Source: Miles Deutscher, YouTube

Translation: Felix, PANews

Cryptocurrency analyst Miles Deutscher recently had a conversation with Bitwise Chief Investment Officer Matt Hougan on his podcast, focusing on recent market volatility, gold versus Bitcoin, RWA, talent exodus, and other topics. PANews has compiled the essence of the conversation, below are the details.

Host: Today's guest is Bitwise Chief Investment Officer (CIO) Matt Hougan. Bitwise is one of the largest asset management companies in the crypto space. What is your current asset management scale?

Matt Hougan: Currently, our total scale in ETPs (exchange-traded products), staking, and Alpha business in the US and Europe is about 15 billion dollars. We are one of the largest participants in the field and one of the few asset management companies that offer full-stack services from traditional finance (Tradfi) ETFs to treasury and staking.

Host: Besides Bitcoin, how involved are you in other crypto markets (such as altcoins)?

Matt Hougan: Our involvement is very deep. We launched the first crypto index fund in 2017, holding the top 10 crypto assets, and we are still operating that fund. In addition, we have DeFi index funds, NFT index funds, and we delve into small-cap assets in our actively managed business.

Multiple Factors Contribute to Recent Market Crash

Host: Let's get straight to the point, how do you view this wave of Bitcoin's movement? This might be the most intense sell-off I have seen, with Binance and Coinbase's order flow almost not rebounding in the past week. Now that the dust has settled, what are your thoughts on all of this?

Matt Hougan: I hope everything has settled. Anything is possible. If you have a long-term investment vision, this is indeed a good opportunity, and I think it might be a bottom bounce. When I see the media reporting on these significant market fluctuations, they always try to attribute the reasons to a specific factor. I believe this crash is not caused by a single factor, but rather the result of 6 to 7 factors working together.

In simple terms, part of the reason is that early crypto investors sold out of concerns for the four-year cycle. They might have sold off crypto worth 100 to 150 billion dollars in 2025. I think this selling wave has started to weaken, but their prediction that the four-year cycle will repeat is correct, so some people chose to exit. Another part of the reason is still the impact of the liquidation event on October 10. Rumors are still circulating that some hedge funds or brokers damaged in that event were forced to sell. I believe this is one of the factors.

Another reason is that people are concerned that the new Federal Reserve chair, Kevin Watson, is more hawkish than some other candidates for Fed chair. I believe part of this is related to broader macroeconomic conditions. Additionally, yesterday investors sold Palantir, Amazon, and gold and silver while also selling Bitcoin. When all these factors come together, it leads to this sharp decline. Especially for us Bitcoin bulls, while we are optimistic about Bitcoin, we do not have a specific narrative, a point that can predict price drops, such as the approval of a Bitcoin ETF or the rise of DeFi. We are just trying to find such explanations. So, I think it is the result of all these factors working together. The price volatility yesterday was indeed shocking. The fear and greed index fell to historic lows. So maybe this indicates that the market is about to bottom out. We shall see.

Host: The fear and greed index dropping to 5 is indeed crazy.

Matt Hougan: Among all the factors, the fear and greed index dropping to 5 actually makes me optimistic. I am always looking for asymmetrical trading opportunities, the index has little space to fall further, but there is a lot of room to rise. Considering the current market situation, fear has indeed reached its lowest point, and if we start to receive more positive or balanced news, it could create some asymmetry. So, this value makes me very happy.

Host: You previously mentioned that you are very optimistic about Bitcoin and the broader outlook for cryptocurrencies. As the price has fallen, many people have started to question Bitcoin, not just among retail investors, but some seasoned individuals and industry leaders have started to doubt Bitcoin's status as "digital gold." It is not behaving like gold, and it is even weaker than risk assets. What is your view?

Why is Gold Rising While Bitcoin is Not?

Matt Hougan: My core view remains unchanged: Bitcoin is digital gold and superior to gold. The challenges of physical transportation and settlement of gold in a multi-currency world are significant, while Bitcoin solves this problem. Over the past 10 years, the dollar has depreciated by 26% while Bitcoin has risen by 20,000%, and it has performed extraordinarily well as digital gold. If you look from the low point of the COVID-19 pandemic, you will find that even today, Bitcoin's price has risen 20 times compared to the low during the early inflation impact of the pandemic. If you study gold over 10 or 20 years, you will find that it experiences long periods of time during which it cannot perfectly store value. You have to take a long-term perspective on this. So, I believe the theory of Bitcoin still holds. This technology remains valid. It is still the only digital asset that can be self-custodied through settlement. In a world where people are losing confidence in institutions, this is very powerful. I still believe that holds true.

Host: Perhaps we should talk about why gold is rising while Bitcoin is not.

Matt Hougan: The rise in gold in 2022 was not due to currency depreciation, but because the US froze Russian bond assets, resulting in central banks increasing their gold purchases by 150%, jumping from 400 tons annually to 1000 tons, and this trend has continued for years. This is a one-time increase, as central banks realized that if they hold US Treasury bonds, they can be confiscated at will, which they do not like. Central banks do not hold Bitcoin, so this favorable news has not been directly reflected in Bitcoin. Interestingly, gold prices did not rise in 2022. Despite central banks increasing their purchases, gold prices only rose a few percent. Then, in 2023, gold prices rose about 11%, and were expected to perform better in 2024. Central banks increased their gold purchases, but it took four years to digest the excess supply, culminating in a parabolic rise in 2025 due to supply shortages.

I believe that in the long run, Bitcoin will also go through the same process. If you observe ETF buying on an annual basis, although there has been some outflow in recent months, in 2024, the amount of Bitcoin bought by ETFs is about twice its supply. In 2025, ETFs bought more than the supply at that time. This demand will ultimately exhaust the supply of Bitcoin just like it did with gold.

Based on my discussions with several institutions, prices will continue to rise. I met with some financial advisors in South Florida this week. They remain very interested in Bitcoin. Many believe this is an entry point, a new buying opportunity. Those who bought Bitcoin previously will continue to hold. So, ETFs will ultimately exhaust Bitcoin's supply just as gold exhausted its supply, although it will take some time. Therefore, when I observe the movements of gold, I believe the scale of the value storage market is larger than ever, and Bitcoin will ultimately occupy a significant portion of it.

Who is the Next Potential Large Buyer of Bitcoin?

Host: The favorable news surrounding ETFs seems to have run its course, and I think everyone is now asking, who is the next potential buyer of Bitcoin? As you mentioned earlier, you see a lot of institutional investors showing interest, how many more institutions do you think have not allocated Bitcoin? Is it family offices? Could it be sovereign countries?

Matt Hougan: That's a good question. The challenge facing the market right now is that favorable news is coming very slowly. So the next batch of potential buyers remains financial advisors, large brokers like Morgan Stanley, family offices, insurance companies, and sovereign nations.

Let me give an example to illustrate why things are currently like this, the average client of Bitwise requires 8 meetings before allocating assets. We usually meet once a quarter, so "8 meetings" mean a decision-making cycle of up to 2 years. Morgan Stanley will not approve the Bitcoin ETF until the fourth quarter of 2025, and their "8 meetings clock" has only just begun, real fund inflows may not explode until 2027. It's similar to the situation when the gold ETF was launched in 2004, where fund inflows increased year by year, taking a full 8 years to reach the first peak. Most of the funds managed by professional investors currently do not hold Bitcoin.

Of course, everyone's situation is different, and the timing of fund inflows varies. What I'm talking about here is the average, not the individual case, but this will trigger a wave of sustained inflows. To support my point, let me add some data.

I previously worked in the ETF space. Before I became the Chief Investment Officer at Bitwise, I was the CEO of ETF.com, where I created the first ETF data and analytics business, as well as the largest ETF conference. I have been in this field for 15 to 20 years. The closest example is the gold ETF launched in 2004. When the gold ETF was launched, the inflows in the first year were about 3 billion dollars, making it the second-largest ETF launch in history, and everyone was very excited. However, in the second year, the inflow was 5 billion dollars, 8 billion dollars in the third year, then 10 billion dollars, followed by 12 billion dollars, and finally 18 billion dollars. In reality, it took the gold ETF eight years to reach its first inflow peak, after which there was a slight decline, and by the 18th year, it reached its peak inflow to date. The trading market has been exceptionally volatile.

The reason I mention this is that most of the capital in the world is held by professional investors. Most of this capital currently does not hold Bitcoin. I believe that eventually, some will hold Bitcoin, but it will take a long time, requiring many meetings and a lot of education, but there is no doubt that, from my channel research and internal processes, this situation is ongoing, and I think it will continue in the coming years.

Quantum Threat is an Issue, but Optimistic About Privacy

Host: The threat of quantum computing has recently become a media focus, with some funds even selling Bitcoin because of it. Michael Saylor mentioned in a meeting that he is working to form a special task force or committee to address this issue. Will this really become a big problem? Or do you think this is just media hype?

Matt Hougan: It is indeed a problem. Large institutions sometimes use it as an excuse to delay decision-making. Although the quantum threat may still be years away, we need to see substantial progress from Bitcoin core developers. If quantum resistance can be resolved, it would be a significant positive. We can look at the relative performance of assets that have not yet been discussed; since Bitcoin started addressing quantum computing issues, Bitcoin Cash has consistently outperformed Bitcoin. Although I may not like this outcome, it is indeed an objective fact. The quantum threat has caused some old players (OGs) to choose to exit the market. It does not matter whether it is genuinely concerning or imminent; it must be addressed.

Host: I'm not very focused on Bitcoin Cash (BCH), so it's surprising to see it performing so well.

Matt Hougan: I'm not very focused on it either, but I did some research on it the other day. If you chart from early 2025 comparing Bitcoin, Bitcoin Cash, Zcash, and Monero, it reveals a rather interesting story; some long-standing members of the crypto community seem to be concerned about Bitcoin and quantum computing. They worry that "suit coins" (tokens pursuing compliance) will drag Bitcoin into the regulatory market, and they are also concerned about the prospects of privacy coins like Zcash. BCH's resistance to quantum computing at the beginning and middle of last year also triggered some capital rotation. This is a very interesting profile. While my core argument remains that Bitcoin will ultimately prevail, current data indeed suggests that some interesting changes are occurring.

Host: Are you optimistic about these? Not just about these specific examples, but the overall situation regarding privacy.

Matt Hougan: I am very optimistic about privacy. As Bitcoin is pulled into the mainstream regulatory sphere, the actual demand for privacy coins has grown. While pushing Monero into the institutional market may be challenging through regulation, the privacy community remains large and active. I believe privacy is very important for many participants.

Quality DeFi Projects Expected to Achieve Hundredfold Growth with RWA Proliferation

Host: So what about RWA?

Matt Hougan: The potential of RWA is severely underestimated. Currently, the scale of RWA is only about 25 billion dollars, while the global stock and bond markets are worth several trillion dollars, with a penetration rate of less than 0.01%. This is good news for L1s, but I think the most interesting and overlooked point is that I believe this is a massive positive for DeFi. In fact, the killer application for tokenization is not faster settlement speeds, but the ability to collateralize these assets in DeFi for borrowing and leveraging. Therefore, I believe that well-organized DeFi projects, especially those with correctly structured token economic models, have the opportunity to achieve a hundredfold growth with the proliferation of tokenization. They are the true hundredfold beneficiaries. ETH and Solana may bring about tenfold growth.

Host: Yes, Maple is an example. In very poor market conditions, their revenue hit an all-time high, or at least reached the highest level in the past 12 months. So this indicates that the overall market's token prices are somewhat disconnected, related to other structural risks, while the actual incoming revenue and liquidity are unrelated. I think the same logic applies to stablecoins; despite the price drop, they continue to set new highs. Therefore, I believe it is crucial to differentiate between price movements and actual adoption behind the scenes.

Host: Recently, several big names have left, such as Multicoin founder Kyle Samani. What are your thoughts on the current so-called talent exodus in venture capital? Additionally, developer accounts have not increased since 2022, and many are turning to artificial intelligence, with miners also shifting to AI. What are your thoughts on the narrative of a lack of innovation and an identity crisis?

Matt Hougan: The talent exodus is a fact, but this has happened in 2018 and 2022 as well. The difference now is that AI itself is indeed very powerful, and it has captured the market's attention.

AI agents are the main users of the future; I firmly believe that most users of crypto finance in the future will be AI agents. AIs cannot open bank accounts, but with a click, they can have stablecoin wallets. They do not sleep, do not need breaks, and can handle billions of micropayments. If you are optimistic about agent AI, it is hard not to be optimistic about wallets, stable tokens, and DeFi.

Related Reading: Dialogue with Jeff Park: We are in a bear market, quantitative easing is no longer effective, and silver will crash like altcoins

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