Odd Lots - Roshun Patel on What Really Happened During the Crypto Market Crash

Episode Date: May 31, 2021

The crypto market recently experienced one of its worst crashes ever, with numerous coins cut in half in a manner of days, seemingly without an obvious catalyst. So what really happened during the selloff? Who was behind it? And what role did crypto market structure play in the intensity of the decline? We speak with Roshun Patel, the VP of lending at the crypto prime brokerage Genesis, who explains all of this, plus much more.See omnystudio.com/listener for privacy information.

Hello and welcome to another episode of the Oddlots podcast. I'm Joe Wisenthal. And I'm Tracy Allaway. Tracy, do you remember the recent episode that we did with Aaron Lamer about defy trading in the crypto space? How could I forget, Joe? We are all defy all the time, it feels like. Well, I made a joke at the beginning of that episode. I was like, oh, by the time, like we're covering something that's probably the top and we're going to you know, there's probably going to be a crash right afterwards. And then, like, I think literally two days or a day after that episode came out, we actually did get one of the biggest, like, true crashes in the crypto space in a long time. I mean, it's that classic magazine cover indicator, isn't it?

Like, by the time the mainstream media is talking about something, it's probably reaching its zenith in terms of popularity. That kind of makes sense. I got to say, I was really disappointed. I missed the crypto crash. So I took a few days off that week. And I was out in the country and I wasn't really paying attention to either the news or social media trying to take a break. And then I started getting all these messages from people going, look at crypto, look at Bitcoin. It's at $30,000. So it seems like it was a very dramatic week, but I'm still trying to wrap my head around exactly what happened. Yeah, it was a really dramatic week. It was a really dramatic week. It was

already like a bunch of like negative stuff. There was the Elon stuff and other things going on that we already talked about. And then that Sunday, our episode with Aaron Lammer came out on a Thursday. That Sunday, which was just, I guess, three days ago. So we're recording this Wednesday, May 26. So let me, I guess that was Sunday the 23rd. We got this like really intense crash. And Bitcoin touched like 30,000 and ether fell below 1600.

and so forth. Really big crash. And I think there are a bunch of people that were like ready to say, oh, this cycle is over. See you all in four years when we do the next one. But it's actually like, I mean, it hasn't come back all the way by any stretch, but pretty resilient actually the last few days post that crash. I do think it highlights something pretty important for the crypto market, though, which is this idea that I think there's a tendency to look at it and think that it's just a bunch of people who are buying crypto on their computers, you know, with their own wallets, when in fact the market has changed enormously. And there's a whole ecosystem built around it. You have the big exchanges. You have people providing financial services that are tied to Bitcoin. You have derivatives contracts in the form of a futures market, which seems to be playing a huge role. And I don't think

people have appreciated enough the change that has overcome crypto. and how it actually impacts the underlying price. Absolutely. So, you know, I think there's the sort of like crypto conversation, and then there's the crypto market structure conversation, and we're both super interested in that. So today we're going to talk a little bit more about market structure. I'm very excited about our guest.

We're going to be speaking to Roshan Patel. He is the VP of institutional lending at Genesis, which can be described as basically a crypto prime brokerage. And so I think if we want to think about, the role institutions are playing in the volatility, the role of hedge funds, how they're trading this, what caused the liquidations, where the money is coming in to buy the dip is a great, a great perspective on all this. So, Rocheon, thank you so much for joining us. Hey, Joe and Tracy, thank you guys so much for having me. It's great to be here.

So why don't you actually just start off before we even get to the crash or get to anything like that, why don't you sort of talk to us about where Genesis sits within in the crypto ecosystem and sort of what your role is there and how you got to occupy that seat, so to speak. You know, Genesis broadly speaking, is kind of a basically a sell side desk in the crypto ecosystem, similar to kind of a bank prime brokerage desk. We facilitate the ability for clients of ours to trade as well as lend to us, borrow from us, get yield on their holdings.

And then recently as of last year, trade derivatives with us bilaterally over the counter. So we kind of offer the whole gamut of financial services in crypto markets. Genesis has its roots kind of, they go back to really the kind of mid-2000s to a company called second market without getting too much into the details there. That company basically facilitated buying and selling illiquid company stock, really like Facebook, Twitter, LinkedIn, like those kinds of things in the mid-2000s between buyers and sellers when those companies weren't really public. Eventually, that was sold to NASDAQ and one of the desks there started trading Bitcoin in like 2011, 2012.

And effectively, that desk became Genesis and kept the broker-dealer license still based out of New York here. And we've kind of grown a lot since then. What started as just a spot OTC trading desk, added lending in 2018, which is kind of when I joined. And derivatives in 2020. So, like, we've added a slew services and Genesis now. it facilitates billions of dollars of trades every, you know, used to be every month. Now it's like every week, which is kind of crazy to think. You know, we have a pretty large lending book. When I joined in 2018, we had $100 million in active loans outstanding. Now that's kind of grown

to $9 billion in active loans outstanding as of now. I think prices are rallying a little bit, so maybe it's a little bit more. That mention of second market is kind of a blast from the past, and I haven't heard anyone mention it for a long time. But what was what was the sort of like like overlap between dealing with shares in the private market and crypto. Like, is there a resemblance between the two asset classes or why did the service that you just described spring out of the private market area? Second market, what was interesting about that is was connecting two sort of different markets, which was like you had early investors in tech companies as well as employees that wanted to

get some liquidity on their holdings or shares or options. And then you also, and those guys tended to be on the sort of West Coast. And then you also had like more investor focus hedge fund types on the East Coast, New York base that wanted to kind of get it on that and, you know, weren't necessarily physically or, you know, financially close to Silicon Valley. That kind of, you know, marrying of two different markets, I think it's, it sort of ties into kind of Bitcoin and crypto trading generally just because, you know, the people on the West Coast there that were early on tech tended to be the ones that were also early in the crypto space. And it led Genesis and ultimately our parent company digital currency group to establish a lot of these good relationships

with early holders, which are now, you know, kind of larger clients notionally so that we have like a good asset base and a good client base and as well as investor base to kind of lean on to help build our business into into the future. Let's talk about what that base looks like. And one thing it's really extraordinary. I mean, the sort of like the flora and fauna of crypto holders really diversified a lot. So, you know, maybe before it's hobbyists on their phones or like weirdos and now you have pension funds. And your clients, like how many of them are sort of like funds that have some allocation to crypto, some strategic allocation or how many of them are sort of like very crypto focused where that's really the sort of like their main energy? Yes.

You know, that's really evolved, I would say, over time. If you asked me in 2018, it was pretty much the vast majority of our clients for extremely crypto-focused and crypto-native. And to this day, I would say like a good portion of them still are. As of late, it's evolved a bit where we do have more clients that are not necessarily crypto is their main thing, but it's sort of an adjunct thing that they've added recently. I would say our client base now is probably like if I had to put like percentages on it, like 70 or 80%

crypto-focused, let's say, and the rest, like, more diverse and has, like, primary businesses outside of crypto. These funds, and I guess maybe sort of the crypto-focused ones and the non-crypto-focused ones,

but I guess the non-crypto-focused ones, how many of them come into it because they say, okay, we want to have some allocation to this space because it seems to be diversified or it's going up a lot, we want to have some exposure, and how many these things,

into the space because they see a nascent, inefficient market with lots of trading opportunities and lots of essentially ARBs, so to speak, to exploit because the space is still, broadly speaking, pretty immature. Both are pretty relevant in terms of the inflow that we see. Just kind of given the services that we provide, our clients are more focused on the trading ARB and extracting yields and, you know, sort of value out of the market side of things. So I would say it's a little bit skewed towards that side. So since you're talking about the services you provide, when I hear prime brokerage, I usually think about investment banks servicing hedge fund clients,

specifically by providing money, so, you know, lending them money to trade. Is that something that you do as well? Yeah, definitely. So, you know, we started our core business really by lending out crypto, particularly Bitcoin for cash collateral in terms of the lending side of things. And that trade was, you know, more or that real service was more, you know, suited towards crypto trading firms that had a reason for borrowing Bitcoin in the first place. Now, you know, kind of in, I would say, like, around November of 2018, stable coins started becoming a much more popular and real thing. And, you know, since we were more crypto-native in focus, we were thinking, like, you know, why don't we consider lending out stable coins against Bitcoin as collateral, kind of doing the inverse of what we

were doing prior. And that business has ballooned quite a bit where now about, you know, it's about 50% of our active loan book is, is actually stable coins right now. So, you know, it's, or cash equivalence, like tether, dollar, circle dollar, Paxos, those kinds of things, as well as USD. So, you know, we do lend cash against crypto and a lot of the firms that do borrow that cash, you know, are probably, you know, clients of prime. workers at banks as well. So I want to get into, you know, the recent volatility, but actually I think this is pretty important to just draw this point out a little bit more. Lending stable coins. I mean, you know,

we had Sam Bankman-Fried on several weeks ago. He's the founder of FTX and Alameda research, is huge in the space. And, you know, we talk about various arbitrage opportunities. is how much is the sort of stable coin world essentially about the ability to move money quickly across different exchanges in a short period of time to either take advantage of price differences in spot or futures markets and essentially attempt to close various arbitrages, like how closely are those two concepts related? I think broadly speaking, the stable coin market, a huge aspect of it is sort of efficient settlement and timing on moving assets from point A to point B, whether that's for exchanges or even just

more like settling OTC trades and dealing with desks, I think it's all relevant. You know, a good example to point to is really the most innovative and forward-thinking banks, I think, out there are, you know, kind of building these 24-7 settlement networks, some of which are really mirrored on kind of Ethereum itself and kind of like private Ethereum networks. So, yeah, stable coins are really just, there's frankly just easier to use than wires, simply put. Right. So you've laid out what you do really well and it feels like you're in the perfect position maybe to describe what exactly happened during the big crypto sell-off. So there was a lot of talk about positions being liquidated. I think I saw one number that was like outstanding

futures contracts fell from, I think it was as much as 28 billion in April to something like 13 billion in a matter of days. And then there were all the disruptions at the individual exchanges like Coinbase and Cracken and things like that. So from your perspective, what actually happened and what did you observe? And the crypto market, you know, over the years, you've seen some pretty wicked crashes to the downside, similar to last week, although I will say last week was probably the most brutal I've ever seen in the last five years. But, and even, even crazier than March, I would say, for a couple of reasons. But you could point to like a specific headline or a specific narrative or a specific theme that could be the cause of it.

But it's really hard to say if that was the ultimate reason why, you know, the market sold off. At the end of the day, the crypto market is really just a spot order book and a derivatives order book. The derivatives order book is very levered. And, you know, there's a lot of people that, you know, take positions out on futures and swaps that want to get upside but have like tight liquidation levels to the downside. And, you know, that market has liquidity until it doesn't. And then, you know, it could get a little hairy on the downside. And then the spot market is the same thing. And the spot market is, is consisted of people that are buying and trading the underlying. And I think really just what happened last week was similar to what you've seen

before where the, you know, the futures market and the swaps market was was pretty levered up. People were very, very long, especially in the altcoins, thinking that like, look, Bitcoin is kind of found a floor here. The next sort of thematic narrative shift that we'll see is a rotation into alts. And as long as Bitcoin doesn't fall through the floor, the alt will kind of rally. So a lot of the positioning was skewed down the risk curve and more volatile assets. And pretty much the exact opposite happened, which was spot Bitcoin started selling off in a significant way. And when that happens, there's such a scramble for collateral in the market as well as like kind of getting assets back to things that, you know, aren't really

going to fall like 70 or 80%, but, you know, things that are going to fall maybe like 20 or 30 percent like Bitcoin. So there's a rotation back into Bitcoin. And, you know, when that happens, the liquidations can get pretty wild on alt and they kind of cascade. And the difference, I think, with what happened last week was usually when that happens once and gets to a certain point, it kind of bottoms out in floors. What was different last week is it kind of just felt like it kept going. And the pressure for the spot selling just sort of continued. you know, that that's what made it particularly worse, I would say, relative to, let's say, March of last year, which was kind of a one-day thing. And then kind of we rallied. And there was also

some solace in knowing that other markets are behaving the same way. The fact that this is, you know, sort of idiosynocratic to crypto makes it even a little bit more painful. But, you know, at the end of the day, I think what the takeaway is from it is more impactful than like the actual sell-off itself, which is look like, you know, there was no lender of last resort that had to step in. We saw 40% drawdown. There's no, you know, injection of capital into the market. No firms defaulted. You know, Genesis, it's, you know, on our side, we manage our risk really well. All of our clients, you know, topped up or returned loans or, you know, we didn't have any liquidations or defaults. And, and the market kind of just carries on. And now, you know,

the people left are another layer of survivors onto the next, you know, sort of market cycle. So it happens from time to time. It's hard to point to exactly what it is. But overall, and the market moves on and we're in a healthier spot now, I'd say. So you mentioned the fact that we didn't get big defaults or failures in the market. Can I ask, like, how close do you think some market participants actually came to failure in that week? Because I saw some pretty crazy rumors flying around and I don't want to name specific names for obvious reasons, but it does feel like some people thought certain entities got pretty close to the brink. I guess I'm asking, like, how crazy did it get that week?

Yeah, it's an interesting question because it really depends on the entity and the sort of firm, the type of firm you're talking about. If you're talking about trading firms and Arb shops, like, you know, kind of client-based, it was probably one of their better weeks on their direction neutral books of all time, primarily because they're long spot short futures or short swaps. and when a move like that happens, those spreads really collapse. And not only do they come back to parity, they sometimes go the other way. So like they go into negative territory. So you get even more juice out of the trade. So a lot of our clients actually, you know, did really well that week kind of being positioned appropriately for that trade and for that move.

You know, if you're like a crypto hedge fund that's like aggregating, you know, assets and kind of just sitting net long, it was probably not so fun for you. But you're not, you know, as long as you're. not levered on top of your spot holdings, it's not really that bad for you. The only way it really, I would say, firms are in a tough spot is if they're holding just spot, they have no cash, and then on top of that, they've taken leverage out against that. In this market, I think the participants that do that sort of style of trading are, it's just almost like a ticking time bomb, right? It's like they're not going to stay around for that long because you don't really need that much leverage to

to capture this market and even spot itself is volatile enough where where you know you don't really need to like go crazy with futures or swaps. So I think people like to speculate and say like, oh, you know, this market sold off like all, you know, there's X, Y and Z might have been in a tough spot. But when you really dig into it, it's like, you know, exchanges are fine. You know, they're just facilitating trades. Trading firms had a great week, even if they're long on their core spot or down on their core long positions. And yeah, you know, service providers like Genesis, as long as we're managing our risk and knowing our client's positions and knowing what our clients are up to and their risk well, we're doing fine as well. So overall, I think it's, you know, the price is probably the scariest part.

The actual underlying behind it is it's not so bad. Can you talk a little bit more? There's been some research done. Josh Younger, JP Morgan put out a note about different times when the crypto market seems vulnerable. And you know that U.S. hours seem to be a little bit more volatile lately than Asia. on Europe hours. And there's been a number of people who have observed that weekends tend to be more volatile. Maybe there's less liquidity than the weeks.

And in fact, I saw some people talking about that on Thursday and Friday before all this, like, this could be an interesting weekend. And then, of course, it turned out to be. Can you talk a little bit more about the texture of markets in different times and the way, say, traditional finance wires and institutions taking a break for the weekend, has an effect on crypto, which obviously trades 20. 24-7? Yeah, there is definitely a pace to the market, depending on the hours, depending on the day

of the week. I think there's a couple of reasons for that. One is like there's like a sort of Western market and an Asian market. They have different, you know, sometimes they're very in line and doing the same thing. Other times they have different risk-taking proclivities and preferences. And, you know, they could sometimes be fighting each other in a sense. So like, you know, you could see different price action in the Asia session versus the U.S. session just because the user base is positioned differently and then moving in a different sense. Like, you know, last summer, for example, in May or really after the March crash, a lot of the minors and a lot of the sort of very long Asian firms had a little bit of concern after the

way March moved that they were more inclined to hedge. So a lot of the cell pressure came out of Asia, whereas the U.S. side of things had more of a bid, especially in the spot market. So those kind of flows were competing against each other a bit. You know, regarding weekends and volatility on the weekends, I think a huge part of that is really, the market is still very human driven. It's not like everything is extremely algorithmic and high frequency trading and super quantitative at the end of the day. This is more of a speculative marketplace where there's, you know, there's leverage, of course, but also a lot of humans just kind of clicking, buying and selling. And on the weekend, of course, like, yeah, you know, no wires. definitely a part of it, but also like the larger liquidity providers might just be a little bit

more wide on the screens. So, you know, you'll kind of have like a easy way to like, like there's just like a high chance that like a small amount of capital could could wipe through a lot of levels of the book. So you kind of get those sort of drawn out moves. So I think it's really just the human element of it and the fact that Asia and the West are sort of two different markets and have their own little tendencies. So you mentioned algorithmic trading just then. Why isn't there more algorithmic trading in crypto? Because when you look at the space, you see a lot of fragmentation, a lot of inefficiencies, and pricing discrepancies that could, in theory, net someone quite a lot of profits.

Why hasn't that happened more? Don't get me wrong here. I think there's definitely a lot of algo trading going on to crypto, especially on the R of an exchange side, really since 2018, when March or kind of January to February of 2018, where those spreads were really wild, the very smart art trading firms out there definitely started looking at the space and got involved in a big way. I just think the way the market is structured leads to like some ways that, you know, it's more difficult to be an art shop in crypto. You have to manage a lot more nuance than say like an exchange or ETF, Arb shop. One example is really just the blockchain itself. You know, there's a mempool. There's different chains. You know, it could be clogged with transactions.

things could be slower on chain. So it's like physically more difficult to get assets from point A to point B. Even service providers like Genesis, you know, we, we settle trades as fast as we possibly can. But when, you know, the network is clogged, there's really not much that we can do other than kind of put put in higher fees and wait for transactions to go through. So all those sorts of elements make, make ARB nuances more prevalent. So, you know, you do see a little bit of widening there. And then there's also like limits on how much you can withdraw from. certain places and liquidity constraints in terms of how much size can be actually thrown at this, where people that have really big balance sheets and really big art trading capabilities

might not be looking at a specific small ARB because it's not worth their time, just notionally, what they can make. So, you know, for all those reasons, I think, you know, you're going to see these spreads sort of persist for a while. And it's a good opportunity, I would say, for like more like nimble, smaller sized firms to really take advantage of. So just out of curiosity, what were settlement times actually like the week of the big sell-off? You know, settlement times specifically for Genesis, I mean, we were pretty good about them. You know, we got through all of them totally fine. I think on the exchange side, there were some delays here and there, like kind of T-plus-1,

which is really just an eternity in crypto, which, you know, normally in traditional finance, it's like T-plus-3 and it's like, wow, arrives on time. And I think, you know, there was a little bit of clogging of the, MEM pool where gas fees went super high. And oh, I forgot to mention this earlier, you know, that that causes it so that it's basically really hard to move assets on Ethereum. And there is a lot of collateralized lending going on on Ethereum. Like, you know, people are posting ERC20 tokens or ETH as collateral to borrow like stable coins from protocols. When a selloff like that happens and spot moves so significantly, all those sort of on-chain deposits are very difficult to top up,

both from a collateral perspective or returning the loan perspective. So you get this. this cascade of on-chain liquidations where the prices of things on decentralized exchanges might be vastly different than the price on centralized exchanges. And it's really just a product of difficulty actually, you know, coming in to support the bid. And then it all sorts of normalizes and then and then it kind of builds back from there. But yeah, that the pace of that is difficult. Right. And I want to go back to the crash, but just from a sort of market structure standpoint, speaking of the defy exchanges, they don't go down, but the fee is absolutely sore. The gas fees, the sort of the block space that's required to execute your trades, everyone

rushing through the door. It all holds up structurally. But I guess it's easy to imagine in thinking about algorithmic trading, how in periods of high vol, arm opportunities just completely disappear when the sort of, I guess you could say, the de facto commission of the trade absolutely soars. Yeah, I mean, it depends on the size of the art, but in a sense, like, sort of, because like people can still pay really high gas fees and jam themselves into the, into the pool and get top priority for minors. It's just a matter of like what if the opportunity you're looking at is worth that.

So like a lot of like the smaller things aren't really worth that, so they just kind of hang for a bit. So just to go back to Sunday for a second or that crash, and by the time people listen to this, I think it'll be two Sundays from now, but everyone should know what we're talking about. Going back to that crash, who bought the dip? And do you, was it institutions? Was it funds? Was it retail? I actually had someone talked to me like, I bought my first crypto today after the big crash. I know there was at least, I know there was at least one retail buyer, probably many more. But I'm curious like what your sense is in terms of like what, what, What put the floor under the market and sort of what contributed to what's actually been a very strong bounce back as of right now. Yeah, it's so funny. I mean, I was working on Sunday and kind of on chat with the desk. And the amount of times I said, like, who is selling was kind of crazy? Because the only thing we're seeing on dips like that are net buyers. And granted, our flow is very skewed and biased towards the buy side because of kind of the nature of the clients we're dealing with.

But we were seeing institutions come in buying the dip, like, you know, large. hedge funds, trading firms, as well as ultra-high net worth individuals, like, really every single piece of flow that we saw in, like, the sub-2K-Eth range and sub-35K Bitcoin range was just net buyers. So, like, we were supporting the bid in many ways there. And the question was really like, why the heck is it kind of selling off so hard? So, you know, we've just seen a lot of net buyers there. Well, what's the answer to that question? Like, when you were asking that, why, so what is the answer because I feel like we haven't really cracked this. Like, where did the selling pressure come from and who was it? Yeah, I mean, it's like the billion dollar age old question, right? It's like, I think it's just,

at the end of the day, you kind of just have to look at the activity on exchanges and the sort of the trading that occurred. And there was large spot selling on certain exchanges. So someone out there with a lot of inventory, basically, and maybe it's not someone. I don't think it's definitely one person or anything like that. It's just like there was just a lot of exiting from the market. in spot. So, you know, we don't know who that was because it's not really the flow that we see, but it definitely existed. So you mentioned leverage right at the very start of this conversation. And more recently, you mentioned this idea of people borrowing in Ethereum to, and using that to borrow stable

coins and then do something else with them. I mean, this is something that has come up again and again in all our podcasts on Defi. And I know Joe has been asking this question of like, where is the yield actually coming from? And why is it all crypto doing stuff with crypto? I guess it just feels very circular or sort of like crypto all the way down. Like somehow crypto is generating money from other crypto. But like what is the underlying mechanations of like how that yield is generated? Yeah. No. I. I've been listening to kind of the recent podcast, and it's such a question that comes up so often. The Aaron one was great, by the way.

You know, I think there's two, there's two sort of aspects of that yield that comes from the stable coin. One is the more, the one that makes more sense and the one that's easier to understand. It's really just the basis trade, which is, of course, retail and leverage traders want to be long. They bid up the market in futures. There was a good tweet actually by Sam Bank and Fried, who was on this podcast that kind of described why that exists.

And in a nutshell, it's basically like, if the. crypto market is worth, you know, one or two trillion dollars. And the sort of traders in the market wanted to be worth four trillion dollars, but only $500 billion is being lent to the market as spot sort of cash leverage to use. The remaining difference is sort of bid up in interest rates. And that causes derivatives and futures, you know, to kind of go bid relative to spot. And then that's reflected in interest rates. And then, of course, you get good yields on cash for coming into the other side of that trade and trying to help close it, which, you know, it's not completely free money in any sense, but it's, it's very simple to understand why you could earn yield

on your cash in that way. And it makes sense, like, from an end-to-end non-circular crypto perspective. The crypto-circular perspective is, I think, where you're getting at is more on the yield farming side of things, which, you know, that, that aspect of the market is game theory, psychology, in terms of kind of getting in, getting out, yields, like kind of delta risk and an impermanent loss and thinking about all the ways that, you know, you can actually extract the yield, but also walk away in notional dollar terms in a decent sense without having to take sort of large losses there. I would say the main reason why those yields exist is really protocols are formed, which have a native token. That token contributes to governance or has some sort of

value tied to the protocol, either through like a burn mechanism. or some sort of fee generation mechanism, basically it's somewhat valuable if the protocol is valuable. And then to incentivize people to use the protocol, especially at the start of the protocol's launch, the protocol will emit sort of that token to people that contribute to providing liquidity on the protocol. And that causes you to have good yield opportunities in crypto. But a lot of what I just said there was like, you know, at the start and at the beginning. and that eventually dies down. So, like, it's not really something for, like, the passive yield-seeking investor

to kind of just be like, oh, I'll just park this here for a bit. And you can do that in many ways on-chain. But the sort of the crazy yields that you're talking about, you know, you wouldn't quite see if you were just so passive. It takes a little bit of understanding as well as, like, nimbleness and willingness to be able to move around. And also, like, the fact that Ethereum has, like, two pretty large side chains now. One is called Maddick.

I think it rebranded to Polygon. And the other is Phantom where, you know, though you're basically, if you're willing to go change up the chain you're looking at, you know, you can be compensated in a way because a lot of people aren't just going to go do that. So like less people are looking at it. And then you get into other sort of layer ones like Solana and things like that. And, you know, you're compensated effectively for dealing with crypto, but then also going further down the rabbit hole and into areas where, you know, a lot of people might not

be looking. So, yeah. You know, the first time, Roe, you and I connected, we were talking about the basis trade. And I want to get to that in a minute. But before we do, just, you know, one of the theories going into the crash, and, you know, you were sort of raising the question as like, who is selling, who is selling? And there's some, one of the headlines that initially hit the market was China clamping down on mining activity. And I know there's so many rumors in this area. It's always contradictory headlines and very opaque. But miners have Fiat obligations. Their liabilities are in fiat, either in the form of electricity or acquiring new hardware in the form of chips.

How much could that have contributed? I saw a bunch, again, on Twitter and things that are translated out of Chinese like multiple times and reinterpreted. But they're sort of like miners having to pick up their stake, so to speak, pay off their bills, liquidate any. holdings of coins that they had generated before winding down. How much plausibly could that have been a catalyst? And I'm just curious, like, sort of more broadly, I know, like Genesis, I think you have a good mining cousin or sister company out there, Genesis mining. Correct me if I'm wrong. But how much does that play into, you know, sort of like that fit into the ecosystem? Yeah. So our sister company is actually a DCG Foundry, which is, it is effectively a mining and

and staking company that's, it also has like a core mission to help bring cash rate to North America and also, you know, do it in a more conscious renewable way. But, you know, the mining thing, and I've talked to Mike Collier there, a bunch who kind of runs that business and is very, very in tune with, with the mining ecosystem. And, you know, we have clients that are that are minors as as well. I think it's, it's less likely that the whole cash obligation, uh, woe was like a, it was a reason for this most recent sell-off, mostly because the break-evens for miners in terms of like the prices they need these assets to be at to sustain their electricity costs and operational costs are significantly lower than where a spot was. It was more of the relevant

concern, I would say, in like the March of 2020 crash where we saw a move past like 4K and kind of into the 5K range on Bitcoin because at those levels, you're getting really close to the sort of cost of mining and like, you know, it gets a little hairier down there in terms of miners staying profitable if prices were to sustain in the lows there. Here at like, you know, over 30K, miners are doing fine in terms of operational expenses relative to revenue. So I don't think like a sudden urge for like, you know, oh, you know, we have to pay our bills, you know, cause the sell-off. Just on a related note, I mean, even before the massive sell-off that we saw in May, there was a sharp dip in Bitcoin.

I think it was a few weeks before where some people were blaming it on a power outage in Xinjiang, where there are supposed to be a bunch of miners. Can you maybe just talk more generally about how the miners and changes in hash rates and things like that actually feed into pricing and the market? Because it seems like when, like every time Bitcoin does something that people can't quite explain, the miners often come up, and it's unclear to me whether that's just a convenient thing for people to point to or whether it's something that actually matters for the market. Yeah, I think you actually nailed it there. And I'll speak broadly on this because I'm by no means

a mining expert or anything like that. But I think from a psychological perspective and a trading perspective and markets' perspective, and when markets sell off drastically and suddenly, all of a sudden there's like a, there's a feeling that like who's responsible for this, like, where do I point the finger? Like, someone has to, there's something that, you know, can bear the blame here. I think minors just kind of given their maybe like elusive nature and activity are easy to point to. But in reality, like, it's not really, you know, it's not really the cause of like, you know, like the electricity concerns and the Cappex concerns or the, or the, or the outages in Shenzhen. Like, you know, those things relative to the actual flows in

the market, I think are pretty small and don't, don't matter. as much, but people like to, you know, paint narratives and find a way to, like, be like, why is this happening? So I think you kind of nailed it with, like, why people do it. It's just because people want a reason and minors are conveniently, you know, not that public about what they do. So it's easy to kind of say, like, oh, it must be the miners. All right. One last miners question, but this is something I've wondered about. And I'm kind of guessing the answer is no, because there is, as you say, this huge gap currently between spot and cost for most of them. Do minors

currently participate in the futures market and use them as hedging instruments at all, kind of the same way oil companies lock in prices. And if not, do you see a future in which the futures market serves a commercial purpose for miners, if that spread were to compress? And it became, and they had a need to hedge volatility. So they definitely do. They definitely do. They use futures. They use options. I think really after March of last year, with that sell-off, I think a lot of them were even more inclined to do so, which is kind of why you saw us rally from the lows of like, let's say, 4K on Bitcoin to 10K in June on pretty much a pancake forward curve.

Like the June futures were barely above, or the September futures were barely above spot throughout that whole move up, which is historically very different than what you've seen in the crypto market, where like if the market swings bullish and like 2Xs, you know, usually you see a bid up in premiums, but the futures were really tight relative to. thought. So the prevailing theory is there is that like, you know, there must have been a tight offer on futures who is selling those futures. You know, I think a lot of that are people

that have, you know, sort of forward receivables in crypto and want to be able to hedge that. And so, you know, that's why you saw a little bit of pressure there. So there's definitely a sophisticated, you know, participant in derivatives by miners. So I want to get to, we talked about this several weeks ago, Roe, and, you know, I think this trade is still out there. And you sort of hinted at it. But there is this sort of like, I called it in a newsletter the sort of like free money Bitcoin trade. And, you know, nothing is free money. There's nothing guaranteed.

But there is this big arbitrage opportunity that exists that more and more people are talking about, which is that there is a huge gap, or at least there was, between Bitcoin spot on the various exchanges and the various flavors of futures, whether we're talking about CME futures or some of the more exotic futures on the exchanges like FTCS and Cracken. and so forth. And a lot of people seem to be interested in this opportunity to essentially buy Bitcoin now, short the futures because they're trading so much higher. And then over time, in theory, they converge and you get free money. And these sort of basis trades are like common in commodities, but they tend to be like way narrower and rarer than they are. And usually there's a cost of carrying. So can you quickly sort of like describe this opportunity and the degree to which sort of like non-crypto-interested money is sensing this opportunity and interested in exploiting it?

Yes. I mean, on the interest side, there's definitely a lot of more eyes on it right now than I would say there ever have been. You know, it's a lot more popular. It's talked about a lot more. You know, in a nutshell, I think, you know, you described it pretty well, but, you know, derivatives trade at a premium to spot, primarily because people want leverage and people bid up those interest rates, similar to kind of how I was talking about what the market cap should be worth in the eyes of traders relative to what it is versus the amount of cash that's being lent to those traders. So, you know, all those parameters slide around. And I think, you know, in February and May and March and April, you had a pretty wide gap between where the market cap was trading and versus where people thought it was

going to go. But that is a, you know, that is an emotional difference, I think. And it and it ebbs and flows over time. So if that gap narrows, which it actually has right now, as we're talking right now on this date, you know, the futures are much more in line with spot because after the whole sell-off, all of a sudden people think that the market's not going to go up as much and they don't really have a desire to own the curve as much. So to the spreads and the sort of yields have compressed there in terms of the difference between the two. But the underlying market is so volatile in crypto, like the spot market where, you know, the interest rate market, which is, basically the basis market is equally as volatile. So these, these annualized rates swing all over the

place. Like in 2018, they're pretty much negative the whole way through. Really since 1920, they've been positive. And then you have these like really, really wild moves where the rates are super positive because they're so bit up. And then they kind of usually come down. And I would say it's actually a, in many ways, it's a leading indicator as to where kind of spot can move next. because and traders talk about this all the time, it's like, as these rates kind of get bit up and these curves are very blown out, you know, it could indicate that like, look, like there's some sort of washout coming up next because, you know, things are just a little out of control right now and it's way too profitable to just buy spot sell future where like I kind of just have to do it. And, you know, the unwinding of that trade, you know, kind of going back to talking about, oh, why is the selloff happening? I forgot to mention this then, but I'll mention it now because it came up. When you unwind this trade, the action you have to perform. in the market is buying future, but more importantly, selling spot at the same time. So when markets sell off, the basis traders that are involved in the market are going to have to sell spot and buy future adding to the spot pressure that you see on the order book. So that is definitely a huge portion of the

offer you see right after a liquidation sell off. So, you know, I would say those are kind of the things to consider there. But also the margin on the future's leg is a concern. generally for all traders. And part of the reason why potentially these markets blow out so wide, because you don't really want to be in a position where you buy spot sell future, but then the underlying 10xs or 5xs from there. You know, it's a very tough position to be. And like last summer, for example, Ethereum was probably trading around $300, $400 and the September and December and the March futures were trading at a pretty good annualized basis yield where you would be very comfortable to buy spot sell future. But then Ethereum teleports the $1,400.

all of a sudden you're scrambling for margin on your futures leg and, you know, it gets a little hairier. So it's not, it's not totally cut and dry and as riskless as it might seem on the surface. This is going to be a weird question, but how much does crypto's allure sort of depend on these inefficiencies and having a fragmented market? Because it does feel like a lot of people are clearly in the space. You know, they might talk about blockchain technology and changing the world, but there is a big chunk of people who just want to make money. Bitcoin is really volatile. It's fun to trade.

Stuff is happening every day. But it does feel like as the market matures, the potential for those sort of big discrepancies in things like Spot versus futures, like maybe that starts to go away a little bit and that attraction starts to wait. I don't know. That's, I'm having a hard time putting this into words, but hopefully you understand what I mean. Yeah, no, I think I get what you're saying, which is like a lot of people, a lot of market participants are here for the inefficiencies of the market. And once the market becomes super efficient, it's like, okay, on to the next thing. What's next?

Right. It kind of gets to the yield farming idea that you mentioned earlier, right? Like a lot of it depends on the new coins and that's where the opportunities are. But sorry, go ahead. No, I agree with you. I mean, like, broadly speaking, like, yes, the market's going to get more efficient over time and the amount of very blown out or, you know, high yield arbitrage opportunities and similar kind of are smaller. At the same time, though, I do think the tailwind of the fact that, like, a new asset class is born here, which is, like, pretty rare for anyone to see in their lifetimes. Like, you know, you don't really get like a new asset class, right?

Like, it's like, okay, you have assets and they kind of exist. stocks, real estate gold. But like, you know, now there's a new asset class. It's called crypto. Whether people like it or not, like it's here to stay, it's like Pandora's box is open. You can't just put this back and like end it. So it's going to be around in some form of the other. And given the difference between the crypto market and the traditional market, which I think the key difference really is access. Like there's really low barriers to entry for someone and individuals to kind of come in and trade and, you know, do leverage or whatever they want to do where it's going to be much more tied into like the nature of like the way humans are

trading and the emotional aspect of and then the psychological aspect of markets more so than like let's say the stock market and the you know the commodities markets out there and on top of that there's no sort of lender of last resort or or similar in crypto where like you know liquidations can happen and markets can can go really really south and no one's really going to no one really has to come in and step in and be like a designated market maker or similar like you know on the CME, there are designated market makers and a lot of these products out there, which are forced to be on the bid if markets sell off a certain amount. You don't have that in crypto. So the democratic nature of the market, the fact that it's a new asset class, I think it's going to cause these opportunities

to almost persist a lot longer than we think. So maybe in some very, very future hyper-efficient state, like crypto is just used as colloquially as cash or Venmo or stable coins or whatever. But I think we're a long ways away and these inefficiencies should persist for some time. I just want to go back real quickly to the ARB, the spot futures ARB. I mean, you mentioned the risk that can happen, even if the trade should close profitably, where you get the sort of teleportation higher, which happens all the time in crypto. And so even if eventually the spread does close, you have to put up a lot of cash potentially. Is anyone working on or, you know, just solving the problem of using your spot as your collateral?

Josh Younger's done that work. It's like, if there was an ETF, then it would be super simple because then you'd have this liquid product that traded on all the normal exchanges, just like, you know, on a desk, and then the futures trade on a desk, and then the ETF becomes your collateral, and you don't have to worry about putting up new cash. Like, how much could that, you know, could that be made easier, but basically? Yeah, I mean, you know, one example of this is, and it's very relevant, is really, Genesis started our juridist trading desk in May of 2020.

we've seen explosive volumes there. I think that's actually kind of why I'm on this podcast. Anyways, Joe, I shared you that report on Q1, which had a huge options and forwards sort of trading section. Genesis is one of those venues where you can post spot Bitcoin against a short futures position. You could face this bilaterally over the counter or, you know, we can cross you on CME or a different exchange of your choice. But, you know, we'll do that for you because like we think it's good collateral.

We know that your short future is long spot. it's a place that, you know, it makes sense to us and we're happy to do it. So can we just set that up after the podcast is over? Can I just go do a Genesis account and like do that? Because it seems pretty easy. Yeah, no, just onboard and yeah, shoot me a message and I'll get, I'll get you all to have very, very simple. That's straightforward.

But no, it also is this. Genesis is one, but also more exchanges are getting involved in that too. I think what Josh Younger brings up is really like a liquid point of access for similar in the brokerage model, like the CME model, the ETF model needs to have that sort of be a thing to really close the spread. That is true in the sense that we would need that to see like the trade be much more in line with like the traditional cash financing rate in the market. I think the closest thing, honestly, you could see to that, you know, not financial advice or anything, but like if hypothetically, you know, GBTC was used as collateral, which is

not actually, you know, at a discounted nav, like, you know, that's something where like, you know, long, GBT short futures is like a trade where you get the discounted nav and then also the collapse of the curve as well. So there's like, if your prime broker even were to take that and maybe some out there do, I'm not actually quite sure. But, you know, those are kind of the things you have to see for it to be more of a point of access from those sort of brokerage accounts into the marketplace. So, yeah. Wait, the idea of Joe transacting with you actually reminds me of a question that I wanted to ask, which is how do you manage your counterparty,

risk because, you know, there are a lot of, I would say, sketchy players in the crypto space. There's a huge question mark over doing due diligence and how you do that and avoid money laundering and things like that. Joe, clearly a sketchy guy. No, I'm joking Joe. But like, how would you, how would you go about like doing due diligence on a potential client and how does it differ from investment bank doing due diligence for prime brokerage services for, something more traditional like a hedge fund. I mean, to start regarding the AML and KYC, we actually, Genesis is the New York entity,

the broker dealer, is kind of the point of access for all the onboarding. So we're SEC and FINRA regulated. And our onboarding is the same that you'd see for onboarding to any broker dealer, which in short means that it's a long process and very thorough. Then we do kind of warn clients before they onboard, like look, like, you know, set aside 30 minutes to fill out the app. And then also expect some questions from compliance, if anything. isn't perfectly right. So, you know, the onboarding is, I would say, as robust as any bank out there

in terms of the other part of the risk, which is the counterparty and credit risk. And this is kind of, I think, what makes Genesis a pretty unique player in the space because of the client base we've chose to have at this point. You know, there's definitely a lot of variety of players out there in the crypto market. What we do is we kind of are facing not that many borrowers, really. You know, we're not like a type of shop where, you know, any sort of retail client can just post Bitcoin is collateral, borrow cash, go do whatever with it. But then like if the price sells off, there's no like human interaction there. And like we're just going to liquidate that collateral across thousands and thousands of customer accounts right now. It's probably $10 billion now. Active loan book outstanding. You know, we have, I would say, less than 150 active borrowers, which is, you know, not that many considering the size. And also like the top ones, the top. The top. trading firms, you know, like our core clients that we've known for years, but also we understand the nature of the risk they're taking, the nature of the markets they're participating and the trades that they're involved in. So when an event like March of 2020 happens and Bitcoin goes from like

8K to 5K, like rather than liquidating a bunch of retail accounts across thousands and thousands of clients, like what we're doing is like, hey, like we understand that the Bitcoin or the Ethereum collateral you've posted with us has fallen in value significantly, like how fast can you get me the P&L from the futures leg to close up this margin gap. Like, where is it? Is it on CME? Is it on some of the more faster settlement exchanges? And we kind of have that conversation and we work with our clients to understand their risk and bring the assets back into line with where they should be on collateral levels. So that's kind of the main thing. And then really just, like in terms of managing our book, I think we've done a really good job of understanding, you know,

liquidity and duration and creating like a very good internal platform, which we spent a lot of time in 2018 and 2019 developing to help us have very good visibility into curve risk and things like that. So a very good picture of kind of how assets are going to move in and out of the firm. And then also, lastly on this point, I'll bring up kind of like reserves and balances. Banks have to obviously keep reserves on their balance sheet for outflows and things like that. We're really good at like kind of thinking about the interest rate market and kind of how the market is positioned from a demand perspective and supply perspective in terms of Bitcoin, Ethereum and cash and then all the other alts, of course, but those are really the three main ones.

And really, you can call it crypto and cash where, you know, we can position ourselves in a defensive way if we think that market's going to sell off and Bitcoin is going to be much more valuable relative to cash and kind of skew our inventory that way. And then when, you know, markets bottom out and curves are flat and things are kind of looking like they can go the other way, we'll position the reserves and inventory accordingly. We're floating large balances, but also thinking ahead. So like going into March of last year, we were well positioned for that because we we really talking about it on the dust before.

We're like, look, like, I feel like it makes a lot of sense to hold a lot of Bitcoin here. We're probably going to have some sort of move that we might need it. And even last week, like, you know, we're positioned very defensively on the on the reserve front in that nature. And yeah, you know, we're always thinking ahead rather than like, you know, we're not reacting. We're kind of like setting up for the future. You know, I want to go back to something that you said early on. I think it might be really important.

And this idea of like, can the crypto market hold up with Bitcoin selling off? And with the rise of Ethereum this year, more talk about the so-called flippinging and maybe Ethereum will be a bigger coin this year. Could that happen in a sort of orderly manner? I mean, of course, eventually that could happen. Maybe it could even happen this year. But are we still at this point where there's just so much of the money is Bitcoin related that any Bitcoin decline sort of automatically? create triggers and liquidations across the, across the ecosystem.

Yeah, that's an interesting question because I think crypto market, it evolves and it evolves at a pace that's that's pretty fast. It's sort of astounding in many ways in terms of the narratives and kind of what people are doing and talking about or thinking about. It's like you're almost on from one thing to the next. Like, you know, two weeks ago, everyone hated Elon Musk. Now everyone loves Elon Musk. Like, who knows what's happening?

You know, there is like that, the shift in narrative there. But speaking specifically about Bitcoin and and its position in the market relative to others. You know, I think for now Bitcoin, it is the, it does have like the most common sort of collateral use case all over the place, whether that's at Genesis or even on like the exchanges where a sell-off in Bitcoin will always kind of impact other markets because kind of of the collateral need for it to be acquired as well as kind of like alts are usually haircut as collateral, even for us, like, you know, the LTV that we'd lend a,

against Bitcoin is very different than the LTV we'd lend against Alts and where we'd issue a margin call is different. So like if the alts were to sell off, you know, like it's going to be more likely that those have to kind of move into Bitcoin to support margin and things like that. That being said, I think like we're going back to the fact that narratives can change very quickly and the flipping thing and ETH and whatnot. Like I think the market is transcending in many ways,

a lot of the ties to its past that it had before, like even for getting Bitcoin for a second, but tying assets to personalities like, you know, it really like, you know, everyone's like, oh, I think Tracy mentioned this on the previous podcast. Like, oh, it's like decentralized. It's like the market's like, you know, so out there in Democratic, but like, you know, a single tweet from a CEO could like move it, right?

But as that happens more and more, it could dilute the impact of that. And then the market sort of transcends that. So as, you know, mapping that analogy to liquidations and collateral on Bitcoin, like as all this stuff moves down quite a bit and Bitcoin, you know, has to be used as a collateral last resort, Like over time, I think more and more exchanges and even Genesis will start using and liquidity will improve in other alts where we can use it more as collateral. And then, you know, maybe Bitcoin doesn't have to be that sort of de facto collateral piece

that's used in the market sort of transcends that nature. It's just going to take time. And I think the fact that Bitcoin is like the sort of underlying base layer denomination of everything will probably stick around for a bit. But I do think don't be surprised if it changes and changes faster than we think, right? Wait, can I push you just slightly on that? Because this is something I've been thinking about as well. But like the Bitcoin is almost designed to, well, it is designed to sort of be this static, stable pool of value.

And the supply is like destined to reach a certain amount. I can't remember exactly how much it is right now. But then it will stay at that forever. Is there a point at which there's a mismatch between Bitcoin, the size of the market and its usefulness as collateral versus the size of the overall crypto market? Like, is there just a point at which crypto could outgrow Bitcoin? Yeah, no, you guys are getting really into the weeds and the questions here, which I actually love, because it's funny, like, when you talk about long-term Bitcoin security and

kind of the concerns that might be, there are like a lot of people that are involved in the Bitcoin space will, like, really just shun you and, like, kind of dismiss it. So maybe I'll get some hate for this response. but I will say that you bring up a good point, which is like, yes, Bitcoin does have a finality to it, where effectively the subsidy that's issued per, you know, the blocks have two sort of ways of paying miners for securing the network. One is the block subsidy and the other is transaction fees. So the block subsidy is the one that's declining in half every four years and eventually is going to asymptotically approach a zero where it's basically nothing.

And Bitcoin is proof of work where miners have to spend energy and real, you know, sort of power to secure the network where they're going to have to be compensated in some way. And at that point, the way that it's going to, the compensation occurs is through the transaction fee, which is like the people that are trading or the people that have transactions in that block are effectively paying the miners a certain amount. So what needs to develop in the long term for Bitcoin is a robust market for block space so that the miners are, compensated to pay for it. What's happened now empirically in the past two years is, you know, there's a robust market for blocks based on Ethereum and people are paying to be included in transactions quite a bit there on Bitcoin less so. Part of that is because, you know, it is sort of a store value narrative now less so than a medium of exchange. And it's not like, it doesn't really have robust decentralized finance protocols in it yet. So what I think would have to change there

in order for that market to develop appropriately is like this type of stuff you see on Ethereum where you can like borrow, lend, even trade like unyswap, deck style. Like Bitcoin needs to figure out in many ways to incorporate that into its on chain layer one sort of status the way I see it. And this is like, you know, maybe there's some cryptographers out there that are going to argue with me on this point in some ways. But I do think like at the end of the day, you're going to need like applications built on Bitcoin where people are paying to use them so that the miners can be.

compensated when there's no block reward. And I think how that develops in the future, like, you know, in the past few years, it's, it's really been Ethereum show there. Could that change? I do think so. And do I think it has to change at some point? Yeah. Like, yeah, I think, you know, it's going to have to, that market's going to have to develop in many ways. I guess I just have one last question. And I just want to say, I enjoy these conversations a lot because talk about market structure and future, it doesn't hurt my head quite as much as the conversations about like staking and all that stuff. I need to learn more about that. Do you worry or is there concern about like this sort of like whether the future of crypto is entirely on chain

trading at some point. I mean, Genesis is a regulated financial institution, coin bases, all these are. Is there like a threat long term to these sort of like, I guess middle ground companies that handle what you do, which is like you're dealing on the chain and dealing with wires and traditional finance companies. And do you think about, like, risk of getting squeezed by more activity, just people trading directly on the decentralized exchanges without the need for a genesis? I think, you know, in the long term, there's going to be more of a harmony between centralized

finance and decentralized finance. They're going to have to work together in many ways more so than they are now in order to kind of provide services to the broader marketplace. I do think the future, you know, broadly and like ultimate finality speaking is going to have a lot of more on-chain activity than it does now. But I think the way, you know, kind of bringing this more high level back to kind of like the user and the participant in the marketplace, at the end of the day, they're humans, right? Like, you know, we're all humans. We view counterparty risk to protocols, to exchanges, to really banks, whatever, in different ways, you know, FDIC, non-FDIC, things like that. there's always going to be a need and desire for market participants to have things that are not

completely bearer because like you want that as like a as an asset holder as like a diversified and responsible whether you're an individual or a family office or hedge fund or whatever like you shouldn't have everything be in your control or nothing be in your control there should be a balance and a ratio and I think a lot of services like Genesis and other companies in the space you're going to kind of be there to help marry that, that difference and, and provide that diversification that holders want. But I do think, of course, that yes, defy is going to be, it's going in the future and there's going to be a lot of stuff going on chain. I think another thing to think about when thinking, when like kind of looking at the outlook there is like the pie is growing right now

year over year, day over day really, where like nothing is cannibalizing into each other quite yet, where it's like, as long as the market is growing, there's more and more stuff to do and trade and more clients are entering and more participants are entering. So, you know, that, that as long as that's going on, that's going to be, you know, not very competitive and more like sort of collaborative. Of course, like, once crypto is at, it's like final say where like every single human on the planet is like involved in it and there's now like 300,000 exchanges, like yes, then it gets a little bit more competitive and cannibalistic. But like, there's like a lot of room there, right? Like, you know, it's like not that many people are using this stuff just yet. Like,

and we talk about it. But when you look at like this sheer number of people out there, you know, I was listening to like CNBC this morning or whatever. It's like, you know, they're like asking people that have never used defy if they think defy is the future or or on chain is the future. And they're like no. And then everyone's agreeing like, yeah, like, look, this guy brings up a good point. It's like, you know, no one's using this yet.

Like, you know, you're asking people that aren't using it if, if they think it's real. So I think there's a lot more room to grow. And, you know, CFI and defy will have a lot of sort of harmony in the future. Roe, that was great. That was a fantastic conversation. super helpful both on the sort of what just happened over the last several days, but also the big picture and the long picture. Love talking to you. And thanks for coming on a lot. Yeah. Thank you guys so much for having me. This is awesome.

Thanks for that. That was so good. All right. Take care, man. You know, I sort of got there in my last question, but I do find like, you know, like, I know we have some defy episodes coming up, but some of these questions about market structure and futures trading and arbitrage and hedge funds and prime brokerages, it's just like, I feel like I'm in a cozy, like, blanket or like hoodie where, uh, talking about it. I still like sort of like feels like I kind of get it in a way. You know what I'm saying? Absolutely. I definitely feel more comfortable, um, having these kind of conversations than the yield farming one with, um, Aaron, for instance. That was a bit tough. Um, but I got to say,

like the thing that jumps out at me, the thing that jumps out at me is just this idea of how far the market has actually come. So I think there are people, you know, probably myself included, but I think of a Bitcoin miner and, you know, it's some guy that maybe has a few computers hooked up somewhere slightly cold with good temperatures and cheap energy. And he's sort of like doing it in his basement or backyard or whatever. But the way Roe was describing the ecosystem now, you know, you have huge miners, basically computer farms doing this and taking out futures to hedge their exposure. That is such a sea change from where we were at the beginning of all of this. And I think it's still kind of like, I don't know, it's really noteworthy.

I have to say, like, my misconceptions of it are probably the flip. Like, I feel like I've been, like, conceiving of miners for quite a long time as these, like, super industrial. industrial operations largely out of China and other, or not even largely out of China, but it's sort of all around the world where there's cheap energy and good temperatures and stuff like that. And that's been this industrial thing, but the speed with which like the sort of like pure financialization of it and the existence of crypto prime brokerages and the popularity of stable coins to move money in a way that's in many ways, I actually do think it's probably

much better than the traditional wire. system. That's the part that I would say in recent, you know, not now, but it's sort of like thinking about mentally updating my model of the space, the swaps market, the derivatives market, how big that's gotten is the part where I've like sort of most needed to sort of like update my mental model, so to speak. That's a really good way of putting it, updating mental models. I got to say the point about, you know, crypto sort of getting worried over settlement times that are something like T plus one when most of the traditional. financial market deals with something like T plus two or T plus three. And I think some parts of

the corporate bond market like still send trade settlements by fax and things like that. Yeah. It's it's pretty amazing. And it does speak to really interesting things happening in the space that could potentially be applicable to more traditional finance. Yeah. Also, Roe is just like so good at so clear. And I love like just sort of like getting the full lay of the land from him in the full picture and sort of like going back and forth between translating crypto speak to traditional finance speak, it's a real treat to get to speak with someone like that. Absolutely. And I got to say, I appreciate his willingness to risk the ire of the Bitcoin maximalist by talking about potential downsides there. It's a risky strategy, as I personally know.

Yes. Exactly. Wait, Tracy, before we go, how do you enjoy blogging these days? It's fun. I've had a slightly difficult time getting back into it, but I am starting to ratchet up my volume, so I'm looking forward to that. How about you? I love it. I love getting to write.

I'm super excited, and I don't just say this as a plug, but people should go check out the new odd lots blog, because I feel like I'm home again, getting to be a blogger again, and I'm really enjoying it. Shall we leave it there? Yeah, let's leave it there. All right. This has been another episode of the Odd Thoughts podcast.

I'm Tracy Allaway. You can follow me on Twitter at Tracy Allaway. And I'm Joe Wisenthall. You can follow me on Twitter at the Star Wars. Everyone should go follow our guest on Twitter, Roshin Patel. He's at Roshin Patel, the VP of Lending at Genesis Trading. Very clear, very great follow on this whole crypto space.

Follow our producer on Twitter, Laura Carl. She's at Laura M. Carlson. Followed the Bloomberg head of podcasts, Francesca Levy, at Francesca Today. And check out all of our podcasts at Bloomberg under the handle at podcasts. Thanks for listening.