Learn Where We Are in the Crypto Four-Year Cycle and Get Matt’s Take on The Future Price of Bitcoin
You know, one of the key themes of this program is crypto, blockchain, digital assets. It represents, I'm convinced, one of the most significant investment opportunities of the decade. And to help us have that conversation, I'm happy to bring onto the program Matt Hougan. He is the chief investment officer of Bitwise Asset Management. I'm a big fan of Bitwise, as you know, an investor in both the company and its funds. Matt is one of the world's leading experts on crypto. He's a crypto columnist for FORBES. He's in the ETF Hall of Fame. Matt, always great to have you on the show.
Matt Hougan: Delighted to be here.
Ric Edelman: So for all of the wonderful things I just said about Bitcoin and Bitwise, the fact is that crypto has been having a terrible time for the past nine months or so, an incredible volatile environment. Bitcoin dropped as much as 70% of its price from last November through June, and then in June and July it rose over 30% and fell back a little bit since. So I'm going to put you on the spot here, Matt. You ready for this?
Matt: This is fair. Let's go.
Ric: I want you to give me your short-term and long-term prediction for the crypto market.
Matt: Ooh, I love that, Ric. I'm willing to do it. When I look out over the short-term, I see macro risks on the horizon. I see Jerome Powell's Fed continuing to raise rates to try to quash inflation. I see risks around Ukraine. So that's flashing negative to me. We expect a lot of regulatory enforcement actions. And on individual crypto assets, I'm extremely bullish. We have Ethereum's emerge one of the most consequential events in the history of crypto. We have significant development activity on things like Polygon. We have even seen some exciting developments around Bitcoin and so that's good. When you smush those together, what do you get? You get volatility, Ric, and you're going to get a series of headlines, some of which make you very excited and some which make you very fearful. When I look out beyond that, though, Ric, when I look long-term, I'm extremely bullish. Historically, crypto moves through four-year cycles, three up years and one down year. It's had three of those cycles. This is the natural down year according to that cycle up period. And when I look at the technological developments going on in crypto, when I look at the scaling improvements going on in crypto, when I look at the number of developers building interesting apps in crypto, when I look at public recognition in crypto, I think the next wave is going to be bigger than all of the past three waves combined.
Short and Long-term Predictions for the Price of Bitcoin
Ric: So I'm going to ask you to quantify the description you've just given us. Give me two prices over the next couple of months between now and the end of the year - you can't envision bitcoin falling below X or rising above Z.
Matt: It's, of course, very hard, nearly impossible to predict short-term price direction. I'd put a pretty wide band on that. It's hard to imagine Bitcoin falling below something like $14,000. It's hard to imagine it going above $30,000. So there's a there's a giant range for you.
Ric: And I wouldn't disagree with you. I thought you would say a low of $10,000. So I'm kind of happy that you said $14,000. And I agree with you, $30,000 is about as good as we can reasonably hope to expect. And that is a very optimistic and probably unlikely scenario. But I'll give it to you. We're currently around $20,000 give or take. Now. Let's go out for the next decade. The long-term perspective. Give me what you would envision to be the lowest do you think it might be and the highest that you think it might be?
Matt: Yeah. I mean, the low is pretty close to zero. You have to think about truly exogenous events like a massive technological blow up in the bitcoin blockchain. I mean that's extremely unlikely. I think the more likely direction over the next decade is that it comes to be valued somewhere in the $250 to $50,0000 range, which means individuals are storing as much wealth in bitcoin as they are in gold. I think that may be overly pessimistic. Bitcoin has other uses. It has monetary uses that could build on top of that. What I love about this question, Ric, is that I think the current price is wrong. If you think about all my views on crypto, my strongest view is that the current price is an unstable equilibrium. Long-term, either we're going to be six- or seven-digit bitcoin or we're going to be four or three-digit bitcoin. The five-digit bitcoin seems very unlikely because it's just an awkward sort of teenage phase where it's neither here nor there.
Ric: And I think you and I are both solidly in the camp of six- or seven-digit Bitcoin in the long-term future, and that growth trajectory, should that occur, would represent a far greater growth than any other asset class we can possibly envision. But it is speculative because we don't know if we're going to be right, which is why as much as we're enthused, we're also measured in how much of our money we're putting into this asset class. That's the other half of the question, isn't it? So talk about that, Matt. How much of a portfolio is reasonable for a typical investor to allocate to crypto?
Matt: Yeah, it's a great question, Ric. The answer is a relatively small amount. You know, the average Bitwise investor has about 2.5% Of their portfolio in crypto. I think anywhere from 1% to 5% seems reasonable that way. If you and I are wrong, Ric, and it wipes out completely, you're not materially harmed. But if we're right, if this is potentially the best performing asset class in the world, that 2.5% or 1% or 5% allocation will have a meaningful impact on your future. Like you think about cayenne pepper when you're cooking, it's great, but boy, you don't want to put a pint of cayenne pepper into your chili. A little bit goes a long way.
Answering Crypto’s Most Common Questions
Ric: What this all demonstrates is that people need education about this. You've just launched a monthly video series. Tell us about that.
Matt: Yeah, we do monthly videos where we answer the three most common questions from investors and advisors about crypto each month.
Ric: Well, wait, wait. What are those three common questions?
Matt: Right now, what we're hearing from people is how do you attribute a value to Bitcoin? What's going on from a regulatory perspective? And of course they want to know is now a good time to buy?
Ric: And so how can people watch these videos?
Matt: Yeah, if you go to BitwiseInvestments.com you can find them on our insights page. You can also sign up to receive occasional emails from us with important insights. We don't overwhelm you I promise. It's not an email every day. It's maybe one or two a month.
Ric: And because so many investors are relying on advisors to make their investment decisions, you devote a lot of resources to serving the advisory community too.
Matt: That's right. That's actually our primary audience, Ric. Financial advisors are a key part of how Americans invest, and they provide huge service in terms of behavioral coaching, asset allocation advice. So we're set up first and foremost to serve the financial advisor community. But the good thing is our education is open to all. We want everyone to understand crypto. But we really encourage people to work with an advisor when allocating to the space because it is complex, it is ever evolving, and it helps to have a full-time friend focused on it to help you navigate it.
Ric: Now you're beginning to get a sense of why I'm such a big fan of Bitwise Asset Management, why I've invested in the company, why Jean and I placed our investment dollars into funds offered by Bitwise, and why you should look at them as well. You can do so by going to BitwiseInvestments.com or talking with your financial advisor. Matt Hougan, always a pleasure to have you on the show. Look forward to seeing you again next, my friend.
Matt: Thanks for having me, Ric. This was fun.
Ric: That was Matt Hougan, the chief investment officer of Bitwise Asset Management. You can reach him and all the resources they offer at BitwiseInvestments.com.