The crypto playbook for 2026, with Matt Hougan, CIO of Bitwise

0:00 [on-hold music] Welcome to another episode of 51 Insights, today with Matt Hougan from Bitwise. Matt, welcome to the show. I'm so excited to be here. Thanks for having me. Yeah, likewise. Excited to have you here, Matt.

0:17 It's the first time. Uh, welcome to the show. You're a chief investment officer at Bitwise. Uh, you have lots of interesting perspective of what's happening in the market, and that's actually also my first question.

0:29 Everyone is wondering right now what's happening in the market, scrambling to figure it out. What is your view or explanation on that? Oh, great question. So I think we're facing four major short-term headwinds.

0:42 So one is from a macro perspective, the market has rotated risk off and liquidity has come out of the system. Crypto's a risk-on asset. We're in a risk-on market right now, so that's a headwind.

0:53 Two, we're dealing with the after effects of the October 10th liquidation event. Specifically, people are wondering, are there still bodies that will come to the surface? Was a major market maker harmed?

1:05 Was a major hedge fund harmed? We're sort of waiting that out.

1:09 Three, I think a lot of old-school crypto investors who are sitting on big gains have been selling because they're worried about the four-year cycle repeating. They lived through 2018. They lived through 2022.

1:22 They don't wanna live through 2026 with a long crypto position intact. And four, I think people are worried about regulatory progress stalling out in the US. They see Republicans sort of losing in elections.

1:36 They're worried about things like market structure. The thing about those four things, from my perspective, is that they're all relatively short-term.

1:44 Liquidity will t- return to the market, and I'm optimistic on the macro side. The four-year cycle run ahead will end as we get into 2026.

1:54 I think we'll know if there are any more bodies to surface after the 10/10 liquidation event by the end of the year. And more broadly, I'm actually optimistic on the regulatory side.

2:03 So I think as we get into 2026, you'll see these short-term negatives be removed, and you still have the long-term positives of massive institutional adoption, Harvard tripling exposure to Bitcoin ETFs, Abu Dhabi doubling exposure.

2:19 You have the massive trends of regulatory progress.

2:22 You have the massive growth on stablecoins and tokenization, and I think those slower-moving big forces will overwhelm these sharp short-term forces sometime as we approach year-end and get into Q1.

2:35 And I'm really optimistic about we- where we go till 20-- in 2026. But we do have to get there first, and right now, uh, the market's a little on edge.

2:43 Who knows where it goes in the next few weeks, but I'm very optimistic about where it goes next year. Yeah. Do you think that we have bottomed out yet, or is there still room to go? Yeah.

2:53 So I don't know well enough to say we've exactly bottomed.

2:56 What I will say is that I find this a very attractive area to start to move back into the market, to nibble at it, to time TWAP it or dollar cost average it, because it's entirely possible from my perspective that we could retrace all the way back to where we were before the Trump election, which is, like, in the 70s on Bitcoin.

3:17 I don't think we will, but that seems possible. Fear, the fear and greed index is already at 12. That's, like, near historic lows. So how much worse can it get? But I wouldn't call the precise bottom.

3:28 I think these negative forces will start to abate as we move through mid-December, and we'll start to feel the positive forces. Where we go between now and mid-December is hard for me to tell.

3:40 Will we front-run that change? Will we still dwell in these negative forces? I don't know.

3:45 But I do think around mid-December, Christmastime, I think the positive trend will be overwhelming and these negative concerns will start to vanish in people's minds.

3:56 How much do you think is Bitcoin and other digital assets dependent on the Fed cutting rates in December? Yeah.

4:03 It's not, it's not the biggest driver from my perspective because I think even if you're just focusing on the Fed, look, the long-term trajectory is down. Rates are already down more than 100 basis points.

4:13 We're gonna need a new chair of the Fed in 2026. I think we'll see more rate cuts. It would be helpful for this bottoming process for the Fed to cut rates.

4:23 Like, when I think about what can shake us out of this and cause it to be acute bottom, the Fed cutting rates would be positive. Liquidity returning would be positive.

4:32 The Fusaka upgrade going on schedule on ETH would be positive. Regulatory progress would be positive. Each of those are good. To the extent that they don't happen, it's a negative.

4:41 So it would be helpful if the Fed cuts rates. But if they delay another month, it's not gonna break my thesis on Bitcoin. So you mentioned the four-year cycle before, and I just wanna get a little bit deeper into that.

4:55 I know that some popular crypto investors, among them Arthur Hayes, said a couple of months ago that this might be the first time where Bitcoin doesn't stick to the four-year cycle based on, on various factors.

5:10 One of them is institutional adoption. Do you see that happening, or would you still say we're probably gonna see a drawdown in 2026? No, I think 2026 will be a positive year.

5:21 Look, from my perspective, on a fundamental basis, the four-year cycle is dead. And the reason I say that is the big drivers of the four-year cycle historically was the halving and interest rate movements.

5:34 The halving becomes half as important every four years, so definitionally, it's a weaker factor than it was in the last four-year cycle and the one before that. It's one-eighth as big as the original, right?

5:47 And then interest rates went up in 2018. They went up in 2022, and I think they're going down in 2026. And at the same time as, as Arthur would say, you have this massive institutional adoption.

6:00 I mean, I really wanna emphasize Harvard tripling its exposure, Abu Dhabi doubling its exposure, Bitcoin getting approved at major wire houses like Wells Fargo and Morgan Stanley and others. These are massive factors.

6:13 So I think from a fundamental perspective, it's dead. It still has a psychological impact. That's why I think it's contributing to this pullback, people selling ahead of it. But do I think 2026 is gonna be an up year?

6:25 I do. I think it's actually gonna be a very good year for Bitcoin, and, um, and, and I think we'll bury the four-year cycle as an interesting historical anomaly from the early days of crypto. Yeah.

6:38 Uh, you've also been vocal about Bitcoin price targets well above 100K by the end of 2025. Yeah. Um, and I think your main argument was, uh, just simple supply and demand, institutional, uh, money coming in.

6:54 Would you still stick to that thesis, or do you just say everything is a little bit delayed right now? It's a l- So- It's a little bit delayed, yeah.

7:02 I like to say, to, to make it sound nice for me, that I got the price target right but the timeline wrong. I think that's gonna push out into 2026. I do think we'll get to $200,000 Bitcoin in 2026.

7:13 I think that's the direction we're going. I didn't anticipate the level of selling from traditional old school investors, both directly selling their Bitcoin and then doing covered call strategies against their Bitcoin.

7:26 I didn't anticipate that. I also didn't quite anticipate how much the DAT trade would go up and then recess almost immediately. I thought that was a little bit of a longer term trend.

7:38 So, um, yeah, my, my, my price prediction that I made in December 2024, um, I said Bitcoin would trade to a new all-time high, which it did, but I also said it would get to $200,000.

7:50 I think it's going to get to $200,000, but I think it's a 2026 story, not a 2025 story. Um, look, I think there's a good chance we rally from here, but it would take a lot to get to those price targets this year.

8:02 Yeah, and, and, and you mentioned debts. We're gonna talk about debts later as well. I wanna stick to Bitcoin for, for a bit. You're talking a lot about institutional adoption, and one way to track that is ETF inflows.

8:15 What are other things you look at to measure institutional adoption, and what is some of the feedback that you get when you talk to those institutional investors? What are they interested in?

8:27 What do they wanna invest in, and how big is their appetite? Yeah, absolutely. So you have to look at ETF flows, but then you also have to look a layer deeper at the 13F reports.

8:39 The 13F reports are the reports that firms that manage more than $100 million have to file every quarter with the SEC, and you can use those to see what percentage of the ETF is held by institutions.

8:52 And so, uh, an interesting thing we've seen since Bitcoin ETFs launched in January of 2024 is that the percentage held by institutions reporting on 13Fs has been going up and up and up, right?

9:03 It was in, I think, the teens. Now it's in the 30s. I think it's going to 50 or 60. So even sometimes when you see outflows from Bitcoin ETFs, that can be retail investors exiting, but you have institutions buying.

9:17 So that's one thing that we look at. The other thing we look at is, you know, Bitwise is pretty unique. We have 20-plus salespeople. We do 15,000 meetings with institutions a year.

9:28 I was just on a call with a major, uh, wirehouse, you know, that manages trillions of dollars of assets, and we can see the progress of Bitcoin approvals and ETF approvals at these platforms, and we can-- we, we hear something about where they're going and, um, and that gives me, uh, the other color.

9:46 When you put those two things together, you do see this increased institutional adoption. I think in 2026, it's gonna be fairly common for them to own 1% to 5% crypto.

9:56 I think it's mostly gonna be Bitcoin, but some may add ETH, Solana, or an index-based strategy. But generally speaking, I think it's strongly up and to the right, and that trend hasn't slowed down in the bull market. Mm.

10:09 It's continued to move in that way. Mm-hmm. And do you see that across all digital asset classes or only Bitcoin? There's-- Digital assets that have ETFs have a unique advantage.

10:25 So these institutions aren't going to allocate to an asset that doesn't have an ETF attached to it because it has a regulatory sort of question mark around it and because it's just difficult.

10:38 They're gonna do it through ETF. So what does that mean right now? It means in the US, the eligible assets are Bitcoin, ETH, Solana, and XRP. That's all we have. That number will expand over time, but that's it.

10:50 Within that space, we think they're gonna allocate fairly broadly. I think Bitcoin is often the first port of call, but they will want exposure to the assets that underpin stablecoins and tokenization and DeFi.

11:03 So we see significant interest in our Ethereum ETF. Our Solana ETF, B- BSOL, launched in the heart of this bear market and has had, like, 20 days of straight inflows, which is incredible.

11:17 We've seen, you know, a half billion dollars flow into that. So look, I think there's demand beyond Bitcoin. Uh, Bitcoin is the most mature. We'll get most of the assets, but there's demand for ETH.

11:26 There's demand for Solana. That's, that's moving in a positive step.

11:30 You've also been vocal about Bitcoin being a trillion-dollar asset class, and one of the arguments you used was that Bitcoin is a service and not digital gold, not digital currency.

11:43 Can you elaborate that a little bit more? Yeah. You know, the big challenge that I have when I speak with institutional investors is they're like, how is this object that you can't touch,

11:54 that doesn't produce cash flow, how is it worth $2 trillion? It doesn't make sense to people who aren't crypto native. And the way I explain it to them is Bitcoin provides a service.

12:03 The service is the ability to store wealth in a digital format without a government or a bank. Gold sort of provides this service in a physical format, right?

12:12 It's the ability to store wealth in a physical format without a government or a bank. Bitcoin is the ability to serve-- s-store wealth in a digital format without a government or a bank.

12:20 The reason I use this is because we're used to services having value, right? Uh, we're on- we're recording on Riverside, which is a service that lets you record, uh, video and data.

12:32 Um, the way Riverside as a company works is the more people who want its service, the more valuable it is. If fewer people wanted the service, it'd be less valuable.

12:40 If no one wanted Riverside's service, the value would be zero. The same thing is true of Bitcoin. The more people who want this service, storing wealth in a digital format without a government or bank, the value goes up.

12:50 Fewer people want it, the value goes down. If no one wants it, the value is zero. The difference is Riverside is a company, so you can write it a check, and it has an employee who deposits that check and creates earning.

13:01 You can't write a check to Bitcoin, subscribe to Bitcoin as a service. It's not a company. There's no one to cash the check. The way you get the service is you buy the asset.

13:11 If you buy Bitcoin, you get the service, the ability to store wealth in a digital format without a government or a bank.

13:18 And I think this resolves the big challenge that TradFi investors have with it, which is you have something you can't touch with no cash flow. Why is it worth anything?

13:28 If you say, "It's actually a service, and the way you get your service is you buy the asset," then they're like, "Ah, I get it."

13:35 The reason it's up a million percent is no one wanted the service, and today Harvard wants the service, and Abu Dhabi wants the service, and f- you know, Wells Fargo and Morgan Stanley want the service, and I want the service.

13:48 If more people want the service, the value's gonna keep going up. So that's how I like to put it in context for people who aren't from the crypto-native side, where it's just obvious to them.

13:58 That's a very interesting a- analogy. I also had a talk about that with Raoul Pal about how to actually value those assets, particularly Bitcoin. He always talks about the Metcalfe's law- Mm-hmm...

14:11 the network law- Yep... for valuing those assets. What is your view? How do you actually value Bitcoin? Like, how do you arrive at a number between one and two trillion?

14:21 Um, I know that Cathie Wood, for example, they have a price target of 1.5. They just lowered it to 1.2 trillion. How do you arrive at those numbers? Yeah, 100%. I think Metcalfe's law is interesting.

14:34 You know, we have a price target here at Bitwise of 1.3 million by 2035, so that's where we think it's going over the next decade.

14:42 The way we get to it is we take a total addressable market approach, which is, by which I mean we look at the size of the markets it's, it's going after.

14:50 So just to narrow down to one, it's not the only thing Bitcoin's doing, but one thing it's doing is it's offering an alternative to gold. Okay, let's think about that market. Today, gold's a $27 trillion market.

15:02 Bitcoin's a $2 trillion market, so it has about 8% market share. The way you would value Bitcoin is you make two projections over the next 10 years. Over the next 10 years, how big will this store of value market be?

15:18 And this is the mistake many investors make, because the store of value market is getting bigger. Actually, believe it or not, gold was a $2 trillion asset 20 years ago. The gold market has X.

15:31 So the store of value market is growing, like, 6 or 7% a year. So you take the existing market, you grow it another 6 or 7% a year for the next 10 years. Okay, now you have your total addressable market.

15:42 And then you say, how much of that market will Bitcoin take? Right now, it's 8%. In our projections, we think it'll get to 25%. Now, I think that's pretty conservative.

15:52 I actually think Bitcoin may be bigger than gold in 10 years. But let's just assume it's one quarter the size of gold, one-third. So gold is 75% of the market. Bitcoin is 25.

16:02 If gold is 75 and Bitcoin is 25, and the market continues to grow the way it has for the last 20 years, Bitcoin mathematically is $1.3 million. And that's how we arrive at the future target.

16:16 And then how do you get to the price target today? You do what you do in all finance, which is you discount that backwards. So what is the appropriate discount rate? Is it 5%? Is it 10%? Is it 20%?

16:27 And then you work backwards to your price target. When we do that, we see Bitcoin is tr- significantly undervalued today.

16:33 And for a long-term buy and hold investor, I think 1.3 million in 2035 is pretty conservative, and that's, like, a fantastic return, right? That is, you know, a 15X over the next 10 years.

16:45 That's a life-changing return, and I, I think that's the kind of return that's possible using, again, very rational assumptions, just the same thing happening, which is the, the market growing and Bitcoin getting an increasing share.

16:58 That happens for another 10 years, that's where you end up. I wanna talk with you about two narratives that have been floating around in the market in recent weeks.

17:06 One of them is, again, Cathie Wood lowering the, her price target because stablecoins will crowd out some of the use case that Bitcoin was supposed to fulfill. And the second one is about quantum resistance.

17:24 So let, let's maybe tackle the first one and then go to- Yeah... quantum resistance as well. Yeah. Look, I'm really optimistic around stablecoins.

17:32 I think they will be a primary use of payment in many emerging market economies, which is what Cathie was talking about, the idea that particularly countries with challenged currencies will rotate to Bitcoin instead of their local currency, and we're already seeing them rotate to dollars via stablecoins.

17:50 If you look at what's happening in Nigeria, if you look at what's happening in Argentina, if you look at what's happening in Turkey and parts of India, you see massive stablecoin adoption for exactly the point Cathie is raising.

18:01 It doesn't change our price forecast, 'cause that was never actually a big part of our forecast. We see Bitcoin as serving two markets initially.

18:10 One is the store of value market, and two is the international settlement market for apolitical currencies.

18:16 In other words, we think we're entering a world where currencies are politicized and used for political and macro deliberate reasons. You can see a little bit of that with what's going on with the yen.

18:30 You can certainly see the way, like, Stephen Moran talks about the dollar in the US.

18:34 And we think in that world, some countries will rather use an apolitical currency like Bitc- Over the next 10 years, I expect that will happen.

18:43 Um, Kathy's idea that they would be used as local currencies, I just think that's a further out idea for Bitcoin, right?

18:50 Because those users will not be comfortable doing that until the volatility of Bitcoin depresses a lot more. I think we'll get there eventually, but I didn't see that happening in the next 10 years anyway.

19:02 So it doesn't change my view because it doesn't disrupt the digital gold narrative, it doesn't pl- disrupt the apolitical currency narrative.

19:10 But I guess if that was part of Kathy's thesis, then I understand why she removed it, because the stablecoin competition there is very real. Okay.

19:18 The, the second one that has been floating around is about quantum resistance. We talked to the VP of technology at Solana Foundation, Matt, and he told us Solana is well on their way of becoming quantum resistance.

19:32 They're already working on that. They have a well-defined roadmap. I know that Ethereum is working on that as well, even though we heard warnings by Vitalik Buterin last week that they need to speed up.

19:42 For Bitcoin, it's a little bit less clear. How do you see that risk when it comes to Bitcoin? Yeah.

19:49 The first thing I would say is it's important for re- people to realize that it's not quite an existential risk, it's an incremental risk. By which I mean, should quantum emerge,

19:59 I don't think it's the case that it will just destroy cryptography, because the world would enter chaos, right? That's how nuclear codes work, it's how WhatsApp works, how the internet works.

20:09 We're gonna get to quantum-resistant cryptography.

20:11 The challenge for Bitcoin is the one that you outlined, which is some of these other, more centralized organizations are further along in updating, in plans to upgrade their underlying cryptography to deal with this, to get to quantum-resistant cryptography.

20:26 They also don't have the same problem Bitcoin has, which is many old-school wallets which may not be touchable anymore, may not have users on the other side, not being in quantum-resistant wallet architecture.

20:39 So how does the community deal with this, I think is a problem worth focusing on. But I don't think it's an existential threat.

20:48 Like, I don't think we're gonna wake up and like, "Whoa, someone with Quantum stole 7 million Bitcoin." I don't think we're gonna wake up and like, "Whoa, they broke, uh, SHA-256." I ju- I just...

20:59 I think we're gonna deal with it.

21:00 But it's right to think about it, because if, if what Vitalik is saying, which is it's coming sooner than we expected, then the community needs to start organizing and testing around how to handle these hairy issues, including the legacy wallets.

21:12 Um, and those are complex. The analogy I make to people is one from technology's early history, which is like the Y2K bug.

21:21 The Y2K bug was something that everyone worried about in 1998 and 1999, and they did a lot of work to protect computers from the potential errors that could come from literally, like, hard coding in that dates had to start with 19 to reflect that they had to start with 20, and in the end, we got past it.

21:40 That doesn't mean that there's no risk. There is risk. The community needs to focus on it, but I think there are pathways to focus on it.

21:48 So I love them raising the alarm, and I worry about it a little bit, and I have high confidence that the community will get there. Let's talk about the elephant in the room for probably any Bitcoiner.

22:01 MicroStrategy, or now Strategy, now holds almost 3% of all Bitcoin. You called it the synthetic halving. Is Michael Saylor a visionary who cracked the corporate financial arbitrage code, or is this a leveraged time bomb?

22:20 So, so first, he's a visionary, to be sure. What people forget about MicroStrategy is that when it came onto the market and started acquiring Bitcoin, there was no way to buy Bitcoin in a ticker, right?

22:32 No way to buy it from your Schwab account.

22:34 So the first reason it traded at a premium was the same reason, I mean, a version of the reason that GBTC traded to a premium, which is that people were willing to pay a premium to access an asset that was appreciating at 100% a year because there was no other, more efficient way to do it.

22:52 Now that there are more efficient ways to do it, like ETFs, where you can get in and out at NAV any given day at very low costs, MicroStrategy has evolved its business model to attempt to add Bitcoin per share by leveraging its giant war chest of Bitcoin and doing things like writing debt against that Bitcoin.

23:13 If you cut through all the nonsense, it's actually easy to see how this plays out, which is if you issue dollar-denominated debt and buy Bitcoin and Bitcoin's price goes up,

23:26 then you can pay off that debt and have more Bitcoin per share. Great. If you issue dollar-denomina- denominated debt and the price goes down, then you will have to

23:38 sell equity or sell Bitcoin in order to make good on that debt.

23:45 My view is what you're gonna see from MicroStrategy, because I think the Bitcoin price goes up over time, is that generally speaking, they will accrue more Bitcoin per share.

23:54 Because generally speaking, in most circumstances, they'll be able to buy Bitcoin with dollars and then pay back debt in, in higher appreciated Bitcoin.

24:04 But of course, there will be moments where they'll have to issue more equity or issue more debt to roll over debt and to progress.

24:12 The level of leverage in MicroStrategy is actually not that big, so I don't think it's a time bomb, at least in any short-term way. I think it was a visionary, and now it's adapted, has an interesting business model.

24:23 I think it will trade like a leveraged version of Bitcoin and therefore sometimes be at a premium, sometimes be at a discount, and, uh, I don't think it will, like, blow up and sell 3% of the Bitcoin supply on the market.

24:35 I just don't... I don't see how the numbers end up there. Yeah.

24:38 And according to Michael Saylor, uh, himself, Bitcoin needs to appreciate approximately 1.3% per year over the next 70 years for them to be able to service their debt.

24:52 So if you believe in Bitcoin and the long-term thesis, that's probably a likely outcome. That is the thing.

25:00 The, the mistake people make with something like MicroStrategy is they're like, "Well, it issues debt and buys Bitcoin. If they issue a trillion dollars of debt and Bitcoin goes down, they're going to blow up."

25:11 That is definitely true, but if you actually look at the debt, it's not that much debt. It matures over various time periods. The first piece of debt to mature is 2028. It's a billion dollars.

25:24 A billion dollars is nothing for MicroStrategy. Uh, they could raise a billion dollars tomorrow with the snap of a finger. I think they'll be able to raise a billion dollars in almost any market environment.

25:33 So the, the, the details just make that theoretical point just invalid.

25:39 Now, I will say, some of the smaller DATs, some of the MicroStrategy follow-ons that own a little bit of Bitcoin and maybe issued a lot of debt, those could blow up. That's entirely possible.

25:48 I actually think the risk is not in MicroStrategy, it's in the MicroStrategy clones, and some of those could have M&A activity. They could have activist shareholders. They could have debt issues.

25:59 There definitely is some risk there. I just think if you're looking at MicroStrategy for that risk, you're probably looking at the wrong horse. So you mentioned Michael Saylor, pioneer.

26:10 He certainly pioneered the DAT model, digital asset treasury model. Now, a lot of DATs followed in Bitcoin, but also Ethereum and Solana.

26:20 In the early days, I heard Maja Wojcinowicz, CEO of Digital Asset at FG Nexus, say that DATs need operating businesses. They cannot just accumulate those assets. I heard you have a thesis on that. Yeah.

26:35 I think, I think if DATs want to be rewarded, they need to do something hard over long periods of time very well, just like any other company. At this point, buying Bitcoin is not hard, right?

26:47 My ETF buys Bitcoin, and we charge.2% a year for that service. It's just not that difficult. I mean, my team works very hard. I don't wanna belittle my team, but relatively speaking, it's not that difficult.

27:00 If you compare, like, what an ETF is to what Google is trying to do, Google is trying to do something very hard. That's why it's rewarded. The same is true on DATs. They have to do something hard.

27:13 There are many things you can do that are hard that don't involve having a non-Bitcoin-related business. You could do option overlay strategies very well. That is hard, but if you did it well, you would be rewarded.

27:26 You could acquire Bitcoin at a discount through corporate M&A or other activity. That's hard, but if you did it well, you could be rewarded.

27:35 You could have a big store of Bitcoin, which is hard to get, on a debt-free basis and write some debt against it, and in an upmarket, you'll be rewarded. But I think that's the way to think about these.

27:47 There's no easy button.

27:49 A DAT that's just buying an asset and putting it onto its balance sheet will trade at a discount to the value of that DAT, 'cause they're taking something liquid and making it illiquid, which is worse, so it should trade at a discount.

28:01 The way you get to a premium is by doing something difficult. There are some that are doing that. Look, I actually think MicroStrategy is doing it.

28:09 If it does it well over time, I think it will outperform Bitcoin, but it has to do it well over time.

28:14 You have to be convinced it will do it well in the future in order to get there, and I think that's the right mental model for people.

28:21 And then on top of that, you also recently launched ETFs that generate a staking yield, and that has been one of the core arguments of those DATs, that they are able to generate yields.

28:33 How, how do you think that will affect the, the thesis or value proposition on DATs? Yeah, yeah. I love it.

28:40 One way to think of it is like DATs do something, and then ETFs catch up, and if the DATs don't wanna trade at a discount, they have to do something else.

28:48 So, like, first DATs bought Bitcoin and put it on the balance sheet, and they traded at a premium, and then ETFs made that easier, and DATs had to do something better. Now, you saw DATs do...

28:59 And as you mentioned, we just launched BSOL, which stakes 100% of its assets, uh, and is in an ETF wrapper. And so now if you're a, a Solana DAT, you have to do better than that, right? You have to do something more.

29:13 So you sort of think of it as DATs leading the way, ETFs following. Every time the ETF catches up, the DAT has to do something else that's interesting, and, uh, I think that's the way to think about it.

29:23 The ETF is sort of like the risk-free rate. It's what you get at low cost with high custody th- with infinite liquidity. DATs can't be the risk-free rate.

29:32 They need to move out the risk curve and do something hard well for a sustained period of time. If they do, they'll be rewarded. If they won't, they'll trade at a discount, and that's just the reality.

29:41 I don't think I'm telling the, the DATs anything they don't know. Mm-hmm.

29:46 Something interesting that came up now, how do you manage that operationally with your ETFs when you stake 100% of your assets if investors wanna withdraw a lot of money at the same time? Yeah.

29:59 We're really proud of this.

30:01 So, yeah, the challenge is that sometimes when you stake an asset, the unbonding period is more than a day, whereas ETFs can be redeemed on a daily basis, and there are two ways that you deal with this.

30:12 The first is that the ETF redemption process actually has a little bit of settlement wiggle room, which is to say you have more than 24 hours to deliver the underlying asset to the AP because of the way US settlement laws are.

30:25 So it's not quite as strict as you might think, but there are limitations.

30:28 What happens in a dramatic market period where those unbonding spans out to be multiple days, what we've done in our prospectus is, uh, we've entered into agreements with liquidity providers whereby we can trade them staked SOL for unstaked SOL- At a cost, it's not cost-free, at a cost, because they know that our SOL will unstake eventually.

30:53 And so we have this liquidity provision that comes at a small cost. So in a, in a severe market contraction, you'll see the fund bear that cost in order to provide liquidity.

31:04 But relative to the ability to stake 100% of the assets and earn, in Solana's case, 7% yield, you're going to dramatically benefit over a time, even if there are these one-off occasions where you bear like, you know, some basis points of cost to access that liquidity.

31:20 And so that's how we've structured it. We think it's best practice. We think we'll see other ETF providers follow in our footsteps because, look, investors want 100% of their assets staked.

31:30 It may not be possible in every asset. Some of the unbonding times in other crypto assets really extend, and of course, there's a limitation to how much you can do.

31:39 But in the case of Solana, we think it's possible to offer this 100% staked option, and so that's, that's what we did with bSOL. Mm-hmm. W- you also recently launched a Ripple ETF. Why did you focus on Ripple? Yeah.

31:55 So Ripple has an extraordinarily strong community. It's a Lindy asset that's been around for a long time, and therefore, we think people want exposure to it in an ETF.

32:06 And then the second sort of implied question, I think, in your question, is what about its real-world use case?

32:13 And my view on Ripple is that this is a blockchain that faced existential regulatory threat for the past X years. Uh, the SEC was suing it basically out of existence.

32:25 As a result, there was no chance for it to have any real-world adoption, uh, because who was going to partner and build on Ripple when it faced existential lawsuits from the SEC? Just not gonna happen.

32:36 Now, those lawsuits have been removed, and there's a chance that this blockchain finds real-world use cases now that it can compete on a level playing field.

32:44 So we launched the ETF to let the community and people who were interested have high-quality exposure in an easy ticker. We have a great ticker there, by the way. The ticker is XRP, which is pretty cool.

32:55 Uh, we reserved that one a while ago, waiting for this. And then the investment case is there's a reason we haven't seen dramatic scaled real-world adoption.

33:05 That reason was the regulatory threat, and now it's been released.

33:09 And so that doesn't guarantee that Ripple succeeds or that XRP succeeds, but it means there's a, there's a reason for a potential phase shift, and that can be interesting for people.

33:20 Uh, for people who don't like it, they can not buy it, or they can short it. For people who like it, they can buy it. I think it's great. One of the big themes and explosions this year were stablecoins.

33:32 Stablecoins everywhere, corporates building their own chains, going after payments, big institutions coming in, stablecoin flows exploding. What's your thesis on stablecoins? What use cases are you most bullish on?

33:46 Massive growth. So, uh, there are three use cases I'm near-term bullish on. The first was the OG use case, which is actually as a pair for crypto trading. I think people underestimate this use case, right?

33:58 So if you're in Bitcoin, if you're in Eth, if you're in Solana, and you wanna sell out, you sell out into a stable pair instead of USD because you don't wanna move that money into real dollars.

34:09 The reason I think people underestimate this use case is if you think the world is moving to a world of tokenization, if you think more of traditional financial activity is gonna take place on crypto rails, what's going to be the US dollar pair for that?

34:23 It's going to be stablecoins. So stablecoins themselves are actually a play on tokenization. I think that's a massive use case.

34:30 If you think about a world that is all blockchain-enabled trading of stocks, bonds, real estate, et cetera, the TAM for stablecoins as the dollar pair of that is enormous, really enormous. So very bullish on that.

34:44 The other two use cases that we see near-term traction are people in markets with difficult currencies using stablecoins as a way to access dollars.

34:53 You see, again, significant growth in places like, uh, Nigeria, Argentina, India, et cetera. And I think that's a very real use case, including local currency payments.

35:02 Like, I think you'll see payments there, to go back to Cathie Wood's view.

35:06 And then more importantly maybe is business-to-business transactions, um, across borders in parts of the world where the friction of traditional finance is very high.

35:17 You can think of, like, sub-Saharan Africa, the tr- the friction of traditional finance is very high. But even in developed worlds, the cross-border frictions are very high, and settlement is very slow.

35:29 I think those are all, like, multi-trillion-dollar markets, and stablecoins are just a better solution than traditional dollar rails, and I don't see traditional dollar rails really being able to catch up with the efficiency there.

35:40 You know, those are all multiple trillion-dollar markets. I think we're gonna get there. I, I think it's just a matter of time. I'm, I'm really bullish on the space. Yeah.

35:48 And, and at the beginning of our conversation, you mentioned Ethereum as potentially being one of the main layers profiting from that. Right now, Ethereum captures around 55% of, of all stablecoin supply.

36:02 Why are you bullish on Ethereum? Yeah, because big institutions that move into this space don't get fired for building on Eth. It's the easy button.

36:13 If you th- like, the mental model is, like, a middle manager at a bank in New York. Which blockchain are they going to build on? Are they going to build on,

36:26 like, the teeth largest blockchain that maybe doesn't have the regulatory protections or establishment of Eth, or are they gonna build on the same blockchain that BlackRock built its first tokenized fund on?

36:39 A good chunk of them are going to build on Eth. The, the other reason I'm positive on Eth, and look, I'm actually positive on multiple of these chains. I think Solana is going to win an increasing share.

36:49 But if you look at something like Eth, the criticisms of Eth are that it's, it's got poor ease of use- Because they fractalized the, the L2 environment, it's hard to cross chain.

37:01 And the L1 doesn't have good economic value tie to underlying activity.

37:06 But if you look at, like, where ETH is going from a technical perspective, if you look at the Fusaka upgrade, to give an example, they're addressly, uh, directly addressing these two criticisms, right?

37:15 The, it's, it's the first step on making it easier to use, and then what they're doing with minimum blob fee transactions is the first step to accruing more value to the underlying token.

37:26 And I just think those are both up only. So I think ETH is going to get better, and it's the easy choice, therefore, I think it will continue to have a big chunk of this fast-growing market.

37:36 That's not to say that I'm not really excited about what's happening on Solana. I think it's an incredible challenger asset. It's incredibly easy to use, incredibly low fee.

37:45 I think they're gonna win market share, but I also think ETH is going to grow substantially and improve its economics, and so I'm really bullish on both. Mm-hmm.

37:56 Uh, one of the things I was super excited about last week when Aave, one of the biggest DeFi lending protocols, launched an app in the Apple App Store where everyone, including my grandmother, can sign up, transfer cash, and get a up to 9% a- annual yield on, on her assets.

38:18 And everything happens in the background on DeFi, no interaction with wallets whatsoever. And for me, that was kind of a glimpse in how the future of financial markets could run. You have DeFi in the back end.

38:32 You have all kinds of front end plugging into those DeFi protocols. We'll soon have more regulation on DeFi as well. How do you see all of this play out? Yeah. First, I should say I couldn't agree more.

38:45 A- Aave does the best UX in crypto.

38:48 When I wanna show someone the magic of DeFi, I show them Aave because it's so easy to use, and they do such a good job abstracting the brutal complexity of crypto, which is really intimidating for traditional investors to use.

39:02 So I think that's a really great point, and people who haven't used Aave directly or through that app should take some money, use it.

39:10 If you lose money, consider it a tuition for understanding where the future of finance is. So I think that, I think that's really, really well said.

39:18 Um, yeah, broadly, I'm really optimistic on DeFi, you know, w- for, for lots of reasons. Uh, the regulatory environment is improving, which will make accessing DeFi easier.

39:29 It will also make the ability for DeFi tokens to capture value easier.

39:33 You see things like Uniswap throwing the fee switch, or at least proposing that, when for years they were intimidated to do so from a regulatory perspective.

39:42 I do think you're gonna see that DeFi mullet of TradFi in the front, DeFi in the back become a dominant way for people to engage.

39:50 To maybe make an analogy to early day tech, uh, in the early days of email, you had to be a computer science person to use email. You, like, needed to set up your own servers and stuff, and now that idea is insane.

40:02 The same has been true of DeFi. You needed to be a crypto native degen in order to use much of DeFi.

40:08 To a traditional investor, it was just impenetrably difficult, and that's going to improve dramatically, and we're gonna, you know, 100X the size of that market. So,

40:19 uh, look, I think DeFi is one of the major killer apps, uh, in crypto, and we're gonna be talking about DeFi in 2026 and 2027 the way we're talking about stablecoins now, where people are like, "Of course stablecoins are a major real-world use case."

40:34 Two years ago, that wasn't true. People weren't talking about that. Right now, it's not true of DeFi, but I think in the next two years, people are gonna be like, "Of course we don't use traditional systems.

40:44 We use DeFi in the back end, of course." I think it's gonna be that kind of obvious.

40:49 Matt, one of the questions I also think about a lot is that in the last cycle, five, six years ago, it was very obvious that if you, as an investor, wanted to participate in the upside of the crypto ecosystem, you invest in the underlying protocols, which was Bitcoin, Ethereum, Solana, whatever layer one it was.

41:11 That's increasingly not the case anymore because we have applications built on top of that.

41:16 We have stablecoins that are, that are exploding, but there's not really a, a place where you can put your money on to, um, profit from that uptrend. How, how do you see all of that?

41:28 Where would you allocate your money if you look at those big trends? Yeah, you gotta buy it all. I hate to say it, but you have to buy it all. What you're saying is exactly right. Will it accrue on the token layer?

41:38 Will it accrue on the equity layer? Will it accrue on apps? I think a crypto portfolio is not complete unless it owns a variety of crypto assets and a variety of crypto equities.

41:49 If you don't have access to VC, you can still get pretty good access in the public equity market if you look at, you know, an entity like, like Circle or Coinbase or Robinhood.

42:00 If you wanna play stablecoins and tokenization, that's a pretty good trio. If you wanna play DeFi, maybe you should have some exposure to Aave, maybe you should have some exposure to Ondo and Uni.

42:11 If you wanna play the infrastructure layer, maybe you need to own ETH and Solana, and of course, you wanna own some Bitcoin.

42:17 I think a good message for investors is think about the thesis that you have the most confidence in. The thesis I have the most confidence in is in 10 years, crypto's gonna be more important than it is today.

42:30 The things I have less confidence in is will the value accrue to the infrastructure or the app or the equity layer.

42:36 You wanna bet on the thesis you have the most comfort in, and so that means, as much as I hate to say it, a diversified portfolio of crypto assets and equities where you accept that some of these are gonna go to zero.

42:50 And you'll still make up the difference because this entire market is gonna 10 to 20X, right? And so accept the losers as part of having exposure to the winners and don't try to find the needle in the haystack.

43:03 Uh, just buy the haystack, as the saying goes. Great advice, Matt. We're almost at the end of the show.

43:09 For investors coming into the market, investing first time into Bitcoin, private, institutional, what do you think is the biggest misconception that you would correct?

43:22 The biggest misconception, the misconception about Bitcoin is probably that zero is the neutral position. If you think about the world of equities, equities are $110 trillion market. Bitcoin is a $2 trillion asset.

43:40 You should have, as a starting point, 2% of your portfolio in Bitcoin if you only own equities. That's neutral. That's if you don't have an opinion on Bitcoin.

43:51 The starting point, just like owning the S&P 500 is the starting point for owning stocks, and maybe you wanna overweight Nvidia and underweight Tesla or vice versa, the starting point for Bitcoin is not zero, it's 2%.

44:05 If you're optimistic, you wanna be above 2%. If you're pessimistic, maybe you wanna be at 1%. I think zero is crazy because it means you're just completely against the market.

44:18 You think Harvard is wrong, you think Stan Druckenmiller is wrong, you think Ray Dalio is wrong, you think the Abu Dhabi Sovereign Wealth Fund is wrong. Maybe you're smarter than all those investors.

44:27 God bless if you are. But the starting point is it's about 2% of the size of the equity market, and that should be the neutral starting point, and then you can over or underweight from there.

44:37 Last one, Matt, what are the catalysts that you're looking out for in the next six to 12 months? Yeah. Uh, great question. So I think we're gonna get a reversal of global liquidity starting on around December 1st.

44:49 We've been in a negative liquidity environment. That will turn. I think we're gonna get lower rates over the next six months. I'm optimistic on that.

44:57 I think people's worries about the fallout from the October 10th liquidation event will ebb and disappear as we enter the new year. People will assume that gets wrapped up this year, in the new year we're in a new phase.

45:12 And then I'm looking for more progress on market structure regulation in the US.

45:18 If we get those four things, and we continue to see institutions buying, we're gonna be at new all-time highs in 2026 and moving on from there.

45:28 If I'm wrong about those things, if we don't get a reversal on liquidity, if the Fed is very hawkish, if a major body emerges from the 10/10 liquidation, then, you know, the crypto winter could continue for a little while.

45:42 But when I look at 2026, I see the long-term trends of institutional adoption and regulatory progress overwhelming the short-term negatives, and I'm pretty optimistic about where we go. Awesome.

45:54 Matt, thank you so much for coming on the show. That was super insightful. Where can people learn more about you, about Bitwise? Yeah. Head over to bitwiseinvestments.com. I'll say one thing, I write a weekly memo.

46:06 It's usually about 600 or 700 words, so not that long to read. But the most important thing in crypto, if you go to bitwiseinvestments.com/ciomemo, you can sign up to get that in your inbox. Yeah. Please check that out.

46:19 We'll link it in the show notes as well. Matt, thanks again and all the best. Thanks for having me. [outro music] You obviously liked this video enough that you got to the end.

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