Bitcoin ETFs: Simpler Than You Think

Matt Hougan and JD Gonzalez offer advice on explaining bitcoin ETFs to clients

Ric Edelman: It's Friday, April 5th. On today's show, guess what billionaires are buying now. Plus, a great conversation about the new spot bitcoin ETFs. Yesterday, I told you about some amazing innovations in agricultural technology, Agtech. If you missed the show, we've got a link to it here. And I mentioned some of the universities where some really amazing research is being done, not just Texas A&M and Ohio State, for example, but also at Johns Hopkins, where they're manufacturing food out of thin air. Quite the magic trick.  

Well, let's face it, food's big business. Food is a $10 trillion business. It represents 12% of global GDP today, and it provides 40% of all the jobs on the planet. There's a lot of money in food. So when rich people want to get richer, they get into food. And guess what billionaires are buying now? 

Not just food companies, they're buying the people who are responsible for the innovations in food. And not just in food, but in all areas of exponential technologies. Yep, billionaires are now buying scientists. One company in particular is Arena BioWorks. It was funded with $500 million from some of the wealthiest families in America. 

They've been using the money to hire researchers from the top universities in the world, like Harvard and MIT. Scientists are notoriously underpaid. It's routine for a science PhD to earn $50 or $80 grand a year. But Arena BioWorks is offering them salaries up to a million dollars. Plus, they get up to 30% of the profits from whatever they invent. The pitch is not just big compensation, it's freedom from the paperwork and bureaucracy that universities and pharmaceutical companies often impose on them that delay or stop innovation.  

Universities have a limitless supply of low paid research assistants. Students are willing to work for peanuts in order to get their PhD. And universities are nonprofits. That helps them compete with big pharma. But if you talk to those university scientists and researchers, they're gonna tell you that their pay stinks, and that it takes years for the university to approve their research proposals. 

By the time they do get approved, by the time they get funding for their idea, the idea is out of date, and that starts the cycle all over again. So, Arena BioWorks is having no trouble recruiting some of the most brilliant minds in science academia. The good news is, we're all going to see innovation faster. It also means, though, disruption among academic institutions. I wonder, though, how much any of us are going to care about that.  

Coming up next, if you missed my Wealth Management Convergence conference that I hosted in West Palm Beach, Florida last month, I'm going to let you listen in on a great conversation about the new spot bitcoin ETFs. 

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Ric Edelman: So, without a doubt, one of the most practical subjects that people are having with clients these days has to do with the spot bitcoin ETFs. And more importantly, more broadly, how to integrate the whole conversation of crypto with clients, and so I'm really happy to bring on to the program, Jose Gonzalez and Matt Hogan. 

So, we have to begin with the explosion of the ETFs and Bitwise is, as everybody knows, one of the leaders in this space. Congratulations on the incredible success, Matt.  

Matt Hougan: Thank you.  

Ric Edelman: Bitwise is not a household name, but you're third in AUM flows, in these new ETFs, out of the ten? So that's gotta be feeling pretty good for you.  

Matt Hougan: We're doing alright. Not a household name yet, is what I would say, Ric. But we're working on it. Yeah, BITB just crossed two billion dollars in assets yesterday. 

Ric Edelman: It's rather astonishing. Roughly two months and the flows have been, I guess, approaching $20 billion all told. I didn't expect it this fast. 

Matt Hougan: I think no one did. To put the numbers in context, before these ETFs launched, the most successful one ever was the QQQs, which got $5 billion in a year. These ETFs have netted north of $10 billion, if you exclude GBTC, north of $20 billion in two months, and I think it's going to accelerate. So it's a record and not by a little, it's like a Usain Bolt style ETF record.  

Ric Edelman: So, given all of that, at the end of the day, it is just an ETF, a group of ETFs, investing in Bitcoin. Bitcoin is a bigger thing. So how has allocating to Bitcoin, changed since the launch of these new ETFs?  

Matt Hougan: That's a good question. I think the biggest way it's changed is you can no longer just say, I can't do it. Right? The biggest change is professional investors now have to decide yes, no, or maybe not right now, but they can't just throw up their hands and say, you do it on your own if you want to, but I can't provide advice. 

Ric Edelman: There was body language that advisors have been using the last 10 years, which was, you know, just dismissive. It's a fad. It's a fraud.  

Matt Hougan: See no evil, hear no evil. They didn't have to think about it seriously. And that was true with advisors. It was true with family offices. It was true with institutions. And now you can't do that. Now you have to say yes or no, and so what we're seeing is an increasing group of people saying yes, and it's not just people ask who is buying these, not just retail investors. Every day we have advisors putting BITB into models. We have family offices doing it, some of the largest in the world. We have corporates that are lining up to start investing as early as this week. It's everyone, you know, everywhere, all at once, and they're really starting to do it.  

Ric Edelman: So I gave this opportunity to Jenny, she was here yesterday, and with Robbie, who was also here yesterday. I gave them the opportunity to tell everybody why y'all should invest in EZBC or IBIT. So I'll let you have your 30 seconds, why should people buy BITB?  

Matt Hougan: It's the lowest cost bitcoin ETF at scale. Of the ETFs with a billion dollars that are very liquid, it's the lowest cost at 20 basis points. And also it's backed by a specialist. Bitwise has been managing crypto assets for 7 years, longer than any of the other low-cost ETFs. And that's reflected in our ability to trade Bitcoin better, secure better prices for the ETF. Have better relationships with custody and APs. It's just the most robust. The other piece for advisors is whatever happens to Bitcoin in the next year, you're going to get questions from clients. And can you rely on the issuer to answer those questions? We've been doing that for advisors for seven years. We have a whole team dedicated to that, some of which are in the room today. So, it's both the cheapest and the best, which is a nice combo.  

Ric Edelman: Cheapest is a quantitative term. Best is a qualitative term. So I'll let you get away with it. And Jose Diego Gonzalez is a financial advisor, like all of you. JD, you've been using crypto in your practice. When did you begin doing that?  

JD Gonzalez: Yeah. So CameronDowning, we’re financial planners first, investment managers second. So we came across a financial plan with a gentleman who was in tech, was having this big exit and still half of his net worth was in crypto and NFTs. And this was back in 2021. So it was at that point we said yes to Matt's question. And we said, this is certainly something where we feel if rather than shying away or dismissing it, if we lean into it, we might be able to better serve our clients. We’re based in Miami. So this is a big conversation. And it was late 2021 where we started kind of diving deeper into the space and making sure that we as a team, as a firm, we're well positioned to answer those questions and make it a part of our practice.  

Ric Edelman: And now that the ETFs are out, are you incorporating those into your practice or continue? 

JD Gonzalez: Yes, absolutely. So again, the primary approach was through planning, right? We made crypto asset evaluation, an item on all of our packaged financial plans. So we made a point of, if nothing else asking about it. And what we found was a lot of people were actually closet crypto investors.  

Ric Edelman: They weren't going to mention they owned it unless you asked? 

JD Gonzalez: Unless we had brought it up, correct. 

Ric Edelman: Raise their hands - if you have asked all of your clients, if they own crypto, raise your hands, if you've done that. Virtually none of you have done this. We just did a survey, we're releasing the results next week, that less than 40% of advisors have systematically asked their clients if they own crypto. You have no clue, and yet many advisors swear none of their clients own it. Even though 20% of US adults do, none of mine. And so, as you asked them this, were you expecting them to say yes? Were you surprised by the percentage who did say yes?  

JD Gonzalez: Not so much the percentage. I think it's probably very in line with about that, 20%. What was more surprising was who said yes, right? You typically expect your younger clients to be the only ones to say yes, but we have clients in retirement asking us questions about it and saying, hey, should I be a part of this? What's the best approach here? So we've actually had exposure to digital assets, cryptocurrency, through the things that have been available up until the spot ETFs for a little over a year now.  

Ric Edelman: And did you find that those who do own crypto are doing it wrong? Wrong, meaning that they have, in your view, they've allocated too much to it? It's too big a percentage of the portfolio? Or they're too concentrated in what they own? Or they bought it at a scary place? Like, you know, an FTX or something?  

JD Gonzalez: Sure, in some cases, yes. This gentleman that I mentioned to you, he was the first one to bring up, you know, cold storage, hot storage. He was honestly enlightening to have as a client. So most of the people that we've found in our client base that have invested in it have done so through the more popular avenues, so it hasn't been a concern so much of how they've done it. As far as the allocation, again, because it's kind of this closet, I don't speak about it with my advisor. It has been sometimes larger than the typical one percent that we might allocate to. 

Ric Edelman: Are you using the new spot bitcoin ETFs?  

JD Gonzalez: We are, yes. 

Ric Edelman: Actively recommending them for many, most, all clients?  

JD Gonzalez: We use model portfolios, so whether, you know, when we present portfolios to clients, we certainly touch through all positions. Crypto is in their portfolio. 

Ric Edelman: So it's a routine recommendation? 

JD Gonzalez: That's correct.  

Ric Edelman: What's the allocation you're generally recommending?  

JD Gonzalez: So at the higher end of our more aggressive models, two to three percent. We've gotten it all the way down to moderate aggressive moderate growth with one percent. 

Ric Edelman: Are you using one of the ETFs? Many of them? 

JD Gonzalez: One of the ETFs. 

Ric Edelman: I'm sorry, man. I'm going to take the shot here. Which one are you using?  

JD Gonzalez: Well, Matt, you're in luck.  

Matt Hougan: Oh, yes.  

JD Gonzalez: It's BITB.  

Matt Hougan: Thank you. We appreciate that. I've never been so nervous on stage. I really didn't know. That's amazing. 

JD Gonzalez: Pleasure doing business.  

Ric Edelman: Someone's buying someone dinner tonight.  

Matt Hougan: That's right, exactly. 

Ric Edelman: Alright, then I'll take it a step further. How did you pick Bitwise?  

JD Gonzalez: Sure, so we've had exposure to this space for a while now. Previously, one of those was the BITW, the Top 10 Index. We didn't want to be in any of these, you know, Global X, like you said in a previous panel, has hyper-focused ETFs, there's the Web3 ones, there's the crypto, the NFT ones... we wanted to take just more of an index type approach. So, we've been exposed to that space for a while, but when the ETFs came out, that was certainly very interesting. The SEC didn't allow, in kind redemption, it was only cash creation. So that was one of the filters that we, you know, it went moot. But, as far as how to choose which ETF, we looked at it a lot like, gold ETF, right, so you want to be mindful of, it's not just expense ratios. You want to be mindful of the security that's behind the scenes to make sure that, you know, stealing billions of dollars of gold is a lot harder, I think, logistically than trying to do the same with something that you can carry on a flash drive. So the security measures the technology that each firm has, who's backing the ETF, whether they are tied to one single issuer. So when it comes to cash create shares, when they're purchasing Bitcoin, can they leverage getting the best price? So these were all factors that went into choosing which ETF. And our previous relationship with Bitwise certainly helped make that transition very easy.  

Ric Edelman: So Matt respond to all of the above without, you know, the mere pats on the back, to JD. His approach of choosing which portfolios to allocate, how much to allocate, put that in the context of what you think advisors ought to be thinking as they approach crypto as part of a portfolio. 

Matt Hougan: Yeah, absolutely. And we've had a great relationship for a while, which we appreciate. I think it's exactly right. I love seeing it in models. I love it at an appropriate allocation. And I think you can titrate that allocation by aggressive, moderate, etc. And we're seeing that increasingly. You know, up in Canada, Fidelity runs, sort of all-in-one portfolio ETFs that have allocations that are in line with that. So this is being normalized in models, and I think, you know, thinking about it from an aggressive, moderate, conservative perspective, and thinking about it at those allocation levels, and I'm sure rebalancing and using it, that's how you use Bitcoin appropriately in a portfolio. 

Ric Edelman: One of the observations I have on all this is that, first, nobody's saying zero anymore. They may still be at zero as they figure out how to deploy and get it all done. But really, philosophically, I'm not finding anybody at zero anymore, which I'm finding interesting compared to several years ago. And on the other extreme, when you talk about aggressive portfolios, you're at three percent. And that I find rather fascinating as well, that a little goes a long way.  

Matt Hougan: A little goes a long way. Well, that's what the data shows, right? If you put this into a portfolio optimizer and you look historically, it shows that anywhere between about one to four and a half percent is the sweet spot. When you get above four to 5%, it starts being the primary driver of your maximum drawdown. And that's something that clients feel and can make, you know, all, but the most aggressive clients nervous. We have seen it go up. When you and I started doing these talks, Ric, I think one percent was considered aggressive.  

Ric Edelman: Yeah. People thought it was crazy for recommending. 

Matt Hougan: Crazy. And now we see, you know, two and a half percent. Sometimes we see people doing 5%. So I think those numbers are coming up, which for what it's worth, they should. It's also the case that Bitcoin is less risky today than it was five years ago. There's better custody, there's better liquidity, there's better regulation, there's more acceptance among the institutional community, volatility is lower, it's literally de-risked, it's still risky, but so those numbers are going up appropriately. 

Ric Edelman: If you did one percent when I first told you to, and didn't rebalance, your allocation today would be 25%.  

Matt Hougan: Yes. So there. But even a one percent portfolio allocation, if you rebalanced, has historically boosted your 60/40 portfolio by 4, 5, 6, 7%. I mean, the impact is visceral and real. 

Ric Edelman: And that's the real decision advisors are finding themselves having to make for clients who came to them owning crypto. JD, this client, you said half of his money was in crypto. He didn't start out that way, though. He didn't put 50% of his net worth into it. It simply outperformed to such an incredible, unprecedented rate that he turns around and 50% of his net worth is in it. He was a hobbler, the so-called diamond hand. So, what did you advise him? Did you tell him, great, good for you, hang in there? Or did you tell him, time to take profits off the table?  

JD Gonzalez: Yeah. So at the beginning, when we first came across that client, Ric, we didn't want to speak out of turn, right? That was our kind of aha moment. And that's when we said, okay, this is something for us to look into.  

Ric Edelman: Maybe he knows more than you? 

JD Gonzalez: At that point, yes. 

Ric Edelman: That's not a good position for you as financial advisors to have the client know more than you. That's the, for nothing else, the reason you need to get educated about this. 

JD Gonzalez: We did offer some practical advice as far as concentration. A lot of it was cryptocurrencies, but when so much of it is NFTs, I mean where do you even start there? But we did talk to him, just make sure that you're checking the boxes off on security and he's like, don't worry, do you know what cold storage is? I've got my 24-bit key laser engraved in a safety deposit box in another state you'll never find, right? So you're hearing all these things, you're like, there's something here. But we did offer just some general, planning practical points in that sense. Concentration, the last two years we've kept in touch with him and taking care and taking advantage of, while the IRS allows it, the no wash sale disallowance has also been nice because he's just writing all that through and he's been able to power up some capital gains as well. 

Ric Edelman: Which is why Fidelity tells us that they have collected over $400 million in donations to their donor advice funds, in crypto, because people made so much money, so fast, more than they ever expected, and they're donating a lot of it away to avoid the tax hit and to be generous. So the financial planning opportunities are just massive from philanthropy to estate planning issues and all kinds of amazing things. Matt, from your perspective, what is it that advisors really ought to be thinking about in terms of all of this? How do you explain this to clients? How do you engage in the conversation? You know, first the basic question I mentioned, do you own this? Do you own crypto? The majority are gonna say no. What do you say next?  

Matt Hougan: Well, I think, as you said, the majority will say no, but asking is a good starting point. You can talk about what it is and what it's done historically in portfolio context. You can talk about how the asset class has evolved. Now the largest names in the space are getting involved. It's no longer the Bitcoin of 2011, 2010. It's a new era. And you can talk about this idea of a very small allocation to an asset with asymmetric upside. You don't want your clients to be asking you questions in five years. Why didn't we look at Bitcoin? Because now there's no reason not to at least look at it. And so talking about that small allocation and the asymmetric upside, I think is a valuable starting point.  

Ric Edelman: There was an answer you have been able to give. There was no vehicle available to me to provide you. That answer doesn't exist anymore.  

Matt Hougan: It doesn't exist anymore. You could also say there were no serious investors in Bitcoin. That doesn't exist anymore. You could also say your peers were not doing it. That's not true anymore. So all of those excuses have gone away. Now you need to make an active bet. You're actually effectively short Bitcoin if you have no exposure to it versus the global portfolio. So you're making an active bet either way. And I think just having that conversation and talking about a very small allocation is extremely helpful.  

Ric Edelman: And so JD, in your experience, when you talk with clients who don't currently own it, and you bring it up, you mentioned it as part of the conversation of the overall allocation model, what kind of reactions are you getting from people? 

JD Gonzalez: All sorts, all sorts. We still get a lot of the questions of, is this a fad? You know, is it fraud? We certainly can defend the position. And again, it is small enough where it's not too much of a complaint, but when the upside is there, you know, their clients tend to be very pleased, at least with how Bitcoin has been performing lately. So we've had several types of reactions, but most of them are able to, we're able to talk through it with the client and explain to them the mechanics of a position like this in a portfolio, what the potential upside is, and how we're mitigating downsides with the position. But in the context of planning, you know, if the client doesn't go there, then we want to just ask if nothing else, but if they're not there, then we won't take them there. 

Ric Edelman: So you're not forcing it on anyone?  

JD Gonzalez: No. Not with financial planning clients. Those are two distinct services for us. But for the investment management clients, again, the more aggressive portfolios have a sleeve of Bitcoin. And we have discretion over the portfolios. So we're not necessarily debating that with the clients. 

Ric Edelman: Are you getting objections that have been more of the traditional objections of Bitcoin? For example, it's bad for the planet, it's only used for drug dealing and illicit activity.  

JD Gonzalez: None whatsoever. Not in that sense. No.  

Ric Edelman: So Jamie Dimon is like a broken record that, you know, I just love listening and he talks about sex trafficking. I just think that's the funniest thing. But I think Matt, that there are still some who raise those questions, at least from a due diligence perspective, if only how do I respond to my clients? So, talk about the bad for the planet conversation. Because that, to me, is still the, perhaps the most common. 

Matt Hougan: Yeah, that one is changing rapidly. The World Bank and the IMF have come out with pieces about how Bitcoin mining is actually helping with localized development and the sort of growth of renewable energy. So you do get these questions. One thing Bitwise has is, we wrote a Bitcoin library. It's 23 two-pagers that answer these specific questions. And, and I do think that one is fading away. Certainly the criminal use one has been fading away. I think the one that people still get hung up on is that Bitcoin doesn't generate cashflow. And I think that's the one where you need the most education. Well, there are plenty of things that are valuable that don't generate cashflow. Gold is valuable. It doesn't generate cashflow. Art is valuable. It doesn't generate cashflow. Land is valuable and doesn't generate cash flows. Growth stocks don't generate cash flows as well. I think it's relatively easy to look at Bitcoin as a one and a half trillion dollars asset going after a $20 trillion market and say it has a lot of room to grow and the market may be larger than that. So I think it's a fair question, but there are many things in the world that are very valuable and don't generate cash flow and Bitcoin is just one of those. 

Ric Edelman: Get ready to ask your questions of Matt and Jose. There's a lot of really tangible, practical stuff here because unlike AI, this is investable today. And AI, I think, might be more profound in a bigger sense, but that's not really here the way that, that crypto now is, and particularly the spot Bitcoin ETFs. 

Are you done, Jose, with the crypto allocation meaning, what you're doing is what you're going to be doing, or are you anticipating that, for example, when Ethereum ETFs come out, assuming they one day do, that you'll then allocate to those as well, or are you just like, kind of, we got what we're doing, we're gonna stick? 

JD Gonzalez: As more spot ETFs come to market, we certainly want to take a look at them. You know, the use case between Bitcoin and Ethereum are very different, and we did have exposure previously to the top 10 Crypto index. So we certainly will take a look at it. But for the time being, I think we're very pleased. You know, a lot of the, a lot of the crypto space is dominated by the price of Bitcoin. So that's probably where we'll be for the time being.  

Ric Edelman: And what's your viewpoint, Matt, on the SEC's attitude of the current Ethereum applications?  

Matt Hougan: I think it's a less than 50 percent chance that they're approved in May, which is when they have to make a decision, but I suspect they'll be approved within the next 12 months. 

So the SEC is not moving fast on the current applications, which is why I and others, I think Bloomberg rates it at a 35 percent chance -- are skeptical of the early decision window. But long term we've entered the ETF era of crypto. If you think about what the Bitcoin ETFs have done. They've lowered costs by 90%, made it more secure, and made it easier for folks like you to allocate. 

That's a win for clients. It's a win for advisors. It's a win for America. I think we're going to get the same thing in Ethereum, but are we going to get it in May? I'm not sure.  

Ric Edelman: And by that notion, we're then going to see product extension in a really big way.   

Matt Hougan: The ETF innovation machine is the hungriest beast in finance. So, it is going to create lots of things. You're going to see momentum strategies. You're going to see covered call strategies. You're going to see volatility downside adjustment strategies. But the biggest thing is the Bitcoin ETFs. And I think they'll have a hundred billion dollars of assets, you know, maybe by the end of the year, I think they're going to grow exceptionally fast. But you will see all these new developments and they'll be exciting. Those are interesting strategies. And, like you mentioned, there are some really neat use cases of Ethereum that are blossoming that I think are trillion dollar opportunities. Those are exciting. We're still early, but yeah, I think it'll be a while before we get many more crypto assets. 

Ric Edelman: I think my two key predictions are proving to be wrong. I had projected 150 billion in flows by the end of ‘25 and like you, I think it's going to happen a lot faster than that. And I've also predicted 150,000 as the price point for Bitcoin by the end of ‘25. And I think we're going to hit that sooner. 

Do you want to talk about price predictions? 

Matt Hougan: In December we put out our 2024 predictions and Bitcoin was trading at 40,000 and the market was quiet and we said it was going to double this year above 80,000 and this week we're working on new predictions. 

Ric Edelman: Because we're already at 72,000. 

Matt Hougan: We’re already at 72,000. By the end of the week, we could have reached our goal. I think this is going to be a six-digit asset this year, and it's going through a period of price discovery where all of a sudden, you know, a hundred trillion dollars of global capital can now allocate to Bitcoin for the first time ever. 

We don't know what the price impact will be, but I think it will be, you know, higher than it is today.  

Ric Edelman: We talked about exponential technologies in the last session of how things are growing on the exponential curve, not the iterative curve. And we're not used to that in the investment management world, we talk about returns as percentages. In crypto, we talk about returns as Xs. 

It's not 10%, it's 10x. And we need to rejigger our thinking there because if you're talking about Bitcoin at six figures, you're talking about a 50% increase from where we are today. And we normally look at the stock market doing 10% in a year. And we're up 60% year-to-date, so we need to readjust, which is why you said earlier a 1% or 2% or 3% or 4% percent allocation is plenty, but you got to hurry. 

Firms that are not yet allocating, advisors that are not yet allocating, this is a once in a lifetime kind of a thing. This is an opportunistic play that isn't going to last forever. We're going to continue to see crazy volatility. 

Matt Hougan: Just to put, I mean, concrete context on it, the Bitcoin network produces 900 Bitcoin a day. The ETFs are buying 10,000 Bitcoin a day. Sometimes it's really simple math.  

Ric Edelman: And at the end of April, that 900 gets cut to 450.  

Matt Hougan: To 450. That is exactly right. And that means that if that demand continues, we need the prices to rise until long term investors agree to sell their Bitcoin. The question is how high it has to go.  

Ric Edelman: If every millionaire in the world wants one Bitcoin, they can't have one. Because there's 52 million millionaires and there's only 21 million Bitcoins. So, what does that do to supply and demand? So what are you doing, JD, as a result of all of this conversation in your practice? Are you rebalancing your crypto or are you telling clients to buy and hold and ride the wave?  

JD Gonzalez: We've taken an approach very similar to the rest of our portfolio: systematic rebalancing twice a year, perhaps. We're not trying to pick out or time the rebalance for Bitcoin itself. It'll just get rebalanced with the remainder of our portfolio. 

Ric Edelman: Which, which strikes me as a more prudent approach, Matt. I mean Bitcoin will remain volatile, I'm sure you'd agree. So take advantage of that through rebalancing and don't try to play games. 

Matt Hougan: Absolutely. I mean, if you want to go into the academic finance of it, the idea of rebalancing a non-correlated asset lets you harvest the volatility and turn the volatility into an asset. 

That's something people talked about, about commodities in the 90s, but Bitcoin takes that and 10x it. So there's a lot of value in that rebalancing approach.  

Ric Edelman: Questions for Matt or JD. 

Audience Member: Thanks. Given that I can have BITB now, why would I, as an investor, still want to hold it in a cold wallet?  

JD Gonzalez: Well, it's similar to gold. There are lots of investors in gold who want to hold physical bars against Armageddon or against some disaster unforeseen. 

The same thing is true, with Bitcoin. Many people want to hold it in a self-sovereign format because they want it to be theirs in a concrete sense that no one else has access to. BITB financializes that. It makes it lower cost and easier. I think most people will want that exposure, but some people may still want to hold it. 

The other reason is you might want to sell it on Saturday and you can't sell BITB on Saturday. It only trades during the market. So, what I expect to see is more people buying ETFs and more people buying Bitcoin directly and holding it. I think you're going to see both activities grow.  

Ric Edelman: I think the argument for cold wallets was more applicable prior to the ETF. 

And I think they're more applicable for, underdeveloped nations where governments are less stable, economies are less stable, and they want more protection, more of the store of value kind of approach. I think we Americans can be kind of lazy and sloppy about it because we fundamentally have a pretty good economy and good financial system. 

Matt Hougan: I think that's right, but it is an incredible stack of services, right? The fund is being audited by KPMG, the Administrator's Bank of New York. You're getting the largest institutional custodian. You're getting access to institutional pricing when you're buying and selling Bitcoin. It's a real value.  

Ric Edelman: And I was surprised, the pricing is worth noting. I was really, another one of my predictions was wrong. I thought that the pricing of these ETFs were going to come in at around 70 to 80 basis points. Because it's a more expensive asset to trade, and custody than an ordinary stock fund. And the price war hit. So now we're in the 20s for most of the case. 

And you, you folks work really hard to get down to 20. It's gotten to the point now where it's cheaper to buy Bitcoin through these ETFs than to do it at Coinbase. Um, I never would have predicted that.  

Matt Hougan: I agree. The prices are low. Although that's true in other ETFs. It's cheaper to buy an emerging market ETF than it is to go source emerging market stocks and pile your own basket. 

ETFs are a beautiful technology that bring institutional pricing to every investor.  

Ric Edelman: And by the way, I'm not sure if you're familiar with Matt's background. He, before moving to crypto, was, one of the creators of ETF.com, he was the CTO there and ran along with Don inside ETFs. Don was the COO working with Matt for 20 years. So he brings his ETF capabilities and experience to this conversation. So the marriage of the two technologies is kind of amazing. 

Matt Hougan: That is exactly right. The other thing I'd say about the low cost and it is beautiful to see my high school friends and college friends come together in ETFs and crypto. The other thing I say about the cost is, you know, people ask me, how can you build a business on 20 basis points? Well, I think this is a 20 billion dollar product. Right? I don't think it's a 1 billion or 2 billion dollar product. So if you, if you scale the opportunity, then the pricing makes a lot of sense and I think that's where we're going.  

Ric Edelman: And you did that by waiving the fee in the first place, for the first billion, figuring it'll be a year before we start collecting any revenue, and it took a month.  

Matt Hougan: It took a month, yeah. So, we're very excited. Yeah.  

Audience Member: Yes, I wanted to know how you decide what to sell to add Bitcoin. 

Ric Edelman: JD, to allocate to Bitcoin, or what did you take out of the portfolio or what allocation did you lower?  

JD Gonzalez: So we have about 60, 70 percent of the portfolio in our core and we have a sector allocations for the remaining percentage. One of those sleeves was disruptive technologies. So this fit very nicely into that sleeve. We didn't find it very difficult to figure out, you know, what part of the portfolio do I have to sell off to make this fit? We already had kind of a very forward-looking allocation in the portfolio and this fit very nicely into it.  

Audience Member: So Jose mentioned earlier, BITW, which is a tool for diversification, that has done, or has kept up as well with the Bitcoin ETFs since they've come out. Yet, it's selling at a substantial discount to the value of its underlying assets. I was wondering if you could discuss whether you see any catalysts that would close that gap. 

Matt Hougan: Yeah, absolutely. BITW is our flagship product. It's the Bitwise 10 Crypto Index Fund. We've been running it for seven years. It trades as an OTCQX Traded Trust, which means it trades like a closed-end fund, and currently it's trading at discounts. Previously it's traded at premiums. We don't control those premiums or discounts. When I think about what factors could cause the discount to reduce, I think there are probably three. One, we've committed to converting that to an ETF as soon as the SEC will allow. Now, we don't know when that will be and we can't guarantee that it will occur, but we're building an ETF business and that's our intent. And that would cause the discount to effectively go to zero if and when it occurs. The second thing is we're talking about BITW every day with an increasing number of advisors that we know because of the interest in the Bitcoin ETF. So it's, as I mentioned, our flagship product, I'm very proud of it. It has the majority of my crypto wealth invested in it. And the third thing is, historically what happens in the crypto market is, Bitcoin rallies first, and then we get a rotation into alternative assets, alternative coins, Ethereum, and further down the chain. And that is the environment where an index-based approach starts to shine. It doesn't shine as much when Bitcoin is leading the market, right? Because why would you want diversification? You can just have Bitcoin. But it tends to shine when those other assets, when people realize those other assets are important. And if we enter that sort of alt cycle, we would also expect increased demand, but you know, make no mistake, we wake up every day thinking about BITW.  

Ric Edelman: So JD, you own BITW. Are you keeping it? Are you moving the assets to BITB? What's your viewpoint on it?  

JD Gonzalez: Already did. We already moved out of BITW and into BITB. We're not trying to time things, but because of this very nascent and exciting ETF launch, there's a lot of institutional money that has yet to be approved to be able to even go near this. We want to be there for that. So, a little bit of concentration coming from a top 10 index. But we did move out of BITW.  

Ric Edelman: My view's a little bit different. I own BITW, have for a long time, have not sold it. I also own BITB along with several of the other new ETFs. And my view, like Matt's, is that I think what we're going to discover is that advisors who are relatively new to this, certainly new to the implementation of crypto, are using the ETFs as a wonderfully accessible and convenient low-cost way to begin their journey down that rabbit hole. But they'll relatively soon begin to realize all they did was give their clients Bitcoin. And that's not a diversified position. And they will then seek a diversification opportunity. There aren't many of them. That's BITW is the oldest and I think the best outlet for that. So I do think to your point, you're gonna have a vast new audience of interest, which will likely aid in the premium discount situation. So, I think that does make sense. Other questions? 

Audience Member: Ric, thanks. It's been a fantastic panel, fantastic event. This is a little self-serving question for Matt and Ric as well, and then JD, because there's a conference taking place tomorrow, which is female-based, although there'll be men there – what is the differentiation between male and female investors, and then advisors, who look at Bitcoin? Because men tend to be a little bit more aggressive.  

Ric Edelman: Garrett's referring to the Invest in Women conference, which comes up following this. We've partnered together to get these two conferences side by side, so you didn't have to travel twice. And just in case you didn't know, the Invest in Women conference is not a women-only conference. It's a conference focusing on serving women as clients, as well as recruiting women into the business. It is not an event only for women to attend. So just FYI.  

Audience Member: I appreciate that. Very well said. So yeah, the question just is the differential, will you maybe Ric and with Matt or others look at the male, female perception of Bitcoin and crypto at some point to do a study? 

Ric Edelman: So, the research that we've done and the research we've seen from others is that women are lagging in crypto adoption. It's improving. A few years ago, less than 10 percent of women, if you look at the total universe of Bitcoin owners in America, less than 10 percent of them were women. Today that number is increasing, it's about a third of Bitcoin owners are women today, so it is increasing at a nice clip, but women are still in the minority. Also, for further demographics, although we all obviously refer to Bitcoin as a younger person's asset, that isn't necessarily proving true. The average age now is in the 30s and 40s, and 70 percent of crypto owners in America have college degrees. So it is, clearly a higher educated and more affluent likelihood that if you own it, you're in those strata, but, women are still a minority.  

Matt Hougan: Yeah, I think that's right. Particularly amongst retail investors. It's maybe a little bit less true amongst the advisor or professional investor community in my experience, but it's an unfortunate fact and one the industry needs to address.  

Ric Edelman: What's been your experience, JD, in your practice?  

JD Gonzalez: With clients, just echoing what you guys have said, it's definitely been more, male type conversations, but we do have plenty of young female clients who have exposure to the space and have been holding the asset for a long time. 

Ric Edelman: Do any of us care to try to speculate as to why this might be? Why women have been less likely to buy Bitcoin historically? Without running into the trap of making sexist comments.  

Matt Hougan: Observationally, the crypto industry started as predominantly male. And still is unfortunately biased in that direction. And I think that may have had an impact.  

Ric Edelman: The only reason I can think - and that's a good theory, that it's just the tech bro nonsense of the early days of crypto. The only theory that I can think that comes to mind is that women are more thoughtful, pragmatic investors. And when I say less risk averse, I don't mean that in a pejorative sense. I mean in a more positive sense. We know that women are better investors than men. All this data tells us this, that women make more money than men do in their investments because they trade less. And we know the more you trade, the more transaction costs you incur, and the more market timing you engage in, and the lousier your results. Women are more patient, and by being less risk averse, they're less likely to play a market timing game. And their results are better. And when you look at crypto, certainly in the older days of, what is this? And is it a fad? Is it a fraud? Is it real? Does it make sense? Women were likelier than men, I think, to say, let me watch for a while before I do this. And that's the only reason I can think of. And while that may have been a disservice, because who would have guessed the incredible performance of Bitcoin over the last decade, and they missed out on that more than men did, I think it'll likely serve them better in the future because once women do engage, they will engage in a more mature, responsible, effective way than some of the men may. So if there's sexism there, it's anti-man. So, let me ask you, Matt, we've only got a moment or two left, but I'd love to have you always talk about this when we speak frequently in our webinars and podcasts and on stage. But it is, I think, still remaining to be the most important conversation. Because the excitement about Bitcoin today has been the incredible run up. The crypto winter's over, Bitcoin's up 60 percent year to date, and the development of the ETFs, they're up 40 percent plus. It's all about the price, it's all about the hodling, it's all about the investment opportunity. But we sometimes forget, at the end of the day, this is a fundamental technological innovation that has incredible business benefit. Talk about the use cases, the whole reason why there's a there-there.  

Matt Hougan: Yeah. Broadly speaking, crypto, public blockchains bring finance into the internet age. One application is having an asset you can store yourself that's not exposed to fiat degradation, which in a time when the US is printing $2 trillion annual deficits is appealing. But there are many other applications. I'll give you just one that's really easy to understand, which is stablecoins. Stablecoins get discussed. Stablecoins are digital representations of a dollar that can be traded on a blockchain, and they get discussed as a trading tool. But here are two other ways to think of it. Today, anyone around the world can open effectively a US bank account with their cell phone instantaneously, and access stablecoins. And if you don't think that's valuable, talk to somebody in Egypt that just had their currency devalued by 40%, or talk to somebody in Argentina. US bank accounts in every pocket around the world is enabled by blockchains like Ethereum and Solana, and it's happening now. That's 140  billion dollar market. I think it'll be a ten trillion dollar market. And you also have large institutions like PayPal taking that and reinventing payments. Because you can do payments more efficiently here in the US. That's not crypto in a traditional sense. But it's enabled by public blockchains like Ethereum and Solana. Without that, you wouldn't have a US bank account one click away in sub Saharan Africa, but now you do. And I think that's a very real innovation.  

Ric Edelman: One of the most fun statistics I like to talk about is Nike and the revenue they're generating out of their NFT activity.  

Matt Hougan: That's right. $200 million in revenue at 90 percent gross margins or 95 percent gross margins last year selling digital sneakers, which may sound goofy to people, but, $200 million doesn’t sound goofy. And I'd also add that people spend much of their lives online. And for many digital natives, showing off online is more important than showing off offline.  

Ric Edelman: You can even have your avatar wear these sneakers when you're playing a video game.  

Matt Hougan: That's right. And you can port them into video games and you can design the sneakers and then you could sell your designs. So you can be a Nike shoe designer today and create digital sneakers that you wear in games that millions of people use and then sell those shoes to other people. And that's open sourced. Anyone can do that. Try doing that with physical shoes. Walk into Nike's factory and get them to build you your own shoe that you can sell. You're not going to do it. But once you have a blockchain, you can do that in all digital worlds instantaneously. And it's $200 million. And if you're running a Nike competitor, and you're looking at Nike that just poofed $200 million in profits out of thin air last year, do you think you're going to do the same thing? Do you think you're going to have Ric's socks online in various video games tomorrow? Of course you are. And that's just one application. That could be tens of billions of dollars in fashion revenue within two years selling to young, affluent, digitally native people. That's going to be very attractive. And that's just another use case. I could go on for like ten of these examples of building ten billion, hundred billion dollar opportunities with this new technology that takes finance and money and property rights and puts them natively online, and we're just starting to see that. This is the last year. 

Ric Edelman: If you want to play blackjack in a casino, you've got to convert your dollars into casino chips to play. If you want to play in crypto, you have to convert your dollars into the native tokens, and it's called Bitcoin. And that's why fundamentally this isn't something any of us can ignore any longer. You'll improve your portfolios, your client relationships, and your practice. Matt Hogan and JD Gonzalez, thanks so much. 

Ric Edelman: Have you been thinking about buying Bitcoin? I’ll bet you have. With the introduction of the new spot Bitcoin ETFs. Everybody's talking about them. They represent the most exciting new product innovation and investment management in years. But before you even think about investing, you need to know all about them and what they all mean for your portfolio and your financial future. To help you, I've created two toolkits to give you the information you need. One for financial advisors, another one for investors. Both are available to you to read and download for free. Both toolkits include a simple one-page chart that lets you easily and quickly compare all the different ETFs, so you can see how they differ. Plus, I've got videos for you, a cool infographic, plus the full schedule of my webinars and podcasts that you can watch and hear about these new spot Bitcoin ETFs. And all of it's free. And here are the links to both of them, the Advisor Toolkit and the Investor Toolkit. 

Ric Edelman: On Monday's show, I'm going to answer some of the questions you've sent me to Ask Ric at thetruthAYF.com. 

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Links from today's show: 

Creating Food from Thin Air (4/4/24 Episode): https://www.thetayf.com/blogs/this-weeks-stories/creating-food-from-thin-air  

Wealth Management Convergence: https://www.thetayf.com/pages/convergence  

Bitcoin ETFs Toolkits: https://dacfp.com/toolkit/  

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