Podcast Notes | Interview with Bitwise Executive: Why Crypto ETFs Are Crucial?
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Podcast Notes | Interview with Bitwise Executive: Why Crypto ETFs Are Crucial?
The launch of Bitcoin ETFs could also lead to significant capital inflows into the crypto market without affecting other forms of Bitcoin investment.
Navigating Web3 tides with focused insightsCompiled & Translated by TechFlow
Bitwise is a cryptocurrency-focused investment firm managing the world's largest crypto index fund (OTCQX: BITW), with a pioneering track record in Bitcoin, Ethereum, DeFi, and cryptocurrency equity index products.
On October 26, Bitwise filed an amendment to its Bitcoin ETF application, widely seen as a response to comments and concerns raised by the U.S. Securities and Exchange Commission (SEC). Analysts have noted that if approved, Bitwise’s product would trade under the ticker $BITB.
In this episode of Empire, Jason and Santi sit down with Bitwise CEO Hunter Horsley and Chief Investment Officer Matt Hougan to dive deep into the world of ETFs. They explore early skepticism and misconceptions surrounding ETFs, why approval of a Bitcoin ETF could be transformative for crypto adoption and maturity, and the security and regulatory layers involved in ETFs.
Hosts: Jason & Santi, Empire Podcast
Guests: Hunter Horsley, CEO of Bitwise; Matt Hougan, CIO
Source: Empire Podcast
Original Title: "The Bull Case for Crypto ETFs | Hunter Horsley & Matt Hougan"
Episode: Link
Air Date: October 24
The Evolution of ETFs
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Matt points out that when ETFs first emerged, they were viewed as “weapons of mass destruction” in finance. Concerns included ETFs potentially causing liquidity death spirals or destroying the bond market. Congressional hearings even expressed fears that ETFs might undermine American entrepreneurship and end the American dream.
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Matt explains that ETFs represent an evolution in financial technology. Before ETFs, investors relied on mutual funds—a model that had existed for a century and was state-of-the-art in the 1920s. It wasn’t until the early 1990s that the ETF concept emerged. ETFs disrupted traditional financial services firms, challenging legacy mutual funds and phone-based bond trading.
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According to Matt, two main reasons fueled skepticism toward ETFs: first, their potential to erode profits and pricing power in financial services; second, their novelty—people simply didn’t know how they would evolve.
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Matt emphasizes that skepticism around ETFs wasn’t fleeting—it persisted for over two decades. He recalls seeing similar scrutiny faced by the crypto industry in congressional hearings, echoing the early resistance ETFs encountered.
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Matt notes that after years of development, ETFs are now mainstream, forming a $7 trillion industry. Nearly every American investor can access markets through ETFs. He believes crypto will follow a similar trajectory and eventually achieve broad acceptance.
SEC’s Concerns About Bitcoin ETFs
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Jason highlights a key difference between traditional financial markets and crypto: crypto operates 24/7, 365 days a year. While U.S. ETFs settle trades in a more controlled environment—even with international participants—crypto functions globally, which may raise concerns for the SEC.
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Matt explains that the SEC has long been focused on market manipulation. To approve an ETF, the SEC needs the ability to monitor markets and detect manipulative activity.
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In stock markets, if manipulation is suspected, the SEC can query exchanges like NYSE or Nasdaq for data. In crude oil markets, regulators can examine futures trading records and take legal action. However, in crypto, there historically hasn’t been a central entity to provide such transaction details.
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Matt notes that the first Bitcoin ETF application was filed on July 1, 2013. But honestly assessing the state of the market then, it wasn't ready for a Bitcoin ETF. There were no institutional custodians, no market makers, and the market was far more susceptible to manipulation. The SEC’s rejections during the first 5–7 years were justified.
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Matt stresses that today’s market is significantly more mature and institutionalized compared to 2013. Now, regulators can monitor the CME Bitcoin futures market, and firms like BlackRock are pursuing surveillance-sharing agreements with Coinbase. These concerns about market manipulation have largely been addressed, and Matt hopes the SEC will recognize this in the coming months.
TechFlow Note: CME refers to the Chicago Mercantile Exchange, one of the world’s largest financial derivatives exchanges, offering trading in various financial instruments including futures and options.
Analogy With Gold ETFs
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Matt observes that before gold ETFs, gold was considered a fringe asset—hoarded in bars under mattresses—and not a preferred choice for mainstream institutions.
TechFlow Note: Gold ETFs are financial products based on physical gold, tracking spot gold prices and tradable on securities markets.
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However, the launch of gold ETFs transformed this perception. Gold became institutionalized, seen as a stable and reliable asset. Matt notes that gold prices rose for 11 consecutive years—an unprecedented streak in modern history—driven largely by the introduction of gold ETFs and the subsequent inflow of capital. Gold evolved from a marginalized asset to one widely accepted by mainstream institutions. Pension funds, mutual funds, and other traditional financial products began incorporating gold into their portfolios.
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Matt predicts that Bitcoin ETFs will have a similarly transformative effect on the crypto market. He believes the approval of a Bitcoin ETF will mark a new era—dividing the market into “pre-ETF” and “post-ETF” phases.
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Matt adds that the launch of gold ETFs led to massive capital inflows into gold without negatively impacting other forms of gold investment like bullion or jewelry. Similarly, a Bitcoin ETF could drive significant capital into crypto without displacing other Bitcoin investment methods. The long-term impact of Bitcoin ETFs is underestimated. In a few years, he expects people to fully recognize how profoundly Bitcoin ETFs reshaped the market.
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Hunter mentions that many financial advisors are waiting for Bitcoin ETF approval, viewing it as the most important development for bringing crypto to traditional investment professionals. Yet they remain hesitant about directly investing in Bitcoin or other cryptocurrencies due to the complexities of managing private keys, wallets, and technical details—areas outside their expertise or comfort zone. Instead, they prefer familiar, simple vehicles like ETFs that can easily be integrated into client portfolios and traded via traditional brokerage accounts.
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Hunter emphasizes that Bitcoin ETFs offer financial advisors a simple, secure way to invest clients’ money in Bitcoin—without needing to handle crypto directly or learn new technologies. He believes ETF approval will bring many more advisors and their clients into the crypto space.
The Reality of Crypto Investing
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Matt outlines three major segments of U.S. wealth: self-directed retail investors, financial advisors, and institutional capital (e.g., pensions and endowments). Their approximate distribution is 20% retail, 40% advisors, and 40% institutions.
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Matt notes that the growth of crypto from zero to a $1 trillion market has been driven almost entirely by self-directed retail investors—the smallest segment. While this group may not yet be fully saturated, the other two segments have seen little to no participation.
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A crypto ETF would enable the other two groups—advisors and institutions—to gradually reach the same level of exposure as retail investors. ETFs offer a familiar, accessible path to crypto investment without requiring direct engagement with technical complexities.
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Although self-directed retail investors receive much media attention, they represent the smallest portion of market capital. The majority of capital lies with financial advisors and institutional investors—precisely the audience ETFs aim to serve.
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Hunter emphasizes that financial advisors face the challenge of building comprehensive investment portfolios while staying updated on fast-moving crypto developments. They need strong partnerships to ensure they remain informed.
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Horsley believes Bitwise’s full-time focus on crypto makes it an ideal partner for financial advisors, ensuring they always have access to the latest insights in the crypto space.
Which Companies Benefit If ETFs Are Approved?
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Matt notes that many expect large incumbent firms to dominate the crypto ETF space, based on their success in other financial sectors.
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He recalls that ETFs were originally launched by Barclays Global Investors, later acquired by BlackRock. Despite big players entering the space, true innovation and leadership historically come from specialists and pioneers within the field.
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Hunter points out that Bitwise, as a dedicated crypto-native firm, possesses deep industry knowledge and experience. This expertise gives Bitwise a competitive edge against larger firms. When choosing partners, financial advisors consider factors like domain expertise—making Bitwise an attractive option.
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Both Matt and Hunter believe that while large firms may enter the crypto ETF market, there will still be room for diverse products and services. This variety will benefit investors and foster a healthier, more competitive market.
Voting Rights and the ETF Dilemma
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Host Santi raises criticism that ETFs have contributed to market complacency. Large firms hold vast capital through ETFs, gaining substantial ownership stakes—but passively. Before ETFs, there was a more direct relationship between company owners and management, leading to stronger oversight.
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Matt responds that when the first index funds launched in the 1970s, ads labeled them “un-American.” That narrative has persisted for 50 years. As long as enough market participants remain actively engaged, this concern doesn’t hold. While 100% passive ownership could create governance issues, levels at 50%, 80%, or even 90% likely won’t.
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Matt explains that voting rights were once held solely by asset managers, but fintech innovations are making shareholder voting more transparent and personalized. He expects crypto markets to follow the same trend.
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The host notes that in crypto, many representatives and validators exist—most act on behalf of others. For example, Lido controls about 33% of staked Ethereum. He asks: if someone owns an ETF, can they still vote at corporate annual meetings?
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Matt replies that structures are evolving. While asset managers previously held these rights exclusively, fintech tools are enabling greater transparency and individual control.
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Hunter states that as a long-term asset manager, Bitwise aims to support the growth and prosperity of the crypto ecosystem. As long-term-oriented asset managers accumulate more assets, the entire industry stands to benefit positively.
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