Hunter, thank you so much for being here with us today. And joining us in this interview, we also have Valentina. Valentina, thank you. You're representing Diaman today. Okay. So I would like to start with the first question for Hunter by saying that ETFs on digital assets are a big thing right now, particularly because they allow opening this kind of market to different types of investors and new types of investors. So I would like to ask you, in particular, spot Bitcoin ETFs have simplified access, but does easier access automatically mean also better investing?
Well, I think, and it's great to be with you all. I think that one of the important things that ETFs do contribute to in terms of better investing is it allows people to use accounts that they trust. It allows them to work with a private banker or a wealth manager who can guide them on their journey. I think in the past 15 years of investing in crypto, people had to go it alone. They had to Google and look for an exchange or an app and they weren't sure if it was safe, but it was their only choice. And one of the powerful things again that ETFs enable, in addition to the fact that they're very professionally managed products, is that they can now access the opportunity set but do it from the venues, the brokers that they trust, or with the adviser that they trust for the rest of their investing activities. And I think that's an important part looking ahead of the space continuing to mature and be an asset class that more and more people feel is an addressable opportunity for them.
Okay. Do you think there's the need of some kind of discipline in allocation in order to not risk ETFs to become just another trading vehicle?
Sure. Absolutely. I mean, it depends on the investor and I don't think that there's any single asset that makes sense in the same way for every single investor. We for instance might disagree on whether you want to own Apple stock right now. So it's not the nature of markets that everyone agrees or has the same view or that the same investment opportunity makes sense universally. I think in general investors will do better if they can access the wealth manager, the private banker that advises them on what to do. And I think what we're seeing now, Bitwise serves four of the largest banks in the world, another 15 or 20 banks. I think in general what we're seeing is that for many investors they're sizing their allocation to the space two to five percent, so as a smaller size than maybe some of the earlier adopters who are more passionate about seeing the emergence of something so rare than the way they sized it, which has generally been higher. So I do think it's different for different investors. But the beauty of course is that every investor can decide what suits their objectives.
Absolutely. Sure. Absolutely. And I would like to talk with you about the portfolio construction. So from your data, how does a small Bitcoin allocation impact on a traditional 60/40 portfolio?
It's incredible. It's incredible if you invest in Bitcoin and hold it. So let's talk about the duration for a second. If you hold it for three years or more, it has never done anything other than contribute positively to a portfolio. So I think the first thing that's sort of counterintuitive, a lot of people investing in the crypto space check the price every day. They read news every month as if they should be deciding whether to sell it or buy it, etc. But the reality is that the analysis suggests that you should buy it and then you should not think about it for three years. And for the last 10 years, it's not easy. It's a yes, simple but hard. But for the last 10 years, if you just did that, then you would have had a positive return on your investment. And then of course there's the matter of sizing. And the analysis suggests, Andre Dragos, our head of research, has a great piece on looking at contribution to portfolio construction and sizing between four to six percent is, if you want to maximize Sharpe ratio, which is risk-adjusted return, then you would size it closer to six percent and that's what the analysis would suggest.
But is the key benefit diversification? And if so, shouldn't that push investors towards systematic allocation rather than timing entries?
I think it's always a benefit to investors to dollar cost average and build a position over a period of time. Of course, everyone has many things going on in their life and so sometimes it's just not practical or they're too busy. They don't want to approach it that way. But there's always a benefit if investors do that relative to a systematic sort of management of the exposure. You know, I just shared with you the analysis. And again there's this piece that investors can access but in the crypto space certainly there's some professional quantitative investors and portfolio managers but for most people doing less is more and having the sort of discipline to resist the temptation to trade a highly volatile asset will serve most investors. Of course there are professional traders who are able to...
We're all smiling. I think we are all together agreed with you. I want to have, because we are here at Quant of course and we have an important professor, Paul Wilmott, and he says that you shouldn't look at your portfolio more than two times per year. So if you are a good investor...
I think it's quite impossible by the way.
If you want to be a good investor you shouldn't look at your portfolio more than two times per year. So I think it's great, you should buy and let it go, you know, and forget about it.
Exactly. Not always but for a little bit of time.
So I want to ask you because crypto cycles were driven for years by retail investors. Now the narrative has changed a bit, also thanks to your products for example. But it seems like people lost interest in the altcoin market. They are more focused on other types of products. And in the US for example you have like Polymarket and prediction markets. What's your opinion about it?
About altcoins, prediction markets?
No, about prediction markets and the situation behind it.
Incredible. I mean, I think prediction markets are absolutely incredible. I don't know if you've spent time looking at them, but they give you some visibility into what's going to happen in the future. And I'll give you an example. In October of last year, we had filings for certain ETFs in the US. And we have ETPs in Europe, we have ETFs in the US. We serve investors globally, but we had filings for ETFs in the US. And to launch a filing, the regulator, the SEC, needs to review and give you feedback. In October of last year, there was discussion that the US government may shut down. If it shuts down, then they're not giving you feedback. So, we were very interested to know, okay, we've seen some articles, but what are the odds that the government shuts down? Well, the prediction markets put odds on it. And so we watched those odds and based on that as well as some other things we decided to change course on our approach to a product with the view that the government shutting down was quite likely and ultimately doing that enabled us to see the alternative path sooner than others and launch a product before anyone else. So I think that there is real value in having a sense of what might happen in the future. It could be, you know, planning something, a trip in your personal life. It could be running your business or thinking through your investments. But I think that's an amazing new asset. I think it's all the more powerful in this day and age. Right now we have the intersection of social media and increasingly AI. And I would say that many people feel overwhelmed with all of the commentary and information and opinions and they really don't know what to think or what to expect. And so I think amidst that the clarity that prediction markets drive is quite useful signal amongst the noise so to speak. So I think it's fantastic. I think it's a train that won't be stopped. It's here to stay and in fact it's growing quite robustly. Relative to zooming out, altcoins, and I think in general Bitwise has been around for eight years. Which is a long time in crypto. We manage about $15 billion for clients. We serve banks. We serve hedge funds, family offices, sovereigns, endowments, lots of different clients. For many years, the challenge in investing in the space was, is this a tulip bubble? That was in 2017 the conversation. Is this a Dutch tulip bubble? We don't get that as much anymore, but that was a question. Is this a flash in the pan? Then there was a question about how do we securely hold these things because these are bearer instruments. Then for quite a period of time there's a question of will this be killed through regulation. And now that's gone away. And I would say that now the barrier for many investors to the space is just that they're busy. They have dinner with the family. They're going on a vacation. They have clients. They have a performance or they want to make the bonus. They have to figure out what to do about equities and fixed income and credit and venture and all sorts of things. And then they have crypto on the to-do list. But it's just one of a number of things. So I think that discussions like you do help people gain clarity through what is otherwise a busy set of things to consider and I think that is very important and it's very important to things like altcoins, you know, if it's going to take somebody 60 hours to figure out if they want to invest in Solana they probably don't have 60 hours.
Probably. You launched a big product, the Solana ETF.
Yes, it's the largest Solana ETF in the world.
So, we spoke about the average allocation of Bitcoin in a portfolio. So, you talked about six percent, five percent, something like that. Zooming out from Bitcoin and talking again about altcoins, what do you think should be the percentage in a mature digital asset portfolio?
