推出：拐点｜加密资产与传统金融的融合

The most important financial regulator in the world says all assets will move on-chain in the next 5 years. And there are people who are like, “Ah, whatever. DeFi’s dead.” Any rational person looking at that string of facts would say, “Boy, are we accelerating up the curve.” As soon as I used Aave, I knew it was fait accompli that the institutions would eventually come into this space.

We have all these frictions. There are definitely a lot of problems to solve, but we are pretty much on our way to at least having a roadmap for most of them. TradFi people work very hard, but they don’t know what’s coming at them when their assets all start to trade 24/7.

BlackRock has tokenized treasuries. JPMorgan is setting intraday repos on blockchains. Apollo announces a giant partnership with Morpho. Franklin Templeton, Fidelity, Kraken, Coinbase—every major name in finance is building on these rails right now. I believe we are at the most consequential moment, dare I say the inflection point, for institutional crypto since the asset class was born.

Mark Arjun

This is the path to integration and the evolution of financial infrastructure. This is Inflection Point. Everyone, welcome to Inflection Point, a weekly podcast for professionals navigating crypto’s institutional era. Each week, we break down the drivers reshaping digital asset markets. In a space that’s typically dominated by retail narratives, we’re going beyond the price action to analyze the mechanics driving this adoption. Our goal is to deliver the analytical depth of premium research in an accessible format for busy professionals. This is the path to integration and the evolution of financial infrastructure. This is Inflection Point.

I’m Mark Arjun, senior research analyst at Blockworks. I come from an equities background across buy-side, sell-side, and investment banking, but today our focus is on digital assets under institutional adoption. I’m joined by operators and investors at the forefront of institutional crypto. I’ll let each of them introduce themselves, and then we’ll share their perspectives.

Awesome. Wow. Happy to start. Excited for this first episode. Mark, Matt, Michael, I’m really looking forward to the conversations. I’m David Lawant. I’m head of research at Anchorage Digital. Anchorage is one of the leading players in crypto institutional infrastructure, providing services that go all the way from custody to spot trading, derivatives trading, and lending. We’re also home to the first federally chartered crypto bank, and we have a lot of presence on the stablecoin side of things.

Before Anchorage, I used to be head of research at FalconX, which is one of the larger crypto prime brokers and trading desks. Before FalconX, I had the pleasure of working with and being mentored by Matt Hougan at Bitwise. I was head of research there for quite a few years. Before that, I used to work in traditional finance. I used to be a sell-side equities analyst covering traditional equities.

Amazing. I can jump in here. David, it’s great to be back together again. We are welcoming you here despite the fact that your name doesn’t begin with M, so you’re the special one in the group.

I’m Matt Hougan, chief investment officer at Bitwise Asset Management. I’ve been at Bitwise for 8 years. Bitwise manages about $15 billion across ETFs in the U.S. and Europe, staking vaults, SMAs, and other strategies.

I think the 2 unique things that I can bring to the podcast are, first, that I just have a lot of touchpoints with institutional investors. Bitwise does about 15,000 meetings a year with institutions around the world, so I can provide some firsthand knowledge of what they’re saying and thinking about the crypto markets. Second, my own background before Bitwise is in the ETF market. I was the CEO of ETF.com and created the first ETF data, analytics, and rating system in the world. The intersection of crypto and ETFs is a space that I know well. I’m really excited to join the pod.

My name is Michael Marcantonio. Thanks, Matt. Thanks, David. Thanks, Mark. I’m the head of DeFi at Galaxy Digital. Galaxy is a crypto AI, publicly traded financial services company. If that’s a mouthful, we are very focused on the intersection between crypto and AI, and our entire business for most of its history has been predicated on how we bridge crypto to institutional investors and institutions throughout the United States and globally.

My focus at Galaxy is on building out our decentralized finance division. What we focus on primarily is the bleeding edge of technology and the bleeding edge of on-chain—the on-chain primitives that are going to power the entire financial system.

I believe we are at the most consequential moment, dare I say the inflection point, for institutional crypto since the asset class was born. For years, the conversation about institutions and crypto was always theoretical, right? Will they or won’t they? How much should they invest? How much should they allocate? Is it real, or is it a fad? That conversation is over, right?

BlackRock has tokenized treasuries. JPMorgan is setting intraday repos on blockchains. Apollo announces a giant partnership with Morpho. Franklin Templeton, Fidelity, Kraken, Coinbase—every major name in finance is building on these rails right now. They’re not studying them anymore. They’re not piloting them. They’re building in production with real money.

And yet—and this is the part that I think matters the most for our viewers—most of the institutional world still hasn’t fully caught up with what is actually happening on the ground. They see Bitcoin solely as a portfolio allocation decision. They see Ethereum as a speculative asset only. They’re debating whether to put 2% or 5% in digital assets while completely missing that the technology underneath those assets is a generational upgrade to the infrastructure underneath everything they already do: execution, settlement, custody, compliance, and fund administration.

This is what we’re going to talk about. We’re going to bring this to you every week. I’m very excited, and let’s get started, Mark.

Mark Arjun

Lovely. Lovely passion, and thank you, everybody. We have the Triple M and D team here. Let’s get started.

As a first episode, we’re just going to kick it off by asking when each of you realized the convergence between TradFi and crypto was actually happening. When did that light-bulb moment happen for you?

David, kick us off, man.

Oh, yeah, I’m happy to start. I think this TradFi convergence and this idea that institutions are coming has honestly been happening for a long time. Sometimes we think about the institutional market as this monolithic group of investors, but that’s not true, right? We all here know how heterogeneous this group is.

We had some folks who have been engaged with this industry very early, like VC investors. Even some endowments have been engaging with crypto at pretty early stages. But I feel like a few things have changed.

Probably the first moment when this thing started to become very real—and I’m sure Matt can talk a lot about this—is when the spot Bitcoin ETFs launched. Both the preparation for that and then the moments after that, as well as the few years that we have been through since then, have definitely been a watershed moment.

For me specifically, maybe I can speak a little bit to the lens that I bring to this conversation, which is the sell-side lens. I’ve been working for the past many years at prime brokers and trading desks. Maybe one day we can do an episode on what a crypto prime broker is, how prime brokers are different from OTC desks or market makers, why these guys are so heavily used, and how they’re different.

That’s the seat that I’m on. When a company like Bitwise or an institutional manager wants to engage in the market, they’re not going to do the same thing that we do and just open an account on an exchange. They will usually have onboarded as a counterparty to a prime broker or some sort of liquidity provider. So that’s the type of lens that I see. I see a lot of trading action, and I talk to a lot of these guys.

I’m bringing the sell-side lens, and hopefully it complements both the buy-side vision and the DeFi crossover here. Just to put that into context, I’m one of those guys who looks at volumes and order books. I spend a lot of time on derivatives, so I spend a lot of time trying to understand the Bitcoin price-formation process and helping our clients and counterparties navigate this world.

For me, in that realm, the moment it really hit was that TradFi was not only a player, but a player that was probably bringing most of the new capital into this space after the spot Bitcoin ETFs launched. But also, at some point, I think TradFi started to lead in the Bitcoin price-formation process.

For me, that hit in early to mid-2025. People like me, when they look at the market, have a few flagpoles. They look at certain patterns in volumes and certain patterns across exchanges. After Liberation Day, Bitcoin was just trading weirdly. It wasn’t doing the things that it was supposed to do. All the indicators were off.

Then I was talking to a client, actually a VC, and he said, “David, that’s right, but you’re only looking at the Bitcoin spot volume. What if you add the ETFs?” I never bothered to add the ETF volume when looking at Bitcoin price action because ETFs are obviously very large and bring a lot of capital.

But in terms of traded volume, they were like 5% to 10% of Bitcoin spot volume, so they were not very meaningful. I was like, “Yeah, let me do that.” I did that, and then it turned out that spot ETFs were trading 30%, 40%, 50% of the Bitcoin spot volume. And then if you add MicroStrategy, which is a Bitcoin proxy, you’re kind of rivaling that whole volume.

Just a few weeks after that, I was looking at the options market, and then I saw that IBIT options were on their path to overtaking Deribit Bitcoin options, both in terms of open interest and volume. So for me, it was probably about a year ago that I started to see that TradFi was not only a player, but the leading player. Many times, it has actually been dictating what’s going on with the Bitcoin price.

And then, of course, we had all the regulatory unlocks and so much good news flow that I think stands behind a lot of these reasons. That was the exact moment when I was like, “Okay, this is an inflection point. Now TradFi is really, really driving the bus here.”

Mark Arjun

So it started with the ETFs, and then it further deepened after Liberation Day. Matt, I feel like it’s going to be something similar for you?

It’s something similar, although I would point to three moments, one of which was last week, so I can make this even more current. I absolutely agree that the middle moment was the ETFs launching and just being by far and away the most successful launch of all time. They were 6 times bigger than the most successful ETF launch previously. It’s not an outlier. It’s not like a 2-sigma outlier. It’s an absurd thing. That definitely told me that this was going to be a big deal.

As soon as I used Aave, I knew it was fait accompli that the institutions would eventually come into the space. The UX there is such magic that I’ve yet to find someone who I’ve walked through lending into Aave who didn’t just assume everything was going to be DeFi. So there’s a little bit of backstory there.

But I actually agree with what Mike said. For me, almost the tipping point, because I was slow to recognize it, was BlackRock buying UNI tokens and putting a bid on UNI, and Apollo doing the same on Morpho. The reason for that is I think I, like many people in crypto, have a boy-who-cried-wolf syndrome about institutions moving into the DeFi space.

If you step back and look at what’s happening, you have the most important financial regulator in the world saying all assets will move on-chain and announcing Project Crypto. You have the CEO of the largest asset manager in the world saying every stock, bond, and ETF will be tokenized. You have his CFO saying they’re going to tokenize all of their ETFs in the next 3 to 12 months. And now you have the largest credit manager buying 9% of a DeFi protocol.

Any rational person looking at that string of facts would say, “Boy, are we accelerating up the curve.” It’s clear that it’s all going in this direction, and it’s going much faster than we anticipate. But because we’ve heard this “institutions are coming” story so many times and for so long, I think many of us dismissed or didn’t take these items seriously.

The most important financial regulator in the world says all assets will move on-chain in the next 5 years, and there are people who are like, “Ah, whatever. DeFi’s dead,” or, “L1s are dead.” It’s ridiculous. So for me, it was the Apollo and BlackRock UNI and Morpho moment, more than anything else, that said it’s right here, right now. It’s accelerating like AI at that kind of pace, and the world’s going to look completely different in 2 years.

Matt and David gave a little contemporary history. I might want to give a little actual ancient history here, or what seems like ancient history. To understand from my perspective what DeFi truly is, the potential for institutions, and why institutions should care about it, you have to go back to the moment that made it necessary, which was in September 2008.

Lehman collapses. Within days, the entire financial system is in free fall—not because one bank failed, but because the entire system failed, and the institutions at the center had become so interconnected that when one went down, it threatened to drag the entire system with it. Bear Stearns, AIG, Merrill, and Citi were webs of counterparty risks no one fully understood. No one knew who was solvent. No one knew who was holding the toxic assets.

So much so that the Treasury had to capitalize even solvent banks to prevent further contagion. They called this systemic risk: institutions that were so large, so interconnected, and so opaque that failure would take down the whole system. They were also called too big to fail. That’s what we called them.

The lesson we all learned then was that interconnectedness and opacity—the opposite of decentralization and transparency—were the nexus, the prime event that created the absolute collapse of our financial system. In 2008, I was looking at the financial system and trying to figure out what the hell went wrong. We had Dodd-Frank, Basel III, SIFI designations, stress testing, and resolution planning: serious efforts by serious regulators.

All those regulations fell short because the system had gotten so complex that regulators needed the banks. The regulators needed the banks themselves to explain what they were doing. The quants had to walk the examiners through the models. This is actually in Basel III: the banks’ quants have to explain their own rules to the regulators. The institutions being supervised were the only ones that understood what was being supervised.

I realized while I was in law school that rules were not going to solve this problem. Laws are just on paper. You need programmatic, systematic rules that are built into the very fabric of the system, and that’s where DeFi comes in. That’s why I’m so focused on DeFi and why I think institutions are going to adopt it at scale.

The purpose of DeFi is not to build casinos. It’s not to build speculative tokens, NFTs, or bean coins. The original thesis behind DeFi was a response to the failures of the Great Recession: building a financial system whose architecture structurally eliminates the conditions that made 2008 possible. When that happened, and when DeFi Summer came in 2020, I knew that the entire institutional fabric was going to move on-chain, and I jumped right in.

I love that. It’s a great thesis. I want to build one more piece of history on that, Mark, if that’s okay. I’ll take 2008 and raise Mike 1993.

The other interesting piece of context I can add is that I’ve been around long enough to see finance make significant changes. I remember going from floor-based trading to digital trading. I remember going from mutual funds to ETFs. The reason I raise that is a mistake I see a lot of people making vis-à-vis DeFi is assuming that finance is at the end of history—that the way we do this now is the way we’ll always do it forever.

It will only ever be ETFs. There will never be another asset-management primitive. It will only ever be traditional, brokerage-intermediated, floor-based or digital trading. There will never be another version. That’s just not true of financial history. Most people haven’t witnessed one of those big changes because there really hasn’t been one outside of crypto since 2008. Crypto was sort of the next new thing after ETFs. They don’t come along very often.

But if you scale back through history, you do see these epochal changes in how finance works. It does happen. That is actually what Atkins was calling out with Project Crypto: we’ve seen 4 of these in our history. This is the 5th. I think what Mike is talking about is a necessary 5th. You can see the entire financial ecosystem and how it works change. It has happened in the past. It’s happening again now.

In law school, I took a class called Big Bank Regulation, and the takeaway from that class, where we studied Dodd-Frank and the financial crisis, was that the interconnectedness of financial institutions was the cataclysm, the event that caused the entire systemic collapse. I really started studying decentralization: how can we structure a decentralized system?

This was before Ethereum. Bitcoin was out at this time, but I think the 3 core pillars of DeFi—self-custody, transparency, and decentralized networks—when applied to the financial economy at large today, will make it safer, harden it, and actually make it scale faster. I’m so excited about it.

The thing that makes this all very exciting is that I don’t think there’s a broad recognition in the market that this is going on. I have a bunch of friends who were at ETHDenver last week. It feels like, because maybe prices are not reacting—and maybe we can talk a little bit about market conditions—but maybe because prices are not moving much, the vibes are not great in certain crypto circles.

I’m at a very TradFi global conference.

This is a big kind of capital allocator TradFi conference, and crypto has a presence for sure. But I think the number of people in the broader market, especially in the institutional—maybe more, let's say, allocator—segment of the market, who realize that all these things are going on is still relatively small. It's still relatively circumscribed among people like us who maybe have a foot in TradFi but also follow crypto very closely.

Maybe that's because there's a lot going on in crypto, beyond crypto, in macro, and all of that. But I feel like it's a very exciting moment when we see these trends developing. It does feel like we're seeing a glimpse of the future here, but the overall market is not paying as much attention as it should.

Mark Arjun

Yeah, 100% agree. I think it's, like you said, the prices being down, people are in some kind of mood. But then also, there's so much good news coming out. There's so much regulatory clarity and so many projects moving from pilot to actually launching within the institutional space. I don't know how, if you're following these things, you are not the most optimistic you've ever been in this space.

And then outside—even people not in institutions—I think they don't know what's going on. To pull it back to the first time I really thought that this was going to be big, I remember when I was purchasing a house and had to pay some legal fees. I sold some stocks, and the legal fees were due a little bit earlier than I thought, and my stocks didn't sell. It takes T+3 settlement days, so I was waiting, and I was like, "Okay, so what can I do?"

I just went on to Aave, like Matt mentioned. I took out a loan and paid the legal fees. Off-ramping wasn't too difficult back then. By Monday, I had repaid the loan, and it cost me 36 cents.

I was like, "This is amazing technology." The only problem was that it took me 8 different clicks to do. I figured once we solve that—which we're doing just now—we can get this technology adopted a lot faster. I think I was a little too optimistic about reducing the clicks in this space, but I think we're closer than ever.

Wow.

Mark, it is such a good story because it is so patently obvious how much more efficient decentralized markets are than traditional financial markets. It's not necessarily traditional financial markets' fault. They were built during a time when, if you were in California and you wanted to buy a stock on the New York Stock Exchange, you had to make a phone call and send a letter. A stock certificate was mailed, right?

These systems were the product of the technology of their era. Then, when new technology comes out, new technology often has to be met with great skepticism because it could create instability. But oftentimes, what it does is displace middlemen. Blockchains are the ultimate displacers of middlemen, and that should be met by capital allocators with open arms.

But from regulators, it's met with a little skepticism and a little fear. We've had to climb a mountain over the last couple of years in working with regulators and educating policymakers in DC to really get them comfortable with the efficiencies that blockchain technology provides. It was so refreshing to hear Chair Atkins say exactly what we've been preaching for so long with Project Crypto: how all securities will be traded on-chain. I'm just—I think it's incredibly bullish.

Yeah, that's right. Just to add one more note of realism to your story, Marc, a mistake people make with these new technologies is that they expect them to be better at everything on day 1. The reality of DeFi is that it's better on a few things and then way worse on a lot of other things. We in the industry should accept that it's way worse on a lot of other things.

You just raised that there are 8 clicks. That's one example of something that's way worse than you would encounter in TradFi. There's also a huge number of DeFi protocols, some of which have security bugs, and some of which have been around for a while and work really well. That's worse than the protections you get in the traditional market.

But when you try to find a disruptive technology that's better on every metric, you'll just never encounter it, right? It's always better on 1 or 2 metrics, and that is what allows it. The question is, can it get better at the things it's worse at? I think what we're starting to see in DeFi is that it's getting better at the things it's worse at. People make the mistake of saying, "Yeah, but it has these problems." Of course. It's a new disruptive technology. It's the oldest story of all time.

Classic innovator's dilemma. I guess the other thing I would say, Marc, is you probably not only paid lower fees, you probably got a better rate because—and this is true still today—if you try to access capital in DeFi, it's cheaper than doing it in most traditional finance venues.

To the point that I think just today we saw a mortgage lender, Better, announcing access to DeFi at scale—$500 million, I think, and then scaling up to $1 billion—in order to get better rates for their clients. We're starting to see some folks identify some of these advantages that Matt has announced or alluded to and be willing to jump through all the hoops to integrate DeFi into the more traditional system. I think this is all very exciting.

Mark Arjun

Yeah, 100%. Not only did I get a better rate and pay less, but it probably happened a lot faster than the bank would even reply to my email. I think it was a win all around.

But I do want to ask: We are highlighting a lot of the advantages of this technology, but as Matt said, it's not perfect at everything. What do we think are some of the current structural disadvantages, and do we see them changing?

Oh, man. Where do we start? For the most part, the UX is terrible. It's gotten better, but it's still pretty darn bad. There's no easy way for non-native consumers to know which protocols to trust and which protocols not to trust.

The regulation is uncertain, so large institutions that care about AML/KYC don't have an easy way to access the space in its full permissionless nature. We've probably only scratched the surface on the primitives. We haven't solved things like under-collateralized lending. That remains an uncracked problem, and that's the bulk of lending in the world, so that's a real issue.

But if I had to tick off what we're going to solve next, it's regulation, UX, and some version of AML/KYC, or solving the permissioned-versus-permissionless problem that will unlock trillions of dollars of scale. The other stuff will come along, but those are the 3 big challenges and impediments right now.

Yeah. I would echo that, Matt. I think the number-one issue actually is the last one you touched on: AML/KYC. Its ugly cousin is the accredited-investor standard, right?

As long as RWAs, which are securities, can only be traded behind a walled garden, you sort of undercut—not fully, but you sort of undercut—the power of permissionless systems and decentralized networks, right? You undercut the composability of smart contracts and decentralized finance. When you do that, you make it a little awkward, a little weird.

There are some issues when buying a credit or buying an RWA. What can you do with it? Well, nothing, because you can't trade it anywhere. Nobody can receive it because it's restricted to only accredited investors, and there aren't a lot of accredited investors. There are some issues there. I think that needs to get solved. But that's a regulatory issue about lowering the velvet rope, so to speak.

On the AML/KYC side, though, we should have decentralized identities. If we can get decentralized identities, that will be a tremendous benefit. Frankly, we need decentralized identities because I just don't think we're going to onboard billions of people through a sort of regulatory apparatus that requires AML/KYC formally. It should be done almost informally through a decentralized identity.

But once that happens, we finally get what we need. What gets me so excited is this: We actually have all the infrastructure. We have all the programs. We have all of the core technology ready to go. They just need assets, volume, and liquidity to trade, right?

Vault products are already superior to funds. A vault is effectively just a programmable fund. I remember when I was a kid and my mom brought home a brand-new washing machine, and it was intelligent. It was an intelligent machine, right? It would talk to us. That's what a fund is—I mean, it's a silly analogy—but funds are dumb pieces of paper, right?

I used to do fund work as a lawyer, and before I was a lawyer, I was a paralegal. The reason I became a corporate lawyer instead of a litigator is that the head of corporate law at Cravath, Swaine & Moore, where I was a paralegal, said to me—and I'll never forget this—he said, "Litigators are ministers, and corporate lawyers are legal engineers." I said, "That is the coolest thing I've ever heard."

I don't know what that means, but that is the coolest thing I've ever heard. It turns out, no engineering at all. It was just pure pushing of paper. So when you see all these complex legal structures—a fund administrator, the fund wrapper—all these are just contracts. They don't actually exist in the world, and nothing happens unless a trustee or a fund administrator or a lawyer actually reads the documents and enforces the rules.

That is archaic. We now have smart contracts that can execute these things programmatically. There are a lot of benefits, but not to sound too bullish, KYC is a big problem. The other problem—and I'll hand this off to David—is T+1. We always talk about how T+1 is a problem, and it is, but it also has a lot of benefits.

T+1 is the cost you pay for extending credit, right? Extending leverage throughout the existing financial system. If there is no T+1 settlement and the current financial system completely migrates over to decentralized rails, we do have to figure out how to provide leverage and how to provide credit to purchasers so that the transition is seamless and they don't have to buy everything on collateral at the point of sale.

David Hoffman

That's also great. I think the thing I would add—and then I'll bring the discussion back a little to Bitcoin, because Bitcoin has been integrated into more traditional rails for a while—is that this transition period doesn't come without friction. One thing that has been very interesting and now perhaps patently obvious is that when you start to bring in this new cohort of investors that now hold a sizable amount of Bitcoin, Bitcoin starts to trade a little differently.

A lot of these folks want to get a yield on their Bitcoin holdings. So you know what they're going to do? They're going to sell covered-call strategies, and this has been done to an extent that I think it's fair to say that it has capped some of Bitcoin's upside volatility. Every once in a while, you have weird things like CME market-open gaps on Mondays or a hedge fund blowing up somewhere because it was doing an exotic bet that involved Bitcoin.

So now Bitcoin is trading in a different way than we were used to. Of course, things will be different for DeFi and tokenization, but whenever you bring in such a large participant, you can always have these short-term frictions that happen over time. I think that's totally fine. I think that's part of the game, and the market works those out.

The other thing I like to say is that TradFi people work very hard, but they don't know what's coming at them when their assets all start to trade 24/7. They're all going to be as stressed as we are, and that's going to be fun. But overall, we have all these frictions. There are definitely a lot of problems to solve, and I think Matt and Mike covered a lot of them.

But we are pretty much on our way to at least having a roadmap for most of them. That was not true 2 or 3 years ago, right? If you talk about the regulatory environment in crypto 2 or 3 years ago, that was a major risk. That was a big question mark. We didn't know what was going to happen.

So I feel like we have pretty clear roadmaps that will obviously take some time to be navigated, but I think that makes me think it's a very interesting phase.

It's a lot to unpack there. Thanks, guys. First of all, I'm surprised that KYC/AML was ranked higher than regulation. I thought it would be a bit the other way around, and then it makes me wonder if you all are fans of Sam Altman's World Network decentralized identity solution.

But I think, David, you brought up a point about this new market structure that Bitcoin is trading in because of the different types of investors. Do you see this changing anymore? Nasdaq and ICE have recently removed the 25,000-options-contract limit on the ETF products, and some people are relating that to the recent downturns in prices. Are you seeing a correlation between them? How long do you see this supposedly new soft cap going on for?

Yeah, I think it's cool to see some of the shackles getting cleared up a little bit. The other probably big one that I think might be a little understated is that I think the CME will start trading cryptocurrency, including Bitcoin futures, 24/7 starting in a few months.

That's interesting. I feel like crypto is becoming a little bit more TradFi, but in a few aspects, TradFi is also becoming a little bit more like crypto, and we are seeing these worlds getting mixed and interconnected in a smoother fashion. I think the market structure will change. We're going through a period where it's changing, and it's probably going to change more.

I think, actually, this is still probably a much longer trend, but the idea is that when you start to see crypto integrated, for example, into 401(k)s and things like that, you're going to bring another very different demographic that's going to be very large. There is the rise of derivatives that has been really growing in the Bitcoin space and crypto more broadly.

Even though prices are kind of flat, if you look into what's going on, for example, in options markets, there are certain sleeves that are growing very significantly in crypto. So I think there's still room for the market structure to change quite a bit from here. It's definitely going to be a few exciting years ahead.

Lovely. I mentioned ETFs, and, Matt, you looked like you were itching to say something.

I would just jump on the question of whether unlocking a broader derivatives market has been the reason that Bitcoin is down. I definitely agree with David that it's changed the market structure and changed how things trade. But the reason Bitcoin is down is because people are selling Bitcoin.

They may be selling physical Bitcoin, or they may be writing covered calls against Bitcoin positions that they hold. Those are functionally the same thing. When you write a covered call against a Bitcoin position that you hold, you are selling away the upside of Bitcoin. It is mechanically the same thing as selling Bitcoin itself.

I do think that the enormous growth of the options market has changed the way Bitcoin trades, for sure. But the reason prices are down 50% is because people who held Bitcoin at the start of 2025 have been selling it and writing calls against their position, and that's 100% of the story.

I worry when I hear talk of paper Bitcoin and these sorts of things. No, people are selling. They may be selling through options. They may be selling through futures. It's all the same. It all boils down to people selling away their Bitcoin, and that's why the price is down.

So that was the simple point I wanted to make. Maybe people aren't trying to make it complex; it's actually pretty simple.

Price is down because people are selling.

That's what I mean. There's no conspiracy. There's no magic. People are selling. Basis is compressed because retail traders aren't taking on leveraged upside positions, and that translates into the sale of physical Bitcoin because of the way basis is hedged out, or sales of ETFs.

The outflows we've seen from ETFs since October 10—we've seen $10 billion of outflows in Bitcoin ETFs. The vast majority of that is from hedge funds that were running the basis trade and are no longer running the basis trade. But it's not because the hedge funds don't want exposure.

It's because the other side of the trade, which was retail speculation that created the basis, doesn't want exposure. That's what's been squeezed out of the market. I think it's just important for people to realize that they all boil down to demand for Bitcoin. That's the ultimate driver.

We've had historic weeks of BTC outflows. I think it's 5 net negative in a row right now, and probably 9 out of the past 11 have been net negative. As you mentioned, the basis trade is—those yields are compressing. It almost seems like it's a reflexive cycle. Do you have any thoughts on that? Do you see anything stopping it?

Oh, yeah, for sure. There are 3 groups of Bitcoin ETF traders. There are hedge funds running the basis trade, there are attention investors, and then there are long-term allocators—financial advisors, endowments, sovereign wealth funds, family offices, et cetera—that are buying Bitcoin for the next 10 years.

The reason we've had outflows is that those first 2 have been pulling money out of the market. As mentioned, basis collapsed, so the hedge funds that hedged their basis by buying the ETF, because it's regulated and they feel comfortable with it, have been redeeming as they unwind that trade.

Attention investors have migrated entirely to precious metals or to AI, and they're no longer interested in crypto. The third component, which is the long-term allocator—the institutions, the family offices, the financial advisors—they're still buying and holding.

That's why we've seen $10 billion out of, like, $100 billion come out of the market. The long-term allocators are still buying and holding.

When I go visit them—I was on the road last week in Miami—I met with 40 advisors. They were all allocating, and they will continue to allocate. I really think if you keep in mind these 3 groups—hedge funds, attention, and long-term allocators—they move at different paces, and that's probably the reason I'm optimistic long term: that last group is still aggressively buying.

They're actually buying the dip. They're allocating more. You can see that if you really analyze the flows and think about which category is using which ETF, you can tease out some incremental wins from people who are focused on that long-term allocator space. I think that's actually what's happening in the market, Mark.

I think one indicator that helps contextualize that is looking at overall liquidity trends. I think this year we saw some pretty remarkable things. Take, for example, Bitcoin spot volumes. Bitcoin is obviously a very liquid asset, but its spot volumes have actually been very low.

All these trends that Matt is talking about are very meaningful, and they impact price. But we're talking about these down moves coming on very low liquidity. Just yesterday, Bitcoin traded $6–7 billion. That should be a weekend for Bitcoin, not a regular weekday. This is a third of what Bitcoin would normally trade before the October 10 crash.

On the other hand, when we had some of those major sell-offs—like the early-February, February 5 crash—Bitcoin spot volumes were exceptionally high. Bitcoin usually had been trading $6–8 billion a day; during those days, it was trading $18–20 billion a day. What this gives me is a sense that there is some strong support around certain price levels, and I think certain folks are seeing certain price levels as very interesting entry points. Probably the 60K level is a big one.

Whenever Bitcoin gets to that 60K level, even the amount of trade activity that we see at our desk from these institutional, longer-term, fundamentally driven investors starts to become a little bit off the charts. You can also see that in overall trading volumes. I feel like a lot of these basis traders and a lot of these attention investors that Matt mentioned are broadly out of the market.

It does feel like positioning is light. Of course, we can always have a few pockets of leverage—accumulated leverage, especially in the perps market. But overall, it does seem like positioning is light, and it also seems that there is relatively strong support at key price levels. I don't want to make a price call or anything like that. We can obviously go one way or another, but it does feel like the setup now is rather interesting.

David guarantees we're not going below 60. That's what I heard, for sure.

Not at all.

For sure.

Not at all.

I agree with that, David. I would also add that there are probably caps on the upside. The reverse of that is probably also true. I think it would be behaviorally hard to blow through 80 and then again at 100. Those are still levels where, in my gut, I feel there is significant supply willing to sell, at least in this market environment.

Mark Arjun

We talked about how the yield is being compressed on the basis trade, but these investors don't just want to hold Bitcoin. That's why they do these kinds of trades. The volume that ETFs make up as a percentage of Bitcoin volume as a whole continues to grow over time.

We're seeing this demand for yield in other ETFs, with yield-bearing, staked ETFs like Solana and maybe ETH coming in the future. Even with Bitcoin, we're seeing ETFs in the form of Bitcoin yield through that same trade: short futures, long spot, the contango trade. If that ETF starts to become more popular, will that further change this market dynamic and possibly also put on this kind of soft cap?

I mean, yes. I would say, Mark, most of that you're not seeing in publicly reported data because it's actually taking place in individual SMAs, individual one-to-one client relationships. So there's already a lot of that activity in the market. I think it's been one of the primary reasons it's been so hard to rally: there's much more Bitcoin than you can see on-chain that has sold away its upside over the last year.

If that continues into public products—and there are public products, folks like Nyos and others that are accumulating real flows—it has that same effect, right? Again, that's not net demand. That's selling away the upside. I think you will see it. I think you're already seeing it. You just don't see it in public funds because SMAs aren't reported, right? They're private one-to-one relationships.

But that's a big business that's really grown over the last year. For what it's worth, this is why you saw people who were skeptical of the Bitcoin IPO theory, and they pointed on-chain and said, “Not that much Bitcoin has been sold.” But probably 2x what was sold was sold away in option-overlay strategies, and the market just didn't see that because the underlying Bitcoin doesn't have to move.

It actually stays at the custodian, and then the options are written against it. So that's an underreported corner of the market that's very real.

It's pretty ironic that we're making this transparent system more opaque as it gets more integrated into the system.

Yeah.

Mark Arjun

So I guess, would a countermeasure to that be the same investors looking for a source of yield? If, for instance, they were to experiment more with regulated products—maybe vaults, maybe BTC lending, maybe these alternative options to generate yield—not necessarily in a delta-neutral or risk-neutral way, would this kind of counteract the basis trade, do you think?

I think this all makes sense, Mark. We do probably need, though, a little bit of market maturity here. I feel like BTC credit markets are still very one-way markets: everybody has Bitcoin, everybody wants to lend their Bitcoin, and not a lot of people want to have their liability in Bitcoin. So I think we need a little bit more market maturity here, but I think the direction is right.

One of the things I'm very excited about is adding complexity and further sophistication to Bitcoin credit markets, perhaps overall on-chain credit markets. This doesn't have to be a Bitcoin-specific discussion. I think that's something that we'll probably see more and more.

But the reason people do these covered-call strategies is because the rates that they would get by lending their Bitcoin are relatively low. If you go to a prime broker or a lending desk and say, “Hey, I have all this amount of Bitcoin that I want to lend and get a yield,” the rate you're going to get is not super high. You can get probably 3–4, maybe 5 times, depending on how aggressive you are, that rate by doing call-overlay strategies.

They're not the same thing, right? They have very different risk profiles. Call-selling overlay is a much more active strategy. It's something that you have to monitor and harvest that yield over time. But historically, it has been more attractive than simply lending BTC. I think we'll get there.

Yeah.

The market will definitely evolve.

I think that's right. I think the primary thing that will shrink demand for the covered-call overlay strategies is getting past the historic down year of the 4-year cycle. I think a lot of those people will look to reallocate as we move into the end of the year. You mentioned the word “reflexive.” I hate that it's this simple, but given the reflexive nature of people speculating that we'll be in another bull cycle, I think you'll see those compress. I agree that the lending market is interesting, but the yields are really, really low, I think it's fair to say.

Mark Arjun

You brought that up, and just for my curiosity, I want to open this up to the floor. Do you all believe the 4-year cycle is dead? Do you still believe in a 4-year cycle, or do you still believe in a 4-year cycle because you believe other people believe in a 4-year cycle?

I think the 4-year cycle is alive and well, but with every cycle it gets less steep; it becomes shallower. The bear market this time around, I think, will be no different. I frankly am scratching my head about what the main catalyst is for it.

For example, we're talking about the basis getting flushed out. Okay, well, directional is still down a little bit as well, right? On top of that, I see macro conditions that don't seem that much different than they were 6 months ago to me. I'm scratching my head about the following: this is what I have to talk about with institutional counterparties every day for the last month. Is the Bitcoin thesis as a store of value accurate? Is it, in fact, a store of value?

Gold is going up, while Bitcoin is going sideways or down, and we always have to explain that. I would love to hear what Matt and David think on this, but from my perspective, it is a little concerning to me that Bitcoin right now is at least not trading in a way that would reflect a store of value and a safe haven for global instability.

I think I’ll take the other side here—not entirely, but a little bit. I usually joke that, due to inflation, the 4-year cycle became a 3.5-year cycle because it’s not matching exactly the calendar years that we have mapped. But my real belief is that I’m not a believer in the 4-year cycle sustaining.

I do think that even the last 4-year cycle was somewhat lucky because we had a major macroeconomic stimulus that happened that year. I think that was a factor in driving the Bitcoin price that was orders of magnitude more important than the halving. I’ve done some analysis in the past of the halving as a percentage of how much Bitcoin trades per day—not necessarily the amount of Bitcoin outstanding, but how much Bitcoin trades—and that comparison is even more dramatic in showing how quickly the halving is becoming irrelevant from a flow standpoint.

Of course, there are psychological aspects, and market psychology has a role, so maybe there is some of that. But I think it’s a little bit of a coincidence. To Matt’s earlier point, there are definitely some market structure topics, and there are definitely some people selling. But there are also some big macro shifts over the past 6 to 12 months.

Macro has been uncertain for a long time. Maybe it has not changed much, but I feel like there’s a lot of uncertainty and a lot of moving parts. Sometimes we’re concerned about Fed independence. Sometimes we’re concerned about a geopolitical issue. Sometimes we’re concerned about fiscal policy. Sometimes we’re concerned about inflation and growth. There are just too many moving parts, with a lot of uncertainty, and they’re taking turns grabbing the market’s attention.

I also think that the macro environment turned out to be relatively unfavorable for Bitcoin over the past 6 months. If that was not the case, maybe we would be seeing very different trading dynamics. What I want to say is that market psychology plays a role, and a lot of people believe in the 4-year cycle. But over time, I’m not a huge believer in the 4-year cycle.

I think Bitcoin’s investment thesis as digital gold is still in place, but sometimes we have to be a little patient because Bitcoin is an emerging digital gold. It’s definitely not there yet. What I would say is that it actually makes me kind of excited, because that’s where the upside is. If Bitcoin behaved exactly as it should in its more mature phase, the upside wouldn’t be there.

I remember, 5 years ago, when I was at Bitwise, a lot of folks were saying, “I don’t want to get into this because I have regulatory jitters.” I said, “Fine. If you want to wait for the regulatory concerns to be cleared out, you’re probably going to buy Bitcoin at $50,000 to $60,000 each.” At the time, that sounded absolutely outrageous, and that’s where we are.

I think if you want to wait for Bitcoin to behave exactly as this asset that we all imagine it to be at full maturity, fine. But you’re probably going to pay $400,000 or $500,000, maybe more, per BTC. The reason why it’s not zigging and zagging exactly as we think it should is one reason to be excited about this asymmetric upside still being in place.

Yeah.

No, this is great commentary. I’ll add 2 thoughts because I can’t resist. I feel like everyone wants Bitcoin to go up whenever gold goes up, except they want it to go up 10× more. Which is, of course, insane, because if that happened, you would only own Bitcoin, and then gold would never go up. The logic actually breaks in that argument.

I think the way I would answer your question is: if gold weren’t at $5,000—if gold were flattish—would we be raising any questions about Bitcoin as a store of value? Definitely not. All the long-term trends look awesome. It’s at $65,000. It’s following the 4-year cycle. Sovereign wealth funds are buying it. Endowments are buying it. All the fundamental characteristics are true.

So then you isolate the question of why gold is up so much. The reason gold is up so much is very obvious if you look at the data: it’s all central bank buying. Central bank buying increased after Russia invaded Ukraine. It has stayed at that level and accelerated in recent years. There is no retail-based buying out there, at least in the U.S. Gold ETF flows are very weak. There are some speculative futures, but it’s mostly central bank buying.

What you’re seeing is that central banks are buying gold, so the price went up. Are central banks buying Bitcoin? No. Bitcoin is doing Bitcoin things, which is following the 4-year cycle. But the fundamental 20-year thesis is still incredibly intact.

The world is more digital. Bitcoin allows self-custody through settlement. It has statistical advantages over gold. It’ll be fine. You just have to isolate the reason there’s this narrative violation: gold is up, and Bitcoin is following its normal 4-year pattern, which is down. But you have to ask why gold is up, and there’s a really specific reason that just doesn’t apply to Bitcoin today.

I think it’ll be fine. I think it’s an incredible opportunity. The fundamentals are way ahead of where the price is right now. I think it’ll be fine.

It’s hard to complain about Bitcoin at above $60,000. Obviously, a lot of people are underwater; they probably bought much higher than that. But I remember the days when we could only dream it was going to be $60,000. We all do, right?

It is holding its value in that sense, and that’s a very good point, Matt. I haven’t looked at that data, but that would explain a lot. If you’ve got central banks buying gold, then that explains the divergence between the two.

I’m really quite bullish right now on the entire landscape. Whether it’s $65,000, $85,000, or $100,000, the fact of the matter is that we are going to see—what I focus on in my day-to-day is moving my clients and our partners away from overly focusing on price action and focusing instead on the underlying technology, what the underlying technology can do, and how they can fit it into their existing businesses right now to completely obviate some of the most costly and bureaucratic parts of their businesses.

Lately, we’ve been talking a lot about structured finance. Structured finance is ripe for disruption. It is almost perfectly obvious—almost laughably obvious—that structured finance should trade on blockchains. It’s this opaque corner of the market. It’s hard to structure, and the majority of it is paying lawyers to figure out how to structure these things.

The dirty little secret is that lawyers take the legal agreements off the shelf that they’ve used 50 times before, 100 times, or 500 times, change the names, change some of the numbers, and there we go. But it slows the process down, and we can automate all that on-chain. I’m really excited about it, and Bitcoin will serve as collateral in those structured financial products.

Mark Arjun

Yeah, 100%. I love it. I tend to say this is probably the highest the price has been with the greatest number of people upset. It’s such a weird dynamic going on now if you just zoom out a little bit.

But I think, Michael, that’s a great point on structured finance. I think that’s perfect for the topic we’ll discuss next week. Unfortunately, we’re out of time now. This has been great. Obviously, we could continue talking for another hour. Thank you all for joining me. If anybody wants to reach out to you, where can they find you? Let’s start with David.

Yeah. I’m on Twitter, dlawant, D-L-A-W-A-N-T. You can find me there, or you can also visit Anchorage’s website at anchorage.com. There’s a lot of stuff there. And our Twitter account too, @Anchorage.

Yeah. Same on X, Matt_Hougan. It’s got the U in it, H-O-U-G-A-N. No, I don’t know why it’s there. You can also find me on Bitwise Investments. I write a weekly memo called the CIO Memo. You can look it up and subscribe.

You can find me on Twitter, MarcRyptonio is my degen crypto handle, M-A-R-C-R-Y-P-T-O-N-I-O. You can also find me on chain if you know how to look.

Mark Arjun

Love it. And you can find me at Mark Arjun on Twitter, X, and LinkedIn. So thanks, guys. Thanks, everyone, and be sure to tune in next week.