WEBVTT - At the Money: The Tech Behind a Crypto Future

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<v Speaker 1>Are you a taigno. Yeah, it just.

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<v Speaker 2>Sets the.

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<v Speaker 1>Show in canc What's the one? What's going on with

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<v Speaker 1>the technology underlying cryptocurrencies? What is bitcoin and other cryptocurrencies

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<v Speaker 1>and what are their future? I'm Barry Retults and on

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<v Speaker 1>today's edition of At the Money, we're going to discuss

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<v Speaker 1>all sorts of cryptocurrencies. To help us unpack this and

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<v Speaker 1>what it means for your portfolio, let's bring in Matt Hogan.

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<v Speaker 1>He's the chief investment officer at Bitwise Asset Management. The

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<v Speaker 1>firm runs over ten billion dollars in clients crypto assets.

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<v Speaker 1>So Matt, let's start with It's a really basic question.

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<v Speaker 1>What is bitcoin? What is ethereum? And what use cases

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<v Speaker 1>do these coins have? Oh?

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<v Speaker 2>Amazing, Well, it's great to be here.

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<v Speaker 1>You know.

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<v Speaker 2>Bitcoin is a crypto asset. The way I think of

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<v Speaker 2>it is the first way that investors can store wealth

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<v Speaker 2>in a digital format without relying on any government or

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<v Speaker 2>any bank. It's built on a major technical innovation called

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<v Speaker 2>the blockchain, which took forty years to develop trying to

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<v Speaker 2>figure out how to make this possible. Bitcoin broke through

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<v Speaker 2>that in two thousand and eight, two thousand and nine,

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<v Speaker 2>and it's been gaining steady adoption ever since. Ethereum is

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<v Speaker 2>something more complex than bitcoin. If you think of bitcoin

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<v Speaker 2>as digital money, you can think of ethereum as making

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<v Speaker 2>money and compute programmable in a public setting, and you

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<v Speaker 2>can build applications on that. You can build smart contracts,

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<v Speaker 2>you can build stable coins, you can build other applications.

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<v Speaker 2>I think it's a very exciting technology. But you can

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<v Speaker 2>think of bitcoin as digital money Ethereum as sort of

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<v Speaker 2>public compute and programmable money, and you'd be pretty close

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<v Speaker 2>to realbum.

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<v Speaker 1>So you mentioned smart contracts, I'm kind of fascinated by that.

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<v Speaker 1>When we were talking about this a few years ago,

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<v Speaker 1>the idea for smart contracts for concert tickets had come up,

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<v Speaker 1>where hey, Taylor Swift is unhappy that in the US

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<v Speaker 1>scalpers are buying up their tickets, keeping them away from

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<v Speaker 1>the fans and selling them for five thousand dollars. If

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<v Speaker 1>we were to put Taylor Swift contracts on Ethereum, she

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<v Speaker 1>could sell her tickets at fifty dollars, and whoever buys them,

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<v Speaker 1>if they want to resell it at a higher price,

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<v Speaker 1>she says, great, this contract says, I get half of that.

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<v Speaker 1>And so the idea is to encourage it going to

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<v Speaker 1>fans and making it less profitable for scalpers. But even

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<v Speaker 1>if they do scalp it, the artists themselves get it.

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<v Speaker 1>How realistic our applications like that? And when might we

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<v Speaker 1>see something along those lines?

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<v Speaker 2>I love it. It's all going to happen very I think

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<v Speaker 2>they're all realistic. Crypto enables frictionless, programmable money. So what

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<v Speaker 2>you're raising there as an example of allowing money to

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<v Speaker 2>be programmable, it's not just concert tickets. You could say

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<v Speaker 2>the same thing about art. Artists are always upset that

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<v Speaker 2>they sell their art and then at one hundred x's

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<v Speaker 2>in price, and they don't benefit from that directly. And

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<v Speaker 2>so this idea of attaching revenue streams downstream from it

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<v Speaker 2>is something that you can do easily in the blockchain setting.

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<v Speaker 2>The natural question is why hasn't it happened? Right, if

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<v Speaker 2>we were talking about this two years ago and it's

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<v Speaker 2>such a great idea, why hasn't it happened? And there

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<v Speaker 2>are two reasons for that. One is that Crypto has

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<v Speaker 2>had a regulatory cloud hanging over it. The SEC has

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<v Speaker 2>been launching lawsuits against Crypto. There was concerns in Congress

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<v Speaker 2>a senator was building an anti crypto army. If you're

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<v Speaker 2>a mainstream corporation, are you going to build a new

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<v Speaker 2>business in an area where a senator is building an

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<v Speaker 2>army to crush you? You're not, So we didn't see

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<v Speaker 2>any of that. The second is that blockchains were slow

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<v Speaker 2>and costly until about a year ago. Sort of we've

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<v Speaker 2>gone through in blockchains what we went through going from

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<v Speaker 2>dial up to broadband Internet. Now we have highly performant,

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<v Speaker 2>low cost blockchains that can perform a lot of transactions,

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<v Speaker 2>and we have a positive regulatory environment. I think you're

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<v Speaker 2>going to see a flowering of a million use cases

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<v Speaker 2>over the next two or three years. In crypto they're

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<v Speaker 2>going to blow people's minds. I think they're going to

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<v Speaker 2>go mainstream. You're going to be using crypto apps without

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<v Speaker 2>even knowing it, and I think people haven't woken up

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<v Speaker 2>to that reality yet.

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<v Speaker 1>So you're really suggesting where like nineteen ninety three in

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<v Speaker 1>the Internet is that? Is that a good frame of reference.

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<v Speaker 2>That is exactly right, and you're seeing these crypto apps

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<v Speaker 2>pop up and break through people's consciousness. A good examp

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<v Speaker 2>was polymarket during the election. Oh sure, everyone was looking

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<v Speaker 2>at poly market for the prediction odds on who would

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<v Speaker 2>win the president into the election.

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<v Speaker 1>It was.

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<v Speaker 2>It was in the Bloomberg terminal, right, the data from it.

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<v Speaker 2>That was a crypto app. It could only be built

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<v Speaker 2>on crypto. Crypto enabled it to happen, and yet no

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<v Speaker 2>one was talking about that. So, yeah, it's nineteen ninety four,

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<v Speaker 2>nineteen ninety six. On the internet. We're starting to see

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<v Speaker 2>a few examples. Yahoo's jumping up, you know, Email is

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<v Speaker 2>jumping up. Hotmail is happening, but it hasn't gone mainstream net.

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<v Speaker 2>It's about to.

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<v Speaker 1>So it sounds like there are a lot of new

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<v Speaker 1>use cases for things like ethereum. Give us some other examples,

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<v Speaker 1>because you're obviously much more knowledgeable about this then I.

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<v Speaker 2>Stable Coins are one of the great killer apps to

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<v Speaker 2>develop in crypto. A stable coin is a money market fund,

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<v Speaker 2>but on a blockchain. Right, It's a way to access

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<v Speaker 2>dollars on a blockchain. So why is that a killer app?

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<v Speaker 2>There are two reasons. One, it puts a US Bank

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<v Speaker 2>account at the fingertips of anyone with a cell phone,

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<v Speaker 2>anyone at wear around the world, and if you're in

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<v Speaker 2>Argentina or you're in Turkey and you can't easily access

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<v Speaker 2>a US dollar bank account, but your currency has high inflation,

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<v Speaker 2>you're going to want access to stable coins that's built

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<v Speaker 2>primarily on ethereum. If you're in a sub Saharan Africa,

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<v Speaker 2>there's a company called Yellowcard that's using stable coins to

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<v Speaker 2>do country to country payments between business entities. It's growing

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<v Speaker 2>at an exceptional rate. The US dollar is a phenomenal tool,

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<v Speaker 2>and most people don't have access to it. Stable coins

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<v Speaker 2>make that instantly accessible globally, and so I think that's

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<v Speaker 2>a good example of how crypto can really go mainstream

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<v Speaker 2>in a very fast rate.

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<v Speaker 1>So let's talk a little bit about security. I recall

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<v Speaker 1>ten years ago crazy numbers something like a lot of hacks,

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<v Speaker 1>a lot of thefts, and we talked previously about passwords.

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<v Speaker 1>Something like twenty percent or twenty five percent of all

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<v Speaker 1>bitcoins have been lost because the owners either misplaced the

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<v Speaker 1>drive it was on or misplaced the password. That sort

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<v Speaker 1>of security issue seems to have been taken care of

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<v Speaker 1>as this has become financialized and you can buy coins

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<v Speaker 1>in etf fashions. Tell us a little bit about custody

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<v Speaker 1>and security of crypto assets.

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<v Speaker 2>Yeah, I mean, it's worth noting those stories always sound

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<v Speaker 2>so ridiculous. How could these crazy people lose their password?

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<v Speaker 2>It's now worth a billion dollars, But remember at the time,

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<v Speaker 2>it wasn't worth a billion dollars. It was worth a

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<v Speaker 2>few bucks. Right, somebody bought two pizzas for eighty thousand bitcoin.

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<v Speaker 2>That's now worth a billion dollars. I sure hope they

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<v Speaker 2>were good, But you know, you have to think back

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<v Speaker 2>to then when bitcoin was trading for a few cents.

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<v Speaker 2>People weren't as careful as they would be today. But

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<v Speaker 2>the technology has improved exponentially. Now the way most people

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<v Speaker 2>custody their bitcoin, their ethereum, their other crypto assets is

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<v Speaker 2>through regulated qualified custodians with insurance from leading insurance providers

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<v Speaker 2>who have been doing it this for years and have

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<v Speaker 2>hundreds or thousands of people who help manage that securely.

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<v Speaker 2>And the track record for those qualified custodians is sterling.

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<v Speaker 2>And so I think it's really improved sort of exponentially.

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<v Speaker 1>And to give you a sense of how long that's

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<v Speaker 1>been going on, in November twenty seventeen, there was literally

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<v Speaker 1>an episode of The Big Bang Theory where they talked

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<v Speaker 1>about mining coins and putting it on a drive that

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<v Speaker 1>subsequently got lost and back then in twenty seventeen, it

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<v Speaker 1>was you know, tens of thousands of dollars. Today it's

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<v Speaker 1>it's a whole lot more than that. So I keep

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<v Speaker 1>hearing from some skeptics who are saying this is a bubble,

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<v Speaker 1>all these cryptocurrencies are just speculative excess. How do you

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<v Speaker 1>respond to that.

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<v Speaker 2>Well, you know, they may be right, of course, that's

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<v Speaker 2>what makes a market. But many of the smartest investors

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<v Speaker 2>in the world are allocating to bitcoin and crypto. Stan

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<v Speaker 2>Drcamiller is allocating to crypto. You know, Abbat Fidelity is

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<v Speaker 2>allocating to crypto. Blackrock is building a huge business in this.

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<v Speaker 2>Sixty percent of the world's largest hedge funds have a

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<v Speaker 2>position in bitcoin. It may be that those people have

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<v Speaker 2>a right point of view as well. When I look

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<v Speaker 2>at crypto today, it looks to me like a technology

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<v Speaker 2>that is just crossing the chasm from early adopters to mainstream.

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<v Speaker 2>And as you get to gain that sort of mainstream attention,

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<v Speaker 2>it's of course possible barry that the price will pull back,

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<v Speaker 2>and the best performing asset in the world for the

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<v Speaker 2>last couple of years, it could be due for a pullback,

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<v Speaker 2>but long term, it's not at a mature state right.

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<v Speaker 2>Bitcoin is not standing shoulder to shoulder with gold, Ethereum

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<v Speaker 2>is not standing shoulder to shoulder with Amazon cloud services.

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<v Speaker 2>We think of them at a discounted level until they're

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<v Speaker 2>standing shoulder to shoulder. I don't think we've reached maturity

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<v Speaker 2>or bubble level, you know, and I think we have.

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<v Speaker 2>I think we're getting there, but I don't think we're

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<v Speaker 2>there yet.

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<v Speaker 1>So let me ask you a two sided question, and

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<v Speaker 1>you can ask them answer them both. What are the

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<v Speaker 1>skeptics not understand about crypto? Generally? What do you think

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<v Speaker 1>the advocates either get wrong or overemphasize one of.

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<v Speaker 2>The skeptics not understand is a really great question. I

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<v Speaker 2>think many of them are anchored on the first time

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<v Speaker 2>they heard about bitcoin, and something that crypto needs to

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<v Speaker 2>admit is the first time many people heard about bitcoin

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<v Speaker 2>or crypto was in a negative light. Maybe it was FTX,

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<v Speaker 2>maybe it was the collapse of Mount Gox in twenty fourteen,

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<v Speaker 2>maybe it was Silk Road and illicit use. And the

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<v Speaker 2>problem is, from a psychological anchoring perspective, they have such

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<v Speaker 2>a negative first take on bitcoin they're not able to

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<v Speaker 2>evaluate it properly. They still consider things like what about

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<v Speaker 2>the illicit use of bitcoin? Well, that Departs of Justice

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<v Speaker 2>has come out and said that bitcoin's illicit use is

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<v Speaker 2>so small and it's not worth you know, monitoring. It's

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<v Speaker 2>much lower than it is for cash. So I think

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<v Speaker 2>many of the skeptics don't evaluate where the data is

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<v Speaker 2>today because they're taking a twenty twenty two or twenty

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<v Speaker 2>eighteen or twenty fourteen view of bitcoin and crypto.

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<v Speaker 1>I mean, we've seen some pretty extreme forecasts on prices

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<v Speaker 1>that you know, kind of raise red flags. When people

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<v Speaker 1>are talking about, you know, a million or five million

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<v Speaker 1>as a bitcoin target, it seems like they're trolling us

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<v Speaker 1>a bit.

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<v Speaker 2>It does seem like they're trolling us a bit. I

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<v Speaker 2>think they underestimate the efficiency of markets and the ability

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<v Speaker 2>of markets to accurately value what an asset is. Just

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<v Speaker 2>because bitcoin has gone up in the past and crypto

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<v Speaker 2>has gone up in the past does not guarantee that

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<v Speaker 2>it will go up in the future. And there are

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<v Speaker 2>significant foreseeable and unforeseeable risks in the future that we

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<v Speaker 2>should think about. Their regulatory risks, their technology risks, their

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<v Speaker 2>adoption risks. You know, look, it's hard to be the

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<v Speaker 2>best performing asset in the world for ten consecutive years

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<v Speaker 2>and then tack on an eleventh And I think there's

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<v Speaker 2>probably just too much sort of assumption that there is

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<v Speaker 2>a manifest destiny of bitcoin going to a million. There

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<v Speaker 2>is no such guarantee in the market. There's always risk.

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<v Speaker 1>Well, well, the trend is your friend. That's the old

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<v Speaker 1>trading desk statement. So that leads to a really interesting question.

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<v Speaker 1>Are these coins an investment or are they a speculation?

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<v Speaker 2>Yeah, they're absolutely an investment, and some of them have

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<v Speaker 2>elements of speculation. Let me give you an example of bitcoin.

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<v Speaker 2>I think when you're investing in bitcoin bar you're making

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<v Speaker 2>two bets. One, you're making a speculative bet that bitcoin

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<v Speaker 2>will stand shoulder to shoulder with gold as a store

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<v Speaker 2>of value asset. Right now, it's about ten percent of gold.

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<v Speaker 2>You're saying, I think it'll be twenty, it'll be thirty,

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<v Speaker 2>it'll be forty, it'll be fifty, it'll hundred. The second

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<v Speaker 2>bet you're making is that the US government has thirty

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<v Speaker 2>six trillion dollars of debt and is printing another trillion

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<v Speaker 2>every ninety days. The store of value market is going

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<v Speaker 2>to become more valuable in the future, and bitcoin is

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<v Speaker 2>a piece of bet. To me, that's a fundamental bet,

0:13:16.679 --> 0:13:19.480
<v Speaker 2>and the other one is a speculative bet about it maturing.

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<v Speaker 2>The reason Bitcoin's performed so well over the last handful

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<v Speaker 2>of years is both of those have come true. And

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<v Speaker 2>if you have two bets that are both coming true,

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<v Speaker 2>you know it's not one plus one, it's two times

0:13:32.400 --> 0:13:34.959
<v Speaker 2>two equals four. It's it's sort of an exponential bet.

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<v Speaker 2>So there's elements of speculation, but there are elements of

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<v Speaker 2>fundamental investing behind these crypto assets as well.

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<v Speaker 1>So to wrap up, investors should pay attention to the

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<v Speaker 1>various coins, in particular Bitcoin and ethereum as a new

0:13:49.200 --> 0:13:54.720
<v Speaker 1>technology that is crossing the chasm from early adopter towards

0:13:54.760 --> 0:13:59.959
<v Speaker 1>mainstream investing. It doesn't mean that you outsize your position,

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<v Speaker 1>and it doesn't mean that you oversize holding bitcoin. Think

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<v Speaker 1>about this as a new technology that is starting to

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<v Speaker 1>be adopted more broadly in the world of both finance

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<v Speaker 1>and technology. And try and you know every beer commercial

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<v Speaker 1>ends with drink responsibly invest responsibly. If you want to

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<v Speaker 1>take a few percentage of your portfolio and throw it

0:14:23.360 --> 0:14:27.840
<v Speaker 1>into a bitcoin etf there's nothing terrible about that. You

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<v Speaker 1>just don't want to go hog wild and get sucked

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<v Speaker 1>into the bubble mentality. That's where people run into trouble.

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<v Speaker 1>Thanks Matt, this has really been interesting. I'm Barry Ridholts.

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<v Speaker 1>You've been listening to Bloomberg's at the Money See