Constructing a Crypto Index with Jeremy Schwartz and Michael Batnick

Episode Summary

Executive Summary: The episode explores Ritholtz Wealth Management and WisdomTree’s new crypto index for advisors, covering why they built it, how it’s constructed, and what crypto use cases matter most. Michael Botnick and Jeremy Schwartz frame crypto as a developing asset class with real technological and financial infrastructure potential, while emphasizing diversified, rules-and-committee-based exposure, custody, and advisor usability rather than speculative coin-picking.

Main Topics: Why the firms partnered on a crypto index (Priority: 5/5): The guests explain how WisdomTree’s strategic focus on blockchain and Ritholtz’s growing interest in advisor-friendly crypto exposure led to a collaboration with OnRamp and Gemini to build a diversified crypto index product. Personal journeys into crypto (Priority: 4/5): Jeremy describes an early top-down interest driven by blockchain as a disruptive technology, while Michael describes a more skeptical, bottom-up path that only clicked after reading clearer educational materials and exploring use cases like NFTs and DeFi. Index construction and eligibility rules (Priority: 5/5): The index uses a committee-based framework inspired by traditional indexing, requires assets to be listed on Gemini, and seeks broad representation of the crypto economy rather than pure market-cap replication. Crypto use cases and technological promise (Priority: 5/5): They discuss practical applications such as lower-cost payments, tokenized assets, DeFi lending/trading, smart contracts, oracles, and metaverse/NFT-related opportunities as examples of blockchain utility beyond price speculation. Advisor access, custody, and implementation (Priority: 4/5): The product is designed so advisors can access crypto exposure through a streamlined account-opening, funding, and trading process, with Gemini custody and OnRamp serving as the access layer. Risk, education, and portfolio sizing (Priority: 4/5): Both speakers stress that advisors do not need deep technical expertise to use a diversified index, but they should understand the high volatility and allocate only modestly within a broader portfolio framework.

Key Arguments: Crypto is still early for advisors, but a diversified index is a more practical and scalable way to gain exposure than buying individual coins or opening exchange accounts. The index borrows from traditional indexing best practices: committee oversight, broad exposure, and letting winners drift rather than constantly rebalancing to force market-cap purity. Gemini listing and custody act as a major quality screen, reducing the investable universe and adding operational and risk oversight before assets enter the index. Blockchain may reduce frictions in payments, settlement, ownership records, lending, and data verification, creating real-world efficiency gains beyond speculative trading. DeFi can function like the banking, brokerage, and payments layer for crypto, enabling 24/7 trading, lending, and fast settlement. Stablecoins and staking can generate attractive yields, reflecting genuine supply-demand imbalances in crypto markets, though with material risk. Advisors can allocate to crypto without becoming technical experts if they treat it like any other diversified asset exposure and use a managed index solution. Crypto should generally be viewed as a smaller, higher-risk satellite allocation within a core long-term portfolio, not a replacement for diversified equities.

Data Points: Target crypto market coverage: Two thirds to 70% - Jeremy says the index represents roughly two-thirds to 70% of the crypto market through its constituent assets. Initial altcoin weights: 4% each - The initial construction gave 11 non-Bitcoin/non-Ether coins equal 4% weights before market drift. Bitcoin/Ether mix: Roughly a little less than 60% combined, with more Ether than Bitcoin in a roughly 2:1 ratio - Jeremy describes the core weights of the two largest assets in the index. Luna weight change: 4% to 10% - Jeremy notes Luna appreciated enough to rise from its initial 4% starting weight to around 10%. Card interchange fees: $60 billion per year - Michael cites Visa/MasterCard interchange fees as a major payment-system inefficiency ripe for disruption. Stablecoin yield: 8% - Michael says he is receiving about 8% on stablecoin cash-like holdings as a practical crypto yield example. Traditional cash return: 10 basis points - Michael contrasts stablecoin yield with near-zero bank cash yields. Crypto position sizing example: 5% to 7% - A suggested initial allocation range for a high-risk-tolerance, long-term investor like the hypothetical 45-year-old listener. Starting personal crypto allocation: 1% - Jeremy says he initially started with about 1% in personal crypto exposure. Potential market share in five years: Greater than 0% and likely much higher - Michael argues advisor adoption is likely to increase materially from today’s near-zero base. Advices on timing/use case: 2012–2013 - Michael and Justin reference the early period when Bitcoin first started appearing in mainstream discussion.

Pivotal Quotes: "It’s everything I don’t understand about computers mixed with everything I don’t understand about money." — Michael Botnick: Michael describes his initial reaction to Bitcoin and why he was skeptical early on. "What could do to ETFs what the ETFs did to mutual funds?" — Jeremy Schwartz: Jeremy explains the strategic question that pushed WisdomTree toward blockchain and crypto infrastructure. "I view it as one of those... you have a core allocation called 80, 90% of your assets in a core long-term strategy, but you might have five, 10% in things that you think have these bigger growth opportunities." — Jeremy Schwartz: Jeremy frames crypto as a satellite allocation around a long-term diversified core.

Implications: The conversation signals growing institutionalization of crypto for advisors: simpler access, better education, and diversified index products may accelerate adoption. It also suggests crypto’s investable case is shifting from pure speculation toward infrastructure, payments, and on-chain financial rails.