Company name: Bitwise Asset Management
Founders: Hong Kim and Hunter Horsley
Date of establishment: December 2016
Location of the head office: San Francisco, CA and New York, NY
Amount of Bitcoin in Treasury: Not disclosed
Number of employees: 65
Website: https://bitwiseinvestments.com/
Public or private? Private
In 2016, Hong Kim and his co-founder decided to Bitwise Asset Management (Bitwise)Hunter Horsely was living the startup life: working out of a living room in San Francisco, looking for a project they could grow into a company.
While they experimented with different ideas, none of which caught on, their friends kept going on about Bitcoin. Moreover, by early 2016, every venture capital firm in Silicon Valley was also focused on Bitcoin.
“We wanted to avoid it for a long time because (there) was too much hype,” Kim told Bitcoin Magazine. “But then, just by osmosis, we spent more and more time thinking about it.”
By the end of the year, after doing their research on Bitcoin, Kim and Horsely had founded Bitwise, a crypto asset management company focused primarily on Bitcoin. The company would provide wrappers for Bitcoin so that customers could purchase the asset through traditional brokers.
Eight years later, Bitwise was one of eleven US companies to issue a spot bitcoin ETF; it is currently the 5th Largest US Spot Bitcoin ETF by Assets Under Management (AUM)This is partly due to Bitcoin enthusiasts who bought into it because of the way Bitwise has maintained Bitcoin ethics while interfacing with Wall Street.
Bitwise vs All Other Spot Bitcoin ETF Issuers
There are a number of factors that set the Bitwise Bitcoin ETF (BITB) apart from its competitors.
First, Bitwise is the only company to issue a US spot bitcoin ETF and publish the addresses of its bitcoin holdings, embracing the idea of transparency, a core tenet of Bitcoin.
Announcement: Today, the Bitwise Bitcoin ETF (BITB) becomes the first U.S. bitcoin ETF to publish the bitcoin addresses of its investments.
Now anyone can verify BITB’s assets and money flows directly on the blockchain.
Onchain transparency is core to Bitcoin’s ethos. We are proud to… photo.twitter.com/1JTUh3zvDE
—Bitwise (@BitwiseInvest) January 24, 2024
“Even now, many, many months have passed and we are still the only Bitcoin ETF that makes our holding addresses public,” Kim said. “You can go to a Bitcoin block explorer and look at our on-chain holdings.”
Kim also highlighted that Bitwise is the only issuer of spot bitcoin ETFs that proactively communicates with its customers via social media.
“We’re on Twitter, talking about a product and answering questions,” Kim explains.
“I explain everything and engage the community. If there is something they are angry about (regarding) the products, they can yell at us and we respond and take them seriously,” he added.
Kim also emphasized that Bitcoin remains Bitwise’s primary focus, making the company very different from other spot Bitcoin ETF issuers like BlackRock or Invesco, which manage a wide range of other asset types.
“We’ve been around for about seven years now and this is all we talk about,” Kim said.
“When prices fall in a bear market, we don’t move into emerging markets or fixed income or whatever,” he added.
“There may not be a big difference between BlackRock and Invesco or BlackRock and Franklin Templeton, but there is a big difference between BlackRock and Bitwise.”
Finally, Bitwise has committed to providing 10% of the ETF fee profits will go to three non-profit organizations that support Bitcoin Core developers — OpenSats, Edge and the Human Rights Foundation (HRF) — for 10 years.
Donate to open source developers
While many in the Bitcoin community have praised Bitwise for donating to Bitcoin Core developers, Kim sees this contribution as more of an obligation and less of a sacrifice.
“As a Bitcoiner, I don’t really feel like it’s a donation,” Kim said.
“The American taxpayer does not think he is contributing to the military budget,” he added.
“That’s not a donation. That’s your security budget.”
Kim further explained that while Bitwise manages a number of other crypto assets, two-thirds of the company’s holdings are in bitcoin. For this reason, he sees supporting Bitcoin Core developers as providing the technology that supports his livelihood.
“If you have all sorts of other (assets) like BlackRock and bitcoin is just one of them, you might think differently about it,” Kim said of why a company like Bitwise cares more about bitcoin than some of the larger traditional financial institutions that issue spot bitcoin ETFs.
“If you’re like me or in an economic situation like me and you care enough about Bitcoin, then it’s not an optional issue that the Bitcoin network is as secure as possible,” he added.
Kim, CTO of Bitwise, who has a background in cybersecurity, explained why open-source developers are essential to Bitcoin, noting that many who don’t understand how open-source technology works misunderstand what Bitcoin developers do. He argued that the majority of Bitcoin developers aren’t there to make radical changes to Bitcoin, but to keep it functional while interfacing with other software.
“You can have an opinion about the latest controversial soft fork proposal or whatever, but 95% of the devs we talk to aren’t working on that,” Kim explained.
“The 50 or so core devs that do this day in and day out, they don’t spend their time on that. When there’s a new version of Linux or Mac or Windows, guess what — we have to make sure that Bitcoin Core compiles to that version,” he continued.
“Someone has to make sure the software we depend on remains compatible, well documented, and executable.”
On a mission
While Bitwise does a lot to differentiate itself from the competition, Kim wants Bitwise to do more than just be one of the better US spot bitcoin ETF issuers.
“There are ways to look at a company as the product (it offers) or how it differentiates itself from its competitors, but I think there’s another way to look at a company: ‘What are you doing here?’” Kim explained.
He says that he and Horsely didn’t initially ask themselves this question, but that it now seems to be at the forefront of his mind.
“I want Bitwise to be the company that helps accelerate and lead this movement because it is so important for the world to have public money that everyone has access to and no one has control over,” Kim said.
After sharing this, Kim acknowledged what he thought many would think if they read this: You are offering exposure to the price of bitcoin within the walled garden of traditional finance.
“TradFi and Bitcoin culture inevitably collide and people have legitimate concerns and some dissonance about that,” Kim said. “That was really top of mind for me.”
Kim reiterated that this is why Bitwise chose to donate to open-source Bitcoin developers, make their Bitcoin addresses public, and engage with the Bitcoin community. And he also shared some information about what Bitwise is working on now: redeemable bitcoin.
Redeemable Bitcoin
Bitwise is currently in talks with policymakers in Washington, DC to have Bitwise facilitate in-kind buybacks of bitcoins from the Bitwise Bitcoin ETF. In layman’s terms, Kim wants Bitwise customers to be able to withdraw the bitcoins they’ve invested in through the ETF if they want, whereas currently customers can only withdraw the cash value of the bitcoins they’ve invested in through the Bitcoin ETF.
“There are gold ETFs where you, even as a retail investor, can redeem gold coins and bars and have them delivered to your home,” Kim explains.
“You redeem in kind without a taxable event happening. There’s no reason why a bitcoin ETF couldn’t do that,” he added.
“That would be a product I would be proud of.”
Kim believes that if Bitwise can enable investors to exchange bitcoins, spot bitcoin ETFs like BITB have the potential to become one of the largest gateways to bitcoin.
“Bitcoin ETFs are a huge improvement (in Bitcoin onboarding) because most people have a brokerage account,” said Kim, who added that it’s much easier to get family and friends to invest in bitcoin if they don’t have to go through the hassle of setting up an account with a Bitcoin or crypto exchange.
“If your uncle at the Thanksgiving table is convinced and wants to put $100 into bitcoin, you no longer have to say, ‘Wait a minute. Buy a ledger for $40 first…’ (Now it’s) just two taps and you have a hundred dollars of bitcoin exposure,” he added.
“But then, at any point in their journey, if they want, they can pull that back. And in that sense, it can be a very clean and simple on-ramp.”
While Kim acknowledged that many are skeptical that this will ever happen — speculating that Wall Street wants as much bitcoin as possible within walled gardens — he also noted that many felt the same way about any spot bitcoin ETFs ever being issued. He urged patience as Bitwise continues its efforts to break down the wall between bitcoin and traditional finance.
“There is a way to look at Bitcoin ETFs as a clean and easy on and off ramp and the road with the least friction for the average person,” Kim said.
“That would be my ideal world, and that’s a world that Bitwise is currently working towards,” he added.
“In that world, the ETFs and the on-chain world are not so separate, but they can have a close relationship with each other.”