The Pomp Podcast - #1059 Alan Lane On Traditional Banks Using Bitcoin As Collateral

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. Alan Lane is the CEO of Silvergate Bank. In this conversation, we talk about their Q2 earnings, their overall market outlook, their brand new SCN leverage platform, and also how Silvergate is looking at digital assets moving forward in the future. I really enjoyed this conversation with Alan 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 Alto IRA. If you're trying to grow and preserve your crypto wealth, optimizing your taxes is just as lucrative

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Starting point is 00:03:24 with me. Alan, you guys recently announced your Q2 earnings and in it, there's lots and lots of growth. There's lots of kind of good things for the business. But what's so fascinating is a couple of years ago, Silvergate was, you know, relatively small bank, uh, had not yet entered into Bitcoin, crypto, uh, kind of any digital assets. Why did you all make the jump into what was a small, but fast growing industry that probably most of your colleagues thought you were crazy for doing? Yeah, it's a great question, Pomp. And by the way, it's, it's great to see you again. Um, congrats on all your success. The last time we, we did this, uh, we were in a little office in New York City. And now you've gone mainstream. Congratulations. It's pretty awesome.

Starting point is 00:04:07 I appreciate it very much. Sometimes you miss the office, but other times you realize that this is just as much fun. Now we just got to do it again in person next time. Absolutely. Yeah, I'd love to do that. So yeah, so to take a step back and talk a little bit about Silvergate, to answer your question. You know, back when we started looking at this space, candidly, we were looking at it as a potential way to generate deposits to fund the rest of our banking activities. And honestly, most of the banks that have entered the space over the last couple of years, I think are approaching it the same way. They're looking at our success, they're looking at the growth of the industry, and they're thinking, hey, this might be a source

Starting point is 00:04:52 of deposits to fund the rest of their balance sheet. We, however, a couple of years ago decided, well, actually about four years ago, we decided to go all in on this. And it's really differentiated Silvergate. And what I mean by all in is at the end of 2017, we had just launched the SEND, the Silvergate Exchange Network. And I'm sure we'll talk about that a little bit more here in minute. But the idea there was to really help our customers solve some pain points that they had around banking friction and 24-7 liquidity and counterparty risk. And as we launched the SEND and started seeing adoption, we just recognized that a lot of the other stuff that we had done historically was really, candidly, a little bit of a distraction, whereas we saw just this huge

Starting point is 00:05:44 potential to really focus on helping our customers in this digital asset ecosystem, essentially help them scale their businesses. And so over the last four years, we've sold our business lending unit, we've consolidated and sold our branch network with the exception of our headquarters office. Earlier this year, we sold the majority of our commercial real estate portfolio. And so today, Silvergate is really the primary bank for the digital asset ecosystem. We've talked about ourselves in the past as the on-ramp and the off-ramp from the traditional banking system, the traditional financial world, which operates during normal business hours, Monday through Friday. So we are the on-ramp from that world into the digital asset world,

Starting point is 00:06:35 which as you know, transacts 24-7, 365 around the world. And then when people want to exit that digital asset ecosystem and go back into the TradFi world, as folks have started calling it, then we are that off-ramp as well. And we are institutionally focused. All of our customers are institutions. The SIN is a two-sided network. I don't want to get ahead of ourselves, but we primarily bank all the major cryptocurrency exchanges, all of the major institutional investors in the space, the OTC desks, et cetera. And our primary service under the SEND, the Silvergate Exchange Network, is to provide that 24-7 access to liquidity. And then a couple of years ago, we started lending against Bitcoin. And that's created a great opportunity for us as well.

Starting point is 00:07:22 And then we're working on a stable coin. So everything we're doing strategically is focused on this digital asset space. When you look at the send volume, it's almost $200 billion in Q2, which is a massive number. Why are people finding it so valuable? What does it change on a day-to-day basis for the actual businesses that are leveraging this? Is it just a thing around faster and cheaper kind of transfer of payment or are there other benefits that they're really gathering to send $200 billion in a single quarter? Yeah. So what our customers are really doing there is they are using the Silvergate Exchange Network, the SEND, and our API capabilities. So when we launched this, we launched API first, and we've really encouraged our customers

Starting point is 00:08:10 to code their tech stacks to our API. And then we've been continuing to enhance the API offering throughout the years to, for instance, allow for the advancing against a line of credit against Bitcoin to pay down the line against Bitcoin. et cetera. And so what our customers are using it for is to move instantly between the dollar, and I'm not talking about a stable coin now, the sand is not on a blockchain. And candidly, it doesn't need to be on a blockchain because we're moving US dollars on behalf of our customers into and out of the digital asset ecosystem. One of the primary use cases and where a lot of the

Starting point is 00:08:52 volume comes from is with the existing regulated stablecoin issuers in the United States. And that's obviously USDC issued by Circle, but it's also the PAX dollar, the Gemini dollar, and 2USD. And each one of those stablecoin issuers uses the SAN and our API for the minting and burning, or the creation and the redemption of the US dollar-backed stablecoins. And so what happens is when you have these periods of dislocation that we experienced in the second quarter, which started with the Terra Luna thing, and then was exacerbated by Three Arrows Capital and Celsius and Voyager. When folks are trying to get out of tokens, out of this digital asset space, they want to go into dollars. And they can do that with the Silvergate Exchange Network,

Starting point is 00:09:46 24 hours a day, seven days a week. And that differentiates us from most of the other banks, even today that are coming into this space that don't have a similar kind of 24-7 capability. And as folks in the traditional financial world have experienced in decades past when there are periods of dislocation, when things happen on the weekends, for instance, globally, if there's something major, a global political thing that happens over the weekend, oftentimes you can have this huge gap down in financial markets on a Monday morning with crypto, with this whole digital asset space, it trades 24 seven. And so if folks want to get to the safety of the dollar, they can do that with the SEND 24 hours a day, seven days a week.

Starting point is 00:10:29 And with the SEND, are people able to leverage it with customers or partners or vendors that are not onboarded? Or is it something that is more kind of enclosed? And really what this gets said, is like, how much of a flywheel and kind of, you know, selling point is this where eventually liquidity begets liquidity, and you just keep collecting more and more customers joining send, because if I'm a business, I'm on half of my vendors or partners that I'm conducting business with or on, I see the great benefit, I turn around and I tell the rest of my vendors or customers, hey, you guys got to get on here, because this is how we do business now. Yeah, we have definitely experienced that flywheel, the benefit of this two-sided network

Starting point is 00:11:13 where we connect exchanges and other liquidity providers to institutional investors. And you're absolutely right. Liquidity begets liquidity. And we see this especially. So and to be clear, I was just speaking a minute ago about like the stress in the market and the dislocations and folks wanting to flee to the safety, the relative safety in their eyes of the US dollar. However, on the flip side, we also have powered, you were talking about earlier how we were a much smaller bank a couple of years ago, but through the bull market that we experienced

Starting point is 00:11:53 through the pandemic years of 2020 and 2021, Silvergate was really powering the growth of this digital asset ecosystem as well. Because if you are a new market participant, if you're an institutional investor, if you're a new exchange and you want to get access to other market participants, then you want to be on the Silvergate Exchange Network because that's where all the participants are. And in fact, we do very little outbound marketing. Almost all of our growth, our customer growth has been inbound inquiry and referral from new potential market participants who are looking at the space, decide they want to get in. They're starting to interact with different potential counterparties and all roads lead to Silvergate. And they find out that if they

Starting point is 00:12:42 really want to trade in the institutional market in this ecosystem, they really need to be on the sand. Now there is this Silvergate Exchange Network leverage. What is the leverage kind of feature or added functionality that you guys have put there? Yeah. So you're right. We call the product Send Leverage. It is a Bitcoin collateralized lending offering, and it is Bitcoin only. And we are always in an over collateralized position. And importantly, we have taken control of the private keys. So we control the collateral before we extend the loan. We actually started looking at this back in 2018, and one of the things that market participants who have been in this business for a while will remember, like the cries from the institutional players back in 17 and 18 for qualified custodians. the need for that term qualified custodian, somebody that the institutional investors can

Starting point is 00:13:46 rely on to hold custody of the digital asset. And the way we started looking at this initially was, well, maybe Silvergate should become a qualified custodian so that we can not only solve that problem for the industry, but then also be able to hold the collateral in support of lending against Bitcoin, which was something that we had our eyes on. But what we quickly realized is that the institutional players that are coming into this space, they're doing a lot of work ahead of time to try to figure out not only who are they going to, you know, who are they going on board with from their banking? And that's usually Silvergate. Who are they going to trade with? And there's, you know, different OTC desks and other participants out there. And then where are

Starting point is 00:14:29 they going to hold custody of the Bitcoin and the other digital assets? And so what we decided to do was similar to the success of the SEND on the deposit side. We decided to create a network of qualified custodians who we, you know, so we actually vet them. We put them through our vendor management, vendor due diligence process to determine that they are a qualified institution to hold the Bitcoin on behalf of our customers. And what we're trying to do there is make it so that if a market participant wants to borrow from Silvergate, they want to pledge their Bitcoin to us, they have choices. They can go to Fidelity Digital Assets. They can go to NYDIG. They can go to Coinbase Custody. They can use Bitstamp. And they can also use Anchorage. So we currently

Starting point is 00:15:23 have five custodians with whom we work. And with each one of those, if a borrower wants to borrow against their Bitcoin. They place it with one of those custodians under a tri-party agreement, and then we will lend US dollars. Now, we typically start at about a 65% loan to value on that Bitcoin, which means we're way over collateralized. And then we would typically have a margin call or a reset of that collateral coverage ratio when that margin gets down to about 75% to 80% loan-to-value. That's for an active market participant who might be trading the digital asset. If you're a balance sheet holder of Bitcoin, whether that be a Bitcoin mining company or some other corporation that has decided to hold Bitcoin in their treasury, we would typically

Starting point is 00:16:14 start at a lower loan-to-value. And that's really for their benefit so that they don't have to be monitoring the collateral coverage ratio 24-7 to the extent that a trader might. But as I mentioned, it's Bitcoin only. We're always over collateralized and we have control of the private keys. And the reason that's important is, as I mentioned before, Bitcoin trades 24-7, 365. And if we get into a situation over the weekend where the price of Bitcoin is plummeting, we want to have our customers need the ability to cover their margin either by paying down their loan or pledging more Bitcoin. And if they don't do either one of those, then we need to have the ability to sell the Bitcoin to correct that margin coverage.

Starting point is 00:16:55 Yeah. When you look at this business, and I've invested in a number of companies that also offer similar types of over-collateralized lending, it's basically asset-backed lending. But because you have the collateral in that private key ownership, and you're able to sell fractions of the collateral into a highly liquid market 24-7, in some ways, it's better asset lending than pretty much anything else you could do, you know, looking at it from a pure lender standpoint, right? How do you guys think about risk management, maybe with like Bitcoin backed loans, or, you know, kind of over collateralized Bitcoin loans, versus maybe other types of assets that you guys would lend against? Yeah, it's, it's a great point. And in fact, I've said this

Starting point is 00:17:35 many times before that, that I believe I've been in banking for 40 years, I started in banking as a teller while I was in college. And so I've done, you know, a lot of the jobs inside a bank that you can conceive of. I came up on the financial side, but I also, you know, did some lending back earlier in my career. And I believe that Bitcoin collateralized lending is the best lending I've ever done in my 40-year career. You know, you've heard some of the folks that are much more articulate than I am talk about Bitcoin as pristine collateral. I absolutely believe that to be the case. Yeah, it's pretty incredible. Talk to me about the actual performance of the business. So in Q2 of 2021, I think you guys did about 20 million or so in net income. You just

Starting point is 00:18:21 announced 38 million in net income for Q2 of 2022. So kind of over a one year period, incredible growth in that income. What's driving most of that? And how do you think about kind of net income growth at a time where asset prices in the crypto space have drawn down significantly? we've seen a lot of companies do hiring freezes, layoffs, just kind of tough bear market conditions. But it seems like Silvergate continues to produce pretty strong financial returns on the net income basis. Yeah, we really, I think, benefit from being this critical infrastructure for the ecosystem. And whether the market is rising, or whether it's under stress, customers market participants still need access to our banking rails and a couple of important

Starting point is 00:19:12 distinctions number one we don't charge for the send so when we see big volumes going up we're not making more money on send transactions and if volumes are going down we're not making less and the reason for that is because this is an api enabled ledger transfer on our books essentially once we set this up, it's zero cost to us. And so we pass on that savings to our customers. So we don't charge for send. So then how do we make money? Well, we certainly benefit from a growing deposit base and we don't pay interest on those deposits. And so that's kind of the second key differentiator is that we don't pay interest. Now, this is not just because we're trying to be stingy. It's really because our customers need to have the ability to access

Starting point is 00:20:00 every last penny of their liquidity 24-7. And so that means we can't go out and lend these deposits. We're not making seven to 10-year commercial mortgage, commercial real estate loans. We're certainly not making 30-year mortgages. And so we need to keep these deposits short. But we obviously do need to earn some yield because that's how we cover the costs of the regulatory compliance and everything that, you know, that underpins our offering and allows us to continue to service our customers. So when interest rates are going up and deposits are also going up, then we get that kind of double benefit. But having said that, we've also been adding quite a bit to our team. You know, the last time you and I met, we probably had a little under 200

Starting point is 00:20:48 employees. We're probably around 400 now. And that's to keep up with all of the regulatory requirements, the BSA, any money laundering, and then also to continue to build some of the services and the new products that we're offering and contemplating offerings such as our stable coin. And and so it's it's really it's it's interest earnings on the reserves, you know, and then it's a growing deposit base and then being mindful of of not, you know, not overhiring. And and we really do believe, by the way, that we have a business model that can make money in good times and in bad. And I think we're just now starting to prove that out, because if you think about it, our earnings, our deposits were growing, our earnings were growing during the crypto bull market when interest rates were zero. And then what happens is interest rates start to rise, deposit growth slows down, but now we're making more money on the net interest income. And when this turns around, as it always does, then interest rates will start coming down. So we might be earning less interest on those deposits. But then hopefully the digital asset market is growing again. So we have growing deposits. And then it's all underpinned by a really strong risk management framework. And that gets back to kind of the SEND leverage piece.

Starting point is 00:22:15 We talked earlier about how I believe SEND Leverage is some of the best lending we've ever done. And this is a new asset. It's a new asset for the world, obviously. It's certainly a new asset for the banking system, a new asset for Silvergate. And we're really focused on continuing to be able to grow that business, which then allows us to put deposits from this ecosystem back out into the ecosystem by lending back to the market participants who are already benefiting from the deposit side of the sand. And when you start to look at the performance of the business, obviously there is the macro crypto market. There's also the macro economic market kind of globally. And it really feels

Starting point is 00:23:01 like we're in a weird time, right? That we see obviously the Federal Reserve talking about and creating tighter financial conditions. But we also have strong employment. We have consumer spending staying high we do have plenty of companies in the crypto industry that are continuing to hire they're still raising capital they're still conducting lots of transactions how do you all break out in your analysis of these situations and ultimately the financial performance of the business kind of crypto market dynamics or kind of macro in crypto versus the actual macroeconomic environment uh and kind of what the fed would be doing uh in the more traditional market like do you separate those out or do you try to evaluate it as one holistic market that you're trying to

Starting point is 00:23:40 serve? Yeah, we really don't look at it. We don't separate it out. We absolutely need to be mindful of, you know, what the Fed is doing, obviously. I mean, the entire world waits for, you know, for what we're all going to be waiting for now this week, you know, on Wednesday afternoon, when the chairman of the Federal Reserve comes out and announces to everybody what they're going to do with interest rates. You know, the market certainly has an expectation of what's going to happen. And then they're going to come out. And so we're absolutely watching that. Certainly the geopolitical stuff going on, the war between Russia and Ukraine, and then inflation is rampant around the world. So all of these things have an impact. But the way we try to synthesize it is,

Starting point is 00:24:33 okay, how do these things impact our business? And we've really, over the last few years, simplified our business. Folks, I think from the outside looking in, think that, man, those guys at Silvergate, they're really taking a lot of risk. We don't believe that to be the case at all. We have a deposit offering where we are providing deposit services to a new industry that is absolutely just going to keep growing up and to the right. It's going to be volatile, but we don't believe this is going away. And so we have a very strong position in a new growing ecosystem. So that's step one. And then, you know, we just have to make sure that we are in constant dialogue with our regulators to make sure they understand as we contemplate offering new products

Starting point is 00:25:20 and then we have to have strong risk management. And if we can do that, I think, you know, one of our board members several years ago, as we were coming out of the financial crisis of 2007 and 2008, I joined, by the way, I joined Silvergate in December of 08, right at the height of the financial crisis. I was attracted to Silvergate, even though it was very small, I was attracted to Silvergate because of its risk management, its historic risk management. We've had very little losses over the years. We've been profitable consistently for over 20 years. And that goes right through more of a traditional kind of banking model to this now digital asset model. And it's because I think we have a very strong risk management culture and we always look at

Starting point is 00:26:08 things through the lens of how do we make sure that we don't lose money? And people would think that that's kind of a crazy juxtaposition when we're saying we're lending against Bitcoin and we're open for business and we want to keep growing that line of business, but it's because we believe we can do it in a way where we're not going to lose money. You recently in the earnings report were quoted as saying, our balance sheet is optimized for client liquidity and risk management practices are at the forefront in all aspects of our business to ensure we are prepared for any market environment. I remain confident in our trajectory throughout the second half of 2022 while continuing to invest in our strategic

Starting point is 00:26:44 initiatives. Talk a little bit more about how you view the balance sheet of the business and kind of the importance given, you know, just so many different moving factors right now. And we've seen other banks as well, maybe JP Morgan, they've paused share buybacks and they started to talk about balance sheet strength and really, hey, we don't know what is on the horizon. It seems to be something that Silvergate has always taken pride in doing. And so what's kind of the philosophy on the balance sheet and kind of being prepared for anything in the future? Yeah. So it's really thinking ahead to that question of how do we make sure that we don't lose money? And there are multiple ways that a bank can lose money. Most folks think about credit risk. And we spent a

Starting point is 00:27:32 little bit of time talking about that with the send leverage business. But the primary way that most banks historically have failed is actually not credit, it's liquidity. And so when we got into this business banking Bitcoin companies and then creating the SEND, we recognized what I said earlier, which is that our customers need to have access to their liquidity 24-7. And we need to run the bank as if all of these deposits on the SEND could go away. And that's not typically the way most banks run their business, you know, and in fact, they're most banks, I mean, this is just the, you know, this is the fiat banking model. This is, you know, this is essentially maturity transformation, where historically, banks will take in short term deposits, they'll, they'll

Starting point is 00:28:25 make longer term loans, with the bet that all the deposits, all the depositors aren't going to show up and demand their money back. We run this business as if our customers are, in fact, going to come back and ask for all their money back. And therefore, we have a loan to deposit ratio. One of the metrics in banking is a loan to deposit ratio. How much of your deposits are you lending out in your loan portfolio? Historically, banks, when they're fully lent up, they're at an 80% to 90% loan to deposit ratio. 80% to 90% of their deposits are out in loans. Silvergate runs at less than 20%. And the primary reason for that is everything I just mentioned a moment ago. We had a call last week with an investor after we released earnings who

Starting point is 00:29:22 asked, do you think that you can get your loan to deposit ratio up over time as these deposits are more sticky, et cetera. And my candid response was, we don't even think about it that way. We don't, we are not measuring our success the way traditional bankers measure their success. We're very much focused on how do we solve problems for our customers? How do we make sure that we're up 24-7, 365? They have access to their liquidity 24-7, 365. And so, you know, that when we talk about risk management, that's one of the key features. It's not just the fact that we're over collateralized in our Bitcoin lending. When you think about those strategic initiatives moving forward, what are the one or two things that you feel are absolutely essential

Starting point is 00:30:08 for Silvergate to continue to thrive in any environment? Yeah. So the next big thing for us is the stablecoin initiative. And to take a step back for just a second, when I first discovered Bitcoin in 2013, I was reading about it just at a popular level. I'm not a, you know, I'm not a coder or anything. But the meme that was there at the time was with Bitcoin, you could be your own bank. And so I looked at that being a career banker and I thought, well, gosh, I wonder how that works. And so I was curious and I bought a little Bitcoin, you know, and it was a little over a hundred bucks at the time in October of 2013. And I saw it run up. And of course, Anytime someone buys low and they see this big price pop, it piques your interest even more.

Starting point is 00:30:54 But as I was learning more about it, the belief that I came to personally was that if this takes off, then it could be huge. This could be the next thing. This could be what I personally could work on for the rest of my life, for the rest of my career. It could be game-changing for Silvergate. And so those were kind of like aha moments for me. But the other thing that I recognized is, OK, let's assume that someday everyone can be their own bank. That's going to likely take decades. And between now and then, these different market participants are going to need access to the traditional financial system. And I don't believe that the US government is going to ever give up the dollar. I don't believe other sovereign nations are going to give up their own

Starting point is 00:31:46 fiat currencies. And so what we intend to do is be a bridge between the traditional financial system and this Bitcoin digital asset ecosystem. And the primary next step, we believe, in our evolution is for the issuance of a bank-issued U.S. dollar-backed stablecoin. We purchased the protocol, the digital, the protocol and the regulatory compliance elements of DM earlier this year. And that would initially start out as a permissioned payment system so that we can launch our own U.S. dollar backed stable coin. But we also look at what other folks are doing with open protocols right now. And we believe that those should be able to continue to thrive. And so in a future state for Silvergate, our hope would be that we would continue to be critical infrastructure, support the entrepreneurial efforts of the folks at Circle issuing USDC and all the other market participants, and then we would issue our own.

Starting point is 00:32:51 our primary focus is on a stable coin for payments and for cross-border remittance, as opposed to just focused on digital currency trading. So that's a long-winded way of saying the next thing for us is a US dollar-backed stable coin. What's the risk for a bank starting to do this, right? One of the things that we obviously saw in the crypto market is there's a lack of disclosures. There's all sorts of regulation that is likely on the horizon. And it's because when you start with no oversight, no regulation, any seems, you know, like a big leap forward, right? Obviously, as a bank, you're federally regulated, you already are, you know, kind of overseen by a number of different organizations. What changes for you all? Or what risks do you see being

Starting point is 00:33:35 introduced by going from kind of, we'll call it the traditional dollar based system to actual US dollar stablecoin type product or functionality for you and your customers? Yeah, I really appreciate that question because as new market participants come in, folks often ask me, they say, gosh, are you worried that this bank has come in or this other bank has come in? And my honest answer is absolutely not. I'm not worried about it at all. in fact, if no other banks ever come in and bank this ecosystem, then I was wrong. We were wrong at Silvergate. This wasn't a good idea because there's no way that little old Silvergate can be the only bank in this new digital asset ecosystem. The concern that I do voice, though, is I hope that they're doing it right. So when a new bank comes in, I really hope that they're building a strong compliance program, that they understand the different types of uses of these

Starting point is 00:34:34 digital assets, and they're building a framework so that they can, in fact, bank the ecosystem in a regulatory compliant, safe and sound manner. Because if one of them gets a black eye, then it's going to reflect on the entire banking system. Not dissimilar to the way that some of the challenges that Celsius and Voyager have had, have kind of set the whole ecosystem back a little bit here. I think we'll push through this and the industry will be stronger as a result. But it's not without some pain. Yeah. When you think about your own personal kind of journey through crypto, and as you took a bank that, as you mentioned, was small, you helped navigate the global financial crisis. You came out, you all began to grow the business. Eventually, I had the courage and

Starting point is 00:35:20 conviction to enter into the crypto market. You've experienced bull and bear cycles now. What are some of the lessons that you've taken away or some lessons learned over that time as the head of a bank that is probably the leading bank when it comes to crypto in the United States today? Yeah, I appreciate that. One of the biggest things is to really try to understand what each one of these new market participants is trying to accomplish. I remember back to the, you know, the 2017 ICO craze. And, you know, we did very little, you know, we didn't bank, you know, all the new ICOs coming on the scene. Now we were banking some exchanges and they were making markets in some of those tokens. But, you know, we had the opportunity to potentially bank

Starting point is 00:36:11 some of those ICO issuers. But we were concerned about, okay, are these securities? That was when the Howey test and all that stuff really started to come onto everybody's radar in terms of what type of regulation should be applied to this new thing. Fast forward a few years and we've got DeFi and we've got NFTs. And from my perspective, the original DeFi is Bitcoin. And Bitcoin is still the only true DeFi. There are a lot of other things trying to be decentralized finance. And some of that stuff worked really well in terms of some of the loans that were locked up on some of the DeFi protocols. And we don't need to go there, but it's been pretty well documented that some of that stuff worked well, but it's still not decentralized the way that Bitcoin

Starting point is 00:37:07 is decentralized. So I think it's about really trying to understand what are these different protocols trying to accomplish and not trying to chase everything, but, you know, let it kind of play out. You know, we are kind of on the cutting edge, if you will, because we're lending against Bitcoin. But we didn't launch that until January of 2019, after we had started banking this ecosystem in January of 2014. So it took us five years of learning about the industry, learning about who the, you know, the real quality market participants are, and, you know, interacting with this ecosystem, learning the technology, learning about how we can help, because, you know, we don't have a whole bunch of blockchain engineers inside Silvergate. We have a whole bunch of folks who

Starting point is 00:37:56 have gone deep down and understand blockchain, but at their core, they are bankers understanding how to build banking technology into this new blockchain Bitcoin space. Yeah, it's kind of fascinating what you all have done. And you straddle a line so beautifully between the traditional world and the new world, which is obviously why most of the people in the new world love working with you. And I will say as well, as you know, we've had companies that I've invested in, they've had their banks, account shut down, etc. You all are always there to to kind of step in and be helpful, which I know that the market appreciates. I want to do a couple of rapid fire questions with with the theme of kind of bear markets and just whether it's traditional global

Starting point is 00:38:44 financial crisis type stuff or a crypto bear markets. Is there one book or documentary or movie or something that you would point to for a lot of young people who listen to this? Uh, and they say, Hey, I'd love, I'd love to kind of gain experience. Uh, I haven't lived through this before. Is there something that you would point them to as a resource to kind of go learn, uh, read, listen, watch, uh, that you think could be helpful? Yeah. Um, actually I'm going to just, um go with a um i'm gonna go with lynn alden okay um what i would say is is just start reading lynn alden um you can almost start anywhere um but but but maybe start current and work backward um but she's just um she is so smart so articulate um and also um readable you know i mean um you

Starting point is 00:39:33 can read the stuff that that that lynn writes and and really i mean hey if i can understand it then, then I think anybody can understand it. That, that is a fantastic answer. When you think about going through these bear markets or kind of financial crisis recessions, what are the data points that you pay attention to either in the traditional world or in, in the crypto world? Are there like two or three things when you wake up in the morning, you go and you check that, that kind of signal, Hey, this is really important and helps you understand kind of where the market is on a day-to-day basis. Yeah. I'm, I'm always looking at, at obviously the price of Bitcoin. I'm looking at the at the 10 year treasury. And then, you know, more more recently

Starting point is 00:40:13 over the last couple of years, I've started looking at the two year treasury. And, you know, the other resource that I would mention is Nick Badia. And and, you know, he he wrote a book called Layered Money, which which I think is is just fantastic in terms of understanding, you know, money and and, you know, you get into these different protocols. But he's done some great work here recently, you know, kind of looking at what the Fed is doing and how the Fed is always kind of chasing the market and the, you know, the two-year treasury as kind of that short-term indicator to watch. And so I will tell you, Pomp, even though I've been doing this a long time, I've learned more about money and economics and how things work since I got into Bitcoin

Starting point is 00:40:58 than I learned in the first 30 years of my career. I have an economics degree, which, you know, basically is worthless in the real world. Uh, but, but, uh, same thing. I've learned more about all of that as well. And, uh, it goes back to skin in the game, right? You just, you really pay attention. You really understand. Uh, last thing is, uh, over the years, as you've gone through bull and bear cycles, has anything changed about your daily routine, uh, or, uh, sleep schedule, diet, anything like that, that you've said, Hey, you know, when I know that we're getting into a tough times. I changed this. Well, thanks to you. A couple of years ago, I, um, I, I got an eight sleep. Yeah. So there you go. Um, I also, um, got off Twitter, um, a couple of years ago.

Starting point is 00:41:43 Um, and it, it was just because it became so overwhelmingly time consuming to kind of keep up with everything. I will admit that, um, back in April and May of this year, I got back on because there was so much going on with Terraluna and Celsius and everything that I felt like I needed to have that real-time access to information. And there's nothing better than Twitter for that. But I've started to wean myself back off again because if you don't really need to be on it 24-7, if you've got confidence in your business and you feel like you understand the risks, then, um, then you can kind of just wait for the next post by Lynn Alden or Nick or, um, you know, occasionally something coming out. Um, you know, you're, you're, um, obviously a

Starting point is 00:42:35 great resource, um, as, as are some of the other Bitcoin podcasters. So, so I've, I've shifted back to kind of, um, just doing more, more podcasts and less Twitter. Um, but I, I do try to get um seven to eight hours sleep every night on on that eight sleep i do think bear markets uh they remind folks like it's fun and it's like the ultimate dopamine rush when prices are going up and and everyone thinks they're getting rich and you know all this stuff uh that happens in bull markets across all asset classes right it's not specific to crypto it happens in stocks and everywhere else as well uh and then bear markets people are like damn spending four hours a day staring at a infinite doom scroll is probably not the the best thing for me to be doing from

Starting point is 00:43:15 a productivity or like a, a psychological standpoint. So I will, I will use you as aspiration to wean myself off a little bit over time. Where can we, yeah, exactly. Where can we send people to find you on the internet now that you're not spending as much time on Twitter and where can we send folks maybe if they want to learn more about Silvergate, either from the financial performance of the business or if they want to potentially become a customer for some of the products that you all offer? Yeah, actually just silvergate.com. We actually even got, got rid of the silvergatebank.com URL. I mean, it's still, you know, you can still find us that, that way, but silvergate.com best, best place to find either myself. If, if you want to learn more,

Starting point is 00:43:57 obviously we've got an investor relations page there. You know, we are a public company and, you know, and then also if, if you want to learn more about our product offerings, if you want to open an account, the account opening process is all digital. We went fully remote, Pomp, as everybody did pretty much during the pandemic. But we made a decision very early on within the first 60 days that we weren't going back to the office, that our customers are 24-7, 365, they're global. And so is our workforce now. And so we actually have employees in over 30 states and some international as well. And so the best way to find any of us is to start at silvergate.com. Yeah, I suggest people go check it out. And thank you so much for taking the time

Starting point is 00:44:44 to do this. It is pretty incredible to watch somebody straddle that line between traditional finance and the Bitcoin crypto industry. But as you guys are proving, it is possible and hopefully it'll be a compliment to you all when more of your competitors kind of follow suit, which I think we both think is, uh, is likely to happen at some point. Absolutely. Well, I really appreciate that pop. It's, it's, it's been a great, it's been, it's been fun. And, um, I think the fun is, is going to continue. And some of the, some, sometimes, um, even the pain can be fun, right? I mean, just, you just got to get through it. I mean, no pain, no gain. That, that is a, a great place to wrap up my friend. And there are no truer words ever spoken.

Starting point is 00:45:22 So, uh, I appreciate you taking the time to do this. I know the audience always enjoys hearing from you and we'll definitely do it again in the future. All right. Thanks a lot. Take care.

The Pomp Podcast - #1059 Alan Lane On Traditional Banks Using Bitcoin As Collateral

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