Tech

The CIO of a $1 billion crypto index fund that’s returned 354% over the past year shares 2 reasons why he’s ‘extraordinarily bullish’ on ethereum — and explains his outlook for rival tokens Cardano and Solana

  • Matt Hougan is the investing chief of $1.5 billion crypto asset manager Bitwise.
  • Hougan lays out why he’s “extraordinarily bullish” on ethereum.
  • He also shares his views on rival tokens Solana (SOL) and Cardano (ADA).

In July, Matt Hougan, the chief investment officer of the $1.5 billion crypto asset manager Bitwise, hailed ethereum as the “crypto asset of the summer.”

In an investment letter, Hougan laid out the case for why the Ethereum’s London hard fork upgrade, called EIP-1559, would be “one of the biggest crypto stories of this year.”

It’s looking like he’s right.

Following the much awaited upgrade that took place on August 5, the price of ether (ETH) is soaring. Ethereum’s native token has surged 15% in the last two and a half weeks. And year-to-date, it has outperformed bitcoin (BTC), returning 345% compared to bitcoin’s 68%.

The upgrade makes ether a deflationary asset as a certain percentage of tokens will be pulled out of circulation through the “burning” of fees. The code changes also mean the network should now be more efficient, and that transaction fees should be cheaper and more predictable.

“I’m more bullish now [on ethereum] than I was when I wrote that piece,” Hougan said about his outlook following the upgrade.

Bitwise’s top-performing fund is the single entity fund tracking ether’s price, and it has returned 701% to investors in the past year. In comparison, the firm’s flagship fund, which provides exposure to the 10 most highly valued crypto assets, has over $1 billion in assets and returned 354% in the past year.

The firm’s total assets under management of $1.5 billion is more than double where it was less than six months ago and has been driven by the acceleration of professional investors trying to gain exposure to crypto.

Hougan doesn’t expect a slowdown in interest for crypto and, in particular, for ethereum.

“I’m extraordinarily bullish for [ethereum],” said Hougan, outlining two reasons.

2 reasons he’s bullish on ethereum

1) The amount of ether being burned

“The amount of ether being burned through EIP-1559 is higher than I expected. It’s really been significant, it’s about a third of all new ether being created,” Hougan said. “I thought it would be about a quarter, or at least the industry estimates put it at about a quarter, and it’s higher than that. It’s having a bigger impact on new supply than I expected and therefore, I would imagine, a bigger impact on price.”

 2) Blockchain use-case boom

“We’ve just seen the use of the ethereum blockchain surging so much with the NFTs and the continued boom in DeFi,” Hougan said. “I think that the hard fork was amazingly successful. I think it’s a real innovation and I think we’re just starting to feel the impact on ethereum.”

The boom in DeFi contributed to Bitwise launching a DeFi index fund as well as single entity funds tracking two of the largest DeFi tokens, AAVE (AAVE) and Uniswap (UNI).

Hougan believes those two protocols are appealing to professional investors because they are easy to model based on the traditional financial world as Uniswap is a decentralized crypto exchange and AAVE is a decentralized prime broker.

“[Professional investors] have seen new technologies disrupt old industries before and I think they expect to see that again in DeFi,” Hougan said.

Ethereum killers

In Hougan’s July investment letter, he outlined how the improvement to the user experience from the upgrade “will help ethereum compete with the rising number of so-called ‘Ethereum killers’ — blockchains like Cardano and Solana.”

But despite the Ethereum upgrade, momentum is still building around the challengers Solana (SOL) and Cardano (ADA). Solana’s price has risen 92% in two weeks whereas Cardano has surged 102% and surpassed Binance Coin as the third-largest crypto by market cap.

Is Hougan worried about the challengers?

“If you can believe it, I’m also bullish on Solana,” Hougan said.

It’s hard to forecast how the layer-one blockchain space will play out, Hougan said. He can envision a world where everything is on ethereum but he can also envision a world where the applications and activity could be on various layer-one protocols.

“I think the message over the last year is that the demand for these protocols and the potential applications is growing exponentially,” Hougan said. “And so you’re seeing these secondary protocols like Solana gain traction and start to get real developer activity and start to get real DApp activity as an alternative to ethereum, and I’m super excited that it exists.

“If you made me guess, I think the race is ethereum’s to lose, and chances are it will be the dominant platform. That doesn’t mean there won’t be space for others and I certainly don’t have 100% conviction about it.”

Cardano, on the other hand, is more divisive. This is because Cardano is more centralized and has figurehead leadership, which goes against some of the core principles of decentralized cryptocurrencies.

The asset is yet to gain the same developer activity and smart contract capabilities as Solana. But that doesn’t mean investors should rule it out, Hougan said.

“It’s hard to forecast exactly how a space growing this fast will develop and there are worlds where I can imagine centralization and charismatic leadership as a competitive advantage, maybe allowing you to upgrade the technology faster, maybe allowing you to adjust to market conditions faster,” Hougan said. “I don’t think that’s the base case but I don’t think you can dismiss it out of hand as a point of competitive differentiation.”

The uncertainty around how the crypto market will play out is one of the reasons why Hougan loves index-based strategies because it provides more diversified exposure rather than trying to guess what assets and technologies will be successful.

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