Outlook for Investing in Cryptocurrencies

EMS:

Hi Alyssa. Thank you so much for being with me today.

Alyssa Choo:

Thanks so much for having me, Elana.

EMS:

Absolutely, Alyssa. So, to kick off the conversation, tell us a little about your firm and how you got to where you are today.

AC:

Of course. So, Bitwise was founded in 2017 and is one of the largest crypto index managers in the world. We're a team of roughly 60 professionals that helps thousands of investors understand and access the opportunities in crypto. And I think what's super unique about Bitwise is that we're a specialist firm. We only do crypto asset management indexing and research with a large focus on education for professional investors every step of the way, which I think is super important given crypto is an emerging asset class that's new to most traditional investors. So, prior to Bitwise, I was an equity research analyst at Bank of America Securities where I covered financial stocks. And during my time there, my manager hosted a fireside chat series called FinTech Firesides where we interviewed professionals in the fintech, VC and crypto space to discuss potential disruptors to the traditional banking industry. And this is what really got me interested in crypto and how it could transform our traditional financial payment rails and the financial system by bringing money and property into the internet era. And one day a headhunter reached out to me about an opportunity to cover crypto equities on the Bitwise research team and the rest is history.

EMS:

Love your journey, Alyssa. So given your focus on crypto investing, I would love to hear your high-level outlook for the space.

AC:

For sure. So, I'm really optimistic about the crypto space. Mid-2022 obviously was a tough time for crypto given the sharp pullback in crypto prices as a result of quantitative tightening, which catalyzed a series of negative of events in the crypto space and exposed various risks as well. So, we saw a poorly designed stable coin known as Luna collapse. There was a huge credit crisis that swallowed Celsius, 3AC and Voyager as well as all the fraud that was exposed at FTX. Today, however, it's very different. The crypto market is in a strong position. The macro environment has normalized, and as for the crypto environment, while contentious is a net positive, multiple asset managers received approval for Spot bitcoin ETFs and filed for spot ethereum ETFs as well. The regulatory situation is mixed with some continued negative headlines in the U.S. offset by strong regulatory progress we've seen in Hong Kong, Europe and parts of the Middle East.

I think something that's really interesting about crypto is that it has historically moved in four-year cycles driven by major product breakthroughs, and I think we think that the groundwork is laid to make crypto's fourth cycle the current one its biggest yet. And I really believe that this is the cycle where crypto goes mainstream. This is epitomized by the decision by BlackRock, the world's largest asset manager to file for a swap bitcoin ETF. And obviously it wouldn't do this in our opinion if it did not think that Bitcoin was becoming a mainstream asset. So, in my view, crypto is not going away. Its long-term prospects are better than ever. Still investors who are allocating should be prepared for the possibility of volatility along the way.

EMS:

Great. Alyssa, and as a follow-up, where specifically do you see some of the greatest opportunities in crypto and why?

AC:

For sure. So, there has been strong technical progress on multiple blockchains. Blockchain scaling solutions known as layer 2s are growing quickly and I see a huge opportunity here. Layer 2s are basically secondary frameworks or protocols that are built on top of an existing blockchain system, and the main goal of these protocols is to solve the transaction speed and scaling difficulties that many of these blockchains currently have. An example of this is the Bitcoin Lightning Network, which is a layer 2 protocol designed to enable off-chain bitcoin transactions. And these transactions are not recorded on the blockchain and because of that they require no bitcoin mining. Thus, lightning payments are extremely fast and cheap, and this means that crypto can scale to tens or hundreds of millions of users. Another huge opportunity I see is asset tokenization, which is the use of smart contracts and blockchain technology to represent ownership or rights to an asset as a tradable on-chain token. Though it's commonly known as tokenization of financial or fungible assets such as chairs in a company or a quantity of gold, asset tokenization can refer to the tokenization of anything possessing monetary value. For example, UBS Singapore launched a fund that is structured as a smart contract on ethereum to help UBS Asset Management perform various functions such as processing fund subscriptions and redemptions. So, in general, tokenized assets benefit from permissionless liquidity, open access on-chain transparency and reduce transactional friction compared to traditional. And that's another great opportunity that I'm excited about currently.

EMS:

Great. Alyssa, on the other hand, what are some of the greatest challenges when it comes to the crypto space and why?

AC:

I think there are two main challenges that are somewhat interconnected and that is regulation and what that means for wider adoption of crypto. Of course, the SEC's approval of the spot bitcoin ETF was a huge unlock as investors can now access bitcoin price movements through a regulated means. But we do still have a ways to go. Regulatory clarity is so critical for adoption as it would give builders and investors guidelines on what they can and can't do, and it would usher even more institutional investors into the space. Without these clear regulatory guidelines, we really run the risk of pushing innovation outside of the U.S. where it is already thriving in places like Hong Kong, the Middle East and Europe.

EMS:

Great. Alyssa, to shift gears a bit, being a woman in the crypto space is quite rare and love to hear what you're doing to inspire others.

AC:

Of course. I think what I'm really grateful for is that throughout my career I've always had inspirational and supportive female peers and mentors. Bitwise in particular does a really good job in this arena. Roughly 50% of our employees are women. And yes, both finance and crypto are very much male dominated industries and that's why it's even more important for women to support women in these spaces. I'm a proud Barnard College alum and having attended women's college, I'm very passionate about helping women break into both finance and crypto. I used to help with college recruiting while I was at Bank of America, but now I make an effort to speak to current students or really anyone who's interested and reaches out through LinkedIn. Separately, I'm also part of a few women's networks in the city, which I think is a really great way to meet more like-minded women. And I think it's very normal to experience imposter syndrome. And what I personally do to combat that is to challenge myself and deliberately put myself out there to do things that are a little bit out of my comfort zone, like going on podcasts or speaking at conferences when the opportunities present itself. And I feel like that's really helped my confidence and hopefully encourages other women that they can do the same.

EMS:

Alyssa, we've covered a lot of ground today and wanted to see if there are any final thoughts you'd like to share with us.

AC:

Yeah, so I'd say as for my firm, we're doing all the things that we have in the past, really focusing on helping investors access the opportunities in crypto. Bitwise is the only crypto firm within nationally focused advisor distribution and support team who are on the road actively speaking to prospects and supporting our existing clients as well. And that team is really growing. We pride ourselves on producing high quality educational materials that make crypto easier to understand, which our research team focuses on. And I'm working hard to get the Bitwise name out there by going on podcasts like this one, contributing to news articles, speaking with prospects as well. And yeah, we're ready to take on 2024, full steam ahead.

EMS:

Alyssa, I wanted to thank you so much for sharing your perspective with our listeners.

AC:

Thanks so much for having me, Elana. This was great.

EMS:

And thank you for listening to the EisnerAmper podcast series. Visit eisneramper.com for more information on this and a host of other topics. And join us for our next EisnerAmper podcast when we get down to business.