The Breakdown - The Biggest Bitcoin News of the Year? NYDIG CEO Explains How Latest Partnership Could Bring Bitcoin to 300M US Bank Accounts

Episode Date: May 5, 2021

NLW is joined today by Robby Gutmann, CEO of NYDIG. NYDIG is quickly emerging as one of the leading companies helping onboard institutions to bitcoin. This year, it received investment from and announced partners with companies like MassMutual, New York Life, Liberty Mutual, Morgan Stanley and more.  In this episode, Gutmann discusses why the firm’s latest partnership with bank software provider FIS could represent their biggest opportunity for bringing bitcoin to the masses yet. -- Earn up to 12% APY on Bitcoin, Ethereum, USD, EUR, GBP, Stablecoins & more. Get started at nexo.io -- Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is produced and distributed by CoinDesk.com

If you just look at these software systems in our view and the people that we talk to, given their risk tolerance, which is very, very, very limited, Bitcoin is just in a category of itself in terms of how long the system has been running in production. the way the community approaches making changes to the system in a very thoughtful, very methodical way, that's not lost on the institutional investors that we're talking to. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexo.io, neer.org, Genesis Trading and produced and distributed by CoinDes. What's going on, guys? It is Wednesday, May 5th, and today I am joined by Robbie Gutman.

Robbie is the CEO of Nidig, one of the fastest growing companies helping institutions on board to Bitcoin. Over the last few months, Nidig has announced partnerships with everyone from insurance companies like Mass Mutual to funds with Morgan Stanley to the very exciting announcement that they're sharing today, which has the potential to open up Bitcoin access to some 300 million checking accounts. So without any further ado, let's hear about that right now. All right, Robbie, welcome back to The Breakdown. How are you? Nathaniel, I'm well. Thank you. Thanks for having me back. It feels like we've lived years, decades, eternities, since you were on the show.

It's been a crazy few months, I guess. Absolutely. I'm excited to be back and talk about all the things that we've been working on. So let's kick in with the big news from today, this announcement of a new partnership with FIS. Give us the context, the background, how the conversation started. I mean, maybe let's start with, I guess, what the deal actually is. Sure. The deal is a partnership with FIS to power a core module where they will make a set of Bitcoin-related services available to all of the banks that want it that leverage their core. And we're extremely excited about this. So, I mean, as you know, our product in this context is a set of APIs that allow financial institutions to develop Bitcoin and Bitcoin-related services.

And so to be chosen by FIS to allow them to bring this to market is very exciting and validating for us and frankly what it means for the world, for Bitcoin, for the continued path to financial inclusion of everyone being able to access Bitcoin is very exciting for us. Before we get into that, it would be helpful to have a little bit more context about FIS, because this is kind of one of those organizations that so many people interact with without even really realizing it. Maybe I can start by telling you a story. This story starts in late summer, early fall, 2019, which feels like a lifetime ago at this point. And at that time, I met a gentleman named Patrick Sells. And at the time, Patrick Sells was working for a bank here in New York called Quantic Bank. And Quantic is a great example of the kind of institution that uses FIS. So in the United States, very, very

few banks develop their own software to drive their core processes, and instead they use a third party core, it's called, made by a company like FIS. And the context here was Patrick had a really, really, really, really awesome idea, but a big problem. And his awesome idea was he wanted the bank to launch a Bitcoin debit rewards card. This is a card that would pay his account holders, rewards in Bitcoin instead of dollars or toasters every time they swiped their debit card. And his problem was that he had already tried to bring this to market with two different other big crypto providers. And they hadn't been able to get there on the technology integration with FIS and in particular on the regulatory engagement with the OCC. So we got connected with him.

And he walked through what he wanted to do, his challenge, and we said, challenge accepted. And it was the start of a really interesting opportunity to get to know actually both Quantick and Patrick and FIS because Quantic used the FIS core. And ultimately it took about a year of work, but we got the product off the ground, got the tech integration done, spent a lot of time with the OCC on exactly what it would look like. what it meant for Quantic, what it meant for Quantic's customers, in particular safety and soundness of the banking system and protection of the customers. That led ultimately to now Patrick works with us at NIDIG. He runs a business called Bank Solutions, where we work with banks and bank

providers like Quantic and FIS and now dozens of others for them to bring Bitcoin and Bitcoin-related products and services to their customers under their brand. And this is one of the fastest growing areas we've seen at NIDIG, making our technology available via these APIs for these branded integrations. I guess just to kind of finish off this story, what scale is FIS operating at? FIS is the underlying technology behind something like 300 million. checking accounts in the U.S. alone. So immense scale as a provider, as a firm, and really a new immense scale for who is going to be able to access Bitcoin via this partnership first in the U.S. but ultimately abroad as well. When we were kind of discussing this in advance of the show,

you mentioned that part of what had you guys so excited about this was the game changer for financial inclusion. So I'd love to hear a little bit more about how you see that playing out and just how that fits into your operations as a whole? Absolutely. I think we think about this in a big arc, and it's going to take a long time. But if you go back to the beginning of Bitcoin, it was really only available to extremely technically savvy people. I told you the story last time of buying the first Bitcoin, you know, thinking back to running

Bitcoin D on the command line on a Linux VN. it was not easily accessible by my mom, for example. That was kind of period one, we're really only accessible to technically savvy people. Then you had what we kind of think of as phase two, where you had amazing companies like Coinbase, for example, bring out products and services that lowered the bar a lot from a technically savvy perspective, but they had this requirement that you had to trust a new financial brand.

And if you zoom way out into the big picture, at least in the U.S. today, there's still a very small fraction of people, we think something like 20% at most, that are willing to do that. Most Americans have some subset of a bank account, a brokerage account, and an insurance account, and are not really in a position to add an additional financial relationship to that, either from a skill, perspective or a risk perspective or just like a brand trust perspective. And that in a lot of ways is what led us to start NIDIG at first in kind of a roundabout way with the observation that we talked about last time that institutional investors are our clients in our Stone Ridge asset management business and fiduciaries in other contexts, couldn't really use either of these

solutions. They weren't going to be managing their own keys as a fiduciary on behalf of of their clients and they weren't going to be using the consumer retail solutions. And so that was where our initial product came into play was to widen the aperture of who Bitcoin was available to. It's funny, it's a little bit backwards from what you think of in a financial inclusion narrative to say, well, you're going up the chain to institutional investors. And that's exactly right. And that brings us to this FIS partnership where one of the things we're most excited about is what we think of as phase four and really phase two for us is just bringing this to a much broader swath of people. And there have been two parts of that with partnerships that we've announced

recently. One was our partnership with Morgan Stanley to bring a fund to their wealth management platform. That really, again, and a little bit backwards from what you normally think of in a financial inclusion narrative, but in the big picture of Bitcoin, it's true, how to make this available to wealthy and mass affluent Americans that primarily conduct their lives through financial advisors. And then the second part is the much, much, much broader angle of working with FIS to bring it to all of the Americans that just have a bank account and aren't in a position either to do it through a financial advisor or to add an additional financial relationship to their life. That's where we are today. And then, you know, I'm excited to come next time.

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In some ways, you're basically seeing, or you guys are looking at each of these different parties separated potentially dramatically by the numbers in their accounts, but still having their financial relationships mediated by some key gatekeeper who needed to be kind of on the Bitcoin train. In the case of the wealthy Morgan Stanley, in the case of, you know, everyone else, their existing financial relationships. Is that fair? That's exactly right. And with FIS, you could even say there are actually a couple layers of intermediation here. There's the software platform that underpins your community bank, for example. And then there's the bank itself that actually owns the customer

relationship. You guys have been kind of like a news week or every couple times a week on a clip like that this year. The common thread of all of these announcements, is almost like big institution X who's not involved in Bitcoin yet is now getting involved in some way. And it's always sort of some combination of partnership and investment. But I guess one of the key themes has been insurance. You even just mentioned that now in terms of where the normal kind of financial relationships are for people. I'd love to hear more about the thesis that you guys have around insurance. I think, if I'm correct, that you guys actually now officially have an insurance services division

that's kind of unto itself within the organization. Is that right? That's exactly right. Insurance is one of the core financial relationships at kind of all or almost all wealth levels that enables human flourishing. And so we really see two important aspects of our engagement with the insurance industry. And you're right, we have actually now broadened and defined a couple of different parts of our engagement with the insurance industry. So part one, which is really focused on life and annuity companies, is helping them think about investing their general account in Bitcoin. And there the backdrop is, like a lot of investors in the world, looking out at the yield environment and asking real hard, honest, important questions about whether the amount of yield available from the kinds of investments they've historically made. generally government and corporate bonds are going to fund their long-dated dollar liabilities

and in the best interest of their policyholders, thinking about other investments they need to be making to make sure they can make good on those obligations. And I have, as I've mentioned before, a tremendous amount of respect for the investment functions in these organizations. They're very sophisticated. They're very thoughtful. they're very thorough in their diligence, but once they make a decision, they go and they work really hard. That's in a lot of ways that within the broader context of Bitcoin the asset. You know,

you hear corporations asking this same question frame slightly differently. You know, how do I protect the purchasing power of my Fiat revenue? In the insurance company general account context, it's how do I protect my policyholders' fiat obligations over the long. term. The other aspect that in a lot of ways is very parallel to the FIS announcement is actually building products and services around Bitcoin for the insurance companies to make available to their clients. Things like getting a part of a claim paid in Bitcoin or getting part of an annuity payment paid in Bitcoin. Those are a couple of simple examples. We do foresee built to top our technology layer, a flourishing of creativity of what these companies are going to be able to do

in terms of the products and services they develop. What is the demand state for those now? I've seen some people kind of react like, that's really cool, but like who's out there demanding this? What are the benefits of those sort of Bitcoin denominated type products? We hear a lot of demand from insurance companies, from the product groups inside insurance companies. I think there's a kind of bigger picture narrative going on in terms of thinking about incumbent financial services providers and fintechs, which is incumbent financial services providers, want to make sure that their state. relevant to their customers and who they foresee will be their customers over the next couple of decades, I'd say. So I think it's a mix of what the demand is today, as well as what they foresee the demand

to be over the next couple of decades. So this is actually super interesting. A great segue to my next question, which is really the kind of the broadest question that I have for you in some ways, which has to do with shifts evolution. changes in the institutional narrative around Bitcoin, you know, since we last talk six months ago. It sounds to me like part of what I'm hearing from you is that the one piece, which we've all been watching for a while, which is the attraction of Bitcoin as an asset to hold for its financial properties, for its yield properties, for its, you know, et cetera, et cetera.

This has been kind of a large narrative arc over the last year now. But it also sounds like there's a piece of this that's emerging, too, which has to do with a retrofitting of the systems to cater to a demand, assuming that it's not just institutions who are interested in Bitcoin, but individuals who make up their customer base as well. That's something that I'm hearing. I'd love to hear more on that if that's actually true. But I'd also love to hear just kind of more what you guys are seeing from an evolutionary perspective around the narrative Bitcoin within these big institutions.

I think in the end, almost every institution is, operating on behalf of individuals. So a pension fund, for example, is, you know, oftentimes to think of that as like the canonical institutional investor. What is that except the lifetime savings of a collection of individuals? So I think what's really, you know, this broad narrative that we've been talking about is how the intermediaries or managers or fiduciaries over these points, pools of assets, think about where Bitcoin does or doesn't fit in the portfolio. And then I think

the second part relatedly is the financial services providers for individuals that make their own decisions for their wealth. And in the end, we see it the same way. We want to have the set of products and services that no matter what the consumer that faces of, us needs that we have a solution for him or her to make Bitcoin available to whatever they need. So if that's a pension fund that's used to consuming asset management products, well, we have a whole suite of asset management products that we make available to the pension fund or develop something customized that specifically meets their needs. If it's a brokerage house that is in the investment advisory business, well, then we have products for them too.

If it's a brokerage house that is much more focused on self-directed trading, that starts to get much more into a technical integration of pipes and plumbing and execution and custody. but we see it all the same way of making a set of products and services, whether those are asset management products or APIs to integrate with so that financial intermediaries can bring Bitcoin safely to everyone they touch. Has anything surprised you about your conversations with institutions over the last three months? I think the rapidity, the speed. with which some of these organizations are prepared to move and then do move has surprised me. I think it's been way faster than I might have expected, which is generally very exciting and

constructive. The average consumer on Bitcoin Twitter is getting only the end state conversations with these institutions. We've created a situation where there's so much news coming so fast. that it's almost like people are waiting for the other shoe to drop and for it to just stop. You know what I mean? And so it's like if there's not news for six days or seven days, it's like, oh, I guess the institutions must be turning away.

And so I think part of what's great to hear is just how dynamic it is, basically that the conversation isn't in the same place that it was even a year ago or even six months ago. Oh, not even close. The conversation changes and moves forward every day. And it's happening everywhere. there. One question kind of around that too and an evolving attitudes is I think I remember hearing you, I don't know, some podcast or some interview a few months ago, someone asked about whether any of these conversations were touching on ether, any other crypto assets. And obviously since

then, those markets have heated up much more significantly. How strictly focused on Bitcoin are these conversations? I know that's kind of where your focus remains, but are things like defy starting to enter the conversation or even just the awareness? Or is it still pretty focused? on just the big world that is Bitcoin? Our conversations are very focused on Bitcoin, and I think maybe I'll leave you with another story as I've thought about, like, why is that? And so as I think I mentioned to you last time,

I started my career at Morgan Stanley, working for a guy named Alan Thomas, who runs the equities business today. And Alan is such an awesome, badass guy, and I learned so much from him. and there really very little that I've managed to achieve in my professional career that I can't trace directly back to things I learned from him. When I started at Morgan Stanley,

one of the observations I quickly made was one of the reasons we were successful in the businesses that we were successful in that I was working in is we were just better than our competitors at Morgan Stanley in producing and maintaining large-scale, distributed software systems. Alan was very involved from a business perspective in that mindset, and I learned a couple of really important things from him about this. So first, you want to be really, really, really, really careful about how you make changes in production. So you definitely want to be listening to your customers and you write everything down that they might want,

but you actually make very few changes to the system and you make very thoughtfully with lots of testing. And the second lesson was all of the IP, really all of the value accrues to a system running in production. And so the longer the system runs in the production, just the more you learn, the more you know. So I think about those two lessons a lot when I think about the kind of quote unquote crypto ecosystems or what's going on in Bitcoin versus Ethereum or central bank digital currencies and stablecoins. You know, the first is there's just different questions being asked that are answered by each of these technologies.

So I'd say there's a long wind up to answering your question, which is, at least in our conversations, this question about will we see an open source monetary system to grow and complement the larger scale closed fiat systems, a progressive dawning awareness that the answer to that question is probably yes. And of all of the things that exist to be the open source reserve asset underpinning an open source monetary system, Bitcoin is by far the best designed and most well-networked thing today. And given the network effect inherent in this question, seems very unlikely to be unseeded as the answer to that question, as distinct from any of the other questions being asked. Do we need a giant open source governance layer? Do we need faster dollar settlement networks?

You know, the answer to those questions might all be yes, but they're different questions than what we hear being focused on. Then the second thing, back to the Morgan Stanley and Alan Thomas story, is if you just look at these software systems in our view and the people that we talk to, their risk tolerance, which is very, very, very limited. Bitcoin is just in a category of itself today in terms of number one, how long the system has been running in production and the lessons learned and IP that has accrued as a result of that. And number two, the way the community approaches making changes to the system in a very thoughtful, very slow, very methodical way, that's not lost on the institutional investors that we're talking to. These are smart,

sophisticated, thoughtful people that are successful because they understand a thing or two about running large-scale distributed software systems. And so they see that and they pay attention. That's what we're seeing. And that's my best guess. as to as to why. Makes a ton of sense. And I think honestly, it's a pretty good place to close this conversation. I guess I might just ask one more question, which has to do with looking out forward, which is what's getting you guys most excited right now?

You know, as you survey the next six months, the rest of this year, and of course, without giving any details about specific things that you're working on. Yeah, I mean, the probably unsatisfying answer is everything. We just have such a good team, so many opportunities in front of us, such a big funding base, such a great culture. And we just love to build. And there are so many things to build. And so maybe I would close it as anyone out there listening that wants to come join us and build the next generation of the open financial system. Please give us a call, email, careers at nydig.com.

Reach out. come be a part of this, of changing the world. Awesome. Well, Robbie, always great to have you on the show. Excited to hear the next big announcement. And until then, keep up the good work. Awesome. Thanks, Nathaniel. Great to be here. And excited to see you next time. This is the second time that Robbie has joined me on the breakdown.

The last time was last November. And we were all thrilled that the price of Bitcoin was holding above $16,000. Since then, the price is more than tripled. A new wave of institutions has come in. The industry has been elevated to the fore of the macro conversation like never before. Yet there is a sense you can feel across Bitcoin Twitter of waiting for the other shoe to drop, like something is going to ruin the fun. Every time the price retraces, people call the bull market over.

They say things like, oh, look, there isn't enough institutional buying pressure anymore. It must be done. I think one of the big takeaways from this conversation that you just heard is that the amount of institutional Bitcoin activity that we're privy to is a tiny, tiny fraction of the whole. Those people who are deepest in those conversations, day in and day out, just keep getting more excited every time I talk to them. We can and should debate things like super cycle theory

and just how different this time is. But there is no denying that, for now, this Bitcoin bull is built on a foundation of new buyers that are still just getting started. Thanks for listening, guys, and until tomorrow, be safe and take care of each other. Peace. We're witnessing the greatest paradigm shift in finance in modern history. Join thousands of newsmakers and influencers talking the future of money at Consensus by CoinDesk,

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