Dialogue with Bitwise Chief Information Officer: Quantum Computing and AI Threats Are Exaggerated, Optimistic About the "Four Kings" of Cryptocurrency.

Broadcast date: March 10

Compilation: Felix, PANews

Matt Hougan, Chief Information Officer of Bitwise, manages $15 billion in crypto assets. In his appearance on the New Era Finance Podcast, Matt Hougan deeply analyzed the real state of the current market, believing that the market will peak in December 2024, rather than when Bitcoin reaches a new high of $125,000; this process of emerging from the bear market will be slower and more grueling than previous bear markets; the next phase will be a new bull market characterized by lower volatility and a slow grind upward. Additionally, Matt Hougan believes that Ethereum is undervalued and proposed the "Four Kings" of cryptocurrency. The following are highlights from the conversation.

The Bitcoin Crash Came from Long Positions' Selling Pressure, Not Derivatives

Host: What caused the Bitcoin crash a few months ago? Was it caused by so-called "paper Bitcoin (derivatives)?"

Matt Hougan: I strongly disagree with that statement. The primary reason for the Bitcoin price crash was that a large number of holders sold off their Bitcoin in anticipation of the "four-year cycle," or used options hedging strategies to cover the upside potential. The on-chain data did not show massive sell-offs precisely because a lot of trades were executed through options strategies. Although this operation is classified as a "paper" factor, its essence is that the bulls decided to sell, which led to the price crash.

Host: However, many Bitcoin enthusiasts strongly oppose "paper Bitcoin," believing it disrupts the free market.

Matt Hougan: I understand that concern, but the reality is that most derivatives eventually translate into real demand. For example, if someone goes long on the futures market, the counterparty usually has to buy an equivalent amount of physical Bitcoin to hedge. Of course, in extreme situations, like the big drop on October 10, derivatives did amplify volatility through "cascade liquidations," and this dynamic can indeed worsen the situation in the short term, but in the long run, it ultimately settles back to the physical. The core reason for Bitcoin dropping nearly 50% is still that people sold their Bitcoin.

Bitcoin is Decoupled from Gold, But Still Optimistic in the Long Run

Host: From your perspective, how much impact do you think the recent surge in gold prices has had on Bitcoin in the short term?

Matt Hougan: It has had a significant impact, mainly in two aspects. First, attention has shifted to gold and AI. Second, the strengthening of gold and the weakening of Bitcoin created a "narrative fracture." Institutional investors will ask: "If Bitcoin is digital gold, why is it falling while gold prices are rising?"

Explaining this phenomenon takes time. The fact is that since the U.S. confiscated Russia's foreign reserves in 2022, global central bank purchases of gold surged from 400 tons to over 1,000 tons. But central banks haven't started buying Bitcoin yet. Bitcoin is exactly in the correction year of its traditional four-year cycle, coinciding with the years when central banks are frantically buying gold, leading to the divergence in their trends.

But this does not mean that Bitcoin is failing; the world is still digitalizing, and younger people still trust digital assets more; moreover, when the gold ETF was launched in 2004, the market cap of gold was only $2.5 trillion, now it has exceeded $30 trillion. This means that the market size for value storage is expanding rapidly, and Bitcoin's future market share will increase accordingly. So from the perspective of upside potential, Bitcoin is currently more attractive than gold.

Retail Ammo Depleted, Institutional Funds Drive Bitcoin's Slow Bull Market

Host: Although the four-year cycle theory suggests Bitcoin will peak at $125,000, why do you think it will actually peak in December 2024?

Matt Hougan: The reason lies in the existence of two fragmented markets right now. One is the institutional market, which is starting from scratch to build allocations; the other is traditional crypto investors following the four-year cycle. If you look at the data, you'll see that basically from December 2024 onwards, institutional investors are buying Bitcoin in large amounts through ETFs, while long-term holders and retail investors are selling off in large volumes. Look at the Avalanche, Sui, and Aptos L1 altcoins that have no ETF support; they entered a "crypto winter" starting January 1, 2025, with declines as high as 70%. Therefore, crypto asset holders are now in the bottom region, whether it's RSI or the "Fear and Greed Index," both have dropped to historical lows. So I really don’t think the turning point was in October. I think the data indicates it roughly started around January 1, or during Trump's presidency, around that period. Everything except ETFs has been falling relentlessly.

Host: So the question arises, have we really seen a bull market? Honestly, the only reason we've seen Bitcoin price increases is because of ETFs, and you're attracting more institutional adoption of Bitcoin; otherwise, we wouldn’t see new historical highs.

Matt Hougan: That's a fact and something we should think about. This may mean that the retail funds that previously drove the crypto boom have been completely squeezed out. They are out of money; after FTX and the meme frenzy, they have no more funds. This process of emerging from the bear market will be slower and more grueling than previous bear markets. Because retail funds may have dried up, while new incoming institutional funds are slow and steady. It might be a bit boring. I believe this will be a great bull market, but it might be a bit dull compared to previous bull markets.

Host: Perhaps the trend will resemble gold, gradually reaching a peak over the next five years.

Matt Hougan: Who knows? The institutional market has just begun; even though people like Larry Fink (CEO of BlackRock) and Kevin Warsh (a popular candidate for the Federal Reserve Chair) are publicly supporting Bitcoin, institutional money is entering slowly, investing only a little each quarter. This is completely different from the past, where "hot money" rushed in and out rapidly. My basic assumption is that we will enter a new bull market characterized by lower volatility and a slow grind upward, especially regarding Bitcoin.

Host: How does the current situation of institutions compare to when ETFs were launched? Is there still sustainable positive sentiment even in the face of current market crashes or negative events like the "October 10 incident"?

Matt Hougan: Yes, they still maintain a positive sentiment, with only one or two notes of caution. Regarding institutions, they currently haven’t completed allocations yet. Another issue is the question of "why is gold rising while Bitcoin is not." But the answer to that question is very simple, so that doesn't count as a real objection. Quantum computing is a true concern that has emerged.

Bitcoin Adoption Requires Long-term Education; Stablecoins Are a Lifeline

Host: While the fundamentals of Bitcoin are stronger than ever; at present, the public perception of Bitcoin is more negative than ever. How can we change this narrative and make people realize that now is the time to pay attention to Bitcoin?

Matt Hougan: I believe the shift is happening. The reason is that many respected individuals are now continuously talking about Bitcoin. You hear Larry Fink, CEO of BlackRock, talking about Bitcoin. You hear incoming Federal Reserve Chairman Kevin Warsh saying, "If you are under 40, Bitcoin is your gold." You hear Ray Dalio saying to hold 15% in gold and Bitcoin. These individuals are thought leaders gradually changing attitudes towards Bitcoin. I think for the general public, it's a continuous education process to help them understand how bad the fiat currency system is and all the wonderful things you can achieve through Bitcoin. It requires time. For fund managers around the world, Bitcoin's current reputation is much better than at any time I have been full-time in this field. I have been in the crypto industry for eight years, and its current situation is better than ever.

Host: I also feel like the situation seems completely reversed. It used to be retail first, now we see institutional first, with retail following. How significant do you think stablecoins will impact the adoption of Bitcoin?

Matt Hougan: Its impact is absolutely enormous. Whether people realize it now or not, the fact is that everyone will interact with stablecoins and tokenized assets in the coming years. It will become as natural as using WhatsApp. The popularity of tokenization and stablecoins will be similar. The importance of this lies in bringing people into the digital asset ecosystem, where they are just "one click away" from Bitcoin, and the concept of digital wealth will no longer seem so foreign. If you could snap your fingers and give everyone in the world a crypto wallet, do you think that would be good or bad for Bitcoin? Clearly good, as it brings them one step closer to owning Bitcoin.

For the billions of people in the world without bank accounts, stablecoins are a lifeline. Payment giants like Stripe are fully entering this space. More importantly, Meta plans to introduce stablecoin access on Facebook, WhatsApp, and Instagram, which will directly connect 3 billion people to digital wealth. Even if only 10% of them eventually buy Bitcoin, that will create a massive incremental market.

Host: Let's talk about politics and regulation. It seems that the anticipated "Bitcoin strategic reserve" has not yet moved since Trump's administration?

Matt Hougan: People might be a bit anxious. The pace of government action is much slower than that of retail investors. Retail investors make decisions in a minute, but central banks may take ten years. But there are many good news stories: changes in SEC leadership, no longer suing the top 12 crypto companies; the GENIUS Act ending discriminatory policies against crypto firms. The core now lies in the Congressional CLARITY Act; if it passes, Wall Street's big banks will actually start to enter at scale.

No Need to Worry About Quantum Attacks; Bitcoin Can Benefit from the AI Boom

Host: What are your thoughts on the threat of quantum computing?

Matt Hougan: Quantum computing is an "institutional-level FUD (fear)." While there are indeed risks, Bitcoin can upgrade. If quantum computing could easily break Bitcoin, the global nuclear weapon codes and banking systems would have collapsed long ago; Bitcoin would be one of the least of your worries.

Host: Regarding AI, many people say miners are transferring their computing power from Bitcoin mining to AI.

Matt Hougan: That is just an extreme phenomenon. If assets can be leveraged for better profits in AI, miners will indeed pursue that, but I'm not worried. If enough people shift to AI, Bitcoin mining difficulty will decrease, costs will drop, and profit margins will rise. Over the past 16 years, facing state crackdowns, loss of computing power, and countless threats, the system has been economically self-correcting. The same will hold true for the next 160 years.

Host: What kind of overall impact will AI have on the economy? Will it lead to massive deflation?

Matt Hougan: No one can know for sure. But no matter what, the eventual benefits will return to Bitcoin. If AI merely increases production efficiency, a strong economy is beneficial for Bitcoin as a risk asset. If an extreme doomsday scenario occurs: AI replaces all jobs, causing massive deflation, and people do nothing and do not consume, then the only way for the government to respond to deflation is to print money like crazy to inject into the economy, leading to asset price inflation, which is extremely favorable for Bitcoin's digital scarcity. But my basic assumption is that AI will lead to fundamental business disruptive reorganization, reducing costs and increasing efficiency, making the world wealthier, which is also good for cryptocurrencies.

Multiple Positive Factors Drive Crypto Recovery; Agentic Finance is the Growth Flywheel

Host: When discussing the crypto winter, what narrative will lead us out of this low point?

Matt Hougan: It will never just be one thing. I think the rise of "Agentic Finance," the growth of institutional DeFi (like lending over a trillion dollars), the four-year cycle, interest rate cuts more dovish than expected, reduced quantum risks, and the growth of stablecoins and tokenization, as well as the approval of the Clarity Act, are all intertwined factors. So many positive news stories combined will pull us out of the bear market.

Host: Why will Agentic Finance impact tokens?

Matt Hougan: Top payment giant Stripe pointed out in their annual letter that agentic finance will account for most of all internet transactions, and all of this will happen on blockchain and stablecoins. AI agents won't open accounts at JPMorgan; they will only open stablecoin wallets. When they represent the vast majority of economic activity, that will be a huge growth flywheel.

Ethereum is Undervalued; The "Four Kings" of Cryptocurrency

Host: So projects like Near that build high-quality technology in the ecosystem are very aligned. Additionally, isn't the market extremely undervaluing Ethereum right now?

Matt Hougan: Yes, the market is currently undervaluing Ethereum and Solana, the two leaders. I am very optimistic about Ethereum, as Vitalik returns to the community as a key player, and there is a faster technical delivery roadmap. As a leader in the stablecoin and tokenization fields, it is winning most of the institutional authorizations.

Solana can also benefit from its identity as a market challenger. When talking to institutions, in the past they focused only on Bitcoin; now the interest allocation is about 50-50 (half Bitcoin, half stablecoins and tokenization, namely ETH and SOL).

Host: I have been a supporter of Chainlink for nine years. Many people only focus on the token price and overlook the complexity of its underlying technology. Why are you so optimistic about it?

Matt Hougan: I believe the "Four Kings" of cryptocurrency are: BTC, ETH, SOL, and LINK. Institutional investors may not even know what an "oracle" is; they have missed the whole point.

My logic is simple: blockchains will increasingly interact with the real world, and Chainlink holds 75% of the market share; it connects data, audits, and cross-chain bridges. If it were a traditional software company, it would undoubtedly be one of today's hottest tech stocks. The reason Chainlink isn't mainstream is simply because its tokenomics make it seem complex to the average person. But once you understand the core business that "connecting the real world requires bridges," its immense and dominant value becomes clear.

Advice for Young Investors

Host: If a 25-year-old wants to enter the market now, what advice would you give them?

Matt Hougan: First, buy some cryptocurrency, but don’t buy meme coins. A 25-year-old has a long time horizon; allocate most of the investments to a diversified basket of crypto index products and hold for the long term. At the same time, take time to deeply understand a few specific assets and invest in them. Regardless of whether the investments yield stellar profits, this process itself will provide tremendous cognitive returns over time. The key is to invest in "personal stakes."

Host: How do you stay rational amidst these noisy market fluctuations?

Matt Hougan: The timeframe for my investments is measured in "decades." If you ask the most pessimistic people in the crypto space today, they will still tell you: ten years from now, Bitcoin will be bigger, stablecoins will be huge, and tokenization will be massive. So the fluctuations right now are just noise.

I have been fortunate to experience two crypto winters. The first experience was the toughest, but once you truly understand the long-term drivers of cryptocurrencies and see that they still exist, volatility no longer troubles you. Keep your eyes on the "grand prize ten years out," not on the rewards ten minutes ahead.

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