On The Brink with Castle Island - David Nage (Arca) on how family offices are engaging with cryptoassets (EP.91)

Episode Date: June 17, 2020

David Nage, Principal and Head of Strategic Relations at Arca joins the show. In this episode we discuss: David's experience in the family office channel and his path to the crypto industry His upcoming FO256 family office virtual conference on June 24th Podcasting and content creation as a complement to investing in the blockchain industry To learn more about David check out his Base Layer podcast and follow him @DavidJNage  

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If you're ready for security upgrade, you can get started with a membership for as little as $10 a month. and as a special offer, use the coupon code Castle to get 10% off. Head over to keys.casa to get peace of mind that your Bitcoin is safe. To end the podcast, I had a conversation with David Nage, principal and head of strategic relations at ARCA, a crypto asset management company based in New York. David is without a doubt one of the most plugged in people I know when it comes to how family offices are thinking about blockchain and crypto assets. He's been putting on a great conference for the past few years,

called F-O-256. And this year, not surprisingly, the conference will be held virtually on June 24th. And because of this, maybe the lineup is pretty great. So he's been able to assemble quite a group of investors and entrepreneurs. So we'll have a link in the show notes in order for you learn more. I always enjoy catching up with David. He's a super thoughtful person. And this conversation was a lot of fun. So without further ado, here's our conversation with David Nage. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping

it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more to Britain's ailing economy with a new round of quantitative easing. You print a couple trillion dollars, and all of a sudden, people start to worry. So out of this worry, we have something called the Bitcoin. Bitcoin. David, thanks so much for joining the podcast. today. Great to be with you, Matt. I'm a little bit intimidated. I'm interviewing someone whose podcast I listen to on a regular basis. So this is, you'll have to bear with me. I'm a little starstruck here. Everyone has to start somewhere, Matt. No, I'm kidding. You guys do a fantastic

job too. And you were very early on my show. And as you'll start to figure out, you get a podcasting voice, the voice gets a little deeper, a little slower. And then all of a sudden, people can't recognize you. And that's the life of a podcaster. Well, you have a great voice for radio. So in another life, you might have been a broadcaster. A great voice for radio and a terrible face for TV. That's what I like to say. Nice.

So there's a lot to talk about with you. And you're someone who probably out of anyone I know has spent the most time in the family office channel. So a lot of what I want to talk about is just your work in that channel and the work you're doing with ARCA. But it would be helpful for the listeners to just hear a little bit about your career path. How did you get to where you are and just give us your background? Sure.

So I've been in finance for about 20 years now, which is always weird to say. First half of it was an asset management and then in fintech. And I always like to say that I was talking about fintech before fintech was a thing. Halfway into my career, I found my way into the family office world and worked for three different families during that time frame, focusing on early stage direct investments in what I would define as more mission-driven, focus companies and projects, companies that were working on. on climate change, companies that were working on genetics, things of that nature, really mission-driven and focused. And then around 2015, one of the family members for one of the family offices I was working at and made an investment in one of the first Bitcoin funds. And so 2015 was a very auspicious time for Bitcoin, as we know. We had the Silk Road. We had the Dow and some fairly not-so-good headlines.

and it really caught me off guard. And so I spent about six months of my life learning everything about Bitcoin. I had heard about it before, like many other people say, I had heard about it. But I really understand the fundamentals behind it and what really drove it. And so six months in my life and then also teaching myself had a code, as I always like to warn people that is not necessary. And no, I really am not a coder. I just wanted to be able to speak the language.

I was joke, if I'm going to Greece, I want to be able to order food in Greek or at least be able to ask the patron where the bathroom is in Greek instead of sounding like a dumb American tourist. And so, you know, that was kind of the reason behind that I want to be able to talk the language. And so all of that work really led me to the belief that centralized systems were very fallible, that we were seeing them break down, that we saw more data hacks. We saw our digital self, as I'd like to say, our digital self was becoming non-existent, that it was porous. And all of that really led me to formulate a thesis that this new world that I saw of distributed decentralized architecture was going to be bountiful, that it was going to change economic systems, that it was going to change social systems.

And so that really led me down this path to really focus in on it. And then in 2018, I opted after my first conference, FO256, which you know as you're talking at. After that, I really started to say to myself, if I see it and I'm, I believe in it, then why am I not pulling myself fully into it? And so with the permission of my better half, my wife, who I love and do not want to divorce and don't want to have a horse head in my bed the next morning, I told her, I said, you know, I think this is really where I want to go. And we worked it out. So I took about four months to do a garden leave, and I met with a lot of different funds and with different projects. And all of that led me to start writing and

led me to start my podcast. And it kind of just snowballed from there. And that's where I wound up with ARCA. So it was a number of years of just intense, laborious work, understanding the fundamentals and the technology to really decipher that there was something there that was just more than just speculation and more than just Bitcoin. Thanks so much for that background. You've always struck me as someone who takes a very deliberate sort of view on your career. You did a ton of research on this industry before you decided which parts were the most interesting. And you almost looked at it in my mind, like a new business entry. how a company would look at whether or not to launch a new business unit. That's sort of how your

career path starts. So, you know, I'm curious, you start with Bitcoin, but there's so many other reasons to be excited about this industry. There's so many tribes of people just within this small industry now that are excited about different things. You know, it could be disrupting data monopolies. It could be issuing traditional securities. It could be the Bitcoin thing. So what got you the most excited? And I guess where do you see the most potential here for this technology? As I always like to say on my show, and I always like to say to other people, I am not a Bitcoin maximalist. I am not an Ethereum maximalist. I'm a knowledge maximalist. And I think that gives me an advantage because I am open. I want to learn everything that's out there. I want to learn everything from all the Bips that are happening within Bitcoin and everything that's happening with zero knowledge proofs, all the things that are happening on the Ethereum chain, all of it. I just want to know everything.

And I think that as an investor, we need to be able to be more generalists right now. It's great to be very focused on niche, but we, We should all try to be a little bit more generalist because there's a lot of different things happening. So what makes me excited? Bitcoin as an asset can be sent around the world without having to have a rent seeker in the middle. And that has the potential to affect hundreds of millions, if not billions of people out there. And so we've talked about that a lot as a ecosystem for years, but we are starting to see the material effect of that, where we are starting to have a lack of trust in these institutions, whether they are government, whether they are banks.

We are seeing trillions of dollars being pumped into the system here in the United States from the Fed. It's not really going to the people that need it. And so there's a material issue with trust in some of these larger institutions that I think Bitcoin is very well suited to four. The second thing that gets me really excited about is that we're seeing the Internet and the web being reinvented to focus on more personal privacy and ownership instead of just profiting the few. And so this is the idea of Web 3. We're seeing a complete disintermediation of the stack, everything from Surveillance. and query from indexing data, all the things that are happening there. And I give a lot of credit to the folks at our Liar Ventures, they have a great thesis on this.

And you're able to kind of discern that if we were able to reinvent the web and really be the benefactor and have all of us be able to benefit from the different multiplicities that it has, that we're getting very close to that. And I'm going to talk more about some of the things that are happening that in the world of interoperability are happening in real time over the last year and a half. after two that are actually making these things possible and real and tangible instead of disfantical. Yeah, that makes a ton of sense. So you mentioned the early growth of the internet, and I think that's a good case study. I mean, if you look at the history of the internet and how it

evolved, there were these inflection points that just expanded the total market size by a tremendous degree. And so you could point to innovation around the browser as being one of those. I guess before that, you could point to TCPIP versus OSI as sort of competing protocols and eventually we coalesced around TCIP and that allowed the adoption to really take off. And really what took it further and just interject is SSL, is the encryption. Right. And no one was going to buy a dang thing on the internet until this magical thing called encryption came on.

And it made you and I and our grandparents and our parents feel really good about, oh, I can put my credit card on here and actually do commerce. Without that, we would still be using it to chat online and maybe show pictures of our cats to people. That's a great point. And that was actually quite a controversial topic at the time. There was big privacy concerns there really around the cryptography. And I guess you could point to even regulatory things around the internet, the Telecommunications Act of 1996 really opening it up. And so you had this sort of convergence of technology and regulatory and just general sentiment that came together and the rest is history. So I guess if you look at the crypto industry right now,

do you see some critical inflection points that could really grow the size of this market? I'm curious what you're paying attention to. Yeah. And in talks about commercial viability, we'll also talk about that too because I think there's a few points there that I want to make. But one of the things that's interesting, man, as we're both obviously on the investment side and we focus and we're building this industry, hands and fist, one of the things I think we need to do before we go into inflection points is that I think crypto is a old terminology.

And I think what we're trying to move towards to, especially as a firm on my side, is that the terminology should be more digital assets. And we can talk more about that. But I think one of the things that has slowed down the adoption is this idea and harking back into 2017 when the ICO craze about crypto. And I think a lot of people out there who are not in this sandbox who do not spend 100,000,000 of hours, diligent seeing all of these things like you and I do, I think they think of it as a negative. and so that's just one thing. But inflection points, I think what we're starting to see is really interesting

are M&A activity in this space. And I can point to one big deal that just happened recently with Coinbase and Togomi and building out prime brokerage. This is massive for the capital markets, which have been up until about two years ago, highly inefficient. And now we are starting to see the institutionalization of the capital market side. And that is a very big part of the market right now. The total market cap of digital assets is roughly about $273 billion.

And a majority of that is driven by capital markets activity, training activity, and asset management. And that is definitely something incredibly important to see this M&A activity happen. Krakken also was early in the year acquiring. We also saw a bit go acquire Lumina and a few other different pieces. We're starting to see this consolidation of different pieces to really come up with these massive platforms that can service the asset management industry out there in digital assets. So I think that's really important. That's an inflection point. Another inflection point, and I'd be remiss, and even though it's been talked at nauseam,

I still think this is incredibly important, is Apology to Jones letter. This has been discussed more in the family office region over the last three to four weeks than anything I've seen in my four plus years in the space. And it is really reverberating, I've said this before, talking to family offices, even last week, all of them, all of coming out of the woodwork, asking me and our firm, how do we get access to Bitcoin, how do we do this? and one asking them where that's being derived from, where all this new interest is coming from,

it's the Paul Tudor Jones letter. And so he is one of the best global macro traders in our lifetime. He is widely respected. That letter, especially co-authored by Lorenzo Gio Johnny, who is deputy director of the IMF. You guys talked about it too. This is a very big inflection point, in my opinion. And we're going to see a lot more activity

and a lot more interest because of this. Other things that are happening in terms of inflection points, I think the Fed actions that we've seen over the last three months in response to COVID. We've seen trillions of dollars printed. Powell was on that 60 Minutes episode where he said they can print digitally anything and however much they want to. I think this is really important. And I think a lot of people are starting to be woken to how the sausage is made.

And so I think that's really important. The other thing that's really important is social unrest. And as I mentioned before, the challenging of all of our conventions. We've seen that. And obviously my heart and my firm, the colleagues at my firm, heart go out to everyone who has dealt with the social unrest that we've been seeing in live. And what really is the takeaway is that we are challenging all of these conventions and all of these institutions. And it's a very auspicious time in our lives. It's a very special time in our

lives. But it's also a very hard time in our lives because all that change is happening at the same time. And then lastly, the other last inflection point I think is how COVID has actually altered our opinions on fiat cash and the idea of working from home. This idea of is very simple is that we can be distributed. It don't have to be in centralized location to be effective and up. You can actually be distributed and in some cases be decentralized. And that is obviously at the core of everything that we look at. Those are some great accelerants. I would layer on and maybe add one is that if we were able to see some regulatory clarity in certain pockets of this industry, if you layer in everything that you just said,

plus a little bit of regulatory clarity, and specifically I'm thinking about holding these digital assets in the context of regulated broker dealers and also maybe a little bit of regulatory clarity on is this a security, is this not a security issue. This could get pretty crazy here over the next couple of years. And we have seen some clarity in terms of Bitcoin and Ethereum. We have seen the opining from the CFTC and the SECC on both of those. And we are starting to see a bit of a roadmap as to what is deemed or what they believe to be deemed as a security and what is not. And so I think that has given us some clarity. It's not full clarity. It's not full transparency. But I also like to say is that they also haven't shut the whole thing down. At some point in time,

they could. There's always that in terms of the risk management side of this, but they haven't. They've been very wide-eyed about it. They've had lots of conversations with the ecosystem and the community about it. And I think they're trying to come up with some regulatory clarity that will provide us more transparency going forward. I sure hope so. I think we're headed in the right direction. there. So I want to shift gears a little bit and just talk about public blockchain assets, crypto assets, digital assets, whatever you want to call them, but Bitcoin, Ethereum, and then the thousands and thousands of others. And so there's so much going on here. There's so many projects that it's impossible to keep up with all of them. So I'm curious if you have a framework that

helps you determine whether or not a particular digital asset is something that you want to pay attention to or understand more. Right. Of course, I will kind of preface this that this is not an investment advice. And I'm sure you already do that anyway, but this is not an investment advice and obviously some of the opinions expressed by me are mine and mine only not necessarily share it by my firm. I always love that I have to do that. But I would say that we are getting into a point where we're getting to a taxonomy in digital assets where we are starting to see use cases and we're starting to see very specific points of adoption, whether that's decentralized finance and you start to look at the narratives there and you start looking at the tokenomics there

and how things are being derived. You're looking at the evolution of stable points. and that's becoming really important. You're seeing the evolution of gaming. You're starting to see some different chains out there and some different adoption curves out there of that specific one. And so you really, from my framework, you're trying to address what the total adjustable market is. Back in the day, a few years ago, it was always like, oh, we're going to create a new

Facebook and it's going to be completely decentralized and distributed and it's going to have its own token, and we're going to take 10% of its market share. Okay, no, that's not really the way that we're going to be evaluating this right now. But how can you actually look at the token and what it's being used for? Is there a robust community involved there? Are they actually staking, obviously determining between proof of work and proof of stake and how the staking network is actually working in that, what the lockups are, if there are any lockups in the token, those types of things?

So there's a lot of different pieces to the overall evaluation of those different tokens and the tokenomics for those different things. But to really go from the top down, I would say that there are different narratives at play that are really getting myself and our firm interested, and as I mentioned before, those are the ones like Defi, those are the ones like gaming, and we're starting to see real companies, and I say that with error quotes,

real companies that are out there that are leveraging tokens now. For instance, on my show, we had the CEO of Atari. Atari is launching a token right now. They actually just did a joint partnership with like coin, whereas light coin holders can get discounts on the Atari console that's coming out,

and their own coin is going to be there, it to be able to do things on the games that they come out with. There's also going to be a whole environment where people can create games and be enumerated with that token. And so you're starting to see real companies out there that are looking at this and trying to parlay it into a real business model. And I think that's really interesting. Yeah, I like the way that you think about that in terms of laying out the foundational

framework around the use cases and the total addressable market. It sort of brings me back to we had done almost a market map when I was still at fidelity just around what are these things and what are they trying to be. So you could think about a bucket of digital gold. You could think about private cash as a bucket. You could think about smart contract platforms as a bucket. There's a lot of sort of web three buckets as well just around decentralized file storage, decentralized compute. And then maybe you have application specific things. So it's, I think it's really important to have that taxonomy, as you say, because the value accrual mechanisms will be entirely different depending on what bucket.

get you're in, I think. Not sure if you, would you concur. Yeah, I would definitely agree with that. And this is the one interesting thing. You know, we talk about scaling, kind of network scale, whether it's Bitcoin, which is hovering around five to seven transactions per second, whether it's Ethereum, which is hovering usually around 12 to 15 transactions per second. But it's interesting because you look at what's happening on Ethereum. And Ethereum is not necessarily a transaction kind of network, whereas Bitcoin is much more of a cash transaction network type of environment. Bitcoin is much more of a computational environment, where you're doing things, you're actually, that token is there to actually help that network compute and do

things there. And so, again, I think it's really interesting to kind of look back. All of this has happened, all of the taxonomy, all of the kind of guidelines, all of the structural issues regarding evaluation has only really started to bubble up and become kind of mature, air quotes, again, in the last two years. And so this has all happened in real time. And as we like to say, all of this is a moving target. Completely. I mean, just look at stable. Coins over the past couple of months. I think we've seen something like $10 billion of U.S. dollars move into these systems and sit atop some of these public blockchains. So I'm actually curious, actually, on that point, what is your view on the adoption of stable coins here? And specifically,

I guess, what impact do you think this will have on some of the public blockchains themselves? I guess it's primarily happening on Ethereum, but we're starting to see adoption on many, many chains at this point. The quick comment I can make on that is that in the world of stable coins, And this is something I've talked about for many years. I've always joked about this. So my wife is in charge of rewards and in many ways, compensation. She's worked for a few publicly traded companies. And ever since I started getting into the world of digital assets,

we've always joked about, oh, can you pay your employees in Bitcoin? And she would always say, no, it's too volatile. And then when this idea of a stable coin came around a few years back, I said, well, this is something new. This is something where it's kind of pegged. And there isn't that volatility. And you can have a lot more control of it. And she actually said, oh, that's actually quite interesting.

And so just in that framework, this notion of having more stability and having a asset out there that is not necessarily there for speculative purposes and not for accretion and value, but it's something that is there as an instrument to make the whole system work, I think is incredibly valuable. Yeah, I couldn't agree more. I mean, you look at a lot of maybe startups that didn't work in the 2012, 13, 14, time period where they were trying to introduce their own native. currency. It was an interesting use case, but introducing your own token, maybe distorted it, just made

the friction costs of participating quite high, just given volatility and immaturity. Replace all of those kind of product details with a stable coin. And I think some of these businesses are completely viable in this day and age. I would also say, because I know we were also going to talk about commercial viability, some of the things that I'm seeing out there right now, aside from stable coins, that I think really interesting. So the idea, and I spoke to a family office about this last week, The idea that they could acquire Bitcoin and then potentially use services such as BlockFi, where they can still have those assets, but those assets can then be lent out, and while they're being lent out, can be generating APR.

They were completely mind-blown by that idea. And I think that's really something that will continue this adoption curve when people learn about that and that those entities actually exist. I also think that the viability of the space and the commercial viability of the space is going to be benefiting from projects and companies like Lolly, where people are going to their traditional e-commerce sites, whether it's buying a bed or buying their pharmaceuticals from CVS or whatever it may be, and being enumerated and kind of rewarded with Bitcoin,

I think that is really special because instead of just a coupon of some sorts, you're actually getting an asset that has accretion and value potential. And so I think the last thing that's really making this whole space viable commercially, I've joked about this, and it's, again, going back to my kind of geekiness with the internet, if you look at the curve of the internet, basically around 2000, you still had kind of, it was kind of plateaued, it wasn't really doing it much, it was kind of low-level adoption, and then in 2006, you had this massive spike in a j-curved up. And it was the same time where a company out of Israel called Wix came out, and what is Wix?

Wix allowed people, everyday people, our mothers, our fathers, our grandparents, if they wanted to, to create a website, whether it was an e-commerce website, or it was a blog or some sort, and do it point and click. They didn't have to know how to code. They didn't have to know C++, they didn't have to know Java, nothing. It was all point and click. And so I think what we're starting to see is the evolution of that. And one of the companies that I'm incredibly, I wish I could have invested in them personally,

but I'll say this because if Joe's listening, Weiss and Trails, in my opinion, is a very special company out there where you have the ability to lever all of these different pieces of the puzzle out there. all of, you alluded to the indexing, the query, all of these different pieces that you would use to build a platform. And all of it's kind of baked in right there. So you can just, as a founder, you can go there and say, okay, I want to build distributed and decentralized platforms out there. I don't know how to get all these pieces together. Boom, you would go there. And I think that's really going to help with the commercial viability going forward. I couldn't agree more. I mean,

you look at where bison trails operates, where blockfi operates, Lali operates. These are sort of these infrastructure categories that almost half. to exist in order for some of these great use cases to go forward. So if you believe that this is going to be an enduring industry, then it's just hard to imagine really successful companies not being created doing exactly what those three companies are doing. And they're well on their way. So, David, when you think about family offices, so you're kind of shifting gears here into talking about that channel. So you have a tremendous amount of experience engaging with these groups. And I know it's not a homogenous group, right? So one family office is not the same as

the other. I'm sure they're all quite different in their own ways. But I guess at the risk of generalizing, how have you seen family offices engage with the blockchain and crypto asset, digital asset industry over the past few years? And how has that evolved? You know, one of the funny stories I like to say is that when you're a family office investor, every month or so, there are these special luncheons where you get around as to hayable, you eat some pretty bad sandwiches and pretty sad salads. It's kind of like going out at a crypto conference. And the idea is that you are trading ideas. is with other family offices, you're sharing things that you were currently looking at where you might want to potentially have them come in with you, too. And I remember one, it was actually hosted

by Tony Pricksker at the time, and it was a very, very nice lunch at Lyserk. And it was a few years ago. And it was about 30 of us going around the table. And it finally got to me, and everyone was talking about real estate. They were talking about this and then, the other thing, private equity funds. And all of a sudden, I'm like, yeah, I'm looking at the evolution and the reimagining of identity and that was civic at the time. And I'm looking at obviously Bitcoin as a new programmable money that could change the way that we interact and kind of exchange assets around the world, kind of what the internet did for and what email did for correspondence Bitcoin can do for assets. And everyone's looking at me and then this one family office guy who I've known for a few years,

raises his hands and he says, excuse me, is this all that quote unquote crypto stuff? And I said, yeah, I guess you can lump it into that. And he's like, so how do you feel about kind of helping drug traffickers in ISIS right now. And took me a little bit away. Luckily, there was another family office at this table who actually was also getting into the space and I kind of looked at her and we kind of share a smile. That was the perception. This was three or some on plus a year ago from doing three and a half four years ago.

And what we've seen is obviously with Bitcoin going all time high in Q4, 2017, that started getting people more interested. and then, of course, the, obviously capitulation in price and things that have happened. But what has happened over the course of the last year, I think is the most interesting. Your former firm Fidelity launching, their platform, I think, was incredibly important for the overall maturation of the asset class in their eyes. When they learned the story that Abigail Johnson actually started doing this five plus years ago, and it wasn't just a reaction to Bitcoin's all-time high that you guys were actually reviewing this years before that. That really catches them. That was a really big piece of the overall pie in terms of their sentiment.

And then what you've seen over the last six months is quite interesting. The idea that Bitcoin has not gone away over the last 10 plus years of it being around, that is still alive and well and that they're still interest in it. I think is really important that it's staying powers there. You've also seen corporations big and small start to really look at Ethereum and some of the things that are happening there, whether they might be on private. of blockchains or not, but seeing that there is an interest in looking at the overall technology stack to really do things in a better and more efficient way. And so there is more of a use case. And as I said again, what's happened over the last three and a half months has been incredibly important in the overall change of their sentiment. They have seen the economic hardship. They have seen the response from the Fed. They have seen 10 years of an equity bull run that has been driven mostly by corporations doing stock buybacks and issuing large dividends

and not actually spending on internal cap-backs or really spending on building that company itself up. They've seen all that and they've taken advantage of it, but they've seen it and they are getting to start to point questions, where is this all going to go? And I think COVID also shook a lot of them, obviously, not in terms of just how the market reacted, but I think how the world reacted. And so the sentiment out there has changed rapidly. There was a point in time, even a few years back, whereas the meme that we all joke about is,

I like blockchain and not Bitcoin. That has even now changed, where it's like, okay, wait a second. Paul just wrote a huge letter about Bitcoin, about the whole reason why he's doing it. I better start learning a little bit more about this. And so the sentiment has changed dramatically, especially in the last three and a half to four months.

Yeah, I'm sitting here chuckling because the story you tell about being at the launch and getting the question about the drug traffickers, I feel like I've had that meeting a hundred times now at this point. If I think back to some of the early days where I was explaining Bitcoin to institutional folks, a lot of times I would just hear, hey, that'll never work. And this was like 2014. So it was working already. And I always used to joke that there's this concept of, you know, I've never really spent a time to understand Bitcoin, but I'm here to fix it. And I guess you could apply that to the whole asset class. But it's evolving over time. I guess. So if you're getting questions about drug dealers four years ago, what are the most common

type of questions that you're fielding from those family offices at this point? A lot of them, and the question is always about size. And I talked to a few of them last week. As I mentioned, there's been more conversations in the last few weeks and there have been in the last few months. And a lot of them really kind of question, how do I do this? And that's basically the primary question, how do I do this? Someone came within the family. They said they wanted to take a large position, you know, in Bitcoin right away. And they call me and they're like, well, how do we do this? And so for me, working with them, I try to put their hat on because I shared that hat with them and I try to be fair. And so I say, we talk about it and we determine, okay, well, if it's X amount

of dollars that you're exposing to, you can do it yourself. Here are the different processes that you need to do. And then I explained to them the difference between hot and cold storage and talk to them about the importance of key management, something that you and I both know a lot about. And that gets them a little, I would say, off taken because that's a lot of responsibility on them. I think this is really important for many people. I've said this before. When you are a family office investor out there and you're a CIO of the family office, you are not allocating your capital. This is not your money. This is someone else's money that might have worked incredibly hard to earn that. And so there is a difference of responsibility

there. And so the idea of putting a few hundred thousand dollars on what treasurer or ledger is not very comforting to them. And so we talk about that. Then we talk about the ability to go to some of the qualified custodians out there, as we alluded to, obviously, fidelity being at the top of the heap there. And then you have Anchorage and you have Bickgo, you have Gemini and some of the others out there that are becoming much more of a regulated entity that have fiduciary responsibilities to their holders and this is something that they're learning about. And then talking to them about the differentials and general partners out there in funds and talking to them about the scope and scale of that, whether they want to go purely venture capital, whether they want to have more

active management, whether they want to use some of the kind of quote unquote ETF like entities out there. There are much more passive instruments. And so it's basically giving them a full spectrum of what is available to them currently right now. And then, of course, talking about direct investments where that is starting to happen is now too. And so it is really at this point in time, not necessarily why, but how the heck would I do this and how would I do this to a point where I would be able to sleep at night? Yeah, that makes sense. I guess it was almost a year ago now that Marcos Verrimis and his team, when Marcos was still at Cambridge Associates, wrote the great paper. I think it was called Crypto Assets Venture into the Unknown. And it sort of broke down.

the various ways that you might play this between direct equity investments, direct crypto asset purchases, venture funds, hedge funds. So is that the framework that many of these family offices are considering as they approach the space? It's interesting you brought that up, and Marcos is a good friend now. And I have always credited him and his team for doing that because it was massive when they did that. And I thought a lot of people would really need to appreciate how big of a step that was for Cambridge to do that. One of the things that I always like to say is that, again, harping back into my days, there is something called career risk when you are a family office investor. It is something that is shared by endowment and kind of

other type of larger asset managers out there that are much more private. Endowment CIOs and family office CIOs are very similar in the respect that they don't really want to take outside or outsized risk relative to their peers. They like to be able to redact and say, okay, well, if I'm David Swenson, David Swenson just made a bunch of investments in digital assets, and I'm the CIO of another endowment, say, at Duke or something, and I can say, okay, well, David just did that. And, you know, this is why we're performing the way that we're performing, and so I have cover, this idea of cover. And so all of that kind of interplay is into the way that they would come up with their asset allocation. Do they want to have exposure to just one

asset or do they want to have a little bit more of a diversification? Right now, as I said, as we have been dealing with a really, really interesting time in our lives with the economic crisis and the social crises that we're seeing right now, many of them are looking at Bitcoin as a salvage. They're looking at as an inflation hedge. They are following the lines of Paul of Paul Tudor Jones's letter to the T. But when you talk to them, there is this idea of not necessarily putting all of your eggs in one basket. And so they are definitely looking to Bitcoin first and foremost. It is the Pepsi Coke challenge. This is what they know about. This is what they've heard about. They're trying to learn about it as much as possible. But then many of them

are saying, okay, well, I need to have a little bit of a diversification because we got to make sure that we have some cover. That makes a lot of sense. So switching gears a little bit in bringing it back to you. So you had a lot of options when you were looking at entering this industry and you chose ARCA. So tell us a bit about the firm. What does ARCA do? And why did you join? Yeah. So in reviewing everything out there, what I really was looking for was an appreciation of being a fiduciary. And that is very specific. There's a responsibility to the people that you are investing on behalf of. And being a fiduciary has those very strict responsibilities. And so many of the other funds I saw out there did not have that appreciation, did not have that knowledge base. And so ARCA and the

people that are there, including our CEO and our CIO and our chief legal officer, all came from the institutional side. They know what that word means. They have a deep appreciation of that. And with that comes a lot of risk management. And risk management is not super sexy. It's not the high-falutin kind of 1,000% returns, et cetera, et cetera. They can be very healthy returns, but at the same time, there is this idea of having capital appreciation for our investors, but also having capital preservation, ensuring that the capital that is entrusted by us by our LPs, not eviscerated. That means there is specific sizing. That means that there is incredible amounts of work in terms of investment memoranda and that we can track the thesis behind that. We're constantly

tracking everything that we are investing in. And so that is an institution. It was really special. And so ARCA, using that as an underpinning, is a digital asset management firm. It is a multistrat firm. currently right now we have one live product out there, which has been doing quite well, using all of those criteria effectively, as I said, to help manage investors' capital. And the idea is that we want to express our interests not only in the liquid markets per se, but also in the illiquid markets. And that would be things like venture capital and equity investments and platforms that are building the infrastructure of what we deem as the new tomorrow.

You know, it is a special place where it is not just one thing or the other. it allows us to have flexibility. It allows us to do things like special situations. It allows us to structure a lot of different opportunities, different than many other investors out there. And so again, this idea of a multi-stratt asset management firm in this new asset class is something that really drew me to them. I think that this asset management opportunity

is just one of the largest opportunities out there in the industry writ large. And you're starting to see big firms go after this, whether it be ARCA or Galaxy, Greyscale. bit-wise. There are some folks that are building. And it's very advantageous to be a kind of a startup firm right now because there's a lot of risk. We don't have an exchange traded product that's been approved yet. Custody has historically been a big challenge. And so some of the largest asset managers in the world are very much on the sidelines right now for various reasons. Some of the is actually the career risk that you were talking about earlier, just around championing some of this.

So with that backdrop, how do you see this evolving? What do the next few years look like in terms of the growth that we'll see from this category. Yeah, I would say that one of the things I tweeted out about a year and a half ago or so, maybe about two years now, I have to, it's gone so fast, was that for the first five to seven years of this cycle that family offices and other institutional investors would probably parlay their interests into this asset class and this technology stack vis-a-vis funds. And that the funds out there that were building those relationships, we're slowly educating those investors, were giving them a tremendous amount of transparency, we're really going to succeed. And they were going to be the equivalent of a Sequoia or a Klein

or a Black Rock in 10 years down the road, whereas they would raise a new fund, and then a few days later, they would be oversubscribed. And it would be hundreds of millions of dollars instead of, or billions of dollars versus just what we're able to do today. And so it's really my opinion. that will be the case going forward that people will seek out those funds. And the other is the interesting thing that is contrary to what I used to do back in the day, the fund to fund model back a few years ago when I was in the family office world, the fund to fund model became something that was not very appreciated. I'll put it nicely.

It was something that a lot of people didn't really like. But the fund of fund model has become incredibly important in digital assets because those people have the ability to do deep diligence on those fund managers and again provide that diversification. So if you want to have exposure to digital assets, you can go to a fund to fund and they can disperse you to four, five, six, seven different funds, which all have different profiles, which all have different structures, which all have different strategies, and it gives you a way to kind of tilt into the space. Whereas, you know, with the ETF, again, it's my opinion that the ETF is not something that we necessarily need.

I know that people kind of draw higher than that. I just don't think that it's something that we need at this moment in time. In ETF, in my opinion, is a way to have a basket of securities that provide you a diversification factor. And right now, I think there are, and that could be 20, that could be 36 different equities and different assets. I just don't know if there is enough per se to really do that in a robust ETF. And just having a Bitcoin ETF, I don't know if that also provides you kind of the exposure that you would per se be looking for. So the ETF has just been something

that I don't think is needed right now. I think if people are looking for exposure to the asset class, they can do it directly. They can obviously, as I mentioned before, they can go to the direct route and acquire Bitcoin or Ether or whatever kind of digital asset

they feel like they want to. They can work with qualified custodians like Fidelity and Anchorage, the other ones out there. Or they then can go to the asset management side and they can look at the 600 different asset managers out there, feel a little overworked, maybe choose a fund to fund, maybe go to talk to the folks at like Vision Hill, which are providing

consultative services out there for funds and can provide a little bit more color and exposure to the fund market out there. And I think that's probably what we're going to see for the next five plus years is that most institutional investors will opt to use funds to really gain exposure to this. And then, you know, especially with family offices, from my historical kind of take, they will start hiring people that came from the investment side of digital assets to do it internally for them. That's not going to happen yet, but I think that's probably going to happen another five years or so. Yeah. So I agree with that. I think the sort of debate that's raging right now around the ETF, I mean, I guess there's all sorts of debates, but the one channel that

comes to mind is really benefiting from an ETF would be the RIA channel. It's really difficult to get exposure to this asset class. If you use a registered investment advisor, there's all sorts of challenges around there's not many options. Obviously, you can buy the gray scale product, which is an OTC trust product. But people don't really like to go off platform in that channel and there's a lot of capital there. So I guess that's the one channel where you look at and you say there's really not much out there barring getting to an ETF, at least in that category. Right. And there are companies out there, Adam Pokernicki out there who came from the traditional asset management side. He has been building out a firm out there, which I think is fantastic. And basically,

it's called the digital asset investment management firm. It's out there in California. and they are set up really to work with that channel. So if it's an RIA who's looking to have direct exposure to Bitcoin, they can work with them. And so again, this is not something that really existed a few years ago. They didn't have these types of entities out there. And so slowly and surely, you're starting to see more entities pop up

that understand the needs of an RIA, for instance, because the ETF does not exist. And they obviously are starting to hear that RAs are getting in bounds from their clients because they want to explain. to Bitcoin and other digital assets. And so we talk to them as well, too. We talk to RAs as well from our perspective. So I think RIAs are starting to become aware that there is an ecosystem out there

that allows them to get exposure to this asset class in a very intelligent and also in a very institutional matter. Yeah, yeah. So let's talk about the podcast a little bit. You're a big inspiration for us to get into the podcast game. You know, there's your podcast, listening to Martis, Larson's. You do a great job with yours. and I think I've listened to every episode.

So let's talk about what was your inspiration to get started with it. What did you want to accomplish? That's a good question. At the end of the day, as we talked about, when being confronted with other family offices and other folks that I've known throughout my life who always questioned my entrance into this world and who always kind of speculated

and always had concerns about the security features and all the other things that we've talked about, I really said, okay, what do I see out there? I can write at nauseam. I can write them emails. I can set up lunches. I can set up coffees. I can do all that kind of face-to-face.

And I can continue to tell them that everything is becoming more mature and that if this whole world is becoming great. And I said, okay, that's a lot of work. And I'm fine with doing that, but I don't know if that's necessarily effective. And one of the things I've always learned is that if you want to be effective, that you can write something, but also if you have something that they can listen to, that people can listen to. And so that kind of drew my inspiration is that I wanted to have something where people can

listen to different pieces of what's happening out there in this ecosystem, in this asset class, something that could also have a library that I can point to and I can say, okay, listen to all of these different founders, listen to all these different investors. Here's a body of work that gives you hundreds and thousands of hours of information. And it's easy because it's usually about 30 to 35 minutes. You might be on your treadmill and you can listen to it and be informed. And so that was really kind of the catalyst behind is that I wanted to provide a body of work, a library, for people to really learn and to be inspired and motivated to further diligence than themselves. I wanted them to hear that there were people coming from traditional asset management

and coming from traditional Wall Street that were coming into this world because they saw that there was something there. It wasn't just a bunch of quote-unquote crypto anarchists. There are people like you that also came to this world, highly educated, highly professional, was at Fidelity and also was at consultancy firms. these are not people that are trying to burn the whole thing down, but you see that there is this world out there of a lot of potentiality and a lot of growth. And so that was really behind, the main driver behind us that I really wanted to them to understand

that there was something deeper there, that there was more tangible, you know, kind of substantial things that were happening in this world, and that it wasn't just all about kind of burning the whole system down. Yeah. Well, that's cool. I didn't realize that backstory. Any guests stand out as particular favorites? all of them.

All of them. I'm not answering that question. All of them. I'd love every single one of my guests. You love all your children equally. All 150 of them of them so far. I love them all. I am kind of annoyed, though.

I had a goal of doing about 125 episodes this year, and then COVID happened and kind of shut everything down. And trying to record a podcast when you have two screaming kids at home is not necessarily the easiest thing in the world to do. And so my mark of hitting one, 25 probably won't happen this year, but on Dan well, sure, I'm going to do that in 2021. Yeah, well, you're telling me about the challenges of recording with children run around.

Nick and I often talk about early stage venture as kind of being a content game to some degree. If I think about how I got interested in blockchain and crypto assets, it was actually through reading Fred Wilson's blog and through reading Chris Dixon used to blog at cdixon.org, I think, was his URL. And, you know, I used to read everything that those guys put out. but I'm seeing it increasingly as a content game as well. I mean, I benefit from speaking with other investors, getting their perspectives, from speaking to early stage entrepreneurs. And I think getting that brand out there helps a lot. Have you seen direct benefit to your work at ARCA by virtue of you're doing the podcast? Absolutely. You know, every time that I

have a recording with either a founder or another investor, it's more information for me to learn. It's more information from my firm to learn. And one of the things that I always like to tell, especially founders who are listening to my show, and I'm sure you do with yours, is that it's a great distribution engine. We're still so early that we have the ability to really kind of amplify their message and amplify what they are doing and what they are building. And I think that's really important, especially in this day and age, where people are listening to more podcasts these days, and this is a really important medium. And so absolutely, as I said, I've done about 150 episodes to date. I can be releasing a bunch, as we go through it, a little bit of a rebrand in the next few.

days here. Every single one of those that you do a tremendous amount of prep, you know, I'm always spending lots of times, and the white papers and the FAQs and kind of doing my deep dives into them, and it's tremendous information and kind of asymmetry where I get to learn about these things. A lot of the times, you know, a project will come on and they'll actually break a little bit of news, which is really kind of cool. And so, yeah, there's a tremendous amount that you can learn from this. One of those case and points is, I think, was Gemini. They came on my show at the beginning of the year and they kind of broke the news that they were getting their qualified custodian custodianship out there and that was really kind of important. And so yeah, a lot of these things

are happening that you get to learn a tremendous amount through the conversations, to the questions, through the banter that you have with people that you have on the show. Definitely, definitely. So let's talk about your event. You have a big event coming up, family office conference. It's one that you've been putting on for a few years now. It's a great one. So let's tell people about it. Sure. And so this came about during the latter parts of the summer of 2018, while I was still in the family office world, I was going to go speak at a family office conference here in New York. And about a week before, I was due to drive out to the Hamthons to do this. And it wasn't all gushy and everything like that. I still have two kids. I got to wake up in the morning, got to feed them. I don't live that kind of a cushy life, guys. About a week before, they said that myself and the other two people that they were going to have do this because it was a new emerging asset class. that they were going to charge us $15,000 to be sponsors. And I started to say, well, wait a second. So I have to pay $15,000, drive two hours to the Hamptons

and educate hundreds of money people about digital assets. I'm like, this doesn't make sense. You know, it's going to kind of force me to kind of change my whole dynamic. And so I tweeted out, I was really kind of mad. And I said the problem with education, especially within digital assets, is that we have these conferences that were money pits. You had to, if you were, you know, trying to speak at these things, you'd have to be a sponsor.

If you were a founder of a company, you had to get a kiosk. If you, all of these different kind of pieces, if you wanted to attend these, God forbid, they would cost you two or $3,000 at a hit. And all of that really causes a lot of friction. And so I said, this is all kind of broken. You know, give me a few, I think I actually said, give me two months and I'll fix it. And lo and behold, I got flooded with inbound. Everyone was like, hell, yeah, this is great.

And then two days later, I had to go buy a website and start building things from scratch. and lo and behold, about a month later, we hosted the first FO-256, and we had about 125 family offices. We had some amazing speakers like Ariana Simpson and Ken Seif and David Namdar, lots of people who had been in the space for a number of years, and it went off fantastically well. And so that was a big kind of driving force. In April of 2019, I wanted to do it again,

and so again, we went back to the well. We had over 800 people register for it. time, it was over 155 family offices that were able to attend. It was a small little spot in New York that had very small capacity and we were flooding it and they were not too happy about it. But what's happened now is that for this new one in 2020, it will be virtual, obviously, because of COVID, because we're not doing that stuff anymore. And so we have a fantastic roster. Obviously, you Matt are speaking on the VC panel with Bart Stevens and Haseeb from Dragonfly and Avichel Garg. And so we also have a fantastic roster. And so we also

have panels on regulation, as you alluded to. The regulatory landscape is very important. We have a great keynote with Kathy Wood from Park Investment. And then we also are going to be diving into institutions that are really active in the space like TD Ameritrade and Fidelity, obviously, your former shopping ground. And then we're going to do a bunch of other different things. We might also have a private family office kind of side chain, if you will, where we'll have a group of family offices talking to other family offices to give them insight into how they've actually been active in this space. So it's going to be a great event. We already have a lot of traction built up for it. And it's all free. No sponsors, all free. Well, it's an awesome event. I mean, it's really a who's who

of people that are in this industry. So I'd encourage everyone to check it out. I guess that's a great place to leave it. So where can people learn more about the event? Where can they sign up? Where can they learn more about ARCA and where can they follow you in your podcast? Yep. So if they want to sign up for the event, it is www.com.com. C.A. slash F.O.256-20-2020. So that's www.org-A-R.com6-202020. They want to learn more about the work that we're doing at ARCA. Our website is easy. It's www.a.org. If they want to hit me up on Twitter, I always love that. My handle is David J. Nage, N-A-G. That's great, David. Well, this was a lot of fun, and I am looking forward to the conference.

So thanks so much for joining the podcast today. Thanks, Matt. Take care. Thanks for listening to another episode of On the Brink with Castle Island. To find out more about Castle Island, visit castle island. To listen to all of our podcast episodes, please go to On the Brink dashpodcast.com or just click on the tab in our website. Thanks for listening.