A man uses his phone as he walks past ATM machines for digital currency Bitcoin in Hong Kong on December 18, 2017.
ANTHONY WALLACE/AFP/Getty Images)
Matt Hougan joined Bitwise Asset Management after a 15-year long career in the ETF industry.We caught up with him to chat about the maturation of cryptocurrencies as an asset class.
Matt Hougan, a 15-year veteran of the ETF industry, recently dove into the world of cryptocurrency.
The former chief executive of the think tank Inside ETFs joined California-based Bitwise Asset Management as VP of research and development. He’s got a lot on his to-do list. But his main task is simple: Making cryptocurrency investing less of a Wild West.
“There is a general approach to the index market, but there is no general approach to indexing in the crypto market,” he said. “That’s what I’ll be working on.”
We caught up with Hougan to talk about some of the questions he’s grappling with and what he thinks is keeping Wall Street from diving into crypto.
The following interview has been lightly edited for length and clarity:
Frank Chaparro: What are some of the questions you are grappling with in your new position?
Matt Hougan: When I joined the ETF world 15 years ago, there was a lack of understanding about how they worked, and I see a similar situation in crypto. There’s a lack of understanding about how to classify different assets in the space, how to fit it into a portfolio, et cetera. It is super engaging to wrestle with those questions in a new space. And I am still figuring out the answers to these questions since I am only one week in.
Chaparro: In a note to clients, JPMorgan said Bitcoin could serve as an addition to a portfolio for an investor looking for a non-correlative asset. Where do you see it fitting in a portfolio?
Hougan: I think it shares a lot of similarities with early-stage venture investments, inasmuch as both fit into that high-risk, high-return bucket. These are both investments for people investing long-term. It also fits into the alternative bucket. Cryptocurrency provides investors with returns that aren’t correlated.
In fact, the long-term correlation is close to zero. That’s because the long-term driver of the crypto market revolves around the speed of the technology and its ability to displace existing networks, which is fundamentally different from the elements that drive the broader market. So a big global funk wouldn’t have that big of an impact on the crypto space, since it wouldn’t derail the importance of distributed ledger technology.
Chaparro: Typically, only the most savvy investors can get in on venture capital deals. Is it dangerous that crypto is open to any mom-and-pop investor with a Coinbase account?
Hougan: The difference between crypto and venture capital is that crypto is publicly traded. It’s basically publicly traded venture capital investments. And, yes, that encourages bad behavior. More people lose money from panicking at the wrong time.
We want folks to focus on the long-term role of crypto in a portfolio. It’s something I am very passionate about. And we think a diversified index investment is a step forward.
Chaparro: You come from an area of Wall Street most would deem “traditional.” Are folks from that world coming to you asking about this space? How about asset managers and banks? Are they getting closer to offering their clients access to this space?
Hougan: Yes. My email, LinkedIn, and Twitter are all blowing up with these guys because they want to understand it. But Wall Street is a risk-minimizing machine. When they see things they don’t fully understand, they see risk as a four letter word. The reflexive response is to just cut it off. For end clients, however, this pushes them out of the regulated institutional environment and leaves them alone to navigate this risk through venues that might be less secure. But it’s hard for larger institutions to be on the cutting edge. Still, we are working with advisers, trusts, and family offices to help them understand this space.