The Wolf Of All Streets - Operating A Crypto Exchange In The United States Is Like Navigating a Minefield | Bobby Zagotta, CEO Of Bitstamp USA

Episode Date: January 1, 2023

I sat down with Bobby Zagotta, CEO of Bitstamp USA, at Mainnet in New York to talk about the challenges of regulation for US-based crypto exchanges, competition, and how people choose what exchange to trade on. Bobby Zagotta: https://twitter.com/BobbyZagotta GET UP TO A $8,000 BONUS IN USDT AND TRADE ALL SPOT PAIRS ON BITGET FOR ZERO FEES! ►► https://thewolfofallstreets.info/bitget   ►► JOIN THE FREE WOLF DEN NEWSLETTER https://www.getrevue.co/profile/TheWolfDen  Follow Scott Melker: Twitter: https://twitter.com/scottmelker  Facebook: https://www.facebook.com/wolfofallstreets   Web: https://www.thewolfofallstreets.io  Spotify: https://spoti.fi/30N5FDe  Apple podcast: https://apple.co/3FASB2c  #Bitcoin #Crypto #Trading The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. This video was created for entertainment. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this video constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.

There are endless challenges to building in the crypto space, but none greater than operating an exchange in the United States of America under the current regulatory regime. I talked to Bobby Zagoto, the CEO of Bitstamp US, about how they operate without much regulatory clarity and how they compete with the other bigger names in the crypto space in the United States. Ben Stampp, US. Yeah. The US is a challenging part, I would imagine, for a crypto exchange. There's a lot going on from a regulatory and legislative perspective. How are you navigating that?

Yeah, well, it's always a challenge. And I think of it as a journey. You know, on the one hand, the U.S. marketplace is so vibrant in crypto and in innovation in general, and it continues, even given these market conditions, it continues to grow. We get, you know, a few thousand people signing up every week. They want to invest. They want to learn. But from a regulatory standpoint, I am concerned. You know, the U.S. has this just unbelievable position in the world

from a financial perspective. The U.S. dollar and we have always, including the U.S. government, have been innovators on the world stage. But today, I fear that we're falling behind. You know, so when I see what's going on in Europe, for instance, Bitstamp, of course, you know, very global business. I feel like the European Union is making more definitive steps forward to level the playing field and clarify the rules. When I look at the U.S., we still have agencies that are jockeying for position, and there doesn't seem to be any material movement

in terms of clarity. There are a few bright spots. You know, a couple of the bills, you know, on Capitol Hill are really encouraging. The Lummis-Gillibrand. Lummis-Gillibrand bill in particular, I think is really well thought out and thoughtful and is advancing the conversation.

But I don't know what kind of timeline that's on. Years and it'll be chopped and maybe never even discussed again. Or watered down to a point where it doesn't matter. If you've been following me for the last few months, then you definitely know that I've been trading and investing on BitGet. Now, listen, it took me six months to decide that they were going to be the sponsor for the newsletter. But once I saw their partnership with Juventus, that they were the world's leading copy trading platform in crypto, and also that they're a top five exchange by

volume, well, I was sold and I was convinced. I've been using it ever since to dollar cost average and to invest in Bitcoin. You can also trade there with leverage. But of course, be careful if you're going to do that. And I don't know if you saw the recent news, but they've also done a deal with Lionel Messi. Now you can get up to an $8,000 bonus using my link below and you can trade spot with absolutely no fees. You also get a 15% discount on trading leverage. Go ahead and sign up right now using the wolf of all streets dot info slash BitGet. Claim that huge reward and use the world's best trading platform. You know, I thought the executive order from the Biden administration was positive some months ago, but it doesn't seem to be doing, you know, the agencies don't seem to be doing

the work that he asked for. So then the SEC, as you well know, is just, I just don't understand the mindset in terms of if they are true to their word about wanting to bring consumer protection and clarity and trust and confidence. You know, just tell us the rules. You know, we at Bitstamp and many of our competitors just want to do the right thing. But it's a bit of a challenge to figure out what that is. Would you rather have negative clarity than no clarity? Well, we, you know, at this point, I'm open to it. But we're hoping for common sense frameworks where consumers can get protection. Institutions can operate with certainty.

They can invest in the space because they know that there's a foundation there. I do worry about the regulation going too far. And in that scenario, it's not like Bitstamp goes out of business. It just means that the U.S. has lost a great opportunity on the world stage because that innovation is going to continue. It's just going to continue in other jurisdictions. Bitstamp doesn't go out of business, but you run the risk seemingly with the way that regulators have spoken and behaved of finding out that you were non-compliant retrospectively on offering something that at the time was not deemed a security that could become a security in the future. How do you operate at all not knowing? It's so difficult. We have a great process, a very rigorous process. Bitstamp has always

been a compliance-forward kind of exchange. Anything to foster adoption and regulation is part of that. So we've always had this good process, but today, given the uncertainty and some of the rhetoric, we're retracing our steps. We're just making sure that we have a defensible, logical, insightful position backed up by experts so that when and if some unforeseen decree or precedent gets set, we can say, look, we behave rationally. And now we'll change based on this new information. But I don't really anticipate that. behave rationally and now will change, you know, based on this new information. But I don't really anticipate that. I feel like the conversation is more about agency jurisdiction than anything else. I was just going to say, I think the statements that we see that everybody obviously is fearful

of, Gensler hinting that proof of stake could make Ethereum a security is really just jockeying for power. He's saying to the CFTC, we want to regulate Ethereum. You can have maybe Bitcoin. Yeah. Yeah. Which is, you know, again, I guess I understand where they're coming from. But if you really understand what staking is,

and if you really understand how decentralized protocols work, there has to be a means to secure the network. And given the decentralized nature, there has to be an incentive. It has to be an incentive for independent operators to participate. And that's good for everybody. But that is not a security. That's not how securities work. There are also people who follow my logic here, Gensler,

buy Ethereum to pay for transactions and don't in any way expect to earn anything. Exactly. Literally, I need to do a transaction on the network. I'm going to buy $100 worth and I'm going to use it until that $100 is gone. That's utility. And no way is that in violation of the Howey test in any way, shape or form. So it really seems like they've just taken anything that has a yield or any potential

yield and they say that makes it a security. It's like they're cherry picking one little part of the test to make it an investment contract. Well, and I think they're trying to preserve their own optionality for what they might want to regulate, but they may not understand the cost. So the cost of what they're doing makes it hard for companies like ours and others to invest. You don't know where to invest and how much to invest in this jurisdiction because you just don't know what's going to happen. So again, from a USA perspective, you know, it's hurtful. We're going to push

the investment offshore or to other jurisdictions. You hinted at the fact that you're still onboarding new customers at a pretty tremendous rate, even in the depths of this bear market with all this regulatory uncertainty and global markets in general melting down, that has to be a positive signal. Yeah, you know, honestly, I look at these stats every week and it helps me relax a little bit. Now, obviously, our numbers are nothing compared to what they were last year.

I mean, it's like night and day. However, there are people signing up each and every day in the U.S. and globally. And we've just launched a Learn Center. We've done some pretty interesting studies on the barriers for people to participate or to access these markets. And we did a big survey, the Crypto Pulse survey, which we should chat about. Really interesting findings. But one of the findings was that there are a couple of major barriers, the first one being education. So 44% of U.S. respondents, and there were 30,000 people surveyed, institutions and individuals, they said they just don't know where to start. You know, they don't know who to partner with they don't know what it means they

know it it's captured the imagination of a lot of people so we put together a what I think of course I'm biased a really really well curated Learn Center where people can come and access information in bite-sized chunks that can meet them where they're where they are on their journey. So there's some 101-level information for people who are curious, but there's also a lot of trend information for people who are established in the market and they just want to keep up with stuff. So anyway, that's a big one.

The second one is regulation. A lot of people are saying 27%. You know what? They're going to stay on the sidelines until the rules are clearer so that they can- I would assume that's more of an institutional opinion than a retail opinion. It is, but it's both. It's definitely both. You're right on the institutional side is predominant.

We're trying to address both of those things with education and information. So even a lot of people think it's the Wild West. I feel like I'm the most regulated guy in the country. Yeah. I got 45... You have to comply to actual regulations and theoretical regulations that you think might happen. It's much harder. I got to deal with each of the 50 states and jurisdictions. I got money transmitter licenses all over the place. So, you know,

just educating retail users about, hey, this is not the Wild West. We are operating within regimes. There are some open questions that need to be answered. But, you know, we, Bitstamp and a lot of the more compliance forward players are just trying to do the right thing. It must be challenging to have so much competition even in the United States, right? You have sort of, I guess, the big names. Bitstamp's a huge name, certainly in Europe, but finance. How do you compete for market share? We're doing a number of things.

One of them is we've changed our pricing. We've implemented a new pricing strategy globally. And it has a couple of features that again designed to remove barriers for people who want to get involved the most notable of which is a zero fee tier so I never ever thought I would say this but if you you know across all pairs all tokens all pairs up to a thousand dollars traded in a 30-day period it's absolutely free free for all retail investors. And we're doing that to just make it more of a no-brainer.

It's a marketing tool. It's a marketing tool. And to hopefully create some trust that we're a partner for the long haul. We're not trying to make a buck off of one trade. Right. Is that sustainable? Or is the idea that they eventually become someone who's trading $2,000, $5,000, $10,000, $100,000 in their customer for life? That's the idea. And they're not going to go somewhere else.

Exactly. We, you know, obviously we modeled this every way from Sunday. And, you know, our client base is very loyal. It's very large. And people grow with us as they get more educated, more sophisticated and become more aware of the opportunities. You know, they grow with us as they get more educated, more sophisticated, and become more aware of the opportunities, you know, they grow with us. Do you feel that in this industry, people sort of choose the platform they're comfortable with and they stick with them through thick and thin?

I think that is the case, anecdotally. But I definitely think that's where we've been. I'm curious about the next few years, right? I think the character of the participants in the next couple of years is going to be a little bit different. I think they're going to be, I'm generalizing hugely here, but I think they're going to be a little bit less tech savvy, a little bit less crypto savvy. Going to people. It's fine. They've got more choices. We're trying to make sure that we're ready.

We're not like stuck in the past. We're actually ready for serving these next waves of adoption. So for instance, on Bitstamp, you can get to a person. You know, 22 seconds on average. Wow. You can talk to a person because why? We think this next wave of adoption

is a bigger decision for them. And because you can't at Coinbase. And because you can't at the more kind of Silicon Valley modeled companies. They don't want to talk to you. So I think that's amazing because I think that customer service is a huge point of failure in the crypto industry. And a lot of that has to do with just when we were scaling in a bull market, you couldn't hire enough customer service people if your life depended on it. So that's fair.

But sort of when I asked you the question, if you think people stick with the platform that they do, I was thinking in my mind of Coinbase, right? I don't use it. I believe they're a very impactful, important company and probably will be for a long time. But they have downtime when you need them. But also, their fees are very high. But I don't think your average person ever checks the fee. I think they just, it's easy, they go on, they use it. Their new fee structure around trip on a trade can cost you 1%. If you're active,

that is an absurd management fee effectively. You wouldn't buy an index fund with a 1% if you had something competitive. So you're offering something, but how do you get people to care or even notice? Yeah, again, I, you know. And sorry to talk about Coinbase, but that's my opinion. I really like the company, but I just don't think people know. I can't comment on Coinbase and exactly what they're thinking. But I do think, you know, the last three years of adoption cycles

are very different from the next three years. And the last three years, retail investors by and large were price insensitive. They just wanted to get into the market, right? But the next three years, there's more choice. There's more kind of, you know, fast follower kind of character people who are going to evaluate who's the best partner for me. So that's, you know, I think that's in part why we did this zero fees versus what Coinbase did. I mean, no fees.

You don't have to look far to see that that's been the trend. That's been the trend on legacy platforms, right? I mean, that's why retail loves Robinhood, E-Trade, I believe. I mean, basically every major platform eventually to compete had to go to no fee. Of course, that leaves the question mark of how they're making their money and what part of you they're monetizing to do so. But that's not the same for you. You're counting on them to be a long-term customer who eventually is outside of that bottom tier. Yeah, we got a very different philosophy,

obviously, than the Robinhoods of the world. And I don't think an equities-like zero-fee regime, I think there's more negatives and downsides to the ecosystem than there are upsides. Well, I think Robinhood, that's been, has played out pretty clearly. And I wonder if those platforms are also going to continue to bump their heads against the regulatory wall. I got to believe they will. You know, what I think they, I don't know intentionally or not, but they feed this speculation oh the mean stocks and yeah you know this kind and and that unfortunately leads over to crypto but obviously

that's not where crypto starts and that's not where we're focused but but this kind of speculation madness i think is not good for society or the economy or... But it's good for exchanges. Well, it can be. It's more volume. It can be. But the problem is they get washed out and they never come back. Yeah. I mean, if it's like this kind of craziness and there's nothing underlying the asset, what I get excited about is there's so many assets out there, people don't even know what

the use case is. There's really fascinating, interesting use cases around transacting around AWS-like file management services and things like that. So you're obviously taking a major focus on education. Yep. How long do you think it takes to even educate 1 to 5% of the general public? Yeah, you know, I don't know. All I want to do is make sure that, number one, the known barriers that we're addressing to the best of our ability.

Yeah, the existing obstacles you have to knock out. And then secondly, you know, I know at some point we're going to get some market cooperation, some market movement when there's a little bit more clarity on the macroeconomic side. And I want to be ready. I want when there's more and more people saying, hey, I want to learn about crypto. I want to partner with an exchange. I just want to be there, be visible and have great resources for them. And do you think that that has remained that those sort of the whales and the original

OGs still look to Bitstamp as the standard? Yeah, I think so. Now, we've got a lot of wood to chop in the U.S., so it's more readily apparent in Europe. But in the U.S., we've got a strong and growing client base, particularly on the institutional side, but we've got to get the brand up. Well, I'm confident that you'll get a big ax and you'll chop all that wood. Thank you so much. Always a pleasure to talk to you. Wow, I missed you on the first shot, but we got there. Thank you, Bobby. Thank you, Scott. Let's go.