CNBC’s Bob Pisani once called Matt Hougan “The Master of All Things ETF.”
As a lone-time friend, I recently had the chance to sit down with Matt to discuss his decision to leave ETFs for crypto, what inspired it, and whether financial advisors should invest money in cryptoassets.
For anyone who doesn’t know Matt, his career in the ETF industry spanned 15 years, rising from being a freelance reporter to become CEO of ETF.com and later, CEO of Inside ETFs. Along the way, he helped create the world’s leading ETF ratings system, built the world’s largest ETF conference, and developed one of the world’s leading ETF web sites.
But in February of this year, Matt left his post as CEO of Inside ETFs to join a small startup called Bitwise Asset Management, which created the world’s first cryptocurrency index fund. He is now Bitwise’s Global Head of Research.
You had an amazing position in the ETF industry. Why did you leave ETFs and move into cryptocurrencies?
Hougan: For starters, I didn’t leave ETFs. I’m still Chairman of Inside ETFs and still thinking about ETFs on a daily basis. I’m actually more excited about the state of the ETF industry than I’ve been in many years.
But I did leave my day job and move into a full-time position in crypto, and to be honest, it’s been great. The potential for crypto to both improve the world and improve investor portfolios is tremendous. It’s exciting to get in on the ground floor of another generationally-important financial innovation.
I’d also add that, selfishly, the challenges facing the crypto industry are so wide open that being Global Head of Research at Bitwise is like being dropped in the middle of an intellectual playground. The questions I get to wrestle with are so fun: How do you value cryptoassets? How do you classify different coins? What role does crypto play in a portfolio? What is “market cap” in crypto?
I feel lucky I have the chance to grapple with these every day. I love the team at Bitwise, I love the product we’ve developed, and I love that I’m helping investors get institutional-quality exposure to this complex asset class.
You said that cryptoassets are good for the world and for portfolios. Can you elaborate?
Hougan: Great question. Let’s start with “good for the world.”
There are a lot of arguments for different long-term use cases of cryptoassets, and I find many of them compelling. But the one that resonates most deeply with me is dis-intermediation.
One mega-trend in the financial industry over recent years is the rise of dis-intermediation. Charles Schwab rose to prominence by cutting out the middle-man for individual investors, allowing them to trade stocks without big bank overhead. ETFs rose to prominence by cutting out gatekeepers like Schwab, allowing investors to buy institutional-caliber funds directly on an exchange. WealthFront and Betterment rose to prominence by provide direct access to institutional-caliber portfolios, allowing investors to bypass do-nothing financial advisors.
Cryptoassets take that to its logical conclusion. The fact that cryptoassets allow for a publicly distributed, peer-to-peer ledger of financial transactions means they can cut out the rent-seeking middlemen that create a financial tax on society.
Can you share how this is applied in the financial world?
Hougan: Take something like international remittances. Currently, people working in the U.S. send roughly $170 billion abroad each year. Western Union and other money transfer agents charge about an 8% fee on that, or about $13.6 billion. 8% is the mathematical equivalent of 1/12th, which means people working here and sending money home spend about one month per year working for Western Union.
The reason it costs so much is that our financial system is not set up for the digital age. Money has to daisy-chain around the world from one bank to the next, like a message in the kid’s game of telephone, and each bank takes a cut as it passes through the system. It takes hours to send money abroad and the fees are egregious.
With cryptoassets, you can send money abroad at virtually no costs and it settles almost instantly. By cutting out the middlemen, you can save people huge amounts of money.
That’s just one tiny corner of the market. The same principle can be applied to many different areas, from stocks to real estate to identity to, eventually, day-to-day transactions.
People can’t see it yet because it’s early, and the real-world use cases are only being established in the most extreme corners of inefficiency, like remittances. But it’s coming fast, and we’ll be better off for it.
OK. A lot of people are now asking whether they should include crypto in their portfolio. What do you tell them?