“Bitcoin is evolving from a carbon intensive past to a carbon neutral future, just like automobiles… I think it’s part of a positive environmental story.”
Matt Hougan is one of the world’s leading experts on crypto, ETFs, and financial technology. He is the Chief Investment Officer for Bitwise Asset Management, the world’s largest provider of cryptocurrency index funds, with more than $1 billion in assets under management.
He was previously CEO of ETF.com and Inside ETFs, where he helped build the world’s first ETF data and analytics system, the leading ETF media site, and the world’s largest ETF conference.
Having spent much of his career educating investors around ETF’s, Matt Hougan details his transition to long-term crypto investing via index funds. He explains the importance of regulation in creating greater clarity around crypto, helping digital currencies reach their full potential. Hougan explains how a crypto index fund minimizes risk while giving access to one of the greatest potential-filled investment opportunities.
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MODERATOR
SPEAKER
Matt Hougan
Chief Investment Officer
Bitwise Asset Management
Rachel Pether
Senior Advisor
SkyBridge
TIMESTAMPS
0:00 - Intro
2:15 - Development and education of ETF’s
8:25 - Offering crypto education
10:26 - Crypto polarization
12:26 - Crypto regulators
14:26 - Bitwise as a crypto index fund provider
17:25 - Explaining blockchain
20:20 - Bitcoin environmental concerns and ESG
24:00 - Potential Bitcoin risks and value of an ETF
29:30 - Explaining DeFi and future of crypto investing
EPISODE TRANSCRIPT
Rachel Pether: (00:00)
Hi everyone, and welcome back to SALT Talks. My name's Rachel Pether and I'm a Senior Advisor to SkyBridge Capital based in Abu Dhabi, as well as being the global MC for SALT, a thought leadership forum and networking platform that encompasses business technology and public policy. SALT Talks, as many of you know, is a series of digital interviews that we launched during the work-from- home period, and what we're really trying to do here is replicate the feelings from our global assault conference series and provide a window into the mind of subject matter experts.
Rachel Pether: (00:42)
Today I'm very excited to be speaking to Matt Hougan, who's one of the world's leading experts in cryptocurrencies, ETFs and financial technology. Matt is currently the Chief Investment Officer at Bitwise Asset Management, the world's largest provider of cryptocurrency index funds with more than a billion dollars in assets under management. Matt was previously the CEO of ETF.com and inside ETFs, where he helped build the world's largest ETF data and analytics system, the leading ETF media site, and the world's largest ETF conference.
Rachel Pether: (01:17)
Matt is also the co-author of two publications from the CFA Institute Research Foundation, which we'll be hearing a bit more about later, and he received a Lifetime Achievement Award from ETF.com for contributions to the ETF industry. Finally, he is also a strategic advisor to multiple crypto and financial advisor-related startups. Matt, welcome to SALT Talks.
Matt Hougan: (01:41)
Thank you so much, I'm so glad to be here.
Rachel Pether: (01:44)
Now, I'm really excited about this conversation and, you know, I find the evolution of your career so interesting, so I want to rewind a few years because the first US ETF was in the early 1990s, but then it took almost 15 years for the actively managed ETF to appear in the space, at which point you were already in the industry. So take me back a few years, tell me about your background and what drove you into ETFs when it was still pretty nascent in terms of its development.
Matt Hougan: (02:16)
It was nascent, that's right. In the earlier days when we started focusing on the ETF market, no one knew what they were people called them EFTs, they didn't understand how they worked. They were even skeptical of them. I remember the Financial Times writing about ETFs and calling them weapons of mass destruction, if you can believe it. Today, everyone loves them, but back then that wasn't the case. What attracted me to ETFs in the first point was I saw them as a fundamental technological advance that sort of took mutual funds developed in the 1940s and brought them into the modern era. They were lower costs, they were cheaper, they were more tax efficient. And I expected this to become, you know, what it is today, which is a massive part of how people allocate to this space. I saw it's ability to help investors and I wanted to get involved. So that's what brought me into the ETF space.
Rachel Pether: (03:07)
So I'm so interested in some of the parallels you mentioned there about the initial skepticism towards ETFs and how that plays into cryptocurrency now, but I'm guessing, given where you came into this in terms of the development, you must've had to do quite a lot in terms of education. So, maybe talk me through what you did in the space in terms of educating the market. And also, do you think there were any specific triggers for ETFs to become more mainstream, and as you say, not be seen as weapons of mass destruction?
Matt Hougan: (03:38)
Yeah, it is incredible. I mean, one more point on that, the US Congress actually held hearings where they brought ETF executives in front of them and grilled them for hours about whether ETFs were destroying American entrepreneurialism. It's hard to imagine today when they're at the center of everyone's portfolio, that there is that much skepticism and that much doubt, but that was true, and it's often true of disruptive technologies. Disruptive technologies challenge in status quo, they're new, sometimes they're hard to understand and it takes a long time for people to realize the benefits that they can bring to society.
Matt Hougan: (04:13)
You know, in terms of ETF land, what it took was people like me, but also an entire industry, fund providers like Barclays, like State Street, eventually like Vanguard, doing core education. What is an ETF? Why is it better than a mutual fund? Balanced education. What are the risks that come with ETFs? But really helping people understand this wasn't a new foreign, risky, unheard of concept. It was an evolution of the mutual fund structure that was designed to just make it better, cheaper, more tax-efficient, and telling that message consistently over 10 years eventually it got through. And now it's, you know, it's a $7 trillion industry and growing.
Rachel Pether: (04:54)
You know, you mentioned that they said it was destroying the financial ecosystem. Was that just because they saw it as taking over active management? Or what was some of the rationale behind that comment?
Matt Hougan: (05:06)
Yeah, there were a couple of reasons for that. So one, there is still today, a concern about the rise of index investing and whether it's interfering with price discovery, and people thought ETS were doing that. There was also this perception that because ETFs are traded intraday, they were encouraging people to overtrade their portfolios and not invest for the long term. And of course, the core part of capital markets is directing long-term capital allocation. And so there's this misperception that it was interfering with that.
Matt Hougan: (05:38)
In fact, what ETFs were doing, were they were actually improving the efficiency of people to be able to adjust to news. And today you see a lot of ETFs that are held for 5, 10, 15, 20 years. I know that I own ETFs that I haven't traded for more than a decade, and I think that's true of many people. But that was the concern, it was overwhelming active management and it was encouraging a short-term view of what investing is.
Rachel Pether: (06:05)
You know, I think two points you made there, I'd love to dive into a little bit more depth about how they pertain to cryptocurrencies as well, particularly the points on price discovery and trading intraday. But maybe just a little bit more on the education point, because I appreciate there's a difference between formal education and informal education. So what are some of the formal education steps that you took?
Matt Hougan: (06:30)
Yeah, on the ETF side I was fortunate with a couple other colleagues to write the CFA Institute's guide to exchange traded funds. I think credentialed well-accepted industry standard educational groups, educating people about what it really is and what it really isn't, was very important. I gave an ETF one-on-one talk, I think over a thousand times, at conferences large and small, at lunches over, you know, over salmon and salad with financial advisors around the world, and then spoke to the media constantly, consistently and repeatedly.
Matt Hougan: (07:08)
I do think some of the formal education through things like the CFA Institute really mattered because that was a well-established organization saying this is something you have to pay attention to. But a lot of it is one-on-one, hand-to-hand combat over a period of years, introducing people to what it is, letting them digest that for six months, having them come up with questions, answering those questions, and the ETF industry as a whole did a phenomenal job in the US, whether it was the industry itself.
Matt Hougan: (07:38)
supporting organizations, or individual investors walking through that process over a series of years. But it does take time, it was not at all clear. Even 10 years after the ETF launched that it was going to be as mainstream as it is today. There was huge skepticism, even 15 years after it launched. It was really only as it got into its second decade that people began to accept it as, okay, this really is the future of how people invest. So one message is, it takes a lot of time.
Rachel Pether: (08:10)
That's always a good message to remember when you're in the middle of hand-to-hand combat, that's for sure. And you talk about the thousand ETF kind of educational sessions. How does that compare to what you've done thus far in terms of cryptocurrency education?
Matt Hougan: (08:26)
Yeah, I'll tell you, I'm on that path again. I'm probably at number about 200, 250, but I give crypto one-on-one presentations to group of institutions and financial advisors and hedge funds and individual investors, literally almost every day, telling the exact same story what blockchains really are, how they work, what they introduce into the world, the real risks and benefits, and I imagine it's going to take years as well. But I'll say this thing, the level of interest in understanding what crypto is, is higher than the level of interest was and understanding what ETFs are.
Matt Hougan: (09:02)
When we do ETF or crypto one-on-one talks for financial advisors, we'll often have a thousand advisors show up for a webinar to learn about what crypto is to answer the hard questions. So, definitely repeating the same process, more engagement, and we're doing some of the things I did in ETF. So we wrote the CFA Institute's Guide to Bitcoin Blockchain and Cryptocurrency, which has become one of their most downloaded publications in the history of the CFA Institute, to show you the level of interest, the level of entry, and the need for understanding, it's one of the most popular things that they've ever published, which I think shows that people are engaged in this, but they still have a lot to learn.
Rachel Pether: (09:49)
And that's a great point that you raise about that willingness of people to learn more about it. And you know, when I look at the cryptocurrency market as someone who likes to think I'm reasonably balanced in terms of my views, it does seem that the follower's quite binary, right? So you have on one side, you have the people calling it rat poison, that it's the worst thing to ever happen to the financial markets, communities, countries. And then you have the people who are so pro cryptocurrencies, that it's very hard for them to see any other alternative. What do you think drives this kind of following when it comes to cryptocurrencies?
Matt Hougan: (10:26)
It is exhausting, it's the land of hype and hyperbole, you're absolutely right. It's either going to destroy the world or fix everything, and of course the answer is in the middle. I actually think the reason we have this bifurcation is that depending on how you view crypto, you're either naturally skeptical or naturally optimistic. And here's what I mean. If you think of crypto first and foremost as a currency, you're going to look at it and compare it to the dollar and say it doesn't measure up. "It's more volatile than the dollar, I can't spend it, I can't go buy something at Starbucks with it. It looks like a janky currency." And those are the people who come at it and say, "Well, this is rat poison squared, it's tulip bubble 2.0, it's not going to anything."
Matt Hougan: (11:09)
You have other people who see it as a technology, and they look at this software network that can move a billion dollars around the world in 10 minutes and have it settle for a fee of less than a dollar. And they compare that to the largest banks in the world with hundreds of thousands employees who, for whom it still takes two days to wire $10,000 to London. And they think this is incredible, it's the greatest thing since sliced bread, it can move money at fractions of the time and fractions of the cost of the largest financial institutions in the world.
Matt Hougan: (11:40)
And I think that's why you get those two disparate views. Of course, the reality is somewhere in the middle. It is a phenomenal technology with huge potential applications, but it has to wrestle with a lot of regulation and real world uses to see where it evolves too. So the answer is in the middle, but I think that whether you view it as a currency first, or whether you view it as a technology first, determines which path you go down for skepticism or optimism. And I think that explains a lot of the confusion in the crypto space.
Rachel Pether: (12:10)
Yeah, I really like that explanation. I think that's also a really good segue to the regulation piece. You know, you mentioned, is it a currency, is it a technology? How do you think the regulators see it? And maybe we start with the US, since that's closest to home.
Matt Hougan: (12:27)
I think mostly they see it like, whoa, what is this thing that's exploded into the market? And it doesn't fit very well in US regulations. Most financial securities regulations were developed 50, 60, 70, 80, 100 years ago. The fact that a new digital asset that's money existing on the internet doesn't fit hand in glove into that, is not surprising. I think two things are true about regulation.
Matt Hougan: (12:52)
One, in order for crypto to become what I think it could be, which is the new centerpiece of a more efficient, more inclusive, more positive financial industry, it needs regulation. It needs AML, KYC, it needs clarity on whether it's a security or not, it needs guardrails around how new cryptocurrencies can launch. It can't reach its full potential unless regulators provide that clarity. That's one big thing.
Matt Hougan: (13:21)
The other big thing is regulators could easily overreach. As I watched the regulatory news right now, I definitely see people who are spooked by Bitcoin and crypto, or who are maybe first associated Bitcoin and crypto with what it was in 2012, 2013 when its primary use was in the illicit dark markets and it hadn't matured into an institutional asset. And so, there's real risks that regulators will overreach. The question of how regulators sort of come out of the next year is going to determine, I think, whether this is a once in a generation bull market, which it could be if the regulation is positive, or if it's significantly slowed down. And the short answer is we don't know how that's going to come out. It's evolving day by day in Washington right now.
Rachel Pether: (14:07)
Mm-hmm (affirmative) And I'd really like to go into a bit more detail about some of the points you raised on regulation, also how China plays into that. But please do tell me a bit more about Bitwise and what you're looking to achieve there. And also who's your target market in terms of clients and investors?
Matt Hougan: (14:26)
Love it. You know, Bitwise is one of the largest and fastest growing crypto asset managers in the world. The unique place that we sit is that we're first and foremost a crypto index fund provider. So you can think of like the S&P 500 or the FTSE 100 for crypto. We have the largest crypto index fund in the world and a series of other funds along that model. And then the other pieces were built to serve financial advisors and other investment professionals. You know, crypto emerged as a retail phenomenon with self-directed individual investors using apps like Coinbase to invest in this space. There are also a lot of VC firms that serve the largest institutions in the world. Bitwise sits in the middle. We're serving RAs, broker-dealers, wirehouse advisors, financial professionals who want to gain access to funds holding crypto assets for their customers. And so we try to build simple funds that capture this space in a secure way, and we've been doing it since 2017.
Rachel Pether: (15:27)
Great. And you know, you mentioned that you're hosting these salmon lunches all across the US. And speaking to the financial advisors, what are, I guess, the two or three most common questions that you get asked from them?
Matt Hougan: (15:41)
That's a great question. Yeah, they ask so many questions. So on the one hand, they want to know what it is. Many people have read about it in the news, but they couldn't tell you what a blockchain is, they couldn't tell you what programmable money is, they couldn't tell you the core benefits of what crypto is, and they couldn't explain it to their clients. So a lot of what we do is arm them with basic understandings, so when they get questions from clients, they can give good responses.
Matt Hougan: (16:09)
And then once they understand what it is and they see its potential, then they want to talk about the risks. The risks include, what will regulation shake out to be? Will it constrain crypto, or will allow it to grow? They worry about crypto's environmental impact. They worry about how you value crypto assets and how you decide if now is a good time to get in, or if you should wait for prices to adjust, and they want to know how much crypto you should have in your portfolio. Is it 1%? Is it 5%? Is it 10%? What is the right way to add it to a portfolio settings? So, that's what we try to do. We try to arm them with simple ways to explain crypto and then answer their questions and concerns about what the future looks like.
Rachel Pether: (16:52)
You know, it's interesting you mentioned that the first question is what is a blockchain? I have to admit that I'm quite embarrassed to say this, but when I was reading a paper on blockchain and it talks about a chain of blocks, and I was like, "Oh, that's why it's called a blockchain." So, maybe if you could just put it in layman terms, because it's one of these words, you know, big data, artificial intelligence, blockchain, a lot of people I think, drop them subtly into conversation without really understanding what they are. So how would you describe what is a blockchain?
Matt Hougan: (17:25)
Yeah. My favorite way to describe a blockchain is to start with something people know, which is PayPal or Venmo. We all use PayPal in our day-to-day lives because it's great. I can send you a hundred dollars and you get it instantly. What people don't think about is why is PayPal so fast, and the traditional banking system is so slow? It's not because PayPal is this new FinTech app, it's because it's one database. So when I want to send you a hundred dollars, PayPal can look, it says, Matt has a hundred dollars, he hasn't sent it to anyone else. They can move it to you instantaneously.
Matt Hougan: (17:57)
The reason traditional banks are slow is because there's thousands of databases. If I give you a check and you deposit it at your bank, your bank won't let you have that money until it checks with my bank and make sure I haven't overdrawn my account. So one database fast, a thousand databases slow. All a blockchain is, the first blockchain was the Bitcoin blockchain, it was the culmination of 30 years of computer science research that answered a simple question, which is how can we have one database that's available to everyone around the world that everyone can see and everyone agrees is updated at the same time, but without Venmo or PayPal sitting on top of it? Right? Because then you have to trust Venmo or PayPal, they can charge fees, et cetera. How can you have one database available everywhere in the world, everyone can see, but no one single party controls. That's what Bitcoin blockchain solved and all subsequent blockchains solved, and that core breakthrough is what allows blockchains to do incredible things.
Matt Hougan: (18:54)
It allows you to settle financial goods, move them as fast as you can move emails, right? Because it's one database, boom, boom, boom. It allows you to program money like you can program software, because you can have money native on the internet. And it allows you to have digital property rights because you can own something in that database without anyone blessing that you can own it. You can own it like you own a Picasso on the wall. And so this is the core breakthrough, one database available everywhere that everyone agrees is true, but is not controlled by any individual entity. And that's the real breakthrough from which all the benefits and potential flow.
Rachel Pether: (19:33)
That is by far one of the best summaries I've ever heard, very clear and concise, so thank you for that. You mentioned that one of the most common questions that you got from financial advisors was the environmental concerns, and I find that quite interesting because, you know, here in the Middle East, it's a lot of institutional investors, a lot of sovereign wealth funds, and they're really placing ASG on the agenda. And so I'm interested to say that that's one of the questions from financial advisors as well.
Rachel Pether: (20:03)
So my question to you is, how do you look at the environmental impacts of Bitcoin, and also how does this play into the recent news coming out of China with regards to, you know, the fifth time they've banned Bitcoin, but this time with a real crackdown on mining.
Matt Hougan: (20:20)
That's exactly right. So yeah, ESG is top of mine for the reasons you mentioned also because Elon Musk is tweeting about it. Look, Bitcoin consumes a fair amount of energy. Now, what's true beneath the surface is that Bitcoin uses a lot of renewable energy and is transitioning to a more carbon-neutral mix. But proponents of Bitcoin can ignore the fact that like many industries, it consumes a fair amount of energy.
Matt Hougan: (20:45)
What I tell people is that look, two things really. One, Bitcoin and crypto is evolving from a carbon-intensive past to a carbon-neutral future, just like automobiles. We still predominantly drive gas-powered automobiles, but we're moving toward electric vehicles. The same is true in crypto. The original crypto systems used a mechanism for securing the blockchain called proof of work, which involves using a lot of energy, but there's a transition going on from that to a new technology called proof of stake, which is effectively carbon neutral.
Matt Hougan: (21:19)
Now, Bitcoin will be the last blockchain probably to make that transition, but we're on our way. So I think it's part of a positive environmental story. And then the flip side of that is ESG is more than just environmental, there's social and there's governance aspects to it. The real reason China is cracking down on crypto, I believe, is because it's sort of a tool of financial freedom. It's harder for governments to surveil and control than digital versions of their own cryptocurrencies, and so you often see regimes with more authoritarian bends trying to constrain the availability of Bitcoin for that market.
Matt Hougan: (21:57)
It also has this environmental impact, but that I think is a big piece of it. One thing about China, I think it was Fred Wilson, famous venture capitalist, said that on the internet investing in anything that China bans is usually a good bet, and I think that may be true with Bitcoin as well. Certainly, the network and the asset has weathered the China ban is you mentioned the fifth one pretty well. And long-term, I think, it's probably positive for the market.
Rachel Pether: (22:23)
I think that's a great point you made about ESG and as someone who sits in an emerging market, it's always interesting to see which sort of pieces of emphasis different parts of the world focus on, because certainly, you know, if you're looking at Africa or parts of the Middle East, you know, look at our neighbors, Lebanon, Iran, you know, different authoritarian regimes. And it's really the financial freedom aspect that people focus on, right? It's a bit easier for you guys in the US to focus on the environment.
Matt Hougan: (22:56)
I think that's so true and so important. It's the financial freedom aspect and it's the lowering of costs. Look, one of the most expensive things you can do in the financial market, is send remittances back overseas. The fees on that are absolutely absurd and crypto offers the potential to just collapse that. The humanitarian benefits are really significant, and I think people are starting to realize that's more of the story. And yeah, the environmental thing, we need to improve processes going that way. But that holistic picture, I think, is really important.
Rachel Pether: (23:28)
True story. I actually transferred $100 to someone in India today, and I'm not going to name the bank, but they charged me 100 dirhams, which is $27.
Matt Hougan: (23:42)
It's ridiculous.
Rachel Pether: (23:42)
I don't know where a 27% transfer fee comes from, but we can [inaudible 00:23:47].
Matt Hougan: (23:47)
That's incredible.
Rachel Pether: (23:50)
So you spend a lot of your day talking about the benefits and also the risks. What do you as Bitwise, as Matt, what do you see as some of the key risks?
Matt Hougan: (24:00)
Some of the key risks? Well, as mentioned, I think how the regulations break out, not just in the US, but in other major economies, which are wrestling with this new crypto industry that's now too big to ignore. I think that's one of the primary risks out there. That's the one I spend the most amount of my time on. The other risk to an individual investor, I will actually say the biggest risk is behavioral. This is a volatile asset, the price goes up and down, it's the best performing asset in the world over the last 1, 3, 5, and 10 years. But within that time span, it's had seven 70% plus pullbacks. So the biggest risk that I worry about for people investing is that they panic and sell at the wrong time, or they chase prices on the upside. So I worry about regulation, I worry about behavioral risk. And then I worry a little bit about story risks, which plays into both of those things.
Matt Hougan: (24:55)
You see things, like in the US, we had the colonial pipeline ransomware that was paid in Bitcoin. In the end, that turned out to be a good story for crypto because the Department of Justice was able to seize Bitcoin in a way they wouldn't have been with cash. But I worry that stories like that may influence regulators and cause them to overreact to some of the things that crypto enables. But those are my two big concerns.
Rachel Pether: (25:19)
And I would also think that, you know, when you're looking to insulate yourself against these risks, behavioral risk is a pretty hard thing to insulate against. So how do you as a firm insulate against those sort of risks, and how do you advise clients on not falling prey to some of the behavioral vices?
Matt Hougan: (25:40)
Yeah, I mean, it's a great question. One thing is that our core product, which is an index fund, is designed as a long-term investment. The beauty of an index fund like ours, that's rebalanced on a monthly basis, that's monitored 24/7, 365, is that investors don't have to respond to each piece of news. If Elon tweets something, or China does something, or a new technology emerges, the index fund adjust to that automatically. And I think that allows our investors to take a long-term view. As an example of that, in 2018, the last great crypto pullback, Bitwise had consistent inflows every week of the year. Our investors realized that that was a potential opportunity and not a material risk. So I think the product design can help with that.
Matt Hougan: (26:28)
And then education, and just emphasizing this is a long-term allocation. Crypto is not something that you should buy in the hope that it goes up next week, next month, or even next year. It's really as you abstract out and you look three, or five, or 10 years, that you start to get the right appreciation. I'll tell you one more anecdote. We surveyed a thousand financial advisors in January and asked them how many were allocating to crypto in their client portfolios. And the answer was about 9%, which was up significantly from a year ago, but still a relatively small number. But then we asked them, what do you think the price of Bitcoin will be in the next five years? And about a third of those advisors expected the price to triple or more over the next three years.
Matt Hougan: (27:16)
I think when you talk to people about where this industry is going, not tomorrow when you're worried about Senator Warren and the latest China news and the Elon tweet, but where is it going over the next decade, people realize that this is a big part of our future. And so keeping that in mind, I think helps people keep on the rails.
Rachel Pether: (27:33)
Mm-hmm (affirmative) And when you're looking at the cryptocurrencies, then, you know, you mentioned the proof of work and improve the stake in Bitcoin perhaps becoming one of the last to transition over, within your index funds, which sort of cryptocurrencies do you focus on? And I would say which to avoid, but I know there's thousands of cryptocurrencies, so maybe it's just easier to start with which you see as the most valuable.
Matt Hougan: (28:01)
Yeah, that's a great question. Our index, our core product, the Bitwise 10, holds the 10 largest cryptocurrencies that passed certain screens. So these are assets like Bitcoin, Ethereum, and certain defy assets like Eunice Swap. These are well-known global brand names that have been around for a while, have significant development activity, significant liquidity, and real thriving ecosystems. I think the message for people evaluating the space themselves, is as you get into the smaller crypto assets, your risk increases exponentially.
Matt Hougan: (28:36)
Some of the smaller assets are outright scams. Many of them don't have good disclosures around them, and then it's just very hard for a new asset to emerge and topple one of the larger assets, which have huge network effect benefits. So we really focus on Bitcoin, Ethereum, other large-cap assets, like Cardano, or Litecoin. And then these DeFi assets, decentralized finance assets, like Uniswap and Aave, which are really an interesting, exciting frontier for crypto. And that's where most people, that's the kind of space most people should be focused on.
Rachel Pether: (29:12)
So then one more clarification question from me, because when I first, you know, I was reading so much about DeFi, and then sort of a few months in I realized, "Oh gosh, I should probably work out what DeFi actually means." How do you describe DeFi to people that are unfamiliar with the space?
Matt Hougan: (29:30)
Great question. If you think about crypto as a technology that allows money to move onto the internet, you can think about DeFi as what happens if you can program money like software. So to give you a simple example, imagine you have a trust agreement that releases a certain amount of assets to your son when he turns 30. You probably have a lawyer that you pay, who waits until your son turns 30 and then releases the assets to him.
Matt Hougan: (29:56)
That's actually just an if-then statement. If John turns 30, release X. Anything that's an if-then Statement, you can program in software to do automatically without the high-priced lawyer in the middle. So what DeFi is, is essentially replacing that high priced lawyer with software. Software has disrupted almost every industry in the world, and yet in the financial space, it's done very little. What DeFi is doing is, is disrupting traditional financial services in the same way that Amazon disrupted Sears. And you have hugely successful projects like Uniswap, which is a decentralized crypto exchange, which is starting to challenge Coinbase, the largest crypto exchange in terms of volume and pricing.
Matt Hougan: (30:41)
So this is a very exciting area of the market. If I were to pick one area of crypto with the most potential over the next 10 years, DeFi would probably be it. It has big risks, but it has that kind of, sort of once in a generation potential that I think a lot of investors look for.
Rachel Pether: (30:58)
That is a fantastic summary, I think that if-then statement just really boils it down to the basic premise. So again, I wish I'd talked to you a few months ago. And also then, maybe just, you know, looked at the past and what you're doing at the moment. If we're looking into the future, what is next for the Bitwise, maybe in the next sort of three to five-year horizon?
Matt Hougan: (31:24)
Yeah, our goal was to provide access products that give exposure to professional investors to every corner of crypto. So we started with the large-cap Space, we recently launched a DeFi index fund. You can expect to see more such funds from us, yield funds, other sector funds, single coin funds. We really think crypto, Bitcoin, blockchain is going to fundamentally transform the financial services industry as it exists around the globe. It's going to do it in a better way. And so Bitwise wants to be the leading provider, or a leading provider, of funds to professional investors in that space.
Matt Hougan: (32:02)
So we're really excited. It's going to be a lot of salmon and salmon lunches, a lot of talking about crypto, but I've never seen an industry growing as fast as this have. I've never seen this much venture capital and this much talent move into an industry before. It's really exciting to think about where it's going to be five, 10 years from now.
Rachel Pether: (32:23)
Well, that's great. Thank you so much for joining us, Matt, and I hope that you can also join us at SALT, New York in September. I promise we will have salmon on the menu if that entices you to come. But from my side, just thanks so much for sharing your thoughts and your wisdom, and also just for really being able to educate in the space in such a succinct and clear manner. So thanks so much for joining us today.
Matt Hougan: (32:49)
Thank you so much for having me, this was a great session.