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The Artisan Podcast - Investing in Innovation: Building a Bitcoin ETF

Investing in Innovation: Building a Bitcoin ETF

We engage in an insightful dialogue with Hunter Horsley, CEO of Bitwise, on the introduction of the Bitwise Bitcoin ETF (BITB). This session promises valuable perspectives on pioneering investment solutions.

Major issues to be discussed on this webcast include: 

• What was the inspiration to co-found Bitwise in 2016?

• The challenges of getting a bitcoin ETF approved

• The experience working at Meta (formally Facebook)

Hunter Horsley – CEO, Board Director Bitwise

Previously Product Manager on monetization at Facebook and Instagram. Received his BS in Economics from the Wharton School of the University of Pennsylvania. Forbes 30 Under 30 selection.

Bitwise Asset Management is the largest crypto index fund manager in America. For six years, Bitwise has established a track record of excellence managing a broad suite of index and active solutions across ETFs, separately managed accounts, private funds, and hedge fund strategies. Bitwise is known for providing unparalleled client support through expert research and commentary, its nationwide client team of crypto specialists, and its deep access to the crypto ecosystem.

Make sure to check Northland Wealth’s YouTube Channel for more episodes.


SPEAKERS: Arthur Salzer, Hunter Horsley

Arthur Salzer 0:14

So hi, I'm here today with the co founder, CEO of bitwise. Investments. Hunter Horsley, Hunter, thank you very much for participating in the artisan podcast.

Hunter Horsley 0:27

Oh, it's a total total pleasure, Arthur, as I've said you before, you know, I think you're you're one of one of the most brilliant thinkers over the years on Bitcoin. So it's fun to get a chance to talk to you about it.

Arthur Salzer 0:36

Well, thank you, but we're not gonna be chatting about me today we're gonna actually going to be talking about you. And, you know, we were fortunate to meet a few years ago in in San Francisco, but I mean, have you did you grew up in San Francisco? Or did you did you come from somewhere else in the US? And, you know, maybe how you ended up being? Being CEO a bit less?

Hunter Horsley 0:59

Sure. Yeah. I'm from the Bay Area was was raised in the Bay Area in Menlo Park, California. Went off to the east coast to the Wharton School for for college.

Arthur Salzer 1:10

And worked in Chicago, right for Canadians.

Hunter Horsley 1:14

Sorry, yeah. Apologies. Wharton is actually in Philadelphia, Philly. upgraded me. Yes, it's the School of the University of Pennsylvania. So it was was out in Philly. And, and ultimately came back to the Bay Area to take a job at Instagram and Facebook, which sort of brought me brought me back.

Arthur Salzer 1:33

That's, that's pretty cool. So, you know, obviously, you're in one of the key places, but, you know, going back to maybe probably pre University. You know, how old were you when you discovered the internet? Or maybe had your first PC? I mean, you know, I'd love I'd love to know where it begins. I love

Hunter Horsley 1:57

I loved computers.

Arthur Salzer 2:05

Was it a video games? Or was it was it like, an IBM AT-clone that you're playing with?

Hunter Horsley 2:12

You know, I love love video games. I was the type of like, unpopular, had that sort of unpopular energy in middle school in high school, where I would sort of be browsing the prices at which you could get, you know, Ram with 3000 megahertz speed. And, you know, at the time, I mean, my first computer was a was a Compaq that I think had, gosh, you know, maybe like, two megabytes of hard drive on a spinning disk at the time, they were spinning it, like 200 RPM or something. And, and there were still floppy disks. And, you know, CD ROM optical drives, and, and then it was just fascinating to witness to witness the power of technology. I mean, you know, things that went from being 1000s of dollars became hundreds of dollars.

Arthur Salzer 3:14

Did you have dial up when you when you first went on the internet?

Hunter Horsley 3:17

First time dial up, which is painful. But yeah, I mean, there's there's technology just is such a tailwind. And you know, hard drives went from megabytes to megabytes to gigabytes went from spinning disks at 2000 RPM is to 4800 to 5400 to 7200 to 10,000, you know, the Raptors, 10,000 rpms. And then we hopped over to Solid State, and everyone has solid state today. It's like alien technology. You know, I think people would buy a MacBook today, you know, probably just think of it as in terms of gigabytes, and don't even think about the speed of the hard drive. But it's a fascinating journey. And for a long time, I was a you know, a Lenovo user, I was a diehard PC person, and a former boss sort of demanded that I hop over to Apple products, which is where I am today, but always, always love computers.

Arthur Salzer 4:16

Was that at Facebook, where you got get pushed to go to Apple or.....?

Hunter Horsley 4:20

I actually had a had in college, I had a job at a tech company and the founder was was obsessed with Apple products. And he actually took me out one day and he said, You're the only person in the company who uses a PC and I feel like you just don't get it. So it may not make sense for you to work here. And and I said all right, I'll get it. I'll get an effing Mac. And and so that was that was when I made made the change and maybe it's 2011 or something like that. Yeah,

Arthur Salzer 4:59

I used to get into arguments all the time about that with my dad, my, my first computer was was 1986. It was an IBM clone with 256k memory. And, and I'm showing them how I'm programming in BASIC.

He says, "what's that? Wow, this is how you talk to a computer and get it to do things. Because all it's all wrong. It's all wrong. It should be pictures, because everything should be done with pictures, and the software should drive the entire computer should have nothing to do with hardware."

He was 15 years early. But the way that Apple went was the way that my dad said made sense. He's just thought the other way. wasn't wasn't very productive for non-literate computer programmers. So I think he would have been in your boss's camp on that one.

Hunter Horsley 5:56

Yeah, a good intuition there. Tickets, you know, often so much about timing. Yeah, that ended up being the right call.

Arthur Salzer 6:02

So you ended up at Facebook? I mean, it goes by different name now, but you know, Meta, but like Facebook, I mean, movies have been made about this, this company, you must have, you know, you know, learn so much. And it would be like, instead of diving into the deep end without being able to swim for some people. What, what was that? Like?

Hunter Horsley 6:23

Yeah, it was it was extraordinary, extraordinary. I joined as a product manager, so working with software engineers, and designers and business partners. And I joined Instagram, maybe 100 or 150 employees, it had been bought by Facebook. And I think user base just a few 100 million. And I got kind of lucky with the timing.

Zack had basically said, OK, Instagram is time for you to contribute some revenue. And so when I joined, it was said about 70 million of revenue run rate, and I was there through through a billion of run rate. I think today it's doing north of 10. But got to see that platform get monetized. Which was, you know, it was it was fascinating there a bunch of lessons in there. And then after that, I moved over to Facebook, and worked on a few things there was in charge of monitor, there's a component of how digital content creators monetize. You know, sometimes it's through AD-revenue share. There's another component, which is called branded content. And people call it sponsored content, but we're a brand will pay them directly to create a piece of content. So I was in touch with that for a period of time.

Arthur Salzer 7:40

So let me let me get this straight. Just to put into layman's terms. So you're the rascal that somehow got sponsored ads, video ads, brought into my Facebook feed? Am I getting that sort of close to right?

Hunter Horsley 7:57

You're pretty, decently close to right on that? Yeah, I actually literally worked on on the Facebook side on how we would monetize video. So you know, Facebook has lived many lives. Facebook was born. In 2004, it was just profiles, you know, for college students where they could upload photos.

Arthur Salzer 8:18

But we all know where it came from, right? It was it was the TV show Family Ties. The episode where, where, Michael J. Fox, you know, Alex P. Keaton, you know, finds his girlfriend or potential girlfriends using the Facebook at school, right?

Hunter Horsley 8:33

That's the origin browsing, browsing people's profiles. And then they created the newsfeed where you can see updates and posts from people. And it was mostly text became more and more images. Then mobile happened, you know, iPhone was 2007, mobile was really taken off around 2010. I, you know, people will remember that era. But at that time, people weren't sure if mobile was going to be a sideshow, or if mobile was an important new computing platform. Facebook before its IPO had 85% of its revenue on desktop, they then had to transition to mobile. And then the way this relates to video is that over the ensuing years video, broadband internet connection was increasing. And the iPhone itself had great video capture, you know, integrated obviously, with the ability to upload to the internet and to apps. So more and more video is getting posted. The core Facebook business model was, at least at the time I was there.

I think the average user had something like 20 sessions a day, they'd open the app 20 times and the average session length was like 83 seconds. And so the business model was they open it, they start scrolling through the feed, they read some text, they look at some photos, and then every six, post about six. It's called the Abloh. The output was about 16%. You'd show them an ad, they keep scrolling, but the problem arose that they would scroll they would see a video, they'd click and start watching. No more scrolling, no more ads monetization and breaks. So I was fortunate to get to work with an executive there named Fidji Simo, who's now the CEO of Instacart. And in a bit why shareholder actually, and present his talk and Sheryl on how we would monetize videos. And I indeed did pitch putting commercial breaks into videos and a few other things. So I had some some rule on that.

Arthur Salzer 10:27

So you obviously understand growth of network. So you've seen it, you've experienced it. You know, I don't know if your time was running out at Facebook, or, you know, you discovered, you know, Bitcoin while you were there, but But it'd be great to hear how you you first fell into Bitcoin, and then, you know, the creation of bitwise.

Hunter Horsley 10:52

Yeah, um, so it's actually a little, a little convoluted. I, one of my best friends was brilliant engineer at Penn, named Hong Kim, and I was at Facebook as a product manager really, honestly, felt grateful to be there loved the work. You know, and I would say, also, this is all before Facebook became sort of, you know, the world's most wanted tech company, like, wasn't deplorable at the time, it wasn't held in that regard.

So it was it was, you know, this extraordinary technology story of a technology platform that was deployed to billions of people around the world, and, you know, became one of the biggest media platforms and one of the biggest advertising businesses and to get to work on that intersection was, you know, I just thought it was a really special opportunity. And I had some great, great bosses there that I was really grateful for, as well. But Hong pinged me and said, Hey, why don't you quit your job? And we can start a company together? And I said, get out of here. I couldn't be less interested. Why don't you try me again in two or three years. But, you know, I always had the aspiration to try to build a business from scratch. And so you know, he and I talked about it, and, you know, to move move through this story at a little bit of an accelerated speed. I opened up to one of my former bosses there, he had been at Google and he started sold a company to Facebook, inside of the Facebook product management organization, which is maybe 50 or 100, PMS, he was sort of known. He was the executive that was known to be pretty engaged with the startup community.

So I said to him, you know, Hey, Am I Am I crazy? You know, Hong, and I were working on things after hours should I be doing pursuing this is a bad idea. And we started getting feedback from him on things. And at one point, he and another investor said, you know, what, if you just quit your job, and focus on this full time, we'll fund you doing that. So beautiful. At that point, I felt like even though I love my job, I would regret not taking that opportunity. The two investors again, one of them, his name is Vishal Garg just an amazing, amazing investor, he was a part time partner at Y Combinator, he now runs a very prominent venture fund called Electric Capital. And the other was a guy named Elad Gill, who, in Silicon Valley, you know, he's he's back 40, unicorns at seed or series A stage. So wow, he started one himself. So I thought if these if these two, believe believe in this, and are willing to be, you know, part of it, and Hong, you know, as a brilliant partner, I have to do it. So I left and then we got lucky. In that, you know, late 2016. If you were to technology, people in San Francisco, there was a lot of discussion of Bitcoin and public blockchains. And so we have this discussion. So I had bought Bitcoin in 2014 or something, but couldn't remember where.

Arthur Salzer 14:13

So you knew you needed a product to keep the keys?

Hunter Horsley 14:17

Right, right, right. Yes. Yeah. So as soon as we started having a lot of conversations about it, and you know, what I would say is that at Facebook, you get to sort of witness a few things firsthand that I think everyone is intellectually familiar with, but to witness them firsthand, really, you know, makes an impression. Facebook just shows you the incredible scale of the internet, over 3 billion users. I was on safari, last summer in Tanzania, drove through a rural roadside town, maybe 70 people, concrete block buildings water from a well but they have Coca Cola, they have Vodafone, and they have Facebook, I mean the reach of the inner net that Facebook demonstrated is extraordinary. So you get that impression number one. Number two, Facebook really forces you to realize that while the Internet has caused the world to become able to communicate with each other, it is a very fragmented thing. You have 170 Different rules of law 170 different currencies, 170 different languages, you have 170 different financial systems and technology, internet infrastructure, there are a ton of versions of Android. So you have sort of the Internet has, has connected people.

But underneath that the standards are just totally fragmented, and systems. And then the third thing that you you know, I think can really appreciate it at Facebook is, and I think in many ways is the result of Facebook. The you know, much of the world has been on a one way journey of losing trust in, in leaders. It could be political leaders, it could be social leaders could be business leaders. But you know, Facebook in 2004, basically gave everyone a blog that 500 to 1000 friends would read. And of course, WhatsApp and WeChat have added to this dynamic and Twitter.

But in the environment were suddenly everyone could could tell their story and share their views, instead of just getting it from the nightly news, I think a lot of people started to realize that there were a whole host of experiences going on, that they were unaware of. And that caused them to slowly erode some of their trust in what they thought they knew, and what they were hearing from leaders.

And, and so anyways, you see those three things at Facebook, the scale of the internet, the fragmentation of the underlying systems and standards across the world, and sort of this slowly eroding trust in central leaders and authorities. And then you see Bitcoin and you know, we encountered Bitcoin and public blockchains in late 2016. And what is bitcoin it's something born out of the great financial crisis that leverages the scale of the internet, but puts one unified global standard into place and addresses the eroding trust of, of leaders by getting rid of the leader, there is no leader.

Arthur Salzer 17:22

Did you ever use Napster by the way? So so one of your neighbors in the valley? I mean, was responsible for shutting them down, right? Because it was a centralized database. Right?

Hunter Horseley 17:26

Yeah, I have.

Arthur Salzer  17:28

So one of your neighbors in the valley(Lars Ulrich of Metallica)? I mean, was responsible for shutting them down, right? Because it was a centralized database. Right?

Hunter Horsley 17:36

Yep. Yep, exactly. And there you can see, one of the challenges. So that, you know, seen seen having spent the time at Facebook, and then seen Bitcoin and public blockchains, sort of, I was, I think, predisposed to say, you know, this is a profound proposition here. If this, this new computing platform, could really chip away at some of those problems, and could really be a technology born out of the internet that helps the 21st century be different and better than the 20th. And I will also just add that I was the teaching assistant for history of Business at the Wharton School, I was very close with my, with my grandmother, who was born in the 1920s. And, you know, in her lifetime, she saw the, you know, the automobile become popular, she saw the advent of the commercial airplane, she saw the refrigerator, he invented the dishwasher. She saw the air conditioner, the radio, the television, not to mention the internet, the iPhone and the Apple Watch. And, and so you through through that aperture, you can you can witness how much can happen in the lifetime.

And so if you sit in 2024. You know, I think it's right to expect that a lot can happen in a lifetime. And a lot can happen in this in this century. So what are the vectors of progress that you see, developing, that could be part of how the 21st century moves forward? I don't think that 2023 was sort of done and final in terms of human progress. And so again, I just had the mindset that the world is going to step forward. And it's going to wind up different than then a decade or decades ago. And again, through that experience, I saw a public blockchain that gives you the scale of the internet with a global standard that allows the, you know, the world to interoperate. Much more seamlessly, addresses the the eroding trust that you know, an Executive leader will prioritize your interests over shareholder returns. And so that's profound and it has a lot of risks and a lot of reasons why it might not work to its full potential, but it does have the potential to be profound and not everything has the potential to be profound and it really meaningful. So we want wanting to contribute to it in some way? And, and, you know, this is the longest answer.

Arthur Salzer 20:07

No. Not at all, this is great.

Hunter Horsley 20:10

We were, you know, speaking with a lot of people, executives at Facebook and Google who had worked for Google friends who worked at Blackstone, and Goldman, and these people are incredibly financially savvy, incredibly, you know, tech savvy. And a common thing that we heard from them is like, you know, I like to invest in the space, but I don't have time to figure it all out and be constantly monitoring it.

And at some point, we heard that exact thought enough times that we said, wow, if if these people feel that way, then how are most busy people going to participate in this opportunity set? You know, public blockchains of Bitcoin becomes extremely widely adopted and popular, there's going to be this bearer instrument, this liquid asset, and how are people going to going to be able to be on the right side of that. And we realized at the time that most of the access that was being built was being built for, you know, to some extent, day traders enthusiasts. And nobody was really building for the way that most people access different asset classes, I mean, the way that people access municipal bonds or emerging markets, they work with a financial advisor, they use an asset management product, like in ETF or mutual fund or a separate account, and no one was focused on on building that building block.

And we said, if we could, if we could do that, that, you know, it deserves a specialist, because the underlying asset classes software, it's not real estate. So it deserves people who understand software. And it would be a really, it could be a really valuable thing to these people to be able to participate the opportunity and to do so with peace of mind and have it folded into the rest of their lives, their you know, trusts and estate, their taxes, their conversation and, and objectives with their with their financial advisors. So, so that's, that's what brought us to bitwise, which got started in 2017.

Arthur Salzer 22:11

So 2017, that your founding? I mean, were you? Did you want to bring an ETF to the market right away? Or was was that something? You know, a little later on in the business process?

Hunter Horsley 22:28

We have what we have always wanted to have a Bitcoin ETF, I think to, to many of us, you know, I think I think you as well, Arthur, it's always just sort of been obvious that a Bitcoin ETF would be obviously so valuable, and so useful to investors. But the challenge of operating in the space, you know, we operate in the regulated part of the industry, we're based in the US and it just hasn't been possible for a long time.

So we've we've been working on it for maybe six years, we filed many times, we've spent countless hours, we've done hundreds of pages of analysis for the SEC. And and it's just taking time to get there. In the meantime, we've always tried to introduce whatever vehicle or instrument if you can't do a Bitcoin ETF, what's the next best thing? And we've tried to do that? So we have, you know, other publicly traded funds, we have private a private Bitcoin fund for credit investors only. We have separate accounts venture capital as well. Yeah, we have a fund that holds Bitcoin miners and investing in companies in the ecosystem trying to expand access to the opportunity set. But it's taken a long time to get to a Bitcoin ETF and I'm thrilled, you know, I thought my tombstone was going to read, it's a matter of when not if. And I'm just I'm glad that that we finally got there.

Arthur Salzer 23:50

Yeah, and I'm gonna have to teach you a little bit, just just because, you know, Northland, we're here in Canada. But the Canadian marketplace was the first place that an ETF was was created and traded. And it was almost three years after that one was approved in the United States by the SEC. And, you know, given that we had a free trading ETF in Canada for Bitcoin in 2020. Again, it's just over three years now, to have it happen in the United States. So, you know, things things like ETFs things like basketball, things like football, telephone, you know, Canadians can can do okay.

Hunter Horsley 24:33

Just you guys are pretty, pretty, pretty smart.

Arthur Salzer 24:36

It's that the marketplace is so much larger in the US, right? That that's, that's the place to be in the end. And although, you know, we've had Bitcoin ETFs in Canada, there really hasn't been the the large flows. We saw them the first, you know, few months into that space, and it's really been stagnant thereafter and something maybe you can you can enlighten everybody. But the numbers that have come in to the approved Bitcoin spot ETFs in the United States are are staggering. I mean that these are massive, massive numbers. Can you can you go into that maybe a bit?

Hunter Horsley 25:18

Yeah, absolutely. And credit where credit is due, you know, I think you were sharing with me before that that fact about the first ETF ever just of any kind being launched in I think you said 1990. And it wasn't until 1993, that SPY happened in the US. So it's funny that that legacy is can continue 30 years later, you got got to Bitcoin, well, before the US and I also have to say, you know, being a US based company, I was dying. I was like they got it done in Canada, why in the world? Must it be so painful here in the US? So it was was jealous that you guys were able to sort of make progress, and the US got around to it, which means that they came to the same conclusion and just took longer. But I'm happy it got done.

Arthur Salzer 26:05

And how are the flows so far? Like they're, they're large, right?

Hunter Horsley 26:11

Yeah. Oh my gosh, staggering. So our Bitcoin ETF, the Bitwise Bitcoin ETF, is the 22nd or 21st, fastest ETF to a billion in the history of ETFs. There are over 10, maybe 20,000, ETFs, 30 years of history. It has been extraordinary launch, the new ETFs have gathered almost $10 billion, I want to say in about a month here, which is which is unprecedented. And an extraordinary indication of indeed how useful this vehicle which provides a lot of protections and helps Bitcoin fit into the rest of people's financial portfolios. how powerful that is. We, we do a survey, we've done a survey every year for the last six years of you know, we serve a lot of wealth management firms, family offices, institutional investors, we've done a survey of financial advisors. For the last several years, we put out our most recent one in the beginning of January. And 98%, said that they were waiting for a Bitcoin ETF which is 88% said they were waiting for a Bitcoin ETF to be able to participate in the space. So you know, I think that that is an example it's not the only important data point but an example of how transformative getting access to Bitcoin ETF is for for the capital markets here.

Arthur Salzer 27:48

Now, I know you've done a lot of work at Bitwise on, you know, portfolio creation, and how the addition of Bitcoin to a financial portfolio can can help. You know, I was I was looking at it today and it's just just some great work that that advisors can use, is it only for advisors? Or is that type of information? More broadly available?

Hunter Horsley 28:14

Yeah, we we can share it, you know, advisors that are that our partners of ours can share it with their clients, they have they have the ability to do that if they like, there are a lot of institutional investors, we we wrote this CFA's Guide to Bitcoin blockchain and cryptocurrencies a few years ago. So there's a lot of institutional investors market participants. And again, advisors can can share with your clients if they like. And we, you know, we have a number of things we have we have a white paper on Bitcoin in a traditional portfolio that does some of the analysis on you know, I think a lot of people are surprised with Bitcoin.

So I think many people when they first see Bitcoin, they say, this thing is volatile. And volatility is scary and bad. But there's a big caveat, which is, when you're constructing a portfolio, if the correlation is low to other things, than the volatility can be extremely helpful. And so in the case of Bitcoin, the correlation is point one to the S&P500. And maybe point one five to the Q's to NASDAQ. Maybe four basis points to the Agg to the Bloomberg Aggregate Bond Index is very low to gold. And what that means is if you have a portfolio and stocks are down, bonds are up a little bit, Bitcoin is likely to be doing something different.

It might it might be up it might be flat. And the net of that is that when you view it in isolation, day to day you say it's volatile, but when when you view just the overall portfolio, it actually reduces the overall volatility of the portfolio reduces the the risk that the portfolio has. And so, you know, some of that is not always intuitive to people. So we tried to put that in, in some of our white papers to help people think that through, but I think it's a, it's a reason that a lot of investment professionals come to the view that this is very, very constructive, even setting aside the that you have a chance here to own a piece of one of the profound platforms of the 21st century. And there's a great return opportunity. Even if you just look at it from sort of a simple, modern portfolio theory or diversification perspective, there's a really strong case, for its role in a portfolio here in the US. You know, we had the meltdown of a number of regional banks in March of last year, first republic, Silicon Valley Bank, Signature Bank, and there were one or two others. And so there was a lot of concern as rates had come up drastically in the US that the balance sheet of banks had had, you know, become very weak or even insolvent, then you saw a run on the banks. And in that moment, Bitcoin was actually up. And it's an example of, you know, so your, your, the financial sector of your equities portfolio was down as concern was going up.

Arthur Salzer 31:25

So risk appetite was coming down. But meanwhile Bitcoin was up and and so in the overall view, because there's no there's no counterparty risk to Bitcoin. Right? That's, it's one of the only assets that don't have that.

Hunter Horsley 31:33

Yeah, it's an essential element of the club. Yeah, right. You're totally right. So I think, I think we have we have a lot of research pieces we have, we have a Bitcoin library of about 22 pages that addresses things like what are Bitcoin mining? Is Bitcoin bad for the environment? How to size Bitcoin in a portfolio, things that, you know, I think people have thought about, sometimes people have researched, but they've never really found a resource that is straightforward, and can be understood. They've read a lot of confusing things online. So we tried to put that together, a CIO writes weekly commentary on what's going on in markets actually has a very interesting piece coming out next week.

Arthur Salzer 32:17

And Matt (Hougan), who gets I mean, like, I've met Matt a few times, and he's, he's the Chief Investment Officer of Bitwise. He was formerly at Inside ETFs, right. So he was constantly, he was one of the experts in the space in the ETF markets. So to have you know, Matt, who again, CFA Charterholders, I believe as well. Just just great wealth of knowledge and a lot of the work that the Bitwise did, you know, played played a key role in in the due diligence of our firm.

Hunter Horsley 32:51

So, you know, thank you guys, for all that, for leading Art. Thankyou. And I, you know, I would also say, you know, I know, you'd want me to talk about you. But, you know, we now have over 3000, RIAs, family offices, wealth teams, institutional investors who use a Bitwise product. And so we have a pretty good survey of how different investment professionals and wealth management firms and family offices have, over time explored and gone on a journey with Bitcoin.

And I think that you've had the clearest thinking a lot faster than most people. And it's a real benefit to your clients, because it's kind of like we talked about, with, you know, Canada getting to a Bitcoin ETF before the US did. What we're seeing now is a lot of wealth management firms and family offices are coming to the same conclusion that you did. They just took longer.

And as a byproduct, they're gonna buy their first Bitcoin at 50 or $60,000. They didn't end up disagreeing 10 times the price we bought it at for our clients. Yeah, exactly. And they didn't end up disagreeing, they came to the same conclusion, they just took longer. And so clients won't benefit as much. You know, I think that there's a ton of room to go in bitcoins journey. So I'm not worried for our clients.

I think it's still a great, a great point to come in.

But I think there's a real credit to you that you have sort of the intellectual open mindedness to encounter something that was, you know, I think not well known, very confusing space, and see the merits that that took a lot of people many, many more years to come to.

So Matt does a great job of putting together I think, I think a challenge that people often feel with this space is it's just a mess. Like, you hear one thing from your nephew at Thanksgiving, you read something in Bloomberg, you hear a different thing from some investment professional and it's all very confusing.

And, you know, our role as one of the premier specialists is to try to you know, we spend our days in the rain forest so to speak, and it's our job to wade through the dangers and the the you know, the beautiful things that live in the rain forest and to come out and say, here's the story. Here's what's in there and here's apart that we think has merits and a present that simply because our clients are busy people, in some cases, extraordinary people. It's not a lack of intelligence, they're busy. And when when people around them say a bunch of confusing and contradicting things, they say, You know what, I got other great things going on in my life. This is just too complicated. So we try to help simplify it.

Arthur Salzer 35:25

Yeah, I mean, I know some of you know, the family offices and foundations, you've you've educated and advised and their household names. Globally, these are some of the most sophisticated investors with some of the best track records in the world and the fact that they came to, to yourself and Bitwise to get insight on the sector, I really think that is a strong vote of confidence.

Hunter Horsley 35:56

Appreciate that. Yeah, I think that some people are attracted, you know, they're there these days, a lot of options for the space. There's some household names, but I think that some people have just have an intuition that rather than then investing through something that's convenient, they want the best, you know, maybe they want to invest through the best real estate manager, or they want the best venture capital manager, and they look at this space, and they say, wait a minute, we want the best specialist on Bitcoin and digital assets. It's this whole different thing. You know, if you are investing in real estate manager, you hoped that they understand permitting and architecture and general contractors, and if you're investing in Bitcoin, and digital assets, you know, you hope that they understand open source software, and the difference between rust and Oh, camel and, and API's and the importance of interoperability between programs. And that's just a different expertise. And we've tried to build a firm that brings together the technology background, and to be very clear, bitwise is now full of X BlackRock, or risk managers for millennium. Our general counsel is from the Department of Justice in the US. So it's not just a bunch of tech people running around, but it is the combination of those two disciplines. And, and I think that that has resonated with a lot of sophisticated investors as the right partner for this area, which is quite different from other traditional asset classes.

Arthur Salzer 37:17

Yeah, and without dropping names. I mean, you're quite right about, you know, picking the best managers to, to invest with for a sector. And one of the firms that we have a lot of capital with, and a good track record with the founder of that firm was, you know, sending emails to you last week, you know, saying is this the right time, so it is a small world, there are there are specialists, and you want to go to them? Now, one of the things that bitwise did differently, I think, than a lot of other firms. Is is you actually look at the Bitcoin ecosystem. And from what I've read, you are giving back 10% of the profits of bitwise. On the CTF, I presume back to Bitcoin open source development. Can you speak to that maybe a little bit and why you did?

Hunter Horsley 38:07

Yeah, so with this big Bitcoin ETF, we wanted to construct the highest quality product, we have the lowest fee of any of the large Bitcoin ETFs. So it's, I think, a great value to investors. And we're happy to do that. Because, you know, the reason that we do this, the reason I'm not working somewhere else is because we love getting to have a partnership with, you know, many of the most important thoughtful people in the world. And we'd love the opportunity to so we have the lowest price of large ETFs. It's an incredibly efficient product. But we've also because we're a specialist, done some things that are specific to the nature of the asset class.

So two things. One is that we we publish the we give investors the ability to confirm on the Bitcoin Blockchain for themselves, the bitcoin is there. And if you think back to the financial crisis, and AIG and Lehman all trying to figure out what they own what they had exposure to one of the promises of Bitcoin is that through a transparent public blockchain, you can build trust, not because some leader or authority says so but because you can verify it yourself. So the bitwise Bitcoin ETF is the only Bitcoin ETF that allows investors to verify directly on the Bitcoin Blockchain that the Bitcoin holdings that we say are there are there now of course,

Arthur Salzer 39:26

and you publicly show your key I mean, I see that all the time on social media, right? Yeah. We

Hunter Horsley 39:30

show we show the public address for people who are less familiar with the space the public address has no bearing on security public addresses or public the private key we of course, do not expose and the private key is what allows the movement of the assets but public addresses are by their name their their public and people can know each other public addresses we choose to make that convenient for investors, because that is the unique capability of the Bitcoin Blockchain. And we're We're excited to pioneer that it's the first time it's been possible in an ETF and it's the Bitcoin ETF that that only Bitcoin ETF that does that today. And I think that that's resonated with a lot of investors. The other thing we do, which you mentioned, is, we committed to donating 10% of the gross profits from this fund to the open source development community. Bitcoin is an open source, software project, open source software projects, Linus Torvalds, the inventor and maintainer of Linux, which has been fundamental to the internet to software for you know, a very long time maintains that open source project. Similarly, Bitcoin has maintainers, open source developers who help keep it updated, make changes that are merited through a very robust consensus process. But they're not there's no Corporation, they don't get paid by Google, they don't get paid by Bitcoin Inc. They do it out of their desire to see this thing succeed. And they have to get paid through grants.

Ultimately, there are about five organizations that provide grants. And our view was if if an investor is entrusting us to get exposure to Bitcoin, then it's a good thing for that investor, if the developer ecosystem continues to be healthy, and keep the Bitcoin Blockchain in good hygiene from a development perspective, so we will cut into we're already offering the lowest lowest fee. So we're not we're not taking that from investors, we'll take it out of our own pocket and take 10% of the gross profits, and use that to fund Bitcoin developers, which, again, I think is very consistent with what's in the best interest of our clients who are ultimately owners of Bitcoin and want Bitcoin to be taken care of. But because there's no cooperation, these open source developers do need resources. And we wanted to contribute to that. So we're excited to announce that and I'll tell you, I, you know, we know many of the the key bitcoin core developers there five really important ones. And I was just with two of them last week, I mean, they really appreciate it. And by virtue of that, they really appreciate you, Arthur and your clients, they understand that somebody who chooses the bitwise Bitcoin ETF is recognizing their contributions, and it directly impacts them. So we were excited, again, as a specialist who understands the nuances of this space, to make that a feature of the product.

Arthur Salzer 42:33

So lastly, the big question. Price predictions. I know, we said, we're not going to bring this up. But you know, is it probably safe to say that, in the short term, the number will probably be, you know, could be lower than what people think. But in the long term, it might be, you know, the market cap might be higher.

Hunter Horsley 42:54

It's hard to it's hard to know what people think I was just with a group of 25 pretty influential Bitcoin people. Last week, some of the core developers, some institutional investors, some very wealthy individuals who own you know, a billion dollars plus a Bitcoin. And the host surveyed the group on what their price predictions were for next year, and it ranged from the cash, I want to say 60,000 to 450,000. So it's always hard to know what people are thinking. What I would say is that I think that the most important thing to consider around the price of Bitcoin, is that the launch the Bitcoin ETFs, everything has changed. The Bitcoin ETF was like the IPO. Bitcoin has been valued by a very constrained part of the capital market, most of capital markets have not been able to access Bitcoin.

I know that sounds ridiculous to people who have access to it. But it's just a matter of fact that most of the mutual funds, most of the pensions, endowments and foundations have not felt comfortable doing it in the format's that's been possible. Most wealth managers in the US have not had access. And so the majority of capital markets have not been able to access Bitcoin and that means that we have not had efficient price discovery. So I think that with with the IPO, you know, just like any other IPO, you find out what the what the public markets think your asset is worth. And I think with the launch of Bitcoin ETFs we are about to discover in 2024 What the much broader public markets think Bitcoin is worth. And I think that that is going to surprise people. Because I think a lot of people have been focused on Bitcoin, you know, they've seen how its prices moved. They're familiar with, you know, the all time high was 68 69,000. And they interpret things through that lens. But the I think that the public market that now has access doesn't care about that. At and I would be unsurprised if it was $100,000 asset by the end of this year. I'm not promising that I'm not guaranteeing it. But But I just think that the no

Arthur Salzer 45:10

but and then how long does it stay there? And that's what I always tell, you know, clients and other investors is if you don't, you know, like the price a Bitcoin today. You might like it tomorrow. Yeah. And similarly, if you like it today, you may not like it tomorrow. Yeah,

Hunter Horsley 45:24

I mean, the nature of this space is that most people lose money by trying to be clever, and predict the week to week prices. I think ultimately, you have to take a sort of a step back and say, Do I believe in the long term potential this platform do? I think it could be a, you know, the analogy I that resonates with me I of course, come from the technology perspective, Arthur, but I just I always wind up thinking about the journey of Uber.

I don't know how closely you watch that. But when Uber got started, it was sort of a an app, you can order a black car with and people said, oh, that's only for, you know, for weirdos and and enrich people who like black cars. That's not really that's not a mainstream thing. And then they rolled out Uber X, which directly took on taxis. And then people said, Oh, well, the taxis are never going to allow this to happen. They have a monopoly, it's a it's a cabal, they're going to defend their castle with their lives. And by the way, even if you you take the castle in the US taxis do $40 million revenue a year, that's not even that giant of business. And then as we're into that, that market. People said, Well, okay, but it's only it's only going to be a certain size. And then Uber, leaped over the market and was doing even more revenue than taxes have ever done. Because of course, Uber is much more useful than a taxi, you can get it anywhere

Arthur Salzer 46:50

I had, I had taxis in Central Park. And they're like, Well, where are you going to? And then I gave them the wrong answer. And they said, Ah, I'm on break now. And I start taking pictures of their license plates. And I'm sending this in. And they, you know, they got defensive, and I said, I'm never gonna use a taxi again, in New York never. And I don't I only use

Hunter Horsley 47:09

Uber, same, same same purpose, you know, so I think, you know, one of the mistakes that some investors made, you know, there were their private market investors and every, every round of Uber, because they said, Oh, this is just going to compete with taxis. But in reality, it's much better than taxi digital payment order from anywhere coverage, anywhere you know exactly how long the weights going to be, you can make reviews your you're much more likely to trust the driver. And so it actually ended up expanding and leaping the size of the legacy market. And then of course, longer restraining people at other things. They said, You know, it's a poorly run company, well, then they put a new management, then it went public, and they said it's not profitable, but then they became profitable.

And so but but the reason I bring that up is, you know, I think that Bitcoin is is sort of on a similar journey, which is it's it's emergent in nature. And, you know, maybe it's futuristic 50% market share from gold, or maybe it's so much more useful than gold, that it's going to be multiples of a bigger asset than gold, because gold of course has merits but it also has constraints. Bitcoin is completely digital, Bitcoin can be held in very small amounts Bitcoin can be used for payments. I'm not saying that it will be used always repayment,

Arthur Salzer 48:18

yeah, but there's secondary layers that are being developed now that that do work. Exactly. For instance, in Costa Rica, there's there's an app called the Bitcoin Jungle Wallet, and it allows you to use the Lightning Network to make micro payments. And there's communities that basically every vendor uses it in a town. But in addition, it integrates with the e-transfer service called Sinpe Movil. So you can spend in Bitcoin, and the receiver can be paid in Colones or US dollars in their bank account. So it's fully integrated into the banking system in Costa Rica.

Hunter Horsley 48:40


Arthur Salzer

And it's really just, it's just beginning. So and then you've got things like Strike which Maller's, you know, using it, the network without actually the user seeing that they're using the Bitcoin network. So there's, if I was a money transfer bank, if I was, you know, I'm trying to think of the companies that Western Union that they were in that were announced, but yeah, I wouldn't want to own Western Union like it's, it's days are numbered. Yeah, yeah. It's going to disappear.

Hunter Horsley 49:34

So as I'm really surprised that that has been you know, I don't know where it'll be at the end of this year. I think our CIOs prediction was was $80,000. Again, that's not a promise and bitcoin does all sorts of things. But I think the point that I'm just having mine there is there are profound possibilities with this asset. I think that many people think of the total addressable market as gold which would put it you know, if it if it replaced gold or replace half of gold's value it'd be a multi $100,000 asset.

Arthur Salzer 50:04

But I think it actually then it'll start replacing RE. Yeah, that's gonna start replacing real estate.

Hunter Horsley 50:09

Yeah, I think I think I think it just has much more interesting optionality. And so I think that, you know, as investors, we almost have to have the sort of intellectual humility or modesty to say, we don't know exactly how it's gonna play out, we know that the potential is large. And the the traction it's had thus far is enough for us to believe that the substance here and, you know, Arthur, bit wise can keep us posted on the progress and we can decide if we're going to change our minds in the future, but nobody knows for sure. And I will just also add that, you know, when, when the first PCs were being developed, and there's, you know, there's an interview with remembers Bill Gates and Steve Jobs, and they said, Why does everyone need a mainframe in their home? They said, you know, made a PC in every home in America. And they said, why? And they said, Well, they're going to, they're going to keep the recipes on it. And they're going to put the Rolodex on the computer. And maybe they'll balance their checkbook. And that was all they could imagine. So it's just hard.

I think it's often hard in technology, and definitely with profound new computing platforms, for people to really the PC, internet, Cloud Mobile to really fully imagine what's to come when the iPhone came out. I don't think people imagined tick tock and Uber and Venmo and Apple Pay. Were sure things. And with Bitcoin, I think that doesn't mean that one has to be ridiculously optimistic and think it'll be a, you know, $100 trillion asset. You know, there's certainly levels of optimism that are absurd, but I think that the exciting opportunity is to be sort of cautiously optimistic that there really is a lot of potential and progress here. And, and, again, the public market, you know, just basically had the door open to access for the first time, and we're going to see in 2024, how the broad capital markets, price all of that, and I suspect that they will price in that progress and that potential at a higher level than the much smaller market that previously had access to Bitcoin.

Arthur Salzer 52:16

And we're not and we're not even getting into global macroeconomics, right about, you know, How much debt is outstanding? What the interest payments are? Will interest rates go down? None of that when we were just looking strictly at supply and demand right now. So yeah, very, very bright future. It'll always be volatile in price, at least probably for the next better part of a decade, I think. But it's the most interesting asset I've ever researched in my 30-year career. Wow, the asymmetric return profile. I have a difficult time now looking at private equity, looking at real estate, looking at hedge funds, looking at equities when that that's become the benchmark, right. So it is it is a really interesting asset class. It's fascinating. So I just wanted to thank you today, for all the time and the wisdom you've shared. I know our clients will greatly enjoy it. And I look forward to speaking with you again soon Hunter.

Hunter Horsley 53:13

A total total pleasure as always, and thanks for the thanks for the conversation.

Arthur Salzer  53:22


SUMMARY KEYWORDS: bitcoin, bitcoin ETFs, ETFs, investors, Facebook, people, years, bitwise, asset, put, taxis, today, portfolio, space, institutional investors, public, internet, Uber, clients, access


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