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

Transcript

Look, I think the four-year cycle is dead. You have this institutional adoption narrative that's going to overwhelm everything. In the last six months, Bank of America, Morgan Stanley, UBS, Wells Fargo have all green lit crypto exposure. It's like $15 trillion that are now open. Vanguard just green lit crypto exposure. You have Harvard tripling its crypto exposure. This is the more powerful narrative than anything that drove the four-year cycle in the past. This episode is brought to you by Zashi Wallet. You'll hear more about them later in today's episode.

Nothing said on Empire is a recommendation to buy or sell any investments or products. This podcast is forformational purposes only, and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Block Works. Our hosts, guests, and the Blockworks team may hold positions in the companies, funds, or projects discussed. All right, everyone. Welcome back to Empire. Very, very, very excited about this one. We've got the man, the myth, the legend, Matt Hogan, chief investment officer, uh CIO of Bitwise, and uh also Blockworks advisory member uh and also one of my favorite people in the industry. So, Matt, welcome. Welcome back to Empire, my friend.

>> That's quite an introduction, Jason. Good to see you. So glad to be here. Can't wait to chat. Yeah, you are the um you're kind of like the perma bull in my life where you know when everyone's freaking out like there on the timeline, I like to like to give Matt a call, make myself feel better going into the weekend. So, this is what uh this is actually a more of a therapy session for me than a podcast episode for everyone. So, I'd love to hear just I mean like so we're recording this uh December Friday, December 5th, right before I um I was looking at the markets right before we recorded. It looks like um everything's green today. Stocks, gold, silver. Uh but Bitcoin is down 4% fully erased the Vanguard pump on no news. 125 million liquidated in the past hour. What do you

make of the markets today? >> Yeah, the short-term moves. I think people in crypto over the last two months have learned to be nervous on weekends because a lot of our big resets have come uh with like after 5:00 p.m. news. That's what happened on October 10th. There's been a few other weekend level pullbacks. So, the market was up a fair amount. We had a bunch of good news. It was rapidly priced in and I think some people are taking chips off the table. I don't read too much into these long-term news. I sort of love the fact that we're sitting at a fear and greed index in the 20s and the market is flat for the year, right? Like we're we're freaking out about a market that is flat for the year. I think that's also what's happening here. People are just taking some of those gains off the

table going into the weekend because we've been conditioned to worry about weekends and people don't want to worry about this weekend. They want to enjoy themselves. >> Yeah. Why? Why is that? Is it because why why do the markets sell off on the weekends? Is it because crypto is the only tradable asset on the weekend? >> It's primarily that and we're less liquid on the weekends. We trade 24/7 365, but we are humans. So people turn off liquidity reduces on the weekends. And then also big macro news tends to happen on Fridays, right? There was a reason Trump announced the China 100% tariffs on October 10th at 5:00 p.m. It was to give the traditional markets the full cycle to calibrate around that before Monday morning. But crypto is of course open so we trade immediately. So

we're we're sort of suffering from our own success of offering 24/7 access um while still being humans. So liquidity does naturally dry up and that just makes the market a little bit more fragile. [clears throat] >> Yeah. maybe zooming out from just the short-term moves because I think you and I both don't pay too close of attention to neither of us are traders. We're not really, you know, looking at the ticks of the 15-minute candles or anything like that. Maybe just on a broader scale using the idea of the four-year cycle as a kicking off point for the conversation, how do you think about the markets as we wrap up 2025 and go into 26?

>> Yeah. So, through the lens of the four-year cycle, look, I think the four-year cycle is dead. by which I mean I think 2026 will be an upear but I do think the four-year cycle there it is um of Bitwise chart you know we started using that in 2022 uh when it was predicting three positive years >> um look uh uh I do think the four-ear cycle has played a dominant role in this year being so volatile I think a lot of people who have been in this market since 2014 2016 2018 we're sitting on substantial gains and I do think there was substantial selling ahead of the four-year cycle. Critics will say you're not seeing that much selling in the actual old wallets. I would respond that

you're seeing it in covered call strategies written by crypto whales that don't show up in wallet movements, but nonetheless introduce effectively new supply into the market. So, I think the four-year cycle has been a primary driver of this year's volatility, but I do not think it will pre 2026. M >> I think the forces that caused the four-year cycle are now very weak and counterveiling that we have like 10-year forces in institutional adoption and regulatory improvement that are very strong and I just don't see 2026 being a down year.

>> Huh. Can you explain the covered call strategy? And I think uh the context maybe is I'm pretty sure Bitwise has a if you hold more than either five or 10 or 50 million with Bitwise, you guys will actually you have an options uh underwriting team. So maybe if you could explain that. Yeah, that's exactly right. So, there are a lot of people who are sitting on big positions in Bitcoin that have held them for multiple years that have high embedded gains and don't want to sell them and pay taxes, but they want to take some of their chips off the table or they want to generate some income so that they could eat or go on vacation or buy a house or whatever.

So, what they do is they come to folks like Bitwise. We're not unique in offering this, but we do have specialized expertise. And they'll say, "I have a hund00 million of Bitcoin. I have half a billion dollars of Bitcoin. I have $10 million of Bitcoin. Can you write covered calls against this? Which means, can you sell options or futures contracts that give away the upside or some portion of the upside in exchange for income? And maybe you can produce 10 or 15 or 20% income per year, but you're forfeiting the upside. The reason I think this is important is we had the the sort of Jordy Visser moment where he described to the market that what was happening was OG holders were selling to new institutional

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

>> This is a weirdly niche question, a little off topic. Where what platforms is that trading happening on? Is this uh are the options trades happening OTC or is this Darabid or where does this go? Yeah, it's it's it's it's a mix of IBID options um right that you'll see on traditional platforms and some people are more comfortable on Darabbit uh or some people not Bitwise but others are using you know per markets or whatever the the the effect of how you do it is the same right you're selling future exposure it's statistically the equivalent of selling your Bitcoin from an upside perspective so it introduces that supply into the market but yeah it's a it's a mix you you do see a lot on IBIT right private options are now sort of the big dog in the space. That's

really changed from two years ago. So that's one of the primary ways people are executing this. >> Yeah. Okay. So let's go back to the four year cycle. So 2013 market does well. February 2014 I think I get these dates right uh is Mount Gaus market nukes. Four years later 2017 Bitcoin goes from a,000 to 20,000. 2018 bad year. 2021 you know Bitcoin rips. Things like Salana rip as well. 2022 23 tough year. That would say 25 market should have ripped. 26 would be a really bad year. Sounds like you think 26 will not be a bad year.

>> 26 will not be a bad year, Jason. Uh there there's your uh permable. >> Yeah, that's what we needed. M Yeah, get get more into it. Yeah, >> just to note on the permable thing. People do accuse me of that. I've been in the market since 2018, since I joined Bitwise, February of 2018. Market's up 1500%. So, the permable thesis has actually done fairly well over that time. [laughter] >> Yeah. Um, I think 2026 will be a good year. Here's the reason. There there are all these arguments about what drives the four-year cycle, but there are four primary theories, right? One is it's the Bitcoin having the Bitcoin having conditions the market to a supply shock and that takes four years to build into the market. The second is interest rates. Interest rates went way up in

2018. They went way up in 2022. Crypto does poorly when interest rates are rising. The third is sort of this blowup thesis which we get this big boom in the market and then you get a blowup like Mount Gox, like ICOs, like FTX and that resets. And the fourth is it's just chance and random. >> But if you look at each of those thesis, they're not really valid in this market, right? So to go through them, the having cycle is just not that important, right? It's it's half as important as it was four years ago. it's uh a fraction of, you know, a quarter of as important as it was eight years ago, a 16th, etc.

There's just not that much supply being removed. So, I don't think that is the the big dog wagging the tail. Uh the tail wagging the dog here. Interest rates are going down. So, that thesis is just completely invalidated, right? It's completely different. >> Blow up risk. You could argue that DATs are the potential blowup risk in this market. I think that is the strongest case for the four-year cycle repeating is that there is some risk in the DAT market. We can dig into it. I don't think it's going to happen. I don't think they're going to be forced to sell any Bitcoin. They'll just not buy as much in the future that they than they have in the past. But that's maybe the the other risk. And then it's chance across those four. They're all much weaker than they were in the past,

right? The having doesn't matter. Interest rates are going down. Blow up risk is much reduced. And then against the other side, you have a once- in a generation regulatory change from severe regulatory headwinds to strong regulatory tailwinds. And then more importantly, you have this institutional adoption narrative that's going to overwhelm everything. In the last 6 months, Bank of America, Morgan Stanley, UBS, Wells Fargo have all green lit crypto exposure. >> It's like $15 trillion that are now open. Vanguard just green lit crypto exposure. of Harvard tripling its crypto exposure. These are just this is the more powerful narrative than anything that drove the four-year cycle in the past. So, I just don't understand the

logical reason why it would repeat again. It just it's not like built into a mechanical clock. It was driven by specific factors and those factors no longer exist so it won't keep happening. This episode is brought to you by Zashi Wallet, your gateway to buying, storing, and spending encrypted Bitcoin. Zcash is decentralized digital cash encrypted to preserve agency and safety with a fixed supply of 21 million and a proofof work consensus. Zcash is encrypted Bitcoin. With Zashi wallet, you can swap Bitcoin or any other cryptocurrency into Zcash and stay shielded by default. Thanks to Zashi Wallet for making today's episode possible. Shout out to today's sponsor,

Katana. Katana is a DeFi first chain built for deep liquidity and high yield. No empty emissions, just real yield and sequencer fees routed back to DeFi users. Incubated by Polygon Labs and GSR, [music] Katana is launching with notable ecosystem of primitives, assets, and partners like Morpho, Chainlink, and more. >> [music] >> Katana's 1 billion CAT campaign is live. Bridge and deposit directly into [music] vaults in one simple click and start earning immediately on your Ether, Bitcoin, USDC, and more. Follow the link in today's show notes to get started. As always, investments in blockchain technology involve risk terms and conditions apply.

Let's double click on Micro Strategy. You guys uh I think you actually wrote this. You published a great piece. Um, I just pulled it up here called uh, no no Virginia strategy is not going to sell its Bitcoin. And by the way, this is a Matt writes a great I think you do it weekly, Matt. Great CIO letter to all your your guys' investors. You guys just made it free for people to read. So yeah, people should sign up. Um, we can put a link in the show notes. Um, but yeah, maybe let's double click on Micro Strategy and the headline, I'll read it and then you can get into the details, is there are a lot, you said there are a lot of things to worry about in crypto. Michael Sailor selling Bitcoin is not one of them.

It's absolutely true. There's this meta in the in the in crypto Twitter in the in the broader traditional media that Micro Strategy will be forced to sell its Bitcoin. And I think it's such simplistic thinking. The thinking is Micro Strategy has debt and it's used it to buy an interest that generates no cash flow. And eventually that doesn't work. Like sure that's true if you stretch it to infinity, but the thing about debt is you can actually look at it. And when you actually look at it, here's what you see. Every year, Micro Strategy has to pay $800 million in interest. It's sitting on $144 billion in cash. Therefore, it has plenty of cash for the next 18 months. Okay,

that's literally invalid for as far as the market can discount. The second is it has $8 billion in debt against $60 billion in Bitcoin. For starters, that's not very much debt against a lot of Bitcoin. But then if you look at the actual debt, none of it comes due until 2027. And in 2027, a billion dollar of debt comes due. It will have to either refinance or pay that debt. But the the the idea that it's going to have to sell $60 billion of Bitcoin, there's just no world in which that's true unless Bitcoin falls 90%. And if Bitcoin falls 90%, we're not worried about Micro Strategy, right? We're all looking for

other jobs. So I just think it's it's from a data perspective just strictly untrue that it will be forced to sell its Bitcoin. There is there's not a world in which that will happen. >> Yeah. Jeff Dorman had a take and I'll parap phrase it because I don't remember it perfectly but he said uh the the market has a tough time realizing that Micro Strategy is no longer a relevant buyer of BTC but they're also not a forceller. And the context here is there's been kind of this perma bid for Bitcoin with uh Micro Strategy sitting under the bid and uh that that doesn't really exist anymore, but they're not also this forceller that people think.

So it sounds like you would agree with Jeff. >> That's precisely right. We should worry about them no longer being purchasers. I don't think DATs are going to purchase Bitcoin or much Bitcoin next year, but they're definitely not going to sell. And what that means is you have to think about who is the marginal buyer that's filling strategies shoes. My view is it's those institutional investors. It's Morgan Stanley. It's Meil Lynch. It's Wells Fargo. It's UBS. It's endowments that are coming online. I think that that is bigger than one guy in Fairfax, Virginia who wants to own some Bitcoin.

So, from my view, it's not a worry. But, but Dorman is is is right that that is the switch. There's no sales. There's probably no purchases. That's the right thing to talk about when you talk about >> strategy. Do do you get worried about other debts? Maybe not, you know, the the the top five, but the the long tale. >> Yeah, totally. I I think about DATs. They're missionaries and mercenaries. The missionaries are here for Bitcoin for the long term. You know, you'll pry Bitcoin out of my dead hands. That's the sailor view. The mercenaries who followed along and just wanted to copy what Sailor did to get rich. Uh, easy.

They're all going to go away. But but the thing is, they don't hold much Bitcoin, right? Like they're all pretty small. like they could all dump tomorrow and the price would go down 4% and then we would be back to what we were doing and wouldn't have to talk about it. So I I do worry about those mercenaries, but I think I think they'll just be washed out of the system. I don't think they're a big deal. >> Yeah. Maybe we can pivot a little bit into I think you guys have when I think about like what Matt could bring to this conversation that is the most unique. It's probably you can take us into the room of the conversations with the financial adviserss and the RAAS and uh I I loved your one of your tweets this week or last was something along the

lines of like in bare markets good news gets suppressed and that's such a it's actually such a good indicator for what kind of market we're in. Um you know bare bull markets good news happens things rip bare markets good news happens you know it doesn't even get any likes on Twitter. Um you you guys uh Hunter posted this morning Matt Hogan did a call with 2,000 adviserss of a very large US bank. They wanted to know more about Bitcoin and you you know you quote tweeted him and said when I was done I jumped on a call with a $50 billion adviser advisory firm. There's also other news from this week or the week before which was uh Bank of America is now allowing wealth advisers to recommend 1 to 4% allocation to crypto focusing on spot bitcoin ETF starting in January. um would love to hear like as

much detail as you can possibly add on both why this matters but like what's what's actually being said in the room. >> Yeah. Yeah. I think why it matters is is pretty clear. I mean take Bank of America. They have $3.5 trillion in assets. 1% is 35 billion. Uh 4% is like 140 billion. That that's more than the total flows into Bitcoin ETFs so far. So you talk about one firm that it alone could more than double the pace of Bitcoin ETF inflows. That's why it's a big deal. And it's not one firm. As mentioned, there are four wirehouses.

They're basically all on now. >> Who who are the four warehouses? >> Uh there's there's Morgan Stanley, there's Mel Lynch, there's uh UBS, and there's Wells Fargo. Um and they're just the biggest advisory groups all managing many trillions of dollars. So the reason it matters is you know if they move 1% 2% 3% it's a flood of investment into Bitcoin to give you to to to maybe put on Matt Hogan's slightly bearish cap which I know you didn't want me to wear but I will I will bring the truth to the the thing about this is they move slow.

So to put you in the room where these where that call on two thou with 2,00 advisors was about was why does Bitcoin have value and how do you value Bitcoin and what is its role in its portfolio? It was a very 101. They follow up with questions about quantum volatility correlation but it is pretty basic and it takes a long time. The average Bitwise client I think invests after eight meetings with us just >> um and some of those meetings are quarterly, right? So if you wonder like why is Harvard just now investing in Bitcoin, it's probably because they started studying it when the Bitcoin ETFs launched in January and they did eight quarterly meetings on it

>> and we just got there. >> So these are these are slowm moving entities but they are tankers. They are absolutely enormous. >> Yeah. What do the um what is the hesitation of the financial advisors today? Like how like how are they not there yet? >> Yeah. Um I think there are two reasons for that. Like the the the one thing a financial advisor doesn't want to do is have a meeting with their client where something is down 50% and their client fires them. >> It's really hard for these adviserss to get clients. retention is actually more important than growth and they're mostly not optimizing for maximum portfolio returns. They're building businesses, right? I think maybe that's the core

thing crypto might not get. If you're optimizing for portfolio returns, of course, you're going to add Bitcoin. It's the best performing asset over the last 15 years. It's not correlated to stocks. If you're optimizing for retaining clients, it's a different question, right? because you could buy Bitcoin, it could go down 25%, your client could call you up and fire you, right? That's one of the reasons they're slowm moving. It's one of the reasons they put a little bit in and then a little bit more and a little bit more because they're optimizing for client retention and not for portfolio returns.

And um you know, that's why it's taken them so long because they were afraid of of a 2022. If you put your clients into Bitcoin in 2021 and you added a 5% position and then FTX happened and it was on the front page of the Wall Street Journal and you were down 75% those clients fired you, right? That's just I mean that's just the reality. That's one of the reasons the reduction in volatility in Bitcoin is so important and we've really seen that volatility come down because it reduces this firing risk. So maybe maybe that's something crypto Twitter doesn't focus on enough.

>> Yeah. I mean are financial advisors advis putting people into AI stock like in you know Nvidia could go down 50% just same likelihood that Bitcoin could go down 50%. >> Yeah totally. I think the difference there is the media uh meta. Yeah. >> You know like the media meta around AI is it's transforming our life. We're creating you know God in a box and it's going to give us all infinite uh abundance. Um the media meta around crypto is still it's this ephemeral thing I can't touch it may be tulip bulbs it could go to zero right so the reason your client calls you up is not because you bet on AI which everyone thinks is going to be the future but you bet on this thing that is still outside the mainstream and therefore you could

get rung up on the media reporting >> how much is that starting to change though because I think if you go back a couple years ago it was probably just Bitcoin equals digital gold ETH equals maybe world computer and like the story kind of stops there. Now we have two big trends this year which is stable coins and tokenization. You're just starting to see inklings of you know I think what it'll be in two to three years privacy digital identity things like that. How how much is that you know you see the conversation changing in the rooms that we're in in crypto. How much is that actually changing with the financial adviserss?

>> It's it's been transformative. It actually has surprised me. Um, you know, our meetings are now 50% about Bitcoin, 50% about stable coins and tokenization. So 50% about Bitcoin, 50% about ETH and Salana. That's what people want to talk to us about. And because those are so much more tangible to people and have so much more positive media reception, they're way open to that idea. So I think in terms of like does crypto matter, will it be here in the future? Establishing stable coins and tokenization as something that sort of everyone agrees on is the direction of travel has really reified crypto and it has reduced the risk. That's one of the reasons we see strong ETF flows

particularly from advisers because it's no longer this fantasy internet money that no one can touch. It is this platform that most people have accepted will change how finance works and maybe should they should have some exposure to it. So I think it's been a big deal. Yeah. Yeah. It's funny. I feel like the news stories that we care about are like, you know, unis swap driving fees back to token holders, but the stories that actually matter is like, you know, Stripe launching a chain and CLA launching a stable coin. >> Absolutely. Or or driving, you know, I'm in San Francisco. You drive through, you see you see stable coin billboards. Like that stuff actually matters. Um and it matters that Harvard owns Bitcoin and Ray Deli owns Bitcoin and Stan Duckiller.

>> Yeah. It's like PTJ, what was it? May 2020 saying Bitcoin's the fastest horse in the race and boom, the career risk for hedge fund managers is off >> 100%. And now it's off for endowments and it's coming off on pensions and it's coming off on insurance managers and even sovereign wealth funds are starting to move and all these things accrete at sort of an exponential pace. We're just early in that development. >> Yeah. >> Um yeah. >> How do you answer the question around price? Um you're in a room with financial adviserss. They say, "Matt, what do you think uh what's the probability that Bitcoin is like, you know, 150k next year, 180K? How do you how do you think about like price predictions?"

>> Yeah, it's a great question. I think the thing that we focus on is what the ultimate price will be. Like the the the best thing you can say about Bitcoin right now from a short-term price perspective is that it's wrong. It seems really unlikely in 10 years that we'll be sitting around and Bitcoin will be 8% of the gold market, right? right? It's sort of at an unstable equilibrium. Either it will be nothing or it will be 50 to 100% of the gold market. So the way we talk about uh price first and foremost is focusing on the size of the market it's going after and convincing people that you know look it's going after a 30 trillion plus dollar market.

If it gets half of that market it's a million dollar asset. So I think that is the primary thing in terms of whether it's 80 or 90 or 100. The reality is advisors don't care that much, right? They're making a decision to invest or not. Um, and they want to know that if they invest and they're right, they're going to make a lot of money. They're they're really not as concerned about 100 versus 90 versus 110. I think we tie ourselves in knots too much being very specific about that. >> Yeah. What are the assets uh outside of Bitcoin? Is it just like is it kind of and and who decides that? It feels like it all kind of stems from the CME maybe like CME supports Bitcoin, XRP and Soul so therefore that flows into Vanguard

like how does this Yeah. like how does that actually flow of decision-making work? >> Yeah, I think anything that has an ETF around it can fit into this framework. So first it was Bitcoin, then it was Bitcoin and ETH, now it's Bitcoin, ETH and Soul. Uh XRP is starting to bubble up around the edges. I think chain link will enter that equation. I think at some point >> really why why chain link? >> Oh man, chain link is so easy to describe to institutional investors like if you believe in a world of tokenization where real world assets are on blockchains. How do you get information about those? You need a source to get information. Chainlink owns that market. It's like the Bloomberg for crypto. And you say those

three words and they're like, "Oh, I want that." Um, I do think these these easy narratives really do matter to advisers. Yeah. >> Uh, Bitcoin is digital gold. ETH didn't connect until it was a platform for stable coins and tokenization. Chain link as the Bloombrew crypto connects. >> I'll tell you one more fact that people don't know about advisors. Um, again, people think of these financial adviserss spending all their time on portfolio construction. How do I build the best portfolio in the world? And what the data suggests is that the average adviser spends five hours a week on portfolio construction.

>> So five hours a week, that's 300 minutes. Let's say they have a 1% allocation to crypto. >> They can spend three minutes thinking about crypto this week, right? That's the extent of their knowledge. That's why these short things are so important. Uh Bloomberg for crypto, tokenization, and stable coins because they have like you have to think of them having three minutes a week. Okay, let's push past those five assets. What else could have a story? Like how do you think about the story for like a unis swap or a hyperlquid or give me, you know, maybe I shouldn't bias with those those tokens, but like what what what tokens and projects do you think could have uh good stories?

>> Yeah, apps have good stories. Absolutely. Uh unis swap has a good story. Um >> uh hype has a good story. A has a good story. Ando has a good story. I think apps are easy for people to follow along. uh within that list I think unis swap and a are the easiest um for traditional advisers to to understand >> the story >> well well unis swap you can just position as this decentralized coinbase and then you can talk about how the fee switch is unlocking revenue in the same way that like Facebook turning on ads unlocked revenue and you just point at the statistics and it's incredible um a is lending in crypto and owns the market, right? Really dominant, right?

80% share. And then the other fun thing about a is if you can actually show an adviser how it works. It's the closest crypto has to magic. Um like showing someone how easy it is. Uh the UX on it is so good that that that really resonates. >> Uh hype I find a little bit more difficult for non-cryptonative people because you have to go through like what are pers? Um and that's just confusing to people. uh lending and trading is not confusing to people. So, Uni and A are easy to do.

>> How do you think about the difference between the CH talking about different chains? So, someone comes to you and says, "Tell me about you know, Ethereum versus Salana." Is it a Yeah. How do you think about that? >> Yeah. >> I describe the differences, the core differences at a 30,000 foot level so people understand that they are different because I think that's really important. Many people think it's just all me too and then that gets really confusing because you're like, why would it be any of these? If you can describe how they're different, that's great. And then basically we tell people to own them all. >> Um I mean that's that's the honest answer like like and I actually think it's the right answer for most people. I have a lot of confidence that programmable layer ones will be really valuable in the future. I have less

confidence on which programmable layer 1 it will be. And if I had three minutes a week to think about crypto, I would have no confidence. And so the response the the the right approach is probably to um probably just to own a diversified basket. Uh but but we will go into and we do go into the difference between ETH and Salana which I think is instructive for people to think about how these are different technological projects going for the same goal with different trade-offs and it's a vibrant competitive market. Um and so we do do that for people. This episode is brought to you by Zashi Wallet, your gateway to buying, storing, and spending encrypted Bitcoin. Zcash is decentralized digital cash encrypted to preserve agency and

safety [music] with a fixed supply of 21 million and a proofof work consensus. Zcash is encrypted Bitcoin. With Zashi wallet, you can swap Bitcoin or any other cryptocurrency into Zcash and stay shielded by default. Thanks to Zashi Wallet for making today's episode possible. Shout out to today's sponsor, Katana. Katana is a DeFi first chain built for deep liquidity and high yield. No empty emissions, just real yield and sequencer fees routed back to DeFi users. Incubated by Polygon Labs and GSR, Katana is launching with notable ecosystem of primitives, [music] assets, and partners like Morpho, Chain Link, and more. Katana's 1 billion CAT [music] campaign is live. Bridge and

deposit directly into vaults in one simple click and start earning [music] immediately on your Ether, Bitcoin, USDC, and more. Follow the link in today's show notes to get started. As always, investments in blockchain technology involve risk terms and conditions apply. Is there a So you you guys put together these these asset bundles basically for people to buy. So if someone wants a diversified basket, you can just go to bitwise and buy that. How do you think about what the criteria to get in there? Like um like you know monad just launched. We just had Kony on the podcast. I'm guessing monad is not you're not giving people exposure to monad. Maybe at a certain point you will. What's the criteria there?

>> Yeah, absolutely. There there's sort of a qualitative criteria and then a series of quantitative criteria. So what you're trying to do is avoid blowup risks. As an example, we've been running this index fund since 2017. Luno was the fourth largest asset. It never made it into our index even though it's the Bitwise 10 ostensibly the 10 largest assets. We screened it out because we identified the exact risk that caused it to unwind and never allowed it into the index. That's what you want to do is you want to be conservative because you can't again again you have to think risk first. You can't have blowups in this space. So you take something like like MONAD, it has to satisfy a number of quantitative criteria related to that.

It needs to be custodied by a qualified custodian. Needs to have a certain amount of USD liquidity. It needs to um uh you know not be at risk of being found in violation of federal securities law, but it also needs some lindiness, right? It needs to be around for a while because that reduces that blow up the risk as well. So that's that's how we approach it. >> Yeah. Um there was a big debate last week or two on Twitter, Hib versus Santi with others getting roped in. Uh you know, Hashem thinks L1's will be worth much more. Santi probably I think says they will be worth much more but they need a drastic uh you know re reval revaluation I guess he would put it. Um and he had this they

had this whole debate on thread guy. People can go listen to it. Uh it sounds like you're more in the hib camp. >> Yeah I mean it's a great debate. I am more in the hashe camp. I think the value of these uh will ultimately be tied to fees and revenues and economic metrics. I don't think they're >> um I'm actually not that aligned with the the store of value concept across all these different chains. Um I think it's going to be economically driven. I just think the the the scope of these markets is it's like a 100x bigger than even the bulls think in the crypto market. I think people dramatically underestimate things like just like the number of transactions in the world. I

think that the typical approach is to look at the number of transactions in the traditional world and map that over to crypto and assume we're going to capture that. And that I think understates it by like a 100x. I think when you move on to layer 1's you get like a 100xing of the number of transactions. And so uh I am an economically driven valuation guy. Um, but I think it is in the distant. So, so they look dramatically undervalued as Santiago would point out today, >> but I think we're underestimating the scale of growth in the future by by a significant number.

>> So, is it okay? So, to maybe try to summarize that, you do think things will get valued on financials. >> Um, you know, PE, price sales, what whatever it looks, revenue, profitability, whatever that looks like. um which would probably be Santiago's argument, but you also agree with Hib in that everybody drastically underestimates network effects compounding and how big the world really is. >> How big the world really is. Um and also just what happens when you take as take things like money or stocks that trade with high friction a few hours a day and you make them low friction, low cost, global etc. I just think that the number of transactions, the amount of activity,

the scale of activity is underestimated by like a factor of a hundred. To give us a simple example, we get paid every two weeks. Why don't we get paid every hour, every minute, >> right? Like that's that's that's a thousandxing of transaction activity related to payroll. I think there's a thousand of those examples. So, yes, I'm aligned with both. I guess it'll be valued on metrics. >> Yeah. But uh those metrics are just much bigger than I mean Salana's the same size as Sherwin Williams, the paint company. Uh if it's the global layer of financial activity in the world, it's going to be worth more than a paint company. I think that's sort of the core thesis on something like Salana.

>> Sherwin Williams. Good paint though. Good paint. >> It's great paint. I >> Good paint. >> I agree. Um >> much higher revenue. They they have 25 billion in revenue. Salana's doing billion. Yeah. So is it 25x like but you're valuing it based on that future potential right? >> Yeah. Yeah. Yeah. Yeah. Um if you are a founder of a token today and you want your token to go up, uh there are things that people are trying to do. There's um setting up investor relations teams, there's quarterly investor calls, there have been buybacks, there have been driving fees back to token holders, there's been, you know, this historically because of regulation is split between labs and foundation and equity and token holders. people are starting to combine those. What do you

if like if you were advising a founder of a token on what to do to get more people to buy their token, how would you think about that conversation? >> Yeah, I think you absolutely have to do all the things that you just outlined. I think you need quarterly calls. I think you need investor relations. I think you need truthful statements about where uh your hope for this uh app or protocol is going to go. You're not in control, right? It's controlled by the the community, but you can have a view on where it's going. I think the folks that are doing that well are achieving some level of escape velocity and the folks that are ignoring that are sort of drifting off into the graveyard. We are entering this world where regulation

allows much more direct economic ties between these tokens and their actual underlying activity. And so protocols or app builders need to orient around that to serve investors. It's worth noting companies have been doing this for hundred years. They do all these things. There is a reason they do all these things. And so your starting point is you should do all of these things. And then you should have very strong reasons not to do any of the things. >> Um and so I think people need to reorient around that as the starting point.

>> Yeah. [gasps] >> What do you think of buybacks? >> I think buybacks are great. >> Yeah. >> Yeah. What do you think of buybacks? Um, I don't like them as much actually. I'm I think we're doing them a little bit too early because I think when you buy back your shares, you're basically saying I have no better use for this capital. Um, I've and to me that feels like a mature company thing. So if you are an early stage startup, the you I mean I would hope that you would have better things to do with that capital like you see a lot of growth potential. So the counter-argument to that probably is that uh these teams raised so much money at such high so so much money you know if you know company should have raised 30 million they were able to raise 300 million that you actually do

have excess capital that you're sitting on. >> Yeah. Yeah. I think I think both sides of that are true. So that resonates with me. But they they did raise huge amounts of money. Yeah. Um I think that's right. I think they are sitting on that. So >> I mean I think it's probably conditionally specific individual entities. I don't think they've all been great stewards of capital. I do think a foundation that has excess capital could manage it better, uh, could run it more like a VC portfolio than the way we've seen them manage it in the past. I'm not sure incentivizing short-term use is a great use of that capital. I'm not sure people have measured that appropriately or tracked it in any serious way. So I

think there are better ways to use your capital and maybe that offsets the need to do buybacks. Maybe there we just need a new iteration of how we manage these things. >> Yeah. >> Yeah. It's interest. I don't know if you've looked at what arbitum is doing but they basically treat a lot of their treasury as I think basically an investment firm as opposed to you know an incentive mechanism. So >> I I think that's exactly the direction of travel and of course there's been examples of that historically right like consensus was vaguely that in the east community. Um, but I don't know that most of those early examples were run with a level of professionalism and uh a strict sort of profit self-sustaining motive that they should have been run in the past. I think a lot of capital was wasted in those environments. And I do

think if you if you ran it more like as you're describing with arbitum, I think the long-term compounding impact would be really significant. This episode of Empire is brought to you by VanX onchain economy ETF Node. If you feel like you are constantly missing alpha, never have time to scroll through crypto Twitter, Node is for you. Node is actively managed by an experienced team with years in both trady and crypto. That team at Node looks to capture the most powerful trends across all of crypto while actively managing volatility as markets evolve. Super important in today's environment. Check out Node's track record so far at van.com/mpire/node.

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Yeah, it's really hard to do anything institutionally on Zcash. Um, so the regulators are still uncomfortable with it and you need a very specific and detailed conversation about whether optin privacy and default privacy are the same thing and raise the same sort of AML KYC concerns. And one of the reasons you've seen like ETF providers move slowly on Zcash, whereas they're moving fast on things like Hyperlid um uh is that Zcash has this like much more complex discussion around privacy, AML, and KYC. For what it's worth, just to be clear, I'm not expressing opinion on that. I'm just saying what the

conversations with regulators are like and why that's moving so slowly. M >> a broad thesis I have which you you hinted at earlier is that you know crypto had this one narrative which was digital gold and now it has three which is digital gold, stable coins and tokenization. I think in the next two years it's going to have 10 and I think privacy is one of those and the extent that Zcash is like the the easy play on privacy the privacy meta I think it will eventually attract institutional interest. It's just really hard to do it in a fund structure right now in any geography, not just the US, but in any >> Why is I know they can't actually use Zcash the the network, but why can't they just buy the token?

>> Uh because you know, you you you just run into questions with the regulator around whether this whether this is a traditional privacy token. It's the same reason you couldn't do anything with Monero. >> Yeah. Yeah. Yeah. I do think the story is very easy. The story is basically uh I mean it's very it's very similar to the crypto story of like you know information the internet made information freely transferable around the world in real time uh to you know with with no borders. The only thing that doesn't have that is money. Crypto is fixing that. Zcash is basically all of your all of the internet has become encrypted right your photos your data your files the last but there's only one thing that's not encrypted which is your money. And that's that's just because of

historical precedent, not because of any real reason. So, but yeah. Yeah. Point regulatory reason. >> No, it it resonates with me and and and I think it's a a space that will grow substantially. Um it's just going to be harder from a product perspective. >> Yeah. Um you had a post about uh ICOs the other day that I want to try to pull up. Um I'd love to just hear I think it was about Monad maybe. uh you said, "Oh yeah, comparing the Monad ICO with a traditional IPO is an incredible example of both the democratizing nature of crypto and its amazing efficiency." Um I'd love to just hear your view into the future of what ICOs will look like.

>> Yeah, I think that'll be really really important. Uh one other sort of meta theory I have is that all of the experiments in crypto will be right. It's just when they become true. So ICOs were something that boomed and then uh collapsed and people dismissed them out of hand and I think they're going to come back and be orders of magnitude bigger than what we saw in 2017. I feel the same about Deepin. I feel the same about DeFi. I feel the same about NFTTS. I think all of those will be back at orders of magnitude of what we experienced before.

>> ICOs are sort of the the cutting edge version of this. What I saw when I looked at the the Monad ICO was a process that was deeply democratic that thousands of people could participate in that effectively raised net new capital from net new investors for a project that wanted that that brought them into the community. So it was a win for Monad, it's a win for Coinbase. It was a win for investors. And when you compare that to what happens with a traditional IPO, which has very high fees, right?

You're talking like 5 10% fees, um, is anti-democratic in that it's only distributed primarily to institutional investors who have deep relationships with these bankers, um, and is very slow and hard to do. One is just like 10x better than the other. Um, it is simply a better process. And so I think you're going to see uh dozens of those. The last thing I would add is one of the reasons ICOs have been so bad in the past is because tokens couldn't have a link to economic value and that's why we got so many scam ICOs, but that's been released as well.

Now you can have tokens that have an economic link to the underlying protocol. So you have a better, faster, cheaper, more democratic system. You have uh regulations that allow you to have tokens that have huge value. I think it's going to be a a giant boom again I think much bigger than 2017 ICO boom. >> Yeah. On a related note, how do you think about the convergence of equity and tokens? And maybe you use Bitwise as an example here. The traditional path for Bitwise, you're a private company. You're not necessarily an onchain business. You don't have a token. Natural path would be raise a series A, B, C, D, E, go public, right? And do an IPO. How do you think about maybe in five years what that could look like?

Would you IPO onchain with the token? Would you do an IPO? Would you do both? >> Yeah, I think I think those are going to blur. Um I don't think it's binary actually. I think they're uh you know, you have Paul Atkins, the SEC chair, talking about securities tokens, which are just companies issued on a blockchain. So um depending on the pace of of tokenization and how quickly wallets are absorbed, you might uh you'll see people doing both to capture two different audiences. And then long-term the eventual process is ICO only right I think that's the direction of travel um in the markets but I do think we're seeing this we had this binary of like companies and tokens and tokens could have nothing but governance

value which is actually a net negative in the traditional world like people don't want governance they pay other people to vote for them um and that was the only value tokens had and now we're getting this blurring and I do think eventually it's all going to be ICO based. I mean, I think that's that's almost inevitable in how the market direction is. >> Yeah. Yeah, I tend to agree with that. Um, Matt, this is great. Anything else that's been on your mind or things that feel obvious to you that you think others are missing that you think we should cover? >> Yeah, great question. We covered the four-year cycle, which I think is important. I I would just anchor again on that eight meeting comment. Uh we're eight meetings into the ETF era and we've just unlocked these like $15

billion markets. It's just going to it's just going to keep I think it's going to be overwhelming in 2026. I I just think there is so much good news built in there. Um that I think the institutional flows will be really strong. I I also think on these other narratives like stable coins and tokenization, the market will probably get disappointed with that at some point in 2026, but it would be wrong to be disappointed about that. Yeah. >> And the Genius Act doesn't even go into effect until 2027. So, I think the market expects that market to like turn to a trillion dollars next year. That's probably not going to happen. It's probably going to be slower than that.

So, be prepared for that. But the the long-term outlook for 2026 is just extraordinarily strong. strong regulatory, strong institutional demand, um new use cases bubbling up. Uh I I can't I can't help but be very optimistic. >> Yeah. Yeah. I think the theme of 25 is that there's a probably more exciting things happening in the industry than ever before. And also maybe some things have gotten over their skis in terms of valuations, but that doesn't mean on a long-term time horizon they're undervalued and or that doesn't mean that they're overvalued. That probably means they're drastically undervalued, but you just have to zoom out a little bit. And I thought um my co-founder Mike had a great take on prediction markets this morning. He said, "I think prediction markets have hit a local maximum, but the structural trend is

insanely bullish. Short-term, I'd expect the bloom to come out of the rose." Always one with words. Uh and a barrage of negative publicity. It's just sports gambling. Financialization is bad, etc. However, long-term, they will completely eat and replace areas like news and gambling, but also open up entirely new markets that are impossible to predict today. And I just I love the phrasing there. I think shortterm, yeah, you know, maybe things got over their skis and I don't know if Calcium Poly Market should be valued at 11 billion and 15 billion today, but they're probably grossly undervalued on a long uh long-term time horizon. So, >> yeah, I think that's a that's a really a really good take. Um, the other metatake I've been thinking about a lot is I

think we might look back at 2025 at some point and say, "Huh, you know what? $100,000 was like a big behavioral cliff we had to get over. Took us like a year. >> Yeah. >> And that'll be like all this angst that we've been through, I think, can probably mostly be summarized with that. It's like, oh, that was like a big barrier and now now it took a year and we're past it. Um, I think both of those things are true. Look, I I do think, you know, >> I do think the direction of travel is just upwards. >> Yeah, you and me both, my friend. Matt, always good to see you. Uh, enjoy Breakpoint and whatever else you're doing. And uh yeah, be well, my friend.

>> All right. Thanks for having me, man.