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Bitwise CIO Matt Hougan Discusses Amended Spot Bitcoin ETF Application

Key Takeaways

Matt Hougan, CIO of Bitwise, provides detailed insights via Twitter on the company’s amended spot Bitcoin ETF application.
Hougan focuses on the need to establish that the CME bitcoin futures market is the leader in price discovery.
The amended application is designed to address each of the SEC’s major objections to spot Bitcoin ETFs.

Matt Hougan’s In-Depth Twitter Commentary

Matt Hougan, the Chief Investment Officer at Bitwise, took to Twitter on September 25, 2023, to offer a comprehensive breakdown of the firm’s amended application for a spot Bitcoin ETF. In a detailed thread, Hougan stated that the amendment aims to “address, point by point, each of the major objections the SEC has raised in prior disapprovals for spot bitcoin ETFs.”

The Imperative of Proof

One of the critical points Hougan emphasized was the necessity of demonstrating that the CME bitcoin futures market is the leading force in price discovery over the spot market. He articulated, “We’re back to needing to prove that the CME bitcoin futures market leads price discovery over the spot market such that it can serve as a ‘regulated market of significant size’ for the purpose of surveillance.”

Academic Literature and Price Discovery

Hougan further delved into the academic aspect, stating that the amended application aims to “clear up the significant confusion around the growing body of academic literature on price discovery in the bitcoin market.” He was unequivocal in asserting that “every well-designed academic study supports the finding that the CME is ‘significant.'”

Regulatory Challenges and Surveillance

Hougan also touched upon the regulatory hurdles that Bitwise and other applicants face. While acknowledging that “surveillance sharing agreements with spot exchanges are positive,” he cautioned that these might “not satisfy the technical regulatory requirements” as stipulated by the SEC.

Bitwise’s Commitment to Research

Hougan used the Twitter thread to highlight Bitwise’s longstanding commitment to original research in their Bitcoin ETF filings. He cited the company’s 2019 research that aimed to uncover fake volume in the spot market and their 2021 white papers that sought to prove the CME futures market’s leading role in price discovery.

The Long Road to Approval

Hougan concluded his thread by reiterating Bitwise’s commitment to making a spot Bitcoin ETF a reality. He mentioned that the company has been working towards this goal for over five years and expressed gratitude towards others who have contributed to the cause.

Bitwise's "Bitwise Is Interesting" Campaign: A Strategic Move in Crypto Advertising

Bitwise Asset Management, renowned as America’s largest crypto index fund manager, has embarked on a novel marketing endeavor with the launch of its “Bitwise Is Interesting” advertising campaign. This strategic move, announced on December 18, 2023, aims to enhance the firm’s reputation as a leading specialist in the rapidly evolving crypto asset class.

The campaign marks a significant step in Bitwise’s marketing strategy, seeking to broaden public awareness about the company’s expertise in cryptocurrency. With an extensive reach across various media platforms, including TV, social, and digital channels, the campaign is set to make a significant impact. Notably, it will feature prominently on major business news networks such as CNBC, Bloomberg, and Fox Business Network. The campaign’s media planning and buying were collaboratively handled by Bitwise and Ptarmigan Media, a financial services media agency.

A striking feature of this campaign is the involvement of actor Jonathan Goldsmith, famed for his role as the “Most Interesting Man in the World” in Dos Equis’ beer advertisements. Goldsmith revives this iconic persona to promote Bitcoin ETFs for Bitwise, a creative twist that promises to resonate with a wide audience. The ad spot, developed and produced in partnership with Studio City, Los Angeles, showcases Goldsmith in an upscale bar setting, a nod to his Dos Equis character, but this time with a focus on Bitcoin and Bitwise.

Bitwise, established in 2017, has a robust six-year track record of investment excellence, industry-leading education, and a comprehensive suite of professional investment products. The firm specializes in a range of investment vehicles, including ETFs, private funds, active solutions, and separately managed account strategies, focusing on bitcoin, Ethereum, DeFi, NFTs, and crypto-focused equity indexes. The team at Bitwise, comprising experts from technology and traditional asset management backgrounds, positions the company as a credible partner for investment professionals and financial institutions venturing into crypto assets.

The campaign’s timing coincides with heightened anticipation for U.S. regulatory approval of a spot bitcoin ETF, expected as early as January 2024. Bitwise stands among several firms awaiting the U.S. Securities and Exchange Commission’s (SEC) approval for launching a spot bitcoin ETF. Despite challenges, including a delayed decision by the SEC in August and subsequent amendments to its application in September, Bitwise remains a prominent player in the crypto ETF market, already offering futures-based products like the Bitwise Bitcoin and Ether Equal Weight Strategy ETF (BTOP) and the Bitwise Bitcoin Strategy Optimum Roll ETF (BITC).

In summary, Bitwise’s “Bitwise Is Interesting” campaign represents a strategic and creative approach to promoting its expertise in the crypto asset class. Leveraging Jonathan Goldsmith’s iconic persona and targeting a wide audience through diverse media channels, Bitwise seeks to solidify its position as a premier specialist in cryptocurrency investment. The campaign is not only a significant marketing move but also reflects the evolving landscape of cryptocurrency and the anticipation of regulatory advancements in the ETF space.

Bitwise Bitcoin ETF (BITB): 0.20% Management Fee, Pledges 10% Profits for Bitcoin Development

The recent launch of the Bitwise Bitcoin ETF (BITB) marks a significant milestone in the integration of cryptocurrency into mainstream financial markets. On January 11, 2024, Bitwise Asset Management, renowned as the largest crypto index fund manager in the United States, commenced trading of its first spot bitcoin ETF, BITB. This event heralds a new chapter in investment options for U.S. investors, offering an accessible route to investing in bitcoin through a regulated, traditional exchange-traded fund (ETF).

The BITB: A Low-Cost Investment Vehicle

One of the most notable features of the BITB is its management fee structure. Initially set at 0.20%, the fee is among the lowest in the current market for spot bitcoin ETFs. Furthermore, in a move to attract investors, Bitwise has decided to reduce the fee to 0% for the first six months for the initial $1 billion in assets under management. This strategic pricing positions BITB competitively, potentially influencing the broader market of cryptocurrency-based ETFs.

Risks and Considerations

As with any investment, there are risks associated with BITB. The fund is nondiversified, meaning it may hold fewer portfolio securities compared to other products. This could lead to higher volatility in the fund’s value. Additionally, being a new fund, it presents a recency risk with limited historical data for investors to consider.

BITB is not registered under the Investment Company Act of 1940 or subject to regulation under the Commodity Exchange Act of 1936. Therefore, shareholders do not have certain protections typically associated with shares in registered investment companies. Moreover, the value of the ETF is closely tied to the price of bitcoin, which is known for its high volatility. Potential investors should carefully evaluate their ability to withstand significant fluctuations in the value of their investment.

The Bitwise Ecosystem

Bitwise Asset Management has been a pioneering force in the crypto investment space. Over the past six years, the company has developed a diverse range of investment products, including the Bitwise 10 Crypto Index Fund (BITW), the Bitwise Ethereum Strategy ETF (AETH), and the Bitwise Web3 ETF (BWEB). Their products cater to a wide range of investors, from financial advisors to family offices and institutional investors, providing comprehensive access to crypto markets.

Furthermore, Bitwise has pledged to allocate 10% of the profits from BITB to support Bitcoin open-source development. This initiative underscores the company’s commitment to the growth and sustainability of the Bitcoin ecosystem.

The Broader Implications

The launch of BITB is a significant development in the broader context of cryptocurrency acceptance in regulated financial markets. It follows a longstanding debate and anticipation around the approval of spot bitcoin ETFs in the United States. BITB’s entry into the market could pave the way for more cryptocurrency-based investment products, offering traditional investors a more familiar and regulated path to investing in digital assets.

Bitwise Explores ETP Offering for Ethereum Layer-2 Networks

Bitwise, a leading name in cryptocurrency asset management, is looking to capitalize on the growth of Ethereum’s layer-2 networks and applications. The firm is contemplating the introduction of an Exchange Traded Product (ETP) that would provide investors with exposure to these cutting-edge technologies.

Matt Hougan, Bitwise’s Chief Investment Officer, has expressed a bullish stance on the potential of Ethereum’s layer-2 solutions. These solutions are designed to increase network scalability and reduce transaction fees, which have been significant hurdles for the main Ethereum blockchain. By moving some of the transactional load off the main Ethereum chain, layer-2 networks such as Optimism, Arbitrum, and zkSync aim to enhance the performance and user experience.

The consideration of an ETP dedicated to Ethereum’s layer-2 networks is indicative of the growing interest in decentralized finance (DeFi) and blockchain scalability solutions. An ETP of this nature would enable a broader investor base to gain exposure to the performance of these networks without the need to engage directly with the underlying technologies.

While the specifics of the ETP, including which layer-2 networks or applications it would target, remain uncertain, Bitwise’s exploration into this space reflects a strategic move. The selection process would likely involve a careful analysis of the various layer-2 solutions’ adoption rates, technological robustness, and potential for growth.

The development of Ethereum’s layer-2 ecosystem has been rapid, with numerous projects launching in recent years. These networks are essential for Ethereum’s long-term success, as they provide the scalability needed for widespread adoption of decentralized applications (dApps). Bitwise’s potential ETP offering could serve as a significant endorsement for Ethereum’s layer-2 networks, signaling confidence from institutional players in the scalability and utility of these solutions.

However, the path to launching such an ETP involves navigating a complex regulatory environment. The Securities and Exchange Commission (SEC) and other regulatory bodies have been cautious in approving cryptocurrency-related investment products, with concerns over market volatility, investor protection, and regulatory oversight.

Despite these challenges, the interest in Ethereum’s layer-2 networks continues to rise, and an ETP could be a game-changer for institutional and retail investors alike. Bitwise’s exploration in this area could pave the way for other asset managers to consider similar offerings, further integrating cryptocurrency into traditional investment portfolios.

As the Ethereum network gears up for its next phase of development with the anticipated upgrades and the increasing prominence of layer-2 solutions, Bitwise’s potential ETP could be at the forefront of a new wave of cryptocurrency investment products. With layer-2 solutions addressing key barriers to blockchain adoption, the future looks promising for both Ethereum’s ecosystem and forward-thinking asset managers like Bitwise.

NYSE Arca Files Proposed Rule Change for Bitwise Ethereum ETF Listing

NYSE Arca, a self-regulatory organization, has submitted a proposed rule change to the Securities and Exchange Commission (SEC) to list and trade shares of the Bitwise Ethereum ETF. The proposed rule change was filed on March 28, 2024, and is now open for public comment.

Under the proposed rule change, the Bitwise Ethereum ETF would be listed under NYSE Arca Rule 8.201-E, which specifically covers Commodity-Based Trust Shares. These shares represent investors’ discrete identifiable and undivided beneficial ownership interest in the commodities deposited into the trust.

The Bitwise Ethereum ETF, operating as a Delaware statutory trust, aims to provide exposure to the value of ether held by the Trust, with its investment objective focused on tracking the performance of ether. The Trust will establish its Net Asset Value (NAV) at the end of each business day based on the CME CF Ether Reference Rate – New York Variant (Pricing Index). The Pricing Index is designed to provide a reference rate for the U.S. dollar price of one ether, using the same methodology as the CME CF Ether Reference Rate.

The Trust’s assets will primarily consist of ether and cash. It will not hold any non-ether crypto assets and has explicitly disclaimed ownership of such assets. Coinbase Custody Trust Company, LLC will act as the Ether Custodian, while Bank of New York Mellon will serve as the Cash Custodian, Administrator, and Transfer Agent for the Trust.

The proposed rule change and the operation of the Bitwise Ethereum ETF are outlined in detail in the filing, which can be accessed on the NYSE Arca website, at the Exchange’s principal office, and in the Commission’s Public Reference Room.

Interested parties and stakeholders are invited to submit comments on the proposed rule change to the SEC. The regulatory body will carefully consider these comments as part of its review process.

In conclusion, NYSE Arca has filed a proposed rule change to list and trade shares of the Bitwise Ethereum ETF, which aims to provide exposure to the value of ether. The Trust will rely on the CME CF Ether Reference Rate to establish its NAV and operate as a Delaware statutory trust with designated custodians for ether and cash holdings. The SEC is now accepting public comments on the proposed rule change.