The Pomp Podcast - #595: Why Corporations Are Putting Bitcoin on Their Balance Sheet - Michael Moro

Episode Date: June 30, 2021

Michael Moro is the CEO of Genesis Global Trading. In this conversation, we discuss why corporations are putting bitcoin on their balance sheets, how they execute the transactions, what the accounting considerations are, and how this trend will evolve in the future.  ======================= Circle is a global financial technology firm that enables businesses of all sizes to harness the power of stablecoins and public blockchains for payments, commerce and financial applications worldwide. Circle is also a principal developer of USD Coin (USDC), the fastest growing, fully reserved and regulated dollar stablecoin in the world. The free Circle Account and suite of platform API services bridge the gap between traditional payments and crypto for trading, DeFi, and NFT marketplaces. Create seamless, user-friendly, mainstream customer experiences with crypto-native infrastructure under the hood with Circle. Learn more at circle.com ======================= Exodus is an absolute game changer in the crypto wallet space, and we’ve teamed up to offer an exclusive discount for you, as listeners of the podcast. Sign up for Exodus today using my promo code Exodus.com/pomp. This is a no brainer for both newcomers and crypto heavyweights - go sign up today.  ======================= Public Rec is on a mission to make comfort look good. Their fan-favorite Flex Short is the ultimate crossover short you’ll need all summer long. From the beach to the gym, this quick-drying short has you covered. Comfort starts with a better fit. Free shipping. Free returns. Visit www.publicrec.com/pomp and use POMP at checkout for 10% off!

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. Michael Morrow is the CEO of Genesis Global Trading. In this conversation, we discuss why corporations are putting Bitcoin on their balance sheets, how they execute the transactions, what the accounting considerations are, and how this trend will evolve in the future. I really enjoyed this conversation with Michael, and I hope you do as well. Before we get into this episode, I want to quickly talk about our sponsors. First up is Circle.

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This podcast is for informational purposes only. All right. So welcome, everyone. You've got myself, Michael Morrow, CEO of Genesis Trading. Today, we are going to talk about corporate treasuries, buying Bitcoin, pros and cons, who's doing it, why they may be doing it, and most importantly, how they are doing it. Michael, thank you so much for joining us today. Thanks for having me. Happy to be here. Absolutely. Let's maybe just get started with a quick overview of Genesis and kind of your position in the market so people understand your perspective.

Sure. So we are a cryptocurrency-focused crypto prime broker, for lack of an easier terminology. We help institutional investors, head funds, family offices, corporations buy, sell in the spot markets. We do derivatives. We do borrowed lending. We have a custody business, all sort of been a one-stop shop service provider effectively to institutional clients to do whatever they want, frankly, kind of within the cryptocurrency space. Got it. And so maybe we could just start with, it seems like over the last 12, 18 months, really a lot of the macroeconomic factors is what have driven both hedge funds, financial institutions, and corporations to start looking at Bitcoin, taking Bitcoin more seriously. From your perspective and the conversations you've had,

what exactly are CFOs or corporate executives talking about from a macro perspective? And what's driving them to even consider Bitcoin as a potential asset to put on a balance sheet? So in my mind, it's a confluence of a couple of different things. And certainly kind of the macroeconomic environment and kind of the central bank reaction to the pandemic, I think, has certainly been a driving factor as to why now. But alongside that is the maturation of the space, right? If this macroeconomic stuff happened in 2014, corporations would not be thinking about doing this because kind of the pipes and the bridges and tunnels and roads have not been built yet to be able to kind of like service them adequately. And so for one, I think it really

kind of you know we started in 2013 and and uh but there were no futures there was no borrowed lending you know custodians wasn't really a thing um and uh it would have been way too early so i think kind of how far the space has kind of come along is number one number two um because of kind of the you know the the macroeconomic certainly like tailwinds towards the asset class um have really made, okay, is Bitcoin an asset class? Is crypto something we should be paying attention to? And for a long time, obviously, you got like stocks, you got bonds, you got FX, you got some commodities as sort of like options for people to kind of consider. And I think kind of Bitcoin popped up on the radar for a lot of these institutions. And at the very least, it was,

let's study it. Let's take a look. Let's see how it works. And that's what really kind of got them down the rabbit hole. Got it. And so when you think about if you're sitting in that seat, let's say you're the treasurer, the CFO or another executive at a corporation, it feels like there's probably two main goals. And you correct me if I'm wrong. One is they want to protect the value that they have on that balance sheet. And then two is there's potential options to grow the value as well. Is that kind of a fair characterization of what the two kind of main drivers of what they're looking for? I think that's right. Look, most of the time, treasury departments of corporations are not there to like make money, right? They hopefully have a main line of business

that is actually doing that for you. So the treasury functions mostly for preservation, protection, capital protection, frankly, to not lose the value. And certainly, I think there's an aspect of can we um can we protect the value of what we have that's one and to your point yes it'd be great if we there is a a possibility for us to increase value and have that but number three and i'll put this in a separate category is the digitization the tokenization of assets is real and we should get comfortable with digital wallets right this idea of working with traditional custodians and brokers is kind of one thing, but this trend is here to stay. We can experiment by playing around with Bitcoin today because directionally, that's where this

whole world is going. So there's an educational aspect of all of this too, that I think is kind of driving a lot of the corporate chargers and CFOs to be looking at this. For sure. And then as you've seen them go after that store of value, it feels like Bitcoin kind of fits nicely in that narrative, maybe like a digital gold, 2.0, whatever the kind of the nomenclature you want to use is. But also, it seems like more and more people are interested in the yield that can be generated. What are you seeing when it comes to maybe the growing of the asset base? It's not the main focus, but it seems like people don't mind the fact that there could be yield to generate here. And so what have you learned in conversations on that front? Most of the time, treasurers don't

have like new things to invest in right typically they buy very very boring plain vanilla you know like government bonds as a safe play to get in and and and kind of going back to the macroeconomic kind of point about kind of the real inflate inflation rates and being like on a real risk adjusted you know inflation-adjusted perspective i'm down by buying this butt basket of like municipal bonds right and so said okay if that is kind of the traditional capital preservation method let's kind of look elsewhere and let's look at bitcoin and certainly it's volatile we'll obviously kind of get into the the risks associated with with corporations particularly kind of doing this at the same time um we have developed borrowing and lending markets and so you can

say okay i want to buy bitcoin um and lend it out and earn yield on my bitcoin that's one and number two is, I don't have to liquidate that Bitcoin to get liquidity. So I could post my Bitcoin as collateral and get US dollar borrowings against it, should I have some needs kind of on the fiat side, as far as related to working capital. And I think, you know, for a long time, I think it's like, if I buy Bitcoin, I have to sell it, if I have to get access to dollars. And I think sort of the evolution of the lending market, I think kind of frankly, made Bitcoin a more useful asset. And, and, and, you know, they'll happily borrow at really, really low loan to values. I think they're just kind of happy to have the ability to kind of post Bitcoin as collateral and get

dollars on it. And, and, and I think it makes Bitcoin even more useful as an asset if you don't actually have to sell it and incur like the tax gains and losses and all of that stuff. Absolutely. So today, if a treasurer or CFO corporate executive comes to you and says, hey, you know, we're trying to think about Bitcoin as part of a diversified portfolio of assets. What's your response? Or how do you kind of explain to somebody why they should have that Bitcoin exposure? So I think it's really important, first of all, that like companies kind of go into this and come reach the conclusion that maybe Bitcoin isn't for them. And maybe that's an unexpected thing for me to be telling you about since I have a business kind of centered around

transactions in crypto. But what's most important, I really believe, is kind of going down the rabbit hole yourself and coming up with kind of conclusions on their own. So I think the first outcome is, why are you doing this? Like, what is the ultimate purpose for you to kind of go down this exercise as far as to why you want to do it? And most of the time, people focus on the trade, right? They're like, how do I do this? How do I talk to the trader? And how does the settlement occur and all of it. But in most instances, and I tell everybody this, the trade is the easy part. That is the last step in what is often three to six months of diligence about how it works. And my first question is, does legal know about this? Or have you talked

to accounting about this? And most of the time it's, oh, we're going to get to it, right? And And frankly, like I always kind of come back to, OK, that's great, but let's get all the stakeholders involved here early on. And Russ, you can talk to my legal, you can talk to my finance team and hold your hand as to how you should be thinking about this whole thing. Don't worry about the trade. The trade's done in five seconds. It'll settle in an hour, get this all done. But it's really like a six month long process of diligence around the asset class to make sure they know what they're getting themselves into. who's doing this? Is this just like the crypto and Bitcoin luddites who have infiltrated a corporation? Is it crypto companies? Is this kind of traditional technology companies? Who are you seeing actually be interested in it? And then who's executing on it? So obviously, throughout

2020, there was a ton of focus on the micro strategies and the Teslas and the squares, um publicly traded you know us-based companies with a tech bent um to to what they do um and our tech are sort of payments fintech perspective and and you know for our first clients as it relates to this product was of that vertical um so us some of them are publicly traded some of them were not um and thinking about how do i execute this how do we think about this now Now, over time, as I think I think the press journalists kind of picked up on Bitcoin as treasury, it expanded. So one of the first things we noticed was Latin America was non-U.S. clients, both public and private in Latin America, trying to say, how do I do this? I'm interested. I am a fintech. There is a crypto payments play to my business.

And I feel like I need to have a crypto play. I need to think this is the future. I need to incorporate it. And certainly I'm starting to accept it as a medium of payment. But the best way for me to learn how to do this is if I buy some of my own. Right. And that is true regardless whether you're an individual or you're a company. The best way for you to learn how all of this works is like buy some and play with it yourself. And so there was that. And then we started transacting kind of Latin American clients. And frankly, a lot of them store value inflation hedge plays really, really well with your native country has like 40, 50 percent inflation of kind of your fiat currency. And so I think the Bitcoin narrative, I think, really kind of took hold. And then there was Southeast Asia. And we started to see tremendous demand from companies and corporations in Southeast Asia that, again, had either, you know, maybe some capital control restrictions or there were questions about, hey, how do I move funds around the world easily started to kind of take an interest. Right. And so many of them are tech. There's no question about it. There isn't like a textile manufacturing company putting Bitcoin on their balance sheet, but it has to kind of ultimately fit into what they're building. But those are the companies that are the most active. Absolutely. And when you think about the types of companies, we talk about geography, how much of this is just crypto companies in those geographies versus traditional tech companies versus maybe what we would consider like highly conservative, large blue chip, publicly traded companies. I think there's a lot of rumors about some of that, but not necessarily so much action yet. So just when you look at kind of the spectrum of industry and also maybe sophistication or conservatism, any insights there that you've gleaned from the conversations or the partners you guys have worked with? Let's separate out companies that have actually done something versus the companies that are like in the diligence, studying how does this work mode, right?

The biggest industrials, the corporations are very much in the let's I want to learn how it works and maybe down the line we'll invest. Right. We'll do something. And and it's certainly the smaller, more nimble companies that have certainly been the guys that ultimately execute. Right. And so, you know, blue chip companies have, frankly, like a lot more to lose. by making sort of a Bitcoin play, especially if you don't have a crypto angle or a fintech bent to your company. I certainly have a lot more explaining to do to their shareholders as to why they're doing this in Bitcoin. And so reputationally, they have way more to protect, I think. So they're on the studying side. The execution side are going to be the smaller. we've seen a lot more private companies than public as far as who's ultimately kind of doing

it. And that's kind of the typical profile. And then what about public versus private in terms of the types of companies? Obviously, private companies seem to be much more pervasive there than in the public markets. But definitely, we saw as part of 2020 into 2021, a couple of public companies start to do this? Any insights on public versus private? So, you know, the privates, certainly, well, for one, there's way more private companies around the world than public. And so naturally, you know, just kind of based on that, I think you end up with more private clients. And frankly, as a public company, a lot of the issues matter, tax, accounting, legal, all that matters. But the key difference is the public disclosure,

Right. And what is material? What do I need to disclose to shareholders? Do I file an 8K? What's the materiality test? All of that stuff, I think, plays into it. And, you know, do I disclose this as a risk factor in my 10K? Do I need to establish, you know, employee trading policies of Bitcoin within my own organization? So I think there is way more like hoops to ultimately kind of jump through as a public company. And I think there's a large percentage of folks who have done the homework to say, hey, it's a lot we have to do here as a public company. It's not worth it for me to just allocate 1% of my treasury. like if I'm going to do this, I need to make it like worth my while. And so, you know, there's a go big or go home element to it. I think that it said, Hey, if we're going to do this, let's really do this. And, and, and for, you know, for, for one reason or another, I think there's a let's, let's wait until this feels like the water's a bit warmer. Do you have an idea of what that threshold is that kind of makes it worth it? You said 1% probably is too small. Is it like a 5% or is it like 25% and any kind of thoughts there?

So the smaller companies, frankly, start with 1%, but they have no, by no means, even private companies that are gonna do this for 1%, right? So they do this, start it with a 1% with a goal to let's get to 10, 15% over time. When once like we figure out how this all works and we'll kind of get comfortable with the asset class and certainly working with Genesis,

let's like increase our allocations certainly over time. The other guys are like, look, the one big thing is custody, right? It's how do I safely keep my crypto? And some companies are like, do I build my own storage wallets, cold storage, all of it? Or do I work with an independent, like third party regulated custodian told me we're going to get that done? Even that decision of trying to think through which custodian do I work with is a hassle. because you got to do tech diligence, insurance, you know, liability, all of that stuff. And so they said, wait, I'm just going to wait till there's a Bitcoin ETF. Okay. I'm just going to

wait until there's an exchange share product in the United States that I can just kind of buy, call my broker and say, go out and buy me, you know, so the Bitcoin ETF and that'll be that. But, you know, because they don't know when that's ultimately going to be, whether that's 12 months or 18 months or further out, they still want to do the homework around the asset class to figure out what it is so that they can kind of ultimately kind of get into it. And then you don't have to worry about the custody thing because the fund is ultimately responsible. Got it. Before we move on to kind of execution, what about gold? Do you see companies dropping gold to do this? Do companies that you talk to have gold on their balance sheet? Do they kind

of skip over that as a store of value option? Does that come up in conversation at all? It's funny. Obviously, our affiliate Grayscale guys run this drop gold campaign. A lot of these corporates never had it. They had nothing to drop. And so that's been really, really interesting for us is that they haven't really thought about this as a replacement for something else. It literally is, I need to cut back on my fixed income allocation because in terms of real yield, that's negative? And why would I invest in something that is guaranteed to lose money over time, as opposed to something that over certainly long enough time horizon to actually protect it? Got it. For those that are watching live right now, if you have questions for Michael,

or about this topic, make sure that you're just putting them into the chat. And then after another 10 or 15 minutes, I'll start just reading out the questions. And we'll do our best to get them all answered. But just use that chat functionality to send us your questions. Michael, I want to talk about how to actually do it, the actual execution of this. So I'm a CFO, a treasurer, corporate executive. I've done my homework. I've talked with you. You've basically scared the hell out of me in terms of the risk disclosures and all the

things I'm going to have to do. And I'd say, you know what? I'm still convicted. I want to do this. Whether it's 1% or 10%, I call you up and I say, all right, let's do it. What happens? What are the actual steps in terms of executing the investment, storing the investment? And kind of just walk me through the trade itself for a corporate to actually buy Bitcoin and put on a balance sheet.

So one of the first things, obviously, is working out all of the vendors and service providers you ultimately work with. Now, this is after the three to six months of internal diligence and working with tax people. And this is how you account for Bitcoin in your balance sheet. This is the tax implications. This is the AML KYC and the provenance of bitcoins to know that three holders ago, it wasn't used to buy guns and drugs on the Internet. Like all of that stuff still matters, you know, especially to like public corporations that have shareholders. And, you know, there's reputational risk associated with kind of getting involved in the asset class. Now, let's see. You've done all that. The next question is who's authorized to trade?

who can we take instructions from mr corporation who's authorized to ultimately face genesis and be the trade right most of the time they'll be like look here's the list here's the authorized signatories now we know we do the the confirmations and all that kind of stuff ultimately comes time to do a trade what they do typically is is a t-wap approach i want to buy 10 million dollars worth of Bitcoin. So I want that executed over three hours, six hours, 12 hours, so that there's minimal impact in the marketplace. These guys do not have any interest in moving the market. And so whatever time horizon for the $10 million trade I want to do is kind of the TWAP that I kind of want to run it for. And so they buy a little bit every single hour across all the

various liquidity avenues available to genesis um and then we just kind of pass along kind of the execution all the prices and fills that they got filled out of various places um and that's ultimately how the actual trade is ultimately done now settlement um typically involves a third party custodian all right we wait for the funds to come in and ultimately they just give us an address to say hey i need the bitcoins kind of sent to this address we do a bunch of test transactions and all of that to confirm um and then we send the the bitcoins out to the address and the custodian then from there obviously kind of the custodian manages it whether that's internally within genesis or they may work with another custodian um independently to kind of get

that done but like and like i said all of this is done and the actual trade execution might be done in an hour three hours six hours um and all from time to time be like i just want to fill just fill me. Said, okay. So on market, you know, within five seconds, you'll do a million dollar trade or a $5 million trade. And then we settle the transaction and ultimately it gets done. But the larger transactions, kind of the 50 million, a hundred million kind of larger guys are way more able to do it over 24 hours, 48 hours. Let's not move the market and just kind of get me done. Are you able to say what the largest transaction you've done for any corporation, no names, but just to give people a sense of the size?

it's nine figures okay so nine figures when somebody wants to do that uh as you've kind of uh already alluded to one is they don't want to move the price of the asset if possible right but buying nine figures can can potentially do that and so what it sounds like they're really doing is they come to you and say hey you know we want to buy the nine figures worth of uh of bitcoin we're going to put it on the balance sheet uh and over the next i don't know six hours 12 hours or whatever can you go do that without moving the market what you guys are really doing is you're almost serving as an intermediary or a desk for them that goes and hits all these different liquidity providers. And you're buying up Bitcoin on various different avenues or liquidity points,

and then you're bringing it all back and you eventually fill an entire nine-figure order. But because you're doing it at so many different venues, that's really what you're doing. And over a period of time, that's how you're preventing the actual market price moving. Correct. It's the number of venues and time, right? If I had to do nine figures in an hour, 100%, I don't have a choice but to move the market. But that's kind of when the time horizon over which the TWAP, the time weighted average price execution ultimately happens that like minimizes the impact of the marketplace. Got it. And how much does this cost me? Right. So let's just use easy numbers. I give you $100. I say, hey, I want to go ahead and buy Bitcoin and put on the balance

sheet. How much Bitcoin am I actually going to get? Am I getting, you know, $99.95 or just walk me through kind of the fees that are usually are associated with something like this. Well, on a regular TWAP transaction, technically Genesis isn't taking any risk. We're just serving as kind of the middleman liquidity provider and then passing along the execution costs plus kind of the Genesis fee, right? So then the Genesis fee can be a basis point, two basis points. We're not talking like large, large numbers in terms of actual basis points. But, you know, back in the day, when we first got started, we could charge like a point. We could charge 1% to a point and a half, 2% maybe on a million dollar trade. That has shrunk to that point where you're making a

basis point or two. Why has it shrunk so much? Is it just pure kind of, not necessarily commoditization, but just competition in the market and everyone has kind of their own advantage or competitive nature? Or is there something else that's driving those prices down? Ultimately, number one is liquidity. And it is a much bigger asset class. The market cap is higher. The 24-hour volume is much higher. So it is way less illiquid than it used to be. It truly used to be an illiquid asset. Now, it's about as liquid an asset as you can possibly find. And I think that makes it certainly easier to source, you know, kind of buys and sells. Number two, certainly, I think competition. I think there's lots of people that are trying to kind of do what we do. And we're a client service oriented business.

So making our clients ultimately happy and wanting to do a second trade or third trade with us is certainly a factor. And number three, you know, it's kind of the spot trading is just one thing we do. We have clients who said, hey, I want to buy Bitcoin and then sell calls against it. If I think that for a while prices are going to be staying around where we are and I can clip some yield by selling some options against a portion of my position, that is a way for me to kind of get that. Now, I may want to lend some out to Genesis or borrow against all of that stuff. So I think there's lots of other ways in terms of economics that Genesis is able to make the money that is not necessarily in that one trade. And then what about privacy, right? So if I'm a big corporation in the public or private markets and I want to do this, I'm probably worried about people finding out about it before I announce it or before I actually do it.

What's the privacy look like from me to Genesis and then through to the actual liquidity venues that Genesis is sourcing this from? and is there a way for people to know that I'm doing it or is it a fairly private process? I wish I can talk about the clients we've worked with, but I can't and I don't for lots of different reasons. And the fact that we've done 9 billion, 10 billion of transactions with corporations and we have not, there's no rumor in the marketplace

that somebody kind of did something with Genesis, i think kind of speaks to confidentiality and how how serious we ultimately kind of take it and and two you know we talk about you know removing intermediaries from kind of this decentralized marketplace and ecosystem around crypto there's a lot of benefit to having an intermediary in this instance of somebody going out to the marketplace and doing the execution for you and ultimately not knowing who our end account and and client is and so um our clients do not know um who were doing it and frankly that that's also because we work with so many different other clients that it's hard to like isolate into that one trade was for this one client yeah it's uh

it's pretty incredible 10 billion dollars of corporate uh bitcoin buys and no leaks is uh is a great testament to you guys talk to me about security um and storage so obviously uh if you're sending the bitcoin to an address for kind of a third party uh custodian that's one thing if you you guys are helping to provide that. That's another thing. What does that security look like through both the sourcing, the settlement process and storage, and then also insurance or any sort of safeguards or safety nets that are provided in the process? Ultimately, as it relates to the custody piece, we all talk about tech. We all talk about, hey, we have best in class technology and we use that technology, this technology,

one's one better than the other. Most of these corporations and companies aren't, they're not savvy enough to be able to tell what's better one versus the other. You really have to kind of know the technology and be a technologist or cryptographer or security expert to like be able to differentiate one from the other, right?

And so I don't think the marketplace, corporations included, frankly, gives the full credit on tech, which also comes down to two things. One's brand. Are you standing behind your product? Who are you? Are you known in the marketplace? Do you have something to lose if something should happen? And number two is insurance. And who is your insurance underwriter? How much premium coverage do you do? How do you segregate assets? All of that stuff. And frankly, that is probably the longest part of the diligence process. Because yes, they want to know the tax because they need the documentation to like file it internally and

make sure they can get proper sign off. It's I want to talk to your insurance underwriter. Can you put me in touch? Can I see your insurance premiums? What do you cover for? What do you not cover for? And how do we ultimately kind of think about it? So that is by far way more important in the actual execution, because that's an ongoing relationship. And as opposed to like a moment in time transaction. So that is definitely, definitely on the minds of our clients. For sure. And I guess part of this too is, and I'm cheating here because I already know this, but regulation and kind of the financial oversight from regulators, from government agencies. There's a reason why Genesis has built a brand. There's a reason why you're able to get the

insurance, but maybe just talk a little bit about what that regulation environment looks like and whether that's an advantage or whether that's just a kind of table stakes expectation at this point from corporations trying to buy Bitcoin. So our whole, you know, kind of ethos around Genesis has been institutions are coming. They're going to want to work with regulated entities as kind of their trusted counterparty. And so we should strive for the kind of the highest level of regulation you can possibly find, which is why Genesis Trading has been the SEC FINRA registered broker dealer with the BitLicense, the New York City Department of Furniture Services. Regulation often kind of gets a bad rap, I think, kind of in the crypto world for

lots of different reasons. Some of them I think are valid, frankly. At the same time, though, that's what people care about. That's a check the box item for a lot of our counterparties to say, hey, we can get involved in this asset class because there is a regulated entity that we can ultimately kind of face, right? And the same thing on the custody side. I think they're like, okay, how are you regulated as a custodian? Do you have the appropriate licenses? Do you have SOC 2 certification? How are the cryptography certifications that you ultimately have? And so all of these things I think kind of speaks to a lot, you know, picking vendors and who do you work with and why, especially because they're kind of good questions. They're like, where did

you source the Bitcoin? How do you, you know, and being able to say, hey, we brought it through a broker dealer that is an SEC and FINRA have oversight into how they work with, I think is an easy answer for a lot of clients to be able to give. All right. Last question. And then we'll start taking questions from the audience is ESG Bitcoin, OFAC compliant Bitcoin blocks. There's all kinds of things, we'll call them, that are floating around Bitcoin as corporations and financial institutions start to look at the space. What insights do you have there? Is that a popular talk track? Do you get questions on it? Or is that something that maybe the mainstream press has run with, but hasn't quite caught on yet in the conversations with corporations?

It's somewhere in the middle, I'd say. So it's funny, our core clients are like, i want the cheap bitcoin right like give me the cheapest bitcoin out there um and and uh because they obviously have a different mandate as far as returning capital to their investors right and so but corporations have brands they have esg efforts they have um uh shareholders in some cases and so yes they cannot be looking to invest in something that is destructive to the environment now So on the one hand, we do a lot of work to kind of demystify, dispel myths around, you know, Bitcoin boiling the oceans and all of that. Number two, though, I think at the very least, they want to be neutral, right? That somehow their Bitcoin, you know, getting involved in certain asset classes, but at best, at worst, neutral to the environment.

And so lots of conversations around, can I buy Bitcoin that is obviously 100% renewable energy? You can't really do that today, but I think that'll certainly narrative change over time. And then there's carbon tax credits. Can I buy the Bitcoin? And then can I buy some offsets? And then, yes, that makes my all in cost of Bitcoin more expensive. right. At the same time though, I can tell my board or I can tell my shareholders that like, you know, we're, we're doing our part to at least be neutral in, in, in kind of, so it matters certainly to, to, to, to bigger companies, frankly, that comes up way more often in conversations. Yeah. Absolutely. Fascinating to hear kind of the difference. We're going to

start taking questions here. There's a whole bunch of them. So maybe we can kind of try to go through these as quick as we can last 20 minutes or so. The first is all about how many discovery calls or kind of initial contacts with companies actually lead to the trigger being pulled. So, you know, top of funnel, hey, we had a discussion with a company, what percentage of those folks actually end up buying Bitcoin and putting on the balance sheet? So there are lots of companies who frankly, impressed me in that they've done a lot of the legwork before they reach out. So they know who their service providers are. They know who they want to work with and give us a call. Those guys are like, you know, give me 24 hours, 48 hours of

diligence and let's just go. Right. And then there are a bunch of companies that have gone down the rabbit hole and said, all right, this is on our 2022 investment committee topic. So nothing this year and we'll refocus next year. Very few, I would say, we probably have fielded, I don't even know, hundreds of conversations with different companies. I'm going to say less than 10 have said, no way, no, will we ever invest in Bitcoin, definitively say no to Bitcoin investment. It's always maybe not this year, but certainly kind of within the next 12 to 24 months. And so it's hard to say how many people have executed um ultimately because there's so many guys we're on this next year whatnot but as far as like counterparties that have transacted um with us

so far we're you know it's probably somewhere around 30 to 40 different clients have have done transactions um and but some of them have have bought sold re-bought um and so it's all kind of transactions as they kind of figure out the liquidity of this asset class i think they're doing their homework about how deep the market is and all of that kind of in their transactions as well. Wayne asks, what percentage of companies that hold Bitcoin on their balance sheet are borrowing money to buy that Bitcoin? And maybe an extension of that is what percentage of companies do you think are borrowing against the Bitcoin on their balance sheet? So I'll separate it in two different ways. Most companies are saying, hey, I'm going to do 1% to 2%. And so they don't

really need to borrow dollars to go out and do it. And frankly, I think that's kind of the more prevalent client base, as opposed to the Michael Saylor, I'm issuing debt into the marketplace and do a levered long play into Bitcoin. That's not by any means the typical strategy as it relates to do it. Now, we have seen companies that said, I want to buy Bitcoin. They did it. And then they had some, you know, whatever working capital need. And so they need to borrow against that Bitcoin. That's been only being a handful, frankly. Most of these companies though, are not doing large enough transactions so that like it ties up their working capital that they wanted to ultimately do elsewhere. So it's relatively small. Got it. Teresa asks about the gap rules

and whether they disfavor crypto investment and what you think about the rules potentially changing in the future so um it's a good question um and certainly within kind of gap and and you know principles bitcoin gets treated as and is intangible so it's effectively like goodwill on a company's balance sheet and you have to run impairment tests over time so um and it's either you know the purchase price you bought it at or the lowest price bitcoin traded during that quarter. It is not the low price at the end of the, it's not the price at the end of the quarter in whichever one's lower. It is literally the lowest price it traded on during the quarter in which you're reporting. So what it does is it creates this difference between the fair value

and kind of the carrying value on a balance sheet because of this timing difference. And frankly, the way GAAP forces you to account for it, right? And so Bitcoin could have been bought at a dollar, it could be trading at $10. You will not see that anywhere within the company's balance sheet. So what companies have to do then is resort to non-GAAP measures. And frankly, I think a lot of non-GAAP disclosures and things like that, again, get a bad rap for showing something that is inconsistent with accounting guidelines. But this forces you to actually tell what's ultimately happening. Now, as Bitcoin becomes more of an investable asset, I'm hopeful that you are able to actually get mark to market treatment of Bitcoin and sort of move it above

the line, higher up kind of on the asset side, as opposed to continue to be treated as an intangible asset, because that's not at all reflecting, you know, kind of market value of what it is that the company owns. Feels like a common sense thing that we probably should update those. So we will see when that happens. Someone asks, K Duffy Jr., is Genesis seeing any interest in Bitcoin from university foundations, not necessarily just corporations, but other foundations? We know that MIT, Harvard, and Yale have Bitcoin positions through those foundations. Anything there that you're seeing? We've seen interest from as low as high schools that have Bitcoin allocation for their kind of like high school endowment situations,

like private schools, obviously, within the US. And so, yes, absolutely. We've seen interest from all kinds of different groups. And frankly, people that I never would have characterized as likely being Bitcoin holders, you know, high schools, private high schools would not have made my top 10 list, but, you know, but they're buyers. Amazing. Ryan Jeffs asks, at what point do these large OTC corporate trades reflect in the price of Bitcoin? Does it impact price positively? And maybe just more so how you think about the relationship between price and corporations actually putting Bitcoin on the balance sheet? Ultimately, these guys are long-term holders. And so anytime you are able to add long-term investors into the equation, I think is a good

thing. I think it reduces the amount of float or circulating supply of Bitcoin available for purchase at any given time. And certainly if you're a long Bitcoin, I think you should welcome way more of long-term, longer time horizon investors into the marketplace. And so I would 100% believe that when we're out in the marketplace, we're actually going out and buying Bitcoin, right? So any of that stuff, I think, is certainly a positive into the ecosystem, especially if they're doing small bits. They're not going to turn around and sell right away, most of them. And I think that's certainly a positive thing ultimately for Bitcoin if you're able to increase the number of investors. Doug asks, with the well-known volatility

aspect and risk factors associated, how do companies factor that into adding Bitcoin? And does a frenzy or a sell-off like we're currently seeing trigger knee-jerk reactions? And I think he's specifically asking just, you know, do people go dump or make kind of emotional decisions once they put on the balance sheet? I think that's, you know, and I'll put corporates in the institutional investor bucket. And what do we find across institutional investors in general is that they have a strategy, they have a plan and they generally stick to their plan as to why they're

doing, you know, what they're doing and when they're ultimately doing it. And so days like today are going to be days in which, okay, is this like when we double down, is this when we go from 1% to 2% allocation, as opposed to panic selling. Most of the time, kind of the more it's the panic selling is a more retail driven phenomenon. We don't really see a lot of it kind of on the institutional side of the house. And so, you know, they may be wrong in their plan. But generally speaking, the approach a new asset class is investment with a plan, and they ultimately kind of like stick to it, rather than like, you know, panic selling

into the marketplace. H asks, recently, US SEC commissioner said the SEC needs to approve Bitcoin ETF. Do you think in 2021, a Bitcoin ETF will be approved? And then maybe I'll add, how would that change corporations relationship with Bitcoin, putting it on their balance sheet and making an investment decision? Here's my view on a Bitcoin ETF in the US. Chairman Gensler, a few weeks ago, talked about regulating crypto exchanges, that the SEC, or frankly, a federal regulator needs to step in and be more, you know, coming out with like regulations for how to properly govern crypto exchange. I actually believe that that's the precursor to the ETF. Like once the SEC is able to say, hey, we are regulating these exchanges now, we believe in fair and orderly markets, that investors are protected,

then I think the ETF can be created because you have better market surveillance and restriction, all of that stuff that I think the SEC has historically said, they're not approving Bitcoin because we have no idea what's happening on the exchanges. so but like i'm i i i don't believe it's a 2021 event i it's going to take time to come up with the rules of the road for exchanges implement them and then follow them um so which is why i'm in the maybe late 2022 early 23 camp as opposed to uh for a bitcoin etf because i still think you got to come up with this regulation for exchanges first now as it relates to corporates um it makes it so much easier to buy bitcoin right um and so i actually do think that having a easily

investable product like a bitcoin etf and you can just call up your broker and buy bitcoin and not have to worry about all the a lot of the stuff that i talked about today um you know just by putting it into an etf it becomes a security right it becomes a security on your balance sheet and then you can mark to market that security as like you would any other security a lot of the accounting issues about holding the underlying bitcoin ultimately kind of go away what's in the security form so i think i think that would be a a huge benefit i think for corporations to invest hector asks does a focus on insurance mean that the technology is subject to breaches basically uh if the corporations are so focused on that maybe why

are they so what's funny is and and i'm knocking on wood as i say this um you know as far as breaches and security incidents i'm unaware of a custodian getting breached um exchanges get hacked um and and and hot wallets and and whatnot but i'm unaware of a custodian like this whole business is custodying bitcoin been breached maybe i just don't know what they are um and and and whatnot but like for the most part we have not really kind of seen it and so i feel like on the security side custodians, that their single line of focus is the custody business. They still focus on it because I think custodians compete amongst themselves to have the best in tech. And they're certainly kind of reinvesting into the technology. So, but like that focus on insurance,

I don't think necessarily means that their tech isn't as good. Got it. Doug asks, with the rise of corollary ETFs, how long, if ever, do you think it will take for traditional BDs, Fidelity, Schwab, et cetera, to offer crypto directly on their platforms? And maybe would that shift the way that corporations would potentially get their exposure? So I think a part of the task, I think, is a lot of these companies are all for like, they have a separate entity that does the crypto stuff. And I think some of it's like ring fencing crypto risk, as opposed to the actual broker dealer, like the Fidelity offering of their ultimate product. I do think, though, that the SEC has had

certainly concerns about a broker-dealer custodying non-securities. I don't think they want broker-dealers to start custodying other assets that aren't typically securities through their broker-dealer balance sheet. And so until that treatment and kind of that thought process changes i think um you won't see traditional broker dealers offering outright crypto i think they will continue to offer security forms of crypto and also the capital risk weighting um of bitcoin for broker dealers is incredibly punitive um it is a hundred percent write down um of your equity for every dollar of bitcoin you hold um so it is incredibly equity expensive to have Bitcoin on your balance sheet for a broker-dealer.

And I run one, so I know the pain. So until the SEC changes their capital treatment of Bitcoin, I think it'll be really, really hard for more and more broker-dealers to get involved. Awesome. Last question we have. If anyone else has other questions, please put them in or forever hold your peace.

Manjo asks, how companies are handling the ESG-related questions on the conviction of the Bitcoin holdings on their balance sheet. So basically, if they already have Bitcoin on their balance sheet or are going through that process, how are publicly traded companies handling those ESG questions? Are they doing specific things, maybe carbon credits, et cetera, to kind of mitigate some of those concerns? So some of these companies that already are long Bitcoin are trying to come up with other donations to environmental agencies and nonprofits and things like that with an environmental mission

to help offset whatever they think that they've already ultimately done. But frankly, there are some companies that just don't care about this stuff either. So I certainly don't want to paint with a broad brush that all these companies care about the environment. More companies probably should, frankly, but a lot of them simply do not

and kind of see Bitcoin as yet another investment and they kind of treat that accordingly. And I think the other thing is beyond Bitcoin, right? How do we think about Ethereum? How do they think about other coins for corporate treasury? And certainly we've seen companies take an Ethereum allocation, right, to their balance sheet. But they haven't really gone to like the next coin, whatever that might be. And some of that is regulation. I think there's certainly fear that whatever they buy, the SEC might determine that it was a security. And then there's lots of questions about you accounted for it improperly or you didn't buy it through a broker dealer or it wasn't custodied by the securities custodian. And so having that regulatory gray area around, yeah, Bitcoin is not a security, Ethereum is not a security, but the SEC hasn't really opined on anything else. I think kind of prevents corporations from expanding beyond just kind of like Bitcoin

and Ethereum into other asset classes. Yeah. It's really interesting when you start thinking about Bitcoin and then what else, what percentage of folks that you guys have worked with or talked with that put Bitcoin on the balance sheet, put Ethereum or some other asset on the balance sheet as well? Is it a high percentage? Five, 5%, 5% to 10, something like that. Okay. And so if that 5% is of those who have Bitcoin in their balance sheet, then we're talking sub 1% of all corporations you speak to end up putting Ethereum on just given the large numbers. Yeah. And growing, I'm assuming, right? Okay. Two more questions and then we will wrap up. Wayne asks, how can Genesis help US Bitcoin miners expand their operations

as the China crackdown plays out? So the beauty of how we're structured, we have an affiliate entity, Wayne, called Foundry Digital that focuses on mining and staking. And Genesis helps on the equipment financing side and kind of providing capital through the Foundry business

into the mining and staking community. So, you know, the China crackdown the last few days, I think, has been, you know, has certainly, I think, great in terms of decentralizing hash power around the world and frankly, kind of helping, you know, the US continue to kind of gain market share. And so we work with our mining and staking affiliate to kind of accomplish through mostly like lending and whatnot, equipment financing and whatnot to those entities. Got it. Austin, with the last question, says, when I look at Bitcoin, I always go back to thinking that Janet Yellen will be the last secretary of treasury to fight Bitcoin. Do you think that the younger generation takes higher government positions, regulation, and therefore adoption will become more Bitcoin and crypto friendly? I have to think so. I think demographics matter. And certainly, I feel like most of the crowd, frankly, in Bitcoin is younger than I am. And I don't see too many people that are that much older. It's certainly a smaller percentage. And so I think the law of numbers kind of tells you that we certainly have a better shot to have Bitcoin and crypto-friendly people holding high offices as the years go on.

Michael, I'm 33, which I still say is my early 30s. And somehow I feel old when I talk to people. So when I talk to folks who have been in traditional finance for 40 years, I'm like, man, if I feel old, they're like, this is a whole new world. So I agree with you that the demographics definitely matter. No, I'm 44. And the bulk of my team at Genesis is probably mid to late 20s, right? And so I find myself making Seinfeld references from time to time.

They're like, what's Seinfeld? Like, they literally look at me as if they have no idea what I'm talking about. Then I immediately think about firing them. So that's kind of where we are, right? In kind of how old we are, kind of in the space in which we work. that is amazing. I'm sure that there's great arguments over who has better music and better TV shows and everything else. The challenge is I don't know most of these artists that these kids listen to nowadays. And so it's less of a conversation than them trying to teach the old

guy. Just have to get you on TikTok and then the world will be complete. It explodes. Where can we send people to find you on the internet or find out more about Genesis? And especially if there's any CFOs or treasurers that are listening to this that are interested in potentially learning more about putting Bitcoin on the balance sheet. Sure. So genesistrading.com is our website.

We have a treasury landing page at genesistrading.com slash treasury. You can find me. I'm on LinkedIn. I'm on Twitter. Feel free to reach out and let's have a conversation. Awesome.

Well, listen, thank you so much for taking the time to do this. I think there's tons of people who learned a lot and we'll definitely do it again in the future. Thanks so much. Thanks, guys.