Institutional Flows Will Overpower the 4-Year Cycle | Matt Hougan

Look, I think the 4-year cycle is dead. You have this institutional adoption narrative that's going to overwhelm everything. In the last 6 months, Bank of America, Morgan Stanley, UBS, Wells Fargo have all greenlit crypto exposure. It's like $15 trillion that are now open. Vanguard just greenlit crypto exposure. You have Harvard tripling its crypto exposure. This is the more powerful narrative than anything that drove the 4-year cycle in the past.

This episode is brought to you by Zashi Wallet. You'll hear more about them later in today's episode. Nothing said on Empire is a recommendation to buy or sell any investments or products. This podcast is for informational purposes only, and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Blockworks. Our hosts, guests, and the Blockworks team may hold positions in the companies, funds, or projects discussed.

All right, everyone, welcome back to Empire.

Empire.

Very, very, very excited about this one. We've got the man, the myth, the legend, Matt Hogan, Chief Investment Officer, uh, CIO of Bitwise, and, uh, also Blockworks advisory member, uh, and also one of my favorite people in the industry. So Matt, welcome, welcome back to Empire, my friend.

That's quite an introduction, Jason. Good to see you. So glad to be here. Can't wait to chat.

Yeah, you are the, um, you're kind of like the perma bull in my life where, you know, when everyone's freaking out like they are on the timeline, I like to, I like to give Matt a call, make myself feel better going into the weekend. So this is what, uh, this is actually a more of a therapy session for me than a podcast episode for everyone. So I'd love to hear just— I mean, like, we're recording this Friday, December 5th, right before I was looking at the markets, right before we recorded. It looks like everything's green today—

stocks, gold, silver—

but Bitcoin is down 4%, fully erased the Vanguard pump on no news. $125 million liquidated in the past hour. What do you make of the markets today?

Yeah, the short-term moves. I think people in crypto over the last 2 months have learned to be nervous on weekends because a lot of our big resets have come, uh, with like after 5 PM news. That's what happened on October 10th. There's been a few other weekend-level pullbacks. So the market was up a fair amount. We had a bunch of good news. It was rapidly priced in, and I think some people are taking chips off the table. I don't read too much into these long-term news. I sort of love the fact that we're sitting at a fear and greed index in the 20s. And the market is flat for the year, right? Like we're freaking out about a market that is flat for the year. I think that's also what's happening here. People are just taking some of those gains off the table going into the weekend because we've been conditioned to worry about weekends and people don't want to worry about this weekend. They want to enjoy themselves.

Yeah.

Why?

Why is that? Is it because— why do the markets sell off on the weekends? Is it because crypto is the only tradable asset on the weekend?

It's primarily that. And we're less liquid on the weekends. We trade 24/7, 365, but we are humans. So people turn off, liquidity reduces on the weekends, and then also big macro news tends to happen on Fridays, right? There was a reason Trump announced the China 100% tariffs on October 10th at 5:00 PM. It was to give the traditional markets the full cycle to calibrate around that before Monday morning. But crypto is of course open, so we trade immediately. So we're, we're sort of suffering from our own success of offering 24/7 access. Um, while still being humans, so liquidity does naturally dry up and that just makes the market a little bit more fragile.

Yeah. Maybe zooming out from just the short-term moves, because I think you and I both don't pay too close of attention to— neither of us are traders. We're not really looking at the ticks of the 15-minute candles or anything like that. Maybe just on a broader scale, using the idea of the 4-year cycle as a kicking off point for the conversation. How do you think about the markets as we wrap up? 2025 and going into '26?

Yeah. So through the lens of the 4-year cycle, look, I think the 4-year cycle is dead, by which I mean, I think 2026 will be an up year. But I do think the 4-year cycle— there it is. Um, the Bitwise chart, you know, we started using that in 2022, uh, when it was predicting 3 positive years. Um, look, uh, uh, I do think the 4-year cycle has played a dominant role in this year being so volatile. I think a lot of people who have been in this market since 2014, 2016, 2018 were sitting on substantial gains, and I do think there was substantial selling ahead of the 4-year cycle. Critics will say you're not seeing that much selling in the actual old wallets. I would respond that you're seeing it in covered call strategies written by crypto whales that don't show up in wallet movements, but nonetheless introduce effectively new supply into the market. So I think the 4-year cycle has been primary driver of this year's volatility, but I do not think it will repeat in 2026. I think the forces that caused the 4-year cycle are now very weak, and countervailing that, we have like 10-year forces in institutional adoption and regulatory improvement that are very strong. And I just don't see 2026 being a down year.

Huh. Can you explain the covered call strategy? And I think the context maybe is, I'm pretty sure Bitwise has a— if you hold more than either 5 or 10 or 50 million with Bitwise, you guys will actually— you have an options underwriting team. So maybe if you could explain that.

Yeah, that's exactly right. So there are a lot of people who are sitting on big positions in Bitcoin that have held them for multiple years, that have high embedded gains and don't want to sell them and pay taxes, but they want to take some of their chips off the table, or they want to generate some income so that they could eat or go on vacation or buy a house or whatever. So what they do is they come to folks like Bitwise. We're not unique in offering this, but we do have specialized expertise. And they'll say, I have $100 million of Bitcoin. I have half a billion dollars of Bitcoin. I have $10 million in Bitcoin. Can you write covered calls against this? Which means, can you sell options or futures contracts that give away the upside or some portion of the upside in exchange for income? And maybe you can produce 10 or 15 or 20% income per year, but you're forfeiting the upside. The reason I think this is important is we had the, the sort of Jordy Visser moment where he described to the market that what was happening was OG holders were selling to new institutional—

this was the, the IPO moment for Bitcoin, that piece.

The IPO moment for Bitcoin. But the criticism that came out of the market was, if you look at the underlying data, the wallet-specific data, there's not that much selling by these old wallets. My view is that more than 50% of the quote-unquote selling is happening through these covered call strategies. This was not really a business for Bitwise 2 years ago. It's an extremely fast-growing business for Bitwise right now. And if Bitwise is doing it, 10 other providers as well. And I think it's the tune of, of many billions of dollars.

So weirdly niche question, a little off topic, where, what platforms is that trading happening on? Is this, uh, are the options trades happening OTC, or is this Deribit, or where does this go?

Yeah, it's, it's, it's, it's a mix of IBIT options, um, right, that you'll see on traditional platforms. And some people are more comfortable on Deribit, uh, or some people, not Bitwise, but others are using, you know, perps markets or whatever. The, the, the effect of how you do it is the same, right? You're selling future exposure. It's statistically the equivalent of selling your Bitcoin. From an upside perspective. So it introduces that supply into the market. But yeah, it's a, it's a mix. You, you do see a lot on IBIT, right? IBIT options are now sort of the big dog in the space. That's really changed from 2 years ago. So that's one of the primary ways people are, are executing this.

Yeah. Okay, so let's go back to the 4-year cycle. So 2013, market does well. February 2014— I think I get these dates right— uh, is Mt. Gox, market nukes. 4 years later, 2017, Bitcoin goes from $1,000 to $20,000. 2018, bad year. 2021, you know, Bitcoin rips. Things like Solana rip as well. 2022, '23, tough year. That would say '25 market should have ripped. '26 would be a really bad year. It sounds like you think '26 will not be a bad year.

'26 will not be a bad year, Jason. Uh, there, there's your, uh, permabull.

Yeah, that's what we needed.

Yeah.

Get more into it. Yeah.

Just a note on the permeable thing. People do accuse me of that. I've been in the market since 2018, since I joined Bitwise, February of 2018. Market's up 1,500%. So the permeable thesis has actually done fairly well over that time.

Yeah.

Um, I think 2026 will be a good year. Here's the reason. There, there are all these arguments about what drives the 4-year cycle, but there are 4 primary theories, right? One is it's the Bitcoin halving. The Bitcoin halving conditions the market to a supply shock, and that takes 4 years to build into the market. The second is interest rates. Interest rates went way up in 2018. They went way up in 2022. Crypto does poorly when interest rates are rising. The third is sort of this blowup thesis, which we get this big boom in the market, and then you get a blowup like Mt. Gox, like ICOs, like FTX, and that resets. And the fourth is it's just chance and random. But if you look at each of those theses, they're not really valid in this market, right? So to go through them, the halving cycle is just not that important, right? It's, it's half as important as it was 4 years ago. It's a fraction of, you know, a quarter of as important as it was 8 years ago, a 16th, et cetera. There's just not that much supply being removed. So I don't think that is the, the big dog wagging the tail. Uh, the tail wagging the dog here. Interest rates are going down, so that thesis is just completely invalidated, right? It's completely different. Blowup risk— you could argue that DATs are the potential blowup risk in this market. I think that is the strongest case for the 4-year cycle repeating, is that there is some risk in the DAT market. We can dig into it. I don't think it's going to happen. I don't think they're going to be forced to sell any Bitcoin. They'll just not buy as much in the future that they, than they have in the past. But that's maybe the, the, the other risk. And then it's chance. Across those four, they're all much weaker than they were in the past, right? The halving doesn't matter. Interest rates are going down. Blowup risk is much reduced. And then against the other side, you have a once in a generation regulatory change from severe regulatory headwinds to strong regulatory tailwinds. And then more importantly, you have this institutional adoption narrative that's going to overwhelm everything. In the last 6 months, Bank of America, Morgan Stanley, UBS, Wells Fargo have all greenlit crypto exposure. It's like $15 trillion that are now open. Vanguard just greenlit crypto exposure. You have Harvard tripling its crypto exposure. These are just— this is the more powerful narrative than anything that drove the 4-year cycle in the past. So I just don't understand the logical reason why it would repeat again. It just, it's not like built into a mechanical clock.

Yeah.

It was driven by specific factors and those factors no longer exist, so it won't keep happening.

This episode is brought to you by Zashi Wallet, your gateway to buying, storing, and spending encrypted Bitcoin. Zcash is decentralized digital cash encrypted to preserve agency and safety with a fixed supply of 21 million and a proof-of-work consensus, Zcash is encrypted Bitcoin. With Zashi Wallet, you can swap Bitcoin or any other cryptocurrency into Zcash and stay shielded by default. Thanks to Zashi Wallet for making today's episode possible. Shout out to today's sponsor, Katana. Katana is a DeFi-first chain built for deep liquidity and high yield. No empty emissions, just real yield and sequencer fees routed back to DeFi users. Incubated by Polygon Labs and GSR, Katana is launching with notable ecosystem of primitives, assets, and partners like Morpho, Chainlink, and more. Katana's 1 billion KAT campaign is live. Bridge and deposit directly into vaults in one simple click and start earning immediately on your Ether, Bitcoin, USDC, and more. Follow the link in today's show notes to get started. As always, investments in blockchain technology involve risk, Terms and conditions apply.

Let's double-click on MicroStrategy. You guys, I think you actually wrote this. You published a great piece. I just pulled it up here called No Virginia, Strategy Is Not Going to Sell Its Bitcoin. By the way, this is— Matt writes a great— I think you do it weekly, Matt, great CIO letter to all your guys' investors. You guys just made it free for people to read. Yeah, people should sign up. We can put a link in the show notes. Maybe let's double-click on MicroStrategy, and the headline, I'll read it, and then you can get into the details is there are a lot of, you said there are a lot of things to worry about in crypto. Michael Saylor selling Bitcoin is not one of them.

It's absolutely true. There's this meta in the, in the, in crypto Twitter and in the broader traditional media that MicroStrategy will be forced to sell its Bitcoin. And I think it's such simplistic thinking. The thinking is MicroStrategy has debt and it's used it to buy an interest that generates no cash flow. And eventually that doesn't work. Like, sure, that's true if you stretch it to infinity. But the thing about debt is you can actually look at it. And when you actually look at it, here's what you see. Every year, MicroStrategy has to pay $800 million in interest. It's sitting on $1.4 billion in cash. Therefore, it has plenty of cash for the next 18 months. Okay, that's literally invalid for as far as the market can discount. The second is it has $8 billion in debt against $60 billion in Bitcoin. For starters, that's not very much debt against a lot of Bitcoin. But then if you look at the actual debt, none of it comes due until 2027. And in 2027, a billion dollars of debt comes due. It will have to either refinance or pay that down. But the, the, the idea that it's going to have to sell $60 billion of Bitcoin. There's just no world in which that's true unless Bitcoin falls 90%. And if Bitcoin falls 90%, we're not worried about MicroStrategy, right? We're all looking for other jobs. So I just think it's, it's from a data perspective, just strictly untrue that it will be forced to sell its Bitcoin. There is, there's not a world in which that will happen.

Hmm.

Yeah.

Jeff Dorman had to take it. I'll paraphrase it because I don't remember. Perfectly, but he said the market has a tough time realizing that MicroStrategy is no longer a relevant buyer of BTC, but they're also not a forced seller. The context here is there's been this perma bid for Bitcoin with MicroStrategy sitting under the bid, and that doesn't really exist anymore, but they're not also this forced seller that people think. It sounds like you would agree with Jeff.

That's precisely right. We should worry about them no longer being purchasers. I don't think DAX are going to purchase Bitcoin or much Bitcoin next year. But they're definitely not going to sell. And what that means is you have to think about who is the marginal buyer that's filling Strategy's shoes. My view is it's those institutional investors. It's Morgan Stanley, it's Merrill Lynch, it's Wells Fargo, it's UBS, it's endowments that are coming online. I think that that is bigger than one guy in Fairfax, Virginia who wants to own some Bitcoin. So from my view, it's not a worry, but, but Dorman is, is, is right that that is the switch. There's no sales. There's probably no purchases. That's the right thing to talk about when you talk about strategy.

Do you get worried about other dApps? Maybe not, you know, the top 5, but the long tail?

Yeah, totally. I think about dApps, they're missionaries and mercenaries. The missionaries are here for Bitcoin for the long term. You know, you'll pry Bitcoin out of my dead hands. That's the Saylor view. The mercenaries who followed along and just wanted to copy what Saylor did to get rich. Easy. They're all going to go away. But, but the thing is, they don't hold much Bitcoin, right? Like, they're all pretty small. Like, they could all dump tomorrow and the price would go down 4%, and then we would be back to what we were doing and wouldn't have to talk about it. So I do worry about those mercenaries, but I think, I think they'll just be washed out of the system. I don't think they're a big deal.

Yeah, maybe we can pivot a little bit into— I think you guys have When I think about like what Matt could bring to this conversation, that is the most unique. It's probably, you can take us into the room of the conversations with the financial advisors and the RIAs. And, uh, I loved your, one of your tweets this week or last was something along the lines of like, in bear markets, good news gets suppressed. And that's such a, it's actually such a good indicator for what kind of market we're in. Um, you know, bear bull markets, good news happens, things rip. Bear markets, good news happens. It doesn't even get any likes on Twitter. You guys, Hunter posted this morning, Matt Hogan did a call with 2,000 advisors of a very large US bank. They wanted to know more about Bitcoin. You quote tweeted him and said, when I was done, I jumped on a call with a $50 billion advisory firm. There's also other news from this week or the week before, which was Bank of America is now allowing wealth advisors to recommend 1% to 4% allocation to crypto. Focusing on spot Bitcoin ETF starting in January. Um, would love to hear like as much detail as you can possibly add on both why this matters, but like what's, what's actually being said in the room.

Yeah. Yeah. I think why it matters is, is pretty clear. I mean, take Bank of America. They have $3.5 trillion in assets. 1% is $35 billion. Uh, 4% is like $140 billion. That's more than the total flows into Bitcoin ETFs so far. So you talk about one firm that it alone could more than double the pace of Bitcoin ETF inflows. That's why it's a big deal. And it's not one firm. As I mentioned, there are 4 wirehouses. They're basically all on now.

Who, who are the 4 wirehouses?

Uh, there's, there's Morgan Stanley, there's Merrill Lynch, there's, uh, UBS, and there's Wells Fargo. Um, and they're just the biggest advisory groups, all managing many trillions of dollars. So the reason it matters is you know, if they move 1%, 2%, 3%, it's a flood of investment into Bitcoin. To give you, to maybe put on Matt Hogan's slightly bearish cap, which I know you didn't want me to wear, but I will, I will bring the truth to the thing about this is they move slow. So to put you in the room where these, where that call on 2000 advisors was about. Was why does Bitcoin have value and how do you value Bitcoin and what is its role in its portfolio? It was a very 101. They follow up with questions about quantum volatility correlation, but it is pretty basic and it takes a long time. The average Bitwise client, I think, invests after 8 meetings with us, Jason Yanowitz. Um, and some of those meetings are quarterly. Right. So if you wonder like, why is Harvard just now investing in Bitcoin? It's probably because they started studying it when the Bitcoin ETFs launched in January and they did 8 quarterly meetings on it. And we just got there. So these are, these are slow moving entities, but they are tankers. They are absolutely enormous.

Yeah. What are the, um, what is the hesitation of the financial advisors today? Like how, like how are they not? There yet.

Yeah. Um, I think there are two reasons for that. Like the, the, the one thing a financial advisor doesn't want to do is have a meeting with their client where something is down 50% and their client fires them. It's really hard for these advisors to get clients. Retention is actually more important than growth. And they're mostly not optimizing for maximum portfolio returns. They're building businesses. Right. I think maybe that's the core thing crypto might not get. If you're optimizing for portfolio returns, of course you're going to add Bitcoin. It's the best performing asset over the last 15 years. It's not correlated to stocks. If you're optimizing for retaining clients, it's a different question, right? Because you could buy Bitcoin, it could go down 25%. Your client could call you up and fire you, right? That's one of the reasons they're slow moving. It's one of the reasons they put a little bit in. And then a little bit more and a little bit more because they're optimizing for client retention and not for portfolio returns. And, um, you know, that's why it's taken them so long because they were afraid of, of a 2022. If you put your clients into Bitcoin in 2021 and you added a 5% position and then FTX happened and it was on the front page of the Wall Street Journal and you were down 75%, those clients fired you. right? That's just, I mean, that's just the reality. That's one of the reasons the reduction in volatility in Bitcoin is so important. And we've really seen that volatility come down because it reduces this firing risk. So maybe, maybe that's something crypto Twitter doesn't focus on enough.

Yeah. I mean, our financial advisors advise like putting people into AI stock, like, you know, Nvidia could go down 50%, just same likelihood that Bitcoin could go down 50%.

Yeah. Totally. I think the difference there is the media meta.

Yeah.

You know, like the media meta around AI is it's transforming our life. We're creating, you know, God in a box and it's going to give us all infinite abundance. Um, the media meta around crypto is still, it's this ephemeral thing. I can't touch it. Maybe tulip bulbs, it could go to zero. Right. So the reason your client calls you up is not because you bet on AI, which everyone thinks is going to be the future, but you bet on this thing that is still outside the mainstream. Therefore, you can get rung up on the media reporting.

How much is that starting to change though? Because I think if you go back a couple of years ago, it was probably just Bitcoin equals digital gold, ETH equals maybe world computer, and the story stops there. Now we have two big trends this year, which is stablecoins and tokenization. You're just starting to see inklings of, I think, what it'll be in 2 to 3 years, privacy, digital identity, things like that. How much is that you know, you see the conversation changing in the rooms that we're in, in crypto. How much is that actually changing with the financial advisors?

It's, it's been transformative. It actually surprised me. Um, you know, our meetings are now 50% about Bitcoin, 50% about stablecoins and tokenization. So 50% about Bitcoin, 50% about ETH and Solana. That's what people want to talk to us about. And because those are so much more tangible to people and have so much more positive media reception, they're way open to that idea. So I think in terms of like, does crypto matter? Will it be here in the future? Establishing stablecoins and tokenization is something that sort of everyone agrees on is the direction of travel, has really reified crypto and it has reduced the risk. That's one of the reasons we see strong ETF flows, particularly from advisors, because it's no longer this fantasy internet money that no one can touch. It is this platform that most people have accepted will change how finance works and maybe should, they should have some exposure to it. So I think it's been a big deal.

Yeah. Yeah. It's funny. I feel like the news stories that we care about are like, you know, Uniswap driving fees back to token holders, but the stories that actually matter is like, you know, Stripe launching a chain and Klarna launching a stablecoin.

Absolutely. Or driving, you know, I'm in San Francisco, you drive through, you see You see stablecoin billboards, like that stuff actually matters. And it matters that Harvard owns Bitcoin and Ray Dalio owns Bitcoin and Stan Druckenmiller.

Yeah, it's like PTJ. What was it? May 2020 saying Bitcoin's the fastest horse in the race and boom, the career risk for hedge fund managers is off.

100%. And now it's off for endowments and it's coming off on pensions and it's coming off on insurance managers and even sovereign wealth funds are starting to move. And all these things accrete at sort of an exponential pace. We're just early in that development.

Yeah.

Um, yeah.

How do you answer the question around price? Um, you're in a room with financial advisors. They say, Matt, what do you think? Uh, what's the probability that Bitcoin is like, you know, 150K next year, 180K? How do you, how do you think about like price predictions?

Yeah, it's a great question. I think the thing that we focus on is what the ultimate price will be. Like the, the, the best thing you can say about Bitcoin right now from a short-term price perspective is that it's wrong. It seems really unlikely in 10 years that we'll be sitting around and Bitcoin will be 8% of the gold market, right? It's sort of at an unstable equilibrium. Either it will be nothing or it will be 50 to 100% of the gold market. So the way we talk about price first and foremost is focusing on the size of the market it's going after and convincing people that, you know, look, it's going after a $30 trillion plus market. If it gets half of that market, it's a million-dollar asset. So I think that is the primary thing in terms of whether it's 80 or 90 or 100. The reality is advisors don't care that much, right? They're making a decision to invest or not. And they want to know that if they invest and they're right, they're going to make a lot of money. They're, they're really not as concerned about 100 versus 90 versus 110. I think we tie ourselves in knots too much being very specific about that.

Yeah. What are the assets outside of Bitcoin? Is it just like, is it kind of, and who decides that? It feels like it all kind of stems from the CME, maybe like CME supports Bitcoin, XRP, and SOL. So therefore that flows into Vanguard. Like, how does this, yeah. How does that actually flow of decision-making work?

Yeah, I think anything that has an ETF around it can fit into this framework. So first it was Bitcoin, then it was Bitcoin and ETH. Now it's Bitcoin, ETH, and SOL. Uh, XRP is starting to bubble up around the edges. I think Chainlink will enter that equation. I think at some point— Really?

Why Chainlink?

Oh man, Chainlink is so easy to describe to institutional investors. Like, if you believe in a world of tokenization where real-world assets are on blockchains, how do you get information about those? You need a source to get information. Chainlink owns that market. It's like the Bloomberg for crypto. And you say those three words and they're like, oh, I want that. Um, I do think these, these easy narratives really do matter to advisors. Uh, Bitcoin is digital gold. ETH didn't connect until it was a platform for stablecoins and tokenization. Chainlink, as the Bloomberg Crypto connects. I'll tell you one more fact that people don't know about advisors. Um, again, people think of these financial advisors spending all their time on portfolio construction. How do I build the best portfolio in the world? And what the data suggests is that the average advisor spends 5 hours a week on portfolio construction. So 5 hours a week, that's 300 minutes. Let's say they have a 1% allocation to crypto. They can spend 3 minutes thinking about crypto this week, right? That's the extent of their knowledge. That's why these short things are so important. Bloomberg Crypto. Tokenization and stablecoins because they have like, you have to think of them having 3 minutes a week. Okay.

Let's push past those 5 assets. What else could have a story? Like, how do you think about the story for like a Uniswap or a Hyperliquid or give me, you know, maybe I shouldn't bias with those tokens, but like what tokens and projects do you think could have good stories?

Yeah. Apps have good stories. Uniswap has a good story. Um, uh, Hype has a good story. Aave has a good story. Ondo has a good story. I think apps are easy for people to follow along. Within that list, I think Uniswap and Aave are the easiest for traditional advisors to understand. Well, Uniswap, you can just position as this decentralized Coinbase, and then you can talk about how the fee switch is unlocking revenue in the same way that like Facebook turning on ads unlocked revenue. And you just point at the statistics and it's incredible. Aave is lending in crypto and owns the market, right? Really dominant, right? 80% share. And then the other fun thing about Aave is if you can actually show an advisor how it works, it's the closest crypto has to magic. Like showing someone how easy it is. The UX on it is so good that that really resonates. Hype, I find a little bit more difficult for non-crypto native people. Because you have to go through like, what are perps? Um, and that's just confusing to people. Uh, lending and trading is not confusing to people. So Uni and Aave are easy to do.

How do you think about the difference between the— talking about different chains? So someone comes to you and says, tell me about, you know, Ethereum versus Solana.

Is it a—

yeah, how do you think about that?

I describe the differences, the core differences at a 30,000-foot level. So people understand that they are different. Because I think that's really important. Many people think it's just all me too, and then that gets really confusing because you're like, why would it be any of these? If you can describe how they're different, that's great. And then basically we tell people to own them all. Um, I mean, that's, that's the honest answer. Like, like, and I actually think it's the right answer for most people. I have a lot of confidence that programmable layer ones will be really valuable in the future. I have less confidence on which programmable Layer 1 it will be. And if I had 3 minutes a week to think about crypto, I would have no confidence. And so the response, the right approach is probably to, um, probably just own a diversified basket. Uh, but, but we will go into, and we do go into the difference between ETH and Solana, which I think is instructive for people to think about how these are different technological projects going for the same goal with different trade-offs. And it's a vibrant competitive market. And so we do do that for people.

This episode is brought to you by Zashi Wallet, your gateway to buying, storing, and spending encrypted Bitcoin. Zcash is decentralized digital cash encrypted to preserve agency and safety. With a fixed supply of 21 million and a proof-of-work consensus, Zcash is encrypted Bitcoin. With Zashi Wallet, you can swap Bitcoin or any other cryptocurrency into Zcash and stay shielded by default. Thanks to Zashi Wallet for making today's episode possible. Shout out to today's sponsor, Katana. Katana is a DeFi-first chain built for deep liquidity and high yield. No empty emissions, just real yield and sequencer fees routed back to DeFi users. Incubated by Polygon Labs and GSR, Katana is launching with notable ecosystem of primitives assets, and partners like Morpho, Chainlink, and more. Katana's 1 billion KAT campaign is live. Bridge and deposit directly into vaults in one simple click and start earning immediately on your Ether, Bitcoin, USDC, and more. Follow the link in today's show notes to get started. As always, investments in blockchain technology involve risk. Terms and conditions apply.

Is there a— so you guys put together these, these asset bundles basically for people to buy. So if someone wants a diversified basket, you can just go to Bitwise and buy that. How do you think about what the criteria to get in there? Like, like, you know, Monad just launched. We just had Keoni on the podcast.

I'm guessing Monad is not—

you're not giving people exposure to Monad. Maybe at a certain point you will. What's the criteria there?

Yeah, absolutely. There's sort of a qualitative criteria and then a series of quantitative criteria. So what you're trying to do is avoid blowup risks. As an example, we've been running this index fund since 2017. Luna was the 4th largest asset. It never made it into our index, even though it's the Bitwise 10, ostensibly the 10 largest assets. We screened it out because we identified the exact risk that caused it to unwind and never allowed it into the index. That's what you want to do is you want to be conservative because you can't, again, again, you have to think risk first. You can't have blowups in this space. So you take something like like Monad, it has to satisfy a number of quantitative criteria related to that. It needs to be custodied by a qualified custodian, needs to have a certain amount of USD liquidity. It needs to, um, uh, you know, not be at risk of being found in violation of federal securities law, but it also needs some lindiness, right? It needs to be around for a while because that reduces that blowup risk as well. So that's, that's how we approach it.

Yeah. Um, There was a big debate last week or two on Twitter, Hasib versus Santi, with others getting roped in. Hasib thinks L1s will be worth much more. Santi probably, I think, says they will be worth much more, but they need a drastic revaluation, I guess you would put it. They had this whole debate on Thread Guy. People can go listen to it. It sounds like you're more in the Hasib camp.

Yeah, I mean, it's a great debate. I am more in the Hasib camp. I think the value of these will ultimately be tied to fees and revenues and economic metrics. I don't think they're— I'm actually not that aligned with the store of value concept across all these different chains. I think it's going to be economically driven. I just think the scope of these markets is It's like 100x bigger than even the bulls think in the crypto market. I think people dramatically underestimate things like, just like the number of transactions in the world. I think that the typical approach is to look at the number of transactions in the traditional world and map that over to crypto and assume we're going to capture that. And that, I think, understates it by like 100x. I think when you move on to layer 1s, you get like 100x of the number of transactions. And so, uh, I am an economically driven valuation guy, um, but I think it is in the distance. So, so they look dramatically undervalued, as Santiago would point out today, but I think we're underestimating the scale of growth in the future by, by a significant number.

So is it— okay, so to maybe try to summarize that, you do think things will get valued on financials? Um, you know, PE, price sales, whatever it looks, revenue, profitability, whatever that looks like. Um, which would probably be Santiago's argument, but you also agree with Hasib in that everybody drastically underestimates network effects, compounding, and how big the world really is.

How big the world really is. Um, and also just what happens when you take, ask, take things like money or stocks that trade with high friction a few hours a day, and you make them low friction, low cost, global, et cetera. I just think that the number of transactions, the amount of activity, the scale of activity is underestimated by like a factor of 100. To give us a simple example, we get paid every 2 weeks. Why don't we get paid every hour, every minute? Right? Like that's, that's, that's a thousand X-ing of transaction activity related to payroll. I think there's, A thousand of those examples. So yes, I'm aligned with both, I guess. It'll be valued on metrics, but those metrics are just much bigger than, I mean, Solana is the same size as Sherwin-Williams, the paint company. Uh, if it's the global layer of financial activity in the world, it's going to be worth more than a paint company. I think that's sort of the core thesis on something like Solana.

Sherwin-Williams, good paint though. Good paint.

It's great paint. I agree. Much higher revenue. They have $25 billion in revenue. Solana's doing $1 billion. So is it 25x? Like, but you're valuing it based on that future potential, right?

Yeah. Yeah. Yeah. Um, if you are a founder of a token today and you want your token to go up, uh, there are things that people are trying to do. There's, um, setting up investor relations teams. There's quarterly investor calls. There have been buybacks. There have been driving fees back to token holders. There's been, you know, this historically because of regulation split between labs and foundation and equity and token holders. People are starting to combine those. What are you— if you like, if you were advising a founder of a token on what to do to get more people to buy their token, how would you think about that conversation?

Yeah, I think you absolutely have to do all the things that you just outlined. I think you need quarterly calls. I think you need investor relations. I think you need truthful statements. About where, uh, your hope for this, uh, app or protocol is going to go. You're not in control, right? It's controlled by the community, but you can have a view on where it's going. I think the folks that are doing that well are achieving some level of escape velocity, and the folks that are ignoring that are sort of drifting off into the graveyard. We are entering this world where regulation allows much more direct economic ties between these tokens and their actual underlying activity. And so protocols or app builders need to orient around that to serve investors. It's worth noting companies have been doing this for 100 years. They do all these things. There is a reason they do all these things. And so your starting point is you should do all of these things and then you should have very strong reasons not to do any of the things. Yeah. And so I think people need to reorient around that as the starting point.

Yeah. What do you think of buybacks?

I think buybacks are great.

Yeah.

What do you think of buybacks?

Um, I don't like them as much actually. I'm, I think we're doing them a little bit too early because I think when you buy back your shares, you're basically saying I have no better use for this capital. Um, and to me that feels like a mature company thing. So if you are an early stage startup, the, you should, I mean, I would hope that you would have better things to do with that capital. Like you see a lot of growth potential. So the counterargument to that probably is that these teams raise so much money at such high— so much money. If a company should have raised $30 million, they were able to raise $300 million, that you actually do have excess capital that you're sitting on.

Yeah, yeah. I think both sides of that are true. So that resonates with me. But they did raise huge amounts of money. I think that's right. I think they are sitting on that. So I mean, I think it's probably conditionally specific to individual entities. I don't think they've all been great stewards of capital. I do think a foundation that has excess capital could manage it better, uh, could run it more like a VC portfolio than the way we've seen them manage it in the past. I'm not sure incentivizing short-term use is a great use of that capital. I'm not sure people have measured that appropriately. Tracked it in any serious way. So I think there are better ways to use your capital and maybe that offsets the need to do buybacks. Maybe there, we just need a new iteration of how we manage these things.

Yeah. Yeah. It's interesting. I don't know if you've looked at what Arbitrum is doing, but they basically treat a lot of their treasury as I think basically an investment firm as opposed to, you know, an incentive mechanism.

So I think that's exactly the direction of travel. And of course there's been examples of that historically, right? Like ConsenSys was vaguely that in the security. But I don't know that most of those early examples were run with a level of professionalism and a strict sort of profit self-sustaining motive that they should have been run in the past. I think a lot of capital was wasted in those environments. And I do think if you ran it more like as you're describing with Arbitrum, I think the long-term compounding impact would be really significant.

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What about Zcash? We missed— we were going back to our conversation about like one-liner stories. Curious about the, the story in the institutional world around Zcash, if any, right now.

Yeah, it's really hard to do anything institutionally on Zcash. So the regulators are still uncomfortable with it, and you need a very specific and detailed conversation about whether opt-in privacy and default privacy are the same thing and raise the same sort of AML KYC concerns. And one of the reasons you've seen like ETF providers move slowly on Zcash they're moving fast on things like Hyperliquid, um, uh, is that Zcash has this like much more complex discussion around privacy, AML, and KYC. For what it's worth, just to be clear, I'm not expressing opinion on that. I'm just saying what the conversations with regulators are like and why that's moving so slowly. A broad thesis I have, which you hinted at earlier, is that, you know, crypto had this one narrative, which was digital gold. and now it has 3, which is digital gold, stablecoins, and tokenization. I think in the next 2 years it's going to have 10. And I think privacy is one of those. And the extent that Zcash is like the, the easy play on privacy, the privacy meta, I think it will eventually attract institutional interest. It's just really hard to do it in a fund structure right now in any geography, not just the US, but in any geography.

Well, why is that? I know they can't actually use Zcash, the the network, but why can't they just buy the token?

Uh, because, you know, you, you, you just run into questions with the regulator around whether this, whether this is a traditional privacy token. It's the same reason you couldn't do anything with Monero.

Yeah, yeah, yeah. I do think the story is very easy. The story is basically, uh, I mean, it's very, it's very similar to the crypto story of like, you know, inform— the internet made information freely transferable around the world in real time to, you know, with no borders. The only thing that doesn't have that is money. Crypto is fixing that. Zcash is basically all of your— all of the internet has become encrypted, right? Your photos, your data, your files. The last— but there's only one thing that's not encrypted, which is your money. And that's, that's just because of historical precedent, not because of any real reason. So, but yeah, yeah, point taken.

I agree.

Regulatory.

No, it resonates with me. And I think it's a space that will grow substantially. It's just going to be harder from a product perspective.

Yeah. You had a post about ICOs the other day that I want to try to pull up.

I'd love to just hear—

I think it was about Monad, maybe. You said, oh yeah, comparing the Monad ICO with a traditional IPO is an incredible example of both the democratizing nature of crypto and its amazing efficiency. I'd love to just hear your view into the future of what ICOs will look like?

Yeah, I think they'll be really, really important. Uh, one other sort of meta-theory I have is that all of the experiments in crypto will be right. It's just when they become true. So ICOs were something that boomed and then collapsed and people dismissed them out of hand. And I think they're going to come back and be orders of magnitude bigger than what we saw in 2017. I feel the same about DePIN. I feel the same about DeFi. I feel the same about NFTs. I think all of those will be back at orders of magnitude of what we experienced before. ICOs are sort of the cutting edge version of this. What I saw when I looked at the Monad ICO was a process that was deeply democratic, that thousands of people could participate in, that effectively raised net new capital from net new investors for a project that wanted that. That brought them into the community. So it was a win for Monad. It's a win for Coinbase. It was a win for investors. And when you compare that to what happens with a traditional IPO, which has very high fees, right? You're talking like 5, 10% fees, um, is anti-democratic in that it's only distributed primarily to institutional investors who have deep relationships with these bankers. Um, and is very slow and hard to do. One is just like 10x better than the other. Um, it is simply a better process. And so I think you're going to see, uh, dozens of those. The last thing I would add is one of the reasons ICOs have been so bad in the past is because tokens couldn't have a link to economic value. And that's why we got so many scam ICOs, but that's been released as well. Now you can have tokens that have an economic link to the underlying protocol. So you have a better, faster, cheaper, more democratic system. You have regulations that allow you to have tokens that have huge value. I think it's going to be a giant boom. Again, I think much bigger than 2017 ICO boom.

Yeah. On a related note, how do you think about the convergence of equity and tokens? And maybe you use Bitwise as an example here. The traditional path for Bitwise, you're a private company. You're not necessarily an on-chain business. You don't have a token. Natural path would be raise a Series A, B, C, D. E, go public, right? And do an IPO. How do you think about maybe in 5 years what that could look like? And would you IPO on-chain with a token? Would you do an IPO? Would you do both?

Yeah, I think, I think those are going to blur. Um, I don't think it's binary actually. I think they're, uh, you know, you have Paul Atkins, the SEC chair, talking about securities tokens, which are just companies issued on a blockchain. So, um, depending on the pace of, of tokenization and how quickly wallets are absorbed, you might. You'll see people doing both to capture two different audiences. And then long-term, the eventual process is ICO only, right? I think that's the direction of travel in the markets. But I do think we're seeing this. We had this binary of like companies and tokens and tokens could have nothing but governance value, which is actually a net negative in the traditional world. Like people don't want governance. They pay other people to vote for them. Um, and that was the only value tokens had. And now we're getting this blurring. And I do think eventually it's all going to be ICO-based. I mean, I think that's, that's almost inevitable in how the market direction is.

Yeah. Yeah. I tend to agree with that. Um, Matt, this is great. Anything else that's been on your mind or things that feel obvious to you that you think others are missing that you think we should cover?

Yeah, great question. We covered the 4-year cycle, which I think is important. I would just anchor again on that 8-meeting comet. Uh, we're 8 meetings into the ETF era and we've just unlocked these like $15 billion markets. It's just gonna, it's just gonna keep, I think it's going to be overwhelming in 2026. I just think there's so much good news built in there. Um, I think the institutional flows will be really strong. I also think on these other narratives like stablecoins and tokenization, the market will probably get disappointed with that at some point in 2026, but it would be wrong to be disappointed about that. Yeah, the GINSAC doesn't even go into effect until 2027. So I think the market expects that market to like turn to $1 trillion next year.

Right.

That's probably not going to happen. It's probably going to be slower than that. So be prepared for that. But the long-term outlook for 2026 is just extraordinarily strong, strong regulatory strong institutional demand, new use cases bubbling up, I can't help but be very optimistic.

Yeah, I think the theme of '25 is that there's probably more exciting things happening in the industry than ever before. And also maybe some things have gotten over their skis in terms of valuations, but that doesn't mean on a long-term time horizon they're undervalued. Or that doesn't mean that they're overvalued. That probably means they're drastically undervalued, but you just have to zoom out a little bit. And I thought My co-founder Mike had a great take on prediction markets this morning. He said, I think prediction markets have hit a local maximum, but the structural trend is insanely bullish. Short term, I'd expect the bloom to come out of the rose— always one with words— and a barrage of negative publicity. It's just sports gambling. Financialization is bad, etc. However, long term, they will completely eat and replace areas like news and gambling, but also open up entirely new markets that are impossible to predict. Today. And I just, I love the phrasing there. I think short term, yeah, you know, maybe things got over their skis and I don't know if Kalshi and Polymarket should be valued at $11 billion and $15 billion today, but they're probably grossly undervalued on a long-term time horizon.

So yeah, I think that's a, that's a really, a really good take. Um, the other meta take I've been thinking about a lot is I think we might look back at 2025 at some point and say, Huh, you know what? $100,000 was like a big behavioral cliff we had to get over. Took us like a year.

Yeah.

And that'll be like all this angst that we've been through, I think can probably mostly be summarized with that. It's like, oh, that was like a big barrier.

Yeah.

And now, now it took a year and we're past it. Um, I think both of those things are true. Look, I do think, you know, I do think the direction of travel is just upwards.

Yeah. You and me both, my friend. Matt, always good to see you. Enjoy Breakpoint and whatever else you're doing. And yeah, be well, my friend.

All right. Thanks for having me, man.