- Matt Hougan is the chief investment officer of San Francisco-based Bitwise Asset Management, whose $185 million Bitwise 10 Crypto Index Fund (BITW) started trading over-the-counter on December 9.
- In an interview with Business Insider, Hougan breaks down the factors supporting bitcoin’s recent surge above $20,000 for the first time and explains why BITW trades at a significant premium to the cryptocurrency.
- He also shares other cryptos worth looking at and another digital currency that could become “the asset of the year in 2021.”
- Visit Business Insider’s homepage for more stories.
Bitcoin was once derided by serious investors as a bubble or a Ponzi scheme. But this year, it has become an irresistible investment for many of them.
Just this Wednesday, bitcoin topped $20,000 for the first time and proceeded to climb above $23,000 on Friday amid growing optimism about its uses.
“Those of us who have been in the crypto industry for a number of years have expected this moment,” said Matt Hougan, an ETF veteran-turned chief investment officer of cryptocurrency-focused Bitwise Asset Management.
“The core thesis supporting crypto and Bitcoin is that this is a once-in-a-generation style technological breakthrough that’s penetrating multiple multi-trillion-dollar markets,” he added. “The market opportunity is large, but it’s great validation to see us break out to new all-time highs.”
Bitcoin’s 212% rally this year is driven by all types of new investors who had never invested in bitcoin but are now jumping on the bandwagon, Hougan said.
Most notably, high-profile hedge fund managers such as Paul Tudor Jones and Stanley Druckenmiller have allocated to bitcoin. Corporations like MicroStrategy and Square have invested in bitcoin on their treasury sheets. Even insurance firm MassMutual scooped up $100 million of the digital token last week.
“Crypto was built on a retail investor base. And it went from zero to $20,000 largely on the back of retail investment and retail belief in the asset,” he said. “Now we are seeing this mainstream adoption by professional and institutional investors who control vastly more assets than retail investors. That’s pushed us to new all-time highs and could push us significantly higher if those trends stay in place.”
A crypto fund that seized investor interest
Coincidentally, exactly a week before bitcoin surpassed $20,000, the $185 million Bitwise 10 Crypto Index Fund started trading over-the-counter under the ticker symbol “BITW.”
The fund, which tracks an index of the 10 largest cryptocurrencies as weighted by market cap, saw shares trade more than $67 million in their first three days on OTCQX Best Market, making it the most highly traded crypto fund launch in history, according to Bitwise.
The significant investor interest drove shares of the fund up to $71.50 as of midday Friday while their net asset value was $20.24, signaling a stunning 253% premium. The premium was as high as 369% on Wednesday, according to Bloomberg.
Hougan explained that it had a lot to do with the fund’s structure, which has more in common with a closed-end fund than it does with an ETF in that there’s no immediate creation of new shares.
“That’s a process that takes a bunch of time because of the regulatory structure that it exists,” he said, “so it can trade at very large premiums and those premiums can be volatile, and it could, of course, possibly trade to a discount.”
He continued: “What we’re seeing in the high premium is that there is more demand from investors to allocate to crypto in traditional brokerage accounts than there are shares of BITW available today. New shares are being created, but those shares have to season for a year before they can be sold onto the public market.”
Having spent 15 years in the ETF industry, Hougan said he would love to see investors access cryptos via ETFs. While the Securities and Exchange Commission has yet to approve a bitcoin or crypto ETF, that day may come sooner rather than later.
“The market is really mature. It’s much more institutional than it was in the past and I think that raises the likelihood that we’ll see a Bitcoin ETF sooner than later,” he said.
Ethereum and other cryptos
Bitcoin has surged into the stratosphere this year, but it is by no means the best-performing cryptocurrency.
Ethereum, which makes up 12.35% of BITW, has gone up 396%. Ripple’s XRP and Litecoin, which are 5.01% and 1.37% of the fund, have also risen by 202% and 159% this year respectively.
“This is a disruptive new technology, a disruptive new industry, and we don’t know how it will play out. You can backpedal to other disruptive areas of the market and it’s not always clear who will win,” he said. “The index fund is designed so that whatever happens in crypto, investors will have exposure to the most valuable asset.”
Hougan is bullish about bitcoin as a digital gold, non-sovereign store of value, and potentially a non-sovereign currency. But he also thinks that ethereum — the second-largest crypto — could be “the asset of the year in 2021.”
“Ethereum is more flexible than Bitcoin. Bitcoin can only be programmed to do certain things and ethereum can be programmed to do many things,” he said. “The market that ethereum is tackling, which is the decentralized finance market, is growing very quickly.”
Another highly promising development for ethereum is the CME Group’s decision to launch ethereum futures starting February 8, 2021, in Hougan’s view.
“That’s a signal from a well-established financial institution that there’s more to crypto than Bitcoin,” he said.
Despite his positive outlook for ethereum, Hougan said he still prefers a diversified approach to investing in cryptos.
“I’m a big fan of ethereum but all my crypto money is invested in our index fund,” he said. “Just because I study this 24/7/365, I am very bullish on crypto as an asset class. I don’t know exactly how it’s going to play out, so why not take an index approach.”