The Wolf Of All Streets - The Future Of Institutional Money In Crypto With Matt Hougan, Bill Barhydt And Oliver Linch

Episode Date: October 20, 2022

What does institutional crypto adoption really mean? When will institutional money finally come to the crypto space? What are the obstacles (regulation!) and what are the drivers of this adoption? Join my discussion with some of the most brilliant minds in the space: Matt Hougan, Chief Investment Officer at Bitwise, Oliver Linch, CEO of Bittrex, and Bill Barhydt, Founder and CEO of Abra. ►► JOIN THE FREE WOLF DEN NEWSLETTER https://www.getrevue.co/profile/TheWolfDen  GET UP TO A $8,000 BONUS IN USDT AND TRADE ALL SPOT PAIRS ON BITGET FOR ZERO FEES! ►► https://thewolfofallstreets.info/bitget   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.

This is the Wolf of All Streets podcast, and what you're listening to is an audio version of my live YouTube stream. I would love if all of you would please go on Apple or Spotify, whatever platform you're listening to, and rate the show. Give it a five stars that more people will listen and find this episode. Thank you for listening and enjoy. The institutions are coming. The institutions are coming. That's not my quote. That's actually Thank you for 2016 and 2017. But I think it's fair to say now that we're looking at the likes of BlackRock, Citadel, Fidelity, and basically every other money manager or hedge fund on the planet talking about crypto that they are here. But what does that actually mean for the space? And what does that look like

in the future? I've got three incredible guests today to discuss that topic and, of course, to see where the conversation meanders after that. I've got Oliver Lynch, the CEO of Bittrex Global, Matt Hogan, the CIO of Bitwise, and Bill Barheit, the CEO of Abra, all classic favorite guests of yours. Can't wait to have this conversation, guys. Let's go. What is up, everybody? I'm Scott Melker, also known as the Wolf of Wall Street. Before we get started, please subscribe to the channel and institutionally adopt to the like button. I don't know what that means, but that's what and institutionally adopt to the like button. I don't know what that means, but that's what you should probably do to the like button. As I always say, you can do whatever you want to the like button. We don't judge here. This is a judgment-free zone, but just find a way to hit it because otherwise nobody will ever

watch my YouTube videos again, and I'll just be screaming endlessly into a camera by myself, and nobody wants that. So as I mentioned, we've been just be screaming endlessly into a camera by myself, and nobody wants that. So as I mentioned, we've been talking about institutional adoption for a very long time in the crypto space. It's very clear that it is happening, but I think there's a lot of confusion as to how that is actually happening and what that is likely to look like in the future. There are plenty of people who would claim now that we got exactly what we asked for, which was a bunch of institutions adopting Bitcoin, which means shorting the shit out of it because it's liquid when everything else is on fire. Not exactly what we were looking for, but I'm not sure it's actually the case either. I'm going to go ahead and bring on all

three guests right now. I've got Oliver Lynch from Bittrex Global, Matt Hogan from Bitwise, and Bill Barheit from Abra. How's it going gentlemen? Good, good to see you all. Yeah, great to be here. Bill's got the very nice fake piano in the background that I would love to be sitting and playing. All of you actually, I think Matt,

you've got the only real background besides me. And Oliver, I love yours because I asked Oliver where those beautiful mountains were before and he said, that's the view from our office, but it's also a photo of the view from the office. It's kind of like Inception. So I introduced the topic here, obviously. We're going to start by talking about institutional adoption. And I do want to start with the idea that I just touched on, which is that we sort of got what we asked for. Everybody screamed for the institutions to come and to adopt Bitcoin, but maybe they've mostly adopted it as traders and not as the treasury asset we viewed or actually using it. Listen, Matt, you're very much on the front line of what's happening here with the institutions. What are your thoughts on that? Yeah, I think you're very much on the front line of what's happening here with the institutions. What are your thoughts on that? Yeah, I think you're right in your framing.

Look, institutions is a very big word and has a bunch of different categories. Certainly in early 2020, we did see hedge funds and others make long only allocations to crypto. And that contributed to the huge run we saw from March 2020 to November 2021. But we also saw trading firms, as you mentioned, Scott, get in it on the trading side. And that cuts both ways. And we've seen it cut both ways in this pullback. At Bitwise, we serve an audience that I think is the institutions that crypto is waiting to come into the market. These are people who make long-term allocations in a portfolio the same way you do to stocks and bonds. These are financial advisors, family offices, and some of the endowment

category. And I can say that two things have happened in that space. One, they're starting to adopt it. It was never going to be a cliff, right, where it was zero to 100. But at Bitwise, we now serve over 1,600 financial advisors advisors and institutions that's a very big number it's probably up you know something like 10x in the past year the other thing that's happened scott is we've gotten approvals it's not just bitwise but other bitwise like companies we've gotten approval on national account platforms so that when the next bull market happens all those financial advisors all those family offices can actually allocate. Now, I think the biggest change is not that these long-only investors have

impacted the market, but now they're sort of in the game. They have the ability to enter the crypto market, which wasn't true a year ago, wasn't true two years ago. And I think what that means is if we start to see crypto spring appear, and I wore a pink shirt today because I think it's just around the corner. If we start to see crypto spring appear, I think we're going to see those institutions that people were looking for, the good, long-only, long-term investing institutions actually come into the market this time because now they're able to do it with the push of a button. Whereas two years ago, they had to have a conversation with their home office. They had to have a conversation with their risk team. It was basically impossible. Now it's very easy.

And so I think it's a little bit of a coiled spring in there. Oliver, they can push that button on Bittrex Global, right? So how much are you servicing institutional clients and what are you seeing? They certainly can. And I'll have to melt some of the snow on the background of my photo if we've got crypto spring coming. But yeah, we're seeing a similar kind of thing. So we're seeing both on and on platform activity with institutions really ramping up. Some of that is trading activity that's happening right now. And some of that is, as was mentioned, getting your ducks in a row to be able to execute quickly as and when the market kind of comes back a bit and what we're seeing is the originally tentative

put your toe in the water and see if it kind of works sentiment is now being replaced by a bunch of people that want to use all the experience and all of the trading strategies they developed in the traditional markets over the past 20 30 years to apply that to new asset class. So what we're seeing is actually them driving a lot of the innovation and working with companies like Bitchex Global to develop new products, new strategies, and new ways that they can engage in crypto. So the innovation that's being driven by that institutional investment is really, it's just getting going. It's just starting. And that's one of the things that we're really interested in seeing. So when you introduce your segment at the beginning and said, you know,

are the institutions doing what we all hope that they would do? It's easy to forget that we live in crypto time where, you know, a minute equals a year at the very least. The institutions are a little bit sluggish compared to that. But what they bring with them is a depth of knowledge, a depth of innovation that over the coming months, and we've already seen it, but over the coming months, we're really going to see, I think, an explosion in the interest area. And what they're doing now is starting to test those out, starting to test those series out and challenging us, challenging the exchanges, challenging the people that have been in the space for the last, in our case, decade to say, well, look, can you give us what we need? How do we how do we get you where we need to be? How do we get crypto where we need it to be in order to become a genuine asset class? So that's something we're really excited about and we're seeing increasingly in the market. And Bill, they can push that button on Abra as well. So what do you see? I think there's two different perspectives on what institutional adoption means, right? The first is are we enabling institutions to easily buy and sell cryptocurrencies and all of us here are doing that

and you know we've got our fund structure where now we're seeing a lot more interest in in in longer term holdings and we've got traditional finance companies signing up in some cases to short some cases you know looking for for faster liquidity borrowing uh there's a tremendous amount of interest still in borrowing tether never seems to go away um the trade that won't die um and you know that's going to continue uh but for me when we when i think about institution institutional adoption i also think about well wait a minute we've got we've got defy rails now we've got uh you know dapps and i actually see a lot of that as a big part of the future of banking. So yeah, so we're enabling buys and sells and liquidity and lending, and that makes us a

lot of money. But I'm actually equally excited about, okay, when are banks actually going to be using DeFi rails? That's what institutional adoption means to me. And we're not seeing that yet, but I do think it's coming. And we're having more and more conversations with banks, with traditional finance companies saying, hey, can you enable us to use this stuff at some point? Can we white label this to be able to hold crypto NFTs, access DeFi rails for lending and staking, et cetera, et cetera, because the demand is there. That's usage, right? That's not happening yet, but I think that's the next wave. Yeah. I spoke with Josh Frank at the tie last week when we were in Vegas and he made a similar

point, but that when he really dug in with their data, that kind of nobody was using any of this stuff. And it was a bit astounding when he actually sort of laid it out and what they're seeing on chain, especially the Uniswaps and AMMs of the world that we think have millions of active users. Literally some of these things, like 50 people are using them a day. That just tells you, given how high some of the volumes are compared to first generation exchanges, how a few users goes a long way with some of this stuff. Right. You get, you know, a thousand institutions using a DEX and AMMs and all of a sudden you're going to see trillions of dollars

flowing through these things. Right. But what's going to compel them to actually do that? I believe they will. I mean, just plain devil's advocate. I can give you a few. I mean, cross-border. Sure, and then we'll go around the table, please. Liquidity opportunities, cross-border opportunities, arbitrage opportunities, cross-border lending, being shut out of traditional markets, fear of dealing with, you know, traditional banking correspondence, which has been the bane of existence for a lot of smaller international banks for 15 years, post choke point. And the list goes on and on. I mean, there's many compelling reasons why DeFi is going to make sense for especially the securitization of tokens and

other assets through token models. All of this is going to lead to a boon, in my opinion, in the adoption of what we're calling and bucketing under DeFi. But it's going to happen most likely outside the US first. I think think midsize banks will adopt it first. Those that have more pain. I talk to banks all the time that still are dealing with the hangover of Chokepoint and correspondent banking issues. And this is perfect for that. I think there's also a cultural issue as well, right?

Which is that those that have adopted are still considered early adopters and a kind of mavericks and actually gain a lot of publicity by claiming them proclaiming themselves as mavericks actually as it becomes a normal asset class like anything else that's just the way you do that that segment of your business it'll be just as unnoteworthy to be engaging in decentralized finance and and you know the things that we think of now as kind of funky well if that just becomes a normal asset class and a normal way of doing business, we kind of think in the next couple of years,

we won't be having this conversation about why are you doing X and not Y in the same way as we don't have a conversation really about why do you trade bonds and not shares or whatever your preferred instrument of choice is. So I think there's a cultural element of it too, which is as the sector as a whole matures and as it becomes more mainstream we talk about mass adoption a lot but what that really means is um making it a bit more boring and making it a bit

more normal uh and uh and that's no bad thing at all, really, if we want to see big institutions, but also retail investors really getting into crypto in a big way. Yeah, I think all that's right. I still think it's a couple of years away, Scott. I mean, when I look at something like DeFi, you know, I think the first people who will come in are going to be the arbitrageurs. Before it becomes mainstream on the back end, mainstream institutions need to learn how to do due diligence on DeFi protocols. When you put yourself in the seat of someone working at a large financial institution, you have to remember that they wake up every day trying not to get fired. That's the first thing they think when they look in the mirror and one way to get fired is to be working with an edge case like a d5 app not understanding how to do due diligence on it suffer from a hack or an export or something etc and there's just not the institutional knowledge on how to do diligence these things or how to ensure these things or how to appropriate risk parameters around these things and until that penetrates into these institutions,

we're not going to get anywhere. Now it's starting to, if you go to large consultants, if you go to Cambridge, if you go to Mercer, they're conversant in this stuff. They're building operational due diligence paradigms for this stuff, but it hasn't penetrated all the way into mainstream institutions. And until it does.

Yeah, and it's a scale problem more than anything else. mean it's because that that's what the motive that's the sorry that leads to motivation because we make a lot of profits for our clients in d5 arbitrage today uh but not at citibank scale right and and if citibank said okay move the needle and defy arbitrage it's not going to happen right and so there's just not enough opportunity not enough liquidity not enough opportunities to do. But when we're dealing with hundreds of millions and single digit billions, yes, we can actually generate phenomenal arbitrage profits via DeFi today, which helps to provide liquidity to the networks, which helps to smooth out pricing across the network to exactly what arbitrage opportunities are meant to do. And it's also providing all kinds of testing and risk management oversight that the midsize banks are going to want

to see first. And we're showing them is actually possible in DeFi today. There's a reason why some have lost money in DeFi and some haven't. And so they're starting to pay attention to that. But it's happening at the edges and it's not happening in kind of the middle of the global banking network yet, for sure. Yeah, Bill, you just made a great point about the yield and the size of the market. And I would argue that a lot of the contagion and blowups, which you did not experience at Abra, are a result of that, right? Because the trades that these platforms were making to offer yield to their customers were available until there were too many customers and those trades disappeared. And then in my humble opinion,

from, from digging into it so deeply, they had to go to the fringe to try to find that yield and did riskier and riskier things because they didn't want to lose their client base when their yield went down from 9% to one or 2%. Right. Poor marketing leads to laziness which leads to concentration risk uh and and you know rather than reset expectations you put all your eggs in a in a leaky basket and and you keep weighing down that basket with more and more and all of a sudden the bottom falls out and and that's exactly what happens when when you know you have poor poor risk management and d5 is no different in this regard. We run a centralized banking system at Abra, but we use DeFi to generate yield with traditional risk management,

but customized for the nuances of DeFi. We're not lending best practices on top of DeFi. We're putting DeFi best practices on top of DeFi. Yeah, and that makes sense. It's just, you wonder, as you said, what's going to compel the institutions to come in if that volume and liquidity isn't there for them to actually earn that yield. But I guess that comes with time and just more interest and adoption. Yeah. Yeah. Matt, I want to go back to something you said, which is that there's very difficult for these risk managers to do their due diligence on these DeFi protocols. I guess my question to all of you is how can anyone do due diligence on these protocols if every other day we seemingly have an exploit even of the most well-established and considered safe?

I don't even see how you do diligence that if the platform itself can't avoid the exploiter hack. Again, I believe that's with time, but I mean, just right now. Yeah. First of all, with time is an important piece. You look at the more established DeFi protocols like Compound that have been around for multiple years. And I think institutions have a lot of embedded trust in those well-established protocols. So you're going to see a network effect, a first mover effect in DeFi simply because of the mitigation of Rumsfeld risk. Right. You don't know what you don't know with those. At least they've been through multiple stress tests. So I think that's a very real thing. But you can do pretty comprehensive due diligence on DeFi protocols. You can do code analysis of your own.

You can test the founders. You can look at their sort of starting point, where their funding came from, the caliber of the team, how many developers are on there, how much real activity is on there, how many real users are on there. You can't drive it down to zero. But if you could drive it down to zero, the yields would be 1%. They wouldn't be 8, 9, 10%. So you have to keep that in mind. But it's different from knowing those questions to ask versus where most institutions are.

That's the point I was where they're used to, you know, doing a completely different style of due diligence. And they just need to build that institutional knowledge over time. But I do think the passage of time is a big thing. If you look at what happened in DeFi, you know, it went from zero to something very real. You're right that there aren't a lot of users in it right now, but there aren't a lot of people paying attention to crypto really right now. The market is like watching paint dry. You know were talking about that in the in the pre-show I think our index rose 0.03 last week and the week before that it fell 0.01 right those are not the returns that crypto investors are used to so I I think we've had a proof point that defun works we've stress tested it there are a few blue chip paradigms that people

are comfortable with and when the bull market returns I think we'll see the users. Yeah, I think that one of the things that's confused a lot of investors is that a small number of users in the crypto markets generates a lot more profit than the same number of small users in either traditional investing or traditional banking. And that's, sorry, I know we have our friends from Bittrex here and a good partner, but, you know, exchange spreads are very, fees are very high. You know, we don't, we don't work for free, you know, Bitwise doesn't work for free. And if you compare, you know, what's made in our world versus traditional banking, it's actually a lot more per user. And that's just the reality of where our space is right now. And so, you know, it just, I think it also inflates, you know, things and obviously

24-7 the markets don't close. And all of a sudden you add all that in, you've got 3x number of hours in which to trade globally. And, you know, all of a sudden the numbers look a lot bigger. But when you peel it back, you realize that a small number of users can actually drive huge, huge numbers in this space relative to even traditional investing. I think that's right. And one other thing I'd add just real quick is like if you take Uniswap and you compare it to Coinbase, Coinbase annual user count in year one was a million, in year two was two million, in year three is five million, and today is 100 million. We're still not very good at understanding what

exponential growth means. And if you look at Uniswap two years ago, it had zero users, effectively, and it has many more than zero. It's probably compounding and growing faster than Coinbase is maybe 2, 5, 10x faster. And Coinbase is pretty big today. So, you know, if we come back in three years, my guess is there are going to be a lot of people using Uniswap. Yeah. I mean, the raw number of users only tells you so much because a lot of those users will be dormant and a lot of those users aren't really driving forward the kind of analysis

that we're looking at. So I think don't underestimate the importance of having a small number of people taking it seriously, because it's coming back to the point about risk modeling. Well, it doesn't take an awful lot for risk models to be developed and then become an industry standard. And at the moment, people are kind of fumbling around, maybe it's putting it a bit too pejoratively, but still trying to figure out their approach to these things. And I think that comes back right to what we were talking about at the top of the conversation, is the institutions getting their ducks in a row. Well, part of that is modelling, adapting traditional models. I don't think it's right to say that they need to throw out

their traditional models and just do a DeFi analysis. I think they need to adapt their models. That's the only way we're going to get them to actually buy in. Nobody is interested in throwing out 30 years' worth of thinking, adapt their models that's the only way we're going to get them to actually buy in right nobody is interested in throwing out 30 years worth of thinking 30 years worth of proof uh just because there's this new funky product in town what they need to do is adapt to the new reality or the so called new reality and figure out how to do the same kind of things apply the same principles in the new way so so that's what i think we're doing and it is a function of time

uh but the other the other big thing is it going wrong right the unfortunately the only way really to prove these things is to stress test them and when you stress test some things they break uh and it's easy for us as an exchange to sit back and be like oh yeah that didn't work that sucks for you um but it is part of the industry kind of growing up um the better models survive the worst models break and everyone learns from from that fallout so time yes but but activity is also important so in a way the liquidity issue at the moment is not just an immediate problem because you know we want there to be more liquidity but it's also a problem because we want there to be more liquidity, but it's also a problem because we're not actually allowing these models

to be stress tested. So we don't know what isn't working. Sure, but I also think, I agree with that, but I think that the next wave, what's going to drive adoption in the next wave and what's going to bring liquidity, I think it's going to be applications that move crypto to the background.

My bank uses Bitcoin. My bank uses Bitcoin. My bank uses DeFi. My game uses DeFi. My game uses NFTs and DeFi. It's actually all the same thing. I mean, the differences in code and DNA are very tiny. Right. So when it comes to these smart contracts and so that's

the next wave in our opinion. Yeah, the speculation is going to continue and that's going to provide liquidity to all of the services that I'm that I'm hypothesizing about. But the bank we're building is going to use DeFi in the background. It's going to use, you know, crypto collateralized lending in the background. It's going to, you know, enable gamers to hold NFTs in a bank account. And they're not going to have to understand anything about how this works or the legal issues around making it work, just like they don't understand how a money market works

or how a repo works. And that's the problem today, is we're basically assuming that users need to understand all that. The problem is, assuming that users don't need to know all of this, is that's fine when you're talking about traditional finance where you're limiting it and limiting exposure to it um keeping that out the hands of retail but if we want crypto to be available to the mass market the kind of democratization

effect i think we do need to educate people i think people will be spooked if they find out that these things are going on in the background that they don't know about them and may well then gravitate away from those institutions so maybe that maybe that's what happens in bond markets which have been fucking them for 40 years yeah but we can't really this year we can do better right i think we can have thecy of DeFi is that there's no there's no tied to way to go out. Right. The information is all there. And you can basically see what's systemically is happening in the system. And there will be watchers who watch that. There will be, you know, independent watchers.

There will be corporate watchers. There will be regulatory watchers. There will be consumer watchers. But the vast majority of people are never going to understand the nuances of how smart contracts work. They're just not. They're not going to understand the code. They're not going to understand the nuances in that level of detail. But I think the only way you're going to get people confident enough to put their money in in this kind of new product is by educating them and showing them why this is different from the bond markets that have been screwing them why this is different why this provides them with opportunities that they wouldn't otherwise have so squirreling crypto away into the background and kind of hoping people don't ask too

many questions even in the knowledge that if they do you've got answers i don't know maybe that's the end goal but i think with some years away from that being a viable model i look at gaming and i look at gaming and nfts as as an example of what i'm saying and i talk to gamers now all the time because we're launching a new effectively a new nft banking service and yeah like when i explained to them how we're able to store nfts in a bank account model and still give them the metamask functionality their eyes glass over and they're like wow that's cool i don't have to understand all this metamask crap that's great and and it's a perfect example of what it's going to take to get a million users including the gaming companies themselves by the way uh to to actually come in and say okay I get why you know we need this next generation model because we ourselves have been

testing this on metamMask and we've lost X thousand dollars worth of tokens because we didn't realize or we didn't understand truly that we were managing the keys ourselves. I think you're both correct, actually, and are probably just talking about different points on the timeline, right? Because I mean, to Oliver's point, if you're an investor, you absolutely need to know what you're investing in. And that first wave of adoption will come with people who are genuinely interested in what DeFi has to offer and the potential of those assets.

But if we're talking about mainstream adoption, you don't want your average 15 year old gamer to have to figure out how a smart contract works to be able to move their NFT into Fortnite. Right. And so I think that that's, so they're both true. And maybe one is more specific to DeFi and one is more specific to the other applications. At least that's what I'm hearing from the two of you. But Bill, you pointed out the fact that Abra obviously has applied for a bank charter. Right. applied for a bank charter, right? So you're moving very much into the more legacy system to make the offerings that you talked about in DeFi. We just saw Bank of New York Mellon officially start to talk about custodying crypto assets, which in a bear market, all of this news kind of just goes unnoticed and doesn't move the needle. But for institutions you guys are talking to, isn't

custody from the largest custodian on the planet about as big as it gets for trust? Yeah, it is. 100%. Matt? I absolutely agree. I think it speaks to what we were talking about earlier. The beauty of Bank of New York Mellon is that when you want, when you talk to investors about custody, is for the conversation to last four seconds. Where do you custody assets? Bank of New York Mellon is that when you want, when you talk to investors about custody is for the conversation to last four seconds. Where do you custody assets? Bank of New York Mellon. Okay, tell me about the investment strategy, right?

That's the conversation you want. Four years ago, it was like, how do you remove the wifi card from a computer so you can set up an offline cold storage device that you store in a cold deposit box at a bank underneath San Francisco. And that is a conversation that leads to no allocation. So the beauty of a thing like Bank of New York Mellon is it just checks a box. And we have more of those things,

just checking a box. And I do think that's where we want to get to. There will always be an audience that wants to understand this, that needs to understand the details. But for most people, for the mainstream, they really want to hear what they want to hear and check the box and then move on. Yep, 100%. So Bill, why did you decide then to pursue a bank charter and not partner with a Bank of New York, Mellon, and to build it yourself? Well, custody is just one component of dealing with crypto. We may end up working with the likes of Amelan or others in the future when it comes to different aspects of custody. But the service palette that we want to offer over time includes everything from investing to being able to borrow against assets. I think the next run up, you're going to see a boon in people doing mortgages using a combination of homes and crypto as collateral. You're going to

see tokenization of different types of securities and fixed income instruments, not all of which is solved via going to BNY Mellon. And so we're basically building a private bank, I would say almost like a first republic for crypto, that's going to enable our largest high net worth clients, which we now have in like, I don't know, 75 countries, to be able to access all of these next generation services without having to worry about the viability know, the viability of the counterparty and the entity that they're dealing with. And, you know, this whole, I'm sorry, but this whole

kind of narrative of unbank yourself was a cowboy. And we had a, I think we had a show on your program about this, where it was a cowboy narrative meant for, you know, early adopter degens who bought into the 19% yield narrative without, to our colleague's correct point, without actually understanding what was going on behind the scenes. And we're basically fully committed to, as a result of this model, to the transparency and the technology requirements for managing eventually a trillion dollars worth of assets doing all the types of

applications that I just described. Yeah. I saw a quote by Bill that I really like talking about this and I'll just read it back. It's weird to be quoted while you're on the call, but here you go. As a regulated license bank, it's no longer my opinion that matters on transparency and public disclosures. And I think that's the important important thing and i think that gets lost in crypto's uncertainty around what to do uh with regulation um there is a real massive up when we're talking about institutions coming there's a real massive upside to that regulatory and premature which is that that gets you a long way to checking the box as well right it's no longer this cowboy pass where it's trust me uh that's not actually a model that scales to where crypto wants

to go where it's mainstream and where it's a 10 trillion 50 trillion dollar market or whatever that's a market that's regulated because that's the only way to um automatically deliver that trust this has been a big talking point in the EU, especially as they've just gone through the process of doing MECA. Okay, it's not banking, but it's a regulated industry, right? So the narrative there, and it's something that Purchase Global's been invested in for quite some time, being a regulated exchange, we're regulated in Liechtenstein and Bermuda.

Okay, we don't carry out banking services but we carry out exchange services and it seems bizarre to us that there are incredibly strict rules that govern the conduct of exchanges in the traditional markets in the eu that's method but if you if you found out that the new york stock exchange was an unregulated market and you've been putting your money in there you you would be confused to say the least yeah uh and yet in the crypto space that is um the norm right and um we at betrix have been one of the very few exchanges that have been pushing against that now we're seeing that narrative in the eu now with mika we're seeing that narrative uh across the world the us is kind of doing its own thing and figuring out what it wants to do.

But yeah, you wouldn't put your money in an unregulated bank. Why would you put your money in an unregulated exchange? And then Abra has gone, well, why don't we become a regulated bank? And it depends on the services you're carrying out. But the importance of regulation now, I think is unarguable. When we were pushing for this 10 years ago, we would get letters saying, you're undermining crypto, you guys are anathema to everything we stood for, our founders got death threats for suggesting

that there should be someone from the government verifying this stuff. I think Bill's quote is great. By the way, if you get quoted in your own podcast, you're like, nothing to write. Yeah, last time I saw that was on Harry McFarlane. You're famous, right?

Yeah, they were. But that quote is right. Someone coming in and saying, you know what? According to these standards that we have adopted, you guys are ticking these boxes and doing these things. That gives, like, it's not just a trophy to put in your trophy cabinet which unfortunately some jurisdictions are handing out and using the cloak of regulation well we are we're in the industry needs to do a better job of saying

okay how are you regulated where are you regulated what does that mean but if you can tick those boxes if you answer those questions, then the retail investor and the institutional investor has confidence in the products that are being traded on there, whether that's as a bank or as an exchange or somewhere in between. That confidence, I think, is going to be king. And yet the days of saying unbank yourself, well, we never bought into that and we're glad that the rest of us kind of caught up. So let me say two things, right? I agree with everything you just said. Two things. One, we didn't become a bank or we aren't becoming a bank in terms of to conform. We think traditional

banking is completely broken. And the biggest challenge for us so far in working with the regulators has been educating them on what a crypto bank means versus what a traditional bank means in terms of reserves and services offered and what is DeFi and all these other things. And they're there now and they get it. OK, that's number one. Number two, I firmly believe in the ethos around not your keys, not your coins. Well, what the hell is Bill doing forming a bank if he believes in not your keys, not your coins? And the reality is what I said before, the average user cannot deal with personal private key management.

It's just not, you know, I've been dealing with PKI since my Netscape days when I ran it in the 90s. And everybody has been trying to figure out key management for 30 years and everyone has failed. And so the reality is, is that we're going to have a spectrum of people who basically need help,

but will buy into the fact that, yeah, I can withdraw it and these are my assets and I have 24-7 access to put them on a ledger, whatever the hell a ledger is, whenever I want, all the way to the other end of the spectrum where the degens would never consider using a crypto bank. And that's totally fine. But I would posit that there's way more people on the other end of the spectrum than there are on the D-gen end of the spectrum, and that's the world we live in. Yeah, maybe one in 10 people who hear the ethos, not your keys, not your coins that are new to crypto even consider it or think about it, I would argue. Maybe that's even a high estimate. So

mainstream adoption is not going to come with hardware wallets. Right. But to me, it's a core tenet of what crypto is, not how to use it. There's a big difference. That is absolutely true. And you said, Bill, earlier that still a lot of the yield is coming from that borrowing dollars, borrowing tether. I think you referred to it as the trade that won't die or the trade that will never go away. What are they borrowing it for? And should we be concerned that that's still the trade that won't die? I mean, I'm not concerned. I mean, we only deal with, you know, really large balance sheets and over collateralized or fully collateralized positions.

And so if somebody wants to go short tether and give me 120 percent in Bitcoin or something else, I'll probably do that trade all day. It's not something that i personally would want to uh and it's not something that i'm you know enabling three-person hedge funds to do uh but there are very very large institutions who have relatively small positions shorting tether and this is not something that i'm disclosing where the public should go oh my god this is a known fact uh you know and and the folks at Tether are aware of it they all kind of chuckle um you know those of us who are kind of more in the crypto native look at it and go okay well I wouldn't do that but you know they claim to be smarter than us and they're going to give us all this collateral go right ahead yeah I mean

they may be they may be hedging against what they see as an existential risk, right? Of course they are. There's a reason why they're doing it. Right. And the borrow has gotten much cheaper. So it's not, I mean, I'm not doing it. I can't imagine doing it, but I can imagine people in different scenarios wanting to do that. It's cheaper, but it's not free. That's for sure. It is definitely not free. That is true. So why haven't we seen more companies add Bitcoin to their balance sheet? Wasn't that the original institutional adoption narrative, right? It's kind of been an interesting timeline. We saw,

obviously, Saylor at the end of 2020, and then Tesla, and Michael Saylor had 2,000 CFOs come to a conference, teach them how to put Bitcoin in their balance sheet. And then it all literally just went into venture capital and Web3. Right. So why haven't we seen more adoption of Bitcoin as a treasury asset, assuming we believe in the digital gold and store of value narrative? Yeah, I'm happy to jump in. I think there's three reasons. One actually just got cured. So one reason was the FASB accounting standard for Bitcoin was punishingly bad. For people who don't know what that means, the way you had to account for Bitcoin as a balance sheet is if it went down, you had to mark down the value of your Bitcoin and then you could never mark it up.

So it was effectively only a losing position. That sounds so absurd that when I tell people that's true, they don't believe me. But it is, in fact, true. You had to mark it down and write that off as a loss. And then you could never, ever mark it up. And if you're a recorder, I mean, yeah, it's literally a lose-lose scenario. If you're a publicly traded entity, you have to have Michael Saylor style conviction to want to put an asset on your balance sheet that can only ever go down in value and has a vol that's multiple X stocks. It's just like, you know, shoot yourself. You should explain why that really matters, though, because if you think about it, you'd say, look, well, everybody knows the real price. OK, yeah, I see in the balance sheet. But no, that's a big deal, because if you're now going to borrow against that asset in the future, right, you're going to borrow dollars. And it's been marked down. And, you know, the the basically the prime brokers that are going to be lending to you look at your balance sheet, go to your accountants and say, what is this thing worth? They're going to look at the at the at the mandated accounting rules to figure out what they can lend to you.

And if Bitcoin is worth $100,000, but it's marked at five on your balance sheet, you have a problem. Yeah. And I come from an ETF world. That was my life before crypto. There was actually something similar in ETFs where fixed income ETFs were ranked as risk capital alongside equities. They were treated like stocks and no one bought fixed income ETFs. No institutions bought them because of this arcane accounting rule. And then they changed it. And now it's a many trillion dollar market. So I think this is a huge piece. It literally just changed a week ago or so. And now it's treated just like my nine-year-old should think it's treated, which is if it goes up, you mark it up. If it goes down, you mark it down. So that's a big piece. The other thing is, you know, people don't put risk assets on their balance sheet all that much. You don't see a lot of... It wasn't a risk asset at that point, though, right? That wasn't the narrative. The narrative for risk asset is new to the bear market, at least for people in the crypto space.

But sorry, go ahead. But I think it's a risk asset. Yes, that's it. That's a fair point. We can give this argument later. I think it did a fantastic job hedging inflation. I think that narrative is intact. But you don't see people putting gold on their balance sheet. Like there's not a big move on Wall Street to put gold on your balance sheet. They don't put stocks on their balance sheet. Like people tend to put cash and treasuries on their balance sheet. So I always thought that was a little oversold. I think the institutions that were going to do it in large scale were people who were investing in it, the way you invest in equities.

But this accounting rule did matter. And even if you wanted to, you weren't going to do it with this accounting rule in place. So Oliver, then do you think that now that accounting rule has changed, that could become a part of the narrative? Or do you think that to Matt's point, it was just kind of the crypto community getting all whipped up about something that wasn't going to happen? I mean, frankly, you can just buy short term bonds and put them on your balance sheet right now and make 4% yield. Yeah, I'm a lawyer by profession rather than accountant. The one thing I can give permanent thanks for is that I don't have to deal with the accounting treatment of these things on a

day-to-day basis. I don't know whether that was the big gating item as much as the second point now, which is that the idea that there are big institutions just putting loads of stuff that that isn't cash and isn't uh isn't equities on on their balance sheet i don't know how plausible that ever was nor how useful it actually is to the industry i mean as a proof of concept then maybe we can all feel better about ourselves knowing that institutions are um going long in this thing by holding it on their balance sheet, but that doesn't really help. What helps is people getting out there and using it

and trading and doing things with it because that's what drives innovation. That's what drives the progress that we all said earlier in the program that we want to see going on. So yeah, if there are not big institutions going out there and putting a load of this stuff on their balance sheet and sitting there, I kind of, yeah, I don't really care. And if they're not doing, if they're going to start doing it a bit more because of the

accounting purposes, then we can all be a little bit better about ourselves. But I wouldn't be surprised if that doesn't move the needle a huge amount. I think that's right. Yeah, I do think that people who work in corporate treasury, you know, they're not dealing with exchanges and, you know, they're not interested in basically saying, how do I trade Bitcoin? Right. They're going to they work with banks who basically manage treasury and they're waiting for banks to say, okay, I have a new innovative treasury service, which is going to add 50 bps, 75 bps to your returns. And if they hear that, you know, basically you're taking principal risk with your treasury, that's a whole other level of then, you know, board discussion versus, you know, okay, I'm dealing with Citibank who has a slightly better returning treasury solution, which is going to add 75 bps versus, hey, I'm putting our entire treasury at short-term risk. And most current companies aren't like

Apple, Google, Facebook, where they can actually permanently take a big chunk of their cash and ride out 70% drawdowns. Most companies don't have that volume of cash. That's the problem, right? And so there's no treasury solution that's going to solve that problem. Yeah, I think that's right. I would actually go as far as say the crypto industry has had the institutions are coming narrative stack rank exactly wrong when we talk about our pensions and endowments corporations hedge funds sometimes family offices and never financial advisors and if you talk about what part of the institutional stack is going to allocate to crypto first in a meaningful long only way it is the reverse order

it's financial advisors, family office. We're going to get to pensions and endowments eventually. And that's okay. Financial advisors control $10 to $20 trillion, depending on how you count. Family offices control $6 trillion. If they all put 2% to 5% of that allocation into crypto, that's amazing. And they're the first ones going to do it. We've been talking about the wrong end of the spectrum because they get headlines and there's one Harvard management and they're 20,000 RIAs.

But those RIAs control a lot of money. They're going to be the first mover and that's how it's going to progress. Family offices in particular, right? Because they're driven not only by the financials, but also by the interests of their principals. And we're already seeing a lot of movement there. So financial advisors were the first movers,

but the big volume comes with family offices, especially in places like the Middle East, where there's just a lot more appetite for this kind of thing. We're already seeing huge movement from that. So this is, you're right. Sitting back trying to wait until pension funds start to make moves, it's like watching an oil tanker

try and reverse. It will happen. It would eventually, what was that oil tanker that got itself stuck in the Suez Canal? It eventually got itself free, but it's not dynamic, I think is the best way of saying it.

Yeah. It's so much money. Family offices, again, $6 trillion. Let's get a 5% allocation there. We're talking about a huge lift. And I think that's very achievable in the next wave, in the next three or four years, we could get that kind of penetration there.

And Matt, you obviously mentioned that you're an ETF guy in the past, and I can't believe I'm asking this question again on October 20th, 2022. But how much would a Bitcoin spot ETF move the needle for institutions? I think it would do. I think it would be meaningful in the US. I still think it would be a multi-billion dollar product. It would also give a regulatory stamp of approval, similar to Bank of New York Mellon, where people just check a box. The industry has moved on past that. You're seeing entities move into SMA strategies. You're seeing, again, national account approvals of private funds

and other ways to gain access. If you squeeze a balloon, it pops out on the other side. But don't overlook it. A Bitcoin ETF would be a meaningful advance in the US. It would solve regulatory problems. It would bring in, I think, eventually multi-billion dollars of assets. And it would lead to an Ethereum ETF, an index-based ETF. And eventually, that's how everyone wants to gain exposure. The other thing it would do, whether the crypto industry wants it to or not, is it would lower costs dramatically. ETFs have a forcing function. Yeah. Retail wouldn't have to buy GBTC at a 37% discount. I mean, come on, it's consumer protection, right? Exactly. And at a 2% fee. I mean, ETFs are, you know,

Eric Balchunas is an ETF analyst for Bloomberg, calls it a pterodome for pricing. It would drive those prices way down to where they should be, which is a commoditized product. They're high prices now because it's difficult and hairy in regulations and ETFs would bring it down.

So it's a win for consumer protection. It's a win for the crypto industry. And, you know, I don't know when it's going to happen, but I'm excited for that day whenever it comes. But I don't think it moves the price much for Bitcoin at all. I mean, think about the grayscale discount. Right. OK, so if you approve an ETF, those two will converge. Right. Then you're going to see a massive and up and down, meaning, you know, the price of Bitcoin will probably come down on the expectation that there's going to be a lot of selling. Because a lot of people are holding on to that grayscale product because they don't want to they don't want to realize that that loss. Right. And so now all of a sudden the price, let's say, comes down 10, 15 percent.

Then you're going to have a short term wave of selling. That might be a great buy opportunity after that. But I don't think you're going to see a price spike over a sustained couple of months if an ETF gets approved. Oh, I think that's a very good point. And I would point to an ETF analogy. Sorry to put that hat on. When the gold ETF was launched, people got all excited because it got a billion dollars in five days and people thought gold was going to go to the moon. But it didn't. Over the next few years, it ended up with a few billion dollars. But five years later, it had 80 billion dollars. Exactly. And I suspect I think you're right, Bill, there could be a short term sell the news effect. We're really good at that in crypto. Look at the merge. We're good at selling

the news. But I think I think it also has that added GBTC dynamic. But five years from now, will it be good for crypto? Will it have impacted price? Will it have bought more people? Oh, for sure. We're great at telling the news, but we're equally good at buying the rumor because, you know, we sent Ethereum up two and a half times before that. That's right. It goes both ways. Oliver, I saw you had a comment.

Yeah, I was just going to say, I think the long-term effect is just adding credibility to it as a product. I think the immediate fluctuation point, it's great if you're a day trader, but for people like me that are neutral or people that are huddling, the long-term effect is going to be more interesting. So having an ETF, I don't know, I think it adds a certain amount of credibility and a certain amount of signaling that the market as a whole is now taking this asset class seriously. So I think there's probably going to be value in it,

but you say not on a month-by-month basis, but maybe a three, four-year indicator. Right. We all know that the ETF has gotten Gensler, right? Like everything else in the, I think we should actually make that a verb, like everything else in the crypto space. But one of the ones going back to Bank of New York, Mellon and Custody, one of the sort of little talked about proposals from the SEC just a couple of weeks ago was that custodians were going to have to treat Bitcoin and crypto assets as a liability rather than an asset on their balance sheet. I don't know if you guys saw that, but the implication being that if you wanted to custody Bitcoin,

you would have to then raise equal cash and hold it to account for that liability. That was a legitimate proposal now by the SEC. Never going to happen. Zero chance. Gensler-ing thing. I like the verb, by the way. That's a great verb. That and kind of a series of somewhat unorthodox views that come out of the U.S. is one of the reasons that we at Ventures Global are quite pleased that we serve rest of world clients. You know, I agree with Bill.

That sort of thing seems incredibly unlikely. Never say never is my view, but I think it seems very unlikely. But even just having this discussion is like, it's absurd, right? Because people just put out these statements almost as if to see how controversial can they be, how angry can they just make the community

just to kind of poke the bear a bit. I don't think that's helpful. It doesn't happen in any other sector. And I think that there's a, in conjunction with the idea that crypto is growing up and that it is beginning to recognize that regulation is important and it is beginning to recognize

that it has an legitimate function to play, the flip side of that needs to be that people need to take it seriously as well and need to realize that it has a legitimate function to play. The flip side of that needs to be that people need to take it seriously as well. And they need to realize that it's not just a play thing and a serious financial market implications in terms of stability in the long term that is involved with this kind of stuff. And you can't go out and kick it around a bit just for funsies. That's not a legitimate thing for regulators or for legislators or even for serious commentators to be engaged with yeah i think that's right i will say from an investor perspective one thing that's important to keep in mind is where is sentiment and where

is reality and the sentiment is like the u.s you know uh is is is only and exclusively blocking and delaying crypto. And I think you could make that argument from the SEC. But there is another side. There's actually been a fair amount of progress in Congress on more balanced approaches to crypto that I think is pretty commendable. The legislative side is moving pretty well. The crypto lobby in that space is doing pretty well the crypto Lobby in that space is doing pretty well uh you're even seeing things like stable coin bills which have have on maybe mixed parts but also some good parts where you

can see the crypto Industries rising political force having an impact uh and I think not now but in a couple years this this sort of regulatory headwind we all feel is going to shift to a tailwind and I think the market is probably biased to interpret the news more negatively than it actually is. Isn't that a nice way of saying we can't make progress until Gensler is gone? I didn't say you did that. I do think I or he changes his tune and becomes more. Yeah. You mean he doesn't use he doesn't use everything in crypto as an excuse to make a campaign ad for his job at the Treasury that he wants?

Yes, correct. I said it. You didn't. Right. I mean, Bill, do you think that we can literally make any progress with the current regime? No progress. No. Well, will things happen? Yes. Will those be good things? I don't know. I mean, I think so, I think right now I'm looking to the states. I'm hearing rumors that Florida is moving down the path of Wyoming, which is fantastic. I think I was shocked that Newsom vetoed the California bit license bill. That was a huge win. That was a huge win. And I think Congressman Khanna had something to do with that. Also a Democrat. I think he's a kind of libertarian. He toes the line on social issues, but he's a voice of reason within the party and he happens to be based in California. So kudos to him. And in Silicon Valley of all places. I've had him on the show before. It's impressive considering his constituency. Yeah. Yeah. And I'm not going to talk. I'm not going to basically say anything he said in confidence.

But but I mean, Gensler is not winning over a lot of fans within the Democrat, the core of the Democratic Party. That is not the left leaning Maxine maxine waters i'd shut up playing to elizabeth if i could narrative which is just nonsense and so yeah i don't i'm sorry i don't i don't see a lot of progress and i don't consider a bill on stable coins progress we have stable coins today so uh how is that progress right i mean maybe it clarifies that makes people feel good about what they have but that's like a a Honda commercial for somebody who owns a Honda. I think the lesson to be learned is probably everywhere. I'm definitely not going to comment on the state of the US

and regulation there because not my fight, not my clown, not my circus. You have your own. We have our own, but actually you know look at what the eu's done the eu has realized perhaps later than we would have liked but still realized that regulating isn't the same as banning and actually you're much better off engaging and regulating properly and making this stuff safe than sitting on the sidelines and tilting at windmills um if that's not too many metaphors to mix in one sentence, but getting involved and saying, okay, this stuff exists. How do we make it safe? And

how do we put consumers first and provide an environment in which they can actually trade this stuff? So the MECA regulation and before that, the CBCG in Liechtenstein, DABA in Bermuda and other initiatives like it around the world and say okay well if you can either sit on the sidelines and say well this stuff should be banned and call it regulation but what you really mean is ban it and come up with increasingly absurd ways to say oh we're not really banning we're just banning this tiny little bit and salami tactics means you ban the whole lot or you can say right well here's how you don't say play here are incredibly demanding standards that we're going to impose on you but if you meet those then you can play that's that's the sensible that's the growing up way

to do it so but the more people that your own narrative around you know having to kyc cip uh private wallets is insane. It's not going to happen though, right? It's not going to happen. Well, I'm happy for Oliver that he can't get Gensler'd over there. And as we conclude here, because we are up against time, I say to all of you,

don't get Gensler'd today because it's a bad verb. I want to thank all three of you. That was an incredible conversation. We're actually going to wrap it up in audio and put it on Spotify and Apple and everywhere the podcast is as the Thursday edition of the podcast today. Because we felt like that might be worthy even in advance. I want to thank you guys. Oliver, first time here, really incredible insight.

And you're welcome back anytime. Of course, Matt and Bill, you basically live here. So, welcome. Hope my you basically live here. So welcome. Yeah. And I'm going to move into your piano, beautiful piano living room. So everybody, that's it. I will be back tomorrow morning at 9 30 AM Eastern standard time. Once again, thank you again to Oliver, Bill, Matt guys. You're amazing. And I appreciate you giving me your time.

Thanks, guys. Thank you very much. Great to see you. Bye, everyone.