The Digital Assets Index Revolution: ReSolve Riffs with Matt Hougan and Dave Nadig

this podcast is brought to you by the resolve long horizon investing master class a 10 part evergreen podcast series where adam butler mike philbrick and rodrigo gordio of resolve asset management global explore an advanced investment framework specifically designed to steward quasi permanent capital with humility and balance from the science of decision making to all weather portfolio construction to the value of diversified alpha entail protection this series provides a comprehensive capital management roadmap to improve outcomes for wealthy individuals advisors family offices and institutions managing less than 10 billion dollars to listen to the series or read the transcripts on demand please visit investresolve.com forward slash masterclass alternatively you can find it on your favorite podcast player by searching for resolve dash master class well gentlemen welcome another friend cheers to all of you happy happy uh happy hour summer rose summer rose i'm having local honey and tea so not quite there with you at least lie about like a shot of alcohol of some sort no you can't do it in the afternoon much integrity for you thank you welcome dave natting i'm sure most people who tune in here know dave and thank you for co-hosting us and joining us today and uh while we interrogate mr hogan on on all the various things he's been up to i will remind everybody that um this is for entertainment purposes and that you probably shouldn't be getting investment advice from four hooligans on a friday afternoon on the youtube channel so with that said let's dive in so legit yeah we can talk about whatever we want matt welcome thank you for having me it's a joy to be here i've been looking forward to this yeah us too us too tell us tell us a little bit about you your journey uh you can go back as far as you want just just let everybody know where you're from how you got where you are tell us everything tell you everything wow my journey into the investment space starts with mr dave notting believe it or not uh i was working as a minor league baseball mascot in maine and read an article about a business dave started thought you have to use you have to tell us the name matt you can't just like hanging out oh i'm i'm gonna yeah i've got it okay i know i got another team oh i thought i thought you've been up your business no i don't know that you don't just get to drop a minor league mascot and not finish the story that's true i was slugger the sea dog which is a eight-foot seal for the double-a affiliate of the of the the red sox now they were the marlins at the time in portland maine my job consisted of dressing in an eight-foot seal costume mostly opening car dealerships but i did get to play in a celebrity basketball tournament and i will tell you that trying to shoot a basketball with flippers the size of my chest is quite an experience so that that was that was my resume dave was running a uh the world's first transparent mutual fund and he looked at that resume and said yes that is the man i want as my new analyst to be clear this is all right exactly exactly um that was that was my start uh then you know i bounced around a little bit i spent a long time in the etf industry so my big claim to fame at first was in the etf industry i worked with dave on a company called etf.com built the first etf rating system in the world the largest etf conference largest etf media space we eventually sold that business ego yeah etf dave did i mention i won the lifetime achievement award in etfs this year no it's been that was like four minutes congratulations one one one thing you might know about that award actually is that dave hasn't won it um that's one of the characteristics of that award due to years a decade of ineligibility i have to say i'm just joking dave dave most of my career has been letting dave do work and trying to take credit for it um after my etf journey uh after i sold that business and didn't earn out with the conference company we sold our conference unit separately that was our biggest unit i did two years uh for ftse 100 company running conferences i made a switch into the next big multi-trillion dollar market that's growing quickly that no one understood that people thought was toxic that people described as weapons of mass destruction or rat poison squared uh which of course is crypto and so now i'm the cio of bitwise asset management which manages somewhere north of a billion dollars in crypto assets for mostly financial advisors uh some hedge funds some institutions some retail investors and we're best known for creating the world's first crypto index fund so we're kind of like the world's most conservative boring crypto asset manager if you can concatenate those phrases into one that's us i love it the lower the lower bound of boring is still very exciting leave it to you to find the way to make crypto boring yeah we all have our skill days no but like interestingly like it kind of was needed like i mean you guys have been pretty successful at being the boring guys in the crypto space yeah well you're taking enough risk on an asset class that's new nasa emerging into the regulatory space has a lot of security risk it's not clear to me why you would layer on active risk or other trading risks on top of that particularly for a beta that even though it's down 50 from its highs is up 250 over the last year and up 3 000 plus percent over the last three years so i do think it makes sense as a strategy we've been doing well just raised our series b we're about 40 people and growing and we think financial advisors are the next major market in the crypto space and we're surprised that there's basically no one else focused on that market matt before we get into the the the crypto and the use cases and all the things that are happening in that space i actually want to go back to something that you said uh when you decided to move forward to the most toxic least loved et cetera market there's there's some experience i think that you bring to the table maybe personality traits that have led you to like be in there one after the other so you had was the etf space considered the same thing back in the day dave matt like what was it toxic and persona non grata you know the end of of capitalism and the like that 100 true yeah financial times called it weapons of mass destruction they talked about liquidity doom loops almost everyone's forgotten but the us congress pulled etf executives in front of it and had a whole interrogative session about whether ets were destroying american entrepreneurialism which is a pretty big claim for a product that really just lets people get exposure to the market for a few basis points less than index mutual funds if people didn't hate them spoiler it didn't destroy american capitalism not yet they're still making those claims there's still time there's still time it is true that no one understood them they called them efts if you talk to someone about the creation redemption mechanisms their eyes rolled back in their heads it was all jargon uh and people were very skeptical and for good reason another analogy that's similar between etfs and crypto is that in the early days etfs were kind of terrible the spreads were huge they weren't liquid they really weren't the lowest cost way to get exposure over the full term of investment but they had one or two really sort of unassailable advantages right they had unassailable advantages on intraday liquidity on taxation uh on fidelity to what they were gaining exposure to and those were enough to eventually overcome the limitations same thing's true on crypto if you look at bitcoin it's a pretty janky currency it's volatile you can't spend it anywhere retailers don't accept it but there are few things in crypto that are sort of undeniably true about the efficiency of the technology and the new mindscapes that it opens up and i think you know one question people ask me is why do some people like me who look like me end up in the crypto industry and an equal number end up hating it and i think it comes down to that whether you approach it as a currency in which case it looks highly unlikely to succeed or if you approach it as this technological advance in which case it seems highly unlikely for it to fail and i think that that sort of fork in the woods explains a lot of the extremism in crypto and is that the difference when you're thinking about moving on to the next business right when i think about okay you went from etfs to crypto some people might look at that and say well you could have gone to i don't know uh marijuana or psychedelics or um who was the guest that we had on monday mike uranium right these are just as volatile just crazy you know but somehow crypto seems to be seen as that plus something very different what made you not go into like the theme based stuff and be as toxic as you can be and rather choose this this other space yeah that was the case it's a great question i think there are two things um one is that i really love efficiency it's just not like a dorky thing to say but one of the things i loved about etfs is that they were just efficient and true and right and that aligns with crypto it's not the same with with cannabis or other thematics um the other thing and look i'm not a a crypto hyperbolist right crypto tends to be the land of hyperbole i think the answer is in the messy middle but i will say in terms of the market that it's addressing not the market it will capture but the market is addressing it's by far the largest addressable market i've ever seen a new technology attack it's attacking finance and money like if you want to abstract back to what crypto is at the core it's a way to move money and property rights over the internet it's the biggest market the internet's ever gone after and so you know one thing i learned from the etf industry is it's great to be in a career with a strong beta to a very large size you make all sorts of dumb mistakes and still turn out okay um crypto is going after a very large market now we can discuss we'll get there what parts of the market can it really capture but unlike you know marijuana or psychedelics um it's really big it's really big and there are very few other industries at least in the finance space maybe arguably ai uh but but but they're very few that are going after a market that's nearly as big as what crypto and blockchain are going after so so what are you so knowing you forever right you love solving problems like and that's sort of what i associate with you i when i call you at two o'clock in the morning on a friday it's because i have a problem and then you're really good at that stuff so you know what are the problems that you saw in crypto that you were trying to solve versus like you know rod you're talking about things like cannabis a lot of those problems are regulatory cultural as much as anything what are the problems you're trying to decide to solve in crypto that you think are really interesting and that you thought were interesting back then because i think that a lot's changed just in the last couple years a lot has changed in terms of what i personally was trying to solve yeah like what what was getting out of bed the two they're really only two um one was no one understood it it like occupies this giant mind space in society 95 of people talk about it and they have hard and concrete opinions about it but if you actually tried to get them to explain what a blockchain is and what space it opens up zero people not zero very few people could actually explain that and i thought i could help in that one of the things you know dave one of the things i did do in the crypto in the etf space was give an etf 101 presentation about 15 000 times and i think anchoring people on first principles of what crypto really is what space it's attacking and what it's not i thought i could add value there and then the other piece um is sort of the y bitwise piece the biggest risk in crypto is behavioral risk with investors uh chasing high returns dumping at the wrong time investors have never had access to a liquid intraday priced uh investment that's as early as crypto so they're not used to this volatility and i thought bitwise's product solution of like an s p 500 of crypto was the answer to that so educating people about what it is and then getting a product that helps them not you know run into the shoals uh was what drew me to the space yeah it seems like a pretty good um thesis right from from the get-go in an environment where the information that you might be garnering is relatively low in the vast potentialities right as you said the addressable market is huge the number of coins is huge what the coins may do from bitcoin all the way right down the chain how so i'm taking that mindset of well let's let the market sort it out and and use sort of traditional finance methodologies is to me probably one of the most sound ways or certainly a first way that you would probably tackle that problem is that the way you saw it as well as you i i completely agree i think that's exactly right and a market cap weighted index that's unconstrained and uncapped does that really nicely it also means that investors for whom this is often a one percent allocation or a two percent allocation don't have to like panic every time elon musk tweets something the index reacts to that it adjusts to that and the other thing about crypto which is maybe um people don't think about enough is network effects are central to the value of crypto assets and so market cap weighting i think is is is is closer to an optimal strategy in crypto um even excluding costs than it is in equities where it's an average strategy excluding cost and only beneficial after costs are added in in crypto because it's all a network affects business because size really matters i've seen lots of active managers run afoul of getting obsessed with technology this blockchain is slightly more efficient than that doesn't matter this one you know is in a regulated space and has liquidity up the wazoo um so i think that's the added benefit of a market cap weighted strategy uh is it network effect right the age-old vhs versus beta or the fact that we still use a qwerty keyboard today right the most inefficient keyboard that you could have it's not efficient it's not the best keyboard it's 100 dominates all keyboards well because the network adoption was hey we're going to learn this keyboard because we have typewriters that get caught up together i don't know if people remember what a typewriter is that you had to slow people down in the way they typed and that's why that is the dominant force it is not the best keyboard so just like you're saying that's amazing if you get fundamentally based in oh this is cardano's better than ethereum whatever but if nobody cares then nobody cares and market cap is a way to express go ahead well i so let me let me pull on a thread here okay i agree with you mike right yes that i get the logical chain this is also one of the biggest problems i have with the current d5 crypto industry which is everybody knows this right everybody understands that all that matters is how much you get in circulation and how much you get it being used and mined and so consequently we've ended up with this sort of massive degeneracy in what are otherwise really interesting technologies because everybody realized we got to get the coins out we got to get the coins out so you end up with the whole liquidity pool insanity that's taken over crypto for the last three to six months really because all that matters is getting the coins out and so you end up with things like what happened with matic right where you end up with poorly designed products poorly designed liquidity pools that have fatal flaws but you're rushing to get out there because you know the network effect is all that matters how do you balance that out because it doesn't seem out of the question to me matt that like the thing that's going to boot whatever the 10th thing is in your top 10 out when it shows up it could show up simply because they were better marketers at getting people to use it but it could be toxic technology yeah oh it's so true dave um first of all i completely agree with you uh and second the index tries to screen those okay the index our index methodology tries to screen that out uh and i think it does a pretty good job but it's not going to be perfect so what are the screens we look at we have seasoning rules it's not like an asset that emerges today can enter it has to be on the market for a certain period of time we have liquidity in terms of percentage of market cap rules we have regulatory screens related to security status on the d5 fund we have an advisory council of five of the leading vcs in the d5 space who opine on new projects investigate if they have real developers behind them we look to see if there's been a technology audit of the of the uh of the new asset uh and all of those screens are binary if they fail they're not in so like even if you look at our bitwise 10 which is you know the largest crypto index fund in the world holds the 10 largest assets if you go to coinmarketcap our 10th asset is number 24. uh so there are a lot of these assets that you screen out um because of those risks but it's not perfect it's not perfect at all um it's impossible to be perfect and there's going to be risk and there's going to be blow ups uh we saw one yesterday thor chain got hacked which is like i don't know it's top 50 assets not in our funds um that's going to happen it's interesting that we've kind of solved how to jump start network effects that's a big sort of uh interesting sort of business breakthrough uh but it comes it detends with all these risks the liquidity pull model yeah yeah yeah well why don't we discuss the query pool model dave why don't you uh give everybody here an idea of what the issues have been and why it's been useful in the space you want me to go first then matt can laugh at how wrong i am no so you know if i'm trying to start you know excellent dave coin right and all i care about is getting dave coin out in circulation well what i do is i set up a liquidity pool where people can stake in something i want to trade davecoin against right and in order to do that you have to have some reward and you pay those rewards out in more dave coin which nobody wants to really hold so they trade it back for something they do want to hold like ethereum or cash or a stable coin or a bitcoin or whatever and but those coins don't go away in that process so the coins start generating circulation but their value is really only associated with how much they're willing to turn the knob on how much extra dave coin you're gonna get and this is where you know we our friend corey hofstein sort of went down this rabbit hole on matic right where you know the three-tiered i remember iron something or other and you know there was a multiple coin system with a governance coin and a non-governance coin and you end up with these sort of loops that if you're in there at exactly the right time yes you can generate an enormous amount of real money but every step along the way there's the risk that you're the greater fool right before the bottom falls out which is you know what happened and the way they presented to is interesting and they talk about this is how much yield you can get right 23 yield if it at all perfectly 23 yield on dave coin what's that worth in real life right like and then no that's bitcoin bitcoin versus it just becomes those big big percentage numbers seem to attract that network effect right you're just pulling in the same all that behavioral um economics all that work amos taversky and danny kahneman has done they have really harnessed that for both good and bad in the crypto space uh which i i find fascinating but anything anything to add to that matt just that i agree with it it is fascinating uh i think it's i think it's important there are positives to it but it's a huge risk for what it's worth i'm structurally short dave coyne uh have been for for a number of years um no i i agree it's a real concern um and it it it's it says something about the crypto space there is a degree particularly in the d5 space which i'm very excited about talk about why but there's a degree of circularity uh and recursiveness in there it can make it appear larger than it in fact is that doesn't take away from some of the really exciting technological breakthroughs and things that they can do in d5 protocols those are still very real but you do have this element of fluff and nonsense around it for what it's worth it's been in crypto for for a long time used to be large problems with wash trading and issues like that um yeah this is this is part of the anarchic mass that is the broader crypto landscape and it's it's very real and i i will add i've said this before in this podcast but there are also some very important use cases of understanding behavioral economics and your business model right so what i brought up before are companies like helium or akash which require uh for the business to make any money in the real world it requires some sort of network effect so helium is just peer-to-peer networks where you place a little modem on your on the top of your second floor of your house to connect to another peer-to-peer network because somebody else is incentivized to put that little modem there right how do you incentivize people to create these networks this technology that's been around for 30 years that would benefit the world if everybody did a little bit of it for you know a 300 piece of equipment you're gonna you can incentivize them by giving them some helium coin all right so that that incentive then leads to more peer-to-peer networks the growth of actual real business and the incentive for those who who mine the helium coins to keep them which i do find in that community right so there are cases like that and akash is the same idea but with cloud computing all right that creates a more secure network where a single big organization does not uh hold off all of your data and and you can kind of separate it as a more like a torrent style approach to to cloud computing right so within all that chaos and madness you you see these gems where you're like aha this is a fantastic use case between for behavioral finance the coin and the crypto industry and um in real world economics right so it's just a matter of finding them i love that so much yeah you found way to economically incent a decentralized network which has been a challenge for a long time um and i think that's that's completely true just need to separate the gems from some of the other projects yeah and so um as you're going on this journey in in crypto land have you noticed any sort of um corollaries that remind you of your journey in etf land but i mean we i think we've covered one or two of them but are there any others that stand out as hey i know i'm on the right track because of x y z you know that that you you feel are similar or not has this been a really kind of unique journey that's let me let me let me think about that for a minute uh there's certainly a few you know one i really do think i i got to this point with etfs where i felt like if someone gave me four minutes i could explain to them why etfs had a manifest destiny and would eventually take over the mutual fund space it took me a couple years to get to that point but i felt like i got to that point eventually i think the same thing is true in crypto and blockchain i think if i have five minutes i can get almost everyone on board from this is an interesting thing that will have a major view in the future and i think that's important because if you can if you can boil something down to a pretty simple level and people sort of understand and get it um i think i think i think that gives me confidence that there's something real there um so that's that's that's one that i think a lot about and we see similar things that we've seen before i mean uh you know etfs went through through waves of adoption by different groups of people crypto is going through waves of adoption by different groups of people uh you see people who are very skeptical come into the into the light and you also see persistent skepticism throughout there's still plenty of people who hate etfs and think they're going to destroy the world and i think that will be true in crypto too can i can i answer the question better because i think you missed the key one right which is if i mean if what we care about here as people who are marketing and selling products and stuff right which presumably you are what you care about is where's that money coming from where is the people who are going to invest in this it's following exactly the same arc that etf's farc start started with which is you start really as sort of an institutional experiment then you have the sort of rampant rabid early adoption by weirdos and freaks which is totally what happened in the etf market until about 2004 2005 at which point financial advisors got the message and along you know with the financial advisors getting the message the rest of the institutions realized they no longer had cover to put money places that didn't belong i.e hedge funds that were charging 2 and 20 etc etc right and all along the way they were yelled at by regulators and skeptics who said this is destroying the world it's never going to go anywhere it's a regulatory nightmare but then this sort of this three-part system of retail advised and institutional all ends up coming together at which point it becomes unstoppable which i would argue with the global financial crisis for etfs right the survival of etfs and the thriving of them in 2009 and 10 is the reason that it is now an unstoppable force i don't think cryptos quite had that moment yet but i just look at my own websites and i see the amount of traffic we get to anything related to the crypto channel we run it's crazy right so it's clear that advisors are now very focused on this space so it just feels like we're following the exact same mark so so is that is that the reason uh why you followed sort of the same tactics mac and going after like the advisor space is the next targeted space it seems to fit into dave's narrative almost perfectly right if you think about the narrative of adoption that dave laid out with etfs and and the way you have looked at bitwise investments and the partnership with lpl and some of the things you're doing to really nurture the the advisor awareness and understanding so that in turn i guess they can um pass that on to the client assets is that is that sort of the same thing and then i'm not supposed to add two questions about put one on the end are you going to bring your conference expertise to bear at some point in that and start to do some sort of advisor crypto conference like you did with etf so successfully yeah i love it yes it's part of the reason i mean we were a lot of us in at wise come from the etf industry i would say probably 70 of the people at bitwise come from the etf industry and there's been a lot of crossover and that is one of the reasons the other reason was and i still don't understand it's underpenetrated you have huge number of crypto companies focused on self-directed investors coinbase kraken etc self-directed investors don't have any money so it's curious that there's this giant ecosystem focused on them you also have vcs focused on true institutions pensions endowments etc a lot of crypto visas no one was talking to financial advisors who control as much money as those largest institutions they just need different service uh they need a distribution team they need research they need webinars it's a different market i think part of it is venture capitalists haven't discovered the advisor market they don't know how large it is uh and so we were uniquely positioned to to move into that market but i think they need that one thing you missed that advisors need is they need access they need access that's on their platform yeah you got to navigate all of the platform access points so you get to the advisor and the advisor says oh yeah i want to do that and then you're like okay so what firm are you with then let me start on that process and maybe you can buy it in a year it's so huge and you need people who are focused exclusively on that i agree we've been working you know get on the orion platform for years uh and you make progress we we just got on to the lpl platform uh you know venture capitalists never probably heard of lpl but it's 18 000 advisors at a trillion dollars of assets but i agree you need all of those steps uh and i think it's pretty unique on the event stuff of course i love events we're doing some around it now i'm doing an event with dave called exchange focused on the etf space i'm also um an advisor to a company called blockworks which is probably the leading provider of financial professional conferences um they just launched a big d5 conference for next year they do a number of events so i i keep my my nose in that game i love it and got it and so on you're on your site just since we're we're on the advisor um angle what is what are some of the top sort of uh pieces that people should read because you've got a bunch of uh resources on the site but what what's sort of if someone's looking at this and saying yeah okay fine i've been beaten over the head where should i start where where where is the um in bitwise because it's substantial the amount of information that you provide and and the assistance that you're nurturing for advisors to educate themselves on this this very frontier asset class so what where should they start there what what what's the best place to go and great question the first one's not even on our site i was fortunate to write the cfa institute's guide to bitcoin blockchain and crypto uh which published in january so if you google cfa crypto uh you can find that piece that's about a 64-page introduction to this space uh i think it's one of the better ones dave and i wrote the guide to etfs in 2015. so i was glad to publish that uh the other on the resources page you can sign up and you'll get a monthly note from me uh that's email only which i think is pretty helpful uh we also have a paper on crypto's role in a portfolio which i think is is pretty good and emphasizes uh something that is dramatically overlooked in crypto which is the importance of rebalancing rebalancing in crypto can transform from a volatile asset to a big portfolio contributor um so yeah say more would you want to just give them the highlights on that because i think you know people do misunderstand adding a highly volatile asset to a portfolio that's non-correlated will improve the risk adjusted returns of the portfolio so can you say a bit more about the that that's exactly right the the real unique thing about crypto as an asset if you abstract away all the noise is it has high potential returns low correlation and daily liquidity which is not something that you typically get typically high returns low correlation you're locked up for seven years in an early stage vc fund once you get liquidity you can rebalance and if you rebalance a highly volatile non-correlated asset as long as you assume it's not going to go to zero which a bunch of people in crypto won't make that assumption but if you assume that um yeah it has a dramatic impact you're harvesting that volatility uh and the the history of it is you know if you add two and a half percent bitcoin to a 60 40 portfolio there's never been a three-year period where it didn't add to the cumulative and risk-adjusted returns on average over that three-year period it boosts the sharpe ratio by about 50 percent uh which is incredible and it contributes about maybe 33 percent of the portfolio's returns on average from a two and a half percent allocation but the rebalancing tolerance is critical without a rebalancing tolerance it leads to dramatic increases in max drawdown uh the sharp ratio doesn't doesn't even budge and it makes the portfolio much more volatile so that's let me wait let me push back on that a little bit because to me that is one of the critical problems with advisor adoption right now is that most advisors are used to maybe doing a quarterly rebalance which is really pretty insufficient based on your own math which you were not looking nice enough to share with me when you're doing it like quarterly rebounds doesn't cut it in crypto right you've got to either have to be triggered or it has to be a lot more frequent than that but that puts the advisor in this terrible box because like mike was saying you don't get to just make that as a bucket trade for 400 your clients right if you were going to actually do that say with your fund or with a direct crypto allocation like that's an operational nightmare and i know there's some folks out there like on-ramp they're trying to solve some of the problems but um you know is the is this actually viable as a portfolio asset for most folks absent some sort of bridging mechanism like an etf like direct custody something like that well an etf will be a great thing uh in the interim you have these otc traded trusts which can trade at premiums and discounts which are sort of like wrinkly etfs um you know the the short answer dave quarterly actually does at least on a historical basis quarterly is sufficient it's annual or semi-annual rebalancing that's maybe not rapid enough but i agree that that rebalancing piece is a challenge for advisors uh if you're dealing with private investments and you have to send 400 wires every quarter like no one's going to do that um it's part of the reasons we need better access vehicles for what it's worth it's part of the reasons people buy funds like gbtc or bitw despite and understanding the premium and discount issue because the rebalancing capability can overwhelm that risk and so a lot of people think people buy those naively most advisors fully understand the premium discount risk that attend those products but the ease of use the ease of reporting the ease of charging fees the ease of rebalancing more than compensates for the necessary hair on those um so so i think it's i think it's positive the other thing i'd say for advisors if you ask your clients most of them are buying crypto anyway uh right you might i think that's my biggest my biggest point is you ever produce your responsibility not just on the assets that you hold for your clients but you also have to know what they're holding elsewhere and advise them on that and if you're the advisors that i've heard say oh it's you know it's gonna go to zero it's garbage it's not worth it those guys talk to me and say well how do i buy off outside of my brokerage account right and then i have to be like oh my god like this is not i talk to something you're going to blow yourself up like there's so many ways that that could go wrong but they're doing it anyway right so then i don't give them advice and then they go and blow themselves up and put in way more than they should i think advisors who recognize the risk to their clients retirement needs recognize the potential asymmetric upside and can provide liquidity need to act you just can't sit there on the sidelines anymore you're doing a disservice to investors and by the way like let's just let's assume that it it it has a possibility going to zero you know one to two percent allocation isn't going to be the end of it all and as we know from some work that we've done even on the way down with high volatility if you're rebalancing enough you're scraping and you're harvesting volatility premium while it's going flat to up that might offset a total loss of two percent down the right down the road right so there's there's these are the things this is the professional asset management are required so without any opinion what you just can't ignore access to an asset class like this and on that no dave what have you guys because you mentioned that you you guys are publishing some crypto research and whatnot and you've worked with matt so what have you guys got that that investor advisors investment advisor should be looking at is there anything that's complementary to what matt mentioned and that would help advisors continue to educate themselves yeah for the most part you know we're in the business of providing investment information to advisors helping them down their research journey whatever it is so we stood up a crypto channel and we're discussing all of these things you know article by article so it's much more you know day-to-day news flow but you know in that channel you'll find articles about how to access these things and maths so-called wrinkly etfs and uh you know the tax implications and you know how advisors should be thinking about defy and so you know we're covering all those bases and i think you'll see us continue to grow that as advisor adoption continues but like we did that not because we're trying to get ahead of the game but because of demand like we surveyed we did a survey with bitwise over the last couple years and like advisors want this content right and well you know the name of our site may be etf trends and we don't necessarily have the non-wrinkly version of those etfs trading yet we'll get there eventually so so let's talk about the tax implications for a second because those are interesting everybody seems to be confused what's what are the tax implications and is there any difference between holding them outright and having a report and the type of slips that your fund would give out well uh the first thing people should know about crypto and taxes is if you buy crypto and it goes up you have to pay taxes that's that's uh surprising that many people think they live outside of the tax royal uh but that's not true the sale or is it marked yearly like in the 60 40 rule in futures great great question uh the crypto is taxes property which means effectively it's tax like equity uh if you hold it for more than a year it's long-term capital gains it's taxed only on sale uh it's not tax like gold which is taxed as a collectible even though people call bitcoin digital gold it's not tax-like futures and mark to market unless you're buying crypto futures in which case it is uh but traditional crypto assets are taxed as property the two wrinkly bits uh wrinkly seems to be my word today dave um the two the two wrinkly bits are um there's a little bit of confusion around tax loss harvesting and a little bit of lack of clarity uh about whether you have to have a 30-day uh delay when you harvest taxes uh there's there's debates around that and there's some confusion around air drops and hard forks the way we handle it for our investors we issue a k1 we're very proud we've always gotten our k1s out in february or march it's an extraordinary achievement and so we make it easy for them to file taxes on it make it very simple um but there there is more confusion than there should be mostly their tax like stocks yeah but isn't the wash sale thing like that the issue here is is wash sales right so you can sell your bitcoin down a bunch and then theoretically buy it back the next day and get the reset on that basis book the loss now offset it against your you know air kk that went up a bunch whatever um i i get that it's there's no positive ruling on it but there also hasn't been a negative ruling on that and that is currently how property is treated so are you actually concerned about an irs claw back or is this just mostly an issue that this could change any time which that i agree with i think it could change any time but it's hard for me to see how they can simply say well bitcoin is a different kind of property so you have a 30-day window you still have the sham transaction issue which is true in throughout the tax code you can't make a transaction for the purpose of avoiding taxes explicitly with no economic gain that's fraud that has nothing to do with what asset it is your trade no that you have it right dave there's just risk and uncertainty in the future right because from an outside perspective you'd be surprised that you can do that sort of uh non-30-day harvesting right it doesn't doesn't make sense from a first principal's perspective even though i agree that's how the tax law lines up so you know i'm not a tax professional i just think people should be careful about that and careful about how much they they rest on that understanding right but if you are somebody who's like one of these crypto degenerates who's out there day trading bitcoin all day it significantly changes how your taxes work right you can't just plunk those transactions into quickbooks and call it a day like they are fundamentally treated differently in terms of how you deal with the gains and losses that is definitely true that is definitely true i will say the irs's faq on crypto taxation is the best thing they've ever written it's actually shockingly clear uh it's even kind of clever and cute um i i i mean it of every every piece of irs writing of all time the faq on crypto is remarkably good i dare say nobody's ever said that the irs has written something clever and cute in there there's something like that i'm legitimate in a reason that's a new string of words i'll read it to my daughter never been said again millions of monkeys couldn't have come up with that exactly is this because it just provides it covers most of the major loopholes and and the clarity that is required because that would be news to me it doesn't it doesn't cover the nuances it doesn't cover things like air drops and hard forks and exactly how those should be handled and those are very complex right what if there's an air drop but you never claim it did you actually receive that value should you have to pay taxes on it it doesn't get into those things but in terms of the basics in terms of 98 of the tax uh rules that impact people investing in crypto someone who buys bitcoin and ethereum and sells them a year later it is crystal clear about that right okay that's that's interesting gotta take a look at that yeah the tax conversations already got me a little bit uh sleepy have another drink yeah i don't know whatever that means right degeneracy not familiar sorry okay so let's talk about the uh the risks here uh just generally like you said there's a crypto world that believes people talk about crypto that believes it's going to go to zero right and so you're as as time goes by and one would have expected etfs to be approved by the regulators and governments back it just time keeps going by and we don't see any movement in the united states the most powerful nation the planet that is that also has uh the most powerful currency on the planet where do we see these dynamics going and are we starting to falter a little bit that's a fun question i think the etf question i'm not actually concerned with the pace of progress in etf land so there are people in crypto who have a view that the sec hasn't approved a bitcoin etf because the fed is worried about bitcoin taking over for the dollar i think those people are a little self-delusional bitcoin is a long way from replacing the dollar and i don't think there's like an explicit don't approve an etf dave and i have lived through etf approvals forever they take forever in the u.s canada is always ahead of us by two years that's been true since the founding of an etf it's still true today bonds took like four and a half years to get approved non-transparent seven years exactly right non-transparent active non-transparent active which is just like an active fund um you know we've we've had i think it's 16 meetings with the sec over the last 14 months and we don't even have an etf filing right now uh they're extremely engaged they're asking very good questions i think we're close i think we will get there so i'm not worried about the etf specifically i do think we will get over that hump i will say there is a broad push right now right now by which i mean this moment from every major u.s regulatory agency to develop new standards around crypto regulation and i think those standards are going to have a big impact on the stable coin market i think they're going to have a big impact on part of the d5 market i think they're going to be very positive for parts of the crypto market and very negative for other parts of the crypto market but regulatory risk and how that regulation breaks over the next six months is going to determine whether you know we're in a generational bull market in crypto or whether the the industry faces real challenges so outside the etf i think there are big regulatory things to discuss can we unpack that a little bit what are those things that like that are the big pain points for them well so i i think they're very worried about stable coins right stable coins are uh are crypto representations of dollars is one way to think of that uh and there are varying qualities of stable coin providers the largest is unfortunately the worst quality tether and these are large 50 60 70 billion 100 billion dollars um and there's concern both about whether there's systemic risk there from those assets say owning commercial paper and unraveling and having to dump that paper and impacting the market uh and they're just generalized concerns about how should these private versions of the dollar be regulated um and they form an integral part of the crypto market right they are where people withdraw from crypto's volatility to hold money in a stable asset and they provide sort of the liquidity that interweaves at all so uh i think regulators are gonna i don't know what they're going to do in that space but i think it's going to change my guess is it changes for the better like i actually think the removal of poorly regulated stable coins removes a major risk in the crypto market uh and a risk that could cause violent deleveraging in the d5 space if it went wrong so i'm in favor of it but i do think it'll be i think it'll be a a painful journey i think they could overreach i think there's risk there but right that implies like sorry i got to call a little bs on that that implies that what we what we get for regulation is this sort of clear regulation about what a what a stable coin has to be to be okay and that that is allowed to then go do the things that stable coins are currently doing which is largely working in liquidity pools that's the primary use case for a lot of them right they're parking places for movement of liquidity and other creep crypto ecosystems gensler's comments about the swaps markets about the derivatives markets the other day was the clearest negative indicator i have heard from the sec yet that they believe they have regulatory over the way i interpreted what he said was hey you're trading a swap against tesla at ftx in germany you are regulated by the us because tesla is a u.s listed stock so you're running a derivative against it we get the call that was a that was an eye-opener for me well uh yeah so so to be clear dave i was just saying that i think their first focus is going to be on stable coin market i think their second focus is what you're talking about derivative and um i don't think there's a pathway for those synthetic stocks in their current iteration to survive i i think regulators are going to make that it's such a clear intrusion on their regulatory footprint right there are synthetic versions of oil that trade uh and they aren't registered with the cftc i just don't think that that uns finished circle is going to stay unfinished i don't think it means that there isn't something that emerges out of that that's interesting and important i mean for to step back for a second ftx created a way to trade u.s stocks 24 7 365 and have them settle instantaneously which is brilliant yeah like let's just make that our market system and i'm not right right i i think we need to pause and point that out that new york had hundreds of years to figure it out and they're still trading six and a half hours a day five days a week some weeks um so we should give them a lot of credit for that but i do think it's gonna have to evolve to a regulatory pathway i think it's really interesting for what it's worth that that fdx was able to close a 900 million dollar venture round amidst this regulatory uncertainty um i think that's an interesting point that i'm still working around in my mind well i think what we're seeing as always is the the the ecosystem in the crypto space allowed entrepreneurship to be to just grow un untethered right so you are what you end up getting is a bunch of signals of hey world this is how it should be right and then the regulators had to come in like okay we we have to change but let's do it in a way that we can regulate and and possibly i mean what's all these stable coins we're out of necessity we're out of people wanting to get out of the of the volatility of crypto park it move it from one place to the next and you could choose to go in ftx and hold your usd or you can choose tether but when you try to transfer from ftx to kraken one will take seven days and you might not get your money and the other one takes 20 minutes right and so it it's what happens when governments in the u.s government creates a u.s government crypto coin that has all the same facilities but actually has some sort of regulation and backing that can transfer in 20 minutes all of a sudden i think naturally you're going to see people moving towards the more certain of the two um i'm assuming that most of the new adopters aren't terrified of you know the government spying on you and all that stuff right so just assuming that that it's regular people wanting to be in that space they will likely choose a regulated efficient coin is that a non-regulated people will use it and that's the thing that's slightly scary about the chinese central bank digital currency is that it is it is explicitly being designed as a command and control vehicle for the ccp it is not really designed to solve the entrepreneurial problems of the crypto class people are going to use it like crazy because it will be very convenient because it will tie into everything else in their financial world the thing i worry about in the with the us cbdc would be the same thing it's like if they launch one everyone will use it almost regardless of what's under the hood we might talk about the hair that's growing on it but if it's convenient if i can move it in and out of my visa account my bank account and then i can use it to go do some crypto fun thing and then i can pay my you know landlord with it it'll just be percent adoption regardless of what they decide to bake into it that's awful i i agree with that i mean my my biggest concern about the us is they're gonna be too slow and they're gonna get passed by on this um out of reticence uh and they're gonna be too careful because you know obviously a federal stable coin is a severe threat to traditional banking systems depending on how it's designed and so i think i think the u.s is going to move slow but i think it's inevitable i think everything's moving that way there's no way it doesn't end up in that place yeah i mean like what how does the euro dollar market work right like you have a bunch of banks that are creating dollars out of nowhere by lending them out right there's there's you can also regulate another organize other group of people that are using your dollars in ways that are useful to the world and to them right um so it might not just be one or the other it might be the the same thing as we see globally today i agree i was sad the us didn't jump on board the the libra diem train i thought that was the best single way to extend the us dollar's dominance as the world's currency uh and we just blew it um uh which is which is which is a shade yeah no kidding i mean it really is the the derivative markets that's driving a lot of this uh bull market the demand the liquidity and you know one of the use cases is the fact that the rest of the world can't trade in new york time when they want to get access to apple and tesla right so you're they're providing a service to the world that wants to grow their wealth and participate and and the best technologies in the world when they they're too small to go to a broker dealer in india get them to pay attention open up an account and be able to trade what they want at the time that they want right so this it it does answer a question does create some use cases that we're going to have to grapple with and and deal with that i see no other way let me ask you rod like i agree i think the derivative markets are the most interesting thing in crypto right now and i think they are driving an enormous amount of what we're seeing but at the same time can you just strip all that away and say actually all this is is access to ridiculous amounts of leverage because that's what i see when i start peeling back that onion it's like it's not that trading futures this way is so much better and you know giving you access to betas you could never do derivatives against on the cme it's that you can get 100x leverage without really trying very hard well okay so there's if you look at the actual numbers and maybe you know more than i do on this the actual hundred-time levered guys represent like less than one percent of the ecosystem right so yes let's not exaggerate um i think one percent of the system then they're 100 of the notional that's the whole problem well hope they they're mo yes let's let's take a take a second let's take it back i think the most the use cases for the rivers market oftentimes aren't leveraged they're just if you're going to choose to trade bitcoin straight up or trade the perpetual the perpetual is more liquid it settles instantly you don't have to wait for so there's it's like a second layer right that becomes a way to get exposure to those markets so it's not as exp as massively explosive as as one might assume but certainly some regulation will probably help right i mean we need to get in there and say the margin calls yeah well that that's the other thing the self-clearing nature of the margin calls is kind of interesting but on this i want to get i want to i want to go to lightning the lightning network and the adoption that's happening there too in that layer of payments and and being maybe more of a threat to the sort of the dollar dominance in everyday payments what are your thoughts on that i certainly think i think uh i think there are two ways that crypto can penetrate the traditional payment use space or maybe three ways lightning is a good example so the lightning network allows you to to throughput a lot more transactions much more efficiently than you can if you have to write everyone to the blockchain so it brings makes bitcoin more functional uh as a cryptocurrency and there's a lot of uh sort of layer two side chains that do this for for other assets as well um i do expect bitcoin to become more of a transactional currency on the margin i think you already see it tackling places where traditional fiat currencies are truly atrocious uh like remittances or in certain capital controlled markets over time as the volatility declines as things like lightning make it more usable i suspect it will eat into more and more of those markets and i think there's a non-zero chance uh that over politicization of fiat currencies causes the world to want a an apolitical currency and you can see a step function increase in interest in bitcoin uh for what it's worth i don't think it has to penetrate any of those use cases to be a phenomenal investment uh but i think those are gravy on top and i think it's indicative of the level of innovation you know the speed at which this is being adopted and the speed with which new technologies are being built is really uh almost it's kind of breathtaking uh and probably going to accelerate as more vc money comes into the space oh yeah just like a look at the overwatch and window of sort of the general zeitgeist of 12 months ago to today it's breathtaking yeah how much this has moved from you know if you're an advisor an allocator or an individual who's talking about this asset class 12 months ago july 2020. you were a lunatic yeah correct yeah and now and now you're one of those guys who's a little on the edge yeah yeah yeah which is very much like that etf sort of journey you're right i mean it's just the overtune window shifting what is acceptable behavior and all of a sudden it's like well microstrategy straight down the middle i mean yeah exactly you don't have 10 micro strategy what's going on i will tell you it's it's so true the percentage of advisors who ask us about will go to xero has vanished over the last year and the flip side of that is the average allocation of a bitwise client i think has gone up from about a percent to two and a half percent of their portfolio because that binary risk has disappeared so i think that is a very real material change and i think it's driven by a very real and material uh dimution of these binary risks crypto really did live by a thread for many many years uh at a level that many people don't understand i could have it could have gone to zero almost instantly for the first eight or nine years of its existence and it and it didn't uh and i do think we're past that point now and is that partly to do with the d5 space the the different crypto coins and that general ecosystem that is kind of creating different use cases and opening people's eyes to the new technology i think that that's definitely a piece of it it's gotten a second story through defy uh and things like uniswap which i think is the greatest entrepreneurial story of the past 10 years but even more basically i'll tell you a story about bitwise bitwise it was an early startup it was backed by some of the leading venture capital firms in the world you know vinod khosla and naval were invested uh craft ventures catalysts general catalyst we couldn't get a bank account to make payroll because there were no banks that would provide payroll services to anyone involved in the crypto space this was 2017. uh at the time there was one bank who would do it in the whole nation uh when i talk about like crypto living by string that's the kind of example i mean uh today you know dozens of banks anyone will do it uh but even four years ago an asset management company backed by blue chip venture capitalist with people with 20 years of experience in financial services couldn't pay payroll uh to provide funds through wilson sincini as the lawyer i mean it's it's insane uh fertilizer wasn't there exactly it's insane it's insane but all that were you like a construction site on friday with the envelopes full of cash for everybody or what did you do everybody got a usb card that's right i'm reminded of my days working on the farm and going to the labor pool picking up all the labor and then having to pay them at the end of the day with the cash it's so true it was it was uh it was it was brutal it was brutal we had to call in a bunch of big favors in order to get a bank account which is amazing um so where are you seeing flows in bitwise you've got you've got a suite of products um and so where are you seeing the general emphasis of interest if you will and maybe where do you where do you think that that if that's not the right place to be where do you think the next layer of interest would be or what are you seeing now and what do you think might be the future area of opportunity yeah sure uh so most of our assets are in our large cap index fund the bitwise 10 because most of our clients are financial advisors who just want beta exposure to the space i will say that our defy index fund which launched in february uh was one of was was much faster out of the gate to grow we pulled in more than 100 million dollars in a private placement d5 fund uh in the first six weeks it was on the market which is which is very fast for a private fund by comparison it took three years for our index fund to get its first hundred million dollars um uh in terms of i mean most of my money's invested in our index fund i'm really personally excited about eth i think eth is the uh is the crypto asset of the summer and maybe of 2021 um and so if i were an advisor looking outside of of the the large cap core um i think there's a lot to be said for focusing on the ethereum space right now it's going through a few technological upgrades it's are really big deals and really smart um and uh yeah i just think it's a phenomenal ecosystem they're for what it's worth they're they're more like off-piste down the road stuff i could talk about but i really do love right now so let's talk about ethan why you're excited about it yeah uh three reasons one everything in d5 is built on eth so it's literally it's fair to think of eth as the internet that defy exists on so if you're excited about d5 you should be excited about eth two there are two major technological upgrades coming in the next 12 months one of which is coming august 4th which is called eip1599 eip1599 is an upgrade to the east software it makes it easier to use in a cool way but the great thing it does for investors is it changes what happens to the transaction fee currently when you can transact on the ethereum blockchain uh the fee goes to the miner who typically sells it after eip1599 the base fee will be burned you can think of it like a stock buyback it turns ethan to a consumable commodity like oil or gas so in order to run d5 on each you have to burn eath and i just think that makes it so intuitive as an investment i think it's going to bring a lot of institutions in and then uh walk me through that again matt sorry before i want to i want to fully understand that yeah so right now if you're if you're processing a transaction on the ethereum blockchain right so if you're using uniswap and you have to write that transaction to ethereum you typically pay a transaction fee right it could be 0.01 eth it could be 0.02 eth it could be some small fraction of each as a tip to the minor to process your transaction uh today that goes to the miner and they typically sell it because they have to pay for electricity they have to pay for mining equipment etc after this upgrade uh the miner continues to get newly minted eat that's the other way they're compensated the same way bitcoin miners do but this transaction fee instead of going to the miner the base fee is burned or destroyed forever it's like you're putting gas into the engine and it's consuming it and i think as an investor when you think about eth today it's abstract as an investment what are you buying when you're buying an eth token you're buying like a stake in this protocol and how is it monetized what valuation characteristics hard to think about but if you say you're buying this gas that powers the internet of finance and every time you want to do a transaction someone has to pay in that gas i just think that's a very intuitive way it also reduces inflation if you think about the bitcoin having that's what i was going to say a lot of people attribute bitcoin's run to its having this is about half of a halving uh so it will reduce eats inflation from four percent a year to about three percent a year which is a material reduction that no one is talking about uh and then the the second thing just to finish and we can keep going uh next year we're supposed to evolve eth we i'm not part of eth ethan's supposed to evolve let's decentralize maybe i am ethan's supposed to evolve to eat 2.0 which everyone's excited about this tren this move from proof of work to proof of stake which will move it to a carbon neutral consensus mechanism but that will reduce the inflation from three percent to one percent so east inflation rate is going to fall from four to one percent over the next 12 months that's like a halving and a half uh and i think that's a very big deal in terms of the supply demand dynamics and i'm pretty excited about yeah and i'll just toss in there like you know i think when i was i mean first of all i called matt an idiot when he made the jump so i was clearly wrong about that so but because of knowing that for all these years like he sends i read all this stuff i have to it's in the contract and so i read all of his stuff about it and i went down the ethereum rabbit hole really tightly and really you know with a lot of depth and um i actually i think you're underselling it right because it's easy to look at and point out all of its flaws oh you could write a you know you could write a smart contract network better this way or that way but the network effects are so profound when we start talking about actual utility right because that's the difference between ethereum and virtually everything else ethereum provides a utile service and that's what's really unique about it what's different and that utility is explicitly tied to the size of the network that's some that's something that's very difficult to use serp right you can write the better ethereum version there's a hundred of them out there and some of them will find their use cases they're hyper secure they're faster whatever it is but i don't think anybody's gonna step in and you know myspace ethereum any time soon i just it just doesn't feel like it and the protocols itself and solidity and the ways you access it are just elegantly designed from top to bottom right so i mean to me this is a case where open source works yeah i mean the the key issue with developers right now happens to be the cost of them being able to transact and anybody be able to speak right and the second thing is is it's slow right so that's going to be dealt with in 2.0 as well the issue of course becomes from what i gather that they've been promising you 2.0 for a long time right so you got the developers kind of holding on holding on holding on and finally some just splitting off because they got a business to run right going to cardano or an ada or wherever uh whatever other coin makes sense for them um so it'd be interesting it's going to be interesting to see if they can deliver on some sort of timely transition for the vast majority of the ecosystem to stay with them right i i agree i agree that is the big risk yeah well that's that's super interesting so you got your just i might i might just weave in steve's question so do you see the correlation between bitcoin and ethereum to remain high in the future or continue to decrease and i wonder if some of the comments that you've made here would would lead you to a conclusion that the correlation may decrease in some way or or not i i laid at your feet to answer it it's on the screen there great great question it's definitely well it's definitely i shouldn't say that the lawyer just you know kicked me in my head um it made i think that it could be it may i i think the correlation is likely to decrease over time between all crypto assets but particularly between bitcoin and eth between all crypto assets because the uh sort of industry-wide risk has diminished so much as we discussed and it used to be that that overwhelmed any coin specific utility um between bitcoin and each specifically for the reason dave mentioned you know bitcoin as a technology and as an asset is really optimized for the store value use case potentially the transactional use case eth is really optimized as this useful other blockchain and i i do think as we see more utility build and eat uh the correlation will will drop they'll still be correlated like 0.7.6 um but but i i think they'll be correlated in the same way that that microsoft and and salesforce are correlated right what you were saying triggered something for me in that in this early development nation field frontier asset class you're all gonna you're all gonna be together and you're all going to have very high correlation because the economic utility that you might provide is going to be overwhelmed by the liquidity in the space but as the economic utility of the business models that you might provide to different business cases deviates and creates a dispersion then those business cases are going to provide a definite a different sort of discounted cash flow or some sort of expected growth in the future that have structural relationships that are different from one another and thus you're going to get a proliferation of non-correlation through the space i think it i think that it comes down to the the commonality and risk right now in the crypto space right it's that lack of fertilizer for a great sea a great idea all these seeds require that fertilizer reset which is proper regulation clarity and taxation banks that are willing to onboard and off board you know as that becomes better and better now you worry less about the the the you know big uh armageddon event and you start worrying about the specific company events right that's when we'll i think we'll start seeing very very unique uh diversification in those assets i agree i agree well said i love it okay so let me let me ask you right now i'm looking at some of the some of the funds and everybody that's in this space and trying to index all this stuff and you know we talk a big talk about diversification and market cap and then you get into it and currently today and this is going to change in the future i'm sure it's basically like you know 90 bitcoin 5 uh ethereum and then 20 like 0.3 allocations to the other asset classes right so i mean the idea the concept is there where we are right now is not necessarily that level of diversification that one would consider so how how do you see that evolving yeah i think it'll well i think it's likely to change over time yeah our index is maybe you know 65 bitcoin you know 30 percent each and the rest is small assets um i think it will it is likely to change over time if i were a betting man i i bet each share will grow and i bet you'll see some of these defy specific ads like uniswap accrue larger market capitalizations over time um but it is a network effects business i think the largest will remain the largest the real advantage of an index strategy is it doesn't matter how it turns out right like if the bitcoin max list are right it's all bitcoin then the index will be all bitcoin if the flippingists for ether white uh i had to pause for a minute on that um but i do i do expect more diversification in that mix over time i expect bitcoin's dominance uh to drop it's just further along in penetrating its use case than these other assets like it's pretty far along the chain of being digital gold uh even further than eth is to being the internet finance um and that's why i think its market cap is as high as it is right now and let's can you tell me more i am really uh interested in hearing why you think uniswap is the most compelling entrepreneurial case in your lifetime or whatever you said why are they so special for you it's so amazing so unit swap for people don't know uh is a decentralized exchange you can think of it as a decentralized version of coinbase where any person can be a liquidity provider um it's trading like 50 billion dollars in trading volume a month and generating a couple hundred million dollars in fees uh there there have been weeks where it trades more than coinbase just 60 billion dollar publicly traded company it has zero employees zero offices and zero uh no no ceo i just find it hard to imagine a startup that didn't exist three years ago that is today generating hundreds of millions of dollars of monthly fees and trading 50 billion dollars in volume is challenging one of the most successful ipos of all time for trading volume and is doing so with no employees i mean it's it's mind-blowing and more to the point they're sort of like the vanguard in space because the people making all of those fees or the people participating in the process right that's not all just accruing to you know talk a little bit more about that dave well so i mean the whole idea what matt's talking about is unit swap is fundamentally just a protocol it's not a company in the way we would think about it and as such it's just a way of enabling these mediums of exchange right there i i don't know who was first but they're the popularized version of the simple liquidity pool right it's really one of the first examples i'd ever seen where people stake different assets and you allow the market on some curve to determine whether or not you're booking arbitrage on either side of it i mean it's it's fundamentally the creation redemption mechanism for etfs on steroids and um you know it allows people to both create anything they want to trade any two items they want to trade against each other that can be tokenized can run through the uniswap protocol and the fees that come out of that accrue to anybody who wants to participate which is a little bit like vanguard you know if you are an sb 500 index investor at vanguard you're effectively playing at cost and to the extent the company happens to be really efficient at it that cost just keeps going down right so yeah vanderguard doesn't necessarily pay me to be in that business but hey you know what add on securities lending revenue and in fact a lot of times they do and so i think unit swap is a classic case for decentralization actually vanguarding the rest of the financial services industry yeah and i i'll just add like the unisop thing really woke up for me i was talking with uh the lead trader at one of the top crypto hedge funds in the world he said he migrated most of his trading to uniswap because he was getting better prices so not only is it disruptive in the way that dave mentioned but it's disruptive in terms of its ability to deliver prices um i really do think if it was started by you know like like two guys from silicon valley they'd be on the front page of the wall street journal uh it just happened to be started by a guy who wears a tatty unicorn shirt um and so it doesn't get as much attention as i think it should right so these guys are any market participant can go in find a crypto pair that let's say they own one half of the of the pair they add liquidity as a automated market maker so this is kind of like the idea you're putting your liquidity in and for provide for staking that coin and allowing other people to trade in and out and creating that balance between the two that the pair you are getting paid while you wait right so there's it's it's just like any other market the more willing you are to provide liquidity on something that is otherwise a liquid the more money you're going to make so it encourages exactly the kind of risk-taking that encourages the economies of scale and the network effects we know you need to get to make these things work but it also makes it really lucrative for what i would call more traditional institutional market making type activity that's exactly right it also solves a future problem dave you know if you think about in europe you can pay market makers to tighten liquidity spreads on etfs and you can't do that here in the us one challenge when people talk about tokenized assets is how you'll have liquidity in this huge fracture of tokenized assets well this is one example if you had a tokenized asset or supporting an ecosystem you could provide liquidity to jump start liquidity in that market in a direct way which you can't do in traditional markets and i think that's that's sort of like an elegant add-on that people haven't even uh gotten to yet that's that's exactly the type of innovation that's coming out and that's only like you know the tip of the iceberg and in so many other ways and it's the best and brightest minds are going in and coming up with use cases it's very exciting how much how much is the regulatory pushback we're getting being driven by the old guard and their money and influence not yet not now what's happening now i don't know i actually don't know the answer to the question i think it's a sort of a very touchy question maybe but how much do we think that the regulatory pushback is driven by the old guard i i mean i think they're pushing for very aggressive regulations i think i think is the answer to that uh and i do think i do think they're afraid and i will add there's every risk that regulations are overzealous because they can be story driven and politicized and not based on uh technology and you see some elements of that so i do think the old guard uh i think some of them are ignoring the crypto and d5 markets and i think some of them are worried about it and i think a vanishing few are embracing it because it still seems too foreign to them the good thing is the constituents in the voting base are jumping into the boat and so the influence peddlers will be peddling different influence as the uh aggregate of voters changes anyway yeah that's that's interesting i think dave you you said that this was adopted by institution then retail i kind of feel like the adoption is mostly retail like retail has really led the zeitgeist here and a lot of people have it they are voters and if the government is going to become again between them and their bitcoin it's going to be a problem right on that d5 space people that don't can't get credit cards can get a credit card if you own bitcoin and like crypto.com will be offering something like that and there's a few places globally that allow you to if you have bad credit to actually be able to participate in traditional markets through through credit cards that are backed by bitcoin so all these things that are making things easier for americans and everybody in the world you take that away there's going to be some voter lash back all right yeah i'm taking the under on that one the american voter is not showing up to kick people out of office because they don't like their financial regulations you're missing regulation versus wealth accumulation like this is the opportunity for them to welcome a very small percentage of americans who are both in crypto and connect those dots but yes yeah although you are seeing you are seeing uh you're seeing activity from like the mayor of miami from various states wyoming wyoming parts of texas texas i think it's gonna be it's gonna happen and i think there will be a lot of pressure on regulators i just don't think any of them i don't think we're going to like have a presidential election lost over a stance on criminal regulations right well it'll be it'll be it'll be more than you think i think there's enough people to show up on the agenda as item 37 down on the fifth plane it's gonna be right next to legalizing marijuana my friend done check the box it's already done is that already that's even next up next up i love it um all right there was one there was one earlier question that was a bit technical um and i didn't want it to disturb the flow but there was uh bob h asked how can in the bitwise 10 why is um ada or codona included over uh tazos and um with the fork and whatnot i don't know if you can comment on that or if you've i'm not sure you can or can't or what but please i can definitely i can definitely comment on it uh cardano's included because it has a larger market cap the criticism that bob is making that there isn't a lot of development activity on cardano is accurate and a topic of great conversation in the crypto markets um it checks out as a cryptocurrency from a fundamental and as a blockchain from a fundamental sort of technological functioning aspect and and from a security aspect and from ability to custody asset aspect so as a market cap weighted index we just have to take the market's view tezos has been a component uh if they're successful uh i i hope there'll be a component in the future but right now they're outside of it from a market cap perspective great and then and then one of our own uh beloved richard latterman asked about that well cardano's role in d5 and competing with ethereum but probably that yeah it's a slick blockchain uh very performant and the question is if it can come catch up with ethereum's you know network effects developer community brand and recognition and that's that's what makes it fun to watch we'll see absolutely love having a horse race where you've got all the horses in the race exactly exactly well we've been at this for an hour and 22 minutes guys i think i think that's been a great friday and i i really appreciate you you uh coming joining us and dave co-hosting you've done a fantastic job you really made away an opportunity to poke fun at matt i love it i love but before before we go first of all everyone listening please hit the like button before you go share this with somebody all that good stuff and then um i just want to go through for dave and matt where people can find you any recommended spots that you want them to look at or educate themselves on et cetera so maybe dave hit him first i'm just all in on twitter at davenada on twitter you know you can link to my stuff in my profile page there over at etf trends perfect and for me at matt underscore hogan which is h-o-u-g-a-n it's got that funny you in it uh or come to bitwiseinvestments.com sign up uh and i'll send you my my monthly notes from the cia love it we all know where rodrigo's from so that's fine that's right i got the worst twitter handle of all time because all the rodrigo guardios were taken rod gordo p that whatever just find me just you know i followed dave natick and uh i'll slip into slip into a stream and then you can find me and tag me there i love it happy friday gents that was a real pleasure thanks for joining so much thanks for having us thanks for having me today's podcast is brought to you by horizons resolve adaptive asset allocation etf which trades on the toronto stock exchange under the ticker symbol hraa and is sub-advised by resolve asset management hraa is an alternative fund whose investment objective is to seek long-term capital appreciation by investing directly or indirectly in major global asset classes including but not limited to equity indices fixed income indices interest rates commodities and currencies hraa gains exposure to these asset classes by investing in derivative instruments that may include future contracts and forward agreements and securities hraa will take long or short positions using up to a maximum of three times leverage in asset classes such as equity indices and fixed income asset classes commodities currencies volatility indices and other alternative asset classes to learn more about this please visit www.horizonsetfs.com hraa to read about the etf's investment objectives and important disclaimers about the risks associated with an investment in the etf [Music]

Channel: ReSolve Asset Management

Views: 216

Rating: 5 out of 5

Keywords: straddle, adaptive asset allocation, alpha, asset allocation, asset management, diversification, equity momentum, evidence based investing, factor investing, financial plans, global equity, hedge fund, liquid alternative, machine learning, managed futures, momentum, mutual funds, portfolio management, portfolio optimization, quant, quant investing, risk parity, security selection, systematic investing, tactical asset allocation, trend following, wealth management

Id: WoVPy4U90-Q

Length: 84min 45sec (5085 seconds)

Published: Sat Jul 24 2021