ETF Industry Veteran Says Cryptocurrency "Has The Power To Transform Financial Markets"

Whether the SEC will one day rubberstamp the launch of cryptocurrency-linked ETFs remains an open question: But that isn't stopping one ETF industry veteran from anticipating the rise of these types of products - as well as other financial products unique to crypto.

Per Bloomberg, Matt Hougan, the former CEO of Inside ETFs and, is leaving the industry after 15 years to focus on crypto, saying he believes crypto has "the potential to transform financial markets," just like ETFs did when they first emerged in the 1990s. Hougan is joining startup Bitwise Asset Management as vice president of research and development.

Hougan has also boldly embraced the "millennial gold" comparison that's frequently touted by crypto enthusiasts.

"When I think about individual applications, like gold which is a $3 trillion market, there’s the idea of Bitcoin as millennial gold," Hougan said in an interview. "It’s a multitrillion-dollar opportunity, and then when you get into utility tokens, each of those markets can be substantial."

Of course, Hougan isn't the first financial industry stalwart to pivot to crypto. Mike Novogratz, a former Wall Street trader, is trying to launch a merchant bank that he hopes to transform into the "Goldman of crypto". He also recently ditched plans to launch a crypto-dedicated hedge fund. Even "world-renowned commodities guru" Dennis Gartman  has gotten in on the blockchain action (to famously mixed results)...

The cryptocurrency market has grown 25x in the past year to about $500 billion. Bitcoin comprises a little more than a third of it, according to CoinMarketCap data.

But the question of how fast the market will develop is also an open one, and the trajectory of individual coins, as well as their volatility, are difficult to predict. So investors who want to become involved in the space should diversify.

For his part, Hougan said he’s working on defining an index methodology for the digital-assets market, saying that criteria such as market capitalization and weightings should be structured differently from other assets like stocks and bonds. Meanwhile, Bitwise, backed by investors including Khosla Ventures and General Catalyst, launched its first fund last year. Right now, the Bitwise HOLD 10 Private Index Fund holds the 10 largest crypto assets.


Matt Hougan

There is at least one notable parallel between the early days of crypto and the early days of ETFS: In both markets, retail investors are taking the lead, while institutions remain skeptical.

"Institutions are in learning mode," Hougan said. "That will translate into investing mode and we’ll see the early adopters as early as this year and really significant activity in 2019 and beyond."

And in anticipation of the eventual surge in interest from institutional investors that Hougan has staked his career on, companies are already setting up products and trading venues that mimic certain aspects of the institutional market for stocks and bonds, according to the Wall Street Journal.

Although it might seem like an oxymoron, one Singapore-based company raised more than $30 million this month from some of the biggest crypto hedge funds to launch a crypto "dark pool", which will be designed to allow hedge funds to trade bitcoin and ethereum in large quantities without moving the market against them.

The company, Republic Protocol, expects to launch its dark pool product during the third quarter. They claimed it should help bolster trading volume.

While all crypto transactions are publicly recorded on the blockchain, a dark pool would help break up and obscure orders placed by institutional traders.

Republic believes that cryptocurrency dark pools could capture some $9 billion of total cryptocurrency trading monthly. Over the course of its price surge and plunge in the past three months, the average daily volume of bitcoin alone was about $41 billion, according to data from

"If I have 1,000 bitcoin and I want to trade it for another cryptocurrency, everyone can see that and it puts downward pressure on the price,” he said. “We can’t hide orders on the bitcoin blockchain."

But what a dark pool can do is temporarily conceal the identity and order details of a trade, allowing big institutional investors to buy or sell large quantities of an asset without tipping off the wider market to their intentions.

Dark pools are enormously popular in the US stock market. In December, nearly 40% of stock trading took place off-exchange. Republic Protocol is designing algorithms that will break orders down and spread them across a variety of trading venues.

In the past, large crypto orders have been filled over-the-counter in party-to-party transactions. However, several prominent crypto exchanges have launched dark pools of their own, or announced plans to launch a dark pool.

At the moment, most investors who hold large quantities of bitcoin trade over-the-counter, said Arthur Hayes, CEO of BitMex, a Seychelles-based cryptocurrency trading platform. That means they have to locate other investors to buy and sell with directly rather than using an exchange.

"The dark pool might aggregate more liquidity," he said. "And for coin-to-coin transactions, in theory it would remove counterparty risk."

Some cryptocurrency exchanges, including Kraken, own their own dark pools. Bitfinex last week announced plans to launch a similar product to Republic Protocol’s.

Republic hopes that its hands-off approach—it distributes the processing work to its network and has made its source code available to the public—will allow it to avoid the sort of controversies that have bedeviled operators of dark pools in the traditional finance industry.

Brokerages including Barclays and Credit Suisse paid $154.3 million to the U.S. Securities and Exchange Commission in 2016 to settle charges that they misrepresented their dark pools to clients and failed to stop predatory traders from buying and selling stock before big asset managers had the chance.

Bitcoin prices have recovered in February from one of the worst starts to the year on record, however, they've surrendered some of those gains this week...