The Wolf Of All Streets - Bitcoin Will Get A Spot ETF | Matthew Hougan, Bitwise CIO

Episode Date: December 23, 2021

Matthew Hougan is an expert on ETFs. As the CIO of Bitwise Asset Management, Matthew and his team bring to the table decades of experience building and promoting new financial products. As Matthew describes in the episode, ETFs are the mother’s milk of the investment world, meaning their role and importance can’t be understated. Matthew is able to explain why ETFs are the pinnacle of gateway investments that will unlock the world’s money. -- Arculus: Arculus is the new crypto cold storage wallet that combines the world’s strongest security protocols with an easy-to-manage app. Store, swap, and send your crypto all with a simple tap of your Arculus Key™ card. Order the safer, simpler, smarter crypto cold storage solution today at: https://thewolfofallstreets.link/arculus -- Kava: Kava connects the world's largest cryptocurrencies, ecosystems and financial applications on DeFi’s most trusted, scalable and secure earning platform. Kava lets you mint stablecoins, lend, borrow, earn and swap safely and efficiently across the world’s biggest crypto assets. To learn more visit https://thewolfofallstreets.link/kava ---

This podcast is sponsored by Kava and Arculus. Stay tuned for more information about both of them later in this episode. What's up, everybody? I'm Scott Melker, and this is the Wolf of Wall Street's podcast, where two times every week I talk to your favorite personalities from the worlds of Bitcoin, finance, music, trading, art, sports, politics, basically anyone with a good story to tell. Now, the narrative of the last quarter of this year has obviously been the Bitcoin futures ETF. We saw Bitcoin price go up, the crypto market rising on the expectation of the launch. And

that was really the story behind the bull run of October. A lot of people don't realize that ETFs have existed in this space for quite a long time, largely pioneered by Bitwise Asset Management. And I have their chief investment officer, Matt Hogan, here with me today to discuss their products, what the Bitcoin futures ETF means, and when we'll maybe see some more optimal products and what that will mean for adoption in the future. Matt, thank you so much for taking the time to speak with me. So excited to be here. Thanks for having me on. Yeah, so as I mentioned, we just had the for taking the time to speak with me. So excited to be here. Thanks for having me on.

Yeah, so as I mentioned, we just had the launch of the Bitcoin Futures ETF. I think a lot of people obviously view it as a suboptimal product. We were looking for a Bitcoin spot ETF and there was some disappointment. And others are pointing to the fact that maybe we had the bull run up and now we're seeing a bit of price retracement as a result of that being a suboptimal product. I'm curious your thoughts around the Bitcoin futures ETF, the launch, what it's meant. I think you summed it up about right, right? We waited for what?

Almost 10 years for an ETF to launch in the Bitcoin space. Our excitement was building up. And then at the last minute, the rug was pulled out from under us because we got a Bitcoin futures ETF and not what we wanted, which was a spot Bitcoin ETF. I do think it's an important moment in the ecosystem that we'll look back on in five years and say that was a signal moment. It was the moment that we got a regulated open-end mutual fund in the Bitcoin space. Eventually, we'll have the products we want

and we'll see the sort of billions of dollars of inflows come into the market that we've all expected. And that should have an impact on the price. But yeah, it was it was a whimper. This is an imperfect product. No one loves it. It's great if you're trading Bitcoin for a week. It's not so great if you're holding it for a year. And most of us are in this as a five to 10 year play. So for that perspective, it's just not an appropriate product. So yeah, a lot of buildup and then sort of a disappointing moment when it came out. So the narrative that this was going to be the product that would allow this institutional wall of money to come flooding in is a false narrative at this point. It is a false narrative. It was never going to be that simple of a step function, right? It's the case that institutional money has been creeping into the Bitcoin market for a long time. And people thought this would be the moment it just explodes. It was never going matters is that it will let financial advisors buy Bitcoin in client accounts for the first time ever. And they control as much wealth

as traditional institutions. They control about 40% of the wealth in America. So this is a massive market that simply won't buy crypto exposure on a phone app for their clients. They need a Bitcoin ETF. And so, you know, it could be a step function moment, but the futures product was never going to be it because no one can, or very few people can talk to their clients and say, this is the optimal way to get exposure. It's just really not. So it sounds like there's a two prong. There's the financial advisors here who you're talking about, right, that are representing their clients. And then there's these large institutions that we talk

about the endowment, sovereign wealth, pensions. And the narrative has been that they were just waiting to be able to come in. They've been doing due diligence for three years. So they're still not here. They move like like oil tankers, right? They move like oil tankers. They're extremely strong. I actually never thought the Bitcoin ETF was going to be the signal moment for them. It would have been nice because it would have been the regulators saying this is now grown to an institutional level, but they weren't going to come into that product, right? They were going to do direct custody with regulated custodians on an SMA basis. But it is important to note, they get all the press. They're

like this big, bright, shiny object. But these financial advisors are just as big, right? They control just as much wealth. It's just people don't know them. People don't think about them. They don't have fancy CIOs that are on the front cover of fortune there. There are a million points of light, each of which are managing a billion dollars, right. And in aggregate, that's really a lot, but it's, it's so atomized that people overlook it a little bit. Is there a way for them to gain exposure outside of the ETF for their clients at all? There is, it's just hard, right? So their private funds, Bitwise offers private funds to accredited investors. A bunch of our competitors do.

They can do that, but it's a challenge. If they have, say, 100 clients and they want to allocate across 100 accounts, they have to send probably 100 different bank wires, which is like really a lot of fun, right? So it raises the challenge for them. It raises the hurdle. Or they could use an OTC traded product like GBTC or Bitwise as an index product, BITW, but then they have premiums and discounts. Or they can create some sort of SMA, but they're new. They all have hair on them. The beauty of an ETF is just push button simple, right? They could buy it like they buy SPY or they buy Apple stock. And if it's hard to do something, your level of conviction needs to be so high in order

to do it. You know, Bitwise works with a couple hundred financial advisors across the country. We manage $2 billion in assets. But those are people who have very high conviction on crypto. The beauty of an ETF is it would make it easier to do and therefore more people would come into the market. Right. So there's a few select amazing RIAs out there who want to do the work because they believe in it and the rest of them are just not going to take that leap, which makes sense. And I think that's probably the same narrative

for a lot of institutions, right? That is exactly right. And I will say, you know, we talk to institutions all the time. They are still turning towards crypto. this perception, I think, that institutions have a varying attitude towards crypto. That's not true. They're in like a five year bull market. That's their view of this market. And they're just so slow to turn. But when we have conversations, the short term volatility never comes up. They're looking at the one or two or three year returns, which are still all spectacular. It's just, it's going to take a while. It's still going to take a while. So we're early. That's good news, right? We are still early. Yes, we're incredibly early, right? Still the case that none of the major

money centers own crypto in meaningful amounts. And for that reason, it really is still inning one in crypto land, which is incredible to say for those of us who have been in this industry for years, and all the people we talk to are moving past ETH to Solana or talking about Avalanche or Terra. Bitcoin is so old, but for most people, it's still the frontier. And that really is an important thing to keep in mind. That's interesting and leads into the next thing I want to discuss. Anyways, I look back on sort of even the old narratives that I was perpetuating over the last years, right? We had MicroStrategy come in, Michael Saylor, you know, a year and three or four months

ago and expected there was going to be this massive influx of companies putting Bitcoin on their balance sheet, right? Tesla did it. And then they had this huge conference in February with thousands of CFOs of companies. And then we just haven't really seen follow through on that. That was unexpected to me at first. But now when I think about it, it seems like institutions are really coming in more heavily

with the picks and shovels approach. VC pouring into the, not necessarily into Bitcoin, but they really seemingly want a piece of the innovation at the ground floor more than they just want to, as you said, boring Bitcoin, I guess now, more than they want to put Bitcoin on their balance sheet. Yeah, I think that's right. Well, I think, you know, you know, that when you come into finance, the thing you're taught is the most expensive words in the financial industry are this time it's different. And I think that explains a lot of this Bitcoin versus picks and shovels thing. Institutions look at Bitcoin as this magic internet fairy money that

fell from the sky and it's worth a trillion dollars, creating a new international monetary standard. And they're like, this time is different. I'm afraid of that. But if you're my age, I'm 45. And you've been in the finance industry for 20 years. The one thing you've seen is new technologies disrupting old markets pay off in a major way. And so if you can invest in the picks and shovels, you'll do great. That was true in the internet. It was true in biotechnology. It was true in social media. Like the opposite of this time is different is I've seen this story before. And the reason picks and shovels appeals to institutions

is because they've seen that story 10 times and it's always worked. And so I think that will continue to be true. The interesting sort of interstitial space between the true tricks and shovels and Bitcoin is something like the Ethereum Solana Layer 1 place, where institutions like that because it seems more useful.

And they also like that because it makes them seem clever. Ah, I love crypto, but I'm not really Bitcoin. I love ETH. It's more useful. It's something that makes them seem clever. But it is more useful. And so it does have more pull. And that's where the really interesting tension is right now. I've been pounding up the drum on the just buy all the layer ones for quite a while here, because it just seems like the most obvious play. As you said, it's sort of the

middle of the road, right? It's not as boring as Bitcoin, but certainly not as exciting as getting a MetaMask wallet and starting to buy dog coins that you that people have never heard of right i'm also 45 by the way so you and i are two of the oldest people in the crypto industry there you go exactly they call us they call us boomers right um so as the uh you know in in the capacity of your job as the chief investment officer how do you offer all of these various kinds of exposure to your potential clients? Because it seems like it's not just Bitcoin anymore. People want different opportunities and a different variety of ways to gain access to it. That's exactly right.

So Bitwise's core thesis is we want to provide, as you said, exposure vehicles to different areas of the market. So we'll take an area market, develop a product that lets you bet on it without trying to win winners and losers, without trying to pick the winners or losers, and that screens out risk. So our flagship product, the Bitwise 10, is like the S&P 500 of crypto, holds the 10 largest crypto assets. I think people like it for two reasons. One, it future proofs you against however the market develops, right? If it becomes all ETH, the index becomes all ETH. If Solana rises, the index becomes Solana. But two, it screens out all those other coins that make professional investors nervous. So if you went to CoinMarketCap, you'd have to get down to about coin 23 before you found our 10th coin. And we're

screening out assets because of federal security law risk, custody risk, liquidity risk, et cetera. So people like that. Beyond that, we apply that same idea to different segments. So we have a DeFi index fund, right? We're working on things in areas like NFTs and the metaverse. We have a picks and shovels ETF, BitQ. That was the first pure play crypto equity ETF out there. There are a lot of people who want active exposure. There are a lot of people who want to bet on one particular coin. And then there are a lot of people for whom crypto is 2% to 5% of their portfolio. They don't live in it and swim in it 24, 7, 365. They remember that, you know, BlackBerrys and Napster and Betamax and that the first to market don't always win. And they just want to own the space. And that's where Bitwise fits, just owning the space so you

get exposure to the theme. I make the Betamax joke all the time. I talk about it. It's my favorite example. It was a superior technology. Yeah, my family had a Betamax, all the time. I talk about it. So my favorite example, it was a superior technology. Yeah, my family had a Betamax, 100%. We never had the LaserDisc though. That thing was a step too far. I forgot about those. So you're talking about the top 10. So it's a curated top 10. Because my next question was going to be, well, SHIB and Doge and a lot of these things end up in the top 10 at various times if you're going strictly by market cap. That's exactly right. So we screen out a large number of assets.

A lot of them fall by the wayside because we think they're at undue risk of being deemed securities by federal securities regulators. XRP is the obvious example. There's a lawsuit. So it's clearly at undue risk. But there are other assets that fall by the wayside for that factor, mostly because, unlike, say, Ethereum, they haven't decentralized enough to be, in our view, likely to be clear of that securities hurdle. But something like Shibu, we have a rule about the minimum price of an asset because we think something like Shibu doesn't enjoy real price discovery. There were one quadrillion Shibu coins issued. A quadrillion is a number that even I can't think of. I struggle at billion. A trillion is really hard. A quadrillion is the

biggest number I've ever heard used in finance. I just don't think there's real price discovery. Dogecoin doesn't have its own consensus mechanism. So there are various screens that we apply. So it is a screen curated list. That means we miss some edgier, riskier assets that I think are really attractive. They're assets that I love that aren't in our index. Right. That's the point. I mean, if you're doing a top 10 market cap index, you don't necessarily want the riskiest and you can create products for that. It's interesting because it sounds like you've almost curated your own Howey test for crypto to some degree, right? And you talk about maybe it's at risk of becoming deemed a security by regulators and all these other risks.

And it's almost like you're doing what they're supposed to be doing in the first place. I love that. We spend a lot of time on it and it's really hard because it's such a gray box, right? And it's such a facts and circumstances case. And also the data availability isn't great. We spend a lot of time yelling at projects to give us more data because if you don't know the layer of distribution, how can you evaluate, you know, how decentralized it is? So it's very hard. Again, we're not trying to say this is a security or it isn't a security. It's just, is there undue risk? We won't be perfect, but we take our best tests. And yes, we're applying that kind of analysis as best we can with the support of our legal counsel, our in-house counsel, and some experience in this market.

But it's a real challenge. I wish it were clear. There should just be a list. Security, not a security. Make it easy for us. Yeah, that would require them to actually understand the assets and do the work. But I guess that's a conversation for another time. I actually just spoke with Hester Peirce recently, obviously one of the five SEC commissioners and probably the only one who does do the work and

somewhat get it. And she's, you know, famously has proposed multiple times the safe harbor idea, right? Basically you get to launch, you get three years to decentralize sufficiently or prove that you're not a security and then we'll figure it out. Doesn't that seem like a pretty reasonable approach? It seems like such a reasonable approach. And it does two massive societal goods, which we shouldn't overlook. One is it keeps innovation here in the US, which is something us in the US should be fans of and is at real risk in one of the fastest growing areas of the economy, which is crypto. And also by enforcing decentralization, it actually goes like a modest way towards solving the inequality of distribution

of wealth, right? It empowers users to be owners of these protocols. And it's a really great force and function for that. I think of something like the ENS airdrop. In Web2, that would be one company sitting on all that value. And because of the way it works today, that's not true. It's tens of thousands of people who got to participate in that value. That's another major societal good. So yeah, let's safe harbor it, keep innovation here, help with the distribution of wealth, balance the power between centralized corporations and users. I think it's got so much good in it.

Yeah, that describes what regulators are supposed to do, protect consumers and allow them to have opportunity. But I think we all know that that's not the case of how it actually pans out. I'm not saying I'm not even deeming that sinister, saying whether it's intentional or not. I just think the system now is obviously structured so that wealthy people have access and they protect poor people from really the same opportunity as opposed to, you know, scams and what they're supposed to be regulating away. Yes. Yes. Scams, disclosures. Yeah. look, anything is a balance between opportunity and risk. It's just the current view, in my opinion, from the regulator side is so worried about the risk factor that it overlooks this massive opportunity piece, which is equally important.

I wish there were better rules around disclosure for many of these projects. I think that's something that could be systematically improved and should be. But, yeah, we don't want to foreclose on most people participating in this massive economic growth. You shouldn't have to be able to get into, you know, Andreessen's latest fund to have the upside here. Right. Which you can't do unless you, you know, have a million in assets minimum and, right,

you know, proven a certain amount of income in the family for a couple of years. It's amazing how that works. We know that those laws don't work too well. But it's interesting. We've seen a lot of companies, Coinbase first, I know FTX did the same, basically proposing the structure of regulation to the regulators saying, listen, if it was us in your shoes, we understand this market. This is how you should do it. And I don't expect the regulators are just going to adopt a crypto exchange's ideas on regulation. Has Bitwise, since you are obviously creating these products, they're regulated products, and you're already going through this sort of custom Howey test, as I joked, have you proposed to regulators or been in conversation with them about how they

can approach this? We, like most major players in the crypto market, are in regular conversation with regulators. We meet with the SEC on a monthly basis, a lot talking about ETFs, also talking about other things. We've had multiple meetings with senators and congresspeople over the last few months. I will say that it's really changed the level of sophistication, particularly outside the regulatory world, in the political world since the infrastructure bill it's been like night and day i think people woke up to the reality that there are a lot of people investing in crypto who are voters and we've we've seen so much more reception of of interest from capitol hill since the infrastructure bill it does give me some degree of hope but yeah

bitwise um you know contributes to the community and i think it's important for all crypto companies since the infrastructure bill, it does give me some degree of hope. But yeah, Bitwise, you know, contributes to the community. And I think it's important for all crypto companies to make a concerted effort in that space. It won't happen on its own. Right. And, you know, like the sort of Bitcoin maximalist ethos would be like, short the government long Bitcoin, right? But that's not the path forward, right? I mean, we need to work with them because the regulation laws are going to be aggressive and heavy handed if they're not getting feedback from the people who actually understand it. That that's exactly right. I'll also tell one story from my former life. I think, as you know, as the CEO of ETF dot com spent a decade in the ETF industry, ETFs are like the mother's milk of investing. But that wasn't always true. I distinctly remember there being congressional hearings about ETFs and whether they were driving

up the price of oil, whether they were killing American entrepreneurialism. So for a time, whether they were creating a liquidity doom loop in the bond market that was going to take down the global economy, these were all theories that were addressed seriously on the floors of Congress. And the lesson for crypto there is it doesn't have to be the case that it's always this sort of skeptical world, right? You can graduate through persistent lobbying and facts and analysis to a future where it's embraced as normal. The fact that people are skeptical and there've been difficult congressional hearings and positive congressional hearings, it's a track that I've seen play before in the ETF industry. People forget it now because everyone owns ETFs. Everyone loves them. It's Vanguard. It's low cost. But that was true back then too,

in a very concrete way. And it can change. Yeah, you mentioned the infrastructure bill. And at the time, I sort of joked that it was the greatest advertisement for Bitcoin and crypto that ever existed, because we went so mainstream so quickly, when it froze the infrastructure bill for three or four days because of this one sentence. And you're sort of confirming what I believed, which is that that was sort of the moment when they had to take it seriously because they saw that this was a real community with real power and real companies and a whole lot of money behind it without PACs and lobbyists, of course, but a ton of money invested in it by Americans. And we just saw sort of a congressional hearing with a lot of CEOs from the industry, I believe six of them, Sam Bankman Freed, of course, speaking in front of Congress. I think we all believed that it would just be a mockery, right, that they would talk about it being a scam

and energy and all the things we've seen. And it actually turned out that they asked meaningful questions, seemed genuinely interested and want to be a part of this space. I would never have predicted that. It's such a fast turn. It was incredible that most recent session. And I do think, Wall Street typically surprises you, right? The thing you least expect is the thing that

drives the next bull market. I think the next bull market in crypto is going to be driven by positive regulatory developments. And I think it's going to come sooner than people expect. Because as you said, this swing from September to today has been just massive. And as that continues to accelerate, you have more mainstream adoption. I think we're going to get to a positive place. And that's going to unlock institutional development, institutional capital, like that may be the step function change is that unlocking from a regulatory and legal perspective. I tend to agree and I think that for the first time they realize, you know, listen, politicians just want to get reelected, right?

And if their constituents are pissed about their crypto laws then they're gonna have to become more pro crypto or risk not being reelected, right? So as the community becomes bigger and more boisterous, it's going to be a force to be reckoned with whether they like it or not. That is exactly right. And it has a lot of firepower because crypto companies are profitable, they're large, they're growing. Coinbase has more users than Schwab and TD Ameritrade combined. This is a big thing. And I do think Washington is waking up to it.

And I think that will be really meaningful in the coming years. That's interesting, then, that the narrative becomes sensible regulation. What about, I don't know, 6.8% inflation year over year? Is that still our narrative? Or are we now looking for regulators to drive the bull run? Oh, come on, Scott. It's transitory. It's going away. You know that. I know that. It's nothing to worry about. I actually I don't know. I mean, that I think that's going to be a big issue next year. And I think it could be ugly. And it's interesting to see how the how the Fed will respond to that. Right. We've seen the great pieces out by Mohamed El-Erian over the weekend

talking about this critical moment for the Fed where they could lose credibility and the inflation narrative could spiral away from them. It is going to continue to push people into assets that can shield them from that voracious gobbling of the value of cash. I think yield products are going to be big. I think staking is going to be big. Yeah, that is a big wild card for 2022. I still think people are underplaying the bind that that puts Washington in between inflation and massive debt levels. It's really hard to figure a way out of that.

Yeah, I agree. And the notion that it's transitory is so laughable at this point. But they did officially, they did retire the word. They did. Which was a big deal because we hang so much on Jerome Powell's every word that he retired the word lest it convince people. But it's such a mockery of like common sense. And it's such an insult to anyone's intelligence to listen to them talk about it. Like how has the Fed not already lost credibility? Really? Exactly. And a mockery is of people's day-to-day experience, right? It undercounts rent,

it undercounts real estate, it undercounts college tuition, it undercounts all these things that people experience in their day-to-day lives. It doesn't feel transitory to me and I'm in a privileged set, right? It really doesn't feel transitory to me. And I'm in a privileged set, right? It really doesn't feel transitory to people who are in less privileged situations than me. And it feels really challenging. It's going to be really challenging. I mean, we're both 45. Has there ever been a time in your life? There may have been that I'm just not aware of when you could buy a car, brand new, drive it for a year, and go sell it back for more than you bought it for. That's I mean, that really exists. People. I have a friend who just bought a hundred thousand dollar, you know, hundred thousand dollar car, put eight thousand miles on it and sold it to

a dealership for one hundred and twenty three thousand. There you go. Totally normal, Scott. Nothing's new car. Right. It's unbelievable. Flip everything on its head, though. I mean, you know, we've always learned the lesson. don't buy a depreciating asset do those exist they've been retired that idea has been retired they've retired depreciating from the land but it's pretty crazy so then obviously that puts you in various buckets i guess if you really believe the inflation narrative and you're hardcore Bitcoin, or you buy Bitcoin, right? You buy its spot, you custody it yourself, you opt out. Do these ETF products and all these products that we're seeing created, do they still offer that same sort of hedge? Do they fill that narrative? Or is it more of just a tool that people are using to gain

exposure? Or is it both? I don't think the futures-based ETFs do, because I think, again, that's a three to five to 10-year play. And the short-term price direction of Bitcoin has so many influences that I don't think it's a good hedge for the next inflation report. I think it's a good hedge for the next five years. So I think the answer to that is no. I think equity ETFs get at it in a reasonable way, right? If you think of Bitcoin miners and mining equipment manufacturers and Coinbase and asset managers like Galaxy, are those going to do well if Bitcoin does well? I think the answer to that is yes, right? Like if the crypto ecosystem 10Xs, will Coinbase business grow?

Like the answer to that is yes. So I think that's one way that people who are locked in the ETF narrative can do it. Of course, from my perspective, just own the whole thing, figure out a way to own a basket of crypto assets and wait it out. But the most important thing, speaking through all of that, is to do something. The biggest mistake, the most incredible thing about crypto to me, dealing with financial professionals, is they spend so much time thinking about it, reading about it, studying it, evaluating it. And most of them still have zero exposure. It's pretty shocking to me. Like you spend 20% of your time, just put 2% of your portfolio in it and move on.

It is surprising to me. Yeah, it's kind of insane at this point not to just throw 1% or 2% in. It's very mainstream. You can't find anyone who hasn't heard about Bitcoin by now, right? It's not 2017 where we were still this fringe sort of community. That's exactly right. Also, I think the binary risk has gone away. That's maybe the biggest thing to me over the last few years, the likelihood that crypto just goes away. That was a conversation we had in 2017. It was a conversation we had in 2018. Those conversations aren't happening now. We had that conversation in 2020. We had that conversation. In March of 2020, I think it actually,

it was louder than even in the depths of the sort of crypto winter. I think that's exactly right. But those conversations have, I think, gone away. There are too many use cases, too many applications. And that's a game changer for that 1% to 2% allocation. If you know it's not going away and it's just a matter of, you know, does it fall 50%? Does it go up 10x? That's an easier allocation than something that can, at least

from a financial professional's perspective, look embarrassing. People have bought things that have gone down in value, but buying something that goes away is terrifying to people. I think that fact has changed over the last 18 months. Guys, unless you've been living underneath a rock for the past few months, then you've definitely heard me talk about one of my favorite platforms, which is Kava. Kava connects the world's largest cryptocurrencies, ecosystems, and financial applications on DeFi's most trusted, scalable, and secure earning platform. They have borrow APYs as low as 0% and reward APYs as high as 200%. 100%. They let you mint stable coins, lend, borrow, earn, and swap safely and efficiently across the world's biggest crypto assets with a simple and intuitive user experience

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called All the Things We Cannot See, right, about DeFi. And I love that you went back to one of the most famous videos of Bill Gates. I think he's on Letterman, right? And he's explaining the internet and people are basically being completely dismissive of it, talking about the potential. Do you think that's sort of a corollary for where we are now with DeFi and crypto? I think it's absolutely a corollary. I think it's absolutely a corollary because it's hard to go back to that age where when we thought of the internet, we thought of the New York Times online, and that was it. And we couldn't imagine Facebook and Instagram and Snapchat and Zoom calls and podcasts and crypto. Those were beyond our worldview. The same thing is true in crypto right now. It's difficult to imagine exactly all the ways that

crypto and DeFi will change the world. Mostly we apply our prior art, our prior existence. Oh, it'll be like Western Union, but faster. And the chances that that's the primary way that this thing disrupts the economy going forward are extremely low. The lesson from that piece is when you look at a disruptive technology, what you want to look at is sort of its core primitive capabilities. And if those core primitive capabilities are important, technology, what you want to look at is sort of its core primitive capabilities. And if those core primitive capabilities are important, well, then you should allocate to it, even if you can't imagine exactly what it's going to do. If you can imagine what it's going to do, you should start Microsoft and make a trillion dollars, right? But you didn't have to be Bill Gates to profit from the internet. You could see how it allowed information to move, allow communities to come together, knits the world together. And those were powerful primitives.

The same thing is true in crypto. It allows money to exist on the internet. It lets you program money like software. It creates digital property rights. If you think about 5, 10, 20 years, are digital property rights more important than they are today? Is programmable money more important than it is today? Right? Probably. That seems like a pretty easy bet.

So yeah, the idea there was people get fixated on, I can't imagine exactly how I'm going to use crypto in 18 months and what it's going to replace. And that's the wrong narrative. Technology always surprises you. Just invest's the wrong narrative. Technology always surprises you. Just invest in the core capabilities and you'll be okay. And a very good way to invest in the core capabilities is to buy an ETF like you have, right? I mean, get exposure to 10 of the hottest assets that are in the top 25 by market cap without doing anything too exotic or risky. And you'll capture the upside of whichever one goes. And I think that you guys started doing these in, I think, 2017, right? That case couldn't

really be made in 2017 because it was sort of Bitcoin, Ethereum, and everything else. Since that sort of crash in 2020, we've seen a DeFi summer, an NFT summer, this boom in metaverse and play-to play to earn gaming. Now everybody talking about roll-ups and ZK snarks and all these things, which maybe will be the next one. Crypto is not just one thing anymore, right? And so you really now, and even since Michael Saylor bought to some degree, you can't just say, I want to buy Bitcoin and that's crypto. That's exactly right.

It's not even a piece of crypto. None of NFTs are built on Bitcoin. None of DeFi is built on Bitcoin. The metaverse isn't being built on Bitcoin. It's like the internet in the early 90s, right? You need exposure to the full thing, and that's going to be more true in the future. The beauty of an index-based approach that rebalances regularly, we do it every month, is you're future-proofed over however that develops. If ZK Snarks is a big thing or roll-ups or cross-chain compatibility, the index will evolve to reflect that. You don't need to monitor it every day. You don't need to wait for the latest Elon Musk tweet to change your portfolio. The index takes care of it for you. It's why I

love it. Most of my personal crypto wealth is actually invested directly in that product because it makes it easy and I'm busy and it's hard to pick winners, right? Like who knew Google would evolve back in the days when Yahoo Finance and Ash Jeeves and those things were the winners. And I think that's true in crypto too. Right. And so has it been surprising to you since you're actually creating these funds and deciding what goes into them, how fast those top projects have rolled over? It's been surprising to me. I'm in this 24-7 like you, but I didn't know that we'd get from DeFi to NFT to Metaverse and all this kind of so fast. It's accelerating, which is the incredible thing, right? We used to have these cadences, but they used to be broken a year apart, right?

It was Bitcoin, and then it was ICOs, and then there was a long time, and then we got to DeFi. And now it's all happening all at once. And that makes sense if you think about exponential growth. The number of people participating in the crypto economy is not growing linearly, it's growing exponentially. The amount of venture capital in fueling new developers and new activity is growing exponentially. And so you get this kind of compounding acceleration of interesting things. And I don't know what's next, but it's unlikely that we've

stopped here, right? It's unlikely that NFTs are the end. There's probably a lot more that's really exciting just around the corner. Right. And so many things we haven't even thought of, I'm sure, as you're touching on, but then even within these subsets, like NFTs have just scratched the surface of what's possible with NFTs, right? Not what's possible with crypto, but we've probably have seen a half a percent of the viable use cases for NFTs themselves and probably the least exciting of them. That's 100% right. It's 100% right. Yeah. And that's true of DeFi as well, right? DeFi has probably just scratched the surface and all of these will go through ups and downs.

There will be an NFT winter. We may be already in it. And then there'll be another NFT boom. But again, you get back to that core thing. What is the core capability here? In the case of DeFi, it's programmable money. In the case of NFTs, it's digital property rights that can be transferred, moved, and owned.

Those are just extraordinarily powerful primitives. You know, one trick that I like to play with skeptical traditional financial people is to ask them, you know, what the price of Bitcoin or ETH will be not next month, not next year, but 10 years from now. And there's something about abstracting out really far that makes it seem impossible that these core primitives are not really, really important. Like NFTs next month, I don't know, up, down 30%, right? NFTs 10 years from now, huge part of the world.

Digital property rights changes everything. And I do think that expanding out past the short term volatility is a powerful technique for people to get over the hump. I mean, I love the idea of Bitcoin being $500,000 or a million dollars. I just wonder what a dollar will buy you when that happens. That's a painful but important point. This $10,000 big Mac. Hard man, I had to bring my suitcase of cash in to get a loaf of bread, but you wonder if that would be the future. You just said that's a great example of what you say to potential investors and skeptics who are interested potentially in the crypto space.

I have to imagine a huge part of your job is going out to institutions, family offices, all these sort of people we've been talking about and trying to convince them. What else are their biggest criticisms? Is it still scammers, China bans, energy, and the same ones that we get tethered, right? The same ones we get recycled every time Bitcoin drops? Or do they have other concerns that you're addressing and have some skilled way of convincing them? Yeah, well, I don't know about the last part. Energy is a big piece that still comes up in daily conversations. Tether's like a bad punny. It comes around every like six months and comes back. Valuation is the other challenging one and sort of core fundamentals. And valuation is tough.

Like it's tough to talk to people about Bitcoin's value from a DCF perspective. Like it doesn't have one. It's easier in other assets. So often on valuation, I'll pivot to talk about ETH or talk about DeFi assets, which again fit more cleanly into the framework. Bitcoin valuation, it's just hard to talk

to a traditional financial professional about that. You can talk back at the envelope level, right? You can talk about gold, you can talk about store value, you can talk about stock flow, you can talk about this, but none of those have the same sort of piercing simplicity of DCF. And I do think you can pivot them to ETH. But most of what I do

when I talk to these people is tell the same story over and over again about what a blockchain is, what new capabilities it introduces into the world, and what are some of the early examples of seeing how that's being applied. And for many people, that's enough. But I've probably told the same story with the same analogies, I don't know, a thousand times. And hopefully I'll get to tell them a thousand more. Yeah, hopefully. So it's, I mean, it comes back to the, well, you don't think about how your cell phone works, right? You don't think about how the internet works, right? Well, you're not going to think about how any of these things work either, because the blockchain will be the underlying tech of all of it. Such an obvious argument, but that's.

That's exactly right. I don't even know how electricity works, but I turn the light switch on and it comes on every day. Right. I think it has something to do with a kite and a key. That's probably right. That's, I went to the University of Pennsylvania. We have Ben Franklin on a bench with the, you know, it's his university.

So we, I got a good lesson repeatedly in electricity, but that's where mine stops as well. But it really is true that, you know, you don't need to understand how it works to know that it's going to. That's that's absolutely right. That absolutely right. I will say one one point towards that. I spent a lot of time in 2017 talking about mining. I haven't used the word SHA-256 in three years with a professional investor. People used to ask those questions. Maybe that's symbolic of people accepting that this is a thing in the world that exists in the world. So that's a little bit of progress, but it is absolutely true.

You don't need to know how it works to understand that it can have power. You don't need to forecast exactly what you'll do with it to understand it could change society in fundamental ways. And I think we're getting progress. I think we're making progress. So then what's next for your products? Right. Obviously, you have these core products, but I'm assuming that you're always innovating and looking to the future. What do you want to do and And what can you do within the framework of what's allowed right now? Yeah, so the can versus want is pretty clear. We would love to bring real ETFs to market, right? Our Bitwise 10 fund, BITW is an OTC trading trust that can trade at premiums and discounts. We would love to bring a spot Bitcoin ETF, and then a spot Ethereum ETF,

and then an index-based ETF, because we think that would open up this opportunity to the vast majority of wealth in America. So that's something we spend a lot of time on, met with the SEC, I think 19 times in the last year and a half about that, submitted 150 pages of research. It's like banging your head against the wall, but it's part of what we do. And then inside crypto, as you mentioned, the scope of new opportunities is expanding. So we're working very hard and are close on something in the NFT space. We're looking at areas like the metaverse and yield. We'll continue to innovate in that space and think about other areas where we can make,

bring products to market that make it easy to allocate. And that's, you know, that's what we'll try to do. Mostly, we want to fill that role that traditional ETF providers or index providers fill in traditional finance, which is, let's not try to pick and choose winners. Let's not try Ethereum versus Solana or Solana versus Atlantis. It's just I'm on that market. And that won't be right for everybody, but I think it'll be right for some people. And frankly, I think they'll all win in their own way. I'm just not a Ethereum killer narrative guy. And I think it'll be a multi-chain world. I talk about it all the time.

And then each one of them will just sort of find their lane. That's exactly right. Look, there are 100,000 software companies. There are probably multiple hundred that matter. There are probably 30 that I use all the time. They're all built on the same technology, but they're optimized to do different things, right? I use Google in a different way. I use Microsoft in a different way.

I use Salesforce in a different way. I use Slack. Blockchains are just a technology. They're optimized to be good at different things. Some things you want security, some things you want decentralization, some things you want speed. It's probably not surprising that it'll be a multi-chain world where different blockchains are good at different things. You know, nothing is going to be perfect at everything. There are trade-offs in life and that's true in blockchain design. It's not, you know, it is unlikely that there'll be one ring that solves all the problems.

Yeah. And you talked about this sort of pie in the sky idea of getting the Bitcoin spot ETF and Ethereum spot ETF. It's the question now that we got the futures ETF, seems like they kind of threw a bone and probably have no intention of even pursuing spot, in my opinion. Do you think that we might see an Ethereum futures ETF before we see a Bitcoin spot ETF? Ooh, that's a tough one. I should say that I don't know, and my lawyers will say that I can't tell you for sure. Yes. Yes. I think that's probably likely. Now, I'm more optimistic on the spot ETF than many people. I'm generally an optimistic guy. So you should color my understanding with that. I think we'll get to a spot ETF, you know, I would guess within the next 12 months.

But again, I could be overly optimistic. I think ETH is probably closer, right? We've seen ETH futures. We've seen Bitcoin futures. Ethereum futures have a significant amount of trading volume. It's a smaller leap from Bitcoin futures, Ethereum futures have a significant amount of trading volume. It's a smaller leap from Bitcoin futures to Ethereum futures. I suspect we'll see a lot of people working on that. But you'll have the same issues you do with a Bitcoin futures ETF, right?

You'll have to take it. It'll be a terrible product. It'll be a terrible product. I just think that if it's filed for, they have less grounds to deny it because they've already said this structure works, right? Yes. Yeah, yeah. They still have ways to do it. And there's still sort of effort that needs to

be made to make that happen, but it's going to happen. Look, sort of the manifest destiny of crypto, that there will be ETFs on most assets, probably initially with futures and eventually with spot. And in the end, investors will be better served, right? Investors will be better served with an ETF that gives them exposure to what they want than with imperfect products that they have today, which is just the reality. Yeah. I mean, when are we going to get that dog coin futures ETF that we've all been dying for?

It has a basket. No comment. Do you believe that the sort of these, you know, dog coins I guess could sort of be put in that meme category, right? And a big part of the NFT space, maybe, you know, all the sort of cartoons and jokes and all those things that have been bringing a lot of attention, whether positive or negative on the crypto space. Do you think that those are net good for bringing people in in general? Or do you think that it is a poor reflection and maybe turns people off when they lose all their money on a coin named after Elon Musk? Yeah, dog coin or what's the new mongoose coin? Oh, yeah. Mongoose coin eats crypto coin. Yeah. Those are probably bad for the ecosystem. Those are probably bad for the ecosystem. Now, one or two, you could argue they've built interesting social communities. Maybe they can transform into a legitimate technology with these cases. That's an edge

case. Mostly that keeps traditional investors out of the market because they see that and they're terrified and afraid. I feel a little bit differently about NFTs because there are a few things about at least sort of the blue chip NFTs that are appealing to me. They bridge art into a digitally native format. Some of the generative art I think is legitimately beautiful. Some of the sort of social signaling that's brought celebrities like Jay-Z and Jimmy Fallon into the NFT space, I think popularizes it. And they probably have a place in the history of collectibles as the first native collectibles. So a little bit more on the NFT space.

But even there, there are examples that just turn people off, right? A gray rock selling for a million dollars causes 50 year olds to lose their mind. Right. That's right. You have the right ether rocks. And then of course you just have all of these sort of cash grab projects that are based on the blue chip ones. As you said, I haven't, I would never disparage crypto punks and board apes because they clearly have legitimate value, legitimate community. But when you start making like, I don't know, malarkey monkeys and turned up turtles and, you know, that that's the dog coin, like a board ape and punk is Bitcoin, Ethereum, and those are the dog coins, right? Is all these kind of knockoff projects. And inevitably, it leads people to lose money. That's exactly right. Financial decisions,

but that's what happens. And that's where that's where the regulators should be focused on, right? They should be focused on, right? They should be focused on, like, we should have more clarity on verified collections in the NFT space and more disclosure around that to avoid confusion. We should have more clarity even about these meme coins and distributions. And like, that is an area that could be improved and people do lose money. And yet it colors the market. But anytime, look, crypto is one of the greatest economic booms that I've experienced, gone from zero to multiple trillion dollars. Anytime you have that kind of enormous surge, you have speculation and excess riding shotgun. But that doesn't mean that the enormous surge isn't real. So yes, those color it negatively.

Yes, I wish they didn't exist. I cringe. But it doesn't mean the rest of it isn't very real. Right. But it reminds me, you always hear this negative attack on crypto saying it's like the internet bubble of the 90s, right? And I think that's the greatest compliment you could pay. We wouldn't have the largest companies in the world or, I don't know, the internet,

if not for the internet bubble of the late 90s and early 2000s, right? So, of course, we're going to get speculators and we're going to get all these entrepreneurs and people looking for cash grabs. But we really have the smartest people in the world now focusing on the crypto space. Most will fail, but then we'll get Google out of it, right? And companies like that. So I think it's the funniest criticism and it's we'll get Google out of it. Right. And, and companies like that. So I think it's the funniest criticism and it's sort of how you just described it, right? Everybody pours in because there's opportunity. And so, yeah, you get a bubble, but yeah.

But that's what all the great things in the world come out of. Like, like, like the history of bubbles, the history of progress. There's the railroad bubble, railroads, right? The internet, as you said, it's a great compliment. And also, if you invest in Amazon, didn't matter, 98, 99, 2000, 2001, you've done pretty well, right? You can't even see that on the chart. Yeah. Mark Yusko told me a story on a podcast, actually, where he said, do you know how many people are still holding Amazon from the IPO? And he said, four. You know, Jeff, his wife and his parents, every other person at some point got shaken out. Ninety five percent drawdown in 2000 or whatever year was a bookseller, not believing, not understanding the cloud capabilities.

But that shows you right. If you just held through all of that and chosen the right horse, I mean, you would have made it, but nobody does. Nobody does. Yeah. That is the challenge. It's a 10 year hold. And, uh, and you could have bought all the retailers and, you know, some of pets.com or whatever went out of business, but you would have done just fine in aggregate. You would have the basket. Yeah, the basket. Then you don't need to be the guy who was like, should I put my money in this bookseller or in this pet business? Right, exactly.

Choose the pet business and you really missed the opportunity. 50-50 on both and you're living on a private island, no matter how much you put in. That's exactly right. That's exactly right. And crypto, blockchain is, I think, almost as big an opportunity, maybe as big an opportunity as that. It's a massive once in a generation, once in a lifetime opportunity. It's the internet attacking money. And money is the biggest market that the internet's ever gone after. It's bigger than retail. It's bigger than telephony. It's bigger than anything. It's a huge addressable market. And that's why it's really exciting. Well, then you can understand why regulators and governments are so scared of it. Well done. Come after the money. They're not going to take that too kindly. So it will definitely be a bumpy road. I think that's a great place for us to wrap it up. Where can everybody follow you and

what you're doing after this conversation? Sure. Come over to bitwiseinvestments.com. You can sign up for our monthly letter or follow me on Twitter, Matt underscore Hogan dot com. Matt underscore Hogan. That's H-O-U-G-A-N. So find me there. Perfect. Well, thank you so much. I think you gave a lot of color on a very sort of confusing topic around the ETFs and what we can really expect in the future. But thanks for having me on. This was fun.