Update on the Crypto Winter, Keys to Investing in Disruptive Innovation, and More
Ric Edelman: You're listening to The Truth About Your Future. I'm very happy to welcome back onto the program a good friend, Matt Hougan, the chief investment officer of Bitwise Asset Management. Matt's a frequent guest on the show and for good reason. He's one of the world's leading experts on crypto, on ETFs, on financial technology. He's author of Cryptoassets: The Guide to Bitcoin, Blockchain and Cryptocurrencies for Professional Investors. Matt, great to have you with us here today.
Matt Hougan: Thanks for having me back. Ric. I'm excited to be here.
Ric: A lot of investors have bought Bitcoin and other digital assets, as you know. Have you seen attitude shifting among investors?
Matt: What I'm hearing from professional investors, financial advisors, family offices, institutions, their interest in crypto is actually higher than it's ever been before. It's important to remember, Ric, that most people and most institutions are still not invested in crypto, have never invested in crypto. So for them, this is an opportunity to get in at prices that many thought we would never see before.
Ric: What I find is that this is really not a whole lot different than the stock market. We've seen stock market crashes from time to time. We saw in 2001, 2008, the pandemic in 2020 - we saw it again. And investors always lament that they missed the opportunity to enjoy the big profits of the last bull market. And so when the prices collapse, they recognize, wow, what a new opportunity to really get in and they take full advantage of that fact. I think that same sentiment, that same attitude and approach is what you've got to do with crypto. It's really no different. I remember back in 2018, as you well do as well, when in 2017 crisis skyrocketed, bitcoin hit $20,000 and then within a year and 84% collapse, prices went from $20,000 to $3,000. Well, that was an incredible buying opportunity, and everybody was thrilled because they missed out. Prices were at $20,000 and they missed it. Well, when they fell to $3,000, here's a chance to get back in. That's kind of where we are right now, isn't it?
Lessons Learned from Prior Bitcoin Crashes
Matt: No, that's exactly right. I often tell people at those peak moments when they come to me and say, well, it's up so much. How can I buy at this point? I tell them to write down a number at which they would buy. And if you did that when Bitcoin was at $68,000, you probably wrote down a number that's higher than Bitcoin is trading at today. The lesson from 2018, the lesson from 2014, the lesson from those other 70% pullbacks is unless something fundamental has changed in crypto, unless it's not the fastest way to move money around the world, unless it's not a technology that lets you program money like your programming software, unless it's not a technology that creates digital property rights, unless something fundamental has broken, then that is an interesting time to enter the market. I think nothing fundamental has broken in crypto. I actually think the technology is getting better at an exponential rate and so I'm very excited about the next cycle even as we go through this difficult bear market.
Ric: Well, I'm glad that you've raised that, Matt, because that really is the fundamental question here. And I'd like you to elaborate on it just from a fundamental technology, just from the development of this innovation. Is this over? Is this now antiquated? Is it a has been or is there something yet to be excited about that would suggest this remains a viable investment opportunity?
3 Keys to Investing in Disruptive Innovation
Matt: It's definitely the latter. Look, the key to investing in disruptive innovation, as you know, is you need three things: new technology that matters, you need money, and you need talent. And when you look at crypto today, it has a new technology that matters. Blockchains are one of the most fundamental advances in technology that I've seen in my lifetime. It's had a record venture capital activity and has record numbers of developers working in this space. You put those together into a stew and you get major new applications. If you look at the history of crypto since it was founded in the first time, it goes through these big bull market runs, when you find products that people want to use. The first big bull market run was the creation of Bitcoin itself. People were excited for a non-sovereign currency. The next big bull market run was the creation of Ethereum. People were excited about the idea of a programmable blockchain, the ability to program money. This most recent run, we actually saw three major products hit. We saw stablecoins go to hundreds of billions of dollars. We saw NFTs emerge into the market, and we saw the birth of Defi. As I look ahead to what will be the catalyst of the next bull run, I see a huge number of potential products that will change the game. I think stablecoins will become a trillion-dollar market. I think blockchain gaming will be big. I think we'll see a boom in web three. I think we'll see institutional regulated Defi start to disrupt the traditional financial services market. They will see things like digital identity. I think you're going to see not one, not two, not three, but 10 or 12 or 15 major product breakthroughs where people are using blockchain in novel ways that impacts people's everyday lives. And that's what we've seen each cycle and the next cycle, in my view, is likely to be much, much bigger than the past.
Ric: I can just imagine what some folks are saying if all of that is true. And by the way, Matt's right, all of that is true. What's it going to take for prices to then go back up to where they were and even beyond? What's it going to take?
Matt: Yeah, I think it's going to take some combination of a few things. Crypto was overleveraged. That has to sort of play its course. We may have reached the end of that now, but it's a little bit too early to say. I think you'll also need to see a stabilization in the macro environment. Maybe we're getting there, but there may be more shoes to drop, and you'll need to see a little bit of regulatory clear up. What I think that translates into, Ric, is that the next 6 to 9 months will be choppy and maybe sideways. And then as we get into the new year, you'll see us work off those excesses and start to build on this next wave of excitement. So those are the criteria, ending the deleveraging process, a little bit of regulatory progress. We are going to get there, but it could be a little bit choppy until we do.
Ric: And I think the big issue is that this really isn't a crypto conversation. This is a global economic conversation. We are, you know, caught up in what's happening on a global scale with the stock market, the bond market, interest rates, inflation, Putin, and Ukraine, threats out of North Korea, the pandemic continuing to bug us literally and so on. So yeah, I think long-term you're correct and we're not there yet, which means this is the time to buy, because if people wait until we get there, they end up with a regret that they didn't buy sooner. That's what I find just so frustrating on an ongoing basis. I've been seeing this for the last 40 years. Investors love to buy high and sell low, and they swear they're never going to do that again. And yet, here we are with a low environment, not just crypto. Stocks are low, bonds are low, and people are continuing to sit on the sidelines. So, we have to overcome that investor inertia. We have to overcome the tendency to do things at the wrong time for the wrong reason.
Getting Financial Advisors Up to Speed on Crypto Investing
Ric: And until we get past that, we're going to see this continuing sluggishness in the marketplace. Smart investors are going to recognize the opportunity that it is. But as I mentioned investors, Matt, it's not just individual investors, it's also their advisors. Crypto is new for everybody. You know, an investor can go to an advisor and get help with taxes and college planning and retirement planning, estate planning, investment management. Their advisor will have a whole lot of experience that the investor doesn't have because the advisor's been doing this for a really long time and having access to incredible history and information. But when it comes to crypto, everybody's new at this. So, advisors are struggling just as much as investors are to understand what all of this is about. And that's why you and I have been spending an awful lot of time helping advisors gain the knowledge that they need. Talk about the resources that Bitwise has made available for advisors that can help them generate the knowledge and information they need to be able to guide their clients through this economic environment.
Matt: A few things I'd point people to. You mentioned at the top of this program that CFA Guide to Bitcoin, Blockchain and Cryptocurrencies, I think is a great piece of foundational research. You can get it by Googling, CFA Guide to Crypto. At Bitwise, you can sign up. We'll send you a monthly investor letter where I give you my views on the market. Just drop your email into the signup form on our space and of course we can add additional materials there. There's also an insights page on the Bitwise Investments research where you can find all the things that my research team is thinking about as we address this interesting, complex, volatile market. So those are some of the resources I would point people to.
Ric Edelman: And it's all available at BitwiseInvestments.com. Available to you, all of it for free as well. And I encourage you to take advantage of it. There's so much crypto curiosity, people really interested in wondering what all of this is about. And as Matt said, this is a wonderful opportunity for you to get the knowledge you need so you can make investment decisions that are informed and in your best interest. Well, that's Matt Hougan, the chief investment officer of Bitwise Asset Management here on The Truth About Your Future. And if you've got no other message from this - this is the buying opportunity for crypto that you wish you got in on over the last couple of years. Matt Hougan, thanks so much for joining us on the show.
Matt Hougan: Thanks, Ric.