The Pomp Podcast - #1182 Matt Hougan | Bitcoin or Ethereum? Institutional Investor Reveals His Answer

Episode Date: April 3, 2023

Matt Hougan is chief investment officer at Bitwise Asset Management. In this conversation, we talk about bitcoin, ethereum, digital assets, what the institutional world is currently saying about crypto, why the assets have started 2023 so well, macro environment, banking crisis, inflation, interest rates, and much more. Matt always has great views on what is going on in the industry, where regulation is moving, and shares what Bitwise is currently up to. ======================= Pomp writes a daily letter to over 200,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/

What's up everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. We have no advertisers on this podcast, so it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Matt Hogan is the Chief Investment Officer at Bitwise Asset Management.

In this conversation, we talk about Bitcoin, Ethereum, digital assets, what the institutional world is saying about crypto right now, why the assets are doing so well to start the year, the macro environment, the banking crisis, inflation, interest rates, and much, much more. Matt always has great views on what's going on in the industry, where regulation is moving, and what Bitwise is up to, including a brand new fund that allows futures exposure with an optimum rolling methodology. I really enjoyed this conversation with Matt, and I hope you guys enjoy it as well. Here is my conversation with Matt Hogan.

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At Real Canadian Superstore, when you're ready, we're ready, with a whole world and more. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy,

but only as an expression of his personal opinion. This podcast is for informational purposes only. Alright guys, bang bang, I've got Matt here with me. Matt, I thought a great place to start this conversation is why Bitcoin and cryptocurrency seem to be doing so well to start 2023. It feels like there's a lot of chaos and uncertainty in the traditional market, and therefore people are running towards these assets. Are they looking at them as safe havens? How are you guys looking at kind of the really explosive performance of these assets given everything that's going on in finance right now? Yeah. First, it's great to be here. And thanks for that. Thanks for that question and having me on.

I think there are three primary drivers. You know, the big one that people are overlooking is that crypto is simply a cyclical business. It always has been. We've had three big up years followed by a pullback year. Right. 2011 to 2013. Great time. First time that Bitcoin was available to traders. And then we reset in 2014 because we got over our skis. Right. Mount Gox collapsed. We didn't get a Bitcoin ETF. coin ETF, we reset. 2015, the creation of Ethereum, a lot of excitement around that three-year bull market. We reset in 2018 when regulators cracked down on ICOs. 2019, we had DeFi, stable coins, NFTs, right? So the DeFi boom, three great solid years, then a little bit too much leverage built

up. We had the Fed reset and reset. So the history of crypto is like big technological breakthrough, a lot of excitement, get over our skis and reset. We're in this fourth cycle. There is a lot of excitement in crypto right now. I think you know that. I think the listeners know that. We have everything that's going on with layer twos. We have massive evolutions in scaling and throughput,

lowering of costs. We have all the venture capital investment over the last three years coming home to roost with new applications that people are excited about. So we're in a new bull market cycle. So regardless of what was happening outside of crypto, I think we were due for a rally this year, and I think it will be a multiple year rally.

Now you take that and you sprinkle in what's happening. We have a banking crisis showing the flaws of the traditional system. That forces people to open up to alternatives. And what alternative is there? There's crypto. We have the expectation for interest rates long-term falling, right?

They were, we were expecting to be at about 5.5% the beginning of the year. Now it's 4.5%. Crypto is a long duration asset. So that directly translates into higher prices. And we have these regulatory headlines, which I think from the mainstream media and outside of crypto, people see as negative. If you're in crypto, you expected it. We knew there would be a regulatory crackdown. And you know that regulatory clarity will be a good thing. So like the Coinbase news, I think is going to be a long-term catalyst for crypto. So we were already going to be at a bull market. And then you take these nice catalysts and you have the best performing asset class in the world this year.

And I think that's where we are. When you look at these assets, one of the kind of promises of the cypherpunk movement was these are going to be assets outside of the system. If you then look at kind of the institutions are coming, it was, no, we're going to take these assets. We're going to put it inside of the system. And actually, we're going to put it in the portfolios of every single institution in the world. Now, it seems like maybe we're getting some bifurcation in the way people are looking at this, right? When the banking crisis happens, we see Bitcoin rally. Some people say, hey, that's because people are looking for an alternative to that traditional system.

The debt limit, there was a rally when we kind of hit that and it got pushed out to June. And people say, wait a minute, maybe this is going to be some sort of hedge against a U.S. potential default. But at the same time, we're seeing the regulatory crackdown. And I think investors trying to coalesce around assets that fall within that regulatory regime. How do you all look at these assets moving forward in the United States, inside the system, outside the system, and kind of how are you positioning the business to benefit from that? Yeah, that's a great question. I think the mistake people make is thinking that it's binary, right? Like this had to be a totally cypherpunk alternative movement that would rise up in a revolution and completely replace the existing system.

I think that was never going to happen. If we were going to be, you know, isolated and truly separate outside of the traditional system, we were always going to be niche. In order to grow, we need clear regulation. We need institutional investors to come into the market. We need the bulk of capital to come into the market. We need it to scale up. We think ultimately they converge. Now, it's important to note, there's nothing about allowing and making it comfortable for institutions to invest into Bitcoin.

that change the fact that centralized authorities can't alter the fundamentals of the Bitcoin ecosystem. There is nothing really that can be done from a regulatory perspective to fundamentally alter the promise of how the Ethereum blockchain works. And so even if it's not this complete separate alternative, you can still make it enormous by by bringing it slightly more into the mainstream and capture 90% of that sort of cyberpunk good freedom aspect of it. And that's how we think of it.

So, you know, Bitwise exists to help professional investors access the opportunities of crypto. Crypto should want that, because they have a lot of money that will be supportive to the ecosystem. But we're very supportive of the underlying ethos of crypto at the same time, and we think they can exist side by side.

You all are interesting. You know, I've been an investor in the business for a long time. INVESTORS. YOU HAVE REALLY WATCHED THE EVOLUTION GO FROM SINGLE ASSET TYPE FUNDS TO NOW PUBLIC STRUCTURES, PRIVATE STRUCTURES, FUND TO FUNDS, SINGLE ASSETS, INDEXES. YOU HAVE REALLY BUILT OUT AN ENTIRE ECOSYSTEM TO COVER THIS.

WHAT THAT AFFORDS YOU IS THIS BIRD'S EYE VIEW OF WHAT INVESTORS ARE ACTUALLY DOING. GIVEN THE GREAT PERFORMANCE OF THE ASSET CLASS AT THE START OF THIS YEAR, WHERE ARE INVESTORS from? Do you see any trends or changes there? Yeah, we definitely do. We have 25 salespeople that are out knocking on the doors of financial advisors, talking to thousands of advisors every month. So we know what they're thinking. I would say that last year, their primary interest was in crypto equities, publicly traded crypto stocks, Coinbase, Silvergate, Riot, etc. There's still some interest there. But we're seeing a lot more interest in directly accessing Bitcoin, Ethereum,

and large cap assets. I think maybe to some extent people are moving not away from, but beyond venture capital. The initial steps into crypto for a lot of institutions were venture capital exposures, and that will continue to be a very important part of what they do. But we're seeing them wanting to add on direct exposure to Bitcoin and Ethereum and maybe some other assets. I would say that that's the primary thing we're saying. The other thing that may not be obvious to the outside world, is there's been no bear market from our perspective in U.S. professional investor interest in crypto. Platform approvals and major international platforms, allocations by advisors, allocations by family offices, that didn't notice that the market went down last year.

It continued to move up and to the right, maybe not at the speed we saw in 2021, but still very positive progress. So that's really what we're seeing. Why do you think that the institutional investors somewhat ignored the price drawdown? Is it something where prices go down, they know, buy more, or there's something else driving that? I think that's a big piece of it. They also move extremely slowly. You know, one thing I like to say is all the short-term news in crypto is bad. It's the FTC this and SEC that and this regulatory crackdown, and all the long-term news is good.

You look where crypto is today versus the last bear market cycle, It's 10x on every fundamental metric you look at. And institutions move at what we feel is like a glacial pace, right? Multiple years of doing due diligence. And if you're looking at this not over last year, but from here versus 2018, this market's huge, right? Bitcoin was $3,000 in 2018. It's almost $30,000 today. You know, the number of developers was in the hundreds.

It's in the thousands. The number of users is 10x. Coinbase has gone from 20 million users to 110 million users. And because they operate on this different timescale than retail investors, the trends they're seeing are actually positive. And I think that explains a lot of what's going on. Tell me a little bit more about the bank crisis. And we obviously saw Silvergate kind of voluntarily shut down.

They're going to liquidate their assets. We've seen not-so-voluntary kind of failures of Silicon Valley Bank and Signature Bank. Like we then kind of saw that spread into Credit Suisse and then Deutsche Bank and, you know, First Republic came under pressure and it just became this like widespread thing. How have you seen the conversations change with some of the investors, whether they are current investors or potential investors, given that kind of development in the traditional banking world? Yeah, I think what it did is it broadened the Overton window of what people consider as possible. I think people were operating in this world where banks are fine and they're operating their sound and we don't need to worry about it. And now people realize that that's not the case. I think a lot of people learned a lot about bank accounting rules, about duration mismatch, and about the potential risks there.

And it's really had two impacts on the market. One is outside of crypto, which I think is going to continue for a long time, which is deposits have been sucked out of banks and put into money market funds. That is a massive trillion-dollar-plus and growing trend. And inside of crypto, I think what it did is it opened people's minds to, well, maybe I should consider an alternative. Maybe I want a little bit of exposure to this alternate view, this alternative view as an insurance policy. It's worth noting that the best month in Bitcoin's history was during the Cypress Bank crisis, right? And Bitcoin was founded in the global financial crisis. I don't think that's a coincidence.

Every time you shock the traditional system, people think there may be more value than I thought in an alternative system. And it doesn't have to be, you don't have to view it as crypto is going to replace traditional finance. You just have to think, I should have some exposure to this other idea. And so I think that's the conversation we've been having with clients. What's interesting is the word hedge comes up a lot, usually with Bitcoin, but I think now kind of a broader set of assets. And sometimes it is a chaos hedge. It is an inflation hedge. It is a bank crisis hedge.

It is a debt limit hedge. At the end of the day, are these assets just insurance on the existing system failing? And if the existing system doesn't fail, hey, I'm glad I had it, but we shouldn't expect there to be a kind of true long-term value? Or could it be a hedge in the short term? And maybe over the long term, there are other things that make them valuable. Yeah, I think it's a hedge against mistakes. broadly, in the short term, I think that's absolutely right. And that hedge won't go away.

There's always the opportunity for mistakes. Central banks can make mistakes. Bankers can make mistakes. And so having an alternative system is a hedge. And then, of course, yes, there are other applications in crypto. I mean, before the banking crisis, what people were talking about was the tremendous development pace in the Ethereum and Layer 2 ecosystem and all the real-world applications that can solve immediate problems outside of finance. They were talking about Farcaster and solving the problems with social media. They were talking about HiveMapper and solving the limitations of maps. They were talking about international payroll.

They were talking about music, NFTs or rewards programs. So this you sort of get both for free. You buy this hedge and you get a free call option on all the other things you can do with decentralized platforms. And that's a pretty nice trade. So I do think you framed it correctly. it's a hedge and it has these other applications and you sort of get two for one. When you think about investors allocate into the space a lot of times in the traditional financial world there's the passive versus the active kind of conversation and people come out on both sides of that debate it's very heated at times and I don't know if we've actually arrived at a single answer to the debate but it's fun to do on Twitter. Inside of the Bitcoin and crypto world you all are unique because you do have some passive vehicles but also you allow for

these kind of single asset funds. So somebody could actively go and just buy one asset versus another. Where do you see most of the interest and how are RIAs or other institutional investors treating this? Is this like a buy it and I'm just going to look at it again in 10 years? Are they trying to actively move around in positions on a day to day or week to week basis? What are you seeing from the kind of their actual behavior in holding these assets? Yeah, that's a great question. First, I'll say I think everyone that's into crypto is making an active decision because it's outside of the traditional advancement portfolio. So I think there's alpha in allocating to crypto and that they should be, you know, sort of seen as pioneers from an active perspective. But yeah, we offer index fund as active strategies. Most people just want exposure. The reason we started with index funds is most people outside of crypto spend 2% of their time thinking about crypto, and they're not thinking about Bitcoin versus Ethereum or Ethereum versus Cosmos, or will that value accrue to apps like Uniswap or layer twos or layer one solutions. They just think, hey, crypto is going to be big in five years.

I want exposure so that, you know, the primary allocation is the index based allocation. But there are absolutely people who need to operate in traditional financial vehicles, which is what Bitwise operates in, who want to bet only on Ethereum and real world applications or they want to look down into single assets. And so that's probably a minority. I will say the other thing that's really important that these professional investors do

is they allocate, but they also rebalance. So they allocate, but if they allocated at the start of 2022 and the market went down, they're going to buy more into 2023. If they allocate in 2023 and the market is up, they're probably going to sell and rebalance their portfolio. That's the other thing that I think separates how professional investors view crypto versus many retail investors is that rebalance effort. So one of the things that you and many other asset managers in the industry have tried to accomplish is to get a US-based Bitcoin ETF approved, not futures, but actual spot Bitcoin ETF. We do not have that yet. There are many other jurisdictions around the world that do have that asset available to them. What is your take on where we currently are,

both in terms of the applications, the denials? Will we see one of those approved in 2023? Or How are you thinking about a spot Bitcoin ETF in the U.S.? Yeah, it's been more than a decade. The first spot Bitcoin application was in 2013 when Bitcoin was trading for $80. So investors could have had exposure at that time and ridden it up to $28,000. And that has been denied them, which I think is a travesty. They've also been forced into less secure, less safe solutions along the way. I'm not optimistic we get a spot Bitcoin ETF this year.

There have been so many rejections. Bitwise doesn't currently have a spot Bitcoin ETF application on file because we think the door is closed. It's interesting to watch the grayscale SEC lawsuit. I think that could push us down a pathway that leads eventually to a spot Bitcoin ETF, maybe in 2024. But I'm not optimistic for 2023. I think the question investors should ask themselves is if you are optimistic that we'll get there in 2024 or 2025, do you want to wait or do you want to allocate now? We think a lot of investors want to allocate ahead of that. But yeah, I think we'll get there, but I don't think it'll be this year. I think it's

just a difficult regulatory environment for that. I don't know how much you can comment, but obviously Grayscale is locked in this lawsuit with the SEC. Are there specific things that you all are looking for as this plays out, whether it is specific arguments from Grayscale or responses from the SEC? How do you kind of think about what's important there versus maybe what's noise and will get reported but people could ignore and not really put too much weight on yeah i mean i should say grayscale is of course both a competitor and a friend uh we're all friendly in this crypto ecosystem we're rooting for them in this lawsuit what they're really trying to pin the sec down on is the fact that the sec has approved bitcoin futures etfs which settle to the spot price of

bitcoin and then in the spot applications they're saying you can't rely on that price because it's is subject to market manipulation. And, you know, I studied philosophy in school. I don't know how you can hold those two arguments at the same time. And so I'm really hopeful that they win this case. The important thing for investors to realize is that doesn't necessarily mean

that the SEC approves spot Bitcoin ETFs. The market manipulation standard is just one piece of the puzzle in getting a spot Bitcoin ETF approved. And I suspect if they win the lawsuit, uh we'll have to deal with the other pieces the good thing about those other pieces is i think they're solutions but they're not super clean shots on goal that's why i think it'll be 2024. so we're watching to see like the rest of the industry does grayscale win they had a very good day in court it seemed like the judges um asked tough questions of the sec but that doesn't

necessarily mean that they'll win i do hope they win i think their argument is sound i think they should win um but we'll see in the next few months that makes sense i want to switch gears a little little bit and talk about the macro environment. Obviously, we have seen immense inflation in the United States, ended up hitting 9% or so. We then saw the Fed step in. They rapidly raised interest rates. They conducted quantitative tightening. And although they did all of that, before the balance sheet started to expand again, we only got inflation down to 6%, according to the official CPI metric. At the same time that they were raising rates and they were conducting all that quantitative tightening. Bitcoin dropped all the way to about $15,000. It now sits almost at $30,000,

somewhere in that $28,000, $29,000 range as we record this. Is there something to be said about the fact that Bitcoin and other cryptocurrencies, and we can just use Bitcoin as kind of the proxy for the whole space and the price action, all of this quantitative tightening, all of these interest rates raises, and we're still sitting around $30,000, kind of half or about 40% of we were at the all-time high is that a strong signal for the industry i think it's an exceptionally strong signal for the industry um you know it's it's like it's like a rope into a boxing match you have all that quantitative tightening you know the regulatory pressures you had all the blow-ups last year you had ftx it would be hard to design a world that was more challenging to crypto than

what we've lived through for the last 12 months just look at my hair it's like all turning white Right. And yet we're at $30,000, you know, $30,000 or near $30,000 is well above the 2017 highs. It's nearly 10x where we were at the bottom of the 2018 lows. It shows that this industry is moving in the right direction. It's here to stay. Again, I'll go back to the thing I said earlier. There's all this short term negative news. The long term news is really positive. Right. Even from a traditional financial ecosystem, we now have Fidelity offering crypto trading to retail investors. We have Bank of New York custody. We're trying to move into competition crypto. NASDAQ just said it wants to move into. The long-term news is really good. And crypto investors should

feel confident that cycle over cycle, we're doing great. I think it's looking like this will be the next big bull market cycle. I think we'll move to new all-time highs. We should feel very confident about where we are. We're in a really strong position. You all recently launched a new fund. It has this optimum rolling methodology. And I'm already outside of my circle of competence in what the fund does and how it works. So maybe you could just start from the basics of like, what is this kind of rolling methodology? And why is it potentially a more beneficial exposure kind of approach for investors than maybe some of the other vehicles that you guys offer? Sure, absolutely. Yeah, it's a Bitcoin futures ETF, the ticker is BITC.

You know, the way futures work is that a futures exchange like the CME will offer you the ability to buy Bitcoin at a particular price every month for, let's say, the next 12 months. They actually extend longer than that. But you could enter into a contract to buy it at the end of April, to buy it at the end of May, to buy it at the end of June, to buy it at the end of July, etc. The way the first generation of Bitcoin futures ETFs work is they just buy the next month. So right now, they'd be invested primarily in the April contract. And then when the April contract expires, when we get to April 30th, they buy May, and then they buy June. What our strategy does is instead of doing that, let's look at all the available contracts and decide, using some relatively complex math, which one is best positioned. which one is on sale and which one is charging a premium. Sometimes it'll be that front month contract,

in which case our ETF will look like every other ETF. But sometimes December's contract will be priced at a nice discount and we'll buy the December contract. If you look at other ETFs, as you know, I come from the ETF industry, in virtually every commodity, you have both types of ETFs. So there's a front month oils ETF, and then there's an optimized role oil ETF. And what you see is that short-term traders like the front month contract, some more liquid response to spot prices, and long-term investors like the optimized role strategy.

This has been in academia, in the commodity space for 30 years. It's not a new idea. We're just applying it to Bitcoin because we serve long-term investors. Look, if you want to trade Bitcoin for the next week, this is not the fund for you. But if you want to allocate for the next year or two years or three years, five years, we think it may be a better strategy for many investors. When you look at that, and given who your investors are in terms of a lot of these RAs and institutions, are they splitting? Let's just take Bitcoin as an asset, their exposure. When they say, hey, look, I want some direct spot price exposure.

I actually want some front month futures exposure. And then actually, I do want some of this kind of rolling methodology as well. Or do you tend to see them just pick one exposure kind of strategy and just stick with that and kind of have that concentration to get exposure to any one of the assets you offer? Yeah, most investors just choose one strategy. I'm going to allocate this way. We see some that split it between crypto stocks, and we offer a crypto stock ETF, and direct exposure. So they say, I want some Bitcoin and I want some miners, to give you an example. But a lot of people just want their crypto allocation.

They want to be sure it's safe. They want to be sure it's managed by a professional firm that's expert in crypto. And then they move on with their day, right? We think about crypto 24-7, 365. But again, these are busy folks. They think about crypto seven minutes a week. And they just want a solution that's really simple, safe, and secure. And that's what we try to offer.

How much of that interest is coming from their clients kind of pushing them and saying, hey, I want this, figure it out, versus them saying, hey, this is an interesting asset class, and let me go get my clients into it, and I'll have to do some education of the clients? Yeah, great question. It's about 80% client pushed, right? I mean, remember, Coinbase has more users than TD Ameritrade, Charles Schwab, E-Trade, and Interactive Brokers, the big four retail brokers combined. Retail investors are allocating to crypto. And if you're a financial advisor and you're responsible for the wealth of a family, do you want them investing in crypto on their own, selling at the wrong time, buying at the wrong time, putting assets on FTX, doing who knows what? Or do you want them to be guided by you? Now, there are a lot of retail investors who are well positioned to manage their own investments, and they typically manage their stock investments and their crypto investments, and they manage their 401ks, and they're very sophisticated.

But there are other investors who don't want to think about their investments, right? They have a car dealership, and they hire someone else to worry about that stuff. Those people shouldn't be investing in crypto on their own. They'll be better off with a professional investor helping them, and that's the market that we serve, right? Both are great, but if you're going to manage your investments yourself, you have to be serious about it. Some people want to, some people don't. If you don't, you should have that guy, your advisor, manage your stocks and your crypto and everything else all together. When you all think about building the firm, one of the things that's very interesting is you're building an asset management firm.

And yes, it is very much I would call tech-enabled or kind of built on these technology rails. But the main difference is not building an asset management firm, it's the assets in which you are allocating the capital to. What is some of the lessons learned over the last couple of years in terms of building an asset management firm, touching these new assets, but still trying to adhere to best principles and building asset management firms and risk management, regulation and compliance and like all the fun stuff that every RIA and institutional investor says, hey, whether I like it or not, I got to do it in order to have a firm that lasts. Yeah, absolutely. You know, we've been frustrated a little bit at Bitwise. We're like the world's most conservative crypto asset manager, right? We only work with qualified custodians. We screen out a huge number of assets. Right now, we don't do things like stake our assets.

We haven't explored some of the riskier corners of crypto. We didn't have exposures to things like Luna or lending through Celsius or other things like that. And at times during bull markets, that can feel hard. You see other people doing that and having success and you feel held back. But what we found, we've been in the market for five years,

which is a long time in crypto, is that this conservative approach has paid off. So being security first, regulatory compliant first, doing things in the right way has long-term benefits. I think that's why Bitwise has been here for five years. I think it's why we'll be here for 50. And I think you made a good point. There are a lot of good lessons in the traditional financial world.

There are reasons why people custody assets in a certain way, why they have compliance regimes, why they talk to investors in a certain way. We can import those into crypto. And that's what Bitwise tries to do. We try to be both crypto native and rooted in traditional investment finance. And I think it's paid off so far. You mentioned earlier your experience in the ETF world. Many people on the team are very well known to the traditional financial world. And I think maybe four or five years ago, there was a lot of like, hey, what are you all doing?

Why are you doing this? You're going to ruin your career. Like all the things that people, you know, now kind of assigned to new areas of innovation for the people who maybe haven't spent the time to learn, et cetera. What are you all hearing now? Right. You talked a little bit about the customer interactions, but from your peers, are many of them now becoming more interested? Are they still holding out? What are you seeing?

They're still becoming more interested by the day. You know, one thing that really changed once we got through the 2018 bear market is the level of interest of people moving into the space continued to increase. So we have really incredible people from traditional finance, people with 10, 20 years of wholesaling experience or trading experience who are coming into Bitwise from firms that range from, you know, Vanguard to BlackRock to Deutsche Bank to Goldman Sachs. They still want to move into this space. I think the biggest thing that's changed in crypto since I got in full time with Bitwise five plus years ago is people realize it's not going away. And I know that seems obvious to us inside this industry. But if you back up five years ago, the idea that Bitcoin would go to zero was very alive. It was talked about in the industry.

It was probably even conventional wisdom. And I really think that's not true anymore. Right now, you have investment banks writing research reports on it. You have JP Morgan writing research reports on it. It's part of the ecosystem. Their price is on CNBC. That's a sea change. And what that means is, yeah, we don't get that same level of sort of disrespect.

Are you crazy that maybe we got five years ago? Now it's like, interesting. Tell me more about it. We see a huge rise in artificial intelligence. And to those who have been around a long time in crypto, it feels like, you know, everyone was looking over at crypto. Then they go and they look at AI. maybe the next thing will be who knows what. But every single time that attention kind of shifts between these different innovations or these different technologies, it does seem like there's

a net gain. And you can see some of that in the price of these assets. But also it feels like there are a lot of companies that are starting to just realize, hey, this is technology. This is actually not nearly as new as people I think previously assigned to it. Does that help in recruiting efforts or other types of kind of business activities that aren't directly attributed to just you as the CIO and kind of the investment decisions or the funds that you guys offer? Yeah, I think it opens people's minds. We're living in a disruptive age of technology.

It's the most exciting time that I've experienced. Certainly things like AI sort of take away attention, but I think the fact that crypto's been here for so many years, you're starting to see so many different applications that are real world applications. I think all of that is additive. I do think people know that we're really going

through a phase shift in technology, sort of akin to the phase shift we went through in the internet era, where the market, the world is changing. And so more people want to be on the right side of that. Some of those people will migrate directly to AI, some are migrating into crypto, but they realize that this change is coming. And so it is helpful to recruiting. It's helpful to retention. People really want to work in this industry, and rightly so. What are the biggest risks that you see for the industry moving forward, right? Obviously, given the last 12 months or so, there's a whole bunch of things that blew up, failed, didn't work. And I think now people are asking the question, rightfully so, like, okay, well, what are the

other risks? What are the things that I should start trying to mitigate now if I want to be a player in the space over the long run that has sustainable kind of power and has a bright future in front of them? What are the risks that you all see? Yeah, I mean, look, in the US, you have to talk first about regulatory risk. I'm a very optimistic guy. I generally think even things like Coinbase SEC is going to be net positive for the industry, but that's a probabilistic view. There's a 30% case where that's negative for the industry. And there is a concerted effort in the US to crack down on crypto, to limit crypto. And as a result, you could see really harmful regulations pop up that would hamstring this industry in the US and force

abroad. So I think that is a real concern. I do think the banking ecosystem, while we have additional banks to replace Silvergate and Signature, we don't yet have systems to replace Signet and the Silvergate exchange network, which really did make the crypto industry more efficient. And so I think there's a little bit of inefficiency that I worry about. And then I do think we need to see the real world applications gain traction. We need improvements in UX, etc. But if there's a big worry, it has to be regulatory. If you're not thinking about that, if you're being Pollyanna and assume it will all work out, it doesn't always all work out. I think it will work out, but it's something we think about actively every day a bit less. Talk to me about jurisdiction. So if

regulation is one of the big risks or one of the big kind of focuses of how you navigate that, obviously, we spend a lot of time talking about the United States. You and I both live in the U.S. that's where our businesses are based. That's where a lot of the investors that are interested in these assets and users of Bitwise are. But there are many other jurisdictions globally. And so how do you all look at either servicing those jurisdictions, working within them, or maybe employing people? Just talk to me kind of international markets outside the US. Yeah, we are a US focused firm. We serve US investors, but we think about the global markets. We have an ETF in Switzerland, we have a partnered ETF in Australia. We're always exploring other

options. You know, as difficult as the regulatory environment is here, you have blinders on if you're not paying attention to what's happening in Asia. Asia is reopening to crypto in really important ways. I think Europe is a very exciting market right now. The UK is a very exciting market right now. And of course, Switzerland's been favorable to crypto for a long time. What that means a bit wise is we're open to and always considering international opportunities. We'll do those opportunistically. But the core of our business is focused here in the US, right? It's still an enormous market, the largest market in the world. And over the long term, I'm optimistic it will get crypto right. It just seems like we have to try everything else before we get there.

What are you most looking forward to over the next 12 months? Obviously, we could talk about risks all day, but there's also exciting things. Is there one big milestone or kind of two or three achievements for the industry that you're really looking forward to? Yeah. Oh, wow. Great question. I'm really excited about what's going on in the Ethereum ecosystem and particularly EIP-4844 and how it will quash costs on layer two solutions. I think people don't understand how important that is. They don't understand the value of a prices that's effectively zero, right? If you think about the cost of crypto transactions, it's gone from a few dollars on average with spikes into the hundreds to a handful of 20 cents, 10 cents. It's going to

be sub penny by the end of this year if the Ethereum executes on its roadmap. And the applications that open up at sub penny that aren't open at 10 or 20 cents per transaction are really enormous. And I know that sounds very theoretical, but I think it's a game changer. So I'm really excited about that. More broadly, I'm just excited to see animal spirits returning to crypto, right? We are in a bull market. It's funny, you go out to investors and they still sort of have this bear market mentality. Crypto is the best performing asset class in the world this year.

I think as that seeps in, we're going to see some of those animal spirits return to the space. So Ethereum and the roadmap there, the broader bull market in crypto and how that will change. I think this will be a very exciting year, but I think the next three years are going to be phenomenal in crypto. What is your pitch to investors in terms of why they should take the time to learn about the space, learn about the assets, and potentially go ahead and allocate to it? When you talk today, I'm assuming it's some similar, but some different than it maybe was five, six years ago. What does that look like today? Yeah, you know, I think there are really two pitches.

One is from a traditional investment perspective. Crypto is, if you remove crypto from the name, it's one of the most attractive assets in the world. It's the best performing asset class over the last 10 years. It has huge potential upside. It typically has very low correlations and it's liquid. I don't want to go all CFA on you, but high returns, low correlations and liquidity

is like a magic trinity. And crypto has all of those three things. So from an asset allocation perspective, it's this beautiful thing. The other thing I like to point out is that crypto is still so small. There are individual companies that are larger than this entire industry.

It's still so early. Why do we talk about it so much? Why are there 35 pages in the president's economic report focused on crypto? Why is it one of the primary things that the SEC, why are venture capitalists invested in? Because people recognize that it could be 10, 20, more times bigger than it is today,

that it has that level of disruptive potential. but it's still really small. It's still really early. And people just have vanishing numbers of opportunities. The average investor never gets the chance to invest in something that could be so big so early, right? It's really hard to access that opportunity. So that doesn't mean you put 100% of your wealth in it, but it might mean you put one to 5% of your wealth. I think it's a really exciting story. So those are two different angles. Depends on the investor, but I think they're both right. I think that you are very convincing. You guys have done a great job building Bitwise. You work with, I think now 1,400, 1,500 RAs have a ton of institutional

investors. And so regardless of what people say about the industry or the assets, I think that you all are one of the shining examples of kind of hard work over a long period of time, trying to do things in a regulated kind of safe way seems to be working. So congrats on all the success. where can we send people to find out more about bitwise about the new fund or find you on the internet yeah sure come on over to bitwiseinvestments.com you can access our resources there or just find me on twitter matt underscore hogan hogan is h-o-u-g-a-n it's got a funny u in it uh but i'd love to see you there matt thank you so much i appreciate it you guys are doing You're doing a fantastic job and we'll talk soon.

Thanks for having me.