Bitwise: Why Large Allocators Are Deploying Into Ethereum Now (Model Portfolio Explained)

Transcript

The four-year cycle historically, it was three up years, one down year. Now, we had two up years, a slightly down year, and then a down year this year. I think it's not easy to to map exactly. In some ways, that's positive, right? Over the past few months, we've seen a number of major wealth management platforms uh approve Bitwise's Solana staking ETF, BSOL. >> Just like the streets of Manhattan, I'm going to keep this quick. Over 70% of our viewers are not [music] subscribers. Yes, you. Every week, we interview some of the best entrepreneurs and investors [music] in the financial industry. The easiest way to support our channel is to hit the like and smash the [music] subscribe button. Now, sit back, relax, and enjoy today's show.

>> Do you feel like as the market cap grows, as Bitcoin becomes you more ubiquitous, do you think we're going to get these longer market cycles? Maybe the four-year cycle turns into six, or do you think we're going to get maybe this contractionary, you know, response where we do get some more fluctuations on a quicker time frame? Any any any thoughts as far as how we might see the time variable here play out uh on on Bitcoin in particular? >> Brian, why don't you take the first step? >> Yeah, well, I do think, you know, first of all, we are seeing these cycles compress in terms of returns, right?

Both to the upside and drawdowns to downside in the bull and bear markets, and you can't really ignore that when you start to think about what does the four-year cycle look like, right? In the last run-up to all-time highs in October of last year, and you know, year four or year three of this four-year cycle, we didn't get a thousand X from the prior low, right? It was less high of a multiple, and the drawdown that we've seen now is about 55% from all-time highs. It's not the 70 or 80% we're used to in past cycles, so it's compressing there. I do think that look, these cycles aren't perfect in terms of their timing. If you look at 2025, actually, that was a down year over the calendar year for Bitcoin, and so the four-year cycle historically, it was three up

years, one down year. Now, we had two up years, a slightly down year, and then a down year this year. I think it's not easy to to map exactly. Over the long run, I do think that the market's fundamentally changing. You have different buyers coming into the crypto market today than you had 4 years ago or 4 years before that, right? And you have institutional investors that we face off with at Bitwise. You have corporations, you have sovereign wealth funds, and family offices. Those are just different types of investors. They take different types of exposure over different durations than the early retail investors in crypto, and it's a much more liquid asset. So, it looks different. Uh clearly, we had some pattern holding here, and we and we've had it hold, but it's always going to look a little bit different, in my

opinion. >> Yeah. Uh Matt, any any thoughts on how long we think this these apathetic conditions are going to last? >> Yeah, it it they always last a little bit longer than you think. You wake up, and there's a massive bull market. I think we could easily, in the right series of circumstance, end up, you know, back at 100k within a handful of months. But, I think it's going to take a a reasonable amount of time to sort of get the ebullient bull market that we remember from crypto cycles past. I think what Ryan said is very true. We have a new actor in the market, which are these large wealth management platforms, institutional investors, and they move slower than traditional retail crypto investors. In some ways, that's positive, right? Over the past few

months, we've seen a number of major wealth management platforms uh approve Bitwise's Solana staking ETF, BSOL, despite the market being down 50%. They're not doing that for FOMO, they're doing that because they're making a decade-long decision that this is an important asset for the world. So, they move at these different time frames. So, yeah, could we could we still be sort of in a sad, like, not ebullient market in a few months? I think that's entirely possible, but I do think there is there's there's strength in that slowness. That's what I would expect for this next cycle, a slower, more fundamental, more institutional bull market that grinds higher. That would be my base case.

Uh but it depends on how conditions break out. >> And and so the just diminishing volatility as we continue because the the new net buyers, the new units of liquidity are a little bit more sticky, a little bit more solid than maybe the fleeting retail and mercenary capital that we've seen in previous cycles. >> Yeah, I'd say a lot more long-term oriented, maybe a lot more solid. These are people who set investment policies and invest for 3, 5, 10 years, right? They uh they don't react on a 3, 5, 10-day basis. They react on a much slower basis. They're institutions that take a long time to turn. We've said this before, but for a long time our average client at Bitwise allocated to

crypto after eight meetings with us. You know, sometimes you're lucky if you get a meeting every quarter with a professional investor. That means it's a 2-year educational process. So it does just move slower. And I'd add that anytime you inject a new type of investor into a market, that alone lowers the volatility because they just move and zig and zag at different times. So I think the thing we're seeing in this bear market with the market down 50%, not 80%, I think that's indicative of the direction we're going. I suspect we continue to have sort of shallower drawdowns, lower volatility, and more grindy upside. There's still a lot of upside. I think Bitcoin is still going north of a million dollars over the

next, you know, decade or so, but I think it's going to be a different kind of move than we've had in the past. >> And are these investors primarily taking exposure through ETFs? And what are some of the ETF flows that you've seen as of recently? >> Yeah, I think ETFs are the primary vehicle. That's how they get exposure to stocks, it's how they get exposure to bonds, and it's how they getting exposure to crypto. So, you are seeing flows into that. Since July 1st, you know, we actually saw strong outflows into these ETFs through the end of June.

Since July 1st, we've had relatively strong inflows primarily into the crypto majors, primarily into Bitcoin and Ethereum, a little bit into assets like Solana and hyper liquid. Uh that's to be expected, right? Remember these people were learning about Bitcoin and Ethereum for 2-year period. They're now making their allocation and I think from their perspective majors are likely to lead. I in fact think there's going to be sort of a bifurcated uh bull market where institutional capital is driving assets like Bitcoin and Ethereum higher and crypto native capital is more focused on revenue generating apps from hyper liquid to Uniswap to Aave to Morpho. That's the that's what I expect to see over the

next sort of 6 to 12 months. >> Ooh, okay. I think we we will get a little bit deeper into that cuz I like the bifurcation into crypto native capital. Those uh capital investors are looking at a fundamentally different asset class than maybe some of the majors that are getting primarily institutional capital interest. Um before we move off of, you know, some of the the ETF investors that both of you have spoken to on a regular basis, I'm curious are there any catalysts? I know clarity was sort of, you know, taking front front and center for quite a while. Is there any catalysts that you or some of the institutional investors that you're talking to, do they have any catalysts on the horizon that they're watching and they're sort of, you know,

staying on the sidelines until these things happen or is it just the the regular process of market education that is a slow grind that is ultimately bringing them into the markets? >> Yeah, I'm happy to It's it's answer this one from what at least that I'm seeing when we talk to these wealth management platforms or individual advisors. Uh you know, I do think that we're fighting for attention as an industry right now with AI and with these equities rallies. They've obviously performed really strong this year while crypto's been down and most of these financial advisors or institutional investors are looking at crypto as a small portion of their overall portfolio allocation, 1%, 3%,

5%. So, they spend that much time on it and they're just not focused on crypto so far this year. I think that's starting to turn as you see the market bottom out and as you start to see some positive news developments. I actually think that the Clarity Act stalling out and now that we're in this kind of quiet period for clarity with a vote scheduled, I think that's a positive catalyst going into July and August. It was, "Oh, there's this looming deadline and if it doesn't pass before the the recess, then we're doomed." And now we know there's a vote on the horizon. I think that tells the market that these things can change over time and they're not a you know, they're not such binary events. I also think the macro environment is getting a little bit more settled. We're getting used to elevated

oil prices. It's still unclear what's happening with interest rates, but we're getting used to a war-shled Fed. Of course, we'll have the the Jackson Hole speech coming from him later this month. That'll give us a little bit of indicator, perhaps of where we're coming, but he's not really telegraphing, you know, what they plan to do. But but overall, I think getting out of the summer period and this uncertainty period, leaving some of this bad news of July and August behind us is a catalyst in and of itself as investors start to look ahead towards the end of the year and towards 2027. I think crypto fits really nicely into those end-of-year discussions.

>> Yeah, I would just add I think some of the biggest catalysts are in places that crypto Twitter is not looking. Right? If you talk about Morgan Stanley, Wells Fargo, UBS, and Merrill Lynch, the four sort of largest wealth management platforms. Uh they control about $20 trillion in assets. The kind of catalyst that I think will be a big part of the next cycle for the majors at least are Bitcoin, Ethereum, and other assets being added to the model portfolios on those platforms. You've already seen it on a small scale at places like Wells. I think you're going to see it at many other of those providers over the next 6 months. Again, $20 trillion of assets there. If you're starting to get model allocations of 1 or 2%, that's huge amount of inflows. So, I think a lot of

crypto thinks about the Fed, they think about the Clarity Act, they think about Reg Crypto. All of those are really important, but many of the biggest catalysts are actually internal to these wealth management platforms that are going to be the marginal buyer of the large-cap assets, I think, over the next few years. And I would watch for those sort of small news stories that actually trigger tens of billions dollars of flows uh on a persistent basis for years in the future.