Exclusive Interview: Matt Hougan, Bitwise Asset Management

A Crypto Expert’s Take on the Mainstreaming of Crypto, How Big Banks Are Using Blockchain Technology, and More

Ric Edelman: You're listening to The Truth About Your Future. We have had a lot of conversation about crypto over the past month. You've certainly been paying attention to the incredible volatility of crypto, and we had it on the show only a few weeks ago. Matt Hougan, he's the chief investment officer of Bitwise Asset Management. I'm happy to bring Matt back onto the program today because there's more to talk about, not just what's going on at the moment in the world of crypto, but I want to get off of today and focus on tomorrow, meaning the next decade. So, Matt Hougan, welcome back to the program. Good to have you with us.

Matt Hougan: Thanks for having me back, Ric.

Ric: Matt, as you know, is an expert on crypto and a crypto columnist for FORBES magazine. So in the beginning, Matt, crypto was just a tech thing. It was only in the tech world. The financial industry ignored crypto for the first five, say, five years of its life. What's the relationship now between the crypto community and the financial services community?

Matt: Oh, it's gone 180. You're seeing huge interest from the traditional financial industry in crypto, including through this market volatility. You're seeing firms like JPMorgan, Goldman Sachs and others building crypto investment offerings, but also thinking about how they can use crypto and blockchain to rewire how their systems work to introduce new efficiencies into their market. You and I have talked about this, Ric. One way to think about crypto is as a technology that allows money to exist natively on the Internet, every major bank realizes that this can reshape their back office, reshape part of their front office, and so they're hiring aggressively to get their hands around this new disruptive technology and put it at the core of how they're innovating for the next decade. It's a major movement in Wall Street.

Ric: So let's put this on a timeline. I'm going to give you parameters. Scale of 1 to 10. One, was where bitcoin was invented in 2009. Nobody had ever heard of it, knew what it was. And it was just, you know, for a bunch of tech nerds playing on the Internet. The number ten on the scale - the other extreme, crypto blockchain technology fully ingrained in all aspects of global commerce. Where are we on that timeline?

The Evolution and Acceptance of Blockchain in Global Commerce

Matt: Oh, that's great. I think we're around about three, Ric, on that timeline. So we're still on the early side, but we're not at the very beginning. There's this old saying that technologies go through a couple major phases. They go through an early adopter phrase. You and I have friends who love new tech, who is always on the cutting edge iPhone, who are always trying this or that new thing. And then the mainstream market and the difference between early adopters and the mainstream is early adopters are comfortable with sort of issues in the technology they're comfortable with. It doesn't work perfectly. The mainstream wants the technology to work perfectly. I think where crypto and Defi is its just making that transition from the early adopter to the mainstream market. Crypto is still primarily used by people who are super comfortable with technology by younger generations, but you're seeing major Wall Street banks embracing it. You're seeing cultural institutions like Christie's embrace it. You're seeing it penetrate into the mainstream. So again, I'd put it at about three on a 1 to 10 scale. We're still in the early innings. We haven't quite gone mainstream, but we've made material progress from our earliest days.

Ric: One of the impediments to getting us from 3 to 4 to 5 to 6, rules of the road. A lot of the major institutional players on Wall Street, as well as the Fortune 500 itself, they want to know what are they allowed to do? How are they allowed to operate? And a lot of those rules, they feel, don't really exist yet. So they're turning to regulators and legislators and saying, give us the rules of the road. Where would you say we are both in regulatory attitude and their progress in creating those rules?

Evolving Attitudes About Crypto Regulation

Matt: Yeah, well, we've seen a major shift in regulatory attitude over the last year. I would say a few years ago or even 12 months ago, both regulators and legislators looked at crypto as something they needed to contain, something they needed to wrap with investor protections to keep people from hurting themselves in these nascent markets. But what's changed over the last 12 months is that while that remains incredibly important and there is a real focus on investor protections, there is also this new focus, which is that crypto is one of the fastest growing areas of the American and global economy. We need to make sure we have regulation that allows it to thrive. You said something very important in your question, Ric, which is that large institutions look at this and they want to know what the rules of the road are. And those rules right now are not clear. There's a lot of debate in crypto about how the regulatory and legislative agenda will shake out. President Biden put out an executive order requiring all regulatory agencies within the US government to create a plan for crypto. We've seen major bills introduced in Congress pushing forward greater regulatory clarity. I think we'll look back in a year and the regulatory landscape will be much better defined and that will be the foundation on which institutional crypto is built. And that's going to be a very exciting moment.

Ric: Now, crypto is not an American thing. This is a global marketplace. So where are other governments in all of this and where does the US sit in comparison to them? Is the US ahead of the curve? Are we moving faster or are we slower and behind others?

Matt: Yeah. So first of all, there's a wide spectrum of views, right? You have China on the one hand, which is extremely restrictive, effectively bans crypto mining, bans crypto ownership. And then you have countries like Switzerland, which are extremely progressive on the crypto front. And, then you have other nations that are somewhere in the middle. I would say the US used to be behind and is now moving faster than many other nations to catch up again. We've had this sea change in attitude, particularly from the legislative branch that really wants to make crypto a new economic power in the US and is forcing us to play catch up with these other countries and hopefully sprint ahead of them. So we're not Switzerland, but we're also not China. We're taking a middle road and we're getting faster and faster by the day.

Ric: You know, it's funny, we're having this conversation about crypto and the latest developments and where it's headed and so on. And still, let's admit it, Matt, the vast majority of the people who are listening to us right now, they have no idea what we're talking about. I mean, everyone's now heard of crypto, they've heard of bitcoin and blockchain, but they still have no idea what any of this stuff is, NFTs, metaverse, and so on. When you find yourself talking with people, investors, ordinary consumers who are new to all of this, what's the lightbulb moment? You know, when you're in those conversations, what's the moment when things click and people say, Oh, I get it?

Bitcoin 101: Crypto is technology that lets money exist on the Internet

Matt: Yeah. I like to tell people that they usually have the wrong view of what crypto is. People think of crypto as an alternative to the dollar, and so they're very skeptical because they're not using their Bitcoin in the same way. They're using their dollars to buy a coffee at Starbucks or to pay their mortgage. The lightbulb moment for many is when you stop talking about it as a new form of the dollar and start talking about it as a technology that lets money exist on the Internet. So you explain to people something like if you wanted to wire money to London today, it would take two business days and the fee would be between 2% and 4%. And that's if you go to one of the largest banks in the world with offices in DC and offices in London. It still takes two business days by comparison. On the Bitcoin blockchain, you can move $1,000,000,000 anywhere in the world in the span of 10 minutes for a fee of less than $2. Often, it's those simple proof points. People don't think about it, but they recognize the pain of the slowness of the financial ecosystem in their lives. How many people have paid their electrical bill on their online bank account, had it taken five days and been late? How many people have made a credit card payment through their online bank account? It takes seven days to hit their account and they're hit with late fees. That's an experience many Americans have. And crypto allows money to move at the speed of the Internet. And often those simple examples get people to realize, Wow, our financial system really is built on 1970s technology. What if it was built on a technology from 2022? Right. What would that be like? And I think you can get people to start thinking about it as a disruptive technology and that gets them excited about what it could mean in the future.

Ric: You know, in every industry we can look back to the key moment when things shifted. For the airline industry, it was the Wright Brothers, you know. So think about Crypto's brief history over the last 13 years. What would you say are the pivot points that are the highlights?

The Technology Challenge That Bitcoin Originally Solved

Matt: Oh, it's amazing. I mean, first was the introduction of Bitcoin in the first place. People don't realize this, but the Bitcoin blockchain solved a problem that it existed in the computer science literature for like two decades. People needed to figure out how you could have one database that was available everywhere around the world that updated in real time. That was true that anyone could see, but which no single party controlled. People had tried to figure that out for 20 plus years. And the Bitcoin blockchain solved that problem, created this first distributed ledger that was decentralized. That was a major moment. And then I would point to sometime in 2018, 2019, when we started to see institutions, we started to see corporations, we started to see hedge funds investing in crypto for the first time ever (before that it was primarily a retail-led phenomenon). But from 2018 to 2020, you saw a huge array of really smart institutional investors come in. Paul Tudor Jones being one of the first who surveyed the landscape and decided he was going to allocate 2% of his portfolio into crypto as a new version of gold, as a major new technological development. That was really a signal moment that happened in 2020, and that brought a wave of institutional capital into the space. I think that may have been the moment that established crypto as a new asset class in the eyes of mainstream investors, and that probably set the stage for a decade of growth. And we're still going through that decade right now.

Ric: That's Matt Hougan here on The Truth About Your Future. Matt is the chief investment officer for Bitwise Asset Management, and you can learn more about the work that they do at Bitwise, the investment opportunities available on the incredible amount of educational content as well, all of it available to you at BitwiseInvestments.com. Matt, thanks so much for joining us today.

Matt Hougan: Thanks, Ric.