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"Chaos Is a Ladder”: Bitwise’s Matt Hougan on Bitcoin’s Path to $1M | Markets Outlook
00:20:46
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- [00:00]
A
The increasingly fractious world and the increasing changes to the global monetary order have opened up a space for Bitcoin. And if Bitcoin could be both a store of value and a actual currency, then the price targets we've been talking about and a bit wise we've been talking about, you know, $1.3 million by 2035. I think you have to ratchet that up, maybe another million dollar increment because that's a huge addressable market.
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B
Oh,
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A
come on.
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B
Markets move fast. Crypto moves faster. From the floor of the New York Stock Exchange, CoinDesk's public keys tracks the money markets and moves shaping digital assets. Matt Hogan, welcome to Markets Outlook.
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A
Thanks for having me.
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B
Of course, thanks for being here. Now we're going to talk about Bitcoin and Avalanche in just a bit. Some big news that I'm watching this morning is Morgan Stanley's Bitcoin ETF being the most successful ETF launch for the bank ever. Curious what you're watching. What are you keeping your eye on?
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A
Yeah, it tells us a repeat of the story that we've known which is when you provide easy, low cost exposure to Bitcoin in an ETF wrapper, people are excited about it. It's one more data point that convinces me that the wave of institutional capital coming into Bitcoin is just going to build from here. Right. Did we need another Bitcoin etf people wondered. It turns out the answer is yes. I think there's a nearly insatiable long term appetite for exposure to Bitcoin and institutional portfolios. I expect Morgan Stanley's product to be successful. I expect the other ETFs to continue bringing in inflow. So I think it's just a great sign long term for Bitcoin.
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B
A piece of the Morgan Stanley story that everyone has been talking about is of course that 14 basis point fee that undercut everyone, including Bitwise. Curious how Bitwise is thinking about staying competitive when products like this are launching in the market. You know, Morgan Stanley obviously going to leverage that massive fleet of 16,000 in house advisors. Talk to me a little bit about positioning when you, when you see products like this launch.
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A
Yeah, look, Morgan Stanley is an absolutely incredible firm and that's an incredible price point. I think it's broadly good for the market to have multiple solutions. The reason people turn towards Bitwise, which has a low cost offering at 20 basis points is they want a specialist crypto asset manager that does this 24 7, 365 that has a 18 person research team. There to answer their questions about crypto. People are going to choose different solutions. Some may go with BlackRock, the world's largest asset manager. Some may go with Morgan Stanley, which is an incredible firm with this low cost etf. And some want a specialist. Bitwise is proud to be, you know, the leading crypto specialist with an ETP in the market. I think we're going to win our fair share of what's going to be a market measured in the hundreds of billions of dollars. So I welcome Morgan Stanley and Defold. We'll compete with them on Bitcoin. We also have other products, a broader suite within crypto. I think we're going to be just fine.
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B
You mentioned that 18 person research team there to answer questions. Talk to me a little bit about the types of questions you're getting. Are they getting more sophisticated as you launch more sophisticated products? I would imagine the answer is yes, but give us a little bit of insight there.
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A
Yeah, the answer is absolutely more sophisticated and more. One of the promise Bitwise makes is anyone can ask our research team a question. We'll get back to them within 24 hours. It used to be basic questions about Bitcoin and they would trickle in one or maybe two a day. Now it's 4, 5, 6. They're asking questions about stablecoins, they're asking questions about tokenization. They want to know about things like Avalanche and Canton. They want to know whether L1s can accrue value or not, whether it's going to be a commodity market. They want to know the latest on Quantum and Bitcoin. The scale of the questions that we're getting asked are just at a much deeper level. It shows a greater maturation in the market. It makes me very bullish to see those questions trickle in every day because after a question comes in a few days later, it often turns into client flows.
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B
All right, Matt, maybe tell me your perspective on the latest between Quantum and Bitcoin. Because what I'm hearing from the people I talk to is institutions are definitely entering the market. They are definitely full steam ahead. But this quantum conversation is one that they are concerned about. They having lots of conversations behind closed doors. That quantum threat is much closer, according to Google's research and some others than we previously thought. Talk to me a little bit about your perspective there. What are you telling clients who are writing in and worried about this impending threat?
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C
History doesn't just happen. It's built by the bold, the brave and the bullish consensus. Miami is where crypto culture and traditional trillions in capital converge and ideas that fuel institutional scale are sparked. A place for those who refuse to settle for the status quo. The builders reprogramming the future of finance through every deal and decision. Breaking boundaries begins with being there. Experience that presenter.
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B
Markets move fast. Crypto moves faster. From the floor of the New York Stock Exchange, Coindesk's Public Keys tracks the money markets and moves shaping digital assets.
- [05:54]
A
Yeah, absolutely. First of all, it is something that the bitcoin community needs to focus on because it is slowing down institutional allocations. It's not stopping them. But towards your question they want good answers. We often point them to this incredible paper that the Presidio Bitcoin initiative put out on Quantum. The thing to understand about Quantum it's not a fundamental risk to all of bitcoin, it's a risk to certain wallets. There are hard questions that the bitcoin community needs to answer. But the really positive thing, in part because we've had real market leaders like Nick Carter pointing attention to this, is that the developer community is now focused on it. We've seen an acceleration of proposals to solve it. We, we see the community addressing this problems. It's a funny problem. It's a problem that if you don't monitor it becomes really big issue for bitcoin. If you're worried about it and focused on it and address it, I think the community can solve it. When we explain that to people, they gain comfort and it's not stopping their allocation. But as I said, it is slowing it down. It is something the community needs to focus on for sure.
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B
Yeah, that's something I've heard consistently. The fact that we're talking about it, the fact that folks like Nick Carter are talking about it, developers are working on it, reports are coming out says that people are focused on the right things as the ecosystem matures.
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A
That's right. That's absolutely right. Again, if we focus on it, we will solve it. If we ignored it, it would be really bad. It's nice to see the community sort of healing itself and coming to the realization it has to deal with this risk and has to deal with it now.
- [07:31]
B
All right, let's talk about one of your recent notes arguing that bitcoin's recent strength is a direct result of geopolitical tension. Just unpack that for me. Talk to about your outlook for bitcoin. Given what's going on from a geopolitical
- [07:46]
A
perspective, I think it's extraordinarily bullish for the long term trajectory of bitcoin that it's performed so well during this conflict. I've always thought of bitcoin as two things. It's a store of value like gold, and then it has effectively an out of the money call option on becoming a tool for international commerce, A way for countries to settle transactions using an apolitical rail. But it's been an out of the money call option because for most of bitcoin's history, that just seemed really unlikely. Until the Russia Ukraine war started. We were in a dollar only world. Since then it's been basically dollar yuan. That's been the settlement rails. But what we saw in Iran is a country sort of point towards bitcoin as a potential solution. Now there are all sorts of reasons to be concerned about that. From sanctions and money laundering. There are things for us to focus on. But what it shows is that the increasingly fractious world and the increasing changes to the global monetary order have opened up a space for bitcoin. And if bitcoin could be both a store of value and a actual currency, then the price targets we've been talking about, and a bitwise, we've been talking about $1.3 million by 2035. I think you have to ratchet that up maybe another million dollar increment because that's a huge addressable market. I think it's directly the reason we've been rallying through this Iran conflict. And it makes me very optimistic long term for where bitcoin's headed.
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B
You know, it reminds me back to when Covid was happening and over in Canada, where I'm from, there was the trucker protest. The government froze bank accounts. And then bitcoin was something that was really prevalent within that community. And I bring that experience up because it sounds like it's really going to take these really drastic moves to make everyday people kind of understand how bitcoin might fit into their lives and the types of challenges that bitcoin can solve for. And so. Okay, I'll let you respond to that because I see you have something to say and then I'll tell you the second part of my question.
- [09:53]
A
No, I just absolutely love that example because that's exactly right. In a normal status quo, there is no opportunity for bitcoin to break into this exclusive club of the dollar and the yuan being the settlement rails. But when you get these shock moments like the Canadian trucker strike, like this challenging geopolitical event that exists between the US and China right literally in the middle, from a geographic perspective, that's what opens things up. My piece was called Chaos is a ladder because you need those events to make space for bitcoin to sort of wedge its way into the conversation. So I just thought that was a really great example you raised.
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B
I guess the next part of my question here, Matt, is, you know, to get to that $1 million floor, do things have to get worse for people? I mean, we're talking about big events that have triggered folks to think, think about solutions that are outside of the norm for them in this chaotic world. Do things get worse for folks to really understand the value of bitcoin?
- [10:54]
A
Well, look, I'm not sure that they get worse. You need these shock events to open the door. But then once you normalize the asset, it can find more normal use cases. I come from the ETF industry, as you know. Really, Bond ETFs were not that popular until the global financial crisis when bond mutual funds stopped working because there was no underlying liquidity. But Bond ETFs really did work and the market sort of shifted towards that. We're actually seeing something similar with hyper liquid and real world assets where the fact that the Iran war conflict started on a Saturday when the CME was closed forced people to consider hyperliquid. But once you open the door through those shock events, you can get more normalized use. So look, I actually think an apolitical currency is extraordinarily good for the world. Does it raise issues that we need to deal with? Absolutely. But I think it's good for the world. So we, once you open the door, I think it's natural to spread it in. It's just hard to get that first step through. I think this is an example of us getting that breakthrough. So no, the world doesn't have to get terrible for bitcoin to succeed. Quite the contrary. I think bitcoin will make the world a better place long term. But we do need these shock events to open the window for us to get a seat at the table.
- [12:11]
B
Well, you know, our audience loves a discussion about price. I guess I'll put it that way. You mentioned a $1 million Bitcoin. Talk to me a little bit about timeline there. What needs to happen for us to get to a $1 million bitcoin floor?
- [12:25]
A
Yeah, I mean, you know what we talked about in our long term capital market assumptions is that all you need to get to a million dollar Bitcoin is for the store value market to continue to grow the way it's been growing for the last 20 years. That market has grown at a 12% CAGR for the last 20 years. If that continues for the next 10 years and Bitcoin ends up with like 15, 17% of the market. It's at 6% today. You're talking about million dollar Bitcoin. So you don't need much to get there over a 10 year period. In terms of what could accelerate that time frame, Things like what happened recently where Bitcoin as a currency finds space in the world could significantly accelerate that progress on the regulatory front. If we do get good news on the Clarity act, that would significantly accelerate that. But I don't think that much has to happen in order for us to get to that million dollar price target within 10 years. Again, just the market continues to need to go in the direction it's been going for the last 10 years. You extrapolate that trend, I think we'll get there.
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B
I want to turn now and talk about Bitwise's latest ETF launch, the Avalanche ETF trading on NYSE arca. There is a staking component here. Just give us a brief introduction to the product.
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A
Yeah, absolutely. Bava B A V A is our Avalanche etf. It holds Avalanche in qualified custody and then stakes the maximum percentage it can while still retaining the liquidity to function as an ETF. That's about 70% of assets staked. So we're really doing our best to maximize the yield you can get from staking. Look, the L1 space is extraordinarily crowded. What we do at Bitwise is we scan the horizon to see which projects have really differentiated architectures that are finding meaningful traction. Certainly Ethereum is one of those. We have an Ethereum ETF. EW Solana is one of those. We're very proud of BSOL, the largest Solana ETF. Avalanche is interesting because it offers customizable L1s for enterprises. I think that's a very differentiated L1 architecture. So we're very excited to bring BABA to market and give people sort of a choice among the most interesting designs in the L1 space.
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B
So it sounds like your bull case is based on those customizable L1s. I think they're called subnets or they at least used to be called subnets. They might be called something else now. What's your bear case for Avalanche? What should investors be watching out for?
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A
Yeah, look, the reality of the L1 space is the thing that I'm confident in personally is that demand for L1 high quality block space will grow. Right. The growth of stable coins and tokenization I think are F complete, moving to trillions of dollars in Market cap. The things that we don't know is which L1 structure will win, right? Will it be the fully decentralized Ethereum structure, the more centralized Salana structure, or this avalanche with new L1s? Avalanche L1s they're called now post subnet branding. We don't know. So the bear case is that maybe this more customizable structure doesn't win in the market. It's been doing really well, right? Real world assets on avalanche are up 950% in the last year. So it's been doing really well. But any honest appraisal says we're still at the early stage in the growth of L1s. And so knowing which architecture will win is hard. From my personal perspective, that means I own all of them. But different people will make different bets, and it's entirely possible that a different architecture will win. I just think Avalanche's approach resonates with mainstream firms moving into the blockchain space and the introduction of real world assets. So I think it has a real shot, but it doesn't have a guarantee that it will win.
- [16:11]
B
We talked about your research team earlier and the types of questions that investors are asking them. I mean, what are the questions you're getting about staked ETFs and what do investors who are looking at all of these products need to know about the different stake products? Of course, we know there are ether staking ETFs and some other products on the market like this. But what are some of the biggest misconceptions you're hearing that you want to smooth out?
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A
Yeah, well, look, that they're all the same, right? That's the most important one. There are three big questions you need to focus on when you look at staked ETFs. What percentage of the assets are staked at any given time? What percentage of the stake does the asset manager take, which as opposed to grant to shareholders? And then how high quality is the staking operation? You know, Bitwise is one of the largest staking firms in the world. Now, through our acquisitions of a tested and chorus one, we have a great deal of staking expertise. But you can't assume that these are the same. If you look at the Bitcoin ETFs, right, you're really looking at very similar ETFs. When you get down to staking, you have to look again, the quality of the staking, how much is staked and what the percentage split is between the asset manager and the investor. You want all that to be on your side as an investor. I think when you do that across the spectrum of these ETFs, Bitwise does very well. That's why we've done so well on the Solana side. Why I think we'll do so well on the Avalanche side as well.
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B
You mentioned hype earlier on in our conversation. I know Bitwise has filed for a Hype etf. We do our show on Mondays from the floor of the New York Stock Exchange. And when I walk the floor, some of the TRADFI folks are often asking me about Hype Hype products, the hyper liquid ecosystem. And I think it is because of what you mentioned, Matt. You know, investors are looking for ways to trade events on the weekends when traditional exchanges are closed. But you know, hearing that and hearing about the institutional interest in Hype, like, are you surprised to hear that? What are you hearing on your end and what do you anticipate for products like high ETFs when, when they come to market?
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A
Yeah, absolutely. Vis a vis Hyper Liquid itself. I don't think it's that they want to. I think it's that they have to be able to trade. You can't be a global macro hedge fund or a leading investor and not be able to respond to geopolitical events on Saturday. And right now hyperliquid is basically the only game in town. So they're being forced to onboard into this ecosystem. Look, I think hyperliquid is part of a new generation of defi projects that are built in after the regulatory environment improved, that allow for real value capture, that have rethought how the token economics work. It's having massive success. I can't speak to our hyper Liquid filing beyond the fact that we have filed for a project because we're in sort of the SEC's quiet period on that. But I will say, look, Hyper Liquid is obviously one of the best performing crypto assets over the last few years. Whatever time period you want to look. It's got an incredible founder, it's found product market fit, it has good tokenomics. I think there's a reason a lot of people are excited about it.
- [19:17]
B
All right, Matt. And the last thing I'm going to ask you as we head into the weekend, what are you watching? What are you keeping a close eye on?
- [19:23]
A
Look, I think it's really exciting to see bitcoin here at 75,000. The fact that we've been able to hold these levels is really appealing. There is this question of whether we're in a channel or whether we can break out to the upside. If we can break out to the upside at a time that funding rates are so negative, I think that's an extraordinarily positive story and there's probably upside volatility for us. So I'm just sort of watching and waiting and looking at prices just like everyone else. Of course, I also have an eye on the rumors about the Clarity Act. There's certainly a lot of chatter about that. I think if we can line up passage of the Clarity act, pretty strong price performance improvement on the quantum side. I think it's going to be a pretty exciting Q2. Maybe the the spring will arrive early.
- [20:09]
B
Sounds like you are bullish on the Clarity act passing before midterms.
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A
I'm hopeful. I'm hopeful. I'm not. I'm not bullish on anything in Washington and everything can break. But the most recent spat of rumors has been more positive than I expected. So. So put Me down is hopeful. But you always have to treat DC With a bit of skepticism. I wouldn't count those chickens until they're fully hatched and indeed signed into law.
- [20:37]
B
Matt, thanks for joining me today. It is always a pleasure having you on.
- [20:40]
A
Thanks for having.