When Ethereum ETF? | Matt Hougan & Ryan Rasmussen of Bitwise

my view is that ultimately we will get an ethereum ETF the the core Logic on which the Bitcoin ETF approval rests which is that Futures and spot track each other very well and are tightly correlated so I think we'll eventually get it I would guess I'm over 50% by the end of this year welcome to bankless where we explore the frontier of Internet money and internet finance and today we're exploring the frontier of ETFs

specifically the Bitcoin ETF and the ethereum ETF we have Matt Hogan and Ryan rasmon from bitwise to help us out with that a few things we talk about today number one the Bitcoin ETF was it a success how successful was it in the grand scheme of things and why Matt Ryan still think there's a lot of juice to squeeze out of the Bitcoin ETF number two flipping gold why not only is the Bitcoin ETF flipping gold in line of sight uh maybe we go far beyond that potentially 3x or more beyond that number three the ethereum ETF is it coming this year what are their honest

predictions this is by far the best analysis I've heard yet and number four what's next for the institutions after the ethereum ETF after the Bitcoin ETF where do we go from there there's so much to unpack in this episode especially with the conversation around the ethereum ETF which has been going around in the crypto Twitter verse a lot of the conversations and just around ethereum these days is about the ETF lately in the ETF conversation there has been discussion about the decreasing likelihood of the ethereum ETF approval at the end of May where the first deadline is up uh after going through

the gamut that is the Bitcoin ETF conversation of which there is plenty to talk about and we do unpack all of that conversation we get into the ethereum ETF conversation and the crypto industry really has just always a Perpetual short-term Focus because of how fast things move in the crypto industry and so thinking in like multiple quarters is generally not what we do but Matt and Ryan and generally people speaking all understand that the ethereum ETF is going to get approved it's not a matter of if if it's a matter of when and so we ask some some of the questions about

that approval of course we start asking by when but then we asking about further things like what about staking inside of the eth ETF how much demand is there will there be for the eth ETF uh and how are they positioning the eth ETF to their broader clients Matt is coming to us from digital asset Summit over in London where he's talking to all of trafi and about what their interests are uh and uh he's got a lot of outfit to share here on the podcast today so we're going to get right into all that information but first I want want to talk about some of these fantastic sponsors that make the show possible

especially deas Nation we have two esteemed guests from bitwise today Matt Hogan is the chief investment officer at bitwise and Ryan rasm is a senior Analyst at bitwise Matt Ryan is great to have you on Bank list great to be here okay so bitwise for for context we've had Matt on before is an asset management firm and uh you guys have your own Bitcoin ETF it's called bitb Uh bitb so four letters there it's got two billion in assets under management so congrats on that and bitwise it's

probably one of our favorite uh Bitcoin ETFs if we're allowed to have favorite I don't know because we've known Matt and bitwise for a while they're crypto natives they understand the space they understand this IND industry and so uh we want to ask you guys a few questions about ETF World about institutional adoption and uh everything that's going on there it's does that sound good I love it yeah appreciate the support all right so first question here is uh how are the Bitcoin ETFs going just give us the lay of the land we are what like just over 60 days in uh you know a few

more than that how how's it going so far I'll start and uh and rasmon can jump in this launch has exceeded everyone's expectations right for context I spent 15 years in the ETF industry before I moved into crypto uh full-time six and a half years ago these are the largest ETF launches ever by a significant factor to put it in context before these ETFs the fastest growing ETF for one year in Flows In other words how much people invested in the first year were the NASDAQ 100 Q's QQQ and those pulled in

$5 billion in a year and if you take these new Bitcoin ETFs even after you subtract the outflows from gbtc they've pulled in12 billion in two months so by far in a way the fastest growing ETFs of all time I was very optimistic I spent you know three years with the team at bitwise or five years trying to to get one of these launched and I didn't expect anything like this we're at 2 billion the ecosystems you know pulled in 12 it's just been outrageously great and I think it will accelerate in the

future so after maybe a few weeks a few month maybe a month or so now where it may be a little bit quiet I think there's a second acceleration coming that that may even dwarf this first one so uh it's good time in ETF land well if you think these first two months of the Bitcoin ETFs have been quiet I can't can't wait to see what future acceleration looks like cuz it doesn't look like it's been quiet from from my perspective it seems like it's been quite loud uh I want to ask just about like how the success of these Bitcoin ETFs has uh characterized the industry

from the outside perspective so like we there were two potential worlds going into the approval of the Bitcoin ETF they were there was the uh flop and then there was the massive success and we are in the universe in which we got the massic success uh how has that changed the pr Optics the position of the crypto industry to the perspective of The Outsiders I I'll go ahead and take this one I think that this has been a massive Boon for the industry I think you hear a lot of stories from whether it's grandparents or aunts or uncles or or parents or siblings who now with these

Bitcoin ETFs look at that as a stamp of approval from not only the government but just the mainstream America you have these big investors going on CNBC Larry Fink and others that are really well known talking about Bitcoin as an asset class rather than than a speculative vehicle or something that like vaporware that's going to you know go away in a few years and I think that just shows what these ETFs have done in a very short amount of time in two months we've gone from and crypto's a scam to oh this is a legitimate asset class that could overtake other Commodities at some point

like gold and so that just kind of shows where we're at and I know the conversations that I'm having on the road with our sales team at conferences with advisers are way different today than they were one year ago or two years ago and without the ETFs we wouldn't be in the situation that we're in so it's been a huge boost for the for the asset class Matt you you called this an overwhelming success um was was Wall Street surprised by this I think Wall Street was surprised I think people thought it would be a success right we knew there was demand but the scale of the success and the broad-based nature of it I think has exceeded expectations

and I think it gets to something that Ryan mentioned which is what really change from traditional finances view is they now accept that Bitcoin is going to be here forever uh once we have these ETFs once Black Rock and Invesco and these giant names are in there once you know Ra's investment advisers institutions are piling in they've accepted that Bitcoin won't go away so I I think you know we knew it was going to be a success but the scale is just it's just off the charts uh you mentioned Matt this uh second acceleration all

right so uh we've seen the first acceleration that got us to 12 billion and uh the second acceleration can you describe what that actually is why why would we be getting a second acceleration uh you know like if you're looking at this from the outside you might say well you know the first wave everyone who wanted to buy they probably already bought and certainly now the Bitcoin ETF is is hyped enough we're squarely in a in a bull cycle so why would there be any second acceleration yeah great great question I can I can start it and and Ryan can finish um the

thing about etf's approval is it unlocks only a portion of the market so the day an ETF has approved by the SEC retail investors can buy it and independent financial advisors people who manage money on behalf of other people can buy it but there's a whole class of investors who still can't buy it so the largest wealth management Platforms in the US are firms like Morgan Stanley meril Lynch UBS Wells Fargo these have tens of thousands of advisors and trillions of dollars of assets and they

can't buy it on those platforms until they complete their own due diligence so it's not good enough that the SEC approved it each of those platforms has a due diligence process and they have to approve the ETF as well and that process hasn't happened yet that will probably start to happen in the next few weeks or the next few months I would say that maybe 30% of the wealth Market in the US can now access these ETFs but there's a whole additional 70% that's going to come online not all at once not like the

ETF launch this will be a series of individual approvals at each of these firms and each of these sort of tiers of wealth until we get to the final opening I'll make an analogy um that maybe maybe makes sense to people the closest analogy to the Bitcoin ETF launch was the gold ETF launch and the gold ETF launch was a very big deal and suddenly people could buy gold but inflows built over seven years right before they reached a local maximum and actually the largest year was year 16 so what we've

seen now is retail investors and independent advisors by these ETFs hedge funds Venture Capital funds great huge success but there's this whole other level that we're about to get to in the next month or two months or three months that um that's really where the trillions of dollars is that mat is that what we're seeing when we see like Morgan Stanley has kind of opened the gates to the Bitcoin Wells Fargo has opened the gates to the Bitcoin ETF I like all of these Gates I didn't even know these things existed but is that basically the process of this this

second uh acceler here that's exactly right yeah it's like a nuclear key right you need the SEC to turn it and then you need Morgan Stanley to turn it and we're just going through that process of the second key turning I would give one additional data point here so I spent eight years before I joined bitwise working at a company called satara Financial Group this is a large network of independent financial advisers they have 10,000 advisors or more they manage 300 billion in assets and they just recently approved Bitcoin ETFs on their platform for those 10,000 plus advisers

to start alloc a on behalf of their clients and that took two months and like I said I've been in an or that organization before and organ organizations like that and the wheels just move very slowly there's so many Executives and teams involved in reviewing what is bitcoin are we okay with our advisor allocating to it how do we feel about them getting exposure on behalf of clients then once they make that decision they have to evaluate the different Vehicles they have to decide how they're going to educate their the advisers on what Bitcoin is and what it means to put Bitcoin in portfolio lot of

time those advisers have to educate their clients before they actually make that investment and so there's all these different hurdles that you have to clear before you actually make the allocation it isn't just the platform approval there's a whole education process that happens after that and I think you know on the retail side we move a lot quicker because we're self-directing our own investment so when you have someone managing money on behalf of another there's a lot more Hoops you have to jump through to make sure you're complying with all the regulatory uh requirements and whatnot and so I think that's partly what takes so long yeah this is certainly probably um things that are moving on time frames that

crypto natives the crypto industry doesn't really consider uh because we are so short-term focused in this industry but really the the Bitcoin ETFs in general ETFs broadly are just like a fine wine kind of thing like you got to let them age before they really uh they really uh mature uh Matt I just want to try and get some more numbers on this thing you you said 30 and 70% uh in terms of like 30% of capital is available and just want to make sure that I'm understanding that that uh correctly when in terms of the acceleration that you were referencing uh the 30 70% is like total available

like pools of capital as in like the 30% is the available and interested capital and that acceleration that you're talking about is like there's roughly 70% more Capital uh available to be uh to buy the Bitcoin ETF as the BTC ETF ages can you just shed a little bit more light on that yeah I mean that's that's a that's a back of an envelope calculation but that's right if you look at the US wealth management industry people have different measures of how big it is but let's call it you know 40 to 50 trillion dollar somewhere in that

zone yeah I think about you know 30% of that can access these ETFs today which is great like that's trillions of dollars that can access these ETFs and it's turned into billions of dollars of flows and th th those flows are just getting started but there is this whole other group that hasn't even crossed the chasm into being able to access that it's probably it's certainly the larger contingent so the majority of wealth whether it's 60 or 70% of the wealth that's still waiting and they're doing

their due diligence they're actually moving faster on these Bitcoin ETFs than they do on most ETFs usually this would be a six-month or year-long process and it's it's going to be a quarter long process or a 4mon long process so it's great but as you said that's that's sort of glacial from a crypto perspective uh but they will get there the the progress is happening they're they're going to approve them and uh we'll start to feel those flows build over months and quarters and years I I will say one of my favorite parts of this whole story

the whole crypto story and what's happening with Wall Street sort of discovering crypto is something we say at the beginning of every single bangless podcast this is an opportunity to front run the opportunity right this is like Bas listeners will know we are fans of the crypto natives the the Believers uh kind of The Underdogs you know like retail over institutions uh wherever possible and um retail has had a solid decade to front run a bitcoin price appreciation and even now there's still time for retail in their 401ks for

instance their IRAs to get ahead of that 70% that still has no access to Capital and I'll jux poose this with basically uh almost all 99% of the opportunities that that you sort of see uh for investment opportunities where uh institutions have an edge if a company's going to IPO first of all all the VCS get in first and you have to be an accredited investor and all of that rigma rooll and and then uh you know the um the banks that are issuing the the stock they get their cut ahead of time too they get preference and by the time

the thing is ipoed right it's like all of the all of the juice has been squeezed out of it on the institutional side and what's retail left with with just like you know Facebook stock that's already done its 10,000 x appreciation and you just get a easily like you know 5 to 10x after that uh and just like thank you very much crypto is the exact opposite of that and that is one of the things I've been most uh excited about uh for every single every single moment of joining retail the small guy gets first dibs on this the believer the

person who's using it uh and then institutions are left to kind of like uh come come uh buy our bag I'm sure you wouldn't phrase it like that Matt no but I think that's exactly right I mean this is an empowering technology and uh institutional Capital has so many sort of Behavioral biases against it you know inherently anti-tech inherently disruptive uh difficulty getting their heads around digital things this was one of the few places where retail had advantages and has

taken advantage of it and kudos to them like kudos to everyone who was early and has been in this for years through Bull and Bear markets kudos to everyone as you mentioned still getting in now because um you know it's it's not it's not the end it may be the end of the beginning but we're not quite there yet there still is a little bit of time even on bitcoin much less on eth um uh which you know I'm sure we'll get to but um but yeah I I love that about crypto as well it's it's it's really a beautiful

thing it warms my heart we got a a two-part question for you Matt um that I was looking for some like timelines on that 70% is this like uh that 70% will be accessed by the end of this year end of 2024 or is it even longer than that and then zooming into the fullness of time like once this like acceleration phase is over and we strike some equilibrium with flows like I don't want Bank listeners to like perceive that oh like oh the fun is over uh like there the in the old world of the stock market

uh like there is constant flows into people's just like 401ks into QQQ into spy and so like these indices and even just like the General stock market is up only because there's persistent flows into them and this is where Bitcoin is going this is where the Bitcoin ETF is going any sort of crypto asset with an ETF gets access to this flows and that's the new equilibrium and so the the two-part question is like this acceleration period what's the timeline on that and then once that closes what is what does the final equilibrium of

flows into the Bitcoin ETF look like yeah great questions I think it's a let's say it's a year-long process evenly distributed with unlocks along the way at each phase of that it may be till the end of 2025 it may be an 18month process and a little bit gets unlocked every time it's not like the shotgun start of the ETF launch which was the SEC said go these are you know probably 50 individual decisions that each unlock a little bit of this

additional pie some more important than others but it will it will take some time I think the point you made about uh one difference of these trafi markets they probably actually two uh one you mentioned continual investment which is absolutely true what we we're seeing it bitwise is people putting these ETFs into models and what that means is they have a sort of theoretical allocation to stocks bonds real estate and now a little bit of crypto that they put all

of their investors into and as they save money for retirement as they save money in taxable accounts a little bit goes in on a continual basis the flip side of that is a lot of these people rebalance which is if crypto goes up a very a lot they may sell a little bit to bring it back down to that Target weight I think the the effect of this will be sort of uh upward push on crypto prices longterm sustainable upward push because it's a a

continual flow of capital as you mentioned that's why stocks are you know up only over long periods of time and a diminu in volatility I don't mean that crypto is going to be boring I just mean it will be less volatile than it was in the past because you'll have people who invest a little bit every month you'll have people who systematically sort of Buy Low and sell High because they're rebalancing and so you should see volatility compress a little bit over time which it already has been um but it's hugely positive for crypto persistent inflows that will you know

match or overwhelm Supply I think is what you should expect um and uh and I just think you you should expect that to build over multiple years like I don't think 2024 will be the peak year year for Bitcoin ETF flows I think that'll be many years out I think it's going to build over time I I think there's this idea Matt you said earlier that um well cryp crypto bitcoin's not going away right anytime soon there's this realization uh I I think um there's also this this realization that um you know

crypto is now has to be part of a portfolio I think I saw this was um Fidelity Canada by the way not Fidelity us yet but you can imagine it coming now you they have their default growth funds right you know the the typical 6040 60% stocks 40% uh you bonds if you're if you're doing something high growth uh for instance well now it's like 6043 or it's like you know it's not 6040 obviously you know that's 103% but uh we've got like 3% allocated to crypto by

default so we're starting to this move to this world where not only is crypto not going anywhere it's part of a default portfolio construction and that is I think the world that uh that you describing here that's absolutely right and it's a it's a complete Game Changer but you know it aligns with sort of the most conservative stayed pinstripe suit died in the wool investing methodology like sort of the Jack Bogle Vanguard methodology to evoke a firm that is now very much disliked by crypto but their

view is that your starting point is you should own everything you should own every stock you should own every Bond you should be just invested in the global economy because it grows every year year just own everything and from that perspective you have to own crypto if you don't own crypto you're actually short crypto versus your Global Benchmark of asset allocation and so what that 3% in a model portfolio tells you is that's sort of the Baseline if you're below that then you're making an active bet that crypto is not going to

matter in the future most people don't want to do that they just want to own the market and it's a complete GameChanger I mean you know like I save for my kids college education every month X dollar and there's no crypto in that exposure yet because the products don't exist but I suspect that will change in the next couple of years and that means everyone who's app parent will be you know saving X dollars every month for their children and a little bit will go into crypto I think that's the world that we're moving into crypto

will help us pay for uh our the rising cost of Education I mean but like you're talking about the truth here just a quick Quest though Matt since you invoked the name of Vanguard and and and the bogleheads okay so CEO Vanguard has say no Bitcoin we're not doing that double down multiple times it seems like why can you explain that H anchoring bias you know desire to see conservative Vanguard also said no ETFs right jack Bogle was famous for hating ETFs they he thought he tempted shareholders to trade

too much and Destroy themselves and they stayed out of the ETF game for the long time now it's their largest area of the market Vanguard will come over as well look at Black Rock Larry fin called Bitcoin an index of money laundering and then really when was this 2017 an index of money laundering and then to his enormous credit I mean really his enormous credit we compete with them but to his enormous credit he studied it talked to smart people changed his mind and developed a team to integrate Bitcoin into black rock so I I think

Vanguard will eventually be here just like they eventually became a large ETF F issuer and everyone gets the Bitcoin price they deserve and and apparently uh the CEO of Vanguard deserves a higher price I will never get tire that line by the way bitwise Ryan I want to ask you about through your travels and conversations with just uh these buyers of the Bitcoin ETFs uh who are they I'm sure there's like the regular cast of characters that I could also guess but are there also any like surprises in there like uh and what kind of like data do we actually have to to talk about

like who are the actual buyers of the Bitcoin ETF yeah that's a good question so so we go on the road we have a sales team about 25 people that go around every day they're they're meeting with financial advisors or raas at their offices or at stake dinners or at lunches and so on the research team we travel with them sometimes recently I was in Denver ahead of eth Denver with our sales rep out there and we went into a large Raa they managed 350 million in assets and we we catered some sushi lunch we sat down with them and then we did a a Bitcoin 101 presentation what is bitcoin how does it work what is mining

how does Bitcoin fit in portfolio and you you kind of just walk them from the very beginning through where we're at today why Bitcoin ETFs exist why those are a big deal and then what you see in the room is a wide variety of people some that are crypto interested there's generally one or two people in a room of 10 or 12 that's a DI hard crypto fanatic they own it in their portfolio they start asking about nfts and like go down a rabbit hole and then you see some other people on the other side of the spectrum that uh are are likely too afraid to ask questions because in a room of their colleagues that are

supposed to be you know well vered Financial professionals maybe they haven't taken the time to study Bitcoin and crypto and they don't want to seem like they don't know what they're talking about and so it's really a wide variety but those one or two people that are crypto Fanatics in The Firm is what allows us to get our foot in the door and then from there it's just an educational journey and and I would say that those individuals that that are into crypto they're probably advocating for 3 to 5% of portfolios to be invested in Bitcoin or invested in a crypto index and then you have the Skeptics who think

1% is outrageous and that's where we show them the models and the portfolio simulations that say look if you have 3% or 5% or even 10% that can add a lot of risk adjusted returns to your portfolio while barely increasing volatility and I think once you show them that kind of data you really start to see their eyes opening especially the people that were more more averse to adding Bitcoin to a portfolio going into the conversation you start to see their eyes opening and they see the the sharp ratios the risk adjusted returns and they start to realize oh this is a real asset that can

really boost a diversified portfolio versus add unwanted risk and unwanted volatility and that's when they start to come around to adding it into their client portfolios just out of curiosity is there any just like comparative conversation being made about gold ETFs and just like what how has the pr around gold as a commodity changed now that Bitcoin is like the sparkly new digital gold uh that's also got an ETF like what are people saying about gold these days I get the same critique when we when we

try to make the comparison of Bitcoin to Gold I think you often have similar to have you have like a you have a Bitcoin bug in the room you have a gold bug in the room and they try to argue all kinds of things like it's been around for a thousand years it's 10% of it's used in electric electric or in electronics and so uh you have to kind of fight that narrative but we ran a really interesting simulation the beginning of this year we said instead of adding 5% of Bitcoin to your portf to a traditional 6040 portfolio what if you added 5% of gold and the impact that gold has on a portfolio is actually negligible it doesn't do anything for

your portfolio it doesn't add any any risk adjusted returns it doesn't increase volatility but yet it doesn't boost returns and so we start to show that kind of data that says look I understand that you you like gold we understand that you may be allocating to Gold but if you just take a small portion of that maybe 50% of your 3% gold allocation or 50% of your 1% gold allocation and you shift that over into Bitcoin the impact it has on the potential for for returns Without Really impacting the downside is really hard to ignore and they almost have a fiduciary responsibility to listen to that

argument and to look into it because they really have to do what's best for their clients so that's certainly what we're seeing definitely seeing outflows from gold into Bitcoin as they think about what part of their portfolio and their alt sleeve they're carving off as they're investing in Bitcoin as well yeah and I I just add two things on top of that um we're seeing some advisers have an inflation bucket or a US Government debasement bucket that's 50% gold and 50% Bitcoin which I think is great right that's fine that's an easier sell to their clients we're worried about a government printing trillions of

dollars of debt every few months let's hedge it who knows how it's going to work best I think that's fine the other narrative change which I find really interesting is for the the last five years um mostly you could talk to advisers about Bitcoin taking a percentage of the gold market 10% of the gold market 20% of the gold market 50% of the gold market increasingly I find you can convince them that it may be multiple of the gold market the Bitcoin is everything that gold is plus the

ability to teleport it around the world and that has more application so is it 2x the gold market is it 3x the gold market and I think that's an interesting change so you couldn't really get that across to people uh before the Bitcoin ETF now I think you can you can start to talk about multiples instead of percentages and um I think that's pretty exciting I think uh inside of the crypto industry we're all uh pretty good at thinking in um uh parabas much more than the the trafi community and so when we see the gold market cap uh gold being

the number one asset by market cap and Bitcoin as like number nine number 10 as crypto natives we like oh we could dethrown gold and which is probably like unheard of to to like trafi just like in the in the uh in the their first like gut reaction uh but like right now I think the the next Milestone on this is like the Bitcoin ETF uh AUM flipping the gold ETF AUM I actually don't know where we stand on this current race but like also in crypto world we are used to using this world world word called the flipping uh so like when which I'm

guessing is just inevitable when the Bitcoin ETF does flip the gold ETF is this like a big deal or is this more of a milestone for funsies that us crypto natives talk about like how will that change the conversation in the traditional Finance world oh I love that I think the flipping will happen next year and I do think it's a big deal because ETFs are how investors today Express their preferences for what to allocate to and what that will signal is that more of them want to allocate to bitcoin that you know Nostalgia is not an investment strategy and gold is in

the past um so I think that will be an important moment and I suspect it could happen as early as next year how close are we Matt and how do how does that happen where do we stand well we have about what $50 billion plus in the Bitcoin ETFs um you know inclusive of gbtc I think gold is is north of 100 if you add them all up together or right around 100 so so we only need a 2 and that's price inflows there you go exactly we'll do that this year we'll do that before Q2 let's flip it excuse me yeah it's going to happen I think it's

inevitable as Ryan mentioned bitcoin's just so much more valuable in a portfolio context than gold has been historically um not to mention it has sort of better underlying sort of fundamental growth patterns but yeah we might flip it this year I love it beautiful beautiful I know uh Bitcoin is not the only crypto asset that um you you guys have bitwise find uh interesting or valuable in fact I think Matt we've had you on the the podcast before we were talking about how to um talk to Ras and institutions about defi

decentralized finance and some of the token surrounding in these new cash flowing assets that are not not stocks but something different uh you know protocol Network assets something like this uh so let's talk about the next set of assets that we think we can create an ETF wrapper around like a TRD erc20 as uh as as we call it sometimes on Bank list so um the next one in line feels like it needs to be it should be the ethereum ETF and I I I'm coming from the