Bitwise launches world’s first ‘Ex Bitcoin’ crypto index fund

Matt Hougan, Bitwise CIO, joins Yahoo Finance Live to discuss the new crypto index fund and the overall state of cryptocurrency amid increased regulation.

Video transcript

ALEXIS CHRISTOFOROUS: There's a new option if you are looking to invest in cryptocurrencies. The fund manager Bitwise just launched the Bitwise 10x Bitcoin Crypto Index Fund-- got all that? Joining me now is the CIO of Bitwise, Matt Hougan.

Matt, good to see you, and I guess the name sort of says it all-- X Bitcoin means that this crypto index fund has cryptocurrencies-- everything but Bitcoin? Talk to us about what this fund is made up of.

MATT HOUGAN: That's exactly right, Alexis. Thanks for having me on. You know, we work with financial advisors, hedge funds, and other investors. A lot of them came into the crypto market a year ago and bought Bitcoin. And Bitcoin is great. But now they're hearing about all these other things that crypto can do.

They're hearing about NFTs, they're hearing about DeFi, they're hearing about Ethereum. This fund makes it easy for those investors to own everything else in crypto in one single fund to complement their Bitcoin exposure. And that's why we designed it. We're really excited to bring it to market today.

ALEXIS CHRISTOFOROUS: So I guess we should note, though, that the fund currently has a pretty hefty minimum investment. So it's not for everyone. It's a $25,000 minimum investment and open only to accredited investors.

MATT HOUGAN: That's right. Right now, it's a $25,000 minimum and open to accredited investors. We'd love to bring this out to a broader public, but that's how crypto funds start. So we're happy to talk to advisors, happy to talk to investors about why this fund is interesting, but those are the limitations for the fund today.

ALEXIS CHRISTOFOROUS: Why the fundamental decision to not include Bitcoin? I mean, you could have had all those other cryptocurrencies and still added Bitcoin. Why exclude the leading cryptocurrency in this fund?

MATT HOUGAN: Oh, I love that question. We do have an index fund, it's the largest crypto index fund in the world, ticker BITW, that holds all the largest assets, including Bitcoin. But a lot of investors either already own Bitcoin and want everything else, or they're really interested in this more productive side of crypto, right-- Ethereum is the internet of money. DeFi is using software to program money. Uniswap is one of the leading DeFi assets. That's all in this fund.

So we love our broad based index fund, the Bitwise 10. But many investors are now looking beyond Bitcoin. And they want exposure to those assets. So we're here to provide tools that make it easy to get exposure to crypto without worrying about who the winners are. This is just the latest iteration from Bitwise in opening up this market through an index fund.

ALEXIS CHRISTOFOROUS: You know, certainly, the space is at a significant turning point as we await regulation. It's sort of transitioning from that proof of concept to a phase of mass adoption. We saw, you know, El Salvador now say it's going to be accepting Bitcoin as its currency. So talk to me about getting into this space now with so many question marks remaining with regards to regulation.

MATT HOUGAN: Oh, it's the greatest time, I think, to enter the crypto market. A lot of the first decade of crypto was about 0 to 1. Will this idea of crypto exist? Will we be moving money through digital currencies? Will we be programming money like software? Will we have things like decentralized finance?

But those questions are gone. We've gone from 0 to 1. Now the question is how fast we scale from 1 to 100. A lot of that is built on what regulatory clarity we get. A lot of that is built on what technological advances we get. But this genie is not going back in the lamp.

We've gotten to where we are, and now it's the time to scale. And that's usually the point where mainstream investors come on board. And that's actually what we're seeing today. We're seeing a broadening of the investor base from early stage tech investors and hedge funds to financial advisors, mom and pop retail investors, mutual funds, and everyone else. So it's a really exciting moment.

ALEXIS CHRISTOFOROUS: Let's talk about that customer base for a moment, because with high reward comes high risk, right, typically in the market. So talk to me about how the average investor, who is really our viewership, should approach crypto in their portfolio and, you know, the fact that we don't yet have a crypto ETF in the US sort of limits the ways in which people can get direct exposure to these cryptocurrencies.

MATT HOUGAN: Yeah, I think it's really important for investors to understand this is a volatile asset class. It has been volatile and it will be volatile in the future. For everyday investors, that means you need to have the appropriate amount of crypto-- that amount might be zero, it might be a little. Most people we work with have between 1% and 5% of their portfolio invested in crypto.

That's enough to have a stake in the outcome without putting your fundamental financial stability at risk in a major way. So think about that portfolio size. You know, look, crypto is the best-performing asset class in the world this year. There was also a period where it fell 50%.

So model for yourself, what would you feel like if a portion of your portfolio fell by 50%? Could you hold for the long-term during those difficult markets? It is a risky asset. It's also a very exciting asset. So just balance that appropriately.

ALEXIS CHRISTOFOROUS: Should you be looking at it as a hedge in the way a lot of people have been-- perhaps not going with gold to hedge against inflation, but using Bitcoin as that hedge?

MATT HOUGAN: I strongly feel it's a more effective hedge for inflation than gold, because it has a higher beta, which means that it's more sensitive to changes in inflation. So you can have a small position in Bitcoin and hedge a relatively large portfolio against inflationary risks, bad monetary outcomes. So I do think-- the largest institutions in the world are starting to move into Bitcoin instead of gold as a hedge for inflation because it's more efficient. So if you're worried about that, I absolutely think it fills that role.

ALEXIS CHRISTOFOROUS: And I want to get back to El Salvador for a moment, now saying that Bitcoin is sort of its currency going forward. We actually spoke to a market strategist yesterday who sort of dismissed it. He said, this is a small country with significant issues. And he didn't see it as a big sort of turning moment for Bitcoin. What would you say to that?

MATT HOUGAN: The 0 to 1 moments are always small moments. If you think about some of the biggest changes in the crypto space over the last year-- we had Paul Tudor Jones becoming the first hedge fund to invest in Bitcoin back in March of 2020, first to do it publicly. Now, most hedge funds are looking at the crypto space.

We had MicroStrategy, a small tech firm, put Bitcoin on its balance sheet and be the first corporate, publicly-traded company to do that. And now there are tens of companies doing that, and that's going to expand to hundreds in the future. 0 to 1 is the riskiest moment. And often, it's small, often, it's outsiders, often, it seems like not a big deal, but it paves the way to go from 1 to 100. So I actually think what El Salvador did is a huge win for the crypto space.

I think it's a win for the people of El Salvador and the people sending money back to El Salvador. And I do think we'll look back, maybe not in three months, maybe not in six months, but in a year, two years, three years as this being an important bridge to sort of widespread adoption in a number of countries. So that's my view, and I think it'll play out that way.

ALEXIS CHRISTOFOROUS: And, finally, outside of Bitcoin, which cryptocurrencies do you see having the longest runway? And I'm curious if Dogecoin is part of your new fund.

MATT HOUGAN: Dogecoin is not part of our new fund. An important part of our index methodology is we have a number of technical and regulatory screens that remove assets that we don't think are appropriate for professional investors. Dogecoin doesn't pass those screens.

Among the assets in our fund, you know, I do think there are a lot of exciting assets, but Ethereum has become almost a must-have for investors. Bitcoin is digital gold, Ethereum is the foundations of the internet of money. We're seeing sort of a relentless bid from professional investors to move into Ethereum to get exposure to that asset.

Of course, it's a fast-evolving space. That can change. There's Solana, there's Cardano-- there's a number of assets. That's why the index-based approach, we think, is appropriate for many investors. You don't have to monitor it every day, you just own the space. But if I had to pick one for people who already have Bitcoin, you really need to be thinking about Ethereum. The growth and user demand there is enormous right now.

ALEXIS CHRISTOFOROUS: All right, Matt Hougan, the CIO of Bitwise, thanks so much for stopping by and talking a little crypto with us. We appreciate it.