Layer One: Inside Bitwise’s Avalanche ETP and Institutional Strategy

Welcome to Layer One: the newsletter and podcast on the intersection of crypto and the real world. Hosted by Kelvin Sparks, Layer One brings you inside the conversations driving blockchain forward.

This week on the podcast, Kelvin was joined by guest co-host John Wu, President of Ava Labs, and Matt Hougan, CIO of Bitwise, to discuss the new AVAX ETF, institutional crypto strategies and the bull case for bitcoin this year and beyond.

In this edition of the Layer One newsletter, we're taking a closer look at Hougan’s claims to ask whether geopolitical instability could actually be a powerful driver for crypto growth.

Could geopolitical unrest be a core driver for crypto adoption?

Crypto-native asset manager Bitwise was among the first cohort of firms approved for a spot bitcoin exchange-traded fund in the US in January 2024. Since then, the firm has steadily expanded its altcoin ETF coverage, most recently through the launch of the Bitwise Avalanche ETF (BAVA) earlier this month.

This week Matt Hougan, CIO of Bitwise, shared some insights on the firm’s bull thesis for bitcoin and the wider crypto markets. Bitwise’s latest BTC forecasts place it at a price of $1.3 million by 2035. Hougan argues that capturing a greater share of the store-of-value market would be sufficient to make this happen: “If it gets to 17% and the market continues to grow, you get to a million dollars.”

This trend is already in motion, as shown by the rise of bitcoin’s market cap as a percentage of gold’s. This figure rose from negligible levels ten years ago to around 4% now, with spikes above 10% last year.

However, an April report from Arkham Intelligence posed the age-old question: does bitcoin really count as a valid store of value? The key decider is whether BTC is truly shedding its image as a volatile risk asset, or if the store-of-value angle itself is just another whiplash-prone narrative.

Data from The Block shows bitcoin’s annualized volatility currently sitting at 43%, or around three times the upper end of gold’s average range. It’s worth noting, however, that this has been trending down since bitcoin’s inception; the trends are moving in the right direction (even if there's still some way to go).

Even if bitcoin's adoption as a store of value moved slower than the institutional soothsayers are anticipating, there may be another, less-cited driver for its growth. In an investor memo earlier this month, Hougan argued that geopolitical instability actually plays into the BTC bull case, even if markets are rattled in the short term.

The idea of a crypto as a neutral medium of exchange, outside the control of any state, dates back to early cypherpunk culture. However, Hougan suggests its global-scale implications are only just beginning to be taken seriously. He cites a fracturing global monetary order as the trigger, with certain states — through preference or necessity — seeking alternatives to US dollar-denominated trade.

Earlier this month, a representative from Iran’s Oil, Gas and Petrochemical Products Exporters’ Union was quoted in the Financial Times, saying toll fees in the Strait of Hormuz could be collected in bitcoin, “ensuring they can’t be traced or confiscated due to sanctions.”

Likewise, just this week, Russian lawmakers progressed legislation that would allow foreign trade transactions to be settled in crypto (while maintaining restrictions on its use for domestic payments). The country was excluded from the SWIFT payment network in 2022, and has since been experimenting with alternative settlement routes to circumvent sanctions.

If the global trade system continues on this path of steady de-dollarization, the odds on Hougan’s “out-of-the-money call” coming good could increase.

Podcast Recap: Inside Bitwise’s Avalanche ETP and Institutional Strategy with Matt Hougan

Top of the Charts: Major institutions project significant BTC growth in the coming decade

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Layer One is brought to you in collaboration with Avalanche.