Get the latest on bitcoin and Ethereum and learn what advisors think about investing in crypto
Ric: Two of the most popular investments in the country right now ETFs, generally speaking, the most popular investment with a trillion dollars of inflows in 2021 and crypto bitcoin is increasingly a very popular investment. About a quarter of all U.S. adults now own bitcoin. And yet there is no Bitcoin ETF yet. Why not? Well, to help us dive into that question and to understand what bitcoin is and crypto and where it's all going. Let me bring back on to the program, my good friend Matt Hougan. He is not only chief investment officer of Bitwise Asset Management, he's a former CEO of ETFs. Matt, welcome back to the program. Always good to have you on with us.
Matt: Thanks for having me, Rick. Delighted to be here.
Ric: You can invest in pretty much anything you want via an ETF or a mutual fund. Stocks, bonds, government securities, real estate, gold, oil commodities. But there's no way that you can buy a mutual fund that invests in bitcoin or an ETF that invests in bitcoin. Why not?
Matt: Well, the short answer to that question, Ric, is because the SEC won't let us yet. Bitwise is one of the firms that has filed for an ETF. We've actually submitted two hundred pages of research to the SEC trying to demonstrate that this market is mature enough, institutional enough and well protected enough to allow an ETF. Look, I'm hopeful that we'll get one this year, but I've been saying that for a few years now. I do think long term the approval of a Bitcoin ETF will impact the price of bitcoin. In the same way, honestly, that the approval of a gold ETF in 2003-2004 had an impact on the price of gold over time because it makes it easier for mainstream investors to buy. Look, bitcoin is a simple investment in some ways. It's always a question of supply and demand, and because the supply is fixed and known. Twenty one million bitcoin doesn't matter how much more we want, that's all we're ever going to get. It really just comes down to demand. So if an ETF unlocks new demand, which I think it will, it'll help financial advisors buy it or help retail buy it and help institutions buy bitcoin. It should have a long-term positive impact on the price of bitcoin,
Ric: And it kind of makes sense. I mean, you know, everybody has their own style of investing. You might be the kind of a person who likes to buy stocks. You might be the kind who likes to buy mutual funds, who likes to buy separately managed accounts, SMAs or someone who likes to buy private placements. You might like to buy individual pieces of real estate for rental income, and then there are others. You know, if you have a certain style of how you like to buy your investments, you're only going to buy a given investment if you can do so on the platform you like. If you're an ETF buyer, you're not going to buy an investment unless it's available through an ETF. So if there's no Bitcoin ETF, you're not going to buy bitcoin. But if it is available as an ETF, suddenly you will buy it. There are lots of financial advisors who only provide ETFs to their clients. No Bitcoin ETF, no bitcoin. So buy your notion the advent of an ETF will bring into the market. Place tens of thousands of financial advisers and their millions of clients, and that will increase the demand for bitcoin since the supply is limited, the price would therefore go up. So if those two predictions are correct, the SEC will say yes to a Bitcoin ETF, and by doing so, the price will rise. Doesn't that suggest that people should be buying bitcoin now instead of waiting until after the ETF becomes available?
Anticipation: The Bitcoin ETF Is only part of the investing journey
Matt: My point of view is that many people should be allocating to crypto in their portfolios, and absolutely we are on a journey. It's not just the ETF, of course. We've been on this journey of it getting easier and easier to buy bitcoin. Ten years ago, you had to be a computer scientist to buy bitcoin. You had to know how to code to run your own mining node.
Ric: So in 2021, one bitcoin hit its all-time high of over 60,000. It dropped dramatically, a 50 percent decline the fifth time since 2013 that bitcoin has fallen 50 percent or more. Tell me what your views of bitcoin's decline mean and what you see is its future.
Matt: I think there are some tax selling going on to pay for gains in crypto that people realized in 2021. But the long-term trends that are supportive of the price of bitcoin are incredibly intact.
Ric: I think we simply have to be a little patient. We need to remind ourselves sometimes that crypto is only about 12 years old. Bitwise released a survey of financial advisers. You do this on an annual basis. The 2022 survey results just came out. Talk about the highlights because there's one set of statistics in there that kind of freaked me out. But you talk about what you saw as the highlights first.
Matt: first and foremost, why is it important? It's important because financial advisors control the bulk of private wealth in America, and so how they're focusing on the crypto market or not tells us a lot about where crypto is going. One we ask what percentage of financial advisors are allocating to crypto and client accounts? And when we started this four years ago, Rick, that percentage was four, which is not very many four out of 100 financial advisors and it's crept up. It went from four to six to nine to 16 this year. And by the end of this year, based on our survey, it's estimated that over 30 percent of financial advisors will have allocations to crypto and client accounts. People think about that sort of hockey stick sign. We're right at the elbow of that hockey stick. It takes a while for those early gains to compound, but now we go 16, 30, 60 and then it's basically everyone, right? That's in the next two years. The other thing which I really love, we always asked financial advisors, Are you allocating to crypto in your personal account? And that changed dramatically last year. That's always been in the 10, 15, 20 percent range, a little bit more than clients. Last year, it went from 24 to 48 percent. Forty eight percent of financial advisors allocating to crypto in their personal accounts. And one thing I know from Bitwise is once financial advisors allocate themselves, it's only a matter of time until they start allocating for their clients. So this left me very bullish that we're at that crux in the hockey stick, where we start to see financial advisor allocations really take off and take off in an exponential compounding way.
Half of financial advisors are buying bitcoin for themselves
Ric: Well, great minds think alike. Those were the two key numbers in your survey that I focused in on, but my take on it is a little bit different. Yes, all the excitement, bullishness, the suggestion of where this is all headed. But I saw something else from a fiduciary perspective of advisors if nearly half of advisors are personally buying bitcoin and only 16 percent are recommending it to clients. I just wonder if there's a fiduciary problem here. The advisor's job is to serve the client's best interest. Are you telling me that an advisor feels that this investment makes sense for their own personally diversified portfolio, but they're not going to recommend it for their client? And if I was the client, how would I feel if my advisor said to me, Hey, I think you should own bitcoin? I bought it three years ago when it was a quarter of the price that it is today. Are you kidding me? Am I missing something here, Matt? Or should clients be indignant if they were to discover that their advisors own crypto and they haven't talked about it with them?
Matt: I think it's a fair point. I think advisors should be talking to their clients about crypto and if they own it in their own portfolios, of course, they should be talking about it soon. I'm going to give them a grace note. I'm going to hope that they recently bought it and are kicking the tires, and they plan to have this conversation in Q1. But you know me, Rick, I'm an eternal optimist. I always give people that benefit of the doubt. That's what I'm hoping is true.
Ric: Our job is financial advisors is as a fiduciary, serving the client's best interest. And if I'm a client, the first thing I'm going to do on my. Today is make a phone call to my advisor and ask, do you personally own crypto? And if you do? How come you haven't talked to me about it?
Matt: I love it. I could hear those phones ringing all across America.
Ric: And that's just an illustration of how rapidly evolving all of this is. That's Matt Hougan. He is the chief investment officer of Bitwise Investment Management. And you can learn more by going to Bitwise Investments dot com for all the information and content they have available to help you learn more and stay informed about the world of crypto. Matt Hogan, thanks so much for joining me on the program today.
Matt: Thanks for having me, Rick.