Company Name: Bit-by-bit asset management
Founders: Hong Kim and Hunter Horsley
Date of foundation: December 2016
Headquarters location: San Francisco, CA and New York, NY
Amount of bitcoin held in treasury: Not disclosed
Number of employees: 65
Website: https://bitwiseinvestments.com/
Public or private? Private
In 2016, Hong Kim and his co-founder in Bitwise Asset ManagementHunter Horsely was living the startup life: working from a living room in San Francisco, looking for a project he could grow into a business.
While they were experimenting with various ideas, none of which were gaining much traction, their friends kept talking about bitcoin. Moreover, by early 2016, all the venture capital firms in Silicon Valley were also focused on bitcoin.
“For a long time we wanted to avoid it because there was too much hype,” Kim told bitcoin Magazine. “But then, by pure osmosis, we spent more and more time thinking about it.”
By the end of the year, after doing their homework on bitcoin, Kim and Horsely had incorporated Bitwise, a bitcoin-first crypto asset management firm that would provide wrappers for bitcoin so clients could purchase these assets through traditional brokers.
Eight years later, Bitwise was one of 11 US companies to issue a spot bitcoin ETF; it is currently the bitcoin“>The fifth-largest US spot bitcoin ETF by assets under management (AUM)This is partly due to bitcoin enthusiasts who have bought into it because of how Bitwise has maintained the spirit of bitcoin when interacting 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 issuing a US-based bitcoin spot ETF that publishes the addresses of its bitcoin holdings, embracing the idea of transparency, a core tenet of bitcoin.
<blockquote class="twitter-tweet”>
Announcement: Today the Bitwise bitcoin ETF (BITB) becomes the first US bitcoin ETF to publish the bitcoin addresses of its holdings.
Now anyone can verify BITB holdings and flows directly on the blockchain.
On-chain transparency is fundamental to the spirit of bitcoin. We are proud to… image.twitter.com/1JTUh3zvDE
— Bitwise (@BitwiseInvest) twitter.com/BitwiseInvest/status/1750224060620111912?ref_src=twsrc%5Etfw”>January 24, 2024
“Even now, it’s been many, many months and we are still the only bitcoin ETF that discloses the addresses of its assets,” Kim said. “You can go to a bitcoin block explorer and check out our assets on-chain.”
Kim also noted that Bitwise is the only bitcoin spot ETF issuer that proactively communicates with its customers via social media.
“We’re on twitter talking about a product and answering questions,” Kim explained.
“I will explain everything to them and I will communicate with the community. If there is something that bothers them (regarding) the products, they can shout at us and we will respond and take them seriously,” he added.
What's more, Kim noted that bitcoin remains Bitwise's primary focus, making the company very different from other bitcoin spot ETF issuers like BlackRock or Invesco that manage a host of other asset classes.
“We’ve been together for about seven years and this is all we talk about,” Kim said.
“When prices go down, when there is a bear market, we don't rotate into emerging markets or fixed income or whatever,” he added.
“There may not be that big of a difference between BlackRock and Invesco or BlackRock or Franklin Templeton, but there is a big difference between BlackRock and Bitwise.”
Finally, Bitwise has pledged to donate 10% of its ETF fee proceeds to three non-profit organizations that support bitcoin Core developers: Open satellites, Edge and the Human Rights Foundation (HRF) — for 10 years.
Donations to open source developers
While many in the bitcoin community have praised Bitwise for donating to bitcoin Core developers, Kim sees this contribution more as an obligation and less of a sacrifice.
“As a Bitcoiner, I feel like it’s not really a donation,” Kim said.
“The American taxpayer doesn't believe that they are donating to the military budget,” he added.
“That is not a donation. It is your security budget.”
Kim went on to explain that while Bitwise manages other crypto assets, two-thirds of the company’s holdings are bitcoins. For this reason, he sees supporting bitcoin Core developers as contributing to the technology that underpins their livelihood.
“If you're like BlackRock, where you have all sorts of other (assets) and bitcoin is just one of them, then maybe you don't feel that way,” Kim said regarding why a company like Bitwise cares more about bitcoin than some of the larger traditional financial institutions that issued bitcoin spot ETFs.
“If you're like me or in a financial situation like mine and you care enough about bitcoin, then it's not an optional matter for the bitcoin network to be as secure as it can be,” he added.
Kim, Bitwise’s CTO 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 have a misperception of what bitcoin developers do. He argued that most bitcoin developers aren’t there to make radical changes to bitcoin, but rather to keep it functional as it interacts with other software.
“You can have an opinion on the latest controversial soft fork proposal or whatever, but 95% of the developers we're talking about aren't working on that,” Kim explained.
“The 50 or so core developers who do this day in and day out don't spend their time on that. Whenever there's a new version of Linux, Mac, or Windows, guess what: we have to make sure bitcoin Core compiles on that version,” he continued.
“Someone needs to make sure the software we depend on remains supported, well documented, and executable.”
On a mission
While Bitwise does a lot to differentiate itself from its competitors, Kim wants Bitwise to do something deeper than simply being one of the top U.S. spot bitcoin ETF issuers.
“There are ways to think about 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 as, ‘What are you here to do?’” Kim explained.
He shares that he and Horsely didn't start out asking this question, though it seems to be at the forefront of his mind now.
“I want Bitwise to be the company that helps accelerate and guide this movement, because it’s so important for the world to have public money that everyone can access and no one controls,” Kim said.
After sharing this, Kim acknowledged what he felt many might be thinking when reading this: They are offering exposure to the price of bitcoin within the walled garden of traditional finance.
“TradFi culture and bitcoin culture are inevitably in conflict and people rightly have concerns and some sort of dissonance about that,” Kim said. “That’s what really stood out to me.”
Kim reiterated that this is why Bitwise decided to donate to open-source bitcoin developers, make their bitcoin addresses public, and engage with the bitcoin community. And he also shared information about what Bitwise is working on next: redeemable bitcoins.
bitcoin redeemable
Bitwise is in talks with policymakers in Washington, DC, with the goal of having Bitwise facilitate the in-kind redemption of bitcoins from the Bitwise bitcoin ETF. In simple terms, Kim wants Bitwise customers to be able to withdraw the bitcoins they have invested in through the ETF if they choose, whereas right now, customers can only withdraw the cash value of the bitcoins they have invested in through the bitcoin ETF.
“There are gold ETFs that you can redeem, even as an individual retail investor, and have gold coins and bars delivered to your doorstep,” Kim explained.
“They are redeemed in kind without incurring a taxable event. There is no reason why a bitcoin ETF cannot do that,” he added.
“That would be a product I would be proud of.”
Kim believes that if Bitwise can make redeemable bitcoin a reality for investors, then spot bitcoin ETFs like BITB have the potential to become some of the biggest on-ramps to bitcoin.
“bitcoin ETFs are a huge improvement[in bitcoin mainstreaming]in the sense that most people have brokerage accounts,” Kim said, adding that it's much easier to get family and friends to invest in bitcoin when they don't have to go through the hassle of setting up an account at a bitcoin or cryptocurrency exchange.
“If your uncle at the Thanksgiving table is convinced and wants to invest $100 in bitcoin, you no longer have to say, ‘Wait a minute. First buy a ledger for $40…’ (Now, it’s) just two taps and you have $100 worth of bitcoin exposure,” he added.
“But then, at any point in their journey, if they want to, they can remove it. And in that sense, it can become a really clean and easy access route.”
Kim acknowledged that many are skeptical about whether this will ever happen (and speculate that Wall Street wants as much bitcoin as possible inside the walled gardens), but he also noted that many feel the same way about the issuance of spot bitcoin ETFs. He called for some patience as Bitwise persists in its efforts to break down the wall between bitcoin and traditional finance.
“There's a way to look at bitcoin ETFs as a clean, easy on-and-off path, and one that presents the least friction for the average person,” Kim said.
“That would be my ideal world and it’s a world that Bitwise is currently working on,” he added.
“In that world, ETFs and the on-chain world are not so separate, but can have a close relationship.”
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