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Bitwise launches first crypto industry ETF, 'BITQ'

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Bitwise Founder Matt Hougan joined Yahoo Finance Live to break down his thoughts on the current cryptocurrency market and what to watch the remainder of 2021.

Video Transcript

ADAM SHAPIRO: All right, let's bring up a serving of crypto, specifically Bitcoin, because Bitcoin right now it's about 36,100 bucks, down almost 2%. Is the bloodbath or what-- well, it is a bloodbath. It was, what, $64,000 six weeks ago. Let's bring in someone who knows better than we do. And that would be Matt Hogan, Bitwise CIO. It's good to have you here, Matt. And the question, I think a lot of people who go in and out of Bitcoin on a regular basis are asking is, what's next? What do you think?

MATT HOUGAN: Look, I'm optimistic for the near term and long term future of Bitcoin. Sure, the price has come down from its highs. But it's still up significantly over the past 12 months. And I think the fundamentals of the network are sound. The onboarding of institutional capital is still occurring. Regulation, I think, is moving in a positive direction. So I'm bullish for, as I said, both the near term and long term future.

SEANA SMITH: Matt, we just watched you ring the closing bell earlier this afternoon, celebrating the recent launch of one of your ETFs, the BITQ. Now you're investing directly in the crypto space. When you're looking to, I guess, limit or hedge some of that risk, what does your ETF offer, and why should investors be interested?

MATT HOUGAN: Absolutely. BITQ is the first crypto equity ETF in the US. So it's a pure play on the companies that are building the infrastructure that lets the crypto economy hum. These are things like Bitcoin mining companies, mining equipment manufacturers, brokerages like Coinbase that helped bring traditional investors into the crypto space. It's not direct exposure to Bitcoin. It's companies that are making profits, real revenue, and benefiting from the overall big picture trend of what's happening in the crypto economy.

ADAM SHAPIRO: You've also got the Bitwise Crypto Industry Innovators 30 Index. And to get in there-- what is it-- 75% of holdings of a company have to be crypto. But also, tell us more and then how that works in conjunction with BITQ.

MATT HOUGAN: That's exactly right. So that is the index that underlies the ETF. So the ETF tracks this index. And we at Bitwise custom built this index to provide that pure play exposure. So as you mentioned, it has very high standards for what can get in. These aren't companies that are just dabbling in Bitcoin or dabbling in blockchain. These are primarily companies that derive at least 75% of their revenue directly from the crypto space that's what investors want. If they're buying a crypto equity ETF, they want pure play exposure to the crypto equity space. And that's what BITQ is designed to provide.

SEANA SMITH: Matt, there's also potential regulations in this space. The SEC still hasn't-- still seems to be on the fence, I should say, about the direct cryptocurrency ETFs. What's your view on that? And then I guess, what is your outlook just in terms of the likelihood that you think the SEC will approve an ETF that's directly tied with the cryptocurrency?

MATT HOUGAN: Look, I think it's going to happen. It's a great question. I think it's a matter of when and not if. I'm not sure if it will be this year or it will be next year. But a general misunderstanding in crypto is people are afraid of regulation. Regulation is good. We're excited about an eventual Bitcoin ETF because it will bring a lot of trust to the market. So I do think it's going to happen. We've been working to solve the problems. Bitwise and a number of other companies are pushing the SEC forward on this. So again, it's a matter of when and not if. And in the meantime, investors can either buy Bitcoin or other crypto assets through other means or access crypto equities, which give you another way to play this space.

ADAM SHAPIRO: But then we had the comments over the weekend of the billionaire, Mr. Druckenmiller. How does that affect what you're attempting to do to bring what I would call normalcy to crypto and for those of us who might want to dabble in this without the risk of buying Dogecoin, which, by the way, he's saying don't go there, but.

MATT HOUGAN: Yeah. Well, I agree with him. Look, Bitcoin and crypto is a disruptive technological phenomenon. It's a challenge to the status quo. It's a major technological advance. It allows money to move at the speed of the internet. Any time you have such a large disruptive change, it's going to take a while for mainstream institutions to get used to it. There's going to be speculative excess. But at the core of what Bitcoin does is a really important technological advance that moves money into the internet age. And there's nothing that regulators, that speculators, that ridiculous ideas like Dogecoin can stop to change the influence that's going to have on the American economy and the financial industry over the next 5 to 10 years.

SEANA SMITH: And going off of that, we've been talking to so many guests here on Yahoo Finance that talk about institutional involvement here, especially over the last couple of months. In the future, that could possibly help stabilize prices. Yet we haven't really seen that take effect or take hold just yet. Why do you think that is?

MATT HOUGAN: Well, I think institutions have tiptoed in, right? MassMutual, an old insurance company, bought $100 million of Bitcoin. We've seen S&P 500 companies allocating to Bitcoin. Hedge funds, including folks like Druckenmiller, are allocating to Bitcoin. So we've made the first step. We've gone from 0 to 1. And that's the most challenging step. It used to be that there was big career and headline risk for allocating to crypto. Now that's over. Now you can do it. People are evaluating it on the merits. They take their time. Look, institutional capital moves slowly, but once it starts moving, it's a tidal wave. And I do think that tidal wave is still coming. It's just coming in a matter of months, quarters, and years, and not a matter of weeks and days, which is what the crypto industry expects and hopes for.

ADAM SHAPIRO: I'm glad you brought up MassMutual because when an institution that's over 150 years old and has a conservative reputation with a huge Reserve makes a play like you just described, it does bring some stability. And yet crypto is still relatively new in the way that, for instance, CDO Squared and different kinds of derivatives were new years ago. And that did not end so well in 2008. And you said, there are going to be some ups and downs here. What do you lose sleep over at night regarding crypto?

MATT HOUGAN: Well, the thing I lose sleep over the most is investors who are speculating short term in crypto. This is a long term position. If you're making an investment in crypto, you should be thinking two, five, 10 years in the future. I'm the CIO of one of the world's largest crypto asset managers. I don't know if crypto is going to go up, down, or sideways over the next few weeks. But what I'm confident in is the long term projection is good. So my biggest concern is investors speculating for the short term and ignoring or missing the long term potentiatial. Behind that, of course, there are other concerns-- regulation, headline risk. But the biggest one that I worry about, honestly, is investors who don't see this as a long term buy and hold opportunity.

SEANA SMITH: Matt Hougan, great to speak with you, CIO of Bitwise. Thanks so much for joining Yahoo Finance.