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Hunter Horsley, CEO and cofounder of Bitwise Asset Management, has been in the crypto space since the summer of 2017 — a relatively lucky time to have gotten into crypto, making Bitwise a “2017 vintage,” in his words.
While Horsley may not have been trading bitcoin since the time of Satoshi, his years in the space during some of crypto’s most volatile highs and lows has given him a far-reaching perspective as he has seen institutional investment sit up, blink its eyes, and take notice of the emerging new asset class.
When and why did you first get involved in crypto?
I bought some bitcoin back in 2013 or 2014, and then completely forgot about it for a number of years. I was working at Instagram and Facebook, and then in 2017, a friend of mine from college, actually from Wharton, pinged myself and Hong (my business partner at Bitwise) and said, “Hey, remember that crypto thing?”
I said, “Gosh, I think I bought some at some point.” He said, well, there are 40 percent spreads in markets. This was maybe in March or February of 2017. And I said, “Huh, that doesn’t sound right.”
We looked into it, and there were these moments that would open up where you would have 20 to 60 percent spreads.
Hong and I started trading those spreads, arbitraging it. That’s not what we do today. But, like many others, I think everyone has some reason they start paying attention. And for us, that was the reason we started paying attention.
Then we met people building public blockchains, we read more about the different technologies, we dealt with the challenges of managing investments.
We thought about why we would root for this thing and a way that we could build something that would contribute to this space, and came out the other side of that with the conviction that we think that this will be one of the most important technology platforms of the next decade or so.
We started Bitwise that summer.
Summer of 2017 is a really lucky time to have started.
I mean, we’re a 2017 vintage.
And now that’s starting to give us seniority for some people in the industry. We saw the bull market of 2017, the bear market of 2018, the sort of upmarket from a returns perspective of 2019.
An important thing that happened in 2017 is, as you recall, that the mainstream world found out about Bitcoin. People knew some things about it previously, but not en masse the way it happened in 2017. That generated the interest that made what we do at Bitwise relevant. We were sort of paying attention at a fortunate moment in time for what we do.
Has your philosophy or belief about cryptocurrency changed at all since 2017, when you first started Bitwise?
When many people encounter crypto, they say that this is a meteor that’s fallen out of space and landed on Earth. It’s bizarre and it’s unprecedented.
But in reality, the longer you are in the space, the more the more you realize this is not very different from when ETFs were first introduced as a successor to mutual funds, when mobile was introduced as a successor to desktop, when the cloud architecture for software delivery was introduced as a successor for on-premise data centers.
Probably the biggest mental shift from 2017 to today to now, three years into it, is that this is not so different from other technology paradigms that were very unfamiliar and their impact was unclear to people when they were first introduced.
In each of these instances, people said, “We don’t need this thing.” Incumbents didn’t immediately move to that platform. The markets started out small. There were concerns about risks.
Just to take ETFs as an example. When ETFs got started around the turn of the century, the following were the objections that people had — it’s a retail only product, institutions don’t need this, institutions use mutual funds, it’s a small market, why would we invest in this market? This is only a few billion, or tens of billions in ETFs, whereas there’s trillions, tens of trillions in mutual funds. People said that regulators are never gonna get comfortable with this, market makers are going to rip off investors.
And sure enough, here we are 10, 15 years north of the 5 trillion in assets and continuing to erode what mutual funds were in the late 90s. And at this point, I would say ETFs are the obvious successor to mutual funds.
If you think about it, what do people say about crypto?
It tends to be a lot of the same things. It’s a small market, why would we pay attention, regulators are never going to be comfortable with this. It’s a retail-only market where institutions and serious organizations don’t need to pay attention. People are getting ripped off by sophisticated actors.
What do you think about the importance of DeFi in the crypto space?
With public blockchains and crypto, there’s two types of things happening.
I want to provide an analogy to YouTube. YouTube allows people to very easily post and distribute video online, and some people use it to distribute conventional video content. Music videos now go on YouTube instead of MTV or broadcast television, talk shows will post a video on YouTube, Saturday Night Live posts their content on YouTube.
Conversely, YouTube enabled some things that never existed before, like vloggers, people sharing journals of their life to very specific niche audiences who relate to that individual.
You have the pre-existing content coming on to this new rail, as well as new content never that never really existed before being put on this platform because the platform democratized and has the ability to do that.
In crypto, we have the same two things. There’s some amount of it which is integrating with the existing systems, and there’s some things you’ve never seen before. I would say that DeFi is in the category of things we’ve never seen before that are uniquely possible because of the attributes of this new platform. Something like a Bitcoin ETF, futures or Fidelity as a custodian — those types of things are more about making it interoperable with existing systems.
I think the ETF is by far one of the biggest steps that can be taken to connect crypto assets with the existing mountain of infrastructure in the world. I think DeFi in some ways is like the vlogger, what we can do that wasn’t possible before based on the attributes of a public blockchains.
What advice would you give to people that want to enter the crypto industry, either investors or a new job? And then more importantly, what advice should they not listen to?
The advice I would give is, do it. Enter the industry
Cambridge University did a report of the industry in 2017, and they estimated something like 1,500 people worked full-time in a crypto.
It’s tiny. It was tiny then, it’s a little bit bigger now. To provide context, Yelp has around 6,000 employees — Yelp is multiple times the size of crypto.
Particularly for people who are early in their careers or are looking for a lot of opportunity, the unique feature that crypto offers is that there’s almost nobody who has more experience than you, because there are very few people who’ve been working in crypto.
You can come into this space, bring your skills, your background, your mindset and get to work. In a year or two, you have a set of experiences that is very rare and that’s unique.
It has happened before. For instance, in 2007, the iPhone came out. It shipped with a programming language called Objective-C, a new programming language. If you wanted to write apps for the iPhone, you had to write Objective-C. But nobody had ever written Objective-C, and the really experienced engineers didn’t want to write this “terrible new language.”
There was a moment where a young person, a young engineer who taught themselves Objective-C, maybe built some things at a hackathon, could be one of the most experienced iOS developers with only two years of iOS development under their belt, and could then get a very high paying job at Facebook, or Google or other tech companies that needed this capability.
Over time, more and more people built that skill set, but there was this period where it was so new that there was nobody who had a decade of experience. There was almost nobody who had five years of experience, there were very few people who had two years of experience. I think that kind of opportunity exists in crypto today.
For somebody who’s interested in crypto, I think it’s a fantastic time to join the space.
Debunk a common myth in cryptocurrency.
We have around 3,000 conversations with traditional investors a month. We meet with regulators. We serve high-level individuals, family offices, financial advisors. Common questions that we get that are misconceptions — number one is people say, “how can you claim that Bitcoin is scarce when people have created hundreds of other coins like Ethereum?”
The point which is obvious to you that has to be made is that Ethereum, Bitcoin, Monero, whatever it might be, are not interchangeable as the same thing, even though they’re all what we might call cryptocurrencies or cryptoassets.
If you create a new cryptocurrency, it’s not interchangeable with an existing one like Bitcoin or Ethereum.
I think a second misconception is — because the way that that the category is referred to as cryptocurrency — people often look for evidence of the use of cryptoassets in scenarios where they would expect to use currency, like purchasing coffee.
And then you use a heuristic, which is “I haven’t seen people purchasing coffee or paying for dinner with these alleged currencies, so they must not be being used.” This is a challenge that crypto has created for itself through its nomenclature, which is referred to itself as a currency.
It’s obviously a misconception because first of all, many of these assets are treated more like commodities. The belief in their value is not predicated on them being used as currencies in some sense.
The second reason is that it’s a mistaken place to put the goal post. There are lots of different ways in which people use money, and point-of-sale interaction is just one of them. Banks use correspondent banking to transfer value between each other. People use wires to change value between countries. People use credit to make large purchases. People use cash to pay for a bag of chips. People use a card, payment processing machine, to pay for coffee.
In the same way that in 2007, when the iPhone came out, the dominant computing platform was desktops and laptops. When the iPhone came out, it didn’t wipe away everything that we did on desktop and laptops. In fact, both of us right now are on a desktop or laptop. We still use desktops and laptops for spreadsheets for PowerPoints, for video calls.
Your iPhone didn’t have to replace everything, it just had to do some things well: it’s great for maps, it’s much better for maps than desktop. People don’t use MapQuest on the web anymore. It’s also great for taking photos. And then we do some things on both, like email.
Similarly, I think one of the big misconceptions in crypto is until we see people using bitcoin to buy coffee, it will not have a compelling use case. That’s an ultimately non-productive lens to use to interpret progress being made in the space.
This interview has been edited and condensed.