Matt Hougan, Chief Investment Officer of Bitwise Asset Management, shares his views on how spot bitcoin ETFs have already changed the bitcoin investing landscape, as well as some of the longer-term impacts he thinks could result from their launch. Hougan also details five predictions ahead of bitcoin’s next halving event.
Matt Hougan is Chief Investment Officer at Bitwise Asset Management. A specialist cryptocurrency asset manager, Bitwise also issues the Bitwise Bitcoin ETF [BITB], one of 11 spot bitcoin ETFs that launched in January.
This launch was, in Hougan’s words, “the most successful ETF launch of all time by a significant measure”. Flows into the ETFs totalled approximately $12.5bn during their first three months.
“For context,” Hougan explains, “before these ETFs launched, the most successful year-one launch was the Invesco QQQ Trust ETF [QQQ], which invests in NASDAQ stocks, and brought in $5.3bn in its first year.
“These ETFs did two-and-a-half times that in three months. It’s simply unprecedented. Long-term, I think these could be 1–5% of the US ETF market, which is a $7trn market. So I think this is a multi-hundred billion dollar addressable market in the US alone.”
Inflows and Outflows
According to Hougan, the primary audience for spot bitcoin ETFs, such as BTIB or the Grayscale Bitcoin Trust ETF [GBTC], are financial professionals rather than retail investors.
For financial professionals, he says, the sales cycle is long.
“It’s 6–12 months. You have an initial meeting; they ask you if the government is going to ban bitcoin. You have a second meeting; they ask you how to value bitcoin. You have a third meeting; they ask you about the environmental impact. It’s only the fourth or fifth meeting at which they’re ready to invest.”
Even then, he says, it can take a further 6–18 months for the institutional buyer to build up their exposure. When spot bitcoin ETFs launched in January, the record inflows that followed were, according to Hougan, principally dominated by institutional investors who had “done the work” beforehand.
At present, he says, many other potential investors (such as Morgan Stanley [MS] and Wells Fargo [WFC]) are yet to start their due diligence.
“I think the ETFs soaked up all the prepared demand,” says Hougan. “The cultivated demand is a 6–18-month story.”
Why Institutional Investors Could Shift the Balance
According to Hougan, bitcoin’s effectiveness as a hedge against inflation is its primary appeal to financial advisors.
“These people serve very wealthy individuals,” he says. “They’re not going to spend their way to poverty. The only real long-term challenge to their financial security is significant, persistent or shock inflation.”
He believes that bitcoin is the most effective inflation hedge. Historically, gold has performed this function, but Hougan observes that bitcoin has several advantages over gold, particularly since it can be used to make payments and can be moved around the world straightforwardly.
“I think the ETFs soaked up all the prepared demand. The cultivated demand is a 6–18-month story.”
The institutional investors that spot bitcoin ETFs could attract have another important quality relative to “traditional” bitcoin investors, says Hougan. Professional investors are more likely to manage their bitcoin exposure as part of a broader portfolio.
“When you manage a portfolio of stocks and bonds, one thing that you do, typically, religiously, is you rebalance. So you have a target allocation, maybe it’s 60% stocks, 40% bonds, maybe now it’s 55% stocks, 5%, bitcoin and 40% bonds. If those allocations get stretched, then you rebalance back to them at the end of the quarter or at the end of the year.
“This creates a ‘sell high, buy low’ discipline because if the market rallies, bitcoin will become more than 5% of your portfolio, and you’ll have to sell it. If the market falls, that will become less than 5%, and you’ll have to buy more.”
With more institutional investors adopting this ‘rebalancing discipline’ with their bitcoin holdings, Hougan believes that bitcoin’s volatility will fall over time, since “retail investors often chase price.
“It doesn’t mean bitcoin’s going to be boring, I’m not worried about that. There’s going to be plenty of volatility. But I think on the margin, and increasingly over time, this will constrain the volatility to a reasonable degree.”
Five Bitcoin Predictions
A 50% decline in volatility is, therefore, the first of five predictions Hougan has made about bitcoin prior to the next halving (which will likely occur around April 2028). In a memo to Bitwise clients, Hougan also said that he expects:
- It will become increasingly normal for investors to keep 5% of their portfolio in bitcoin
- Bitcoin ETFs will receive over $200bn in inflows
- Central banks will begin buying up bitcoin
- The price of bitcoin will top $250,000
Target-date portfolios, such as retirement funds and college savings plans, make up a large proportion of US savings. They automatically allocate funds, and Hougan believes that it will become common for these to have allocations to bitcoin of 5% or more within the next four years.
“That automatic allocation and automatic rebalancing — that’s where the money is,” says Hougan.
Meanwhile, given Hougan’s bullishness about spot bitcoin ETF flows over the long term, he feels that $200bn isn’t extreme given the $7trn value of the US ETF market.
“One of the shock events of the last five years was the US seizing the Russian government's holdings of US Treasuries. They had reason to do that. But that sends a message that holdings of international sovereign debt are no longer safe assets for central banks.”
Finally, elaborating on his $250,000 price prediction, Hougan explains that bitcoin’s four-year cycles tend to add another digit to the bitcoin price.
“I think $250,000 is a relatively conservative continuation of the historical pattern,” he says. “There’s no guarantee, but that’s just my gut.”
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