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At the Money: Crypto Curious · Masters in Business

• 0:02
  Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
• 0:27
  Speaker 2: How should retail investors responsibly think about crypto? Are you
• 0:32
  Speaker 2: crypto curious? Are you interested in owning maybe some Bitcoin
• 0:37
  Speaker 2: or ethereum or some other crypto coins? How should ordinary
• 0:41
  Speaker 2: investors interested in the cryptocurrency space get exposure to that asset.
• 0:49
  Speaker 2: I'm Barry Rideltson on today's edition of At the Money.
• 0:52
  Speaker 2: We're going to discuss how retail investors can responsibly invest
• 0:56
  Speaker 2: in crypto. To help us unpack all of this and
• 0:59
  Speaker 2: what it means for your portfolio, let's bring in Matt Hogan.
• 1:02
  Speaker 2: He is the chief investment officer at bit Wise Asset Management.
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  Speaker 2: The firm manages over ten billion dollars in client assets
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  Speaker 2: in crypto. Let's start with just the basics, Matt. For
• 1:15
  Speaker 2: the longest time, it's been challenging and difficult to own crypto.
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  Speaker 2: There were wallets and coins and crazy passwords, lots of
• 1:24
  Speaker 2: hacks and other problems. Tell us about what's going on
• 1:27
  Speaker 2: in the world of actually owning cryptocurrencies.
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  Speaker 3: Oh, it's great to be here, Barry. It's getting a
• 1:33
  Speaker 3: lot easier to own crypto. You know, in the past,
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  Speaker 3: this was a new disruptive market. It was challenging. You
• 1:39
  Speaker 3: had to write down your secret password and not lose it.
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  Speaker 3: There are all these terrible stories about people losing passwords
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  Speaker 3: that are now you know, would have gotten them one
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  Speaker 3: hundred million.
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  Speaker 4: Dollars or whatever.
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  Speaker 3: But this is just like any other technology. You and
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  Speaker 3: I remember when the Internet was hard to use. I
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  Speaker 3: remember looking up websites in a book, which I know
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  Speaker 3: sounds absolutely insane.
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  Speaker 4: But technology has advanced.
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  Speaker 3: It's now easy to get high quality access and secure
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  Speaker 3: access to crypto if you use the right tools.
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  Speaker 2: Huh really interesting. So it sounds like the wild West
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  Speaker 2: of crypto has been tamed a little bit. There certainly
• 2:18
  Speaker 2: has been a push by well known financial institutions into
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  Speaker 2: the space. You can own crypto coins and ETFs, you
• 2:27
  Speaker 2: can own them and closed end funds. What are some
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  Speaker 2: of the advantages and disadvantages of the various ways and
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  Speaker 2: methodologies of owning this.
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  Speaker 3: Yeah, I have to say I'm a huge fan of
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  Speaker 3: the ETFs. You know, obviously we offer them, so I'm
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  Speaker 3: talking my book, but broadly speaking, the ETFs came out
• 2:45
  Speaker 3: in January of this year, and they let you own
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  Speaker 3: crypto at such low cost and with such institutional quality
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  Speaker 3: custody and trading. Retail investors today can get the same
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  Speaker 3: sort of setup that the largest institutions in the world
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  Speaker 3: were getting crypto a year or two ago. So these
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  Speaker 3: ETFs make it easy to buy exposure to bitcoin in
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  Speaker 3: a brokerage account and know that the crypto is being
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  Speaker 3: or the bitcoin is being held by an institutional regulated
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  Speaker 3: custodian with insurance in place, with all the bells and whistles,
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  Speaker 3: but they don't have to worry about it. Five years ago,
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  Speaker 3: you had to worry about that personally. The ETFs have
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  Speaker 3: sort of taken that complexity away and made it cheap
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  Speaker 3: and safe to own it.
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  Speaker 2: And you're really a fascinating person to talk to about
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  Speaker 2: this because you come from the ETF side of the industry.
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  Speaker 2: You spent how many years twenty years working on atfs.
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  Speaker 2: Tell us a little bit about your background and what
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  Speaker 2: led you into the crypto side to come up with
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  Speaker 2: ways to put coins in ETFs.
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  Speaker 3: Yeah, absolutely, you know, fifteen twenty years in the ETF industry,
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  Speaker 3: the CEO of ETF dot com. There are actually so
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  Speaker 3: many parallels between ETFs and crypto. I know ETFs today
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  Speaker 3: are the apple pie of investing, everyone's favorite tool, but
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  Speaker 3: twenty years ago, they were considered risky and disruptive and
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  Speaker 3: hard to access. The Financial Times called them weapons of
• 4:10
  Speaker 3: mass destruction. There were congressional hearings Berry about ETF's destroying
• 4:15
  Speaker 3: the American dream, if you can believe it. But ETFs
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  Speaker 3: had this core advantage, which were they were lower costs,
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  Speaker 3: they were more tax efficient, they were easier to use,
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  Speaker 3: and over time the world woke up to the reality.
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  Speaker 3: The same thing's happening in crypto. You can see it
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  Speaker 3: before your eyes. A few years ago Larry Fink called
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  Speaker 3: bitcoin an index of money laundering. Today he's talking about
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  Speaker 3: it transforming the world of currency. And he holds more
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  Speaker 3: Bitcoin than almost anyone else, So it's going in that direction.
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  Speaker 3: And absolutely you're seeing these two worlds come together where
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  Speaker 3: this new financial innovation of crypto is now being packaged
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  Speaker 3: in this beautiful package of an ETF and making it
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  Speaker 3: easy for every investor to access. It's a beautiful thing.
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  Speaker 2: And I wanted to talk a little bit about the
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  Speaker 2: safety aspect and the institutionalzation. None of the coins are regulated.
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  Speaker 2: It very much has been the wild West. But you're
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  Speaker 2: not a crypto exchange, you're a fund manager, you're a
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  Speaker 2: financial manager, who is the regulatory authority that supervises bit wise.
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  Speaker 3: Yeah, all of them, with all the letters, all the
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  Speaker 3: letters very you know, we're regulated by the SEC because
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  Speaker 3: even though the crypto assets aren't, the funds that we offer,
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  Speaker 3: the ETFs that we offer are regulated and passed through
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  Speaker 3: the SEC. Of course, also the CFTC for products that
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  Speaker 3: hold futures contracts. FINRA, which is another regulator, has oversight
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  Speaker 3: over broker dealers, and so our distribution team sits under that.
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  Speaker 3: All our materials are reviewed.
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  Speaker 4: By FINRA, the NFA.
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  Speaker 3: It's an alphabet soup of regulators. But it's a good
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  Speaker 3: thing for investors because one thing that is true about
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  Speaker 3: crypto is in the early wild wild West days when
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  Speaker 3: you had offshore exchanges doing shady things, people lost money.
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  Speaker 3: A great thing that has happened is that has moved
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  Speaker 3: into these regulated formats like ETF. So you do have
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  Speaker 3: some protections from the SEC, the CFTC, BINRA, the NFA
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  Speaker 3: and others, and of course bitwy sits within those protections
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  Speaker 3: as an RAA.
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  Speaker 2: That's really interesting. So you're a regulated entity. Where do
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  Speaker 2: the ETFs and various funds get custodied? How are they held?
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  Speaker 2: Who does the administrative reporting. I mean, I think of
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  Speaker 2: these as complex questions for a coin, but really they're
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  Speaker 2: kind of running the mill questions for an sec regulated
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  Speaker 2: entity like bitwise.
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  Speaker 3: It looks exactly like or very similar to any other
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  Speaker 3: ETF manager. So the crypto acids are held in a
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  Speaker 3: regulated qualified custodian. In the case of our Bitcoin ETF,
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  Speaker 3: it's coin based custody, which is the largest crypto custodian
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  Speaker 3: in the world. The funds are audited by Big four
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  Speaker 3: auditors in our case it's KPMG. They're administered by firms
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  Speaker 3: like Bank of New York. If you looked at the
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  Speaker 3: sort of stack of participants, it would look just like
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  Speaker 3: you know, a traditional equity ATF and that's what it
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  Speaker 3: should do, right.
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  Speaker 4: These are trusted rails that.
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  Speaker 3: Have been proven over years, and we've just applied them
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  Speaker 3: to crypto to give the similar protections to crypto investors.
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  Speaker 2: So the one thing that I find kind of amusing
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  Speaker 2: and ironic is the whole defying nonsense. The decentralized finance
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  Speaker 2: turns out to have been a narrative that kind of
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  Speaker 2: faded away because crypto, for all to talk about outside
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  Speaker 2: of the financial system, has been dragged, kicking and screaming
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  Speaker 2: right into the heart of the financial system.
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  Speaker 3: I admit that there is an irony there, but I
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  Speaker 3: actually think it's more of a continuum sort of. The
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  Speaker 3: core idea of DeFi is that the existing financial system
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  Speaker 3: is too slow, too intermediated.
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  Speaker 4: Too costly, and all of that is true. DeFi offers
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  Speaker 4: the potential to improve that.
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  Speaker 3: But of course the two systems have to come together,
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  Speaker 3: and you're seeing it. So you're seeing, you know, from
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  Speaker 3: the crypto side, the launch of ETFs moving into the
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  Speaker 3: traditional financial system. But you also have firms like Blackrock
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  Speaker 3: and Franklin Templeton issuing money market funds on public blockchains
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  Speaker 3: like ethereum, So you are seeing this coming together. I
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  Speaker 3: wouldn't write off DeFi one point zero very I think
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  Speaker 3: there'll be a DeFi two point zero that is much
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  Speaker 3: more significant.
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  Speaker 2: Really interesting. So let's talk about individuals who want to
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  Speaker 2: own crypto. What sort of strategies do they deploy? Is
• 8:53
  Speaker 2: it bitcoin or bust or should they own bitcoin, ethereum
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  Speaker 2: and a bunch of other coins. Give us some investment strategies.
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  Speaker 3: Yeah, I mean, without telling anyone exactly what to do.
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  Speaker 3: I'm an index investor at heart. Right, this is a
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  Speaker 3: disruptive early market. You know, my family owned a betamax.
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  Speaker 3: I remember using a BlackBerry. It's hard to know exactly
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  Speaker 3: how this market will turn out in the future. So
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  Speaker 3: I think taking a diversified approach to this market is
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  Speaker 3: probably a sensible approach for many investors.
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  Speaker 4: There's certainly people who are.
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  Speaker 3: Bitcoin only, who only care about the monetary aspects of crypto,
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  Speaker 3: but in any disruptive technology, My history, you know, having
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  Speaker 3: grown up through the tech bubble, tells me that a
• 9:37
  Speaker 3: diversified approach may be a good idea for many investors.
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  Speaker 2: Makes a lot of sense. Whenever I talk about stocks
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  Speaker 2: to an investor, I always warn them, hey, listen, you
• 9:48
  Speaker 2: know you get a a ten to twenty percent pullback
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  Speaker 2: two out of every three years. Twenty percent comes along
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  Speaker 2: just about every third year. With crypto. I love the
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  Speaker 2: expression crypto winter, and we've had an number of them,
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  Speaker 2: when for a year or two, cryptocurrencies can be down,
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  Speaker 2: you know, fifty percent or worse. We've probably had three
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  Speaker 2: of them over the past you know, ten.
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  Speaker 4: Or so years.
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  Speaker 2: So how should investors prepare themselves for what seems to
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  Speaker 2: be an inevitable drawdown?
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  Speaker 3: Yeah, it's a really important question. People ask me all
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  Speaker 3: the time what the biggest risk in crypto? Is it regulatory?
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  Speaker 3: Is it technical? Is it quantum computing? It's none of
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  Speaker 3: those things. The biggest risk is behavioral risk by investors
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  Speaker 3: who either chase prices when they go up or sell
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  Speaker 3: when prices go down. This is an asset that has
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  Speaker 3: huge volatility. You're going to get thirty forty fifty percent
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  Speaker 3: drawdowns in the future. I feel confident about that. As
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  Speaker 3: you mentioned, we've seen those in the past and there's
• 10:47
  Speaker 3: no reason to expect that will change for investors. What
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  Speaker 3: that means is two things. One, you need a long
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  Speaker 3: term discipline. If you're buying bitcoin for the next week,
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  Speaker 3: I have no idea where it's going. I'm optimistic over
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  Speaker 3: the next handful of years. And the second is you
• 11:02
  Speaker 3: need to size your portfolio appropriately. Don't put in so
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  Speaker 3: much that if it pulls back fifty percent you're going
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  Speaker 3: to panic and sell, because that is the worst case scenario.
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  Speaker 3: You're better just sitting on the sidelines. Put in a
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  Speaker 3: small amount if you're going to invest, so you can
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  Speaker 3: handle that up and down and it won't overly impact
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  Speaker 3: what you're doing.
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  Speaker 4: Uh.
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  Speaker 2: Really kind of interesting. So you mentioned price. Bitcoin goes
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  Speaker 2: way up, it goes way down. Is there a way
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  Speaker 2: of looking at these from a fundamental perspective? How do
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  Speaker 2: we value coins other than whatever their last trade was?
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  Speaker 3: Yeah, it's unfortunately a little bit complex. Bitcoin's valuation technique
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  Speaker 3: is different from other crypto assets like ethereum. When you
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  Speaker 3: think about bitcoin, what I think bitcoin is trying to
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  Speaker 3: become is a digital version of gold, a way to
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  Speaker 3: store money outside of central banks in a digital format.
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  Speaker 3: And we have digital versions of everything. We have digital
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  Speaker 3: versions of newspapers, we have digital versions of ads. I
• 12:03
  Speaker 3: think the world and younger generations on a digital version
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  Speaker 3: of gold. The reason I raise that is you can
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  Speaker 3: look at bitcoin today, it's a little under two trillion dollars.
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  Speaker 3: You can look at gold it's a little under twenty
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  Speaker 3: trillion dollars. Do you think it'll get half that market? Well,
• 12:17
  Speaker 3: then you think bitcoin will five.
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  Speaker 4: X from here.
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  Speaker 3: Do you think it'll get that full market you're more
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  Speaker 3: optimistic or do you think it'll be less successful? That's
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  Speaker 3: absolutely the best way to value bitcoin. These other crypto
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  Speaker 3: assets like ethereum are different. They actually have cash flow
• 12:33
  Speaker 3: like characteristics, so they behave a little bit more like stocks,
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  Speaker 3: they're more sort of fundamentally valued than bitcoin, which is
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  Speaker 3: this monetary asset, and so you have to think of
• 12:44
  Speaker 3: the two different sets of assets a little differently.
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  Speaker 2: So you and I are both index guys. That's that's
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  Speaker 2: our background. If I'm an investor and I want to
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  Speaker 2: put two or three percent of my portfolio into coins,
• 12:57
  Speaker 2: what do I do? Dohy tell us about some of
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  Speaker 2: the options that you guys have. Is it you know,
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  Speaker 2: should I be going for two X levered bitcoin or
• 13:07
  Speaker 2: am I better off with Hey, here are the five
• 13:09
  Speaker 2: biggest coins or ten biggest coins and own them all.
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  Speaker 3: Yeah, I wouldn't go two x levered bitcoin. Uh, you know,
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  Speaker 3: bitcoin is volatile enough. I think investors can make a choice.
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  Speaker 3: Within the ETF space. The only coins that we have
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  Speaker 3: access to are Bitcoin and ethereum. And the good news
• 13:26
  Speaker 3: is there the two largest assets. They're the leaders in
• 13:29
  Speaker 3: their spaces. So you can do worse than go two
• 13:32
  Speaker 3: parts bitcoin in one part ether and have at least
• 13:36
  Speaker 3: broad based exposure. If you want to be more diversified
• 13:39
  Speaker 3: and take an index based approach. You know, we a
• 13:42
  Speaker 3: bit wise have the largest crypto index fund. It's available
• 13:45
  Speaker 3: in a rapper, but that rapper is more like a
• 13:48
  Speaker 3: closed end fund, so it can trade it premiums and discounts,
• 13:52
  Speaker 3: and you have to be aware that you have that
• 13:54
  Speaker 3: extra layer of volatility. So either approach can make sense
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  Speaker 3: for the right investor, as long as you understand what
• 14:00
  Speaker 3: you're getting into.
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  Speaker 2: So I want to not get too lost in the
• 14:05
  Speaker 2: weeds on the technical issues, but I keep hearing about
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  Speaker 2: the HAVING that's coming up and what does that mean
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  Speaker 2: to what should lay people understand about this?
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  Speaker 3: Yeah, So if you think about bitcoin, when it was
• 14:18
  Speaker 3: created way back in two thousand and eight, two thousand
• 14:21
  Speaker 3: and nine, there were no bitcoin in existence, and we
• 14:23
  Speaker 3: all know, or many of us know, that eventually there'll
• 14:26
  Speaker 3: be twenty one million bitcoin. The way we get from
• 14:29
  Speaker 3: zero to twenty one million is every day a little
• 14:32
  Speaker 3: bit more bitcoin is issued. What the Having refers to
• 14:35
  Speaker 3: Barry is that every four years the amount of bitcoin
• 14:38
  Speaker 3: that's issued falls in half, and the last having was
• 14:42
  Speaker 3: earlier this year, right, it dropped in half. What that
• 14:46
  Speaker 3: means is there's less new supply coming into the market.
• 14:51
  Speaker 3: In the end, bitcoin's price is set by supply and demand.
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  Speaker 3: You have all these people buying bitcoin through the ETF
• 14:56
  Speaker 3: and other means and then you have supply and so
• 15:00
  Speaker 3: applies either this newly developed bitcoin or existing people selling it.
• 15:04
  Speaker 3: So what the having does is it reduces the amount
• 15:07
  Speaker 3: of supply in the market. If I told you that
• 15:10
  Speaker 3: the amount of oil coming out of the ground would
• 15:12
  Speaker 3: fall in half tomorrow, you might be bullish on oil.
• 15:15
  Speaker 3: The same sort of narrative is true in bitcoin. The
• 15:17
  Speaker 3: amount of bitcoin coming out of the ground, if you will,
• 15:20
  Speaker 3: falls in half every four years, and we're just sort
• 15:22
  Speaker 3: of starting to feel the impact of the most recent having.
• 15:26
  Speaker 2: Now, So all of these challenges, whether it's the limited
• 15:30
  Speaker 2: amount of supply that having should be fairly well known
• 15:35
  Speaker 2: by investors. None of these are surprise. It's not like
• 15:38
  Speaker 2: an earning surprise. Hey, everybody who's a bitcoin investor understands these.
• 15:43
  Speaker 2: So the question becomes, what are going to be the
• 15:46
  Speaker 2: future drivers of bitcoin returns? Should we be thinking about
• 15:51
  Speaker 2: bitcoin like a commodity? Like a currency? You know? You
• 15:56
  Speaker 2: mentioned you know, just under two billion dollars trillion dollars
• 16:01
  Speaker 2: in marketcap for bitcoin. That puts it somewhere between meta
• 16:06
  Speaker 2: and alphabet, Facebook and Google. Do we think about this
• 16:09
  Speaker 2: like a large tech company? How should we contextualize the
• 16:13
  Speaker 2: coins themselves.
• 16:15
  Speaker 3: Yeah, I mean I think of bitcoin specifically as a commodity.
• 16:19
  Speaker 3: It's a commodity with scarce supply, and its price is
• 16:22
  Speaker 3: set by supply and demand. One of the reasons I'm
• 16:24
  Speaker 3: so optimistic about bitcoin right now is we have major
• 16:28
  Speaker 3: new sources of demand. Institutional investors are just now buying bitcoin.
• 16:33
  Speaker 3: There's talk of the US government acquiring one million bitcoin.
• 16:37
  Speaker 3: Corporations are acquiring bitcoin. None of that was true in
• 16:42
  Speaker 3: a major way a year ago or two years ago.
• 16:45
  Speaker 3: And so you have all this new demand. But unlike
• 16:48
  Speaker 3: other commodities, unlike gold, unlike oil, unlike copper, you can
• 16:53
  Speaker 3: have all the demand in the world, you don't get
• 16:55
  Speaker 3: any more supply. The supply is literally fixed, it's pre programmed.
• 16:59
  Speaker 3: When you think about are you optimistic or pessimistic on bitcoin,
• 17:03
  Speaker 3: I like to think about that supply demand dynamic, and
• 17:07
  Speaker 3: from what I see, there's a lot more demand coming
• 17:10
  Speaker 3: online and limited new supply coming online. That makes me optimistic.
• 17:15
  Speaker 3: It's not a guarantee. We can see some of those
• 17:17
  Speaker 3: things not materialize. We could see investors scared off.
• 17:21
  Speaker 4: But I like the.
• 17:22
  Speaker 3: Long term framing of it from that simple supply demand perspective.
• 17:26
  Speaker 2: So to wrap up. Investors who are crypto curious can
• 17:30
  Speaker 2: buy various coins today much more easily than it used
• 17:34
  Speaker 2: to be. If you wanted to own any sort of coin,
• 17:37
  Speaker 2: you could buy it in a closed end fund or
• 17:39
  Speaker 2: even easier in an ETF. Be very aware that you
• 17:44
  Speaker 2: have to position size appropriately. Hey, if you want to
• 17:48
  Speaker 2: own a percent or three in your portfolio and your
• 17:52
  Speaker 2: liquid net worth, the responsible way to do this is
• 17:56
  Speaker 2: not through a leverage product, not in anything that's reflective
• 17:59
  Speaker 2: of the old wild West ethos of crypto, but a
• 18:03
  Speaker 2: traditionally TF You have a small position as you would
• 18:07
  Speaker 2: for any particular company, and be aware of your own
• 18:10
  Speaker 2: behavior when it comes to managing yourself around the volatility
• 18:16
  Speaker 2: of bitcoin. I'm Barry Ridolts. You're listening to Bloomberg's At
• 18:20
  Speaker 2: the Money.