[00:01] dip in Bitcoin price has been the historic outflows from ETF products. But that doesn't necessarily mean that institutions are exiting the space. I'm right now with my friend Matt Hogan from Bitwise. Let's go.
[00:22] Daily Wolf on Yahoo Finance. I am your host Scott Melker, also known as The Wolf of All Streets. Now, I know you're in the habit of listening to me ramble sometimes I just like to bring on really smart friends so that they can ramble
[00:35] have my friend here, Matt Hogan from Bitwise. How are you, Matt? I'm ready to ramble. Let's go. talked about in the intro and I may or may not have borrowed that from our
[00:47] previous conversations on YouTube. And I guess we can set the table first. Broadly, we've seen massive outflows from ETF products over the past few >> Yeah, I think the outflows really started in earnest at the start of Q2.
[01:00] Uh before that, we would see mixed inflows and outflows. It felt like a pretty normal market. It did feel like ETF investors threw in the towel at the start of Q2 and really sold aggressively. That seems to have turned
[01:13] in the last week or two. We're starting to see inflows appear again. It feels great. I think we may be into a new part of the market, but make no mistake, Q2 was awful for ETF land. >> So, there's a narrative that that people
[01:26] believe that when ETFs sell off, it's institutions selling. I mean, I obviously point out, usually it's institutions selling on behalf of their customers, which are probably just normal people, right? I Is that Is that
[01:38] themselves that are selling. It's probably retail. to think of three different users of ETFs. I think keep those in mind. There are the hedge funds who use it to fund the basis trade, right? They're buying
[01:50] the ETF and shorting the future. They're engaged in arbitrage. They're not long Bitcoin. They're not saying Bitcoin to a million. They're engaged in a trade. And then there's retail investors, and then there are real institutions, whether
[02:03] those are financial advisors, family offices, or sovereign wealth funds. I believe, based on our conversations at Bitwise, what was happening in Q2 was were seeing real sales from the hedge
[02:17] retail. At Bitwise, we mostly serve that financial advisor audience. They weren't buying in droves, but they were still buying on average. So, you do have to decompose the one holistic number you see. They're really these three
[02:30] >> When you talk about that first audience, I think it's important and most people trade. We've seen it in all markets. The yen carry trade is now been in the news for for the past year and a half, but effectively, as you said, they're not
[02:45] net buyers or net sellers. They're just capturing a yield in between. So, do yield doesn't become attractive any longer? And then obviously that means >> That's exactly right. So, you have to think at some points that trade can net
[02:58] think at some points that trade can net you 10, 12, 13, 14% a year. Uh but when there isn't demand from retail for leverage, that's what drives up the want to get leveraged long, they use those futures contracts. They bid them
[03:11] up above the spot price, and that's when that trade gets really juicy. And so, the hedge funds buy the ETF and sell the future, and they're making maybe 15% a year. When retail doesn't want leverage, that trade stops yielding 15%. It starts
[03:26] that trade stops yielding 15%. It starts yielding four, three, two, less than you can get sometimes just by US Treasuries. The hedge funds aren't going to do it. The trade is hard. So, when retail doesn't want leveraged exposure, the
[03:38] trade unwinds. It really all does come back to those end buyers. Retail investors or institutions. If If they're buying Bitcoin, you get inflows. If through these different ways, including this carry trade.
[03:52] >> So, that that clarifies one. I think two we understand is just classic retail behavior, which is when it's not the hot item anymore, they eventually just sell because either the pain is too much of the loss or just it's been too long
[04:05] based on time. >> Yeah, I think that's right. I also think we shouldn't fool ourselves. The traction of the AI trade probably sucked some capital from one side to the other, right? It was easy to push the
[04:19] the memory stock, the DRAM button, and one way you funded the DRAM button was that was an element of it as well. >> Okay, so let's move on to the third conversations, those institutions are
[04:33] alluded to the fact that when you talk to a registered investment advisor they're selling in size. >> No, in fact, the ones who previously had allocations are buying more as they're supposed to. Remember, these are sort of
[04:48] financial professionals, they've committed to having 1 2 3 4 5% Bitcoin in their portfolio. So, if that goes down, if 5% becomes 2.5% cuz the price
[05:00] down, if 5% becomes 2.5% cuz the price fell 50%, they actually re-up to get back to that 5% target. So, they're a counter-cyclical buyer and yes, they are very focused on the long term. They buy assets for years, sometimes for decades.
[05:15] That's the time frame that they're looking at and they are not surprised that Bitcoin is volatile. Like, they knew that coming in, right? Oh, Bitcoin what they're supposed to do. Now, they're not most of the market. If you
[05:27] look at the 13F filings, financial advisors are maybe 30 to 40% of the ETF the outflows from the rest of the community, but um but I think they're buying and I think they're going to buy in droves now that we're starting to
[05:42] level out, now that we're starting to find a bottom. They will be the ones that lead us into the next bull market. >> It's interesting because it counteracts obviously the retail narrative that that everybody's selling.
[05:56] These people are looking, as you said, on multi-year time frames. while. What percentage of them do you think are even allocating? We used to platform's not even online. This wirehouse isn't online. Broadly, it
[06:10] >> Now they can. >> Maybe not all. But so what percentage or these people do you think are even actively allocating or care? >> Uh it's sub 10% for sure. It may be sub 5%. It's a tiny fraction. These people
[06:25] take a long time. I've told you uh my favorite statistic, which is the average Bitwise client does eight meetings with us before they allocate. You're lucky if you get a meeting every quarter. So, uh you know, if we just started meeting
[06:37] launched, they're just at the end of that 2-year educational process. I know that sounds ridiculous to retail investors cuz they're like speedboats. They learn things very fast. They react to markets very fast. These people move
[06:51] on a very different time frame. So, it's it's sub 10%. We're still extremely early. And importantly, these people control tens of trillions of dollars, right? When this capital really starts to move, uh it will really move the
[07:04] market. And most of these platforms just opened up in the last 6 months, right? The large wirehouses just opened up in the last 6 months. So, they're still in Scott. >> So, we've got a long way to go. How much
[07:19] differentiation is there between the different products at this point? I know kind of in a crypto bear market, we seem to see everything down at once, right? would reflect that, but from the data that I've seen, some products hold up
[07:32] better than others. >> Yeah, well, certainly Hyperliquid, uh in significant flows. I think we've had steady inflows on almost every day into BHYP, which is our hyper liquid ETF. It's been the best performing large cap
[07:45] crypto asset and performance sells. It's also, in my view, still undervalued versus the market opportunity it's going after. So, I think you are seeing investors moving to assets that they find attractive. Um that actually tells
[07:59] you something obvious, but important and something we don't talk about, which is that demand for high-performing crypto assets hasn't gone away. It's just the When you get an asset that has a great story, that has good valuation
[08:14] arguments, and that has some momentum, you do see substantial inflows. That's what we're seeing on hyper liquid. I think we're going to start to see it on some of the beaten-down L1s like Solana as tokenized stocks grow. So, look, you
[08:26] can see where that money is rotating to, not all of it, but it isn't giving up on crypto entirely. It's just looking for the best story. >> And who's the buyer of a hyper liquid ETF that isn't buying hyper liquid? Cuz
[08:38] I would think that when you get that far down the sort of curve and that deep into the weeds of crypto, that it would mostly be crypto people who even know what hyper liquid is or understanding it. Or maybe I haven't really had my ear
[08:50] to the street on how much it's sort of jumped the jumped across the creek and is now a TradFi, you know, they're really on their radar. there. I mean, to be sure, it's a lot of crypto people. Crypto people have
[09:02] brokerages, too, right? They have they have IRAs and other assets. For them, you know, some of the biggest influencers in crypto, I know, own our in the traditional brokerage system. They want to buy it. But remember, hyper
[09:17] liquid has started to jump the shark. You saw the CME you sort of filed suit against hyper liquid. You saw ICE talking about hyper liquid. It's being paying attention, if you're a finance geek, you're aware that there's a big
[09:32] story happening in perps. And the number one play Now, I will say this, which is, maybe it's at least interesting to me. I bet a lot of the people buying our hyper liquid ETF from TradFi don't even really know or care that it's crypto. It's just
[09:48] exceptionally fast. To their mind, is it any different from Robinhood? I don't >> Right? It's just It's just, you know, these are just high-performing financial apps. But, I think it is starting just starting to attract that traditional
[10:01] >> We spoke a few months ago, I believe, when that was launching, and you sort of probably going to be the last single asset ETF that we would see gain traction. We were far enough basically down the risk curve of crypto assets
[10:14] that could be, you know, wrapped as a single asset into into an that doesn't mean you're going to cease creating products. So, what's coming >> [laughter] >> Look, I I don't know exactly what's
[10:26] coming next, but I will say that I'm really attracted right now by what's going on in the broader DeFi space. I think a lot of those tokens are showing signs of life. We do have a DeFi index at Bitwise that's up 50% over the
[10:40] last 3 months, even though the rest of crypto is down. That's unusual in a bear market. So, I think there is interest, obviously, in hyper liquid, but emerging interest in Uniswap, in Aave, in Lighter, in a few
[10:55] other protocols down that chain, in Morpheus. I find that space pretty of interesting stuff going on on the equity side. I think people want a way to play stablecoins and tokenization. So, we're looking at if we could build
[11:08] So, we're looking at if we could build an ETF that captures that theme as well. >> So, that would be likely publicly traded equities that in some way are adjacent >> Yeah, I mean, stablecoin issuers, I mean, Securitize is public now, right?
[11:21] there. There's quite a few, and the exchanges, of course, now. >> That's exactly right. Maybe some We'll see. I don't know. We're We're still attractive area. The reason I bring that up is when we go and present at these
[11:34] wirehouses or we go and present to financial advisors, they're attracted by hyperliquid, but they love the stablecoin and tokenization story. Because they know how slow the existing financial ecosystem is and um they think
[11:49] product that gives exposure to that. Yeah, they could buy Circle, but what if Circle loses for idiosyncratic reasons, diversified bet. That makes sense to me. What's your strongest conviction in
[12:02] billion to $4 trillion. For me, that's Is it going to be Circle? Is it going to be OUSD? Is it going to be Tether? You think people want to make that general bet and that's something ETFs are really
[12:15] >> That's true and I think that's why Circle did so well at first because it it launched. >> That's exactly right. Yeah, exactly. in these meetings daily. I always joked at Bitwise you're like the entire
[12:28] crypto industry taking meetings everywhere. What's the one negative narrative that you still have to answer for regularly in those >> Yeah, I mean they all want to know why the price is down.
[12:42] Um but I just came off of a meeting uh right right before this. They they still are struggling with quantum risk and Bitcoin. That is coming up. They're still struggling on valuation. Um
[12:56] those are probably the biggies, valuation and quantum risk. Those those are fighting a lot of battles that will feel old to people in crypto. People worry about uh criminal activity, they worry about regulation. Uh remember, not
[13:11] everyone who doesn't live this every day has kept up to speed with developments in the ecosystem. So, it's really just educating them on how much progress crypto has made over the last 5 years uh and bringing them up to speed. Once they
[13:23] realize that, they get pretty excited. >> We've got about a minute and a half eight minute uh eight meetings. Is it like Is it like meeting one, we're not destroying the environment. Meeting two, it's not only North Korea. Meeting
[13:36] You know, like I >> It's It's a lot of that. There's and then they go away and then they come back with all the good but obvious those. Um it is a process. But the important
[13:52] crypto's been going through this progress process for a long time. We now all love BlackRock. We're seven years removed from Larry Fink calling Bitcoin We This this sort of process of
[14:06] conversion is something that's been happening in crypto for many decades. We're still in that process and people will, you know, they'll come up to speed >> Uh we've got 30 seconds. You think they'll all get there? I saw that
[14:18] Vanguard is hiring a head of crypto or some job like that and they were the >> Yeah, yeah, yeah. They were also the most never ETF ever and now they're the second largest ETF provider. I do think everyone will get there. And actually
[14:31] often the converted have the most zeal. So, you know, these are going to be the leaders. Right? Say didn't like Bitcoin in 2013. Look at him now. Um so, we invite Vanguard into the tent.
[14:43] They're putting one foot in. I think they'll eventually uh move in fully and >> Well, we welcome them. Thank you, Matt. We'll see you guys tomorrow on the next We'll see you guys tomorrow on the next Daily Wealth. Peace.