Teddy Fusaro on Why Wall Street Is Being Replaced by Crypto

Transcript

We got Teddy in the building. Let's give him some love. Let's go, Teddy. Teddy. How are you doing, man? I'm great. I am I'm wondering how Rob is doing because I know that this is a very policy-heavy day, very policy-heavy event, uh and getting into some of those details uh can be uh at times tedious. Rob loves it. >> a great time. I actually mentioned earlier that there is more innovation happening in the policy world that I'm seeing from some crypto-native L1s out there. It feels like we have scalable, affordable, fast, secure blockchains.

We're kind of like not done, but we did a lot of the thing. Now a lot of work and innovation is happening on the policy front. That feels like there's a lot of That's where the action is. Yeah. I hear you. And look, it's important. It's very important. I mean, I I every year since Bitwise's inception, so starting in 2018, we've done a survey of financial advisors, thousands of financial advisors every year. And up until 2024, the main thing, the number one thing holding them back from investing client assets in crypto was regulatory clarity.

So, I think like there's there's there's a there's a moment in DC in particular where we feel like we've kind of like gotten to the on top of some sort of plateau or crossed like a Rubicon of sorts because we've had so much progress on the regulatory front. Um but it really does matter. It matters not just in crypto, it matters in every industry. You need to be able to it particularly for early-stage companies, you need to know what the rules of the road are going to be. So, it's important to be here, and I'm glad you guys are here. Yeah, absolutely. Teddy, president of Bitwise, carries a lot of gravitas. Such a role.

Could you tell us how you ended up as president of Bitwise? Yeah, sure. Well, thank you. I think that's that's uh very kind of you, very kind. Um my my career, I started in traditional finance. I spent a couple of years at Goldman Uh before getting into the ETF business generally. And so I got into the ETF business in the early days of that industry before ETFs were a thing. Like I think it's easy for a lot of us to look at ETFs now. They're the building blocks of like almost all wealth portfolios now. They're in in in some respects ETFs are actually the the the biggest financial innovation

even a fintech innovation of the past 30 years. Think about how huge ETFs are. 15 years ago it was not assumed that ETFs were going to be as dominant as they now are. And so I was sort of lucky enough to get early on the ETF trend. I spent better part of a decade in early stage ETF issuers after selling one of the companies that that I worked for in the ETF space was when I I fell down the crypto rabbit hole, got bit by the bug. I met Hunter who you guys had on the show when Hunter was was starting Bitwise and I wanted to be in crypto. What I knew

how to do was build asset management companies, asset management businesses and that was in that was in 2017. So I've been been working with Hunter and Matt who you guys have had on the show since then on building building Bitwise. So that's that's the story. Well, Teddy, we brought you on today to just kind of have a general conversation about what's happening behind closed doors in the asset asset management and kind of capital allocation space. Let's just start super high level. There was a news report today that I think actually Frank tweeted about that said that institutions and banks and firms are now adjusting their crypto allocation from 2% all the way to 7% recommended from RIAs, other other you know, firms.

Where we at as far as asset management space in terms of recommendations of crypto exposure? Is that 2 to 7% what you're seeing? What are you hearing? What's the chatter kind of behind the closed doors? Yeah, so the the one thing I would say for starters and I and I I know that crypto people don't love hearing this. >> Okay, great. Well, let's let's hear it. But I and I talked about this on stage earlier, it's still very early in the process. Um going back to the second half of 2025 was really when we started to see the large platforms that host most of the wealth that is advised in America.

Uh the second half of last year was really when those platforms started to approve Bitcoin and crypto ETFs to be available for their advisors to invest in on behalf of clients. And so like you say behind closed doors, this is a this is a little bit of a window into how that works. Like in order for a financial advisor who runs his or her business on Morgan Stanley or Merrill Lynch or Wells Fargo or UBS, think about the large broker-dealer platforms where most of the mass affluent's wealth in America, the doctors and lawyers and dentists who have a financial advisor that works on

one of these platforms. There is a there is a centralized gatekeeping process at each one of these places. And in in less than until a product goes through that gate, they won't be put into the portfolios of those clients. And I think that the second half of 2025, really the fourth quarter and the beginning of 2026 is really when that approval process started to really go through the process. And the reason I say crypto people don't

love to hear this is that it's early on Right. in in that in that process. Like it it takes a while for these things to work their way through the system. And what is what is the like the the blocking and tackling of this process looks like? It now means that for these platforms that have thousands of financial advisors across America, someone who who manages a crypto ETF, a Bitcoin ETF, an Ethereum ETF, a Solana ETF needs to go talk to that each one of those advisors and say, "Hey, here's why having an allocation, like you talked about Frank's article from

this morning, 2%, 1%, 5%, here's why having an allocation makes sense." And then the advisor is going to want to talk about it. They're going to want to study it. And so, it takes, I think, years for this to really unfold. And I think we're in the beginning of that process now. So, I think it's a long game. Yeah. Is this the same way that the ETF innovation unfolded on mutual funds and ETFs? Did it start out 1%, 5%, 7%? How similar or different is the parallel of the ETF business to the digital asset business? Great question.

I think it's very similar. So, like, something that a lot of ETF aficionados, like, Matt Hogan, who you all had on, our our chief investment officer at Bitwise, was one of the leading lights of the ETF movement early on before ETFs were widely accepted. At that time, in in the early 2010s, um there were people who said that exchange-traded funds were financial weapons of mass destruction. Mhm. And it's a it's very similar >> Sounds a lot like crypto.

>> Right? Like it's very similar. And it's, you know, it's not all that different from from any new technology, frankly, right? Like the horse and buggy proponents of the horse and buggy said that automobiles were the most dangerous invention, right? Like it's just people are resistant to this kind of change. And from a very early phase in ETFs adoption, you could see that they were eating mutual funds, but but it it was going to take a decade or two >> Yeah. to actually occur. And so I think that this is the way. Like you know, I was on stage earlier where I asked the question like, "Hey, what's next?" I'm very excited about what's next, but I also think that we need to, as an industry, be aware that change it

it's rapid, but it does take time for it to work its way through the system. And I think we're in the early innings of that, and it's I'm very confident, Bitwise is very confident, that that is what's happening. Yeah. And so one of the ways that these, you know, types of folks who are yet to be exposed to the digital asset market get their information is through RIAs, through their through their advisor. And as you said, we have a process here with kind of the advisors actually studying, learning, making a pitch, being confident in it, and then actually going and implementing that with their clients, and building a portfolio.

One of the other ways that these folks get their information is through kind of like mainstream media. Mhm. Wall Street Journal, Bloomberg, Yahoo Finance, these types. Yep. Over the last 2 weeks on the weekend, these news sources had a completely new story. Right. >> Oil futures trading 24/7 on the weekend on this platform called Hyperliquid. >> Right. And so for the first time ever, these folks are reading about this idea of 24/7 tokenized as trading. I can't imagine what they're thinking. Have you had any conversations with folks in this kind of camp who are like did they call you up and say like what's happening? Like like yeah, I'm just curious. This is yes. So, it is kind of funny actually. Most Friday nights when

I'm not quite wrapping up work for the week, I'll look down and it'll be like 6:00 at night. And I'll tweet. And I'll say and some of my the followers that I've had for a while will get a kick out of this. I'll say it's 6:30 and the stock market has been closed for 2 and 1/2 hours. In crypto, it feels like it's the middle of the day, right? Bitcoin is still trading, the blockchain is never down, Ethereum is still trading, Coinbase is still ticking, Kraken's still ticking. We have people who are still putting orders in.

It seems crazy to me and it has once you work in crypto for a long enough time. I've been at this since 2018. It seems crazy to me that the global financial markets shut down mid-afternoon, late afternoon on Friday. Doesn't it? >> Yeah. Like what are we doing here? The internet doesn't shut down. The the the the stock market shuts down. Why? Because like people have to sign off from work? It's banks close for the weekend and it takes longer to send money? It's uh it's just not like the financial infrastructure has not caught up to the reality of the available technology. Yeah. And so, for a long time I've had this view that it's

just kind of crazy that this is what happens. That things just stop. And now if you want to trade risk on a Saturday night, the only thing you could trade was Bitcoin. And I think with Hyperliquid and the substantial uh progress that they've made with listing new things like oil futures, that obvious future is starting to become recognized by the rest of the world. The Wall Street Journal, Financial Times is like, "Oh, you can trade future you can trade oil futures on Hyperliquid on a Saturday?" Yeah. And the answer is yes. And it reminds me of your your your your question, Robbie, is like, "Well, like, is this going to take a long time to develop or what?" And like, from as a like entrepreneur and technologist, I

feel very impatient that it hasn't happened yet. But it also seems very obvious to me that like the future's here, it's just not evenly distributed, right? Like this is This is happening, it's just not happening as quick as we think it should. Yeah. Yeah. Another thing that I wanted to throw your way was this valuation conversation. So, I think a lot of the industry went through this kind of era, like let's call it 2017 to kind of 2025, where the valuations were not effectively compared to traditional markets, public equities, or other companies. It was kind of like, "We're living in this Metcalfe's law, L1 network effect, where there's this user growth, we have these transaction fees on these base layers, they're powering

the future of the internet." Ethereum's trading right now, I think like 400 to 500 billion or something in that range. Bitcoin obviously quite a bit higher. And so, you've kind of got these little carve-outs for Ethereum and Bitcoin, but the rest of the market, the valuation hammer is being struck on them because they're looking at Hyperliquid, but really they're looking at traditional equities, and they're being compared on a revenue basis, on a P/E earnings ratio kind of a framework, and it's new, and it's different for crypto. When you're talking to institutional investors, clients, high net worth, are they thinking about crypto assets in the similar bucket as traditional equities and traditional companies? Has that kind of shift happened in their mind? Or just

kind of talk us through what that valuation puzzle looks like from your perspective. Great question, important, comes up, as you can imagine, in many of our conversations with financial advisors. I think the best person to follow on this, I'll talk my own book as Matt Hogan who's written written eloquently and at length on these things. I would say that Bitcoin sort of stands alone in in this in this category for the time being. Bitcoin in the professional investor set, financial advisers, institutional allocators pensions foundations endowments, it sort of has its own story that can be differentiated from the other blockchain

tokens and assets. I think the emerging store of value digital gold supranational asset that can play this role of existing outside and on top of the existing financial system sort of gives it this unique position where it is digital gold is not an analogy that a lot of people love but the idea of being a digital store of value or emerging store hold of wealth um is is the narrative and valuation framework that gets applied the most.

And I think in that light the the most reasonable thing that we see people do is compare it to the market cap of gold. Right. And so you're you're you're still in a high single digit relative to the to the to the total store of value market for gold and I think that is the the the the best that we've seen and the one that is most evenly applied. Um it's also interesting that uh you can look at that and and and look at what the gold market cap was when gold ETFs launched in 2004 and you can extrapolate some pretty ambitious potential growth numbers for for

Bitcoin. If you if you if you assume that the the store of value market is going to continue growing the way it has in the last 20 or so years, and you also assume that Bitcoin is going to continue expanding the percentage of the pie that it gets, you can get to some very bullish price assumptions for Bitcoin. Um and so anyway, we'll we'll set Bitcoin aside. I think for things like Ethereum and Solana, I think is where you see more additional work being done, but still not as mainstream as Bitcoin. And I think there you see people consider investors consider it as like um you have to think about it as almost a high-growth

software, high-growth high-growth technology, and you do want to look at things like fees earned by the protocol. Staking rewards is also very interesting. Obviously, Solana and Ethereum are both proof-of-stake blockchains, so you have some sort of baseline that you can earn if you stake your assets, um which I think investors find very compelling. Um but then taking those metrics, so to fees earned, throughput, transactions, applications, you have like a little bit more of a of a venture lens that you can look at it through, but then a tech software investor lens that you can look at it through. It's

not perfect, but you do have revenues or or something comparable to revenues when you look at on-chain fees, and that's where we see away from Bitcoin the other blockchains, there's some more of that type of financial analysis being applied. Yeah, there there's a very provocative headline that gets tossed around, which is that there's more than 21 million Bitcoin. With an asterisk. The asterisk is that there's synthetic products ETFs derivatives digital asset treasury companies where you're laying out a valuation heuristic that is very compelling. People want exposure to these things. When you are talking to asset managers and speaking about the institutional capital flows

into this industry, where do you see those flows landing? Is it primarily in the spot assets themselves? And if it's not, if it's in this synthetic derivatives category on top of the spot assets, how dilutive to the spot assets are those contracts on top? If we're putting into a treasury company or an ETF, how complementary or dilutive to the overall industry of that asset is that derivatives product? Where are you seeing the institutional capital flows?

Yeah, it could it comes up a lot. Primarily commentators who have spent a lot of time in crypto and in Bitcoin, but have not spent a lot of time in financial products. And so what we see, what I see, as I told you at of the top, my background was initially in in in traditional finance. I spent a lot of time in derivatives product manufacturing. I Some of the the the derivatives that I worked on were options, futures, total return swaps, volatility swaps. And what I really see is the financialization of Bitcoin through the ETF. And what you have is you have Bitcoin entering the traditional financial system. And what you need for an asset to be in the

traditional financial system is you need the You need the participants in that ecosystem to be able to hedge risk. So, hedging risk is usually being able to go long or short with a variety of different instruments. And so, when I want to when when you want to buy Bitcoin, there may not always be someone who wants to sell it to you at exactly the right time. So, a market maker may need to step in to sell you that Bitcoin. That market maker doesn't want to get short Bitcoin, so he wants to hedge that exposure. He or she wants to hedge that exposure at the same time. So, you need these dynamic abilities to go long and short at the same time so that liquidity

can be provided to people who want it for these these assets that exist in the system. I think that ultimately though, the thing that people miss is that if you have more people buying Bitcoin than you have selling Bitcoin, >> Yeah. the price is going to go up. >> Yeah. If you have more people selling Bitcoin than you have buying Bitcoin, the price is going to go down. And the times at which we hear the most complaints or dare I say conspiracy theories about paper Bitcoin uh and and and the derivatives market being too large, um it's not when the price of Bitcoin's going up.

>> not. It's It's It's only when the price of Bitcoin is going down. Yeah. And the reality is Bitcoin is emerging as a potential store of value asset. It's a fixed supply. It's It's It's whenever there's more sellers than buyers, it's going to go down. And we're we're We believe and our investors believe that there will be continued volatility in the market. Bitcoin will draw down periodically as it has over the past 6 months. Um and we just think that that's a natural part of the process. Yeah.

Thanks for debunking our bear market more than 21 million Bitcoin thesis. >> that just got tossed around a bit. You mentioned the emerging volatility that's, you know, been happening in the digital asset space for a while. Robinhood actually makes about $4 billion on their options product per year. They offer options to traders. They do a lot of really insane options. Robinhood basically fills their orders. Mhm. You know, buys puts, sells calls, does, does, you know, intricate options market market making basically.

The crypto and digital assets options market though is kind of dominated by a couple players and also significantly smaller. Mhm. What is Bitwise's plan to bring the options market as a core product for your clients and and for your business line and and to capitalize on that if if if Robinhood's doing 4 billion, there's no reason why you guys can't be, you know, chipping away at that in digital asset space. What's the plan there? Yeah, congrats Vlad. 4 billion. Nice. >> nuts. Um, we actually have a growing part of our business um, is a separately managed account business where we have uh, investors who have an existing large exposure to primarily Bitcoin, but

sometimes other crypto assets and they want to work with us to develop an options strategy around that core holding. And so, those investors could have a variety of different financial goals relative to their Bitcoin. So, they may have uh, they may have a uh, I'll use round numbers, $100 worth of Bitcoin and they may want to hedge their downside risk. So, they may say, "Okay, I'd like to work with you Bitwise so that you could create uh, a a downside hedging mechanism so that if Bitcoin drops below $85,000 uh, sorry. I said below we'll we'll we'll take it to current prices. We'll

say if yeah, if Bitcoin drops below $65,000, I want you to limit my downside risk there." We may have other investors who say, "Hey, uh, I've been long this Bitcoin for a very long time. I'd like to uh, I'd like to sell some options. I I'd be comfortable selling my Bitcoin if it rises up to $90,000 again and I'll sell call options to earn some premium on that in the meantime. And that's just like a a small sample of what you can do in the options markets, and a little flavor of like the kinds of strategies that investors are interested in in having developed for them that that Bitwise can help them with. It's It's

one of our the fastest-growing parts of our business, and one in which investors are becoming Bitcoin investors are becoming increasingly sophisticated in thinking about how to do these things. The other thing I would say is that this market is now We talk about like the financialization of Bitcoin via ETFs. This market is now increasingly liquid in the traditional financial markets because the options on Bitcoin ETFs are deep and liquid as well. It can be a little harder, or has historically been a little harder to get this exposure on a spot basis in the US because you need to trade on these derivatives trading venues like Deribit, but now under the new administration, I

think those are coming to the US soon. And so there's a variety of ways that you can work to implement these. There's also a lot of different different tools that investors are interested in using options to hedge or manage their exposure. As we financialize this asset class, and it grows in maturity, and we tokenize more of these assets so that they become composable with these mechanisms and these tools, Matt Hougan was very excited about this vault complex. I'm curious how important the vaults are to Bitwise's business going forward, and because we're in DC, what are you looking forward to from regulators, if anything, in order to fully support vaults in the next few years as a

primary mechanism for this asset class? Yeah, it's a big question, but I think it's an important one. I think that we're we're in the early innings. So the things that you you you you asked about specifically was vaults. But, I would I would extend that out a little bit to vaults, tokenization, perps. Yeah. All of these things when when you like when you when you think about them bigly and you remix them together they can replace a lot of the existing financial infrastructure.

And I I I kind of I separate these two things a little bit. Like, we talked a lot about Bitcoin, Bitcoin hedging, investing in Bitcoin, talked about Ethereum, we talked about Solana. Those are the assets that you can invest in that I am bullish on that Bitwise is bullish on. We think there's a uh uh a long-term bull market play there for the prices of those assets and they're worth considering as an investment in your portfolio. This other topic I think of as slightly different. This is This is technology based on the underlying blockchain along which those assets ride and reside, right? And I think that that

technology as a financial technology is is 10x better than what we currently have. >> And and and and I think that like the scale of disruption is only starting to be realized. Like, vaults when you think about it can make programmatic and replace a lot of what is done in asset management right now. >> Yeah. It's not going to happen tomorrow. Like, I'm not like a doomer like an AI doomer like we're all going to lose our jobs because of AI. But, like if you really like take out a notepad and start like scribbling around with what this technology can do, can simplify ETFs, can simplify mutual funds, it can make them transparent in terms of how returns are calculated. Hedging with perps, tokenizing exposure, getting leverage

with perps, that disrupts Wall Street in a big way. Like like like Wall Street banks prime brokerage business prime brokerage businesses are $40 revenue a year business. Forget the four that Vlad does with the options. It's 10x that. Right? And and that's largely leverage and shorting. Now, you can replace all that with perps and tokenized equities. So, it's a big it's a big topic. Yeah. I don't know how deep we want to get into vaults. We're going to wrap up here, but I think RIAs and curators of vaults look very similar, and I think there's going to be some some issues there because they look so similar and they all operate in a very very similar

capacity. The SEC is kind of starting to get involved, but they haven't quite figured it out yet. Still a bit of regulatory arbitrage left, but the vault curator who sets the parameters of the strategy that the assets get deposited into, they're very similar to an investment advisor. Yeah, it's a good point. I think you know, we we we we sort of started the conversation by saying we're not going to veer too much into regulatory policy cuz it's a little dry. >> are. But I think this is part of where it's actually interesting, right? And I think that's part of why everyone who's building in crypto is is so excited about the current administration. We're we're sitting outside of a room right now where the the chair of the SEC and the chair of the CFTC are giving a joint

panel right now. We should probably close out. >> if that's ever happened before. They just issued guidance two times in the past week where they're working together on initiatives relative to crypto. In the prior administration and in the one before that, there was actually like a there was an antagonistic like like like turf war between the agencies about who would would would be responsible for jurisdiction over these things. These are These are new technologies that are complicated that have, you know, don't fit neatly within the rules that were written 75 years ago. And what we need is we need regulators like the ones we have now that are really interested in actually creating solutions to the new

issues that we have based on the new technologies. Teddy. Teddy Fousey. Thanks so much, man. >> Thank you for joining us. First time on the roll up. Not not the last. Enjoy the rest of your time here in DC. Thank you for having me on the roll up. Thank you, sir. See you again soon. >> Enjoy the rest of your time.