E91: Bitwise CEO - Why Banks are Betting Big on Crypto

29:49I thought it'd be fun to ask her, you know, amidst all of that, what was your favorite invention? She said the dishwasher, which made me chuckle. But I referenced that to indicate that that's just one person's lifetime and a recent one. So the world is going to change. And I think what motivates me is I like getting to be in the room where it's changing and see it change and, again, hopefully contribute to a change in a positive way. And then I love – I'm giving you pretty long-winded answers here, Kevin. But I'll just say one thing more. The other thing that I really love is at Facebook, there was a mission.

30:40i don't know if do you know facebook's mission

30:46i probably used to know it

30:52something like around communication with people no make help make the world more open and connected so uh for about a decade and a half or maybe a decade um a very popular phenomenon in uh in tech companies was to have a mission, a purpose, a thing that the company was working towards. And that is exciting and motivating to people because everyone wants to play a meaningful role in the way the world is developing. And I just told you, me is me too. The challenge that I observed with the mission at Facebook is that if your mission is one thing, if that thing is at odds with what your client would want and you're focused on the mission you will occasionally come to being at odds with your client so I'll give you an example you can make all of the photos somebody uploads to their profile, default, private for only them and their friends to see, or default, public for their friends and the world to see?

32:10Your mission is to make the world more open and connected. Which one do you do? The second one. What would they have wanted? The first one. That's a sort of a trivial sounding example, but it's a moment that I think illustrates how if the company has a mission and the mission is not make the client happy, you will wind up in periods at odds with your client. And so as when we were getting going with Bitwise, people said, what's Bitwise's mission? And I said, for clients to love us. And so I mean it when I say you asked me what motivates me. And I said, you know, being a part of the things that will be meaningful over the course of a decade.

32:54And the second one truly is, I think if you're in business, that means you're spending your time serving a customer or a client. And sometimes you can have an ulterior motive, which you might call a mission. But I got an email today from a wealth management firm that owns three of our different products. And it was the best part of my day. I read the tweet. Oh, there you go. Yeah, I saw it. I saw it on the way over. And there's just nothing better than a client finding what you do for them useful. So that motivates me a lot as well. Hey, when shift happens, family. Time to toast our partner, Devin.

33:33They're taking luxury wine to the blockchain with their super fun concept called Uncorked to Earn. Buy your favorite wines, enjoy unique experiences, and get an airdrop each time you open a bottle with your friends. Cheers to Devin for bringing transparency, authenticity, and exclusivity to the fine wines industry. so i read your tweets right you tweeted yesterday i think or two days ago something your co-founder said there are more people in the u.s that own crypto than than own dogs bitcoin and crypto are the most popular asset that people still think is unpopular how can crypto and bitcoin be so popular yet feels so unpopular.

34:20Am I allowed to ask you questions, Kevin? Absolutely. Why do you think? I would say two different reasons I could come up with. The first one is the crazy cycles where so many people get burnt, right? So I think you have a tendency to not like something when you got massively burnt by it. And I think it's probably almost impossible to come into this space and not get burnt. And the last time people got burnt is just two years ago. And I think a lot of these people haven't come back. Then I would say, what's the definition of people who own crypto, right? Because there's probably a lot of these people who were here like two years ago.

35:01They still have a bit of crypto here and there, but they're not really involved because they think it's a scam. Which I can understand why, to be honest.

35:11The second reason is we talked about the other day. Mm-hmm.

35:17I still feel, I'm still not proud to say that I'm in crypto because I feel the space is very cringe. And I think the way people express themselves in this space is not very welcoming for people who don't understand crypto because crypto is intimidating, kind of weird. Plus you have all these weirdos that just, it doesn't feel like most people in this industry care as much as you about the future of the industry and about welcoming more people. Those are, I think, the two main reasons why, what I would answer to you. Yeah, I think that's right. That really resonates with me. I think that a lot of it, this conversation has already been fairly conceptual, But I think that two things that cause it to appear less popular are that a lot of people don't know what it stands for.

36:30And a lot of people don't know how to explain what it is. Um, and that means a lot of people are, uh, are reluctant to at dinner or, uh, at the holiday or at the party, uh, invite people to question, to ask them questions about it. Um, it's, it's, you know, it's a, it's a, it's a little bit how, um, yeah, if, if I, if I asked you, um, uh, do you support teachers? You'd be like, yes, of course. What do you mean? If I asked you, do you support AI? I would guess you might say yes. If I asked you, do you support Tim Walls as vice president to Kamala Harris? You might hesitate because you're not sure what saying yes or no means to the audience.

37:29And that might be because you don't know You don't even know. Yes. So that's how a lot of people feel about crypto. They know that what they say about it is going to mean something. But they actually have not, they don't know what the role of the thing is in the world. So they know the role of teachers is good. It's to educate. They might have the view that the role of AI is to empower humans to do more. They might have a different view on that. But as soon as they become confused about what its purpose in the world is, they become reluctant to stake ground and advocate for it. So I think that has caused a lot of people to do it privately because they're just not sure how it will be received, how to communicate about it.

38:15And I think that that is something the space needs to solve. And I think it's a huge miss that the space has not solved that. And what is that? That is communicating the way in which the space can make the world better. And if the industry itself or the most thoughtful people in the industry can't communicate that clearly, then how is the person who bought$200 of Bitcoin nine months ago supposed to be able to communicate that when they're asked at a dinner? I think that Coinbase has started to, and I mentioned this to you before, I think Coinbase, Kate Roush there, the CMO, and the team have done a lot of work over the last maybe two years to start to tell the story on behalf of the space.

39:08They had an amazing ad campaign called Update the System that articulated, you know, you have to go into the bank. They ask you to fill out all these forms. They won't let you send your money sometimes. Sometimes they won't let you send your money over the weekends or certain amounts of your money. All these frustrations everyone's familiar with, but it just assumes that sort of God handed down to the earth that of course you won't be able to send money on the weekends. And that one of the things that crypto is striving to do is to update the system. And that makes sense. So I think the space needs more of that if people are going to talk about it and it won't be viewed as popular until people talk about it.

39:48Another team that has done a pretty good job lately, Solana team. Not sure if it's the super team DAO or Solana, but they've been doing some ads that are just normal ads that you would see on the TV that make sense, right? Yes. Which is kind of sad to say, but it's pretty remarkable. Yes. Power space. Yeah, I just want to, what you just said resonates with me so deeply. I think sometimes the crypto space, which is so interesting and so multifaceted, thinks that it doesn't have to compete on the same playing field with everything else. But the reality is that crypto, like AI, like defense tech, like automated cars, or self-driving cars, like the commercialization of space, like any other frontier space, needs to get its stuff together and put forth, you know, so is the public going to think that self-driving cars are dangerous or are they going to think that it's an amazing gift to public?

41:00You can even take that one dimension. Is it dangerous for people that the cars are driving themselves or is it actually the biggest reduction in road deaths and increase in safety that's ever existed? That will be decided to some extent by how much that industry is able to communicate that message to the public. And the extent to which somebody in crypto is interested in hearing a bunch about self-driving cars, that's how much everyone else is interested in hearing about crypto. You know, maybe it's a minute, maybe it's two minutes. and again, I think that the space really needs to understand, you mentioned the Solana ad, that it doesn't get special permission to use up more of people's time if it wants to speak to the world.

41:46If it wants to speak to a small group of scientists and enthusiasts and engineers, then you can absolutely go into depth and that's what conferences are for. But if you want the masses in the mainstream to accept you, you have to speak simply. absolutely talking about self-driving car I was in a way this morning in the street of San Francisco and even me I'm kind of guilty of just thinking oh this stuff is for the future like it's cool it's kind of gadgety and fun then you're in one of these freaking self-driving cars here and you're like what the fuck everything is gonna completely change like you think about why do we then I was actually I came here by Uber and I was like in my mind I was like do you realize that you're out of job soon.

42:34Do you realize? Yeah. It's crazy. It's crazy. But you need to experience it, right? Yes. Yes. By the way, when the automobile happened, I remember people, concerns that were raised were that the speed that it moved would asphyxiate the people on the vehicle. They were worried that they would cause carnage, hitting civilians. So originally, there was a law in a few states where somebody had to walk in front of the automobile with a flag so that civilians would see the automobile and not get run over. Everything about the concerns about self-driving cars is just par for the course. Every new sort of inevitable feeling technology has a countervailing set of concerns.

43:23You mentioned teachers before, right? If I ask you whether teachers are good, you're going to say yes, right? And you said crypto is a big problem of communicating themselves to the masses. We had some incredible Bitcoin, less crypto, but more Bitcoin teachers in the past. Two of them actually are the main reason why I went all in six years ago in crypto. Andreas Antonopoulos and Vences Casares.

43:52Why have the Bitcoin PR legends like Antonopoulos and Casares completely disappeared? I don't, you know, they have the answer to that question. What I would guess, we've been in the space for six and a half or seven years. So we've seen a few seasons and a few different sets of people and companies. From my vantage point, what generally happens is people really get it wrong. And so they're no longer welcome as a voice. And that's not true of the two that you mentioned. Those two, I think, have been unbelievably prescient and right and are highly admired, I think at some point they get a little worn out and they say, I'm not going to spend 10 years trying to convince you.

44:37If our first, second, third, fourth, fifth, sixth, and seventh conversation. And one of the nice things about the space is that you don't have to convince everyone. So I think at some point people say, I've made my contribution and done the sort of yeoman's work, the missionary work of trying to help people see it. But, you know, just because somebody is excited about the possibilities of LLMs and generative AI, maybe they'll try to convince people for a year. Maybe they'll try to convince people for two years. But if they still don't see it after six years, do you think that they'll still be as enthusiastically spending their time and I think that that is just a natural course.

45:26Bitwise, I would say, is not that. Bitwise is a consistent six years and we'll spend the next six years trying to help people. I sometimes joke that it's like we've saved clients a seat on Noah's Ark and we go to them and we say, we have a seat for you on Noah's Ark so that you can escape the flood. and they say, I'm too busy. Or they say, what flood? Or they say, why would I want, or that's not the seat I want to sit in, or how would I even pack things up? And we say, we're happy to talk through why we think there'll be a flood. We're happy to talk through, adjust the seat. We're happy to help you pack up.

46:13I think Bitwise as a company and a group of people is really happy and motivated to try to help people see it. And that's part of our jobs as a firm. That's a role that we play. But I think for individuals, whether it's not their job, there's only so long that you can sustain the motivation. You said we must answer three main questions for crypto to become mainstream. The first one is, is it good for society? The second one is, how can this help my mother? The third one is, how do I use it? probably part of your pitch to your clients. Let's go through each of them and answer them. You're talking to, let's say, your grandmother that you loved so much.

47:01Sure. So it's extremely simple, right? Yes. Make it as simple as possible. Yeah. How is Bitcoin and blockchain good for society? The challenge with answering this question, then I'll give you an answer, and the challenge of the space, is that it depends on who you're talking to. So I could answer this for my grandmother and your audience would find it uncompelling. I could answer it for a financial advisor and a Solana developer might find it uncompelling. It's hard to create universal answers, which is why, again, I give credit to Coinbase and I'm not sure. And the two most high-level answers that speak, I think, to the broadest audiences are, it will allow you to use services and to save money without being exploited by companies or governments.

48:11and that is ultimately going to be a good thing for society for your children uh and for the world there's more that can be said but this is entering already the first two right is it good for society yes how can this help my mother you answered yeah so then i think i think when i think of how will this help my mother it's usually people like okay great uh self-driving cars will reduce uh road collision deaths i'm with you i think maybe self-driving cars could be really good can i drive one you know can i get in one what can i do so i i think uh to that second question um uh there's okay i understand conceptually why i might be rooting for this thing um now let's talk about my day tomorrow is there any way that i can benefit from this thing tomorrow Yeah.

49:02The first question people always say, people who are not really too familiar with crypto is, can I buy my coffee with Bitcoin? Yes. That's it, right? Yes. And by the way, people are so, we're so sick of hearing that, but we're crying out for it. It's like when somebody goes to the doctor and they say, my back hurts. And your doctor says, actually, it's your kidney. But, you know, the person is not omniscient. So when they say, I can't buy my coffee, they're not actually saying that the only thing they care about is buying with their coffee. They're just saying, show me how this can fit into my day.

49:34And people misinterpret it. They interpret it literally like they actually care about their coffee. Anyways, so what would I say to, I think one of the most compelling things you could say to some people who are in this circumstance is if you have a kid or family abroad, download an app. you can actually send them$1 ,000 over the weekend with no fees anytime, and they'll get it like that. Totally. Yeah, so I think that they're, again, like everything else, it depends a little bit on the audience. If you have somebody who you know is really worked up about censorship today, maybe on the heels of COVID or other things, you can say there's actually now a version of social media, of Twitter called Farcaster where there's no corporation who's censoring your content or can take down your content.

50:31If there's somebody who's really thinks a lot about their financial planning, their savings, or is very concerned about the economy, inflation, you can say you could buy a little bit of Bitcoin tomorrow and if you think that there's a possibility that this thing could work out,

50:51participate in that. So that's what I think when I think of the second question. Like, okay, conceptually, I get it. Self-driving cars reduce road deaths. But what does that mean? Is there an app? Can I use it? Should I stop using Uber? And I think you have to sort of show them a first step that actually sounds worth taking. It's very contextual on the person. Absolutely. Contextual. What's your problem? Ah, here is a potential answer. Yeah. And here's the thing that you can do. What was the third one? It was actually, how do you use it? How can this help my mother? How do you use it? Yeah. Yeah.

51:23Well, now I've conflated. I've given you answers that conflate the different questions. But yeah, I think that's it. I mean, and again, to people in crypto, myself, you, maybe much of the audience, again, the way to always sort of gut check if you're too in the rabbit hole or not is just replace crypto with AI. what do you want to know about ai is it gonna be good for society what can my mother do with it um how can i use it it's gonna be good for society because everyone's gonna get a lot more done and we'll have more free time um your your mother can actually use it to uh plan uh to to research um camps for the summer in 30 minutes instead of uh over several days and there's a thing called Claude or Perplexity or ChatGPT that she can use.

52:18And boom, now you have somebody who's curious about and optimistic about AI.

52:26So marketing, branding, and communication is extremely important for our space and we've not been the best at doing it, right? There is some teams that are bringing some hope. There's a few. One of them is on this table, the little penguins. Yes, yes. Who I love and who you love. Yes. Right? Bitwise, pudgy penguins, one is onboarding institutions, one sells toys and plushies. We might think that Bitwise and pudgy penguins should be at polar opposites in terms of communication and marketing. Yet, we're pretty close to Lucanets. And actually, I have to say, it's actually thanks to Lucanets that we're here both today.

53:11That's right. what's the deal between beatwise and pudgy penguin why does it make so much sense to you um i love pudgy penguins on many dimensions um i'll say the simplest first which is that uh um luca and the team new glue work really hard and they do a really good job uh you know for people who are building things or creating new things. There is a difference between good execution and poor execution. And I admire good execution. And I think that the fact that there's objects that were designed by somebody, manufactured by somebody, shipped by somebody else, put in a box, and are sitting here today.

53:59And flew from Singapore to San Francisco just to be here on this table. Right, exactly. So there's a lot that goes into that. And I just think from a, I'm just very impressed. So you always root for people who are working really hard and doing great things. I think the second thing I love about Pudgy Penguins is that

54:26Bitwise is a company that serves investors and interacts with the ecosystem. there's a way in which sometimes the space almost feels like it has like a personality disorder or something. And what I mean by that is like, sometimes you have very serious Wall Street, traditional financial institutions, serious financial people who will go on Bloomberg and they'll say, we are reinventing the rails that run the world's economy and settlement of assets will take place at t minus zero instead of t plus one and with greater assurance and the risk of solvency will be lower and counterparties will be able to operate more and it's very serious and then like Like the dude who's building that is wearing cargo shorts and Birkenstocks and like woke up at 1030 a.m.

55:30and has never heard of, you know, the SEC, definitely doesn't watch Bloomberg and is like hacking on his laptop at like some coffee shop. And like he's the one building the thing that the financial person is describing, you know. And sometimes because Bitwise exists in both communities. We have tech backgrounds. We have a lot of people. We have relationships with a lot of developers. and we serve investors. And so we try to be sort of an intellectually honest and helpful relationship to both of them and a relay of information between the two, sometimes translating so they understand each other.

56:05I was a product manager at Facebook and sometimes you had to sort of, you know, the designer would communicate in one way and the engineer would communicate in another. But anyways, sometimes I just, it's so crazy to me, the dichotomy between the two. And the reality is it doesn't, you know, it doesn't always have to be so serious. And so I love that pudgy penguins are just whimsical and welcoming and not so serious because not everything about the space needs to be transformative,

56:38world-altering financial infrastructure or geopolitical shifting, censorship-free. I love that there's other people who are just, you know, sort of in the spirit of what I think many of the developers in the space who wear a pink t-shirt and cargo shorts. They're just like, we just want to create cool things that people like and we want to have a good time with our friends. And that ethos is very common, but I think to the public is like totally non-visible. And so I love that it's captured in Pudgy Penguins for me. Everybody wants and needs a bit of awesomeness in life, right? Even the people with the suits who are so serious in front of the camera.

57:18Yeah. Or humans. And it's all over. There's a ton of it in the crypto space. But if you just heard somebody describe it, or you Google crypto, you read an article, it's always serious. And there's much of it that's serious and important, but it can also be welcoming and whimsical and just bringing good vibes to the metaverse. And I love the Penguin stand for that. Do you want a pudgy Penguin NFT? Do I? Yeah. Yes. Why?

57:46Honestly, it is no more sophisticated than I saw them. And I thought, even in the era of when NFTs were really taking off, everything, again, was so serious and esoteric and alienating or conceptual and inaccessible. I remember Hong, our CTO, is very involved in the nouns community. And then I saw pudgy penguins, and it's just like a cute, chubby penguin. And that's it. There's not more to it. It's not like, you know, punks were like the first NFT ever invented. It's like the original demonstration of the format. And nouns have this brilliant mechanism to build the treasury and great governance.

58:34And these are just cute chubby penguins. These are just cute. Cute chubby penguins. And, you know, Disneyland is the reason for a thing. Like the world just needs some cute chubby penguins sometimes. So I saw it. Oh, my gosh. What a cute. So I loved it. And again, it's in a space where everything's just like, was it a Zookies or something? It's like ninja looking. It's like, my ninja has a sword. I think that's cool too. But I love the cute Chubby Penguins. You have a dog called Winnie. Yes. Did you buy a Pudgy plushie for your dog? Yes, Winnie has two from, I don't know his name, but he goes by Gomi or G-O-M-I-E.

59:24Made these dog, they look like hot dogs and then has a penguin's face on it. And it's so, so fun. If I can love my little beagle Winnie, why can't I love Pudgy Penguin NFTs? Both can be true. So you own Pudgy Penguin NFTs and your dog owns Pudgy Penguin plushies. That's right. I'm so here for Pudgy Penguins. And by the way, the community, communities matter. We talked earlier about Facebook groups. We've talked about developers in the space. We've talked about, you know, communities are, anytime you talk about an industry or you talk about a network or a country, you know, those are communities.

1:00:15and communities have ethos. We talked about the ethos of San Francisco, building for a billion users. The Pudgy Penguin community has such, it's a shame that it's so differentiated, but such a unique, it's so welcoming, it's so kind and so playful. And I love these things. So I just, everyone should be rooting for the Pudgy Penguins. And by the way, they're working really hard. Yeah, yeah, yeah. They're working really hard and they've got big ideas and then they build the idea and then they move on to the next big idea and they keep working at it. Luca is such an inspirational figure and there are people who volunteer in that community.

1:00:58It's a great community. They're the ones who did this t-shirt for me also. No way. Yeah, absolutely. No way. A bunch of Pengu is like, hey, can we have a dinner? And I was like, let's have a dinner in Singapore. We had a dinner. They're like, hey, Kevin, we have this t-shirt. Not financial advice. And then exit the video. And I was like, oh, it's so cool. And they gave me one. Yeah. Sorry to wear it for the podcast. I was like, it's so cool. Not financial advice. I don't even have to say it, right? It's just written there. Then I was like, hey, can I have the logo when shift happens? Or like, let's do it.

1:01:22They sent me 30 different t-shirts. I was like, that's fucking amazing. So cool, right? So cool. I love that. I love that. And there are so many people like that. There's a great Bitcoin meetup down in Palo Alto. Whenever you can find these pockets of people who often really care, they're interested in a subject matter, but whenever the default stance is welcoming, they care about how you feel, you know, that's such a great, I love that in any context it emerges in. let's get a bit more serious now okay all right we could do that too wouldn't be crypto you are the co-founder and CEO of Bitwise.

1:02:04What is Bitwise if you had to explain it to your mother?

1:02:11We can do that too. Evoking my mother a lot. But I do like, Bitwise is looking to be the enduring and leading crypto asset manager. What does that mean to my mother? You know, you might say Bitwise is looking to be, for her, you might say the vanguard of cryptocurrency. The reality is different from that. I would say much more interested in being the blackstone of cryptocurrency, but not everyone knows that firm. To boil it down even simpler, we want to be the firm that any investor turns to when they say, I want to accomplish an investment objective. I want to do something. I want to invest in a certain part of the space or in a certain way, or maybe I want to earn yield.

1:03:05I want to get yield out of the space. Maybe I want to own this asset, or maybe I want to participate in all these alpha opportunities I've heard about. We aspire that they would say, I should connect with Bitwise or I should look into Bitwise because they're great, reliable people. They're a pleasure to work with. They're very insightful. They always help me feel like I understand things better. And they have the highest quality solutions that I trust. If I work with them, they'll take care of it.

1:03:37So that's, once again, a lot of words from me on a very simple question. You mentioned before the complete kind of polar opposite of dichotomy, right? You call it, of the people in the space, right? to crypto industries we will have stayed a uh serious for five minutes which is good the crypto industry is pretty degenerate right which is the total opposite of the clients that you serve institutions how do you go and sell an industry full of dgens to the institutions that manage the trillions that we need to grow our space into mainstream adoption well i think i think that the I can't remember if I mentioned this to you before, but the mental model that I sometimes offer to other people who are trying to imagine bitwise is if you think to, if you went to college and you had to take an intro to physics class or a chemistry class and there's a research professor who does not want to be teaching this intro class and they just walk into the classroom and they start putting a formula on a chalkboard and everyone is like, okay, I guess I'm bad at chemistry.

1:04:47I guess I hate chemistry. This is going to be the class that sucks. Maybe I can get notes from somebody, whatever. But they just immediately feel overwhelmed, confused, doubt themselves and their ability to understand, certainly not excited.

1:05:03And Bitwise is like the TA. You walk into the office hours and we try to say, what are you thinking about and how can we help you? And that's, you said, how do we talk about it to institutions or investment professionals, et cetera. We strive to start from what are you thinking about, how can we help you? And then there's different ways that people want to go, but we just want to help them with wherever they're at and move forward from wherever they're at. So Bitwise is the teaching assistant that is going to look at every different case and kind of bring a solution or at least an explanation.

1:05:44Explanation, yeah. For these people to understand based on who they are, how this space can benefit them. Yeah, yeah. Or, you know, yes, benefit them definitely. But also sometimes it's not even about benefiting them. Sometimes they're just interested in understanding something. We just did an hour-long call with a very large bank, 15 people, a lot of executives who just wanted to understand the latest with how the political campaigns in the US and the regulatory environment is evolving. We weren't talking about making a 1 % allocation to Bitcoin. We weren't talking about our new Ethereum ETF.

1:06:26They just wanted to understand that dimension and we wanted to give them that understanding in a way that would be useful in a short period of time. So we do tons of stuff like that. I mean, we did 6 ,000 meetings and calls in the first half of the year, 59 events. We do dozens, maybe hundreds of custom analysis and reports. Our CIO writes a memo every week to hit on something important that's happening. And that's actually public. Anyone can read that. So yeah, we try to help people understand. And our view is if they understand what's going on, they'll see the opportunity. we see opportunity, we want them to see opportunity, and we want to be helpful.

1:07:10And then if they see that opportunity, our hope is that we can earn the trust to help them access it however they want to access it. Absolutely. Which makes complete sense. If you're the one helping them understand when it's the kind of right time for them, it's more likely that they will come to you. Because one of the first things that people do in crypto is investing, right? that's how you get involved in general first yes if you think of Bitwise as a company if you're imagining a startup or a new company in crypto our user is an investor and that's a very big set of users so to speak and the use case is investing and that is one of the most common things to do in the space and then our role is to help them accomplish this wide range of investments and then to bring to that some of the trust and ease of access or unique strategies that we can.

1:08:15So if you wonder what Bitwise will be doing over the coming months and years, it'll be trying to earn the opportunity to have relationships with more investors and trying to open up access to more and more parts of the investment opportunity. and I think what is the company that results from that? You know, hopefully people will think of us when they think of investing in the space and say I should see Bitwise probably as a great solution. Yeah, you talked about being the vanguard of the crypto space, right? Yeah, I would say that to somebody who's not very familiar with asset management companies.

1:08:52It's actually not, for anyone who's familiar with asset management, it's not a great point of comparison. It's just a name that many people know. um bitwise is an alternatives investment manager for the people who are familiar with that um sort of terminology so alternatives today are private credit um uh private real estate so private credit apollo aries private real estate uh blackstone uh private infrastructure brookfield private equity, KKR, Carlyle, TPG,

1:09:26Cone and Steers. So the reason that distinction bears noting is because most asset management companies that people are familiar with are what would be regarded as traditional asset managers, meaning they help people invest in public stocks and public bonds. And most people's investments are dominated by public stocks and public fixed income. And over the last few decades, pioneered by, to some extent, by David Swenson at the Yale Endowment, there was this emergence of, wait a minute, there's a lot of benefits to investing in, quote, alternatives to public stocks and public bonds. And that has been an unbelievably fast-growing segment of the asset management world.

1:10:13Almost if you think from a tech perspective, you know, another side of the prism, the analogy would be the way that, not a perfect analogy, but the way that mobile emerged relative to desktop computers. So alternatives, these asset classes and exposures that are alternatives to public stocks and public bonds and fixed income, that's a class of asset managers. And I gave some examples of a few of the different types of firms. And that's the sort of the class that bitwise is a part of and has implications for all sorts of um uh things but uh for for any for anyone who's familiar with the asset management world i would just you know in some ways uh vanguard is a better analogy than than uh than schwab for bitwise but but ultimately if you're familiar asset management vanguard it's a pretty poor analogy for us because they're quite different but something that's a link between vanguard is you is and that happened earlier this year are the ETFs.

1:11:16Early this year, the BTC ETFs were approved by the SEC. And later this year, the ETH ETFs were approved by the SEC. What does this mean for our industry? I can't emphasize how big of a deal this is. It's such a big deal. It's like the IPO of a company that you care about. it's like you know maybe you're you're excited about um and durial you think that that they're a defense tech company you think that they're doing incredible things to disrupt lockheed martin and the defense and raytheon and the defense sector and they're doing so much to equip the military um or maybe you're unbelievably excited about waymo and you just think self-driving cars of the future you've used one it's awesome and then you hear Waymo's going public.

1:12:10Is that a big deal or not? For most people, it's a difference between lights off, lights on as an investor. And I think for the vast majority of investors prior to 2024, investing in crypto felt not the same, but a little bit more like investing in open AI. It took a lot of effort. You could invest in open AI. There are ways to do that today, But it requires some effort, some services you may not be familiar with. You can't just, in most cases, can't just call your financial advisor and ask them to buy you open AI stock. They'll say it's not publicly traded. And then somebody else will say, well, there's actually this app called Forge that you could use.

1:12:51And you'll be like, what's Forge? And they'll be like, well, it's an app for a secondary blah, blah, blah. And I'm like, okay, I'll create an account. And then Forge will ask you to wire some money over it. And you'll be like, are you sure this is cool? And then it'll ask, you know, blah, blah, blah. By Microsoft. Right, right, right. In the case of OpenAI, you can buy Microsoft. So anyways, for most investors, I think, with the advent of the ETFs, it just went from a thing that they hear about, it's always in the press, but doesn't really feel accessible as an investment. They don't need to think about, you know, you don't need to think about right now if OpenAI is worth$80 billion.

1:13:25It's just interesting. You're aware of it. You've heard it in the press. You think that maybe they're a leader. You're not sure if that's worth$80 billion. The day they go public and they trade at$90 billion, you'll ask yourself, huh, is this an incredible opportunity to get into one of the defining companies of a generation that's going to be worth a trillion dollars one day? Or is this thing overvalued? But it prompts the question. And if somebody who's listening to us chat thinks to themselves like, no, that thing is way overvalued. or maybe a listener to this conversation thinks like, oh my, I would kill to buy that stock.

1:14:04That's sort of the situation that the ETFs have put the$100 trillion tonnage of capital markets and investors in relative to Bitcoin. They can now decide if it has a role to play. And if they make that decision, they can do something about it the next day. Not everyone, but so I think that even though the space has been around for a while now, in some ways,

1:14:37it's sort of the start of a new chapter.

1:14:42Bitcoin is 61K today, I think. Maybe 62, I don't remember, because it went kind of fast in the last couple of hours. This might age like milk, because this episode is probably going to be out in a couple of weeks. But you said before. Thank you. You said before, you know, OpenAI, is it overvalued? Is it undervalued? Is Bitcoin overvalued? The reason I'm asking that is because I read, I think it was a tweet again. Bitcoin ETFs are being adopted by institutional investors faster than any other ETF in history. Don't believe the it's just retail story. The data prove otherwise. What's the data telling us?

1:15:29Yeah, the data is telling us exactly that. Two quarters after the launch of the gold ETF in 2004, GLD, a little over 100 institutional investors, so those are RAs managing over$100 million, owned it, a little over 100 after two quarters. The Bitcoin ETFs, it's over 1 ,000 over the same time frame. So 10x more adoption over the same time frame. That's a data point. um but i you're good how

1:16:02that's 10 times more but knowing the institutional world i don't know it you know it much better yeah raul pal who was also on this podcast kind of knows really well is it what he's saying and what you're probably going to say to is actually they're just starting yeah we're 10 times more but they're probably slow in their internal processes yeah so it's probably much more coming Yes, yes, yes, yes, yes. You know, that's why I think the... What's the percentage that you think... Today you're saying there's 10 times more, right? If you compare. So a thousand. But what's the percentage of, let's say, today we're in almost September 2024, compared to all the institutions that want to buy Bitcoin?

1:16:52Yeah. What's this... Yeah, how much? 1 ,000 representing. Just because they haven't been able to... 2%, 3%, 4 % of the terminal ownership. Let me give you another data point to think about this. Traditional public markets, the stocks, those bonds, 80 % of them are owned by institutional investors. The percent of crypto and Bitcoin that are owned by institutional investors today is probably around 2%.

1:17:28To get to the typical relationship between how much is owned by the individual and how much is owned by an institution, you can do the rest of that math. Almost carried the fear of money. Yeah. And another thing, this actually provides an opportunity to talk about a recent development, which is rates. So I was just chatting with our CIO about this today. I think that there... I saw the tweet. Oh, yeah, yeah, yeah. Well, that tweet was... The rates are not priced in. The rates are not priced in. So I think that... Rate cuts. If I could briefly share one of the three with you. You're getting all my theories, Kevin.

1:18:04But I think that there are sort of two mental models that people often use to interpret the space. One is the long biased investor who plans to own Bitcoin for a very long time. And they think this is a good thing. it's going to be more in demand in the future. It's going to be widely useful. I'm going to buy it at$61 ,000, and one day it's going to be worth$600 ,000. And hash rate is important to network security, and I want to see use cases evolving, and I want to see stories of other people adopting it, recognizing it as a global, apolitical money. That is one class of primary mindsets. There's a second class.

1:18:52The second class creates all of the confusion and surprises for the first class. The second class is about flows. The first class you could describe is sort of fundamentals and long-oriented. Does the thing have value? Is it going to grow? Will it be adopted? Do I believe in the thesis? Can that play out of a long period of time? The second class is not so focused on that. the second class says Mt. Gox just moved its Bitcoin I'm going to short it and then once they've sold the Bitcoin and pushed the price down I'll buy it back and cover my short and so they start selling and they say the price is going down from$63 ,000 it's going to go down to$55 ,000 or$50 ,000 or$58 ,000 it has nothing to and then this class the long-term fundamental oriented investors go wait a minute why is the price down do people not think it's going to be useful in the future is it not as widely adopted as it is before and and the flow story it just has nothing to do with that um but sometimes confusion emerges because they both look at the price and so how does this relate to uh to flows i think that's something typically the the fundamental long-term oriented investor is surprised and less fully immersed in the role that flows have over price.

1:20:22I'll give you one other example people are familiar with. You've undoubtedly heard sometimes when there are meaningful price moves, shorts get liquidated and then the price jumps up. Yeah, that's a flows story. It was not because people valued Bitcoin 5 % more highly that day than they did previously. It just has to do with flows. A bunch of people got liquidated, and so the price stepped up. What does this have to do with rates? I think that what the long-term oriented fundamental investor intuitively understands about rates is rates means more money. More money means the prices of everything goes up, and likely the price of Bitcoin too, and maybe even inflation that makes people even more concerned about inflation and therefore see the benefit of Bitcoin.

1:21:08But there's a flows part of the story that I think people don't fully appreciate about rates coming down. Here's the flows part of the story. And we talked about what percent of institutional investors own digital assets today.

1:21:29There's north of$60 trillion in fixed income, in bonds, in fixed income products in the US. The rates on those products, the yield that you can earn, is a function of the Fed's rate policy. Most investors, the professional investors, think about the rate of a bond or a fixed income instrument minus inflation. And that's the real rate or the real yield. So today, it's, let's say, 500 basis points of yield minus 300 basis points of inflation equals 2 % real yield. If the Fed cuts rates by 75 basis points, the amount of real yield doesn't drop by 16%. It drops by almost 50%. Your fixed income investment is now 50 % less interesting.

1:22:21And in fact, may have now dropped below a level where it even makes sense for you to be in it. So I set up a lot of framework there to make what could have been a simple point, which is setting aside prices of assets going up and inflation and those types of things that can result from the Fed cutting rates. There is a huge amount of dollars in fixed income that will be looking for a new place to park their car because the bond no longer gives you the yield that you want. So the dollar has to go somewhere. it's probably not going to go into cash. $60 trillion of dollars in fixed income are going to go look for another place to park.

1:23:09If 10 % of that decides they want to park in an uncorrelated asset that's not equities, that'd be$6 trillion that comes knocking on Bitcoin and crypto stores. So that, I think, is a dimension of the flow's implications of rates coming down that I think some people don't. Certainly, many professional investors perceive this, but I don't know if the entire crypto public recognizes how much money can be in motion when you have a change in the regime around rates. So I think it's going to be a huge and unbelievable catalyst for the space. it's something Michael Saylor talks about actually. It's one of his main arguments.

1:23:54He's all this money that's going to be needing another kind of home, right? Yes, yeah. Rates come down, people think of like all this new money will be available. Everything's going to Bitcoin. Yeah, of course, of course, of course. Everything's going to Bitcoin. Of course, yeah. You know, it's funny to imagine that when you talk about Wences, when you and I started in crypto, Michael Saylor was not a figure. No. It's true. came just after the COVID crash, right? I mean, he probably kind of was aware kind of a bit earlier and then just did an amazing work. I mean, sometimes he's a bit intense, but he's an amazing ambassador.

1:24:38Amazing, amazing development for the space. Amazing development for the space. And he's incredible to explain things also. Absolutely. Yes, yes. And very high conviction. which, have you ever heard his story about how he, about how he, well, you'll have to have him, I won't tell the story, but you'll have to have him on sometime. Actually, it's one of my goals. That's why I'm in the US. Happy to, yeah, introduce you. Amazing. Usually the very last question I ask is the following one, right? But I'm going to ask it now so we can have a bit more time because I know Bitwise publishes predictions every year.

1:25:18and you have a lot of key data points what's your biggest prediction for next 12 months

1:25:30i'm going to give a slightly bitwise centric answer um but um

1:25:41uh i think that the that we will go from a minority to the majority of banks and broker dealers in the US will have approved access to Bitcoin. So the first one did it a few months ago. They approved the Bitwise Bitcoin ETF. We now have a few others. It still doesn't feel required to people yet. I think in 12 months. Let me give you a second cut at that. I think in 12 months, most people in crypto will realize that the banks are the best thing that ever happened to crypto. Why?

1:26:30There are two dimensions to many banks. The first is many of them are entrusted with the savings and wealth and financial activities of millions of people. and if they can help their client participate, if the financial advisor at those banks can participate, it brings on a lot more people who may not just feel confident doing it through an app or dealing with the taxes themselves or making sure it's in the will and estate plan on their own. And if your financial advisor says, hey, I can help you if you're interested in participating in this or I think you should participate in this, and turns online.

1:27:07In the US, wealth managers manage north of$30 trillion.

1:27:16So that's number one. And banks are starting to approve the ability for their wealth managers that I'm referring to, to either put it in client portfolios or do it if their client asks. And I think we'll flip from just the first few right now to 12 months from now. I think over 50 % will have turned that on. And I think people will be like, wow, we're so happy that this bank is providing access. The second thing that I think is important about banks and that is going to make people feel really like, wow, we thought the banks were the enemy. But actually, banks are just a huge catalyst. Is that banks are sort of what make capital markets go round.

1:28:07And you've seen glimmers of some of these activities already. There's two banks that are doing a lot on their investment bank side, but they're the ones that help institutions buy, trade, borrow, and execute on investments. A hedge fund has a prime broker, and the prime broker is how they buy and trade things. A hedge fund often wants a margin to be able to optimize the working capital. That comes from a bank. Sometimes a hedge fund wants to be able to borrow against, or set aside a hedge fund, a different institutional investor, a family office, they want to be able to borrow against their Bitcoin.

1:28:47They might want to custody with a bank.

1:28:54Banks are what they are because they help the world do commerce. And I think that as the banks that have been, I think in many cases, incorrectly characterized as not wanting crypto to happen. But I think many of them actually have been very interested in providing services and facilitating the space, but have been unable to do so because of SAP 121 and other constraints. Nick Carter wrote about Operation Choke Point 2.0. And so they've been kept away from it. I think as soon as the dam breaks on that, they will become amazing catalysts to helping many more participate as investors in the space.

1:29:39And you think it's happening in the next year? I think it's happening in the next 12 months, yeah.

1:29:45You've been building Bitwise for the last seven years, you said, right? Yeah. No gray hair when I started. We will get them. I was checking this morning in the mirror, I was like, fuck, I used to have a few now so I have more there I'm like I mean we still have the hair we got the hair we got the hair that's right we got the hair we're going to ask Luca to make sure to say that we still got the hair obviously it's not being a smooth sail right it's been very hard you deserve what's happening today is there any moment where you felt like you wanted to just stop and do something else? Any moment you felt about giving up?

1:30:40I don't... I think that the emotion that I have that is most adjacent to what you're asking about is sometimes frustration. And I would say in 2022, I was just so frustrated with what transpired in the industry. And there's so many people who, you know, taking a risk working in the space or taking a risk onboarding with a counterparty or downloading an app or buying their first bit of Bitcoin or opening their minds to the possibility that there's something here. and it's just so frustrating to watch that trust, that credibility, that attention, and in many cases people's money just get torched.

1:31:37And it's inexcusable. And so as I'm surveying my memories, I think there have been moments in the space that have been very frustrating. I think that probably in terms of sort of was this a bad idea,

1:31:59most, we experienced that in our first bear market. And I think most investors sort of experienced that moment of, okay, this asset is down a lot. Do we still believe that this thing has the merits that brought us here in the first place? And we went through that in 2018. we started in 2017 and in 2018 at peak Ethereum was down 90%, which meant a client that invested with us, uh, you know, yeah, yeah. The way, the way they wound up with a small fortune was by investing a large fortune, um, as the saying goes. Um, and I think at that moment you, you sort of felt like, do, do, do we think that this thing has merits?

1:32:42You know, uh, do we believe that it will persist, that it will, uh, that it's worth it. And, uh, And I think for us and for many people, you go through that a first time and you either say, yes, I do think it'll persist. I do think it's worth the effort. Or you say no. And if you say yes, I think that that kind of ossifies. And you don't, you know, when Bitcoin went to 53 ,000 recently or something and people are like, uh. As usual. So in the end, new bear market, down on Lee. Yeah, right. We're all not going to make it. Yeah. So I think you go through that once, you decide whether you have conviction or not.

1:33:27If you don't have conviction, you leave. And if you do have conviction, I think you don't spend as much time wondering if this thing is going to have merits. I mean, you think more about a regulatory development or a hack or is this team making progress at the rate that we want to see it? are as many people using Polymarket as we thought were possible. So you're sort of measuring the rate of progress, but you don't think as much, I think, after that first time through the ringer about, were we wrong and this whole thing is worthless? Yeah. You talked about the big blowups from two years ago. I think it's going to happen again.

1:34:09Ooh, ooh. I have a real opportunity to put my foot in my mouth, by saying no. And then you'll send me this conversation in like two years. But I mean, my honest answer is I don't think that that scale will happen again. And the reason for that is the space has cycles, but it is also maturing.

1:34:36So So 2022, a component was there were a lot of companies and, you know, counterparties people had that in hindsight were either doing fraudulent things or were just not managing risk well. A lot of them got wiped out, which I would not have wished for. And I think it was very unfortunate. But today, as a byproduct of that, those are gone. Really high-quality ones remain. Bitwise avoided those things for clients. Coinbase avoided those things for clients. And what's been added to it is a set of, I think, very durable and stable new market participants. So what do I mean by that? Fidelity. Or if you're a hedge fund, you can now get exposure through Goldman.

1:35:46If you're an individual who wants to buy Spot Ethereum, your options, if you don't want to use the ETFs, you could use ETFs and just do it through your brokerage account. You could use Coinbase, which has skated through 2022 and sort of proved its durability and responsibility. Or you could use Interactive Brokers, a famous large brokerage firm. Or you could use Robinhood now. I mean, back in the day, your options for buying Spot Ethereum was certainly no ETF, definitely not Interactive Brokers or Robinhood. It was Coinbase, who has continued chapter after chapter to be best in class. or Poloniex, or Bitfinex, or Bitmex.

1:36:35So I think that just the set of options that investors have today and the participants in the market today have either proven out their durability over time, Kraken as well, or they're very serious financial firms that have finally adopted the space. So I think that the set of counterparties, it was counterparties that had the cascading failures in 2022. And the counterparty landscape we have today is just a much more durable professional mix. And so I think that really reduces the likelihood of, but anything could happen. Fingers crossed. Fingers crossed. And if it happens, we navigated it for clients then and we'll navigate it for clients again.

1:37:26It happens, we just did this episode. That's what I meant to say. that's what I meant to say as one of the person I'll have no hair then as one of the person who cares the most about this space moving forward what's your message to the crypto industry and the crypto community

1:37:48think bigger be more positive and think about the good that this space is going to do in the world and focus on that. Amazing. Thank you so much for doing this today. It was an amazing conversation and thank you for what you're doing for the space, hustling every day. Thank you. Forward and be a good steward. Thank you. Thank you. Thanks for having me.