing to spend the time to understand crypto and help their clients manage it, that's growing. And banks and BDE's are starting to think about how they want to approach the space. So it felt like the right time to us to make ourselves,

we already have relationships with many of those institutions, but to bring more people around the company that have that expertise that have that network can signal that we're building the best in class provider here and are bringing all the right people around. That's great. Let's talk a little bit maybe about the product lineup as it exists today. It's obviously changed quite a bit since the last time we had you on the podcast. So maybe give us the landscape view of what is on the platform today. The latest would be in Q4, the Bitwise 10 Crypto Index Fund, which is the largest cryptocurrency index fund in the world, holds the top 10 assets, Bitcoin Ethereum, other up-and-comers,

got approval to become the first publicly traded crypto index fund in the United States. It trades with ticker BITW. That was Q4 of last year. Q1, we felt that DFI had gotten to a place where it was large enough, liquid enough, developed enough that we could create a product there and open up access to those opportunities. We launched the Bitwise DeFi Index Fund in Q1. That's growing nicely. It's the first of its kind.

In Q2, as you know, Coinbase went public. They're increasingly public crypto companies, companies that are fully focused on crypto, not just doing it as an initiative or a side project or a pilot. And so the Bitwise crypto industry innovators ETF launched. It's the first ETF in the United States to have crypto in the name. It tracks our index. It trades with ticker BITQ. So those are the latest products that have come from us. We have a Bitcoin fund. We have an Ethereum fund. We're also going to have others. This round gives us resources to continue to introduce new products this year. We have a lot of things in mind. Philosophically, our perspective is we're not advocates of just one coin. We don't

have a religious connection to Bitcoin or Ethereum. We think that they all have merits and are all relevant for investors to consider. Today, crypto, the market craft of crypto is over half things that are not Bitcoin. Bitcoin is certainly the largest and most exciting, but the story has gotten much bigger. And we want investors to be able to decide for themselves which of those opportunities fit with their goals, fit with what they want to do with what their clients want. And so we'll continue to expand the product suite to make sure that all those options exist. Again, today we have the Bitwise 10. We have the Defi Index fund.

We have the there's the Bitwise Crypto Industry Innovators, ETF, the tracks are index. They're the other single asset funds and there will be more. The crypto asset innovators fund is a really cool structure. So how do you guys think about the composition of that fund, the underlying companies? And I'm curious what your view is on just more and more companies. being in the surface area of innovators as more and more R&D initiatives graduate from the lab. So that product came out in May. It's called the Bitwise crypto industry innovators ETF. It trades with ticker BITQ. We custom designed the index that that ETF tracks.

And we designed it specifically to hone in on those companies who have over 75% of their revenue coming from crypto, 75% of their ballot sheets. These are real crypto names. It has big positions in names like Coinbase, Galaxy, Marathon, Riot. So does Bitcoin miners, it has Exchange, it has Silvergate, Voyager, those who are familiar with those names. But generically, what that is, those are the miners, those are the exchanges, those are financial services providers. And the thing moves quite a bit. It's a concentrated portfolio, and it really is giving you exposure to the leading companies who are innovating in the space. And so for an investor who says, e-commerce created new winners relative to traditional retail. And I think there are going to be new

winners that emerge in the crypto space by being on the frontier there. I want to own those businesses. It's a way to do that. And for an investor who says, I need to use an ETF. I want some exposure to crypto somehow, but it needs to fit into my existing life, my existing workflows. It's a standard ETF. And it shows up on the statement. It has crypto in the name and it has these holdings. I think it can serve both of those dimensions. The really interesting thing about that product is that you have companies that have started as startups and graduated to public companies. And then you have kind of non-crypto companies that really just leaned into crypto and made a big splash. Silvergate comes to mind is a perfect example there. So it'll be interesting to see

as that product grows and more names kind of come into the surface area where they're coming at it from. Maybe you have some portfolio companies that will end up in that product. I don't know. We hope so. We hope so. It's a growing set. You couldn't really have a portfolio. like this, even before this year, because there weren't enough businesses that were really focused on crypto that were publicly traded. So people were pulling together portfolios that include Walmart because they had a pilot where they were putting lettuce on a blockchain or IBM because they're doing experimental things. But ultimately, for an investor who wants exposure in the portfolio, the returns of those public companies are not influenced by their

crypto initiatives, or at least historically, that's the sense. There are companies like PayPal and Square in the index, but they've made giant initiatives in the space. PayPal's opened up crypto trading to 200 million U.S. users and 20 million U.S. merchants, Square, obviously, in the Square Cash app, those are real businesses. And for that reason, they're included. The other product that I want to talk a little bit about is the Bitwise DeFi Crypto Index Fund. So you guys were really early in seeing that DeFi was going to be a big thing here. and you got on board early. So talk a little bit about what the thought process was around launching this product,

what the uptick's been like. And I'm curious how you just stay up on all of the stuff that's going on in Defi. We hired a full-time DeFi analyst, so that helps. Today we have a four-person analyst team. We have an equities analyst who covers crypto equities. We have a DeFi analyst. Our director of research is a 10-time Institutional Award-winning saleside analyst. And then Matt Hogan, who just wrote the CFA's book on Cryptoenix.

So we view understanding what's going on, being able to provide answers to advisors and clients is important to our role and being a good partner. In terms of defy, so the product is called the Bitwise Defi Crypto Index Fund and it holds a basket of the top 10 assets. What it does is diligence is the assets for non-obvious things. So it looks at is there enough trade volume? Is it trading on legitimate venues that are reasonable for a U.S. professional investor to rely on for liquidity. We do an assessment of is there undue risk with being deemed an unregistered

security and running into securities laws issues. We look at history of exploits and hacks. Is there risk there? There's an advisory council that also buttresses our perspective. That includes Perify, Scott Lewis from DFI pulse, a mutual guard from electric capital, Michael Anderson from framework, Alex Morrison from blockchain capital. And so not all of, but some of the great minds in the space who can make sure that we're not missing something. So we basically do all of that diligence. We just don't take a view on prices. So then the index weights things. We don't say something's overpriced or underpriced, but we do that diligence. And for an investor, what that allows is if they say, okay, defy is really compelling, I want exposure. I don't have time to be diligently in all

those dimensions, trying to hold them securely. And I don't know what's going to merge is the winner. It's a solution that they can use. And we've been surprised with its uptake. It offers some things, I think, Defi in general, I think has some merits that were always felt like we're missing from Bitcoin. Say a little bit more there. So in terms of just on-chain cash flows and things like that? As mentioned, we serve primarily investment professionals, over 20 institutional managers, over 200 RAs, over 1,500 family offices, high-knit-worth individuals. So that's the audience that we interact with and our opinions are based on what we see there. And what we've seen is it's taking people a long time to get their heads around Bitcoin.

and then really fast that a lot of them move and say, oh my gosh, defy. And in fact, we've seen some skip Bitcoin and go straight to defy. Why is that? With Bitcoin, you know all of the hangups that many investors have. It doesn't have cash flows. It doesn't have yield. You don't know how to value. People are not using it to buy coffee.

The demonstration of utility use cases, use in payments or exchange is somewhat limited. And so the industry has sort of decided it's digital gold. And that has huge merit and a big role to play. But a lot of investors don't like gold. Gold is not the most popular investment. Gold is a $10 trillion asset class globally. Equities is a $60 trillion asset class just in the U.S. So gold is not the most popular thing for Bitcoin to be.

And it's a digital version of that. So for a lot of investors who said, this is complicated. It's a nonproductive asset. It's digital gold fine, but I don't like gold. we don't use gold. This is digital gold. Okay. It's harvest on this well.

But then you talk about defy. And defy is taking the disruptive blockchain technology. It has use cases. Developers are applying it to financial services like savings and loan, brokerage, trading. It has traction. Some of these decentralized exchanges are doing more volume than the Winkle Bosses exchange. And it throws off cash flows. And in investors eyes open wide when you say all of those things, because that's a productive

asset, it's disruptive, it has use cases, it has fast-growing traction. And a lot of us to say, wait a minute, that's exactly what we love to invest in. Tell me more about that. So I think it has some attributes that are really appealing to investors. That's really fascinating. That's been my experience as well, just explaining to someone, hey, this is a community-owned software network that is competing for a money market mutual fund. People know how big that market is. They understand it really well. This is community-owned software that is disrupting in exchange. Okay, I get that. That's spits off cash flows. So I could definitely see how that would be appealing to some. And that's a territory. A lot of investment professionals, what are they familiar with?

They're familiar with how the investment world works. They know what T plus two is. They know what settlement is like. They know that markets open and closed. They think about solvency, collateral. Those are all the things that DFI is addressing. So it's actually really intuitive to a lot of investment professionals. That makes sense. When traditional equity fund management, you'd have securities lending arms that are helping returns. In the context, of Defi, I've always wondered, at what point do we start to get investment managers that are really active around things like staking and yield generation? Is that something that's possible now? And how do you think about that? It's something that we're researching. We work with PWC. We're researching that

question. It really depends on the vantage point that you look at it through how we regard the topic of can we engage in yield generating activities through these decentralized defy platforms. In the context of managing funds, you have to come to a view on what type of income it is. And if it's non-qualifying income, if it's non-qualified income, then it can break your pass-through tax status. And that just wrecks the whole thing with funds. So we're working to develop a view there. And it's important that anyone who's managing a fund has a strong basis for their view on

that topic. I think, like so many other parts of crypto, there are these. These questions, they're not unsolvable. They just take a little bit of time to get answers to. And that's the one I'm most familiar with when it comes to generating the yield. That makes sense. How do you think about defy in the context of non-etherium chains? Is this something that you guys are paying attention to?

Do you think, will this be a thing? It's awesome. I mean, in general, I just want to say, this stuff is so amazing. It's such a gift that there's an active ecosystem where smart people are building things. The iPhone, you and I probably use 10, 20 apps a day, something like it, but there's three million apps in the iPhone and tons of developers experimenting and thinking about what might people want to use. And most of them don't get used, but that's part of how the good stuff gets made and how an ecosystem emerges that's capable of making good stuff. And the fact that

that type of ecosystem has been developed in the crypto space and has currently really turned their attention in a large way to Defi, to Web3, to some of the infrastructure that powers Defi is just as a meta comment, I think super exciting and something that the crypto space shouldn't take for granted. There are countries, there are companies that host hackathons, the innovation groups, all these things, just to innovation centers, just to try and get people to build things and experiment, and crypto is happening on its own. There's no innovation center for crypto. So in general, I think it's a fantastic thing. As it pertains to Defi, I think it's an open question, we're for it. If things are legitimate investment opportunities, then great. We don't have a

philosophical allegiance. We're not in it for religious reasons. I like to say, I don't know quite the right way of putting it, but I think people know what I mean by that. We're not tribal about it. Whatever does the best job and is the best investment will look at. And I think there's legitimate reasons that we might end up in a world that has multiple platforms that specialize in different things. But I don't know how it's going to play out. Certainly, I echo your comments around just the unbelievable innovation we've seen. People are taking just big, big swings at this. And so it's going to be fascinating. It's so great. It really is. The other category that has really exploded since the last time we spoke is NFTs. And so do you guys get asked about this? Is this something

that RIAs are curious about? Will we ever see funds that hold NFTs? Is this something that investment professionals are thinking about? It's a tough one, Matt. I think that to a lot of investment professionals, NFTs look like, what ICOs look like. They have cultural figures involved that command audiences and they sort of emerge out of nothing and become really big, really fast. Right now, the paradigm around NFTs is to think of them as primarily artwork, as a vessel for artwork and primarily visual artwork. If that's the future of the NFT vessel, which is to be way to trade digital visual artwork, then I don't know if there's funds that are going to exist around that.

That might be the sort of thing where collectors just pick pieces and treat it like any other art markets. If you abstract out and you say NFTs as a vessel could be used for other things, they could be used for transferring title of real estate or automobiles or insurance policy. and it's just a way to transfer ownership over some unique asset and the asset doesn't have to be visual art, then I think NFTs could become interesting investment portfolios. But that's not where it is today. I think I will say, I think it's amazing.

I'm a fan of artwork and I think it's so amazing that internet culture now has its sotabies, so to speak. It now has its forum for digital artists to interact with digital, patrons that they encounter on the internet, transfer ownership, display, display artwork. So I think that is extraordinary and something really new in the world. But I'm just answering the question from the perspective of what we hear from investment professionals. We don't hear investment interest in it, fascination with it, sometimes skepticism in it, not a lot of demand for putting new client portfolios. That makes sense. I definitely think about this more in terms of the collectibles market being a huge use case. I also just think the underlying concept of an NFT will become ubiquitous.

in every ticketing and intellectual property use case at some point on the internet. And so we will probably have document retention systems that have NFTs behind the hood and we don't even know about it. And you'll get into sporting arenas using ticketing that is provably scarce by virtue of being built on a blockchain. So the use cases here are probably just getting going. That's a great point. And Matt, you're probably smarter on this line.

What you just said really resonates with me. And I think there's probably more to come from NFTs. One other remark I'll just make zooming out, which I sort of touched on earlier, crypto continues to move towards the mainstream. Bitcoin continues to be adopted, gain awareness. Paul Trudeau Jones just went on CNBC this week to tell the world that the one thing he knows for sure is he wants 5% Bitcoin, 5% gold, 5% cash. That's extraordinary. We just talked about defy and NFTs. Those are things that didn't exist in 2018, which was not that long ago. They didn't really exist in 2019. And So I suppose the high level remark I want to make is just that crypto is evolving. The space is evolving. The things that venture firms are investing in, brilliant teams are working on, the things that are becoming large and bestable assets with big liquid markets, there are new things.

If you just showed up to crypto in 2015 and you said, what's interesting to invest in, the set of things you were looking at is just totally different than what it is today. And the rate at which new things are emerging, that doesn't mean that they're all have merit, but is accelerating, proliferating. I think it's one of the reasons that the space is going to get bigger and bigger because it's not now just relying on Bitcoin to solve all of the world's problems. People are saying, let's take the technology, let's take the blockchain and apply it in other ways. And I think that's the big picture here.

It's a great point. And it gets me to my kind of next question, which is just about how do you think about describing this to someone who's not living in every day? And so you're doing this every day, speaking with RIAs and people at wirehouse banks. And so the way that I kind of think about it is there's three big ideas here that are driving a lot of interest. One is just decentralizing money and separating money from the state. And some people like that, some people don't, but storing value is clearly a use case here. The second thing is falling under the umbrella of just decentralizing internet architecture is how I talk about that. And that is clearly something where we need to reduce our dependency on data monopolies and I think any breach of data over the

past 20 years would lead you to believe that the internet, as we know it today, is fundamentally needs improvement, I guess, the way to put it. And the third thing I look at is just all the financial services use cases around decentralizing certain aspects of fintech or financial technology. And I'm curious, kind of if you agree with that framing and then where you see people latching on to a kind of a taxonomy or organizing mechanism just to think about the industry. To be honest, I feel like the conversation, a lot of the conversations we have have shifted where we just start by saying crypto is an investable asset that has certain characteristics in the same way that real estate does, private credit does, alternatives do, gold does,

commodities do, cash do, international equities do, munis, high yield. And we want to help you understand the attributes of crypto, which at this point is obviously, I don't say obviously, but some of the most brilliant minds, large institutions, insurance companies, banks, there's billions of dollars of liquidity. So let's talk about why investors are choosing this asset class. It tends to sort of start there. There are some people who want to go in different directions from there and say, what is the meaning of this? Or how does this fit into the system or what even is it? How should I think anatomically about what it is? I actually think that one really nice thing that's happened for the space is a lot of people are granting, okay,

this exists and it's something I should consider as an asset class, let's talk about what that asset class looks like, how I should think about how this compares to other asset classes, how I can navigate the asset class, and then someone to dig deeper. The different lenses that you provided, I think are all material. I do think that the third one that you mentioned, that this is a new decentralized financial system resonates for people. And it's funny that in some ways, you almost see defy as a concept, which is being pioneered by the likes of Uniswap and Ave and Compound and Maker is almost backwards importing

Ethereum and it's almost providing air cover in some ways. You see some people describing the whole space as decentralized finance. And I do think that that's an interesting lens, which is there are inefficiencies with the payment rails, with international remittance, with offshore bank accounts, with trading with brokerage, with saving with loans, and Bitcoin and Ethereum and everything is part of that story. And I think that that resonates with people intuitively as well. That's really interesting. And so with that said, are most RIAs who are thinking about this through the context of advising

their clients, are they looking at it through the lens of here's a new asset class, let's pick a percentage of total portfolio and this falls into that bucket? There's two ways they come to it. Some of them come to it trying to solve portfolio problems. And some of them come to it because their clients dragging them towards it. It's on everyone's to-do list somewhere. We do a survey every year. This year, surveyed 1,000 financial advisors. It's on our website, 80% said questions from clients. A single digit percentage had done something in the space. 17% were planning

to do something this year. So they know it's out there. They know their clients are doing it, or interested in doing it, and they want to do something. But it's small. It's a 1 to 10% allocation, which means they got 90 to 99% other things to deal with. That's sort of the starting lens, the advisor, the investment professional that we work with, try to support. The top-down view, view on it is 2020 changed everything. In 2021, if you're managing savings, a pool of capital, you want to protect it, you want to grow it, you want it to provide liquidity for some liabilities or some financial plans. What are your tools for accomplishing those goals? Equities, fixed income, real estate commodities, cash, you have uncertainty about every one of those

tools that you used to rely on. In September of last year, Bank of America Research Institute said 6040 is dead and people need to start thinking about what's next. That's dramatic. It's not happening immediately. But the backdrop for most is maybe I should be doing something that I didn't do before or maybe I should be considering an approach with some adjustments. And they look at crypto and they say, wow, here's something that's uncorrelated. It's liquid. A lot of smart people are doing. I don't have to rewire 20% of my portfolio. It's a 1%, 2% decision I can make. And it's got pretty compelling returns. That's the lens that the advisor comes at at top down. Bottom up, it's clients are adopting it. And one of the reasons that you're so passionate, Matt,

about helping advisors embrace the space and manage the space is a lot of clients have a brutal experience with crypto. It's a volatile asset class. That is the definition of the type of asset class that's difficult for an individual to manage on their own. And if you're investing through an app where the home screen is a 24-hour price chart of 100-vol plus asset class, depending on what you're investing in. That's a tough situation. Then tax season comes around and you're trying to figure out how to calculate what you owe and you're trying to figure how it fits in your financial plan. So over time, a lot of individuals go to their advisor and say, can you help me do this? And so that's the other way a lot of advisors arrive at it. We think that it's an amazing role for

advisors to play. This crypto would be better off, people would be better off, advisors would be better off, But again, it's a complicated space and it's such a small allocation that it just takes time for advisors to get around to it. I'm a little bit salty about certain pockets of the financial advisor community. And I think another reason why they should care about this is what if it all works out and you did not advise your clients about this and you did not educate them? Think about the world where everything we're talking about happens and you were just sitting there and not providing this service. It's a great point. I do think that like everything, there will be a distribution curve and there'll be some people. people who miss the boat. And I think it's something like just 10 or 15 percent of Americans who

don't have high-speed internet in the year 2021. So if there's some people who skipped internet, there are some people who I think skipped digital assets. But I agree, there's sort of the opportunity lens and there's also the risk lens, which is what if you miss it? So I'd love to get your point of view maybe on just some of the things that you worry about or some of the things that as an industry represent the greatest risk to the continued sustainability. It feels like being in this every day, we bounce around, from Twitter crisis to Twitter crisis, people talking about Tether or ESG or the GBT discount. There's kind of many crises all the time.

But what do people actually think about from the perspective of capital allocators that are not in this every day? I mean, what are the big risks to the system that they think about? I think it's some of the obvious things. The things that really get the headlines are in front of people. So the attention that's been shined on the necessary and buy. design, energy consumption of Bitcoin mining is yet another thing that an investment professional now has to answer questions about. Now has to think through.

And they don't even know necessarily what they think of it. But it's another thing that now maybe they're going to get judged for, need to have an opinion on what do regulators think is definitely important? You just spoke to New York Times last week about ransomware, criminal activity. And all of those things have great developments and great trajectories. but those things tend to be the things that people worry about. I think zooming out from my perspective, one of the things I sort of worry about systematically or market-wide is just,

we serve financial advisors. Of course, you have this perspective, but there are tens of millions of Americans who own crypto, and they own it in a highly engaging way. And for professional, that's fantastic. For a day trader, that's part of what they signed up for. I just worry that for such a volatile space that ultimately, I don't think this is that five years for now, 10 years, now crypto is going to be 50% of people's portfolios.

Maybe for some people, it'll be 10%, 5%, some will be 25%. Of course, people in the industry, this is a different story. But it's going to be a minority of the portfolio. I just, to know, as I worry about, like, draining people's attention before the space can get to a sustainable place. A sustainable place is fitting into your portfolio where you don't have to look at it for three years. That's what a sustainable investment sounds like. 50 million Americans day trading news about Bitcoin miners is not sustainable.

There's no way that that's the future that we're going to be in in 10 years. So what happens? Do people burn out and move on to the next exciting asset class that can captivate them? Or does crypto find a way to fit in sustainably with people's portfolios? That's sort of the structural thing that's on my mind. obviously we're trying to contribute to that. Lots of others are. But of course, in the day-to-day, tactically, definitely regulation and some of those other topics. Yeah, that's a really thoughtful answer. You're exactly right, just on the dynamic,

especially since COVID, just around day trading and just aggressive retail activity and all sorts of different asset classes. This is obviously a textbook example of that. One thing I think about quite a bit in the context of the intersection of public blockchains and investment management is, are there just certain things that will never be possible in terms of wrapped products for some of these assets? So think about defy tokens, for instance. These things are by and large going to trade on decentralized exchanges. And these are community on software networks that won't be central limit order books run by regulated financial institutions based in New York. So would you ever have an ETF approved just given that spot market behavior? So curious your

thoughts on that? Here again, it kind of depends on the lens you take. We've worked on a Bitcoin ETF for a long time. We're engaged in that work now. Many others are. It's hard to imagine there being a uniswap ETF anytime soon. You never know. If the pattern with regulatory approvals follows what we see with some investment professionals, it takes a long time to get to Bitcoin, and then it takes a short time to get to Ethereum and a short time to get to DFI. So it could, in some sense go that route, but I tend to agree that the complexity ratchets up and the size ratchets down. And so it may take a long time to get to something like that. From our perspective, we obviously work to take the opportunities in crypto and put them in formats that are usable for

people who are long-term crypto investors that want to have it in the portfolios, but they're not day trading it or looking at it every day. And I would just note that there are other structures is available. Bitwise has grown 20x year over year. We don't have a Bitcoin ETF. We don't have a defy ETF. We have open-ended private funds. We have closed-end publicly traded trusts. There is the Bitwise Crypt Industry Innovators ETF that just launched. I think there'll be other paths to access, but it's hard to imagine what year we'll be talking about a compound or an of a ETF. Well, maybe we'll just have like a micro strategy equivalent that goes out and buys billions of dollars worth of those assets and is a public company. You joke, but maybe we'll

see it. I wouldn't be surprised. What are you the most excited about right now in the industry hunter other than bitwise? We touched on a lot of them. I'm excited with this round, what this round actually I think demonstrates that some of the smartest investment professionals want to be involved in the space. They say when we look at in 2021, we see something that's here to day. It doesn't mean it's a sure thing. Doesn't mean it doesn't have risks. Doesn't mean that everything's a no-brainer. But this has a role in the future. We see that with some of the incredible people backing BitWise in this round. We see that with our clients, the number of advisors have doubled for us since the beginning of the year. I'm just excited to see that recognition for the space. I'm excited about DFI. I'm excited about

NFTs. I'm excited about the general amount of human capital that is building things productively. and that for many people, the aperture is starting to open wider, where they're saying the way that we're using the blockchain technology is not private blockchains inside of corporations, but actually to build other public distributed blockchain ledgers, but that are applied to different use cases. So I'm excited about that too. And the continued trickle of incredible people joining crypto from banks, technology companies. You guys are pioneers at Castle Island, the original leaving fidelity and setting up a first-rate shop. And you brought up some great people actually just recently, which I think is a testament to this continued trend as well.

Thank you. And yeah, I think that continues to be just one of the most exciting things is just look at all the talented people coming into this industry. And you must be dealing with this every day. It's actually a good place to wrap it up. You guys will be hiring. You have a lot of open roles here. Where can we send people to learn more about Bitwise from the perspective of employees as well as just learn more about your products? We're going to be doubling the staff before the end of the year.

So we'd love to connect with talented people. It's www.bitW.bitW.Bestinvestments.com. There's a link to our open job racks. We'll have more coming. That's across engineering, analysts, sales, operations, portfolio management, you name it. So talented people are wanted. And if there's not something there now, there will be more. And then the information about our products is available on our website as well.

We're on Twitter. We're on LinkedIn, all those types of things. Well, we're super excited to be investors, and it's always great to have you on the podcast. We'll have to have you on again within the next year. It's just the industry is changing so quickly. We need to get you on more frequently. Absolutely. This is really fun. And I'll also just say you guys are fantastic investors. So always appreciate having you guys back to as well. Thanks for listening to another episode of On the Brink with Castle Island. To find out more about Castle Island, visit castle island. Visit castle island. Vc. To listen to all of our podcast episodes, please go to On the Brink-Podcast.com or just click on the tab in our website. Thanks for listening.