Leveraging Traditional Finance in the Crypto World

Published on
September 24th, 2020
Duration
37 minutes


Leveraging Traditional Finance in the Crypto World

The Interview - Crypto ·
Featuring Hunter Horsley

Published on: September 24th, 2020 • Duration: 37 minutes

Hunter Horsley, CEO of Bitwise Asset Management, joins Real Vision senior editor, Ash Bennington, to shed light on the crypto space’s transition from private to public, the current state of crypto markets and assets in 2020, and what the next decade for the space could look like. He explains the phenomena of new companies leveraging “equity rails” to boost the adoption and ease of use of crypto technologies. Horsley also breaks down the risks in owning products like Bitwise and the budding relationship between the crypto world and RIAs. Filmed on August 24, 2020.

Comments

Transcript

  • BN
    Brady N.
    2 October 2020 @ 00:20
    Using blockchain infrastructure to honestly and publicly dupe unsuspecting traders into chasing token ATH's has little to do with decentralizing finance but maybe I have defined prediction differently. My prediction suddenly turned speculation upon hearing the word price.
  • JS
    Jeff S.
    25 September 2020 @ 00:28
    This is only valuable for folks with $250k or more to invest in a fund with high fees in which only 40% of the fund is allocated to higher risk, hard to measure assets. BTC is a no brainer. I’m not here to be given rationale for BTC. This guest offers no trading info or metrics shared other than that he chooses liquid assets. This is a fine promotion for the fund. This is not what the crypto investors coming from the traditional space need. We need and want analysis on crypto investments. We need some intelligence on metrics and tools. Please let this new side channel on crypto offer asset level investment advice as well as real tools and concepts to help offer some metrics for the space. Thanks guys!
    • LH
      Luke H.
      26 September 2020 @ 08:27
      Agreed on the fund makeup ("only 40% of the fund is allocated to higher risk") These funds feel like low beta call option on some new bitcoin-level dominant player emerging. Personally I don't see that happening any time soon. Although an Ethereum replacement is a possibility in the next few years, and the space is on the lookout for a better more scalable platform to build on. Those platform level projects like Polkadot are relatively easy to identify and bet on directly without the need for a fund. The main challenge without a fund is technological - you need a crypto wallet and an account on a reputable exchange - but this is a few hours work for those willing to put the time in. "We need and want analysis on crypto investments. We need some intelligence on metrics and tools". Absolutely. I think the challenge here is how fast the space is moving, the number of scammy projects and the intense work that due diligence on these highly speculative assets involve. Many tokens are just cash grabs and you have to have the right skill set to find the ones with genuine long term potential. The vast majority will not have long term success. Well over 90% of them have peaked within a couple of years. Could Real Vision provide this type of guidance? It's a very different, largely hype-driven space compared to traditional investing, and a lot of work and ongoing attention is required. I'm not convinced this is the place to get that type of information. You're better off following the right Youtube and Twitter accounts. Most altcoin projects, as in well over 90%, just don't have long term potential. They're trading instruments. Many start out with great teams, worthy financial disruption goals and the best intentions. They have some initial success, and then the token pumps 100x. Now the whole team has life changing money. All of a sudden pursuing that extremely challenging token project suddenly becomes much less interesting. Token lockups are starting to address this - Serum is interesting to me, and more broadly the DeFi space has some very interesting things going on backed by some extremely smart people.
    • DP
      Duane P.
      1 October 2020 @ 03:39
      Exactly!
  • DO
    DIOGO O.
    27 September 2020 @ 11:18
    Another point: I see no reason for those crypto index funds to hold Bitcoin.... It is much easier to hold Bitcoin yourself...at differente exchanges or in a cold storage wallet, etc. Those Bitwise funds should be ONLY to the other coins... it would add more value in that way
    • LH
      Luke H.
      30 September 2020 @ 06:53
      FTX have various altcoin futures contracts - marketcap-based indices. It's a great exchange run by Alameda Research - successful quant traders - more info here: https://www.youtube.com/watch?v=UvoZ4R3qMZo
  • LH
    Luke H.
    25 September 2020 @ 10:17
    Index funds that just track the top 10 market caps make no sense as long as there is utter garbage in the top 10 that got there by forking bitcoin (BSV and Bitcoin Cash - not serious projects, barely functional) or that are just failing or outmoded coins that are slowly bleeding out - looking at you XRP and Litecoin. Pretty much half the top 10 is worthless, despite relatively big marketcaps, and will never recover the highs of 2017.
    • LH
      Luke H.
      25 September 2020 @ 10:25
      A fund that would be interesting would be an actively managed DeFi fund - one that properly assessed the team, potential utility of the project, partnerships with established players within the relevant vertical, trading volume etc. If Ark Invest did a DeFi fund that mirrored their deep dive technical approach, I would seriously consider buying it. Market cap weighted altcoin funds are not worth serious consideration IMO. Just buy bitcoin and flip altcoins. If you're not a trader, you should probably not buy altcoins. Every single project has been outperformed in the long term by BTC.
    • KB
      Kirk B.
      25 September 2020 @ 18:36
      You are likely spot on with your critique of the current top 10 digital assets by market cap, but that does not invalid an indexed approach to investing in digital assets, particularly Alt coins/tokens. Your fundamental criticism of indexing by market caps would apply to all market weighted index portfolios. For example, in 2000, the #1 stock in the S&P 500 was GE, and the #2 stock was Exxon Mobile; among the top 10, only Microsoft is still in the top 10. Looking back further, none of the top 10 stocks in 1980 are still in the top 10. Seven were energy stocks, and the top ten also included GE and AT&T, which currently are bordering on insolvency. The #1 stock in 1980 was IBM--once the dominant technology company, it is now an Alt technology company. As market participants reevaluate investments, either rationally or irrationally, it is reflected in their market cap, and their position, if any, within the top 10. Using the S&P 500 example, a top 10 index approach would have caused you over time to sell IBM (as well as GE, AT&T, and all the energy stocks), and you would now own Apple, Facebook, Amazon, Microsoft, and Alphabet, which with the possible exception of Microsoft were once considered Alt investments. Currently, the prospects for Bitcoin, and perhaps Ethereum, stand out uniquely from the other digital assets (the IBMs of digital assets), and for now at least, should be over-weighted. Other Alt coins/tokens could be ignored, but within this infant asset class, some of these will likely grow into amazing winners. Purchasing Alt coins/tokens based upon their market cap would seem to be the best approach (the alternative of actively trading them could result in superior results, but would require extensive continuing research and constant attention). By creating ones own market cap rated portfolio of digital currencies, you can overweight Bitcoin and Ethereum. You can also be somewhat flexible and lax in allocations and reallocations to Alt coins/tokens. You don't need to purchase/sell digital assets to exactly match their changing market capitalizations, and you only need to buy or sell digital assets as their market capitalizations cause them to either enter or leave the top 10.
    • LH
      Luke H.
      26 September 2020 @ 07:04
      To your points: " Your fundamental criticism of indexing by market caps would apply to all market weighted index portfolios." Maybe this is why I don't buy index funds. That said, there are major differences large public companies with revenue streams and altcoins. See below. "Some could grow into amazing winners". This is possible, but there is no precedent of anything outperforming BTC over a multi-year time horizon. Look at Bitwise's own fund performances shown on their website. Note how there is initial outperformance relative to bitcoin, but over time the two metrics converge. I am willing to bet that BTC will outperform all of their marketcap weighted funds in the coming year. There are some unique aspects of the altcoin market to take into consideration: 1. It is mimetic. Projects are bought up based on the thinnest possible thesis - usually amounting to the notion that they might one day have some success. Almost exclusively, projects are - centralised - meaning regulatory risk, or risk of losing the main developer (not the case for BTC) - have zero revenue stream (exchange tokens excepted) - most are premines - tokens minted out of thin air - buying interest is kept afloat with news events, often manufactured, or related to questionable 'partnerships' - if trading volume dries up, it often means the project is finished. Traders carry these things. 2.Older tokens have already peaked and are bleeding out, with bagholders waiting to unload all the way up the chart. Look at all of the top 10 from previous years. Even Ethereum has a 400% price appreciation to negotiate before it recovers the highs of 2017, and it has major, unresolved and long standing scaling problems. 3. Here is the good news: DeFi has broken this mould - it is the exception because it has users, is building genuine bridges to the traditional finance world, and that's why it's interesting to me and many other people in the space. So if winners are to emerge, they must come from the new DeFi projects IMO, demonstrate a growing userbase and sustainable traction in terms of disrupting traditional finance.
    • DO
      DIOGO O.
      27 September 2020 @ 11:21
      What would make even more sense is an index fund of crypto companies.... or companies that are starting to apply blockchain... that would add enormous value to investors
    • LH
      Luke H.
      27 September 2020 @ 14:57
      Most only add blockchain to stir speculative interest and have no genuine need for a blockchain, which is spectacularly inefficient. If you understand the technical implications of blockchain you will know that it is not needed in almost every use case.
  • JS
    Jeff S.
    25 September 2020 @ 00:12
    Why would I want an index fund with 60% bitcoin? That’s like an EM fund with 60% USD in cash. I’ll buy BTC and then I’d love an index fund that invests in the best of the new blockchain and crypto options. I know I want BTC. I don’t need someone to manage that. And Ash, when are you going to start talking about individual crypto investment options?
    • DO
      DIOGO O.
      27 September 2020 @ 11:23
      exactly... makes no sense to have Bitcoin in it
  • DB
    Daniel B.
    25 September 2020 @ 18:19
    Please give a thumbs up so show support for my request. Real Vision needs to address the most pressing threat bitcoin faces. Until the middle of the 19th century PRIVATE banks in Great Britain and Ireland were FREE to ISSUE THEIR OWN BANKNOTES. In 1921 The Bank of England gained a legal monopoly on the issue of banknotes in England and Wales when the ability of other banks to issue notes was restricted. So basically, the government said: you can only use the money printed and issued by the central bank (the government) LAST WEEK: 1) The Russian government is moving to criminalize Bitcoin transactions by proposing new legislation controlling the digital currencies. 2) China is aiming to be the first country in the world to launch a digital currency, after 5 years of research by its central bank. So: governments (unfortunately or fortunately) are always in control. What if, tomorrow, governments around the world declare all non-governmental cryptocurrencies illegal except the ones issue by central banks?
    • TW
      Todd W.
      26 September 2020 @ 03:02
      I agree that they need to address the government legal use issue. Best two reasons that I have heard were 1) Bitcoin is a store of wealth like gold and not money. Due to its infrastructure its unlikely to scale or be meaningfully upgraded thus is not a threat. I like this because you could reasonability just convert bitcoin to dollar immediately before it is spent. Making it more useable. 2) Game Theory makes it hard to stop now. If a government bans it now, other governments will legalize it to get the wealth transferred over. Thus the first governments to make it fully 'illegal' will get the least capital transfer. If China outlaws it, America would legalize it and Chinese billionaires will operate their wealth out of a US entity etc.
    • CH
      Crag H.
      27 September 2020 @ 10:46
      How many of the countries *not* in control of the swift system think of Bitcoin as a threat and how many of them think of it as a solution? A technology that is an order of magnitude better than it's predecessor is destined to gain adoption over time.
    • DO
      DIOGO O.
      27 September 2020 @ 11:13
      I remember using NAPSTER at the year 2000... Governments tryed to ban an abolish it... it just changed form... till Torrent came around. Still today I don't use Netflix... there are dozens of free streaming online... I guess government ban do not work very well.... The only way to stop Bitcoin, is to bring down the Internet... And, by the way, I guess there are many countries that would like an alternative to USA controlled SWIFT system....
  • DO
    DIOGO O.
    27 September 2020 @ 11:06
    Excelent interview! By the way, these guys at Bitwise could also launch an LEVERAGED ETF on Crypto... That would be AWESOME Cheers!
  • KB
    Kirk B.
    24 September 2020 @ 21:22
    Excellent interview. I have been impressed with Hunter Horsley's vision and execution of Bitwise. As always, Ash did a super job in leading the interview to convey an understanding of Bitwise's investment approach in a concise 37-minute interview. I concur that an index-based approach is the best way to structure an investment allocation to cryptocurrencies. It is a much better diversified approach than committing to just one or both of the big two--Bitcoin and Ethereum--and/or trying to figure out what other of the thousands of coins/tokens to invest in. It lets the market identify the current winners, which seems particularly appropriate in a new, rapidly changing market. However, it is not necessary to invest in a fund, such as Bitwise, to pursue this approach. You can create your own digital asset portfolio using one of the top exchanges, Coinbase in particular. Coinbase screens digital assets, eliminating those from its exchange that do not satisfy its criteria. Its resulting list of tradeable assets, based upon market capitalization, is almost identical to the top 10 Bitwise list; ignoring a non-speculative stable coin, only one speculative token is different than the Bitwise list. Its interesting that CoinDesk maintains a list of top 20 digital assets, based upon market activity rather than market cap, and again excluding stable coins, its top 10 are almost the same as the Coinbase list, except for two speculative tokens toward the bottom of the list. Advantages of creating and managing ones own index based portfolio include: greater flexibility (allowing for example, over-weighting Bitcoins); and no management fees. Actively managing ones own portfolio also forces investors to better understand their investment portfolio and the assets that comprise it. An fundamental advantage of investing in the Bitwise fund is simplicity; no work is required to manage the portfolio or to understand its assets. This simplicity would appear to include avoiding income tax reporting complexities. Another large potential benefit is the potential premium value upon the sale of the investment. However, this would seem to be less likely when a digital asset ETF (or ETFs) is finally approved, which could result in a discount instead.
  • DG
    David G.
    24 September 2020 @ 11:55
    Those fees though.