ETF.com’s Dave Nadig caught up with Bruno Caratori, co-founder and COO of Hashdex, at Future Proof to talk crypto’s inflection point and outlook.  

Bruno Caratori & Dave Nadig Conversation - Full Transcript

Opening: The Disruptive Potential of Crypto

Caratori: As amazing as bitcoin is, crypto is a technology that goes way beyond bitcoin, and we want to make sure that advisors understand this. Crypto is a technology that is poised to underpin marketplaces, is poised to enable new types of monetizable media. We think it's going to transform Wall Street.

Diversifying Your Crypto Exposure

Nadig:  I'm here with Bruno Caratori, the COO of Hashdex. Look, there's a lot of chat here at this conference about crypto in general. What are you guys bringing to the table that's just not another Bitcoin ETF, because that's a lot of what we're talking about?

Caratori: So, Dave, we're going through an inflection moment in crypto, both from a regulatory perspective, but also in a use case perspective. I think more and more Wall Street is adopting crypto beyond bitcoin, and we now offer this product that gives people exposure to crypto outside of Bitcoin, diversified exposure. And we think that that's what allocators, advisors should be looking into as they delve into their crypto journey.

Nadig: So, we're talking about NCIQ. This is the fund that you've launched. Tell me what's under the hood when I crack open NCIQ?

Caratori: So, right now, NCIQ holds two assets. It's a market cap-weighted index that we actually run this family globally. In the U.S., it has only two assets. We're looking for approval to add more assets to this. And when it comes, investors will, through NCIQ, be able to have exposure to all the major theses in crypto in a single product that's easy to access and cheap to access.

Nadig: But we're still talking about owning individual crypto here. We're not—we're not buying companies, right?

Caratori: That's right. So, you're owning the tokens themselves. So, under NCIQ, there's bitcoin, there's ether, and hopefully in the future there will be more smart contract platforms, there will be application layer tokens as well.

Investing Now for the U.S. Crypto Evolution Underway

Nadig: So, basically, you're buying NCIQ now to get the basic exposure that's legally available in the U.S. infrastructure, but the promise of “this is going to be an expanding product that will have the whole investible ecosystem” in it eventually.

Caratori: That's exactly right.

Nadig: That's really interesting. So, how do you bridge from there? Are you guys working with the SEC to get those things done? Or are you sort of waiting for all the single asset class ETFs to get launched and become available? What's the strategy?

Caratori: It's a mix of both. We've actually been very active in engaging with the SEC, especially throughout the last 18 months or so when they became more constructive on the theme. So, we've had conversations with the task force, we've presented to them the “how we have approached this with other regulators in Europe and Latin America”, where we're also present. And I think this is all materializing now. We're expecting that the SEC will put forth generic rules for lifting of crypto assets, of products that track crypto assets, right? 

That should be coming up within the next one or two months. And this is, we expect, is going to open up space for more products, more single assets, but more importantly, more value-added products such as ourselves. So, we've been working together with the SEC. There's now hope that they're putting all of that work together for the next few weeks, and we'll see the approvals of the next batch of products coming up in the very near future.

How to Think About Crypto Allocations

Nadig: So, let's talk a little bit about advisors actually using crypto. I know a lot of them here who are actually using crypto. The question they always have is what crypto, and how much? Is this a 1%, you know, fly-by-night diversifier? Is it, you know, Rick Edelman's 40% of every portfolio? Reasonable people have a lot of disagreement about the number in between. What are you talking to advisors about? How do you help them get smarter about it?

Caratori: So, we first make sure that they understand what the technology is and why it's an investable asset class, right? And we work with advisors across the globe, and we also address how to get exposure to this, including how much, how often to balance, right? And the thing is, crypto is a technology. As amazing as bitcoin is, crypto is a technology that goes way beyond bitcoin, and we want to make sure that advisors understand this. 

Crypto is a technology that is poised to underpin marketplaces, is poised to enable new types of monetizable media. We think it's going to transform Wall Street, Main Street, it's going to transform how people trade intellectual property, how data is stored and traded, too. So, there will be use cases that we still can't fathom them all. 

Advisors and investors overall would do well by, instead of concentrating their bets into one or a handful of assets, to gain exposure to the entire ecosystem through a product such as ours. And once you understand this, it becomes clear that, you know, having the discipline of an index tracking product approach is the best option. And we keep it in the mind of advisors, it's still a very risky asset class. So, you should calibrate this accordingly. Crypto should be a one, two, maybe 5% part of a portfolio, depending on how much risk appetite your client has. But this should be enough to give your client very differentiated risk-return rewards.

Crypto As an Asset Class

Nadig: This sounds a lot like the arguments we used to hear about adding a little bit of commodities exposure. And then I'd always get the questions, well, do I want oil? Do I want peanuts? You know, nobody could ever figure that out, and the answer very quickly became, think of it as an asset class, make a counter-correlated allocation to it. It sounds like you're saying the same thing about crypto.

Caratori: Absolutely. And, you know, commodities is a great analogy, Dave, but uh I would say, you know, alternatives in general, right? This is how you should get exposure to this. You should diversify it within the asset class through a product that provides you that. That's what NCIQ does. And then most of the work is done for your client.

Nadig: Great. Thanks for having me here, Bru.

Caratori: You're welcome.

Nadig: Thanks for being on our air. Cheers.

Caratori: Cheers.