Exclusive Interview: Matt Hougan, Bitwise Asset Management

Hear about Crypto in Ukraine, the “Summer of Ethereum”, and How Regulators Are Now Getting on Board with Digital Assets

Ric Edelman: Let me bring back on to the program my good friend Matt Hougan. He is not only Chief Investment Officer of Bitwise Asset Management, but he’s also a former CEO of ETFs.com. Matt, welcome back to the program. Always good to have you on with us.

Matt Hougan: Thanks, Ric. I'm delighted to be here again.

Ric: Of course, big in the news these days, sadly, is Vladimir Putin and his invasion of Ukraine. That has put new attention on Bitcoin of all things. There's fear on the one hand that Putin is using crypto to get around the economic sanctions. But at the same time, hundreds of thousands of people around the world have donated more than $100 million in crypto to Ukraine to show their support. What's your take on the impact of the war on crypto and crypto's impact on the war?

Russia Sanctions vs a Crypto-Forward Ukraine

Matt: Great question, Ric. And of course, first and foremost, our hearts and thoughts go out to the people of Ukraine fighting these battles. But from a crypto perspective, I think the war will be looked upon as a major turning point and a major positive turning point for crypto. You mentioned the one negative side, which is this concern that the Russians could be using crypto to evade sanctions. The Department of Justice and many others have come out and popped that bubble - said effectively it's impossible, you would have seen it, you'd be able to trace the transactions. I think the takeaway from that is that regulators will want crypto to be centered in countries like the US where they can have some look and feel into it. So even that I think has a positive lining. But more broadly, what we're seeing is that the world needs to move to a new financial architecture that's decentralized, that's antifragile, and that potentially is distinct from the states. I think people will look back as this the first major economically, first war, right? The West is waging a war on Russia from an economic front. We're seeing the financial infrastructure; the traditional financial infrastructure break down in Ukraine. And yet crypto is there, as you mentioned, Ric. People donating hundreds of millions of dollars of crypto efficiently, easily. People fleeing Ukraine with their wealth in crypto because they can carry it across borders in their mine and not be subject to seizure. We're seeing crypto prove its use case in an unfortunately somewhat destabilized and increasingly multipolar world. And so it's going to be a major, positive, long-term catalyst for the space.

Ric: And it's also interesting that a lot of folks don't realize that Ukraine was uniquely qualified to adopt to crypto in this on a per capita basis. Ukraine leads the world in crypto usage, and it's understandable why the economy is not all that stable, and people turn to an alternative, meaning bitcoin. So when the government said, hey, send us your crypto to support us, it was pretty easy for the government to adapt and for the people of Ukraine to adapt because they were already crypto natives.

Matt: That's exactly right, Ric. And it's important as crypto investors in the US to remember that we have an extraordinary privilege of a relatively sound economy, of a relatively well functioning financial ecosystem. Most people don't remember lines at ATMs or banks running out of cash, but there are many places in the world where that is not true. Ukraine was very crypto forward and they're benefiting directly from it in this war, and I think other nations are recognizing that and other people around the world are recognizing that.

Ric: What else is going on that people are not really paying attention to, but they really should?

2 Big Trends: Regulators Get On Board; the “Summer of Ethereum”

Matt: Yeah, I think there are two giant stories, Ric. One is that we've seen a sea change in regulatory attitudes towards crypto from a 'thou shalt not' to 'let's figure this out'. President Biden issued an executive order that was remarkably balanced, saying we need to regulate crypto, but we can't strangle it. We need it to be an economic engine in the US and that is a major turning point for this industry. I can't tell you, Ric, how important this is. I think this shift is the catalyst that's going to set us on a bull market in the second half of this year. So that's one major story. And if I can do one more, Ric.

Ethereum is going through a major technological upgrade this summer called the merge. If you want to be one step ahead of your friends on crypto, if you want to sound informed, Google the merge and read about it. It's a big deal, Ric. It does three things. One, it reduces Ethereum's carbon footprint by 99%, which is going to make it much more appetizing to institutional investors. Two, it introduces the possibility for investors to earn a yield, a dividend like yield on their Ethereum holdings, which is going to be very attractive. And three, it's going to cut the new issuance of Ethereum in more than half. It's a massive event. It's taking place this summer. It's going to be a strong catalyst for Ethereum, the second largest crypto asset. And because it's slightly technical, no one's talking about it, but I think it is a huge deal, Ric.

Ric: The problem with bitcoin is that it's dumb. If I send you my bitcoin, you receive it, and I might not want you to receive it. I might want you to get my bitcoin only if you do something for me. For example, if you deliver concert tickets or the deed to a property, or only if you win a bet and you can't do that with bitcoin. If I send it, you receive it. End of story. That's why Ethereum was invented in 2015, what they call programmable money, where you can program the conditions under which your money gets transferred. That's why Ethereum is so exciting, because businesses use contracts all the time and it represents what market share at this point, Matt?

Matt: It's like 25% of the market. 

Ric: So this is why there's so much focus on this. Elaborate more on that amazing 99% statistic you cited regarding the energy output.

Slashing Ethereum’s Carbon Output by 99%

Matt: There's a lot of environmental criticism of Bitcoin in terms of its energy usage. There's a new way to do this. And as a result, you just basically eliminate all that energy usage. And the reason this is important is not just because it's better for the world, not just because we're all on the side of reducing carbon output, but because institutional investors have shied away and felt uncomfortable with Bitcoin, in part because of its carbon footprint. And so slashing your carbon output by 99% is going to bring institutions into Ethereum, going to help them discover, like we're discovering on this call, all the things the second largest crypto asset can do. And that could be a very big deal.

Bitcoin and Ethereum: The Coke and Pepsi of Crypto

Ric: And what Matt is describing explains why in my case, I own a lot of Bitcoin, but I actually own more Ethereum. I'm more enthused about Ethereum than Bitcoin for all the reasons that Matt is citing. And between the two of them, you own 70% or 80% of the entire crypto marketplace. They're kind of like the Coke and Pepsi of crypto, you know. So if you just bought Coke and Pepsi, you could ignore all the other soft drinks out there and you've got a big enough market share and that's kind of Bitcoin and Ethereum. So those two call it a day. If you want to own some of the other major coins at Bitwise, Matt, you offer the Bitwise 10 Crypto Index Fund, which is the top 10 coins in the marketplace, which collectively represent what market share?

Matt: Well over 80%. The beauty of that product, Ric, is you can just buy it and, you know whatever happens in the future, you own the 10 most valuable crypto assets. So if an Ethereum competitor emerges, you own that. If a Bitcoin competitor emerges, you own that. If some hot new crypto asset emerges, the index will rotate into that. So it's a nice way to future proof your portfolio in a technology and a market that changes very fast. 24/7/365.

Ric: So you can buy Ethereum, you can buy Bitcoin, you can buy the Bitwise 10 Crypto Index Fund where the symbol is BITW and available on any brokerage account. And of course directly from Bitwise Investment Management. However, Matt, I just got to point out that in the course of this entire conversation, there are a lot of people who are still very skeptical of crypto overall. They are uninterested, they don't care. They got enough going on in their worlds and to learn something totally new and different, to pay attention to this rapidly evolving environment, please, is it okay for people to just say, I'm going to stay on the sidelines? This isn't for me. I'm going to ignore this. This is for someone else. Is that okay for someone to conclude?

Matt: I don't know if it's okay, Ric. I think it's okay not to spend your days, nights and evenings reading about this space, but you have some of the smartest investors in the world, the largest hedge funds, the largest institutions, the largest venture capital firms, all pouring money, talent and resources into crypto. It's going to be a bigger and bigger part of this world. And I think people are at risk if they don't get off zero. It's not for everybody, but it's an interesting  addition to a portfolio for many people. I think you'd be wrong to ignore it.

Ric: Well, then how can people get involved, or at least from an education or knowledge level, is there a content that that you offer at Bitwise?

Matt: Sure, yeah. Come to our website, we have a great amount - BitwiseInvestments.com. Look at our Insights tab. We do everything from Crypto 101, the very basics of what a blockchain is, to Crypto 301, Crypto 401 - very deep depending on how deep you want to get, we'll meet you there. So come to BitwiseInvestments.com. You can sign up for our monthly letter on crypto, keeps you up to date. Just enter your email address and we'll send it out to you, and we promise we won't bombard you 20 times a month like some people do.

Matt’s Take on Ric’s New Book, The Truth About Crypto

Ric: And so I'll throw in for my own plug. My new book, The Truth About Crypto, which debuts in May, to give you that education and foundation that you need. You read the book, Matt, before it got published.

Matt: I absolutely love it. I recommend it to everyone. Of course, you write with a very approachable style and that's important and you're at the forefront of making it understandable. So, yes, it's a great starting point for everyone on this listening to us today.

Ric: Well, I appreciate that very much. This is Matt Hougan. He's the Chief Investment Officer for Bitwise Investment Management. Matt Hougan, thank you so much for joining us on the program today.

Matt: Thanks for having me, Ric. This was fun.

Ric: Matt and I actually spoke for about 20 minutes. If you would like to watch or listen to the entire conversation, just go to my website, TheTruthAYF.com.