ETF TV News #74 Matt Hougan of Bitwise discusses Crypto ETFs

Presented by Syntax Advisers.

Dan Barnes: Welcome to ETF TV News – your weekly updates on newly issued exchange-traded funds and products. I’m Dan Barnes. Joining us today is Matt Hougan, CIO of Bitwise and Deborah Fuhr of ETFGI. Guys, welcome to the show.

Deborah Fuhr: Thank you.

Matt Hougan: Thanks for having me on.

Deborah Fuhr: So I have to start with congratulations on winning the Lifetime Achievement Award. That’s terrific!

Matt Hougan: Thank you so much. It was a great honor, and I’m pleased to join you as a winner as well. So following in your footsteps there.

Deborah Fuhr: There’s been a lot of interesting crypto in the US, so last week you launched the Bitwise Crypto Industry Innovators ETF (BITQ). Is this directly holding crypto currencies?

Matt Hougan: It’s not, Debbie. This is holding crypto-related equities. In fact, it’s the first crypto-focused equities ETF to launch in the US, so the first pure play on that space. That means companies like Coinbase, which is the largest crypto brokerage in the US, companies like Canaan Creative, which created the first crypto mining chip, companies like Silverglate, which is the leading bank to crypto companies in the US. These are the picks and shovels that allow the crypto economy to thrive. And that’s what this ETF is providing exposure to, not direct exposure to Bitcoin, Ether, or other crypto assets.

Dan Barnes: What sort of investors do you expect to be investing in this ETF and how might they use it?

Matt Hougan: This ETF is really designed for the financial advisor market and I think there are two types of investors that it might be appropriate for. On the one hand, you have investors who have been watching the spectacular returns in Bitcoin, Ether and other cryptocurrencies, but are uncomfortable holding crypto assets directly. On the other hand, I think it may be interesting to investors who have been looking for ETFs focused on disruptive growth companies.

The reality of the companies in this ETF is that they’re some of the fastest growing companies in the world. Take Coinbase fx; its revenues were up 900% year-over-year, based on its most recent quarterly earnings report. These are phenomenal growth companies, they’re very profitable. So either as a analog for direct holdings of Bitcoin or as a direct way to invest in fast growing global equities, I think it can be an interesting fund in either of those two cases.

Deborah Fuhr: In Europe, you have been able to launch a crypto ETP. Can you tell us a little bit about that product?

Matt Hougan: That’s right. The KEYS ETF, so the ticker is KEYS, in Switzerland. It is an index tracking ETF. It holds ten of the largest crypto currencies in the world. We’re very pleased to have brought it out with 21Shares, a leader in crypto ETFs globally. And it’s designed for investors who want to make a generalized bet on the growth of crypto assets without trying to pick and choose winners. This is a disruptive area of the market, and it’s hard to know exactly how it will play out in the future. Are the largest crypto assets today going to be the largest crypto assets tomorrow? I’m not 100% sure, so taking an index based approach allows you to bet on the growth of the entire space, bet on the beta of the space. And that’s what the KEYS ETF is designed to do in Switzerland.

Dan Barnes: So presumably the type of investors you’re expecting for the exchange traded products are different to those of the exchange traded fund?

Matt Hougan: The direct crypto asset holdings that the KEYS product offers in Switzerland means it’s an interesting ETF for people who want to hold those assets directly. As an ETF it’s available to all investors in Switzerland and so it’s a wide array of the marketplace. I really think the primary users of our new equity ETF in the US are financial advisors. Remember, financial advisors control a strong section of wealth in the US, about 40% of all wealth, and most of them are still on the sidelines, because we don’t have a Bitcoin ETF in the US, we don’t have an Ethereum ETF in the US. So for those investors, this offers a way to jump into the market to gain exposure, but without those challenges of holding Bitcoin directly.

Deborah Fuhr: So we have crypto products in Europe, we have them in Canada. Do you think the SEC is going to improve on this year in the US?

Matt Hougan: Oh, this year is a tough question, Debbie. I think we are going to approve one, and I think we’re closer than we’ve ever been. It’s not clear to me if it will be this year or next. But look, we’ve been working on a Bitcoin ETF in the US since 2013. That’s when the first ETF allocation went in. The number of issues the SEC had to wrestle with at that point were huge! They had to be concerned with custody, with audit, with liquidity, with arbitrage. Most of those concerns have been solved. The SEC is now focused on a relatively narrow set of plumbing issues and concerns about market manipulation. I think the industry will jump over that last hurdle soon. I’m just not sure if it will be this year or potentially next year. It’s probably too early to say.

Dan Barnes: if there was an exchange traded funds launched based on Bitcoin and other crypto, would you expect the investment base to be different to those for the other products we’ve outlined?

Matt Hougan: I think there’ll be a much wider array of investors focused on a Bitcoin specific ETF. We know there is significant pent up demand for direct exposure to Bitcoin, but I actually think the two might be complementary. You think about a week like we’ve had recently, we saw crypto asset prices fall. In that case, a Bitcoin ETF would directly suffer.

Crypto companies, however, have a different relationship with crypto asset prices than a direct investment in Bitcoin. If you think of a company like Coinbase, the largest single holding in BITQ, it does well when crypto asset prices are rising, but it also generates a significant amount of money any time crypto assets are volatile, because people are trading. So the two exposures provide slightly different takes on the overall long-term trend, which is the growth of the crypto economy.

Deborah Fuhr: That’s great. Thanks for joining us.

Matt Hougan: Thanks for having me. I appreciate being on.

Dan Barnes: So Deborah, can you tell us about the newly issued products we’ve seen over the previous week and can you give us a bit of color on what we’re seeing?

Deborah Fuhr: There are 26 new listings from 21 issuers. They’re on 11 exchanges. We saw another Bitcoin product come to market in Europe. We also saw ESG, thematics. 11 of the products were active and we saw another dividend product, so some of the themes just seem to repeat week after week. And clearly ESG and thematics have been the winners as we look at what’s happening. And there were 18 cross listings, so there’s still a significant amount of new listings and cross listing happening across this entire year.

Dan Barnes: That’s been great. Deborah, thank you so much.

Deborah Fuhr: Thank you.

ETF TV News does not provide investment advice nor recommend products.

Published on May 18, 2021