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Speaker 1: Tis.

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Speaker 2: Yeah, it just set. What's the show in canc what's

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Speaker 2: the one? What's going on with the technology underlying cryptocurrencies?

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Speaker 2: What is bitcoin and other cryptocurrencies and what are their future?

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Speaker 2: I'm Barry withhelts and on today's edition of At the Money,

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Speaker 2: we're going to discuss all sorts of cryptocurrencies. To help

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Speaker 2: us unpack this and what it means for your portfolio,

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Speaker 2: let's bring in Matt Hogan. He's the chief investment officer

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Speaker 2: at Bitwise Asset Management. The firm runs over ten billion

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Speaker 2: dollars in clients crypto assets. So Matt, let's start with

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Speaker 2: a really basic question. What is bitcoin? What is ethereum?

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Speaker 2: And what use cases do these coins have?

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Speaker 1: Oh? Amazing, Well, it's great to be here.

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Speaker 2: You know.

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Speaker 1: Bitcoin is a crypto asset. The way I think of

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Speaker 1: it is the first way that investors can store wealth

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Speaker 1: in a digital format without relying on any government or

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Speaker 1: any bank. It's built on a major technical innovation called

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Speaker 1: the blockchain, which took forty years to develop trying to

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Speaker 1: figure out how to make this possible. Bitcoin broke through

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Speaker 1: that in two thousand and eight, two thousand and nine,

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Speaker 1: and it's been gaining steady adoption ever since, Ethereum is

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Speaker 1: something more complex than bitcoin. If you think of bitcoin

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Speaker 1: as digital money, you can think of ethereum as making

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Speaker 1: money and compute programmable in a public setting, and you

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Speaker 1: can build applications on that. You can build smart contracts,

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Speaker 1: you can build stable coins, you can build other applications.

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Speaker 1: I think it's a very exciting technology. But you can

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Speaker 1: think of bitcoin as digital money Ethereum as sort of

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Speaker 1: public compute and programmable money, and you'd be pretty close

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Speaker 1: to realbum.

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Speaker 2: So you mentioned smart contracts. I'm kind of fascinated by that.

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Speaker 2: When we were talking about this a few years ago,

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Speaker 2: the idea for smart contracts for concert tickets had come up,

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Speaker 2: where hey, Taylor Swift is unhappy that in the US,

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Speaker 2: scalpers are buying up their tickets, keeping them away from

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Speaker 2: the fans and selling them for five thousand dollars. If

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Speaker 2: we were to put Taylor Swift contracts on ethereum, she

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Speaker 2: could sell her tickets at fifty dollars, and whoever buys them,

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Speaker 2: if they want to resell it at a higher price,

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Speaker 2: she says, great, this contract, says, I get half of that.

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Speaker 2: And so the idea is to encourage it going to

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Speaker 2: fans and making it less profitable for scalpers. But even

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Speaker 2: if they do scalp it, well, when the artists themselves

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Speaker 2: get it, how realistic our applications like that? And when

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Speaker 2: might we see something along those lines?

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Speaker 1: I love it. It's all going to happen very I think

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Speaker 1: they're all realistic. Crypto enables frictionless, programmable money. So what

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Speaker 1: you're raising there as an example of allowing money to

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Speaker 1: be programmable, it's not just concert tickets. You could say

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Speaker 1: the same thing about art. Artists are always upset that

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Speaker 1: they sell their art and then at one hundred x's

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Speaker 1: in price and they don't benefit from that directly. And

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Speaker 1: so this idea of attaching revenue streams downstream from it

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Speaker 1: is something that you can do easily in the blockchain setting.

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Speaker 1: The natural question is why hasn't it happened? Right, if

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Speaker 1: we were talking about this two years ago and it's

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Speaker 1: such a great idea, why hasn't it happened? And there

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Speaker 1: are two reasons for that. One is that Crypto has

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Speaker 1: had a regulatory cloud hanging over it. The SEC has

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Speaker 1: been launching lawsuits against Crypto. There was concerns in Congress

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Speaker 1: a senator was building anti crypto army. If you're a

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Speaker 1: mainstream corporation, are you going to build a new business

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Speaker 1: in an area where a senator is building an army

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Speaker 1: to crush you? You're not, So we didn't see any

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Speaker 1: of that. The second is that blockchains were slow and

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Speaker 1: costly until about a year ago. Sort of we've gone

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Speaker 1: through in blockchains what we went through going from dial

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Speaker 1: up to broadband Internet. Now we have highly performant, low

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Speaker 1: cost blockchains that can perform a lot of transactions, and

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Speaker 1: we have a positive regulatory environment. I think you're going

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Speaker 1: to see a flowering of a million use cases over

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Speaker 1: the next two or three years. In crypto they're going

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Speaker 1: to blow people's minds. I think they're going to go mainstream.

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Speaker 1: You're going to be using crypto apps without even knowing it,

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Speaker 1: and I think people haven't woken up to that reality yet.

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Speaker 2: So you're really suggesting where like nineteen ninety three in

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Speaker 2: the Internet is that? Is that a good frame of reference.

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Speaker 1: That is exactly right, and you're seeing these crypto apps

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Speaker 1: pop up and break through people's consciousness. A good examp

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Speaker 1: was polymarket during the election. Oh sure, everyone was looking

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Speaker 1: at poly market for the prediction odds on who would

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Speaker 1: win the president into the election.

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Speaker 2: It was.

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Speaker 1: It was in the Bloomberg terminal, right, the data from it.

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Speaker 1: That was a crypto app. It could only be built

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Speaker 1: on crypto. Crypto enabled it to happen, and yet no

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Speaker 1: one was talking about that. So, yeah, it's nineteen ninety four,

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Speaker 1: nineteen ninety six. On the Internet. We're starting to see

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Speaker 1: a few examples. Yahoo's jumping up, you know, Email is

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Speaker 1: jumping up. Hotmail is happening, but it hasn't gone mainstream net.

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Speaker 1: It's about too.

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Speaker 2: So it sounds like there are a lot of new

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Speaker 2: use cases for things like ethereum. Give us some other examples,

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Speaker 2: because you're obviously much more knowledgeable about this.

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Speaker 1: Then stable coins are one of the great killer apps

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Speaker 1: to develop in crypto. A stable coin is a money

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Speaker 1: market fund, but on a blockchain. Right, It's a way

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Speaker 1: to access dollars on a blockchain. So why is that

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Speaker 1: a killer app? There are two reasons. One, it puts

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Speaker 1: a US bank account at the fingertips of anyone with

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Speaker 1: a cell phone, anyone at wear around the world. And

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Speaker 1: if you're in Argentina or you're in Turkey and you

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Speaker 1: can't easily access a US dollar bank account. But your

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Speaker 1: currency has high inflation, you're going to want access to

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Speaker 1: stable coins that's built primarily on ethereum. If you're in

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Speaker 1: a sub Saharan Africa, there's a company called Yellowcard that's

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Speaker 1: using stable coins to do country to country payments between

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Speaker 1: business entities. It's growing at an exceptional rate. The US

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Speaker 1: dollar is a phenomenal tool, and most people don't have

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Speaker 1: access to it. Stable coins make that instantly accessible globally,

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Speaker 1: and so I think that's a good example of how

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Speaker 1: crypto can really go mainstream at a very fast rate.

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Speaker 2: So let's talk a little bit about security. I recall

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Speaker 2: ten years ago crazy numbers something like a lot of hacks,

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Speaker 2: a lot of thefts, and we talked previously about passwords.

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Speaker 2: Something like twenty percent or twenty five percent of all

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Speaker 2: bitcoins have been lost because the owners either misplaced the

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Speaker 2: drive it was on or misplaced the password. That sort

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Speaker 2: of security issue seems to have been taken care of

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Speaker 2: as this has become financialized and you can buy coins

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Speaker 2: in etf fashions. Tell us a little bit about custody

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Speaker 2: and security of crypto assets.

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Speaker 1: Yeah, I mean, it's worth noting those stories always sound

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Speaker 1: so ridiculous. How could these crazy people lose their password?

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Speaker 1: It's now worth a billion dollars, But remember at the

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Speaker 1: time it wasn't worth a billion dollars. It was worth

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Speaker 1: a few bucks. Right, somebody bought two pizzas for eighty

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Speaker 1: thousand bitcoin. That's now worth a billion dollars. I sure

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Speaker 1: hope they were good, but you know, you have to

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Speaker 1: think back to then when bitcoin was trading for a

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Speaker 1: few cents. People weren't as careful as they would be today.

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Speaker 1: But the technology has improved exponentially. Now the way most

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Speaker 1: people custody their bitcoin, their ethereum, their other crypto assets

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Speaker 1: is through regulated qualified custodians with insurance from leading insurance

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Speaker 1: providers who have been doing it this for years and

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Speaker 1: have hundreds or thousands of people who help manage that securely.

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Speaker 1: And the track record for those qualified custodians is sterling.

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Speaker 1: And so I think it's really improved sort of exponentially.

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Speaker 2: And to give you a sense of how long that's

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Speaker 2: been going on, in November twenty seventeen, there was literally

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Speaker 2: an episode of The Big Bang Theory where they talked

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Speaker 2: about mining coins and putting it on a drive that

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Speaker 2: subsequently got lost and back then in twenty seventeen, it

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Speaker 2: was you know, tens of thousands of dollars. Today it's

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Speaker 2: it's a whole lot more than that. So I keep

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Speaker 2: hearing from some skeptics who are saying this is a bubble.

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Speaker 2: All these cryptocurrencies are just speculative excess. How do you

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Speaker 2: respond to that.

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Speaker 1: Well, you know, they may be right, of course, that's

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Speaker 1: what makes a market. But many of the smartest investors

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Speaker 1: in the world are allocating to bitcoin and crypto. Stand

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Speaker 1: Dracamiller is allocating to crypto. You know, Abba Fidelity is

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Speaker 1: allocating to crypto. Blackrock is building a huge business in this.

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Speaker 1: Sixty percent of the world's largest hedge funds have a

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Speaker 1: position in bitcoin. It may be that those people have

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Speaker 1: a right point of view as well. When I look

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Speaker 1: at crypto today, it looks to me like a technology

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Speaker 1: that is just crossing the chasm from early adopters to

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Speaker 1: mainstream and to gain that sort of mainstream attention. But

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Speaker 1: long term, it's not at a mature state.

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Speaker 2: Right.

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Speaker 1: Bitcoin is not standing shoulder to shoulder with gold Ethereum

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Speaker 1: is not standing shoulder to shoulder with Amazon cloud services.

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Speaker 1: We think of them at a discounted level until they're

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Speaker 1: standing shoulder to shoulder. I don't think we've reached maturity

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Speaker 1: or bubble level. You know it is, and I think

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Speaker 1: we have. I think we're getting there, but I don't

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Speaker 1: think we're there yet.

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Speaker 2: So let me ask you a two sided question and

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Speaker 2: you can ask them answer them both. What are the

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Speaker 2: skeptics not understand about crypto? Generally? What do you think

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Speaker 2: the advocates either get wrong or overemphasize one of.

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Speaker 1: The skeptics not understand is a really great question. I

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Speaker 1: think many of them are anchored on the first time

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Speaker 1: they heard about bitcoin, And something that crypto needs to

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Speaker 1: admit is the first time many people heard about bitcoin

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Speaker 1: or crypto was in a negative light. Maybe it was FTX,

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Speaker 1: maybe it was the collapse of mount Gox in twenty fourteen,

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Speaker 1: maybe it was Silk Road and illicit use. And the

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Speaker 1: problem is, from a psychological anchoring perspective, they have such

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Speaker 1: a negative first take on bitcoin they're not able to

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Speaker 1: evaluate it properly. They still consider things like what about

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Speaker 1: the illicit use of bitcoin? Well, the Department of Justice

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Speaker 1: has come out and said that bitcoin's illicit use is

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Speaker 1: so small and it's not worth monitoring, it's much lower

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Speaker 1: than it is for cash. So I think many of

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Speaker 1: the skeptics don't evaluate where the data is today because

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Speaker 1: they're taking a twenty twenty two or twenty eighteen or

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Speaker 1: twenty fourteen view of bitcoin and crypto.

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Speaker 2: I mean, we've seen some pretty extreme forecasts on prices

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Speaker 2: that you know, kind of raise red flags. When people

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Speaker 2: are talking about, you know, a million or five million

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Speaker 2: as a bitcoin target, it seems like they're trolling us

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Speaker 2: a bit.

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Speaker 1: It does seem like they're trolling us a bit. I

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Speaker 1: think they underestimate the efficiency of markets and the ability

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Speaker 1: of markets to accurately value what an asset is. Just

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Speaker 1: because bitcoin has gone up in the past and crypto

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Speaker 1: has gone up in the past, does not guarantee that

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Speaker 1: it will go up in the future. And there are

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Speaker 1: significant foreseeable and unforeseeable risks in the future that we

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Speaker 1: should think about, their regulatory risks, their technology risks, their

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Speaker 1: adoption risks, And I think there's probably just too much

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Speaker 1: sort of assumption that there is a manifest destiny of

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Speaker 1: bitcoin going to a million. There is no such guarantee

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Speaker 1: in the market. There's always risk.

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Speaker 2: Well, well, the trend is your friend, that's the old

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Speaker 2: trading desk statement. So that leads to a really interesting question.

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Speaker 2: Are these coins an investment or are they a speculation.

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Speaker 1: Yeah, they're absolutely an investment, and some of them have

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Speaker 1: elements of speculation. Let me give you an example of bitcoin.

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Speaker 1: I think when you're investing in bitcoin, Barry, you're making

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Speaker 1: two bets. One you're making a speculative bet that bitcoin

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Speaker 1: will stand shoulder to shoulder with gold as a store

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Speaker 1: of value asset. Right now, it's about ten percent of gold.

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Speaker 1: You're saying, I think it'll be twenty. It'll be thirty,

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Speaker 1: it'll be forty, it'll be fifty, it'll be one hundred.

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Speaker 1: The second bet you're making is that the US government

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Speaker 1: has thirty six trillion dollars of debt and is printing

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Speaker 1: another trillion every ninety days. The store of value market

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Speaker 1: is going to become more valuable in the future, and

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Speaker 1: bitcoin is a piece of To me, that's a fundamental bet,

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Speaker 1: and the other one is a speculative bet about it maturing.

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Speaker 1: The reason Bitcoin's performed so well over the last handful

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Speaker 1: of years is both of those have come true. And

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Speaker 1: if you have two bets that are both coming true,

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Speaker 1: you know, it's not one plus one, it's two times

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Speaker 1: two equals four. It's it's sort of an exponential bet.

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Speaker 1: So there's elements of speculation, but there are elements of

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Speaker 1: fundamental investing be hindh these crypto assets as well.

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Speaker 2: So to wrap up, investors should pay attention to the

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Speaker 2: various coins, in particular Bitcoin and ethereum as a new

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Speaker 2: technology that is crossing the chasm from early adopter towards

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Speaker 2: mainstream investing. It doesn't mean that you outsize your position.

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Speaker 2: It doesn't mean that you oversize holding bitcoin. Think about

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Speaker 2: this as a new technology that is starting to be

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Speaker 2: adopted more broadly in the world of both finance and

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Speaker 2: technology and try and you know every beer commercial ends

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Speaker 2: with drink responsibly, invest responsibly. If you want to take

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Speaker 2: a few percentage of your portfolio and throw it into

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Speaker 2: a BITCOINYTF, there's nothing terrible about that. You just don't

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Speaker 2: want to go hog wild and get sucked into the

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Speaker 2: bubble mentality. That's where people run into trouble. Thanks Matt,

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Speaker 2: this has really been interesting. I'm Barry Ridolts. You've been

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Speaker 2: listening to Bloomberg's at the Money It

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Speaker 1: See