Masters in Business Podcast Summary

Episode: At the Money: The Tech Behind a Crypto Future
Release Date: January 8, 2025
Host: Barry Ritholtz, Bloomberg

In this insightful episode of Bloomberg’s Masters in Business, host Barry Ritholtz delves into the evolving landscape of cryptocurrencies, exploring their foundational technologies, diverse use cases, security advancements, and investment potential. Joined by Matt Hogan, Chief Investment Officer at Bitwise Asset Management, the discussion provides a comprehensive overview of the crypto ecosystem and its trajectory towards mainstream adoption.

1. Understanding Bitcoin and Ethereum

At the outset, Matt Hogan clarifies the fundamental differences between Bitcoin and Ethereum, laying the groundwork for listeners to grasp the core functionalities of these leading cryptocurrencies.

Key Points:

• Bitcoin as Digital Money: Bitcoin is depicted as a pioneering crypto asset designed to store wealth digitally without reliance on governments or banks. It operates on blockchain technology, which was refined over four decades before Bitcoin's inception in 2008-2009.

  "[Bitcoin is] the first way that investors can store wealth in a digital format without relying on any government or any bank." (02:11)

• Ethereum's Programmability: Unlike Bitcoin, Ethereum extends beyond digital currency by enabling programmable money and public computation. This allows for the creation of smart contracts, stablecoins, and various decentralized applications (dApps).

  "You can build smart contracts, you can build stablecoins, you can build other applications." (02:45)

2. The Rise of Smart Contracts and Innovative Use Cases

The conversation transitions to the practical applications of blockchain technology, particularly smart contracts, and their potential to revolutionize industries.

Key Points:

• Smart Contracts in Entertainment: Using the example of Taylor Swift’s concert tickets, Hogan illustrates how smart contracts on Ethereum can combat scalping by ensuring artists receive a portion of resale profits.

  "Crypto enables frictionless programmable money... the idea of attaching revenue streams downstream from it is something that you can do easily in the blockchain setting." (04:10)

• Expansion to Art and Beyond: Similar mechanisms can be applied to the art world, allowing artists to benefit directly from the appreciation of their work over time.

  "Artists are always upset that they sell their art and then it 100 x's in price and they don't benefit from that directly." (04:10)

3. Overcoming Barriers to Adoption

Hogan discusses the challenges that previously hindered the widespread adoption of crypto applications and how recent advancements are addressing these obstacles.

Key Points:

• Regulatory Hurdles: Initial regulatory uncertainties, including SEC lawsuits and anti-crypto sentiments in Congress, discouraged mainstream corporations from investing in crypto technologies.

  "There was a regulatory cloud hanging over it... companies are not building in an area where a senator is building an army to crush you." (04:50)

• Technological Advancements: Improvements in blockchain performance and cost-effectiveness have made crypto applications more viable, likening the current state to the early days of the internet before it went mainstream.

  "We've gone through in blockchains what we went through going from dial up to broadband Internet." (05:15)

• Predicted Boom in Use Cases: Hogan anticipates a surge in crypto use cases over the next few years, driven by enhanced technology and a more favorable regulatory environment.

  "I think you're going to see a flowering of a million use cases over the next two or three years in crypto." (05:47)

4. The Emergence of Stablecoins as a Killer App

The discussion highlights stablecoins as a pivotal development in making cryptocurrencies accessible and practical on a global scale.

Key Points:

• Accessible US Dollar Equivalent: Stablecoins provide a blockchain-based version of the US dollar, enabling seamless access to stable value currencies for individuals worldwide, particularly in countries with high inflation or limited banking infrastructure.

  "A stablecoin is a money market fund, but on a blockchain... it puts a US bank account at the fingertips of anyone with a cell phone anywhere around the world." (06:44)

• Global Payments Facilitation: Companies like Yellow Card leverage stablecoins to facilitate cross-border payments, demonstrating rapid growth and the practical utility of stablecoins in international commerce.

  "Yellow Card is using Stable coins to do country to country payments between business entities. It's growing at an exceptional rate." (07:00)

5. Enhancements in Security and Custody of Crypto Assets

Addressing past security concerns, Hogan outlines the advancements in crypto asset custody and the measures in place to protect investors.

Key Points:

• Historical Security Issues: Early crypto faced significant security challenges, including hacks and loss of access due to misplaced passwords, leading to substantial losses for some investors.

  "20% or 25% of all bitcoins have been lost because the owners either misplaced the drive it was on or misplaced the password." (07:30)

• Modern Custody Solutions: Today, regulated custodians offer secure storage solutions with insurance, mitigating previous risks and providing confidence to institutional investors.

  "Most people custody their crypto assets through regulated, qualified custodians with insurance from leading insurance providers." (08:25)

• Evolution from Humble Beginnings: The shift from insecure personal storage to professional custody services marks a significant maturation of the crypto industry.

  "The track record for those qualified custodians is sterling." (08:50)

6. Investment Potential vs. Speculation in Crypto

Hogan and Ritholtz explore whether cryptocurrencies should be viewed primarily as investments or speculative assets, presenting a nuanced perspective.

Key Points:

• Mainstream Institutional Interest: Prominent investors and firms like Stan Druckenmiller, Fidelity, and BlackRock have incorporated crypto into their portfolios, suggesting a growing acceptance of crypto as a legitimate investment.

  "Many of the smartest investors in the world are allocating to bitcoin and crypto." (09:56)

• Technological Innovation Driving Value: The ongoing advancements and increasing adoption of blockchain technologies underpin the investment rationale for cryptocurrencies.

  "It's a technology that is just crossing the chasm from early adopters to mainstream." (10:00)

• Speculative Elements: While there are strong investment fundamentals, Hogan acknowledges that crypto also carries speculative components, making it essential for investors to balance these aspects in their portfolios.

  "There are elements of speculation, but there are elements of fundamental investing behind these crypto assets as well." (14:43)

7. Navigating the Crypto Investment Landscape

Concluding the discussion, Hogan provides strategic advice for investors considering incorporating cryptocurrencies into their portfolios.

Key Points:

• Selective Allocation: Investors are encouraged to allocate a modest portion of their portfolios to crypto, recognizing its potential without overexposure to volatility.

  "Investors should pay attention to the various coins, in particular Bitcoin and Ethereum as a new technology that is crossing the chasm from early adopter towards mainstream investing." (13:38)

• Risk Management: Emphasizing responsible investment practices, Hogan advises against succumbing to bubble mentality and underscores the importance of informed decision-making.

  "Think about this as a new technology that is starting to be adopted more broadly... drink responsibly, invest responsibly." (14:00)

• Long-Term Perspective: Viewing crypto as a burgeoning technology with long-term potential helps investors navigate short-term market fluctuations and capitalize on future growth.

  "It does seem like they're trolling us a bit... when I look at crypto today, it looks to me like a technology that is just crossing the chasm from early adopters to mainstream." (10:34)

Conclusion

Barry Ritholtz and Matt Hogan provide a forward-looking analysis of the crypto landscape, highlighting its technological innovations, expanding use cases, improved security frameworks, and evolving investment appeal. As cryptocurrencies transition from niche assets to mainstream financial instruments, informed investors can leverage these insights to navigate the complexities and opportunities within the crypto market.

Notable Quotes:

• "Bitcoin is the first way that investors can store wealth in a digital format without relying on any government or any bank." – Matt Hogan (02:11)
• "You can build smart contracts, you can build stablecoins, you can build other applications." – Matt Hogan (02:45)
• "Crypto enables frictionless programmable money." – Matt Hogan (04:10)
• "We're starting to see a few examples... like 1994, 1996 in the Internet." – Matt Hogan (05:54)
• "Stablecoins make that instantly accessible globally." – Matt Hogan (07:00)
• "It could be that the price will pull back... but I don't think we're at a mature state or bubble level." – Matt Hogan (10:34)
• "Invest responsibly, don't go hog wild and get sucked into the bubble mentality." – Matt Hogan (14:00)

Disclaimer: This summary is intended for informational purposes only and does not constitute financial advice. Investors should conduct their own research or consult with a financial advisor before making investment decisions.