Podcast Summary
Bridging the gap between DeFi and traditional finance: Traditional investors are increasingly interested in DeFi, and Bitwise's CIO, Matt Hogan, is helping to facilitate this trend by bridging the gap between DeFi and traditional finance. The Bankless team is also preparing to celebrate their 1-year anniversary and release new content on YouTube, exploring the intersection of crypto and digital art.
The crypto world, specifically DeFi, is continuing to gain mainstream attention and acceptance from traditional investors. Bitwise, a leading crypto asset manager, is at the forefront of this trend, with their CIO, Matt Hogan, helping to bridge the gap between DeFi and traditional finance. This comes as the Bankless team, the hosts of the State of the Nation podcast, prepare to celebrate their 1-year anniversary and release a special anniversary episode to introduce new listeners to the concept of going bankless and the world of crypto. Additionally, the team is producing new content on YouTube, including interviews with projects like Connex and bProtocol, and exploring the intersection of crypto and digital art. Overall, the crypto space is evolving rapidly, and traditional investors are taking notice, leading to exciting new opportunities and developments.
Discussing Digital Art NFTs, Upcoming Crypto Events, and Ethereum Job Opportunities: Speaker evaluates digital art NFTs, discusses upcoming crypto events, and shares excitement about Ethereum job opportunities in NFTs and DeFi treasuries.
The speakers discussed the evaluation of digital art NFTs, upcoming events in the crypto space such as the Yang Speaks podcast and Consensus conference, and the potential job opportunities created by Ethereum. Kitty evaluated digital art NFTs using his knowledge and mental process, and this evaluation is expected to be useful for those new to the digital art and NFT world. The Yang Speaks podcast episode, where the speaker was invited to discuss crypto, is coming out this Thursday and aims to open the door to traditional channels. The Consensus conference, happening on May 24th, is a significant crypto event with Ray Dalio and the speaker himself attending. The speaker is excited about the job opportunities Ethereum creates, specifically in the areas of NFTs and DeFi treasuries, which can help address societal conversations around wealth inequality. The State of the Nation is recovering from a pullback in crypto prices, but innovation continues in the crypto space. Sponsors like Monolith Defi Visa card enable the use of crypto as a payment method anywhere Visa is accepted.
Bridging the Gap Between Crypto and Traditional Finance: Bitwise aims to bring institutional capital into crypto by targeting financial advisors, while Synthetix and Monolith offer innovative trading and yield generation opportunities in the decentralized finance space
The traditional finance world holds most of its wealth and investing capital in three main categories: self-directed retail investors, institutions, and financial advisors. While crypto has successfully targeted the first two groups, it has yet to effectively reach the vast pool of capital managed by financial advisors. Bitwise, as a bridge between crypto and traditional finance, is focusing on this overlooked sector to bring more institutional capital into the crypto space. Synthetix, a decentralized derivatives liquidity protocol, offers traders zero slippage and the ability to create and trade synthetic assets. Monolith, a DeFi infrastructure, enables users to hold their assets without losing their DeFi capabilities, allowing them to swap assets and earn yield. These platforms represent the future of trading and yield generation, providing opportunities for both traders and developers. Matt Hogan, the Chief Investment Officer at Bitwise, brings valuable insights from the traditional investing world. He emphasizes the importance of understanding where the wealth is distributed and how it is managed. The financial advisor sector, which controls approximately 40% of the wealth in the US, is an untapped market for crypto. As crypto continues to evolve and mature, it is essential to recognize and address the needs of this significant demographic to bring more traditional investors into the space.
RIAs Manage Significant Wealth and Adopt Crypto: RIAs, managing $30-$40 trillion in wealth, are adopting crypto, making them a potential key driver for the crypto market's growth.
The financial industry, specifically Registered Investment Advisors (RIAs) and their clients, manage a massive amount of wealth in the United States, estimated to be around $30-$40 trillion. RIAs are independent financial advisors who manage money for clients in a fiduciary manner. They are often the first to adopt new investments, such as crypto, and can range from highly sophisticated portfolio managers to relationship-focused individuals. While institutions may skew towards high net worth individuals, RIAs serve a broader range of clients, including the middle and upper classes. CFAs, or Chartered Financial Analysts, are financial professionals who have studied extensively in quantitative finance, and they can be found in various parts of the financial ecosystem. With a large and diverse population of financial advisors managing significant wealth, their adoption of crypto could be a key driver in the growth of the crypto market.
Financial advisors' perspective on crypto evolving: Financial advisors manage $40 trillion, 9% currently allocate to crypto, 17% plan to, Bitwise aims to help, potential for ETF, significant growth possible, but vast majority of capital remains untouched.
While financial advisors in the US manage a massive $40 trillion in capital, their perspective on crypto is still evolving. A year ago, most were dismissive, but the market's recovery and infrastructure improvements have brought more trust and adoption. Around 9% currently allocate to crypto, and 17% plan to do so in the future. Bitwise, a specialist crypto asset manager, aims to help these advisors access crypto through its index fund, which holds the 10 largest assets. With the potential for an ETF and other easier access methods, crypto could see significant growth among financial advisors. However, despite this progress, it's important to remember that the vast majority of this capital remains untapped by crypto.
Bitwise Investments: Blending TradFi and Crypto Expertise for Crypto Indexes: Bitwise Investments combines traditional finance and crypto expertise, educates the world about crypto, and offers extensive customer support for crypto indexes, reflecting a growing belief in crypto's potential size of opportunity and hedging needs in the current bull cycle.
Bitwise Investments approaches the crypto index space with a unique blend of traditional finance experience and crypto expertise. This combination is reflected in their index committee, which includes the former head of indexing for S&P and a crypto expert from Blockchain Capital. Bitwise's team also educates people around the world about crypto, addressing both the opportunities and risks. The company's relationship with customers involves extensive hand holding, with a full sales and distribution team answering a range of questions, from the basics to more complex topics like DeFi. The shift in sentiment during this bull cycle includes a growing concern about inflationary outlooks and the need for efficient hedges, as well as a fundamental understanding of crypto as a technological breakthrough. Unlike the 2017 cycle, where the fear of crypto going to zero was prevalent, the current cycle is characterized by a belief in the potential size of the opportunity.
DeFi disrupting traditional finance with transparency and ease: DeFi's transparency, ease of use, and massive trading volumes are making it more relatable and appealing to mainstream investors than Bitcoin
Decentralized Finance (DeFi) is disrupting traditional finance in a way that resonates instantly with investors, unlike the complex and volatile nature of Bitcoin. DeFi's transparency, ease of use, and massive trading volumes are making it easier for mainstream investors to understand and invest in. Unlike Bitcoin, which is often seen as digital gold, DeFi offers free cash flow or fee cash flow, making it more relatable to investors who are already familiar with the traditional finance system and its intermediaries. The success stories of platforms like Uniswap, with its massive trading volume and fees, further illustrate the potential of DeFi to disrupt traditional finance. The unicorn branding or entrepreneurial stories may help, but ultimately, it's the numbers that matter. The ease of understanding and investing in DeFi is making it more appealing to investors than Bitcoin, despite its complexities.
The appeal of DeFi assets as capital assets: Investors are drawn to DeFi assets like tokens due to their early-stage growth, cash flows, and potential to disrupt traditional finance, making them an attractive investment opportunity despite challenges in valuation.
The shift towards decentralized finance (DeFi) and crypto assets as capital assets is gaining traction due to their early-stage growth, cash flows, and potential to disrupt traditional finance. This resonates with investors as they have seen tech companies like Facebook and Slack grow from humble beginnings to become major players in the economy. DeFi assets, such as tokens, are seen as capital assets because they generate cash flows from fees. Traditional financial advisors, who have primarily focused on stocks and bonds, are starting to take notice of this trend. The comparison to gold as a store of value is valid, but the real appeal lies in the potential for growth and the ability to attach traditional valuation methods to these assets. Despite the challenges in valuing crypto assets, their early-stage success and potential to disrupt traditional finance make them an attractive investment opportunity.
Real-time data transparency in DeFi: DeFi's transparency allows investors to make informed decisions with real-time data, setting it apart from traditional finance's quarterly reports. Platforms like Uniswap and Makerburn offer granular data on trading volume, loans, derivatives, and insurance pools.
The transparency and real-time data availability in decentralized finance (DeFi) and crypto assets make it easier for investors to gain trust and exposure to this new world. Traditional financial reports, which are subjective and only released quarterly, cannot compare to the granular and verifiable data accessible in DeFi. This transparency is a major proof point for investors, making it easier for them to move from skepticism to investment. For instance, data on trading volume, loans, derivatives, and insurance pools can all be seen in real-time on platforms like Uniswap and Makerburn.com. This level of transparency is a game-changer, making it difficult for investors not to consider the potential of crypto and DeFi. Furthermore, companies like Aave and Gemini are making it easier for investors to engage with DeFi by offering lending and borrowing services, as well as interest-earning accounts. These tools allow investors to take advantage of the DeFi ecosystem while minimizing the complexity and risk involved. Overall, the transparency and real-time data availability in DeFi are compelling reasons for traditional financial investors to take a second look at this new and exciting world.
Gemini Launches New Credit Card for Crypto Rewards and Bitwise Introduces DeFi Index Fund for Traditional Advisors: Gemini's new credit card offers crypto rewards, marking the bridge between traditional finance and crypto. Bitwise introduces a DeFi index fund for traditional advisors, highlighting crypto's growing mainstream acceptance in finance.
Gemini is set to launch a new credit card that offers rewards in crypto, specifically up to 3% cash back in Bitcoin or other hard money crypto assets. This marks a bridge between traditional finance and crypto, allowing mainstream investors to gain exposure to the crypto market through a reputable financial institution. Bitwise, on the other hand, has recently introduced a DeFi-specific crypto index fund, which is now accessible to traditional financial advisors. The idea for this fund came about due to the significant growth in DeFi assets and their potential to compete with traditional financial firms. The Bitwise DeFi Index includes assets that directly compete with traditional financial firms or disrupt their business lines, while ensuring regulatory compliance, liquidity, and custodial support. Both developments underscore the growing mainstream acceptance and integration of crypto and DeFi into traditional finance.
Disrupting the banking sector with DeFi index: The Bitwise DeFi Index focuses on decentralized finance projects that handle money directly, undergo security audits, have proven liquidity, and aim to compete with traditional business lines of major financial institutions.
The Bitwise DeFi Index focuses on decentralized finance projects that can compete with traditional business lines of major financial institutions, aiming to disrupt the banking sector. The index doesn't include assets that don't handle money directly, like Chainlink, which is more of an information provider. The inclusion criteria require assets to exist for a few months, undergo security audits, and have proven liquidity. Balancing the need to include lucrative, yet often anonymous projects with the expectations of traditional financial advisors presents a challenge for the index. Despite banks' lack of awareness of the DeFi space, its rapid growth and significant volumes are expected to force them to adapt or lose out.
Complex process for accredited investors to invest in DeFi through traditional channels: Despite the growing interest in DeFi, accredited investors face complexities and risks when investing through traditional financial channels. An ETF may be the future solution, but for now, advisors must carefully consider the pros and cons.
Investing in decentralized finance (DeFi) through traditional financial channels is currently a complex process, particularly for accredited investors working with registered financial advisers. Bitwise, a crypto index fund, currently only allows accredited investors to invest in their DeFi index through a dual account system. This system requires additional paperwork and may not be suitable for all clients. While there are other ways to invest in crypto, such as buying it directly through apps or investing in products like GBTC or BITW, each method comes with its own risks and complications. Eventually, an ETF may become available for easier investment, but for now, advisors must weigh the pros and cons and decide what's best for their clients. The conversation also touched on the evolving perception of crypto within the traditional financial world, with some advisers starting to recommend crypto allocations to their clients. However, the lack of a perfect investment solution and the risks involved remain significant challenges.
Traditional Investors Hesitant to Embrace Digital Assets Due to Past Perceptions: Traditional investors are missing out on potentially lucrative opportunities in digital assets due to outdated perceptions from past issues. To overcome this, investors need to let go of biases and be open to new experiences in the crypto industry.
The difficulty for middle America to gain exposure to digital assets like Bitcoin through traditional channels is due to a combination of regulatory hurdles and lingering negative perceptions from the past. While regulatory approval for ETFs is expected in the next 12-24 months, individual companies' decisions to offer these funds are influenced by the "ghosts of crypto past." These ghosts include memories of issues like Silk Road, Mount Gox, and Quadriga, which have given investors a distorted view of the current state of digital asset regulation. Despite the significant growth and regulation of the digital asset market, traditional investors are hesitant to allow access due to these outdated perceptions. This means that investors are missing out on potentially lucrative opportunities, such as Bitcoin's 43,000,000% increase since its inception and its status as the best-performing asset class in 9 out of the last 11 years. To overcome this, it's essential for investors to let go of their biases and be open to new experiences in the crypto industry. In the case of the DeFi index, Bitwise thinks about the productivity of assets carefully, having chosen Anchorage as their custodian to ensure that assets are being used effectively and not falling behind on potential yield.
Traditional institutions entering DeFi need to stake assets and rely on custodians for security analysis and actions: Institutions should stake assets for governance in DeFi projects but rely on custodians for security analysis and staking actions. Bitwise plans to tokenize funds and act as a bridge for traditional investors to enter crypto space, while education is crucial for traditional investors to understand the crypto space.
For institutions looking to enter the DeFi space, it's essential to stake their assets for governance and to participate in the development of these protocols. However, they should rely on their custodians to handle the smart contract security risk analysis and staking actions. Bitwise, as a crypto asset manager, plans to tokenize its funds and make them available on crypto platforms in the future, acting as a bridge for traditional investors to enter the crypto space. Education is crucial for traditional investors in understanding the crypto space, which is similar to the process when ETFs were introduced as a new asset class. Bitwise has taken steps to educate traditional investors through reports and collaborations with institutions like the CFA Institute.
From risky to core: The evolution of ETFs and cryptocurrencies: Traditional investors view cryptos as volatile but natural, while crypto investors seek patience and collaboration with traditional finance.
The perception of cryptocurrencies and Exchange-Traded Funds (ETFs) has evolved significantly over time. Fifteen years ago, ETFs were considered risky and destructive to the financial system, while today they are a core component of traditional portfolios. Similarly, cryptocurrencies were once seen as volatile and risky, but as technological advancements and improved information dissemination continue, they are becoming more mainstream and accepted. Traditional investors need to understand that the volatility of cryptocurrencies is a natural part of their growth and that they are not out to intentionally harm investors. On the other hand, crypto investors need to be patient with traditional investors as they grapple with the volatility and uncertainty of the crypto market. Additionally, traditional investors should recognize that the creation phase of cryptocurrencies is over, and they are now focused on scaling and adoption. The possibility of a Bitwise DeFi index becoming an ERC 20 token on Ethereum is a potential avenue for further collaboration between traditional and crypto markets. Overall, the crypto and traditional finance industries have much to learn from each other, and a more open and collaborative approach will lead to a more robust and inclusive financial system.
Decentralized Finance and Crypto: The Future of Finance: Major institutions recognize Bitcoin's potential as a store of value, regulation is necessary for industry growth, and crypto assets offer significant rewards for those willing to take the risks.
The world of decentralized finance (DeFi) and cryptocurrencies, specifically Bitcoin, is here to stay. Major institutions and corporations are recognizing its potential as a store of value, surpassing traditional assets like gold. Regulation is becoming a necessary aspect of the industry's growth, and it's not just used by criminals. The lines between traditional finance and DeFi are blurring, and regulation, while a risk, can also be beneficial in guiding the asset class forward. The Bankless Nation, which aims to disrupt traditional finance, will eventually merge with it. Matt, a guest on the Bankless podcast, emphasized the importance of evaluating each regulatory step independently. The end goal is for decentralized finance to simply be "finance." Additionally, resources like Bitwise's reports and the CFA Institute Research Foundation's crypto asset guide are helping educate investment professionals about the potential of this space. However, it's important to remember that crypto, DeFi, and Bitcoin all come with risks, and it's not for everyone. But for those who are willing to take the risk, the potential rewards could be significant. Action items include checking out the resources mentioned in the show notes and being aware of the risks involved in the crypto space. As always, the Bankless journey is headed west into the frontier of decentralized finance.
