Why Ethereum and Bitcoin ETFs can carry Bitcoin to $100K: Bitwise CIO

Despite the recent sell-off in Bitcoin, ETF inflows continue to drive the most talked-about story this year: Bitcoin is growing as an asset class.

More than $15 billion has flowed into Bitcoin ETFs this year, and Ethereum will soon join Bitcoin as the only cryptocurrency with active ETFs in the U.S. Another $3 billion to $5 billion or more is expected to soon flow into funds offered by various issuers.

In a new interview with Coinage, Matt Hougan, Chief Investment Officer of one of these issuers (Bitwise), shared his thoughts on the importance of Ethereum ETFs launching and Bitcoin ETFs accelerating in the second half of 2024. After shaking off the recent excitement, Hougan remains optimistic about the long-term prospects for Bitcoin ETFs.

“Most ETF investors still have 0% exposure to Bitcoin,” he said. “What that tells me is that these investors would need to have more than $1 trillion in this market, even at today’s prices, to normalize that with other stocks, bonds, real estate, commodities, and all the other assets in the world. $15 billion is great, it’s a record, but it’s 1% or 2% of what we need to see in the next three, five, 10 years.”

This early stage suggests significant growth potential as more investors diversify their portfolios with Bitcoin. Hougan predicts that within three years, most ETF investors will have Bitcoin in between 1% and 5% of their portfolio, and the asset will attract large wealth platforms like Morgan Stanley and Wells Fargo, which have yet to meaningfully participate in the market. He sees strong inflows in the second half of 2024 and even larger numbers in 2025, suggesting a long runway for growth.

“Money is like water; it finds a way,” he said, highlighting the interest of big banks to get involved in digital asset custody. While the House of Representatives failed this week to override President Biden’s veto of the SEC accounting rule repeal, some big banks have won permission to work around the rule. Goldman Sachs also plans to launch multiple tokenization projects. The shift likely signals Bitcoin’s transition from a niche, retail-heavy asset to a mainstream institutional asset.

Hougan is equally bullish on the upcoming Ethereum ETFs, which he believes will complement rather than compete with Bitcoin ETFs. He shared an anecdote from the CEO of a consulting platform who expressed his comfort with diversifying into both Bitcoin and Ethereum. This diversification is consistent with traditional investment principles of indexing and diversification, and could potentially accelerate inflows into Bitcoin ETFs.

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“If you look at Europe with Bitcoin and Ethereum ETFs, guess what? They’re both successful,” he said. “If you look at Canada with Bitcoin and Ethereum ETFs, guess what? They’re both successful. If you look at Coinbase, where people can buy Bitcoin and Ethereum, guess what? They’re buying both.”

Looking ahead, Hougan expects significant inflows into Ethereum ETFs when they launch. He projects $15 billion in net inflows in the first 18 months. He cautioned that there could be volatility in the early weeks due to existing holdings in the Grayscale Ethereum Trust, but remains confident in long-term growth.