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Bitcoin's Big Moment: Fidelity Reveals 2025 Crypto Predictions | Chris Kuiper & Matthew Horne
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Bitcoin's Big Moment: Fidelity Reveals 2025 Crypto Predictions | Chris Kuiper & Matthew Horne
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- [00:00]
Scott
I think it's fair to say that Fidelity has been the leading institution.
- [00:04]
Matt Horn
You know, I think when you have a long term vision, long term belief in something like digital assets in bitcoin, and you're a private firm like Fidelity, you can take, you know, a measured long term approach. And that's what we've done here just.
- [00:16]
Chris Kuyper
Before we hit the last all time high when we went to 69,000 feeling pretty good. Microstrategy has been the crazy person for a little while now. That starts the movement.
- [00:25]
Scott
2024 was the year of institutional adoption of crypto and especially of bitcoin with the introduction of the ETFs. But fidelity has been in the bitcoin space for over a decade, leading the charge of all institutions in crypto. I sat down today with two of the most brilliant minds at Fidelity, Chris Kuyper, who is the director of research at Fidelity Digital, and Matt Horn, the head of digital asset strategist at Fidelity, to talk about what's happening in the bitcoin and crypto markets, what to look forward to in 2025 and how we're just getting started with mainstream institutional nation state and sovereign wealth and pensions and the huge wall of money that's coming, everybody adopting bitcoin.
- [01:24]
Matt Horn
That'S dope.
- [01:25]
Scott
I think it's fair to say that Fidelity has been the leading institution in bitcoin and crypto in general in the space for over a decade, I believe, long before anyone else was interested. How has it been seeing so many other institutions finally jump on board the ship over the last couple of years and really, really in 2024. And I guess also to see how pro crypto the government seemingly is becoming coming into 2025. It's got to be a bit surprising after sort of screaming from the mountaintop on your own for so long. I mean, Chris, maybe take that first.
- [02:01]
Chris Kuyper
Yeah, sure. And I think Matt's been at Fidelity longer than I have, but I've been here a little over three years now. And one of the things that attracted me to Fidelity Digital Assets was the fact that these people really got it. It was clear that they understood it, they believed it. And that's the type of person and attitude it takes from a company to do this. You know, it goes all the way to the top. Our CEO of course led the charge and was supportive over 10 years ago. And we haven't wavered from that, you know, through thick and thin. I started when we just before we hit the last all time high, when we went up to 69,000, feeling pretty good. And then a few months later we crashed down 80% and I was starting to question my life choices a little bit. But it was so great to see us step on the gas and actually hire more people, invest more in the space, more in the infrastructure. And that's just really been the story ever since. But Matt, you've been here longer than I have. I'd be curious to hear your take as well.
- [02:57]
Matt Horn
Yeah, for sure. I mean, I've been in this digital asset function for over five years now, been at Fidelity over 12 years, and I think seeing everyone else come in has been great because it's really reaffirmed our long term belief in this space and what this technology and these assets can potentially do. There were some dark days when I first joined. I was three months in the role and Covid hit and bitcoin got cut in half overnight pretty much. And I, I thought that was it. Like, here we go, this is going to be the end. But you know, I think when you have a long term vision, long term belief in something like digital assets in Bitcoin, and you're a private firm like Fidelity, you can take, you know, a measured long term approach. And that's what we've done here. And, and we've really delivered for our clients across the board. And it is great to, to see other firms come in. But at the same time, Scott, that raises the bar for us. We have to keep innovating, offering better products, meeting clients where they are. And I think that's our challenge and our vision going Forward here into 2025.
- [03:54]
Scott
Let's talk about meeting clients where they are. So a, I think you have a wide breadth of different kinds of clientele, I would imagine, right from retail all the way up. How are you now framing those conversations now? This has become such a mainstream asset. I mean, meeting them where they are can mean someone who's bitcoin native and has been there for 12 or 13 years, buying this asset, has been a believer and is looking for different ways to hold the asset. That could also be someone who thinks it's a scam. Right. So it's really the entire spectrum. So what does that look like for you guys?
- [04:29]
Matt Horn
Yes, maybe just let me lay out the segmentation of clients we have. Right. We go from the full spectrum. We go from your retail client who's using fidelity.com, they might be calling into one of our phone centers regionally or walking to a Fidelity branch, all the way up to the, you know, financial advisor space. Whether you're an RIA or whether you're at a broker dealer all the way up into the institutional space, pensions, foundations, endowments and other asset managers or hedge funds too. So it's really the full spectrum of clients we're engaging on this digital asset topic. So I just think, you know, as you segment that out, there's different clients in each group who are on a different part of this education spectrum. And I think we try to deliver on content that Chris will hit on here across the board that can meet these varying needs. It also means meeting clients, Scott, where their assets, assets are, frankly. Right. Because for years you and I could have gone to a digital asset exchange, bought crypto directly in a taxable wallet type experience. Not everyone's wealth sits there. Right. A lot of, a lot of the way the US wealth system is set up is that it's deferred right into tax sheltered accounts, 401ks, IRAs, etc and really the advent of the ETP products this past year has allowed us to now offer that exposure in those account types. And there's a lot of wealth in there too. Additionally, a lot of wealth in the US is controlled by intermediaries who can't just easily plug into a wallet type infrastructure experience and they're controlling, you know, 30 trillion plus in assets. So that's again where ETPs can help, you know, meet clients where they are on sort of where the wealth is here in the U.S. yeah.
- [06:12]
Chris Kuyper
And from the research perspective, that's the greatest challenge. What you just laid out. If I speak to a room full of people, it's everywhere from it's a total scam to the biggest believer in the room. So how do you, how do you talk to people like that? And the good thing is, let's just take bitcoin for example. The core message is the same and everybody starts from the same spot because this is still so new. Everyone has to go through the same journey. Now of course we can tailor the language and the research to different groups and of course I can talk to institutional investors and more of the Tradfi, CFA terms that they prefer and are familiar with and, and whatnot. But the core message is the same and we just try to continue to show that through throughout different ways, different types of research, different levels of sophistication and it hits differently for different people. So that's part of the fun, part of my job is trying to figure out, to present it in a new way where someone, it finally clicks for them. And a lot of people, as you know, I don't know of anyone who's become a believer or on board with the investment thesis, the very first time they hear it, it usually takes six, seven, eight times, and it just takes time to percolate in their minds as well. So that's the other solace I take. If someone writes it off, at least I think, okay, at least I was a touch point there. And maybe it will plant a bit of a seed and they'll come back around or they'll start thinking of it or something else will. Will trigger them to go on their. Their intellectual journey a little bit further. The other good thing I'll say is, is just over the past few years, you know, we do an annual survey and we ask what's the biggest barrier or what's the greatest thing that you have against it keeping you from investing? And the number one has always been the same, which is volatility, which we could talk about later. But all of the other things cited, they've changed from year to year. And the early ones started with, it's a scam, it's used for illicit purposes. And now it's changed to other things. It's more about the security or something, or valuation models. So I think there's progress in that. Even though people are still throwing up these roadblocks, they're becoming more sophisticated. They're not the old ones of the past. And so I think that's where we've seen a lot of progress as well.
- [08:21]
Scott
Yeah. The good news, that AI has taken all of our fud, you know, fear, uncertainty, and doubt. They're now the ones that are boiling the oceans and destroying the environment, not the bitcoin miners. Right. So we've deflected all of our previous narratives off on the AI data centers. But it's interesting, Chris, because I know that you have to talk to those rooms and sort of frame this for all of these different people. But fidelity has been somewhat consistent, certainly, with Bitcoin as being a macro asset. And you actually wrote a paper, I believe, in November, bitcoin's potential as a leading macro asset. Can you sort of talk about that? Because I think that Bitcoin is finding a very strong footing with people not believing it's a scam, seeing it on CNBC and Fox Business every day on the ticker, believing it's a real asset. We can go beyond that to everything else. And actually, one of my favorite Fidelity papers ever was years ago, and I think it was entitled Bitcoin and Everything Else. But how are you now framing this Bitcoin as a Leading macro asset to your potential, you know, customers.
- [09:23]
Chris Kuyper
Yeah, it stems from that Bitcoin first paper you mentioned where we early on went out and said it makes the most sense, at least to us to view Bitcoin as an aspiring form of money. It has all the great properties of money. So it has the ability to be this money and aspiring store of value. And as a pure monetary good, it doesn't have any other industrial use case like a commodity. It is the purest macro asset out there. And we're now starting to see it come into its own as this macro asset. And other institutions and investors are seeing it this way. And you of course as a trader realize this, that it moves based on macroeconomic factors. That's all we mean by macro assets. So it's not specific company news like a stock, but it's big macro things like gdp, inflation. And our research shows that the two biggest things that it's correlated with and has the most statistically significant values are liquidity. So global money supply, US money supply, M2 as well as inflation expectations. And so people are now using this as a vehicle to either express a view on inflation or liquidity or potentially to hedge against some of these things as well. And I think that's where it's really finding itself in the institutional investor camp. People are realizing this and, and they're realizing how good of a vehicle it is as a macro asset because of course it trades 24, 7, 365, it's homogenous, it's global all over the world. Unlike other commodities, you can move it around in an instant for very cheap, cheap cost. And so those are all things that are going to help continue to support it as this ultimate macro asset. And potentially ultimately as this, this form of collateral, this pristine collateral that could underpin a lot of the financial system, at least in my opinion.
- [11:16]
Scott
Matt, I see you nodding your head. Obviously a lot of that aligns with what you're thinking.
- [11:20]
Matt Horn
Absolutely, 100%. And I think it also helps Scott, we have another year behind us of good performance and proof that it can be additive to a portfolio. Right. If it's position size correctly based off clients goals. So I think it does help though. Here we are, another year goes past. We've also seen more prominent, you know, investors and macro talking heads if you will get behind Bitcoin given the backdrop here as we enter 2025. You know, things like, you know, debt to GDP and just spending in general is, is really a big focus going into this year. And if you kind of Understand sort of one of the fundamental, you know, narratives around Bitcoin. It's sort of, we're here for the moment, if you will. Right. Where even a person who may not be all in on Bitcoin might see value in having a small position allocated to Bitcoin. Right. Just given what's going on here. So I think it's a very exciting time for Bitcoin as a macro asset. And Chris kind of hit all those points.
- [12:17]
Scott
Well, it's, it's interesting, Chris. There's been this sort of debate as to whether Bitcoin is or is not a correlated asset. I guess calling it a macro asset implies that it's certainly correlated in, in some ways. But everything's correlated to liquidity. Right? That's one of the two that you have here, liquidity, inflation. I mean, we all know that the stock market flies when global liquidity is rising. Gold rises, everything rises. So that makes a lot of sense for Bitcoin. I think it's just higher beta. So potentially it rises more. But the flip side of that is what you talked about with inflation is that not all of those things perform well in an environment in inflation. Is there a conflict there between sort of it correlates to everything when it comes to liquidity, but it decorrelates or maybe correlates to other things when it comes to inflation?
- [13:04]
Chris Kuyper
Well, I see them as the same thing.
- [13:06]
Matt Horn
Right.
- [13:06]
Chris Kuyper
So if you've got liquidity increasing, then that can and certainly does lead to inflation, in my opinion. I'm a little more of the perhaps old school definition of inflation of it starts with inflating the money supply itself. And then if you get prices, consumer prices going up, what most people call inflation, that's just a symptom of the money supply getting inflated in the first place. Now, of course, I know in everyday language people say inflation, they're talking about cpi. Now, it doesn't have to be. We did see inflation of the money supply and then we got inflation of assets like houses or the stock market. So that money can be directed to different asset classes that necessarily has to go to consumer prices. But that's how I see the two things connected. Right. The whole liquidity one is interesting because this is arguably one of the tougher ones I have with my traditional finance people that I know or that I used to work with, they say, I get it, but if I'm going to protect myself against global liquidity and debasement, I'll just buy stocks. Stocks have been great for protecting myself against inflation and debasement why wouldn't I continue to do that? And that's not wrong. I mean, that is true. But the thing I would think about is look at the past few years again. As Matt said, we've got more data. Bitcoin, for example, has been the faster horse out of all of these. It's the one that's, that's done a much better job, as you just said, a higher beta. And so people have to remember as money managers, you've got an opportunity cost with every dollar. You have to put it in one thing or another. Right. So it either goes into stocks or goes into bitcoin. So the more people that allocate to bitcoin, the more they're removing that monetary premium or what they're trying to do, get ahead of inflation. They're moving that out of things like equities and real estate and moving it into bitcoin. And because bitcoin's so much smaller, it's going to run a lot higher. It's going to perform a lot better as this monetary premium shift occurs. And that's what I think they're missing. So that is one of the harder ones, but I think one that's going to become evidently clear in the next years or decades to come.
- [15:15]
Scott
But Matt, if it's small now, and that's the reason that it's higher beta and gets more upside when people come in, what's the tipping point at which it just becomes another macro asset that has so much size that the volatility is dampened and the upside is somewhat removed?
- [15:30]
Matt Horn
Yeah. The analogy most point to is when it becomes close to gold market cap. Right. So we get a ways to go to get there. And that's always been my fear is that a lot of, you know, the investor base I talked about earlier just waits and waits and waits until it's a really clear pitch. Right. And then, you know, then it's sort of a macro asset and a lot of that early adoption benefit for a portfolio might be gone. Right. And that's not to say bitcoin will stop at goals, parity and not keep going. I don't know, it could keep going, you know, a long time. But I just think a lot of people need a clear analog or analogy to look at. I think gold has been it. And, but to Chris's point earlier, like you, you do the time, you do a couple hundred hours of studying, you truly understand this, right? It's, it's that, that's where people really had that conviction to get up zero early and just wait and just have a long term view. Keep it in a portfolio as a dedicated position and just wait. Because I think that's the hardest thing is for people to just have the patience for this to play out. We've never seen in our lifetime something like this happen.
- [16:33]
Chris Kuyper
Really.
- [16:34]
Matt Horn
The admin advent of a new asset class. Right. Digital assets, something like bitcoin here. And it takes time to play out, to legitimize itself in various ways. A lot of reasons to be optimistic going into 2025. But these things are going to have volatility and it's going to take time. And I think that's been the hardest thing for people like Chris and I. Talking to clients is just A, getting them to understand it, but B, really just emphasizing it's going to be a process here and it takes patience. Yeah.
- [17:01]
Chris Kuyper
Matt, to your point, the one analogy that we do have a little bit, I'd say it's still different, but you alluded to it is gold. Where we went from it was not an asset class because it was pegged to the $35 an ounce or whatever it was at the very end there. Then we completely de pegged and it had to go through this, what you just said, this process, this price discovery process, this monetization process. And we went from $35 an ounce to over $800 an ounce back in the 70s and 80s. And so I think that is one corollary that we could glean a little bit of insight here of how this happens. Number one, takes time. Number two, it's very volatile because it's a process and there's no shortcut for the market figuring out what this thing is worth. But then look where we are today. It's a 16, $17 trillion asset class that sits alongside almost every major institutional portfolio around the world.
- [17:53]
Scott
And wasn't the other huge gold run when the ETFs were basically introduced? I mean gold I think was 2004 kind of had those few months of sideways, much like we did with the Bitcoin spot ETFs and then absolute parabolic price moving to the upside.
- [18:06]
Matt Horn
Yep. And again, that's the ease the vehicle. Right. The vehicle makes it easy to access. And that's when you see adoption, just like we saw last year.
- [18:13]
Chris Kuyper
I was just going to say too people forget that it was actually illegal for private citizens to own gold as an investment until 1971. And so it just opened up. People didn't know how to do it. And then as you said, Matt, the ETFs came along and made it so much, so much easier and accessible.
- [18:30]
Scott
Okay, so you're obviously having productive conversations with clients about Bitcoin. I think that we've had sort of a paradigm shift where maybe a few years ago, if a CFO or a fiduciary mentioned it, they probably had reputational risk for even bringing it up. Now I would argue it's flipped and they probably have reputational risk if they can't answer questions about it to their Cl, even if they hate it. Right. So I think that Bitcoin is making its way. How much are you talking about the rest of the cryptocurrency space to these people or are they still primarily focused on Bitcoin? I think we had the sort of the surprise approval of the Ethereum ETFs, you know, this summer and those starting to trade in kind of a curious manner. But we still have this long tail of assets that I think, especially with this new administration coming in, could very quickly become more legitimized or certainly more tradable in the same ways that these ETFs are. If we start to see Solana or XRP or Doge ETFs, who knows?
- [19:29]
Matt Horn
Yep. I'll go first. Chris. The I'd say generally speaking, Scott, most conversations start with bitcoin, as they sort of always have. I think that's sort of how it's going to play out for the next couple of years here. That being said, we are having productive conversations on Ethereum as well. You know, around these ETPs. I just think most people start with bitcoin, most institutions start there and go from there. You know, the lack of staking in the US ETPs for eth I think is a slight drawback too. So I think those who are truly understand to totally, you know, get the true economic exposure to eth, you'd want to hold it not in an etp, potentially just to get that staking yield as well. So I think that's a partial consideration here. I'd say ETH is still more on the retail side. Early days institutions are curious, but focusing more on Bitcoin at this point.
- [20:17]
Chris Kuyper
Yeah, I think if you're an institution, you look at the market and you see take out stablecoins, Bitcoin, ETH, 80 plus percent of the market. It's a matter of size. Why are you going to spend your time on the stuff that's just frankly too small for them at this point? And that's just where we are not saying anything against it in that way. But to your Point, Scott, of people across the whole spectrum. We've got clients who are much more sophisticated that want to know a lot more about ether. We, of course, do offer that on our platform. We've got an analyst on the research team that almost exclusively covers it. So we're having those conversations, and it's there. And I expect that to continue to grow. But I think over the next year, at least Personally, I think 2025 is really going to be focusing on bitcoin, because I feel like that's where we're seeing the biggest momentum as people first start with that. It's the largest one. $2 trillion. They can do things in size with this, this market.
- [21:10]
Scott
What percentage of portfolio do you think is starting to be viewed as acceptable for bitcoin? I think we kind of had this view maybe a year ago that if we got to 1% and fiduciaries were allocating 1% to their clients, that would be spectacular. Then all of a sudden, I turn around and I see BlackRock quietly saying 2 or 3% of your portfolio. That's 2 or 3x what I was expecting. Right. So when people come to you, how are they generally looking to allocate putting some numbers to it?
- [21:40]
Matt Horn
So on the advisor side, most conversations we're having, we're not giving them exact numbers. Right. You know, we focus more on just, hey, some exposure might make sense for some of your clients. And what we're seeing them do operationally to implement that is, I'd say anywhere from 2 to 5%, generally at a high level, based on where the clients are at. And again, that's not every client in their book. It might be a subset of clients that want it, et cetera. But I would just say it's bigger than the 1% you said, Scott. Right. So it's probably 2 to 5% with a consistent exposure. Deliberate rebalance over time is sort of what we're seeing operationally.
- [22:17]
Chris Kuyper
Yeah. And our research shows how you can dial this. And of course, the more you do, the better it looks, at least historically. Not surprising, but what people forget is a lot of these institutional investors have risk budgets, or they target their portfolio and optimize it for a set level of volatility. So the more volatility there is in bitcoin, the more the equation will say they have to have a smaller and smaller piece. So long term, though, we've seen bitcoin's volatility continue to go down. I mean, go back to 2012, 13, 14, it was a 150 to 200 volume asset. We're now down to maybe 60 or so and we've even gotten as low as 30. I like to point out that at many times, over many periods now, Bitcoin has been less volatile than many magnificent seven stocks. And so as the volatility goes down, these institutions that purely allocate on these technical rules and equations of targeting volatility, their models will show that they can take a larger and larger piece. And so that's what I expect to see as well. But I'm with you. It used to be get off zero. Now it's like, well, what's 1% going to do? I got to at least do 2, 3, 4%.
- [23:25]
Scott
Yeah, I mean, I remember that day that meta dropped like 26% two years ago or something in 10 minutes after hours, if I remember it, you know, and we've seen obviously massive volatility with these and they're the biggest companies in the world. So it really to me has dampened the argument against crypto or bitcoin specifically being too volatile to be investable. Also, if you really look at Bitcoin, it's boring. 90 something percent of the time, all that volatility happens like 10 days a year.
- [23:55]
Chris Kuyper
And here's a really interesting thing that our research and other people have found as well, is that volatility is just volatility. It's just a mathematical term, right? But of course, in the finance world everyone equates volatility with risk because it's all about they can't handle it. Or of course it's volatility to the downside. But you look at bitcoin's volatility profile and it's skewed to the right. It actually has more volatility to the upside. So I'll borrow a phrase from someone else. They said there's good cholesterol and bad cholesterol. Well, there's good volatility and bad volatility. Bitcoin has more good volatility, at least historically, than bad volatility. So that sets it apart from almost every other asset class. And then what's really interesting is that if you set a percentage and you rebalance whatever it is, quarterly, monthly, annually, you're actually doing better because you're essentially harvesting that volatility you're taking advantage of when it goes up and you pair it back and then you reload and reallocate when it goes back down. And other quant shops and funds have shown this with other high volume alternative assets and they make a great case for High volume alternative assets. Well that's exactly what Bitcoin is. It's a high volume alt, if you want to think of it that way.
- [25:11]
Scott
Well, it's also a high volume alt that now has at least on some of the products, options trading. Right. So I think the volatility is a lot scarier if you can't hedge. Right. Or you don't have a strategy around it. But I mean now with Options Certainly on BlackRock, on IBIT and some others and I don't know if they are on Fidelity actually.
- [25:29]
Matt Horn
I'm sorry, but FBTC has options.
- [25:32]
Scott
Yeah, yeah you do have options. So I mean doesn't that also sort of pour some fire on that argument? I mean pour some water on the fire of that argument because if you can just hedge against it, it doesn't matter as much anyways.
- [25:47]
Matt Horn
Yeah, I think it's definitely a new tool in the toolbox for institutional investors is having the options to help hedge some of this and to your point Scott, maybe take a bigger position than hedge it out versus just position sizing based on volatility. It is interesting to see how products are going to advance here I think into the next year. Right now you have options here. I would expect to see a lot of option type overlay solutions. Right. Filed for and potentially in 2025. You know I, I think it's going to get competitive here as an asset manager in this space to really to launch product because it's a new category, it's a, it's a new spot for, for asset managers to grow and options I think help help, you know, help that as well and potentially other other other assets can get, you know, ETPs launching them too based on how this administration goes into 2025.
- [26:34]
Scott
So we have this interesting scenario where Bitcoin is obviously maturing and your conversations with potential customers and clients are probably becoming easier. How much do you have to answer for the sins for the rest of the market? Of the rest of the market when you're having those conversations, when people see fartcoin and butthole flying at thousands of percentage X or do they not even know that that's happening? No, they're aware because meme coins have gone. You've literally had this barbell in crypto for the last year. It's nonsense that I have to ask, but I have to ask you guys, but where you've had bitcoin performing most of the utility in the middle kind of, you know, blase and then the most speculative casino insane side of crypto going absolutely Nuts.
- [27:16]
Matt Horn
Yeah, it's. It is a distraction at times, I think, from the core message we're focused, focused on. But there's always going to be a group of clients or investors that want to chase the next crazy thing. Right. And, and that, you know, maybe we're not the best shop to do that with. Right. There might be other spots they can do that.
- [27:31]
Scott
No, no Top thousand meme coin index coming this year from you guys.
- [27:35]
Matt Horn
Nothing to share on that top million. But that being said, I think we've gone through a few cycles here, Scott, where I think people do understand the signal from the noise here. Right. Bitcoin has sort of proven itself in Ethereum to be sustainable, have very deliberate theses behind them. They're not kind of fly by the seat of your pants token launch that just happened last week that people might be trying to chase. So I think we're focused more on the serious investors that, you know, believe in a thesis around digital assets like Bitcoin and Ethereum and want to seriously allocate versus speculate.
- [28:09]
Scott
Yeah.
- [28:09]
Chris Kuyper
And I just say from the research side, we're, we're not ignorant of these things, but we also see it as our duty to steer our clients and other interested people to what we think is the true opportunities, the sustainable opportunities. And I come from a traditional finance background, so to me it's like you have to outline the actual investment thesis. What problem does this thing solve? How is money made? All the things that you would do with traditional finance, the due diligence and the rigor, bring that to this space as well. And that's part of our value. Trying to keep people away from maybe some of the stuff that is not worth their time.
- [28:46]
Matt Horn
Yeah. And I think in 2025 going forward, Scott, there's going to be a ton of value firms like Fidelity can add from an active insight position. Right. In other words, if we find ourselves in an environment where we can do more with different digital assets and different traditional product structures, I think active management in this space would be huge because you can navigate on behalf of clients more easily as a true informed institutional investor, instead of just listing stuff on an exchange somewhere.
- [29:15]
Scott
That makes perfect sense. If we get the 2025 cycle that many I think are expecting, it's only going to get crazier. I can't even begin to comprehend the things we're going to be answering for all of us. Right. And I push people, even as an individual, I think I kind of share more the ethos of Fidelity than whatever's happening on chain with Meme coins. It's not something that I really participate in, but it's going to just get bigger and bigger and bigger and more insane. You think back to last cycle. As much as I would love to say that it was bitcoin that drove adoption last cycle, it was NFTs on Saturday night Live and people signing up to centralized exchanges to trade doge, and that's what drove almost all of the retail level interest in crypto last cycle.
- [29:58]
Chris Kuyper
The one positive thing I'll say about all this though is you recognize a true transformative technology when it starts to permeate the culture. And so that's, I think, the positive thing out of this. People are becoming aware of it. Everyone and their grandma has now at least heard of bitcoin and many other things. And so that's the good thing that that again puts a check mark in the column of this is a long term, very transformative trend, not something that's going to just happen on the sidelines and then go away.
- [30:29]
Matt Horn
And I'd still say, Scott, it's early days. I know we've been saying this for a while now, but even with the proliferation of these ETPs, the Bitcoin and Ethereum ETPs, most traditional institutional capital can't or hasn't accessed these products just yet. Just think of the advisory space in the US it's over 30 trillion in assets that's controlled by advisors or different stripes. Whether they're at a wirehouse or a broker dealer or ria. The majority of them still haven't truly, I'd say, come in, in mass. Right. We're still working with a number of major firms on approval. I'd say what's interesting to see is at the end of last year, usually when it's generally pretty quiet, we got some inbound from, you know, from some bigger platforms for information for to start the sort of those conversations again. So that's definitely encouraging going into 2025. But point being is like that capital I'm talking about, that 30 trillion plus is still not able to fully access this. Right. So there is a long way to go here, I think, on just these spot ETPs.
- [31:27]
Chris Kuyper
Yeah, Matt, you know, my opinion on this, this is my most boring opinion or call, but I think the one that people are so underappreciating, which is this slow burn of demand from the advisor space. And we're talking not just 2025, but you know, next few years for sure when these things finally get fully integrated, they finally get fully past everyone's compliance, they can actively solicit them. They go into model portfolios. That's when you know you've hit a major inflection point or a major point of, of adoption with this entire space. And of course it sounds silly and simple like, yeah, everyone knows this could happen. But doing the numbers, like you said, 30 trillion. I've seen much higher numbers depending on how you want to capture the advised market. But in the us most of people's money is advised. Right. There's obviously a large individual, do it yourself investor out there, but the bulk of the wealth is still advised. And so they're just not going to do anything until it's in these advisor solutions, it's in the model portfolios. And that's really, really underappreciated. And again, people think, well, if everybody knows about this, how can this be not priced in? And I'll take an example of, you know, certain tech stocks or Magnificent Seven stocks. You know, it doesn't matter the name because this is just an example. But everyone's known about it, everyone's heard about their fantastic performance. They raise the expectations and they, the expectations still get beat and it goes up again. And so the whole, the whole community, investing community can be aware of something, yet their expectations are still too low, they're still not fully pricing this in.
- [33:03]
Scott
Yeah. And to your point before, beyond even that aspect, most of them just can't. I mean, I was speaking to Matt Hogan from Bitwise a few weeks ago and I think he put it at sub 50% of all the investable money, even has access to the biggest ETFs. Whether it's because their RIA hasn't gotten it past Risk Management, as you said, or because they simply invest on Vanguard and Vanguard has said they're never going to allow investment in this. I mean, I think we just saw that E Trade is looking to potentially add crypto asset trading. These, these, these news stories. It would have been like an entire year's worth of news now pass without anybody even paying any attention. Right. They're gone in an hour. But to your point, even if you wanted to, I think a huge swath of people in this country can't, unless they're going to go find, you know, do it on Coinbase by themselves, but institutions can't do that.
- [33:56]
Matt Horn
True. Yep. It's, yeah. Point being, and I agree with what Matt Hogan said, long Runway here, still a tremendous pool of capital that hasn't accessed this yet. So it's very encouraging. I think looking forward for what's ahead of us and that being said too, you know, I think this, this gets lost a lot of times, Scott, is a lot of wealth in the US is sitting in 401ks or IRAs that, you know, can't go to a wallet. Right. So like these ETPs do unlock that in many ways. But even 401, most 401k, 401k plans can't even access the ETPs. Right. It's generally mutual fund only. There are some that have brokerage windows inside them where we are seeing adoption of these products in there. But point being is there's still more addressable market there to, to, to tap into. Yeah.
- [34:41]
Scott
Chris, if you had to put it at a number, what percentage of, you know, investable money actually has access to these products?
- [34:49]
Chris Kuyper
Ballpark actually has access. Boy, I'd probably lean more on Matt for that one, like, or Matt Hogan, the 50% or less, I would say, because I think there's some that technically have access but are still not doing it for career risk purposes or they're still not fully on board or sold. Right.
- [35:09]
Scott
And they're solicited versus unsolicited. Like a lot of them, if the client comes and asks for it, they can do it, but they're not permitted to solicit you effectively.
- [35:17]
Chris Kuyper
Yeah. So there's those that absolutely can't access it, there's those that could, but they're not going to. And then there's a very, very small fraction that actually have. And we haven't even talked about, you know, the other major pools out there, the pensions, the sovereign wealth funds, all of that sort of thing as well.
- [35:34]
Scott
Yeah, I had an interesting conversation recently that a lot of them, or an insurance companies, et cetera, may actually be looking at things like microstrategies, convertible note rather than Bitcoin directly because it's something, you know, with fixed income or whatever that they can actually access now without having to go through the same processes. But when do you think that that's humongous? That's the wall of money, right. Pensions, endowments, sovereign wealth, as you said, that's the biggest wall of money out there that could come into this.
- [36:02]
Matt Horn
Yeah, it is.
- [36:03]
Chris Kuyper
I was going to just say our latest survey, which is now getting close to a year old already, but I don't think it's changed material is the pensions, foundations, sovereign wealth endowments. Those are the largest pools and they are the smallest that have reported on our survey as allocated low, maybe up to mid single digits, say they are allocated to digital assets. And so that gives you an idea of how early we are there.
- [36:26]
Matt Horn
And there's also, I think, a nuance here too, where we have seen some institutional adoption hedge funds, some other pools of capital, and it's not always easy to know how they're using these products. Are they net long? Are they doing some sort of, you know, arb trade? There's a quant strategy behind it. Right. Par trade. So, you know, it's. I'd be curious to even know how much is net long of institutional money right now versus just arbit it. Right. Which could, you know, Scott, to a point, you know, put up cap on price if you're kind of hedging it out anyway. So I'm not even sure if a lot of the institutional money is net long like we're talking about in a portfolio. Right. So time will tell as more dot.
- [37:04]
Scott
Yeah. A lot of people have talked about the carry trade. Obviously, when you still have this kind of level of volatility and an expectation of higher prices, can tango into the future, that they're effectively just buying bitcoin and shorting the futures. And that's not really true demand. Right. Because that's a trade that's going to close.
- [37:20]
Matt Horn
Exactly. Yeah. It puts assets into the ETPs, obviously as part of the trade. But as far as, you know, buying a scarce asset like bitcoin, it's not exactly pushing the price up higher.
- [37:30]
Scott
Right. So obviously the person who's been doing that at the forefront has been microstrategy and Michael Saylor. You know, it seems like every Monday, although it's diminishing, you know, it started in the billions. Now we're only into the 100 millions every single Monday of purchasing. But that's the kind of demand that we're really talking about, the buy and hold forever. When are we going to see other, I guess, companies starting to do that? Will we see more nation states starting to do that? I mean, do you think that's a door that is really going to open in 2025? I can personally say that I do. And I especially think that even if the United States hints at the sniff of a strategic reserve, even if it's just holding the bitcoin that we have, that the game theory of that for other countries and entities is going to be huge. But we're in this environment where it seems like watching what Saylor's doing, seeing the success in El Salvador and seeing the tone in the United States shift, that those things should be happening sooner than later.
- [38:28]
Chris Kuyper
Yeah, I remember I was at microstrategies event they Had a crypto bitcoin, actually not crypto bitcoin, part of their conference. Matt was there with me as well in LA Vegas and I alluded to this old YouTube video, Ted Talk, 3 Minute Ted Talk of how to start a movement. If you've ever seen this, it's a video where a guy analyzes an older video of someone dancing on a hillside, I think at a music festival or something, all by himself. One lone person.
- [38:57]
Scott
And everybody rushes.
- [38:58]
Chris Kuyper
Yes, one lone person being the crazy guy and he's going through it and he's saying, you think this guy's starting the movement because he's the first one to do it. But actually it's the second and third person who joins him that starts the movement. That is the critical person or key because they have now validated that person as not that crazy. And that's the thing that gets other people to jump in. So of course, MicroStrategy has been the crazy person for a little while now. But we've now seen other corporate treasuries adopt the same playbook and they've been very clear in their language as well that there's some that are just doing this as kind of a Hail Mary to save themselves. But there's others out there that have specifically said, we are adopting this as, as part of our treasury strategy. We do not intend to sell it. This is long term money to, to protect ourselves into the future. And I think 2025, you're going to see a lot more of that because now so many other companies have paved the way that they're, they're starting that movement and validating that strategy. Same with countries. We've seen one country that's done it and has, has the data to show what it's done. I think you're going to see other ones look at it and then the pensions, I think that's even more of a game theory because they're comparing themselves to each other and then they're also comparing themselves to obviously their ultimate goal, which is to meet these upcoming liabilities. And there's so many across the U.S. as you know, that are underfunded and a solution is presenting itself that's very asymmetric. It has a very defined risk of something just going to zero, but a very potentially high reward to help close those, those funding gaps for them. So again, once someone takes the first step, the career risk is off the table. That's where you could see that accelerate as well.
- [40:42]
Matt Horn
I mean, at this point, I've been in the space six years hoping for these sort of conversations. And it's happened, honestly, faster than I thought it might happen, Scott. So I think we've never had a better chance for some of the stuff we're talking about. But I mean, this is why bitcoin is so fascinating, is because you have all these different technical elements of bitcoin and then you have this game theory thing where I'm just fascinated by it and I think a lot of people are to see how this plays out. But we know how this could happen, right? If one goes first or if we think one might go first and another might want to go ahead of them. And that's where things can get very interesting for a finite supply asset like bitcoin.
- [41:17]
Scott
Yeah, that's how we get to the massive hyperbolic targets of a million dollars per bitcoin without the world actually falling apart. Because biology said a million dollar bitcoin in a month or 30 days or three months. I was like, well, that's cool, but it's going to be mad max if that happens. Right?
- [41:35]
Chris Kuyper
Just a tiny example of that, Scott. As you've probably been watching, the dollar index has been getting very strong here. 108, 109. Last time we were at this level was October 2022 when Bitcoin had already crashed down to 20,000. It went down to 15,000 shortly after that. So to your point, maybe we are seeing a little glimmer of this where the dollar doesn't have to be super weak or collapse. Maybe bitcoin's doing its own thing here separate from some of the macro stuff.
- [42:04]
Matt Horn
It's a good point. I was watching the DXY this morning, Chris, and I had the same thought. I'm like, shouldn't we be going in the opposite direction on price here? But who knows? We'll see how it plays out.
- [42:14]
Scott
Stock's been going up too, though, to be fair, or at least certain stocks, depending on how you look at the market. But I think 2025 is going to be a wild year. I expect a lot of these huge announcements, assuming that things proceed and we don't get some sort of global macro black swan event that maybe we're not anticipating. But Matt, you gave me the eyes like that could, that could certainly happen.
- [42:40]
Matt Horn
Never know.
- [42:41]
Scott
You definitely never know. But yeah, I'm very optimistic about the prognosis for bitcoin into the coming, coming years. Guys, thank you so much for joining. Matt, Where, Matt, Chris, where can people follow you and your research and work after this?
- [42:56]
Chris Kuyper
Yeah, research is all on fidelitydigitalassets.com and I'm on X@chrisjkuiper.
- [43:04]
Matt Horn
And for the ETP side, fidelity.com for any basic research on our products on the institutional side or advisor side, institutional.fidelity.com has all of our research information there.
- [43:15]
Scott
Well, thank you gentlemen, so much. It was a really a great chat. And we'll have to catch up a few months down the road and see, see where we're at. Thank you so much.
- [43:23]
Matt Horn
Excellent.
- [43:24]
Chris Kuyper
Yeah, thank you.
- [43:26]
Matt Horn
That's dope.