The Wolf Of All Streets - Bitcoin To $100 Trillion Market Cap | Rich Rosenblum, Founder Of GSR

Episode Date: August 17, 2021

With seemingly endless experience in both the legacy and crypto worlds, Rich Rosenblum has always been on the cutting edge of financial markets. In this episode, Rosenblum shares his perspective on the crypto markets, based on his experience leading one of crypto’s most established and successful trading firms. It is Rich’s belief that Bitcoin is far more than an asset - that it is a parallel ecosystem unlocking a new dimension of finance that the world is only just beginning to unravel.  -- Matcha: Matcha is the easiest way to trade in DeFi. Matcha enables you to trade across all the major DEXs so you can be sure you’re getting better prices than going to a centralized exchange or Uniswap. Connect your wallet and start today at https://thewolfofallstreets.link/matcha --- If you enjoyed this conversation, share it with your colleagues & friends, rate, review, and subscribe. This podcast is presented by Blockworks. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at: https://www.blockworks.co ーーー Join the Wolf Den newsletter: ►►https://www.getrevue.co/profile/TheWolfDen/members

This episode is brought to you by Matcha. Stay tuned for more information about them later in the episode. What's up, everybody? I'm Scott Melker, and this is the Wolf of All Streets podcast, where twice a week I talk to your favorite personalities from the worlds of Bitcoin, finance, trading, art, music, sports, and politics, basically anyone with a good story to tell. Today's guest has arguably the most impressive resume of anyone we've had on the show with seemingly endless experience in both the legacy and crypto worlds. Before founding GSR in 2013, Rich was the global head of crude oil and derivatives trading at Goldman Sachs. I wanted to have Rich on because he's done a complete 180 transitioning from perhaps the most Wall Street job possible to

the world of cryptocurrency trading and innovation. Rich Rosenblum, it's a pleasure to have you on. Thanks a lot for having me. So as I mentioned, you were at the top of the totem pole at Goldman Sachs. I'm curious what compelled you to toss that inside, probably a very comfortable job and move into the crypto in the very early days, long before it was mainstream. I think the reason why I got into oil trading and commodities was that it's a lot more exciting in other areas, the higher volatility, and it's very event-driven and really don't know what's going to happen next. And when I say that, I mean, you know what's

going to happen five minutes from now, you don't know what's going to happen a year from now. And I think that when the opportunity to do something in crypto came up, you know, it seemed like that next, you know, bigger and better, more interesting thing. And also I think that, you know, it's energy related. It relates to sort of your real world assets. It's not just something that people think is a figment of someone's imagination because it's something you can't touch. There are the machines and the land that you used to do the mining. So a lot of things that made it, made it quite interesting. But I think everyone understands that now, but nobody understood that in 2013.

I mean, that was a huge leap of faith when Bitcoin was only four years old. Almost none of the crypto infrastructure existed. And probably there were only a few coins, right? Yeah, this was before Tether, before Ethereum. So it was certainly early. Okay. So I'm curious, being from the legacy side, as we like to call it, do you think now that we're truly seeing a movement towards mainstream adoption from Wall Street? I mean, I'm sure you still have your contacts there and talk to them. Or do you think that we're still really early in that process? I think it's yes and no, because we are seeing some buying from these institutions, but it's really just a handful of pioneers. So even though it is happening, I still think it's very early. We're definitely in the early innings. Do you think that there will be a time when Bitcoin

cryptocurrency become just another asset in the portfolios of all these big banks and your average person? Or do you think that it still will remain somewhat of a fringe asset? I think we're already getting there. If you look at the amount of attention it gets, I think that you would think that it's a core asset. You're certainly hearing more about crypto than credit markets or emerging markets if you look at Bloomberg. So I do think that that level of attention you could say is a media bias is one thing. But I think it's more than that. I think it's that, you know, it's the future is the sort of short version for it. No one's looking at oil or commodities as this is tools for the future.

It's more about how can we minimize these tools which damage the Earth. Meanwhile, I don't necessarily think Dogecoin is going to be used on Mars, but the fact that the richest and arguably the most powerful, smartest man in the world is talking about it on a weekly basis and has the Bitcoin be on his profile and he's one of many and the red eyes, I do think that it's a forbearing of the future where it's going to be an asset that's on the forefront. And also, I think from the investment background, it makes sense that we're seeing these through the lens of them being investments. But I think it's more of a parallel ecosystem in finance and tech. So it's much bigger than being an asset alone. So you don't see it as replacing the legacy systems

that exist. You see it as a parallel rail maybe for people who want to opt out or who don't have access to those systems? It's so many things at once. It can be very particular in contingencies. There's some tools that have been created in finance that are being applied to crypto. There's the contrast where there's tools that are very unique to crypto and I think will be applied to legacy. There's places where there'll be a natural meshing of the two. There's groups that want to stay outside the law and do things that are very much counterculture. But I think that over time,

those interests fade and there's groups that want to have a sort of harmony within the traditional financial system. But I would say that it's a movement and it's not tens of thousands of people. It's into the at least tens of millions of people. And when it gets into the billions, I think that it's going to be too complex to pigeonhole into one spot. That makes perfect sense. So I'm curious as to what exactly GSR does and how that's evolved since 2013. So you've been doing this now for eight years. So we started off as a trader and it was not a trader that's doing pure prop like a lot of algo traders would do.

But I think we saw the opportunity to use software to trade and as opposed to commodities where myself and co-founder grew up, where there was a physical floor, even being tall, strong, loud voice, having a bigger presence made a difference. Crypto is a bit like in India, where they skipped the landlines and went straight to mobile phones. And in some ways, without that other system, it was better, you could move things forward more quickly. And I think in crypto, there wasn't a physical floor. And there wasn't yet professional algo trading companies involved, you had some tendentially involved, even some groups that it would be someone in their free time. They were at a top algo trading firm and on the side they were doing a DA. I think we were one of the first to jump in and be a professional trading team wholly invested in crypto.

And so the first thing we were doing was bringing liquidity to the space, particularly to the issuers of coins and tokens, and eventually to exchanges. Today, we're the primary market maker for over a half dozen major exchanges. And so that was the first spoke, I'd say, in terms of the tools we're using software to trade. The next we realized was that the market was lacking derivatives trading. Some of the groups like us were trading options and futures algorithmically, but they didn't have an ability to kind of see the client side and see derivatives as a tool to bring future risks prompt. And we had this focus on helping large countries, sovereign wealth funds understand their risks.

And so I wanted to bring some of that type of focus into crypto. So that's something that I'd say we really got to be spending a lot of time on three years ago. And it's about a year and a half, a year ago that options have boomed and taken off. So it went from writing op-eds about what's going to happen to now showing that it's into the billions or tens of billions of volumes. And the next stages, I think, are that investment management is an area where we're in the midst of entering as well as DeFi. I think we've been slow because we're a bit more conservative than some other firms that are in the space. Our team's a bit older and we don't really cross the

gray lines, but now it seems like DeFi is pervasive and we're playing a bit of catch up. And that's a major focus as well as venture. We don't have outside capital, but we've had a consistent venture focus and now we're looking to grow the amounts we're investing in. I think that's a really important area because putting your money where your mouth is important. It helps align interests, particularly as a service provider. When you invest in the partner, they know that you're looking to do right by them in another type of player. You were obviously early and you were doing algorithmic trading in 2013. I have to imagine that there were some stark inefficiencies in the market that were quite easy to take advantage of for profit. Yeah, I'd say that the first comes to mind is you hear people talk about the kimchi

premium, how there was premiums nearly 50% above where spot would be in Korea or other jurisdictions. But I'd say that you think in hindsight, like there's been other regimes, I'm sure you're focused on, not just in crypto, where there's some major arb and you'll hear that people or in particular one person made a ton of money. It seems easy in hindsight, but when you're really there, there's usually some flying to Korea, opening bank accounts, someone not wanting to open a bank account if they foresee it's from crypto or you're not a local. And it's a bit deeper than that. It's an entrepreneurial pursuit more than an algorithmic pursuit. So many of these are reasons why we've ended up having people, not just in three countries, because those are good places for commerce,

and not just six, because these are places where we found good employees. But it started to add up to a lot more than that, because we needed to be in the places that our clients were, the opportunities were, places like the Philippines or Japan. So I think that that's what makes this a more interesting industry because there's so many different touch points. Yeah. I think a lot of people tried to touch on it as retail even in 2017 when those glaring opportunities were there and it was effectively impossible for the reasons that you described. Even if you can get a bank account in that country, you can't actually send the money out.

And by the time you do it, the arbitrage opportunity obviously evaporates. So I'm just curious if those sort of arbitrage opportunities have effectively disappeared your market making. So clearly you're moving coins around, right? Or is it the Wild West ceased to exist in this market? The quick answer is yes, but things are usually speeding up as markets mature and getting more complicated. It could be that there's instead of 45 days, some premiums persisting, maybe it's 45 minutes. And then instead of these issues around timing being due to a bank, maybe it's due to an exchange and exchanges withholding deposits or withdrawals.

So if you have money sitting already on those account balances, then you can take advantage of it. So it ends up being a bit of a probabilistic pursuit where you have to think about the probability of these ARBs opening up and prepare for it, then compare that return on capital to doing something else with those same dollars. So the big news of this week, as we're recording here on August 10th, has obviously been the US infrastructure bill, which was sort of a surprising spotlight on crypto and a bill that effectively had nothing to do with crypto. But now all of a sudden, you know, crypto regulation is being debated, arguably on the largest stage by the United States Senate, which, by the way,

I would have never imagined in a million years. But I'm curious, you know, being in the business, how much do you think that this bill, but more generally, heavy-handed regulation potentially could hurt or slow the industry? I think that when there's always groupthink and a lot of bias within a particular industry. And I think if you get with a group of people in crypto, you hear this word regulation, and it seems like it's an outright negative, like somebody's saying a bad word. But going back to 2018, GSR, one of the founders of a group called ADAM, Association of Digital Asset Markets, and got together. And this is most of the big crypto financial players. I think it was originally a group of 12. And it was sitting in a room.

And it's compared to the Buttonwood Agreement, which is something originally in equities. And the question was raised was, how are we going to bring this industry not to be 150 billion at the time, but, you know, five trillion? And think that it was through, you know, the right amount of appropriate regulation. We're going to have these larger institutions come in with confidence and be able to smoothly enter and exit. So I'd say that looking at this particular crypto bill now, it has to be appropriate amount of regulation. If they're not securities, especially Bitcoin is seen as more of a spot commodity or currency. If you're a miner, if you're a note operator, other type of validator, and you have to print a ticket and publish 1099 or other tax reporting

on any type of activity you do, that could cause people not to enter the space or raise the cost, add an extra burden or get people in trouble because they didn't know they were supposed to do it. So I think at the start of where the bill was at, I definitely think it would stymie innovation and hurt the profits of the industry and generally just make it seem like the government didn't understand the industry. But I think it's been diluted to the point where it's more what I would think is appropriate. And even if it's going to make the market sell off because some groups might want it to sell because they feel regulation is going to hurt or slow things down, I think it's short-term neutral to slightly bearish, but medium and long-term bullish. I think regulation should be a positive thing and we should welcome it and

address it with open eyes. I think regulation will be a net positive as well. I agree. And I think that this particular debate has been the greatest advertisement for Bitcoin in history. I mean, every US Senator now, mainstream media, they were already talking about it, but talking about it in context of the biggest piece of legislation on the book seems to me like a huge win. Maybe I'm wrong. Maybe I'm an eternal optimist. But to me, it seems like... And also, I mean, it should not be missed that we're talking about basically printing a trillion more dollars for an infrastructure bill in the same context talking about Bitcoin, right? Oh, totally. It's the right stage. I think the right timing as well.

And it was a year or two ago where you had Zuckerberg and testifying and based on the questions asked the responses, it didn't seem like the government knew much about Facebook or about, you know, social media. But even after all the questioning, all the hours, it didn't seem like they had such a positive view on it. And neither did the American people. So I think here with crypto in the spotlight, however much Gensler is seen as the person who's bringing regulation down, coming down hard, saying so many of these things are ICOs. He also said, listen, I taught at MIT, and whatever Satoshi Tsunoda came up with. It's brilliant. So I do think that the message, it hasn't been as mixed.

I think it's been outright positive. It's just that they want to create some taxes. They want to do something that they feel like it's not in no man's land. And also they see what China is doing, probably don't want to be that the US is suddenly allowing things to go and be unwieldy. So I think it's all positive developments.

So what do you see happening in the industry in the coming months and years that you haven't seen yet when it pertains to mainstream adoption? I mean, we've obviously, we saw the 2017 run. In retrospect, that was obviously retail speculation. We talked about institutional adoption at that time, but clearly that was not happening. Tesla wasn't going to buy $1.5 billion in custody on a treasure wallet, right? We didn't have the infrastructure in place for custodians, any of those things. Do you think we're still lacking anything now that we need for that huge wall of money to come in?

Or do you think the infrastructure is there and now we just need the interest? Yeah, I'd say we've had those moments that are like drop the hammer, major impact things happening like Tesla and SpaceX buying and accepting Bitcoin. That's pretty major. But I think that it's still one of these things where it's a bit more appearances sake. I think that the bigger shooter drop would be an ETF being allowed. I think that people miss the fact that, yes, you can buy tokens. You can buy them by crypto on Coinbase. It's relatively easy. You could buy Coinbase stock. But I think that there's so much money that's in people's IRAs, other retirement accounts. And usually the way those decisions are made are that somebody is on a website and they're either clicking one of a few

options. And I don't think I'm alone in thinking that if there was a crypto option, particularly people that are under 30, and these are people that it's a stronger demographic for crypto, and they're going to be getting a lot more money over this next 10 years. If they had that crypto option, it's probably going to be their first choice. Another I would say is terms of adoption. Now, I don't think about Bitcoin as so much the leader of innovation these days. It does get a lot of attention. And it makes sense that it's really what's in focus because it's competing against gold. And gold is a major old school asset class. But I would say in terms of adoption of actual Bitcoin, if we did have Amazon or a company of that ilk accept Bitcoin, I think that would be another huge dynamic. And I mentioned a few weeks ago, I think if Amazon came out and really said that publicly and was committed to it, I think we'd be at new all-time highs almost instantly.

I agree. So you brought up gold. Obviously, you're a commodities trader. What do you make of the gold price action? I mean, you could say over the last year, but we obviously saw sort of a technical drop of late. But what do you make of the fact that we're seeing this incredible amount of money printing in context? You would have imagined that gold would have risen. It's basically flat and Bitcoin has continued to rise. I think you said it already. I think that the same gold bugs, there's some that have been quite outspoken against Bitcoin. You don't really hear that anymore. And I think the time to see Bitcoin rallying a lot, it's been because people are not buying gold, they're buying Bitcoin instead. So

I think that there's going to be people, especially that are the older generations that just never get Bitcoin. But I think as time passes, gold is going to lose some of its shine to Bitcoin. So you think metals are done? I mean, is there just no longer an effective hedge and we're going to slowly see them die? We talk about the flippening of Bitcoin and gold market cap and everybody talks about how much Bitcoin needs to grow. But it might be a lot easier to flip it if the market cap of gold just continues to diminish. I mean, you never know what happens in 30 years if we're so online that when you wake up, you've got your VR goggles on. But I think for the next decade with the world looking the way it is, it's not how gold is done. It's a scarce asset. It's much more known and people know what to do with it. But I think on margin, when you see these moves where there's

a headline, Bitcoin is like levered gold. So you'd have to look at it under the same volatility. And so if you had another few high inflation prints, Paul Jeter Jones said it's the fastest horse. It's bleeding edge technology. There's less liquidity. It's newer, less mature. Bitcoin's going to move more. So I wouldn't count gold out. If there was a proper inflation and it seemed like it was going to be consistent. It's easier to almost predict what's going to happen with gold because you have 300 years of data. Context, yeah. Exactly.

But on margin, I think you're going to see more attention shifting to the newer thing. It also just has a technological wrapper that makes it easier to transfer. It's not just inflation properties. There's many reasons why if someone is trying to choose between the two, particularly as an individual, I think you're going to lead towards crypto. Guys, I really hope that all of you are not still trading on the old platforms like Uniswap when there are much better options like Matcha. And now Matcha has upgraded to 2.0. Now, I've told you about Matcha a number of times. They have limit orders, which these other platforms don't, which is absolutely incredible.

So you don't have to sit there staring at your screen waiting for that perfect moment to enter or exit a trade. And they also aggregate liquidity from all of the different platforms, finding you the best price and reduced fees. But now they have Matcha 2.0 and have added so many awesome features. Matcha is now the only DEX an integrated Fiat on ramp, you can put your dollars directly onto the platform. They also now have OTC trading for orders between 1k and 1 million, which is beyond huge. And maybe most importantly match and now supports trading on polygon meaning those gas fees

will almost evaporate completely. Now if you guys want to check out matcha, which you absolutely should, you can do that at the wolf of all streets.link slash matcha. That's the wolfofallstreets.link slash matcha. Please check them out. I'm telling you, it will save you so much money and is such a superior experience. Do it now. Going back to the ETF, I also agree that that's sort of where the wall of money falls in.

You talked about it sort of in context of retail and Gen Z and millennials, I guess, having access to it. But for me, that's also where we see the endowments and the pension funds start to be able, I think they have interest, but start to be able to actually gain exposure. Do you agree? Absolutely. I think that a lot of these groups that have over 10 billion, over 100 billion, in many cases, lot of these groups that have over $10 billion, over $100 billion, in many cases, they have allocators that have to fill in the holes about all the controls they went through. And I'd say if they put 1% into something and it goes up, yeah, they're going to get a pat on the back. But if it goes wrong, they're going to get fired. I think if they buy an ETF, that's been blessed by the SEC. It's a much less risky proposition.

So even if you might have less than 1%, so 10 basis points of pensions that have touched crypto, I think that once it's an ETF, I think that would quickly jump up to 5%, maybe 10%. So you talk about the risk managers and sort of the reputational risk of gaining exposure to Bitcoin. And it's funny because for years, it was sort of like you had to be a crazy maverick to probably even bring it up in a board meeting, right? And you had this reputational risk of even mentioning crypto. I would argue that now we have the opposite situation and that it happened all basically in the last year. I think now you have reputational risk if you can't answer the

crypto questions if you're sitting in that meeting. I think that's true. If you say, oh, I'm just against it and you don't have reasons why, you're going to look like you aren't intellectually honest and you didn't do your research. So I'd say there's also some issues around liquidity. Over this past year, not only did the infrastructure become available and the taboo started to fade away, I think from a liquidity standpoint, yes, you could buy $300 million of Bitcoin over the course of a month and you wouldn't have to pay all that much, but you couldn't get out within 24 or 48 hours without having a large impact on the price and without being a decent chunk of the daily liquidity. So a lot of these groups are going to have these mandates where they need to be able to get out within a certain timeframe, which makes sense if you're moving around that much money. They don't want to have people in these concentrated positions who are going to move it 30% by trading it over the course of the day. But now that the market is trading into the

tens of billions per day, that's less of an issue. And I think that Ethereum is also getting that territory where it is investable from large asset institutions. And people know that Ethereum is the king of smart contracts. So I do think that people move from the digital gold mantra to moving into a decentralized world mantra. I think you're going to see people start to maybe go from almost all Bitcoin with a taste of Ethereum to maybe even 50-50. Well, Ethereum's trading volumes have exceeded that of Bitcoin over the past few months, actually. So I think the data supports what you're saying. So I'm curious then for you guys, or as an investor, do you believe that it's now an equal horse in the race? We always heard about all Bitcoin,

then maybe a year or two ago, it was 80-20 Bitcoin, Ethereum. Now you're saying maybe 50-50. Is that where you guys are at? I think it's still Bitcoin is going to have a lead and I think it's going to continue to stay there. I haven't heard of anyone really in the media talk about being Ethereum maximalists. And there's people that made a lot of money early in Ethereum and they're zealous, but there's no maximalists as far as Ethereum goes. I think people think that it's going to be a leader versus you still have a cadre of people that believe that Bitcoin is really the only coin and everything else is far inferior. So I still kind of think of the 70-30 regime as a natural thing. If it was a friend and they asked me what I think is logical and they have a lot of knowledge or someone who's just dipping in,

it still seems to be making sense to me. Do you guys trade down the risk curve into the lower market caps beyond Bitcoin and Ethereum? Absolutely. So that's been our specialty, I'd say, because we're a contracted market maker for these issuers. And so we'll invest and shepherd them into the ecosystem. And we've been on a lot more exchanges than groups that would be focused purely for props. We have access to these coins and tokens and made a name for ourselves and really being able to trade almost anything. How far down the line does that go? I mean, market cap wise?

It's not going to be worth our time to trade something where it's particularly small. But if we have a client that needs liquidity on a smaller AUM asset, then we'll usually go to help something where it's particularly small. But if we have a client that needs liquidity on a smaller AUM asset, then we'll usually go to help. So it goes towards the very bottom, we'll consider it. That's really interesting. So you mentioned before, when we were talking about gold, you said maybe if we see a phase where there's real inflation concern, something to that effect, do you not view the current environment as risky as far as inflation? Do you think that it's transitory? What do you make of the macro situation as far as inflation? I think there's things about it that seem temporary.

Obviously, we had a supply shock, we have a monetary shock due to the pandemic. But at the same time, there are some more secular trends where workers want to get paid more. And it's populist developments where I think these are going to stick. I don't think that it's easily going to have a movement where people say, bring minimum wage down. These are one of those things where when it goes up, it's going to stick and it's probably going to keep going up. So there are inflationary pressures, but I think, is it going to be run away? I think that there could be the threat that it's run away. But I

think that as it goes up, it'll probably break some bubbles and there'll be certain areas that go up. But I think overall, what's preventing inflation, my view, from being persistent and pervasive is technology. I think that's what's confused economists for decades, that why are we breaking what the Phillips curve says we should be in terms of the relationship between inflation and unemployment? I think it's that robot software. You don't have to pay them and they work 24-7. And I think we're only going to be using more. We're just breaking the surface on AI.

There's going to be reasons why you have to employ humans and you have to pay them minimum wage. Minimum wage is going to creep up. But at the same time, I think that there's a lot of jobs that are going to go to machines and that's going to keep wages lower. So you keep wages lower, but it also means that the system of utilizing inflation for growth is utterly flawed because it's fighting the natural course of deflation. You could make the argument that if technology is so deflationary, that we should allow deflation to happen, allow the prices of things to come down, and then lower wages wouldn't matter, right? So I mean, isn't any inflation effectively fighting the

headwinds of a naturally deflationary environment? You look at the lazy fare economy and let the hand do what it needs to do. There's clearly that impact looking to happen. But I think you've got two things going on. One is that there's not one big sort of socialist global economy. You have a bunch of different types of economies are all interacting with one another. And the other side of it is that you have social media and this idea that you're more aware of what your government is doing. And I think that's creating more of a global populist sort of wave. And it's highly unpopular to raise interest rates.

I think that times where groups have tried, you know, they've seen their constituents become very unhappy and complain about it. And so if there's any way to create steady growth, even if it's unrealistic or irrational, groups will try to do it, even if it seems short-sighted and could create unforeseen consequences down the line. I think that's going to be a trend we continue to see. And that's one of the biggest reasons why I think people are thinking Bitcoin has been de-risked. And I think even if we have rates of 30% of people in XYZ country own Bitcoin, I don't think those rates have to go up that much. It's just that someone really understands and more, they're going to end up, you know, instead of putting 1% of their net worth in Bitcoin, I think you're going to see more people that have 30% in Bitcoin. So the reason is because politicians want to get reelected.

And we'll never support a policy that would do otherwise. But doesn't that mean that money printing is here to stay and it's never going to stop? I mean, they're going to have to continue to print money. If people are going to lose their jobs, we have to give them money if we want to get reelected, right? I mean, there was that asteroid that we think killed all the dinosaurs. You never know. There could be weird things happening. But I think that one of the trends, I think that it's hard to imagine going away without some huge changes. Governments want to keep rates low to continue having growth. So buy Bitcoin. Right.

So speaking of Bitcoin, obviously, it's been a bit of a roller coaster in 2021. We saw this massive bull run up to 65, a correction, which some would have argued was a bear market down to 29. And now as we're talking, we're currently trading back around 46. What do you make of that entire run? What happened on the way up? What happened on the way down? Was it a bear market? Is it still a bull market? I'm just curious as your thoughts. Yeah, some of these questions around was it a bear market? Is it still a bull market? I'm just curious as your thoughts. Yeah. Some of these questions around, was it a bear market, bull market? I think that I feel silly saying it wasn't because if the market drops over 50%, certainly doesn't seem like a bull market. But I think that when you go outside of price and you think about hiring,

you think about private market valuations, have never witnessed more hiring from our partners, from our competitors, from our clients. And also in terms of private market valuations, you know, as the price dropped from middle of May to those lows, the private market valuations weren't just staying stagnant. Some cases they were multiplying or at least doubling. So from that perspective, I think the industry continued to charge deeper and deeper into a bull market despite the coins and what felt like a state of collapse in many of these cases. And I'd say, what's driving the prices? Well, what's happening right now? A lot of the headlines are pretty bearish, even though we could talk around regulation being long-term bullish, China coming down hard. A lot of these miners are just not even operational. They're being put on chips to eventually find a home. US, I think that

people don't know what's going to happen, the uncertainty around regulation. That's bearish, especially Elon now is back on the horse, but he was outright negative on the space for at least a month. So with all these dynamics, it did seem very negative for the space, but somehow now we're back at what, 46,000 in Bitcoin. I think most people are surprised. And I'd say that only two dynamics I can think of why right now we're at relatively lofty prices and what's been a weak period for the tokens is that you do have bigger size in these large investment managers. They come in. If a new group wants to buy a billion in Bitcoin, another wants to buy 300 million, for the

few weeks, they're going to have a VWAP, weighted average price or TWAP, a time weighted average. They're going to be buying every day, all day. And unless you have selling that day, the market's going to drift higher. So I think it's probably what's been happening. And these groups don't necessarily look at it as like, what are the headlines this week? They looked at it six months ago when everyone else was buying. And it's taken them half a year to get the approval from their board to buy. And now, did all that much change since the time that they started that process? They went through such a long, arduous process that now that there's a green light, they

go in and buy. So I do think that that's one dynamic of why prices are moving higher more recently, as well as what happened with crypto seasonally over the past dozen years. It tends to sell off in the summers. I think that's because people make money throughout the year. Then they want to go enjoy themselves in the summer and spend some of those gains. This summer, I thought we have a major seasonal impact because people were stuck inside for not six months, but a year and a half, and they had much bigger gains. So I thought they'd want to go out because the mask ordinance

was lifted right around mid-May when the price started coming off. So I think that was a big dynamic. But what's happening these last few weeks, the Delta variant is causing some new restrictions. It's causing people to be back sitting at their houses, working from home, back in front of their computer screens. And they'll doing, it doesn't have to be day trading. It's just, what am I doing if I'm in front of my laptop all day instead of outside? Maybe I should check on my crypto account. Oh, I like crypto. Why don't I buy some more?

I thought they were just buying meme stocks on Robinhood, but I guess maybe they're looking at us too. So it sounds like, and I sort of agree, like the bull market, bear market terminology, I mean, it's always flawed because it depends on context and timeframe regardless, right? I mean, if you look at crypto since 2009, it's obviously never been out of a bull market. If you zoom out far enough. And so it seems like it's somewhat semantics, right? Bear market for price maybe, but Bear market for price, maybe, but bull market for the industry is sort of what you're saying. There was no ceasing growth. It's just that leveraged traders got rinsed. I mean, in my opinion, that's really the core of what happened when you see $10 billion liquidated from 60,000 to 50,000, but we're only seeing 200

million liquidated from 30 to 40 something. That tells the story, doesn't it? Yeah, it makes sense. And yeah, it's interesting to think about cyclical industries like the mortgage industry and the commodities industry. When you have an oil route, people are getting fired, companies go under, and that certainly hasn't been the feeling in crypto. So I'd agree that even though the price has such a big move, I think that it's a higher volatility industry. So whatever the terms are that have been popularized through equities, that if you have 10% drop, that's probably a correction. And they have these economic terms that go back to the definition of a depression or recession. I think in crypto,

the volatility is five times as high. So it probably needs some other metrics and maybe we'll learn about them in the next couple of years. Sure. Right. Bear market being a 20% drop for more than a month or two months or something and a 50% drop in crypto, especially non-Bitcoin, is like a Tuesday. You can see that on an altcoin in an hour. And so do you call that a bear market or not? I think I agree with you that we probably need different definitions for this market completely. So that said, here we are. You think that it's institutional or large money buying that's brought price here. Do you think that the floor is in and we're heading up? I can't think of many things I'd rather own than Bitcoin. But I think over these next few months, I wouldn't have been able to guess a lot of the events that happened over the past three months beforehand. So even if I think my mind can telegraph what's going to happen in the fourth quarter, I've learned not to be too confident in terms of the near-term guesses.

Sure. So zooming out, how high can this thing go? I'm talking about 10 years, 20 years, not 10 months. Yeah. So I'd say 20 years out, how much inflation we're going to have. If we have 30% more dollars just last year alone. If you go out 20 years, what is the price of a burger or milk going to be? So I think if I'm just having an inflationary view that they're going to print more dollars, I think that means Bitcoin is going to go substantially higher. But I think at the same time, because I do believe in the industry and I think I know who we're hiring, I know who's coming into it, both from an individual perspective and company perspective. I think that the price could be substantially higher. So a million dollars a coin, I think people would have laughed at a few years ago, but now it seems seems um pretty reasonable i think that even uh you know if we're at one trillion

now i think a hundred trillion wouldn't be such a crazy target um for a full two decades out um so so right now um you know if we're at you know 45 000 you know and that's a one trillion you know 100 x um that's $3 million a coin. I'll take that. I'll take that. I'd be happy to hand off some Bitcoin to my children at $3 or $4 million a coin. Gladly. But I agree with you.

But do people still laugh at you if you say something like that? Because a year ago, they would have called you crazy and had you committed. Talking about $1 million Bitcoin. I think so long as it's a focus on 20 years out, I think if you say one year out, they're going to seem pretty crazy. It's also interesting to think about what that means for society. I think there's places where I had a view on crypto bros and what people are doing and their side gigs with crypto. But now you have people that have tens of billions of dollars from doing what? Just holding Bitcoin. So if it got to be that those same people literally have trillions and the numbers with a billion are into the

thousands or tens of thousands, it has actually a huge impact on society as a whole. And there's always a philosophical question on like, what is the right way to attribute value to individuals and entities in a society? And I wouldn't say that's the best way that people that hold on to a figment asset, but it's always some people that, you know, win when they're closer to the finance. Right. So I had Steven Stoneberg, the CEO of Bittrex Global on, and he basically said, you know, there was a time when the bankers were the billionaires and they were the rich guys and the hedge fund guys came in and were like, haha, my yacht's bigger, like we're the billionaires now. And now it's like Sam Bankman Freed, who's in his 20s and has probably $20 billion. Do you think we're soon going to be in a world where some of the

richest people in the world are, you know, Gen Z and millennials who are worth tens of billions of dollars? And that could really change the sort of the sort of the landscape of wealth? Yeah, I think we're certainly starting to see it. I think that with the tech booms, you've had points where someone young, like a Zuckerberg, gets to a position where you have, this also goes back to Bill Gates, where someone is a Harvard dropout or so. But I think that you haven't had cases where there's an eight-year-old who's mining XYZ token, making millions. I think that in crypto, it's getting to be pretty insane. I think the only thing that could be weirder is if it was something in anime or gaming

where there's this amount of money. And I think you have had people in those types of industries that are a bit more media or poppy. But I think that putting crypto in the mix almost like adds steroids and extra leverage to making these sort of weird industries, you know, stand out and be more profitable. Yeah. We're seeing that now with NFT gaming, like literally Axio Infinity, I think it's called is now responsible for 60 or 70% of the NFT transactions

as of last week or something. And it's a concept that probably people our age would have never even imagined or considered. And I'm certainly not going to go start gaming to figure it out. I'm curious. I know you guys, you mentioned your VC arm and correct me if I'm wrong, but I believe you had invested in mining in China. Is that correct? Yeah. Yeah. So we actually do mining ourselves. We've invested in mining in China. Is that correct? Yeah. Yeah. We, um, so we actually do mining ourselves. We've invested in, um, you know, mining companies from the VC side, but also, um, you know, own, own miners and have been doing, um, GPU mining. Um, so I think that's an area where, you know, we, we saw it as a good, um, area to be investing in both direct and indirect,

but also as a mining services provider, it helps to be eating your own cooking. So if we hedged our own mining and we really understand the ethos of being a miner for doing it ourselves, I thought that would be better for our business at large. So hasn't been our key focus area. I didn't bring it up on the onset of the call, but it is something I think we'll continue to do and continue to grow. But China, banning mining, I'm assuming you invested before that happened. What did that look like? I think that it's a big place and there's different regions and also there's different types of energy you can use. And there's a

season for hydroelectric power. It's the cheapest. And then once the rainy season is over, migrate the machines to whether it's coal or natural gas. So it's certainly its own unique ecosystem where when you look at crypto and think about people in crypto, there's at least six or more sort of archetypes. And I think one of those is absolutely these Chinese miners. And while we have an operation, there's groups that have stadium size mining operations. And when you look at who is doing it, it's more of these families that had figured out how to make a pen pen a tenth of a cent instead of two tenths of a cent.

And they're making up billions of pens. And they figured, OK, this is an operating company. It's, you know, we think about it as technology and there's software around it, particularly in the pools. But the groups that own the miners and create the coins, it's much more about a game of just reducing costs. And as opposed to also is this one where they're looking to diversify their money into other asset classes. What I've found from making the trip to Chengdu

and Inner Mongolia, the places where a lot of mining is happening in Sichuan, is that they just want to create more Bitcoin and they don't have a use for the money. They have way more than enough assets, but it's more of a game of who owns the most coins. So what does a world without Chinese mining look like? I mean, obviously, it's been for North American miners. Yeah, I think that first off, it was viewed as a Chinese weapon is what someone was saying a year ago. So I think having there be too much concentration anywhere is bad. I think we want it to be that this decentralized industry is at its best when you don't have too much happening in one place where the people aren't going to collude

with one another. So I think having it be that it's not such a vast majority in China, I think that's a positive. But I don't like it that so much would be leaving China. I think that the government for now is coming down hard. But two years from now, I think China will still continue to be a powerhouse in mining. But maybe this is a path towards cleaner mining, less use of coal, and mining in a way that the government is going to be approving of it so that people don't have to do it and feel like they're going to get in trouble for doing something that was encouraged a few years ago.

It's interesting to me because we've seen these China bans for as long as you've been in crypto, right? Like every two or three years, if the price of Bitcoin drops, coincidentally China's banning something. It's just one of the cyclical sort of FUD stories. But this time, it seems a lot stickier. And I'm curious, you talk about China still being a powerhouse, but it seems like if you leave this time as a miner, you're not going to come back. Maybe I'm wrong. Maybe there's something the Chinese government can say to make

them feel confident again that they can set up shop. But it seems to me like this really is the final hammer. Yeah, I think whether it's moving the machines back, I think you need a good excuse. If you found low and consistent power and a friendly government, you'd more buy machines that are originating in Asia still anyway and use those machines to add on.

And the people, they've already had the expertise. They've already been doing it in large scale. So I think that if they have the capital, they have the know-how, they have the land, the assets, I think it could happen relatively quickly. Whereas in the US, we've got a lot of capital, a lot of brilliant people, but some say they want to get into mining

and you can hear in their voice, they're like, I don't really know what I'm doing. I need some experts to lead me in the process. Some say they want to get into mining and you can hear in their voice, they're like, I don't really know what I'm doing. I need some experts to lead me in the process. So I think that they've had that first move of revenge. It'll still give them a leg up and speeding the process up. They feel they can in the future. So after eight years of doing this, what excites you about what's coming? What gets you up in the morning each day and gets you motivated to keep doing this? I really like speaking to entrepreneurs in the space, people that are really building

something new and you could feel that passion that they have. But also, I think that they often are under tremendous pressure and don't know the direction they should take their company. They really value the advice they give since they know we've seen hundreds of projects come through and speaking to a couple of leaders in it, suddenly being able to talk the talk and answer that second or third layer of questioning from someone who wants to get into it. I find being an expert in something new very exciting. So how about for the industry as a whole? I mean, beyond what you're doing on a daily basis, what about crypto that you think is coming? People should be excited about. I'd say DeFi and FT. I guess it depends on the person. Well, it depends on the person, right? I mean, if you're in a country and don't have a bank account, DeFi is pretty exciting. I'd probably say guilds and

DAOs. This is one side of it where it's older than the medieval ages, but people don't really think about what it means. And I think that when you have a club of 10 friends or 100 people in a WhatsApp chat room, and you could use different pieces of technology for that. But I think having something where there's a people talk about it. And so if this is you and your college alumni or other way, being able to use software to unite you as a group and have things automatically happen in a centralized fashion, maybe the word interesting is more than exciting, but I think that's one of the ways where people probably don't hear about it or talk about it much today. But I think in the next year, you're going to see a few of these guilds pop up. And it's just another really interesting use case of a blockchain and tangentially to crypto.

And Wyoming officially just made DAOs effectively like LLCs, right? Legal entities. And I think that's way ahead of their time, don't you? Totally. Yeah. No, it's really important also, because if you go to invest in DeFi and you're working directly with the founders, if you want to buy locked up tokens or you want to buy equity, there's no company to face.

So you really just have to trust the people. And it's supposed to be a trustless technology. But when a company wants to face something, there's usually ways to go about it. So if there's a way to have a DAO become a bona fide entity, I don't think we're going to get it right the first time. This is going to be an evolution. But I do think that's a really important dynamic. Are there any, as a market maker or a company, I don't know if you're based in the United States or not. I know that you personally are not, but are there any restrictions on exchanges that you are allowed to trade on? Do you find that that changes? Are there challenges in that arena? So we're across all different regions. And I'd say that it takes time to get the right licensing

and registration to be trading in a bona fide way and trading um you know with customers is different um from your own account um but i'd say you know it's it's hard to stay ahead of it because these these rules are are changing and you know it's there's there's 50 different states and it's not just uh new york spit license there's there's other states that are having a evolving legislature and it's also know, other, other countries and there's rules on spot, there's going to be different rules on, on derivatives. And these things can change rather quickly. They could change on a retroactive basis. So I'd say two years ago, we had one lawyer and worked with a few externally. Now internally, we have, we have 10 and work with five different

groups externally. So certainly there's going to be more legal work to come. I think that I wouldn't be surprised if crypto and blockchain are one of the biggest areas of new growth for the industry in the next few years. Right. I mean, very forward facing. Everybody sees what's happening with finance. It seems like every single day a new regulator is either banning them, banning their on-ramp, or they're reducing their leverage. Is that a reflection of what you think we'll see across the board? Maybe it's a cleaning up, or we'll just get more clarity? Yeah, I think that it does seem to be a lot of focus on finance, but as opposed to there's this unfair gang up, I think it makes sense that

they've been by far the biggest and most successful. So it's sort of easy to see the biggest animal if you're going to go on a hunt. But I would think that it's also harder to take down the big animals since they're a very well-funded company. And if there was regulatory avoidance, I don't think it was taken for granted the path they took. They're hiring some very strong people to have some of the deepest pockets of literally any company in the whole world.

Yeah, I love to actually see Z's analogy when it sort of all started. And he said, he likened it to the auto industry. So listen, like when Henry Ford and they were inventing cars, you just threw a car out there and then all of a sudden cars started to get an accident. So you added seatbelts or safety precautions and you added regulations on how people could drive. Although it's hard to imagine that in 2021, I think that's a pretty apt comparison because they weren't going to stop building because it was unclear. Right. And so I think that that's a huge challenge for this industry.

It goes back to why regulation is a good thing, right? Because then at least you know within what boundaries you're allowed to do things. Absolutely. And I think social media is another. And if we were trying to regulate the internet in the early 2000s, I think we wouldn't have had the same growth. If these young entrepreneurs had to hire a team of lawyers. I don't think they would have created the companies that they ended up creating like Facebook.

But now that Facebook's out there, you know, Facebook from a regulatory perspective is the Binance. You hear 10 to 1 about regulating Facebook more than anywhere else, even though Facebook is spending 10 times more than anyone else on regulating themselves. That's such a good point. But then it's not unique to Binance. What's happening? They're just the biggest and they're the ones in the news. Yeah, it's even coming to decentralized companies. So I do think that the long arm of the law might not come immediately, but I do think that the SEC in particular is quite well-funded and they know how to get the right experts in the right places. So I do think that you're going to see more regulation rather than less. And it's no mystery between what we've heard about these last few weeks,

the amount of discussion has been growing, and I think that's going to be a consistent trend. And I know we're kind of running out of time here, but I'm curious, you talked about the fact that you guys were a bit behind on DeFi, that you didn't jump right into it, but now you think it's matured to a level where there's interest.

So what are you guys looking at in DeFi without giving away too many secrets? Sure. So the obvious part is that we're going to be in pools as a LP, a liquidity provider, the same way we're driving a lot of liquidity to centralized venues. We're going to be in centralized venues. And then there's the interplay between the two. There's a lot of art that brings additional volume to our clients to be trading one versus the other. There's also increasing our investment in the space by partnering, investing with new founders.

There's building with those companies where we'll have our own solidity coders that are helping them create their projects, building tools they could use. And these projects are highly modular where you could bring multiple together to serve a greater good than one of them individually. And there's some other areas that we're looking into, such as staking, where

we've mostly been B2B and have thousands of customers, don't intend to have millions, but I think that there's areas where our clients have asked us for help. And if it's something we can confidently do on our own, you know, we might extend some of these services to clients as well. Oh, that makes perfect sense. So where can everybody keep up with you and follow what you guys are doing after this conversation? Our website is www.gsr.io. And we have a whole gambit of social media, but I think the website's a good one where we have some blogs and where we are in the media. And I think we'll continue to be making some big changes over the next six months to the big three-month period. And we're again going to double our staff between now and roughly the end of the year. So hear more about GSR.

I guess even if it's a bear market, everybody is still growing. Well, thank you so much for taking the time and just promise me you're not going to go back to Goldman. I don't think anytime soon, at least. Thanks a lot, Scott. Thanks for having me.