The Pomp Podcast - #1041 Ben Sebley On Banking For Crypto Companies

Starting point is 00:00:00 What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Ben Seble is the Chief Growth Officer at BCB Group. In this conversation, we talk about banking for crypto companies, emerging yield markets, the current market status, and also what's going on with the Staff Accounting Bulletin and the SEC. I really enjoyed this conversation with Ben, and I hope you guys enjoy it as well. Before we get into this episode, though, I first want to talk about our sponsors. This episode is brought to you by FTX US. FTX.US is the safe, regulated way to buy and sell Bitcoin and other digital assets.

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Starting point is 00:02:40 to get started anthony pompliano runs pomp investments all views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. Ben, how are you doing? Hey, very well. Very well. How are you? I'm super excited to talk to you, man. Let's just get right into it. Banking for crypto

Starting point is 00:03:13 companies. The second somebody hears that, they go, whoa, is that an oxymoron? Banks, crypto companies. Help folks understand that. Why do crypto companies still need banking? Well, it may be a new industry, but it's a story as long as time it feels like. So I'm sure most of your listeners are going to be very intimately aware of the pain surrounding this. But for those that aren't, basically the cryptocurrency industry is bucketed as ultra high risk. So traditional financial services firms, they look at crypto alongside the likes of the adult entertainment industry, gambling, medicinal marijuana, etc. So what it means in practice is that, well, guess what, crypto companies, whether you're a brand new crypto startup or a multi

Starting point is 00:03:55 billion dollar exchange, you can't get banking. And that's a pretty fundamental service to not have for a fintech. And, you know, whether it's as simple as kind of operational accounts, just to pay your staff, all the way up to treasury management and even fiat landing on off ramps from large exchanges. People have struggled. Now, I mean, I came into the industry sort of early 2018. And really, from then to now, it's actually got harder, not easier. There's less places you can go, those places are better. But there's less places actually offering crypto So companies have the right to bank. So really, if we jump back to 2017, all that happened was we had this pop in the market.

Starting point is 00:04:38 Everyone then knew what Bitcoin was, which was great. But then the banks actually went, oh, hold on. We've got a bunch of companies on the book doing something that we absolutely don't understand. So the rug got pulled on the industry, and a lot of people lost their accounts. And really, at the time, there was kind of only one big bank globally offering, you know, accounts to crypto companies. And that was Silvergate. And it was only offering in one currency, which is US dollars. Now, that's even read through today because what we see in the market is that we see pretty much all crypto companies and all crypto assets being pegged to the dollar. And it's not just because the US is the largest market in the world with the deepest tech talent pool.

Starting point is 00:05:20 it's because they simply couldn't get bank accounts and so we saw that kind of change happen and the evolution happened over the next couple of years of that first sort of major institutional crypto winter and we saw some development in europe but actually what what happened was the large players that were banking crypto companies before they stepped away and and there was a vacuum and the vacuum wasn't particularly filled you had the odd eastern European payments company or a very sleepy private bank come in and try and service those companies. But almost as quick as they came, they disappeared. And they disappeared simply because they didn't understand crypto compliance. They didn't understand what crypto companies

Starting point is 00:06:00 needed. And when you look at the average profile of a crypto company, it's a pretty fast paced fintech with quite demanding needs and normally quite a high customer base. So they're quite hard clients to service and service well. Now, what that's led to effectively is it's led to like massive challenges in the industry so um firstly those companies that bank crypto companies um aren't necessarily always fit for purpose you know a lot of crypto companies just basically take what they can get um and that's a shame really because it actually hampers growth and development in the industry and the second thing is that it's expensive um we all know that if we've started a crypto company you know going to get bank accounts it's not only expensive

Starting point is 00:06:47 It takes an incredibly long time to do because as the industry is cyclical and as investment comes in waves, that capital all tends to get deployed at the same time. And one of the first things everyone needs to do is set up a crypto bank account or if they're expanding into a new area, they need to set up a new account in that currency. So what we see is we see these massive backlogs of very few companies being able to service the industry. and it just hampers net growth and development um within crypto now there are some small benefits of it um you know mostly if everyone's banking at the same place well guess what Velocity of Capital at least should be quicker because we're all in the same place so at least I can shift some money from my market making company onto an exchange a Sunday evening um but you know that that has that has limited viability um and ability to sort of scale

Starting point is 00:07:39 outside of those currencies that aren't serviced. And I guess the kind of final small advantage is that, you know, there is economies of learning with these very few companies that are providing kind of crypto companies the banking services. They do get to kind of know what these companies want, but I think we can all appreciate, you know, a healthy and competitive marketplace would be better net-net for everyone and certainly get more access to crypto companies

Starting point is 00:08:07 with what they actually need so they can grow. How much of this is a regulation problem versus a technology problem, right? If we got clear regulations around this industry, would that solve majority of the problems or is there a tech component to it as well? Yeah, it's a good question. So it very much used to be a regulation problem.

Starting point is 00:08:26 I think, especially in the time sort of post-2017, we lacked two things. We lacked basic infrastructure that was suitable for sort of major institutions And we lack regulatory clarity. That's 2017. Now, fast forward on to 2022. And for instance, you've only got the European Commission going firm on what might be seen as a new regulatory framework for crypto, which may or may not come in in about 24 months. So where we have seen improvements in regulation and regulatory clarity, we've seen further growth and a bit more acceptance of especially non-crypto corporates to come into the space and expand. However, it's not given it a blanket oversight for people to come in and operate comfortably. I think we're still maybe a couple of years off yet.

Starting point is 00:09:17 And I think that's probably evidenced by, if you look at the US, sort of the major crypto companies that are only just starting to lobby properly in DC. It's a great development and it helps sort of add an industry view to regulation. But really, that hasn't even started properly in Europe yet. It's only just the green shoots. So once we get further regulatory clarity, it will help. I mean, we've got some, but really it's a technology issue as well in that, you know, crypto is going to be playing catch up just to get a very vanilla offering of financial services that, you know, a very normal corporate would have access to in, say, Europe. When you think about traditional banks, obviously yield is a huge component of what they offer. We've seen all sorts of kind of chaos in the yield markets, both centralized and decentralized over the last couple of weeks. what's your general read right now on yield in crypto? Yeah, so this is the place that

Starting point is 00:10:15 I've certainly been most excited with the developments they're in for. It's also been fed back by our clients, whether they're crypto natives or whether they're more traditional finance types. That's actually the area of crypto that I think is going to add most value and we're going to see most institutional crossover. As we know, we're kind of going through a period of instability but actually what's happening is we're seeing this great stress test happening early um for fairly large kind of c5 and d5 lenders and it is painful obviously some companies are failing but it's really accelerated i think people's idea on how to um handle corporate governance in the lending space now if we look at what our clients are saying um you know even though they

Starting point is 00:11:03 might want bank accounts they might want the ability to trade they might want the ability to store and custody actually where we're seeing the most demand and the most interest especially from non-crypto companies is the ability to generate yield and i think there's no surprise obviously with real inflation smashing into double digits um but we've had fintech sort of bite her arm off and cfos want to come in and get an education piece around it now that was right up until Terra Luna happened. Once we had that happen, we were actually surprised that people were still very, very interested to learn how they could get safe exposure to sort of CFI and DeFi. And really sort of the developments there have been quite interesting. The main thing we're

Starting point is 00:11:46 hearing from clients is we're still happy with CFI and DeFi. However, we want the ability to recall quicker. They also want a lot clearer view on the DD process, also sort of collateral management, margin calling management. They do want the ability to know what's behind and if you're back to backing, where you're back to backing to. What has been very interesting has been how agnostic I think most even traditional finance types have been to where you're generating in that yield. So whether it's money market lending and CFI, or whether it's the slightly more punchy high risk defis, as some would say, actually, most CFOs have been fairly agnostic, which we've been surprised about. And they just want to know the real rates and roughly how it

Starting point is 00:12:37 works. And actually, I think what could come out of this is obviously some consolidation that we're seeing, which is kind of great. But also, you will just see rapid economies of learning in how to kind of govern lending companies in a way that matches actually more what traditional finance wants. So yeah, I think if you're a yield aggregator, especially where you sort of maximize exposure to say, you know, 3% of a particular protocol, I think they're going to come out of this well. But definitely, sentiment has been relatively positive. Interest has taken a small dip in it, but not anywhere near the level we expected. There was recently an SEC bulletin, this Staff Accounting Bulletin 121, which makes me sound like a genius that I can

Starting point is 00:13:26 recite that. Explain to everyone, what was this saying? And why do you guys think that maybe it was mistimed or misplaced? Well, this is something, unfortunately, we've stepped back a bit from. So we've been focused more largely on sort of the Mika developments here in Europe. But as we all know, even in crypto, when the US coughs, the rest of the world catches a cold. So everyone has been definitely kind of watching fairly avidly to all the developments in DC and how a lot of the major kind of u.s crypto companies have handled and and lobbied as well and we're starting to like i said earlier we're starting to see that kind of translate through even to the uk and other companies sorry and other countries here here in europe and elsewhere where crypto is

Starting point is 00:14:12 being recognized politically as having way more of a a sway certainly with the public opinion it's seen as slightly bipartisan which obviously is helpful now um but we've still got a lot of work to do. And the SEC is sort of almost being pipped at the post at the minute by Europe. Like Mika is seen as a very broad framework that has gone down really, really well and potentially might even make Europe slightly more investable from a crypto sphere. Yeah. Talk to me about BCB Group, what you guys are doing to help people with the banking services for crypto companies. Yeah, cool. So, I mean, where we fit into this is that we were sort of headquartered initially in europe um unlike that sort of single us bank we slot in and our story was we basically helped

Starting point is 00:15:01 all the big us crypto companies expand certainly at the start into europe kind of basically through 29 2020 21 and we help you know the big exchange start opening their sort of gbp their euro the chf rails um how we are probably different to the other couple of banking providers that service crypto is that, you know, we're crypto natives ourselves. So we've tried to basically build our infrastructure around what clients want. So we do have a trading function, whether it's sort of facing the crypto direction or it's facing more the FX. Our bank accounts, we now offer up to 30 currencies. And why that's interesting is because we're starting to see where these big crypto companies are kind of looking to move next. And especially the story of the last sort of six to

Starting point is 00:15:48 12 months has been one of them expanding some non-core markets you know interestingly the middle east is getting a lot of attention a lot of people are looking whether to set up camp in dubai and you know even even markets like canada hadn't been serviced well and we're seeing a lot more sort of renewed interest thankfully down in asia and a lot more connecting of the western crypto world with with sort of the far eastern which which is great and we also have kind of very crypto-focused services like custody and more recently Yield. And why that's interesting is because we tend to see, you know, from an infrastructure perspective,

Starting point is 00:16:25 pretty much the whole breadth of what a particular crypto company wants. We're also very lucky enough to sort of bank all the crypto house or names, whether it's big exchanges, market makers or lenders. And what that means is, you know, because we understand them from, you know, being crypto natives, we're able to hopefully tweak and speed up our decision cycles on what we offer them. So we try and not hinder industry growth. So that's been kind of how we fit into it.

Starting point is 00:16:55 But we're still sort of, you know, we've only been around really since 2019. And there's a lot more kind of growth to do and assist with. But we definitely are seen as sort of main partners in Europe by the industry. What types of companies? Are there specific types that you guys feel like you serve best versus others? Yeah. So I would say, well, it was always crypto. We've started diversifying out to other sectors as well.

Starting point is 00:17:21 However, especially crypto companies that have a sort of B2C type element, whether they need Fiat rails and they need on-off-ramp type services, that's where we've sort of done our bread and butter. and what we've seen is we've traditionally actually serviced more of the US type companies looking to expand into Europe and we've helped fledgling European companies grow but especially ones that face retail are the ones that we tend to service the best and I would say sort of the split in terms of what we do it's mostly focused on exchanges and market makers and then you sort of get the tale of sort of funds and lenders kind of following suit and in terms of what we're

Starting point is 00:18:04 seeing recently, especially in the last six to 12 months, the uptake from traditional finance has been insane, and even normal corporates. It really kicked off, obviously, last April when we were in a bull market, and we saw kind of Bitcoin do its thing. And there was sort of a FOMO type panic with the more traditional companies. And as that price action sort of dwindled, we saw some interest dwindle from traditional finance. However, in the last sort six to eight months it's completely renewed and almost price agnostically you've had um you know even just normal corporates come in recognize they need to do something in crypto or they need to be enabled to crypto and so we're now starting to see this massive uptake of people who are basically

Starting point is 00:18:48 setting up um to to offer either crypto related services or or broaden what they do and using us And the good thing there is we're now seeing a proper crossover. So you're seeing traditional corporates actually look to generate yield for some of their retail users by using crypto. You're seeing traditional funds really start getting in and adding fresh longs. And so essentially the customer base is changing and we're seeing that crossover. And it kind of mimics what we saw in the sort of 2018 to 2020 years, where you saw the green shoots of basically traditional firms looking at crypto, but not jumping in completely. We're now seeing that people jumping with both feet and recognize that it's very much an industry that's here to stay, recognize that it's definitely going to be a crypto strategy that needs to fit into their normal strategy. And so we're there to service that and sort of bridge that gap.

Starting point is 00:19:47 When you think about the current market environment, if you were talking to somebody who doesn't pay attention to kind of this connectivity between the crypto companies and banking, what's the one thing that would surprise them the most as prices have fallen over the last six to eight months? Like, what are some takeaways or surprises that have occurred? Yeah, so I think people would be surprised just how many big traditional firms are coming into crypto. I think that's the thing that would really, really shock people. What names can you share? Can you share names that people don't know? um you know we'll we'll try airlines try supermarkets try anything from sort of manufacturing anything to normal funds which is kind of less exciting um especially on the

Starting point is 00:20:29 tier two tier three sort of traditional brokerage side prime brokerage side there's a lot of names we've even got two investment banks as clients and it's it's just great to see and there's also not a particular type what we're seeing is we're seeing traditional companies realize hey we can accept payments in crypto okay let's do that or we've got two billion on the balance sheet how do we generate some yield on that that's going to be inflation and so really there's not just kind of one answer but it's great to see because we saw this in the last bear market which lasted a couple of years we saw traditional interest still remain the same in level which was great and we're now seeing that interest sort of renew and resurge so that's definitely the first thing i think people

Starting point is 00:21:15 would be surprised about. The Bitcoin price, although it is a good indicator and proxy to market health, actually, it's sometimes not always the case. I also think people will be surprised at just how much interest there is in yield-related products. It definitely feels like that will be the interesting thing as to where this industry will go. I don't think we're quite there in terms of what the end state will look like that will make traditional companies happy. And I think actually what's happened recently in the market with, you know, the recent crash in Terra Luna has actually accelerated us getting there. And people are now sort of to the war and they need to realize that they need to up their own corporate governance. And they need to be a bit more clear on what they do and how they generate yield, even at the expense of rates.

Starting point is 00:22:06 So I think that's probably been the two things that surprise people. Probably the third as well is, you know, NFTs. There's not actually been as much demand, even though that seems to have grabbed headlines. And, you know, you see it all over sort of meme culture. And the NFT marketplace has sort of felt like it's been slightly transitory and it's come and gone. And a really interesting thing there is that a lot of these marketplaces couldn't get banking. It was just a step too far, even for crypto compliance. So I know that's hindered growth.

Starting point is 00:22:40 And actually, I think where sort of the smart money is looking is not just on sort of speculative investing in, say, Bitcoin and holding it on your balance sheets like, you know, MicroStrategy, but it's more, okay, how do these money market lending products like CeFi and DeFi actually have value to traditional corporates? I think that's probably, I think that would surprise people the most. Yeah, it's absolutely fascinating. Ben, where can we send people to find you on the internet or find more about BCB Group? Oh, just bcbgroup.com. We're there all the time. All right. Are you on the internet?

Starting point is 00:23:12 Matey, I am, but I try and keep it low profile. Oh, you're high now. Yeah. I know you've got me out from under my rock, so well done. Awesome. Well, when you come to Miami, we'll hang out. I think that it's like a weird component of the crypto industry. I think how little people understand the complexity of banking,

Starting point is 00:23:32 the obstacles that have been in place. It was even worse four, five, six years ago. Now there's businesses like yours that can really help people kind of get up to speed, get the connectivity, make sure that they're going to stay operational. But even in the jurisdictions where this has been solved, there's still plenty of other jurisdictions where it feels like they're constantly under threat. And so I think that this story is one where it's like a key piece of infrastructure that people just don't realize how important it is, which always means it's probably a pretty good place to build a business. uh but also too is that the story is not over in terms of there's so many other jurisdictions that uh we got to go solve this problem so uh best of luck to you guys and uh and hopefully you guys will uh will continue to uh to build this out brilliant thanks very much mate all right talk

Starting point is 00:24:17 soon ben take care bye thanks so much for listening to today's episode i really hope you guys enjoyed this one make sure you're subscribed on apple spotify or your favorite podcast player and if you're looking to try to transition to get a new job in the bitcoin or crypto industry we've got you covered. Head over to palmscryptocourse.com. We've developed a curriculum with the top teams across the industry. It's a three-week intensive training program with over 50 events packed into that three-week time period. Go to palmscryptocourse.com to learn more, and I'll meet you guys for the next episode.

The Pomp Podcast - #1041 Ben Sebley On Banking For Crypto Companies

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