What's Next for Institutions in the Digital Space? | European Blockchain Convention

foreign [Music] so hi everyone so we're gonna talk about what's next for institution in the digital space today um first of all I think we can have a quick introduction for all of us so maybe uh Andrew you want to start uh microphone from not working hello oh okay there we go thank you uh Andrew Robinson thanks so much Timo uh from coinbase uh I've been with coinbase for the last five years based out of London looking after the institutional sales business there my background prior to uh coinbase is largely traditional Finance started off uh trading interest rate swaps at Lehman Brothers moved into Cash equities trading themselves uh took a British stint uh away from finance and strategy Consulting what brought me closer to bitcoin and to cryptocurrencies I was working with sovereigns uh in the Middle East in corporates in Africa advising about rotating out of oil and gas into technology that eventually eventually led me to Ai and Bitcoin in 2016 before I decided to join coinbase uh full time in 2018 to build out the business in the region manual or whatever hello uh there we go um Manuel northest uh I lead the digital asset business for Fidelity outside of the United States uh similar to to Andrew I come from a traditional Finance background uh different uh famous Wall Street firm um a slightly a different way into the space but but equally had some reason so I used to run uh Market infrastructure and a lot of the time that included uh you know awkward phone calls in the middle of the night because money doesn't move across the world quite fast enough and so that was kind of for me the reason I had a light bulb moment and and kind of started thinking about Bitcoin and crypto more widely as a technology that could really solve some of those initial problems um and so I stayed in traditional Finance until 2020 and at that point I moved Fidelity Investments to kind of dedicated my career full-time to digital assets so hello everyone so my name is valerino El I'm a head of trading of Bank Seas which is a I'm still in the traditional Finance actually my expertise in on equities and derivative I'm the trader since almost 30 years now and um yeah we decided to to offer a solution for client to trade and custody crypto in a traditional Finance so we just finished a project we launched last December so I'm here to talk about that wait thank you guys I have a specific question for you Andrew maybe what's the vision at coinbase when I step back and zoom out and think about the institutional Vision at coinbase in particular uh we spent the last 10 plus years at the firm building uh institutional products within the digital asset space that are native uh to the to the features that uh require that require for cryptocurrency so things like custody or financing or staking or governance or whatever it may be but I really think that there's three pillars that we lean on uh one is to be the easiest to use product two is to be the most trusted and then three is to be that web three bridge and so if I kind of think about you know Bank Seas or Valerie's role it's kind of like if we want to be in the middle of the of that right so your book ended and so on one end you have the Deep tread Phi institutions and then on the other end you have a deep kind of web 3 crypto native space and so at coinbase we want to serve that middle so everything from being a true Prime broker to offering financing to have no exchange product and bridging that Gap app and so if you look at you know one of the Partnerships that we announced last year like with BlackRock and the Latin system that would be the deep tragifying end of the spectrum and then bridging that with some of the crypto native and web3 products that we offer such as like you know a self-hosted wallet and bridging that making it work uh seamlessly and as easy as possible in that trusted manner okay thank you uh now Valerie um advances you have been building uh an offering right now A qcd and trading right yes since December correct correct was it easy for you um no it was not easy as we if you listen all the panels since this morning is to find this bridge between the traditional finance and this adoption of traditional Finance so actually we start 18 months ago it took us almost 18 months ago when we had you know the amount of client you know they wanted to be exposed uh on bitcoin at ethereum or client or children of the client actually probably more your age than uh than mine and then we said well you know it's we need to consider this as a as an asset class it has to be a new asset class so we need to build something so at that time we could only offer to client ETP ETF I don't know if you're familiar with this but it's product you can it's listed you can trade on the market and it's back by crypto but we said no let's make the adoption happen so in Switzerland we're quite in advance with our regulator finma um they help us I mean the classified AI actually the middle law called dltilo in August 20 25 2021 sorry was a classified the token your utility token asset token and payment token so that start to give us a framework to work uh to to work with and then yes we need to ask them what we wanted to do so we start with um with payment tokens so we can only do four token for the moment but then yes it's not a project a trading project it's risk management it's risk Department middle office legal it touch all the bank so we are middle side very small bank so for us it maybe it was more easier to navigate in all these um framework and people we are the real project team five people very consistently every week doing the the the project and then yes finally um so it was not that easy but with ma with technology with contra party we were able to to do it and now um we're quite happy with our solution okay thank you very much Manuel I think Fidelity was one of the first ones into this digital assets classes right tell us maybe more about that yeah that's right you know it was it was very early on and um you know even today that you know putting Fidelity Investments and the word crypto in the same sentence is is quite a strange concept for a lot of people but but we didn't you know at Valerie's point you don't just sort of wake up one morning as a large financial institution decide to do this right you kind of organically build up the expertise you certainly need you know the the senior commitment and we're very lucky to have that from from an early from an early Point um but really our research started about 2014 uh we didn't launch Fidelity this the last sets as a business until 2018 so it took us about four years really to um do the research build out the teams um understand you know to Valerie's Point who are the right counterparties out there in the market um and frankly that was kind of part of the the reason we eventually built a business is if you look at the infrastructure back in 2015 2016 um in terms of liquidity provision you were starting to see the first signs and the first players of institutional quality coming to Market um in terms of custody um there were certainly a lot of developed retail offerings some of them starting to sort of retrofit and look at the institutional space um but there was very little in terms of dedicated sort of institutional custodians um and so we had kind of the you know the expertise in-house we have a very large custody business um particularly in the United States um you know we felt like we'd done enough research um at that point and so we decided to to launch the business because we thought there was a gap in the market that we that we could help with what was the main upstock for you at fidelity if you can mention one thing yeah um I'll mention sort of the the two sort of big words with with any sort of big financial institution is risk and compliance right it's it always is but but at the same time you know uh it's kind of what we sell right like our product is you know is essentially our controls and and that experience we bring from the old world but into this new technology and the new business models that are emerging right and so risk and compliance really is that sort of the the Forefront of everything we do and what's your solution about that yeah um so so currently we now do a few more things so we started with with that custody offering um very quickly our clients were coming to us saying okay you're keeping my assets very secure but if you if I need to take them in and out of your custody to go and trade um that doesn't help me very much right so I still have some at risk so so we built a few brokerage services around it um we now have you know we now have sort of a full brokerage platform um we do have a lot of sort of external direct clients all institutional that use that platform but we also have some internal clients now so there's other parts of fidelity that essentially use our services so you have um you know we have a retail brokerage offering in the US and we have a digital Asset Management affiliate that essentially puts together fun products with uh with digital assets underlies um and you know more to come as the rest of the the rest of the machine continues to continues to work okay thank you uh for you Andrew maybe what are the next steps for you generally the next step for coinbase I think that the the next steps uh there's a lot of the same right which I hope doesn't sound boring and let me explain that and what I what I mean by a lot of the same is that if you zoom out 2022 was a tough market for all risk assets right not just crypto we had uh Rising interest rates we still have Rising interest rates in many parts of the world we have a rising uh inflation uh we had poor corporate earnings and so you know we've been through this cycle as a company now four times I've been through it now myself two or three times and in terms of what's next it's being HIDs down in moments like this and refining your strategy kind of retweeking your approach and continue to build the products that your clients need and also products that are going to move the market and so unfortunately as a publicly listening company in a quiet period I can't I can't say what any of those products are but I think that it you know if you think about the infrastructure that still need it to Manuel's point in the space it's a lot to do with like Risk Management around financing and things like how do you think about that how do you continue to uh consolidate liquidity in a space how do you make the custody products uh not necessarily safer but also quicker right so you can get assets out so a lot of kind of that refinements around the edges that for the type of clients and institutions that we're dealing with that they need to be able to participate in this uh space in an effective and efficient way the way that the other Capital markets such as equities and fixed incomes and commodities and currencies operate okay you won't maybe add something battery for the No No I um I agree I mean you have to to follow what your client wants I think that's uh actually we are Middle with the final client and then uh we go to coinbase to trade so you need to to listen what they need but you need also um on mainstream it's regulator I mean you can see everything you want we recently centralized each regulator we are regulated private bank so we're gonna follow what they said we're working with them not against them and I think that's one of them yeah keep going like that and what's the biggest challenge upcoming for this year next year's maybe manual yeah I mean there's there's a few things uh you know we tend to be or we try to be as data Centric as possible right and it's it's actually one of the things that I think in this space can be difficult is you have a lot of sort of blockchain data but actually in terms of institutional research that it's it's relatively limited so um we actually put a little bit of that um out in the market and most of it is is completely free by the way so so we you know it's kind of part of the educational piece um and so we do this anyway we do this institutional survey every year we we employ an independent surveyor um they go and Survey over a thousand investors globally um and ask them not just you know do you have some crypto in your portfolio but really a little bit more around is your perception positive or neutral or negative you know if you're not invested yet are you investing in a year in three years or in five um you know investing directly or via product and so on and so forth one of the things that we ask about is obstacles um and this year it was uh it was a really interesting year because it was also the first year we ran it um during a a very bearish market right so we ran it sort of across in the middle of 2022 um and previously we've done 2021 very bullish and then the two years before it was sort of flat Market um and so we were we were quite curious to see this year um one thing hasn't changed actually so main thing that people call it 50 of investors I think or they're about volatility um you know what you actually thought it's gone up a little bit because the volatility this year has been downwards but interestingly institutional investors also consider volatility to be problematic even if it's on the way up right um You you want to have levels that you can manage um otherwise the risk management just becomes a little more complicated depending on the type of institution you are of course um and then there's a list of kind of lots of other things that's stated about like 30 or you know 30 percent of investors quoted as a concern they all fall fall into sort of two large buckets one is regulatory related so it's things like in the US regulatory classification is something a security yes or no Market manipulation concerns and so on and so forth um the second bucket is actually what I'd classify as um you know immature institutionalization and what I mean by that is things like you know people are concerned they don't have good valuation models right and that's something that institutionalization brings to the table people should be able to understand okay I now want to invest in this asset you know what is what is cheap and what's expensive like when you know what is cheaper not expensive for you for your own models as well um it's things like education so particularly in Europe um investors in Europe lack of lack of educational resources was a big was a big piece and you know you might think oh that's nonsense you know you just Google a little bit go down the Twitter rabbit hole and off you go like there's loads of great education out there um you know a pension manager that's not going to be their source of Education right you need more institutions putting out high quality content that they feel comfortable with um and and frankly you know as cliche as myself some of it is just time right like this space is you know I know it sounds like a cliche were just at the beginning but we really are just at the beginning and so for some of these institutions it just takes time and this like to go through an investment committee at some of these and change a mandate at some of these institutions we'll take just in meetings and committees will take about a year right and so some of it is the obstacle is just these things take time I think that I just want to jump in because I think that's a really good point I was uh I ran into a client today and I had never met her before but I had met her colleagues and um they're they're working on a really interesting project and it still hasn't launch yet and she's like oh like when did you start having a conversations it was three years ago so they put in the put in the perspective it's been three years of chatting so many calls with legals with regulatories with their compliance team with their products team and into Manual's Point like it's not that there's not progress but with large institutions it just doesn't happen overnight and I think that the excitement of 2020 and 2021 maybe like even ourselves we forgot that but then you step back and you know we're busy all day all three of us but you might not kind of see it necessarily in the products that are being launched or the names that are coming into the space but the work is being done thank you guys what would you say to a traditional asset manager who was just curious about crypto maybe Valerie what would you say to the traditional one well they got constrained by a regulator especially the traditional one so then it's quite difficult if I'm talking about like Banks to like make advisory or recommendation on crypto it's it's you know old you guys crypto guys you're not behind your desk you know behind by Goldman Sachs and you know you you want the not the sexy part of the fun but you won't be decentralized you don't want to be with someone so uh it's very difficult to find um in a traditional World some analysts you can hire to to know if you consider that all this protocol can send you live you has to be considered like some company can change your life with some stuff so you need two symptoms you need to understand what you're doing you understand what you're buying and a lot of people um they just don't just won't be millionaire they don't want to investing but a PM need to invest need to invest we need to know what he's doing and it's not that easy to find um that kind of people yet okay maybe Andrew can you say something about that I guess what I would say like what is that in my opinion and I think that probably a lot of us in this room and on stage agree with this is that like I have a high degree of con conviction that crypto is going to broadly change financial services and so it doesn't matter if you're a traditional asset manager or a banker or whoever it may be uh or how conservative your institution is today right at some point in the future and I'm not going to put a Time on it uh it may not necessarily even be a direct investment in crypto it could be your mid office your back office moving to some of these rails and projects that that are here today and that we uh that we know and so I what I would say it's like a traditional asset manager that that's crypto curious or that's exploring is to learn Manual's Point again the research to learn and to engage because that's the only way you're going to get comfortable with the space and kind of know what's happening and so I don't know if it's downloading like a what three wallet or if it's just open exchange account if you haven't done it uh so that you have some skin in the game and I know that sounds really really basic but it's a good starting point and like that's how you kind of meet someone that may be a crypto skeptic or uh may be interested in the space but has to go through those Regulatory and uh and compliance hoops and it's also coming like armed with information for them right like I think that the ideal World a lot of us uh would be like oh it's amazing if every bank or every asset manager like just directly help Bitcoin but maybe it's like they're holding a track or maybe it's another different product or a way for them to get exposure and again these are kind of stepping stones that ultimately get us to kind of like the spot holding of crypto uh but it kind of all starts with that education and I think that like you know a lot of the traditional asset managers and sovereigns and cios that we speak to at these firms like maybe in 2016 2018 even 2020 it was okay like not to know what was going on or not to have an opinion that's like no longer acceptable uh because like you have the fiduciary responsibility it's like your LPS and your clients to at least have a view on this on this uh on the space right and so to be educated enough to uh be able to articulate a strategy and so I think that that's kind of the way that I would approach it okay so thank you guys I think we always you want to say something yeah I'll add a tiny one which is you in this space well any any kind of innovation right but like you learn by doing so I you know obviously you're not going to go and allocate out of your main fund but I don't know like go and get a Bitcoin wallet right like go and pay with it pay with Bitcoin at some shop like try it go and try these things out um until you've got some some skin in the game you don't have the the incentive to go and to go and really experiment thank you so I think we're done we're already a bit late I think so uh thank you very much for listening and uh yeah thank you thank you thank you