Bitwise President Teddy Fusaro Discusses The Dynamics of Bitcoin Exchange Traded Funds (ETFs)

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Full-text transcript of David Berlind's Interview with Teddy Fusaro, President of Bitwise Asset Management

David Berlind: Today is March 11th, 2024. I'm David Berlind. This is the Blockchain Journal podcast coming to you from a special Boston Blockchain Association event here in Boston, Massachusetts, at the US Federal Reserve of Boston, and standing with me is Teddy Fusaro. He is the president of Bitwise. Teddy, you are a panelist today. Thanks for joining me on the Blockchain Journal podcast.

Teddy Fusaro: It's great to be with you. Thank you.

Berlind: Yeah, you're welcome. Thank you for being here. And so, you were a part of a very interesting panel because a lot of the conversation was zeroing in on what's going on with ETFs and all of that. But I want to back up and just find out what is Bitwise?

Fusaro: Sure. Bitwise is an asset management company that's entirely focused on cryptocurrencies and managing investment products for professional investors in this asset class.

We have about 20 financial products that are primarily geared towards investment professionals. The most recent of which has garnered headlines recently is the Bitwise Bitcoin ETF, [it] trades on The New York Stock Exchange Arca (NYSE Arca) under the ticker symbol BITB. It's been since it launched in January, it's been very popular and that's what we were talking about today.

Berlind: For those of us in our audience who don't know what an ETF is, let's start there. What is an ETF?

Fusaro: Sure, absolutely. So, an exchange-traded fund is, that's what ETF is short for. It's a pooled investment vehicle, much like a mutual fund, where the individual shares are traded publicly on a stock exchange, very much like a stock. It allows investors, through their brokerage account, to access professional investment strategies, and they can be traded throughout the trading day, and you can hold them in a brokerage account like any other stock.

Berlind: Just like a stock. So... But you guys run the actual ETF fund and there's some other panelists, like Fidelity, that were on your panel. Those are the guys who do the trading on behalf of their customers or something like that?

Fusaro: So, Fidelity manages a competing Bitcoin ETF, iShares manages a competing Bitcoin ETF, and there are a number of others. In January, there were a total of 11 filers who were, at long last, after a very long saga. We had first filed for the Bitwise Bitcoin ETF in 2018. So after a long saga, a long process with the Securities and Exchange Commission, these issuers were finally allowed to launch Bitcoin ETFs in January of this year. And so there's been a cohort group of filers of issuers who have brought Bitcoin ETFs to market. And when you add up the flows of those 11 ETFs that came to market, it's been the most successful ETF launch of all time in terms of asset gathering over the first two months.

Berlind: That's terrific. Now, you said there were 11 at the beginning. Is it more than that now? I think like 20?

Fusaro: There's... No, no. In specific, Bitcoin ETF exposure in the United States. That's the group.

Berlind: Okay, that's the group. What's going to happen with other cryptocurrencies? I heard a little bit of discussion about ETH.

Fusaro: Yeah, so Ethereum is the big one. There's a decision coming up that the SEC will have to rule on by the end of May as to whether or not to allow a spot Ethereum ETF. And when I say spot, what I mean is the way that these new Bitcoin ETFs work is they actually invest in the underlying commodity itself. They take the Bitcoin, [it] gets held in a third-party custodian. What has been allowed until now have been derivative-based ETFs. And so when I say that the approval is pending for an Ether spot ETF, it's the same style. And we expect to have an answer on that within the next couple of months.

Berlind: So, are you a custodian as well?

Fusaro: We're not a custodian. [The] best practice here is to use a third-party with an institutional-grade custody setup.

We use Coinbase Custody Trust Company LLC, which is the separate custodial entity that Coinbase has to offer their services. They're the most widely used of the custodians in the Bitcoin ETF space right now.

Berlind: You mentioned that it's for professional investors. Is that different from what I am? Or, what's a professional...? What's the definition of that? Professional gambler? (laughter)

Fusaro: It's a good question. I think of professional investors when I think about our marketing strategy and our sales strategy. What I mean by that is when we go out as a firm, when we want to educate, when we want to talk to the masses, we try to go to registered investment advisors, broker-dealers who advise the mass affluent. We want to talk to them about how they're investing, their clients' portfolios. And we want to educate them on Bitcoin, on crypto, and on what's available in the marketplace for their clients' portfolios. That said, exchange-traded funds are a very democratic product because they're available through brokerage accounts to individuals like me and you.

So, if you log into your Fidelity or your Schwab account, you punch in the ticker BITB, [and] you'll be able to access the Bitwise Bitcoin ETF yourself. So even though we're geared towards the financial professional market, a lot of these products – ETF specifically – they're accessible to retail investors as well.

Berlind: Why would I invest in BITB versus the one you spoke of from Fidelity versus the other nine?

Fusaro: It's an important question. I think that a lot of it has to do with what's important to you as an investor. A thing that resonates with our investors with the Bitwise investors is that we're a crypto-native crypto-focused firm. All we do is work on crypto. We're a 65-person team at Bitwise Asset Management. We wake up every day [and] we read about crypto, we write about crypto, we talk about crypto, we invest in crypto, [and] we educate about crypto. A lot of other firms in the space, they're into crypto as a part of their business, which is fine. We love the competition. We love the larger firms. being here. But, I think one of the reasons that people choose Bitwise, what we hear from our clients, is because this is all that we do and it's what we specialize in. We're really a specialist in this space.

Berlind: But at the end of the day, is the value different from not this overlaying value of education and thought leadership, but can I make more money on one ETF than another? Or are they all pretty much valued the same because they're tied to the underlying asset, which is Bitcoin?

Fusaro: They're structured in a very similar manner when taken all together. What the ETFs do is a... is a very simple thing, really. They get the cash in, they take the cash, they go and they buy the Bitcoin, [and] they put the Bitcoin in a third-party custodian. And so if they're managed well – if each of the issues issuers manages those products well – you should be talking about a generally commoditized exposure, which is why we've seen the price come down which I think is good for end users and investors.

Berlind: Of course, if you're like more of a marketing company... It sounds like you're a marketing company as well because you have to go out to those professional investors – the people who represent me as an investor – and the more of them that you can educate – particularly at a time where the headlines are really bad when it comes to cryptocurrency – the more you can say, "Hey, look. It's not so bad. Come in, the water's fine" the more those professional investors will say, "Oh, I like these guys. I'm going to spend my clients' money with Bitwise as opposed to Fidelity or one of these other firms."

Fusaro: I think that's one of the important things about being a specialist, right? When we've been managing this firm through two different bear market cycles. We launched our first fund in 2017, and what happens when you're a specialist in the space is you make that phone call to talk to your clients whether it's raining out, snowing out, or sunny out, we call. When the market's down, we call. When the market's up, we call to educate people on crypto throughout the cycles. If you're a firm that takes an interest in Bitcoin during the bull market, you're probably not going to be that interested in it during the bear market. And that's a thing that we can do that is hard for others to compete on. When it's not in season, it can be hard to stay focused on it, and that's what we do.

Berlind: So, do you have like a lot of data scientists at your offices who are studying every possible bit of data to decide and advise your professional investors? Hey, you know, we've got another winter coming or a fall, or what the season's going to be coming up in the next days, weeks, months?

Fusaro: Not really. What we focus on is educating about how the asset class has performed, what has happened in the space, what that has done hypothetically in a portfolio over time. But focusing on what's going to happen in the future is a little bit more difficult. Instead, we like to say, "Look, we have this asset. It's had this return stream over time that has created diversified returns", particularly in an already diversified portfolio setting, where you have a small allocation to Bitcoin or crypto, can really have a tremendous impact on the risk-adjusted returns of a portfolio. And we want to share that information with professional investors so they can make their own choices. We don't go to them and say, "You need to do X or you need to do Y." We're going to go to them and say, "Look, this is what this asset class has become, and it's on you to make a decision about what's best for your clients."

Berlind: Okay, well, Teddy, thank you very much for joining us here on the Blockchain Journal podcast.

Fusaro: It's been great to be with you. Thank you for having me.

Berlind: We've been speaking with Teddy Fusaro. He is the president of Bitwise. We're here at the Boston Blockchain Association event at the US Federal Reserve in Boston, where there have been a bunch of panel sessions. Teddy's been on one of those panels, and there are going to be more of these this year, so make sure you look up Boston Blockchain Association to come to more of the events like this one.

And if you want more of my interviews or any of the content from Blockchain Journal, go to blockchainjournal.com. Teddy's interview will be up there in full-text transcript, or you can go to our YouTube channel and find all of our videos there. Thanks for joining us.