The Breakdown - Tyrone Ross On The Next Million Crypto Investors

Episode Date: January 17, 2020

One man. Three piping hot takes. In this special interview episode of The Breakdown, financial advisor and crypto advocate Tyrone Ross shares his thoughts on: Why Financial Advisors are the key to bringing in the next wave of crypto investors Why DeFi is an even bigger deal than you think - and not just to the hackers and entrepreneurs building on it Why Square’s CashApp - not Binance, not Coinbase, not any one else - is the most important company in Crypto 

Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The Breakdown is distributed by CoinDesk. Welcome back to The Breakdown. It is Friday, January 17th, and today we have something special. As you know, I want this to be a platform. I want the breakdown to be a platform for great thinkers and thoughts and ideas. and I want it to be as fun and interesting and informative for you guys, the listeners, as possible. And so part of that is bringing on more voices talking about real things, especially things that maybe aren't talked about enough in the market. So I'm trying something out that I'm calling Fire Fridays or Fire Take Fridays where I'm almost going to turn this over to someone that I

respect and that I think has a lot of interesting things to say to give three hot takes, basically, about different parts of the market than are maybe our normal area of focus. We're going to kick it off. with Tyrone Ross. Tyrone is financial advisor in the space. He was early in bringing crypto to his clients. He's working on a number of different projects. And most importantly to me, he's an endless advocate for crypto's power to transform people's lives and destinies, not just in the early adopter tech sector, but across the spectrum of investors. I think he brings a really important perspective. And so he gets into three hot takes, one about the importance of financial advisors in bringing in new people to the market. Second, about how many financial advisors and just

maybe even some of us in this industry are overlooking the true power of defy as it relates not just to Ethereum developers, but to real actual, no-kitting people, which is super interesting conversation. And then third, he talks about why Cash app is the most, bar none, not even close, Binance isn't even in the conversation, most important company in crypto. All right, I am here with Tyrone Ross, the man, the myth, the legend for the first ever fire Fridays, fire take Fridays. I don't know what the name is yet, but I thought it would be really fun to once a week just ask people to tell me and to tell our audience what they think is the most important stuff going on in the markets, right? Or that they think people aren't

paying attention to but should be. Or something that people are talking about, but not necessarily in exactly the right way. So this is going to be more raw, more unscripted, more unfiltered, and probably less newsy than the other episodes. And I couldn't imagine anyone better to kick this off than Tyrone. For people who don't know you, tell us a little bit about what you're up to. Yeah, so I am a licensed financial advisor. Got introduced to crypto in 2015, right around 2017. left the wirehouse, Merrill Lynch, and I was like, you know, I want to go all in, build my whole practice around crypto. So I kind of feel like I was, one, one of the first advisors to embrace it and the other one to actually build my practice around crypto. What is interesting

is I built it without being able to custody and or transact on behalf of my clients, which stood out, which was very rare. And then obviously gaining, you know, credibility through folks like yourself, to be honest, you and Luke Martin and, you know, a few others. I, you know, I got a lot of exposure. Clients came to me from that and I was able to build a practice from it. So the cool thing that I'm doing now, which, again, I won't include this is one of the things that I want to talk about, but just so people know, I'm working with Chris King, who was formerly at Morgan Creek on an all-crypto RIA to help financial advisors access the past strategy into Bitcoin.

through an SMA structure. We are abundantly excited about that. There are some really big names that are involved that I can't name, but we've had some really big meetings. We've got a solid team. We're working hard on that. As you know, I've never been a fan of a Bitcoin ETF. I never will be.

But I think this is finally the way that financial advisors will be able to access Bitcoin cheaply, efficiently, and more importantly, very easily. for their clients. So excited about that. Amazing. Well, I'm sure we'll hear more about that in the weeks and months to come. But let's dive in. So I asked you just three hot takes, basically, three things that are important to you that we should be talking about. So why don't we just dive in? What's the first one? Number one is FAs financial advisors will be the major crypto theme of 2020, trying to get financial advisors in the pool. If you haven't noticed that already, it's super evident. Great Scal

is going all in with their piece that they just put out. Here's what you should be talking to your financial advisor about. So and so forth. Then you get Bitwise, shout to Matt Hogan and the whole team there. They put out their survey that they did, but I believe 400 financial advisors saying that, you know, financial advisors are getting more questions. From clients, financial advisors are really starting to warm up to looking at investing in, you know, crypto, especially Bitcoin.

But the issue still remains regulation and there's no easy, accessible way to do it. So you have the choices of which is either wait for a Bitcoin ETS. I think it was announced yesterday BitWise pulled their application. They're going to resubmit it. I do think if any the ETF gets approved, it's them, by the way, but there's another story. But moving forward, I think what you're going to start to see is we are the conduit between more investors for them. They want access to our clients.

What they do know is financial advisors are not educated on this and could really care less. What they don't know is there's only one word that matters to financial advisors, and I said this in my live, is fidelity, period, hard stop. If you don't get fidelity on board, it's a non-starter. I know this firsthand personally. I know this from my experience with clients and other financial advisors. It's fidelity, end of story. Trust is the number one thing in our business, hard stop. So if Gemini may be the best place to custody your assets,

and your digital asset, but is a financial advisor or a legacy institution to be around 100 years going to take their clients' money and trust the startup with that? Right before coming on with you, I think the news was just released that Gemini, they built their own insurance company to add, I believe, up to $200 million in coverage, which is groundbreaking. Here's the thing. That's fantastic. Trust.

Our legacy institutions, RIAs, right? IA, RIAs of those RIAs. investment advisor representatives going to trust that. I don't think so. So I can keep going on and on and on about this, but I think as you'll start to see, and again, I found out personally, again, I share something with you that I can't share here. But even, you know, a lot of folks who are putting together large events in the space are starting to realize that they have to start to embrace the financial advisor community because, again, we are just the gatekeepers to more people coming into the space.

You've seen this over and over and over again when people want to impact the financial world some way. It takes them a minute to catch up with the fact that one of the key gatekeepers are the people that are already trusted to help people make financial decisions. I saw this with the social impact and social entrepreneurship world where it had been brewing for a while, but then you saw in the mid-2000s, you know, what has now turned into ESG, we were calling double bottom line and triple bottom line. and for a while people just weren't talking to, they were talking to the money in the sense that they were talking to big corporations as entities, right? But they weren't talking about where people were actually allocating their capital. They were trying to get meetings just with like the actual philanthropist rather than going in through the door of, well, who's making the recommendations to these people?

You started to see a similar thing where all of a sudden, I remember distinctly, a lot of folks who are in the financial advisor world personally, they took it on themselves to get interested in it. They started blogging. They started writing about that intersection, and it triggered something where other folks in that industry started to realize that that was a door. Now, there's obviously been a lot of things that have changed, but 10 years later, that's a much bigger conversation. And I think it is at least in part because the people who are advocating for some of those more impactful type investments actually got together with the financial advisor community and made it more of a thing. So for me, it's always felt like that was an inevitable

step to the extent that we are always looking for where the next money is going to come from to keep building out this space. Yeah, absolutely. I mean, and I was saying this before in 2017, all of those, all of that retail that flooded in, those were our clients, right? Like either future or current clients and they were doing that and experimenting, and advisors didn't know. Now, here's the thing. There's the other side of it. There's the other side of it. that. The financial advisory community are ill-prepared for if and when we get back to the highs, ill-prepared. There are a lot of financial advisors that are going to get fired, period, because they're just not prepared, they think it's going away, they're not taking it seriously.

So I think once, now the infrastructure is better, and it's more sound than it was in 2017, but still not enough, again, where you feel, as though Matt Hogan said this, everyone's focus is getting on the institutions, but the infrastructure is not there for financial. advisors to put 5%, 10%, not of an allocation of a crypto portfolio, but 10% of their client tell, right? Their book of business into crypto. So until we start thinking like that and then the folks at the building start thinking like that, it's a no-go.

All right. That's a great start. That's number one. Give me your number two. Number two. Shout to the block and the report they put out yesterday, but I believe defy is severely underrated. I think what is going on at Defi is supremely impressive. You can start anywhere, but I think in their report it was saying that it was one of the themes that was underrated and people think that it's just a lot of hype.

Here's the thing that you learn. When you come up in the traditional finance world, one of the things they tell you when you're at a wirehouse or any of these large firms, you are financial advisors, lead with lending. If you're struggling to get business, because people will always tell you what their rent is, what their mortgages, what they owe in their car. You lead with lending, if you lead with liabilities, if you lead with that type of the ballot sheet, that side of the ballot sheet, it's a more robust conversation. And I don't think folks that are building and defy are doing this purposely, but I think they realize, okay, well, here we have an asset in E that folks can collateralize,

and then they could use that, you know, to convert it to and die and then to do whatever it is that they want to do. I've personally had clients who've gone through that whole process and paid down student loans that have bought houses, right? This is a real thing. This is happening. Also, I've been saying for a long time that I believe as a financial advisor and those of us in financial services community, that the future of our business is being built on Ethereum. Hard stop.

Now there are a lot of things going there, E2.0, what's going to happen? I get all of that. But if you just look at it from, again, the lending standpoint, the ability, you look at what State is doing with Ray, right? The robo advisor for yield. That's so impressive. Again, do I think at some point there's a meltdown? For sure, it has to happen. A lot has to get wiped out. But as you just mentioned in your piece, along with the run-up start the year, right? The amount of money locked inside the D-5 is at an all-time high. That's not an accident. There's actual some use cases here. I do think some of the collateralization rates have to increase a little bit, right? The ratios have to increase. So I do think there are some things that have to be worked out. But I think we're going to look back 10 years from now and go, holy. Kyle. Like that was super impressive what's going on here. The whole decentralized exchange movement, people being able to lend, people being able to bank themselves, which is another thing that I don't

think if I had to have one B of this that I actually had to come to because of the people that I fight for, I almost feel like, and I've had this conversation with Carlos Sassavito, shout to him, he gave me the shirt, but about maybe Ethereum is the way, right? And using how you can use ethas money is something that is a conversation we should be having with those that are unbanked, not as opposed to, but in addition to Bitcoin. The robustness of what is going to happen in Defi, not only for individual folks, but also, again, as financial advisors start to look at how our business is going to start to grow and clients are going to come to them with lending options that are outside of our normal scope of business, it's super impressive to me. And I think,

again, I continue to be amazed at Maker Dow. That is an impressive project. You know, the whole governance structure there, the way people are actually starting to learn more about it and then be able to, you know, iterate off of it. To me, I just think it's super underrated. Yes, there is going to be some type of monumental event and it may all come crashing down, but I think what's going to be left is going to leave a solid infrastructure to where moving forward, I personally don't think is going way. Two quick follow-ups. I think this is extra interesting because a lot of the folks who are the biggest cheerleaders for defy and who are the most excited about defy aren't necessarily coming from financial backgrounds.

They're the folks who are the hackers, the tinkers, the developers, the builders who are passionately excited and stuff. But it's more been in that camp of this has incredible potential for the future, but is something to be tinkering with now, I guess. It sounds more dismissive than I mean to be, but you know what I'm saying. It's not the hardcore financial people who who are just looking for how this is relevant to their world and to their business right now. So that's the point that I'm saying. I guess the interesting question is maybe going a little bit deeper on just when you're thinking about it vis-a-vis your clients, what it offers that is so different, what it offers

that is different than what is available now and why that is valuable, which ties into the second question, which is the amount of collateralization required. Because one of the key themes that I've been talking with a lot, you know, I had a bunch of people on for end of the year type stuff in 2020 predictions. And one of the big themes was moving from these over collateralized loans to under collateralized defy loans as a major priority, which obviously introduces a whole new type of risk, but it also opens up whole new avenues for types of people who right now can't use it. So when you're talking about people who are paying off student loans or paying down houses, I think that there's obviously so much value. And we even saw this the other day,

you know, people being able to collateralize their eth without having to give up exposure to that underlying to stay long-term invested. But at the same time, there's this whole set of people who don't have ETH to start with to collateralize, right? For whom right now, Defi isn't a viable opportunity. So it's a very long-witted way of asking, like, one is what is it offered now that's different? And how do you see the future in terms of the collateralization question and who it's available for? Here's the main thing. The friction part is frictionless. So when you you look at having to get a loan or borrow in the traditional finance world, it is clunky, right? It is a lot of friction. There's a lot that goes on there where, again, let's just

stay true to the ethos of crypto. It's me to you. No third party, we can do it right here. So I think the fact that it's quick, right, and again, try talking a 28-year-old that has access to Ethan could do that. Try talking him out of that and saying, hey, you should probably go down the local bank of America. So that part of it, again, I've had this conversation with financial advisors and they think I'm nuts. Like anyone, if I think I'm completely nuts,

but when you see it in a very small level and seeing it done, it's super impressive, right? The friction, again, fees, we could talk about that. Collateralization rates are, quote, unquote, again, in the traditional sense, high, but if a client has a ton of ETH and they're looking to do something with it,

It's almost like how drawbridge, which I think is probably the most impressive lender out there, if I have a client that's sitting on 20 million gain in Bitcoin and they don't want to sell for the capital gains, and then they want to just leverage that, they should be able to do that. Same thing. If I hold a bunch of Eath, why am I just going to sit on that? And there's options for me to actually leverage that to get into the crypto ecosystem and release some pressure in my own personal financial life. I think those are the things that make it impressive for me because, again, out of my purview, having conversations with clients and folks about it, they're actually saying,

well, I've got a million and a half of EF. When am I going to sit here? Right? And then the next day you know, they're showing me all the intricate ways. And I'm like, okay, right, I got to get up feed on this. So again, the fees is frictionless. It's quick. When you look at now, some of the UXUI is getting better, Dharma and DYDX and compound, they liked it. It's the ease of use is actually getting better. remind me the second part of your question. I think you were saying... The second part was collateralization and how it becomes available for more people.

Because basically what I heard from your first part, which I agree with is that the transformation, even if the quote unquote, UI is clunky, the transformation of the experience of getting alone is unfathomable compared to what exists now, right? For those people who do have that collateralization, which I totally agree with. So the second part of the question is

how should we be thinking about opening that up to different sets? Because, I mean, again, I feel like there's two minds and I can't resolve them for myself, I guess. One is it feels incredibly important to have that as something that we're looking towards. We're really trying to have this asset class be transformational, not just for people who happen to get into these assets early. We have to be thinking about stuff like that.

The second part is that I can't imagine that we're not going to accidentally rush it. You know what I mean? Like from creating systemic risk and like because it is so obvious, like I worry that we're going to push too fast too far in terms of these collateralization ratios? That's already happened, right? Multi-collateral die. All of stuff. Like, it's happening. They're pushing the boundaries here. And you look at all that, you know, the smart contract risk, all that. There's a lot of risk. And it's essentially, you can look at it as being a house of cars, for sure. Again, there will be a calamitous event here where it all comes crashing down and what's left will be a good foundation

to build. To that point, what I was saying before, I think to bring more people to it, What we're going to have to do is, again, going back to my three E's that I'm pushing all year is exposure, education, empowerment. We're going to have to expose people to say, hey, Bitcoin has this big brand, but start having more conversations around ether to people that may not know about it and get educated on it. And then educate them to, okay, well, here's what you can do with EF in this ecosystem where you are able to, again, borrow, lend, whatever. That is incumbent upon us that are in those environments. and that are front-facing with those people to educate them on it, going back to financial advisors and those of us that have clients that are doing it and those that are walking into the market and getting exposed to Ether, what it actually means to hold Ether now is just different

than, okay, I'm going to hold it and do whatever else. But I agree with you. And Cryptos like that already, right? A lot of the large hands, they hold most of the crypto, they move the market. Let's not fake like they don't. That's just what it is right now. But I think as we start to expose more people to it, financial advisors, those of us are the gatekeepers, and then those of us to go into the South Bronx, Brower County in Florida and Detroit, all these places where I go, it's a really good conversation to have where people say, hey, you don't have to go here, here and here. You know, I've mentioned this to you before, those that are using sous and all these other things to bank themselves, right? Trust between one another. Hey, you could do that same thing

through technology. But not only is it an education on the asset, it's an education on actually how they use to technology. So there's a lot that has to be done on that, but I think we can educate those folks while the really smart, important people continue to build it out and make it actually something that, again, I feel in 10, 15 years time, right? You go right on. I can get a loan for whatever, I can borrow whatever and do whatever it is that I need to do. And again, frictionless, no long, K-Y-C, you got to wait two weeks. two months, three days right now. I think that can't be underestimated.

And yes, there are things in between that that makes people nervous from my world, but I just think, again, when you've seen what I've seen, you've experienced what I experienced, that ability to do it now and have that money in the moment where it's like, okay, I'm a couple hours from eviction.

I have an honor uncle who needs money in another country, whatever, to be able to do that now and not have to wait, go to payday loans, whatever the case may be. But to do that right now, I think it's super impressive. Love it. Yep. I agree. All right, Fire Friday, first edition ever. Let's finish it off. Number three, what you got? This bothers me so much. And you know I was going to end on something hot. But I cannot believe that people do not understand that Cash at Square Crypto is the most important company in crypto.

It's not even close. It is not even close at all. I'm sorry. Finance. whoever, it's not close. Coinbase, you name it. There's a lot of good companies out there. The most important company in crypto right now is square, hard stop. Here's why. For one, you look at their open source project, bringing in Matt Corallo. That's huge.

They're simply saying we're all in on Bitcoin. We're going to build it. We're going to tinker with it. We're going to have a small team that's totally dedicated to this. That's for the folks who are literally all in on Bitcoin and what that looks like. The other part is this. There's a couple levels to it. One, right now, it is the easiest, fastest way to get Bitcoin.

And on top of that, a person buys it. It goes right into their cold storage. Next thing, they told you, they said now, not only could you withdraw it if you want, right? You can hold it there, but now you can withdraw it and you can onboard it if you want to. The other piece, they cleared up the issue where they were taking, basically, they had that markup. They took the markup out now and basically they're sure. showing you what the fees are, being super transparent. That meant a lot to me.

And again, those of us that are in the world have clients buying Bitcoin on cash app, super duper duper important to be able to have that transparency for tax purposes and a lot of other things. The last piece, which is super important, if we're really talking about what matters here and getting more people into crypto and getting more people into the banking system to move them along to hopefully they are being defied, they are giving people bank accounts. They are literally banking the unbanked. There's a reason why, if you look at the map of where Cash App is having success,

it is deep in the south. A lot of people there use Cash App. The other thing is this. Their education is best in class. When they just released that they would allow folks now, and again, this is just a caveat to that, that now you can buy stock on Cash App, the video and literature that they put out on what is a stock,

There hasn't been a financial services company ever to make it that clear and simple. They did the same thing with Bitcoin. They make it very easy for you to understand. So when you package up everything that I said and then compound that with a lot of people who are supposedly the big names in our space don't even know the full capabilities of what Cash App can do without a doubt the most important company in the space by a very large margin. And I think that will only continue to grow once they start to actually move forward into maybe they do in a great lightning, right? Maybe they do make it easy for folks now to do

micro payments. There's a lot of things that I think they're going to iterate on here and it's just going to continue to get more and more and more robust. But again, taking it back to my selfish reasons as being a fiduciary. And I was just having this conversation with an advisor out in California who has a client who owns a lot of crypto and he's super nervous. I said, first thing you need to figure out where does that client own that crypto? And then I will let you know how panicked you should be or not. But if a client says, okay, well, I've been dollar cost averaging into Bitcoin on cash app, I'm like, okay, I feel very comfortable with that, that it's safe.

And then, you know, you look at the stack sats thing, the whole ecosystem and the people, how they're drawing people in, any way you shape it, want to cut it, be honest with ourselves, the most important company in crypto. though it's not even close. Amazing. You know what? One of the common theme, if I had to like pull it out from all of these different points today, is I think a lot of folks for the last couple years have had this notion that

the important growth in this space is all going to come from institutions, right? It's the institutions who are circling around the edges, the institutions who are like looking to get involved, they need these custody options. They need these insurance options, right? They need to feel safer. And a lot of what you're saying, the undertone of it is that there are, are so many more people who we would call retail investors from the upper echelons of society who's just their financial advisors aren't paying attention to this and they're more conservative

by nature to down to the bottom people that it could be really useful, really helpful, change their financial destinies for who haven't been exposed, who don't have the tools yet, but that seems like it's getting better. And a lot of what you're saying is pay attention more and aid those efforts around all of those new individual investors who could be part of this space. Yeah. If we do this same thing on December 31st of this year, again, we'll be able to weave that same theme. It's going to be a lot of the things that I've mentioned, starting with, again, trying to get financial advisors into the party. Again, I think Defi continues to evolve. And lastly, again, from being all over the country now and talking to people and I leave some money

on my cash app just to demonstrate for them, they are completely blown away. And I believe with the story, I was in a Waffle House in Charlotte. And I had a shirt on and said, buy BTC. And the woman, she's ringing up myself and she goes, BTC, what's that? And I said, Bitcoin. She goes, oh, that's on my cash app. And then a bunch of people in the Waffle House like, oh, I have that too. It's like, so when you see that, I'm like, I left there and I'm like, okay, this is bigger.

I need to pay attention to this still because it's there. People know it's there. And you'd be surprised at the people that don't. But it's amazing to see how it's literally just starting to expose people. to what is the Bitcoin brand, simply the brand, right? And then there it starts to become an education around what it is and how it actually works and what you can do with it. So I think we'll start to see this a lot this year is that the institutions are not going

to move, guys. They're not. They have no interest. They don't. We got CME, Bitcoin futures and, you know, all great. We need to see a little bit more infrastructure. Fidelity has to do a little bit more. But the bottom line is the wall is high.

for them and they have no reason to peek over, but there are a lot of folks who I've been reading, been seeing things, right, looking at your work, listening to podcasts, doing all that, that are ready. And again, have financial advisors or not that are gatekeepers. But that's really the theme here. We have to get more of these people to understand some of the things that are going on here, get them excited about being part of the crypto economy, not just Bitcoin. Love it. All right. Tyrone, you're the man. Thank you so much. first 5th of Friday. Couldn't have started better. Really appreciate you. I had a great time talking to Tyrone, and I will catch you on Monday with a regularly scheduled breakdown.

Have a great weekend, guys. Cheers.