Constructing Personalized Portfolios in Crypto | European Blockchain Convention 9

[Music] James Jasmine Tim and Richard thank you [Music] 1 okay I think um just check if the mics are muted or on okay hold on a second so I'm here for tech support as well right you got to kind of um pop these up and then are good to go my friend hello too okay okay do we have uh is this mic working do you want to have mine you have mine it's all good great thank you um welcome everyone thanks so much for coming uh appreciate it's an early start maybe after all the partying last night so um we thank you and and great to have the whole ecosystem here I think um some some great filling um in order to to get you all here so thank you all for coming um we really excited about the panel today um talking about personalized portfolios in crypto um and uh I'm going to introduce you to this esteemed panel uh very shortly but just by way of introduction I'm uh James Mor and I'm co-head of uh institutional sales for em and APAC at coinbase um looking to I've been with the firm for about a year and a half so really looking at um growing the institutional landscape within crypto and it's been exciting despite the fact that it's I I joined from Black Rock and and the price has crashed um we've seen no um sort of letup in terms of institutional engagement and it's pleasing to see Larry getting on the on the stage and and advocating for for Bitcoin and and obviously uh pushing the Bitcoin ETF so we're going to dig into a bit uh in terms of the institutional lens with regards to Dedicated portfolios today um and so I'm just going to hand over to uh the three panelists to introduce themselves and give a bit of background Jasmine maybe up to you yeah sure so I started my first half my career in banking uh working on trading floor as crypto derivatives uh sorry fixed income derivatives Etc move to The Bu side so a lot of uh fun creation thesis in terms of like coming up with prop trading ideas that will benefit Pension funds and all of your pensions um so I worked at brevan Howard as head of risk there in US spun that out and moved all their infrastructure to become more serverless AWS Cloud uh and then used that as technology to Avail other people wanting that infrastructure and through that I had five crypto um clients and there were no issues at all with any of their books and Records settlement reconciliation and anything and I was like oh my God this is just so much easier uh so instead of watching you know other people do it I thought I'll get my hands dirty and join a company called One River digital which was acquired by coinbase uh because we were able to navigate quite a lot of the uh headwinds over the last two years uh with you know very thorough due diligence uh so we passed their Bunch Mark and are very happy to be part of the family now great hello hello um we at Hilbert do a uh quite specific thing within uh the crypto ecosystem uh back in late 2016 our team of Quant phds um sat down together in a room and asked themselves what if we could find a set of Quant trading strategies which have been used in other Market market like equities and commodities and FX for a long time successfully in some cases going back to the 1970s and bring those into crypto so that we can take advantage of the much much more Extreme Performance characteristics that we see here so for instance to systematically extract trading Alpha from all of the noisy price movements up and down that we see day to-day and not only only that but do it in a way which is coherent based on underlying mathematical principles which is repeatable and which is scalable and that was the central idea underpinning Hilbert six years ago and it's it's at the core of what we do today so Hilbert is a NASDAQ listed asset management firm and we specialize in systematic trading of cryptocurrencies good morning everybody it's humbling to see so many of you here after a big night uh so uh actually you know it's funny being being with you guys on coinbase there's a very key moment in my life March 19th 2015 where I was on the west coast with a big bunch of UBS Executives I was at UBS okona the hedge fund unit back then and we went out to Silicon Valley to see a bunch of like what's going on what's new in exciting in in Silicon Valley and among all the different companies that we met there were two that that re that basically changed my life and one of them was quein base we met with Fred and Brian March of 2015 before coinbase was really in the public Consciousness as much as as it is now and it was that moment uh that I was like right this is this is the direction I have to take my career so it's all down to you guys uh all roads lead to Quinn Bas pleasure pleasure um uh the check's in the mail so uh so now I I find myself after 16 years in traditional finance and actually nearly 9 years in in this space running DSX capital or de x capital Victoria which I think is a much better way to say it um and uh we are a billion dollar fund we have private Equity Investments we have Venture Capital Investments including Hilbert we're a shareholder and a board member of of of Hilbert um we do Venture build so we build new companies in this space uh and uh we we allocate to funds so we're an allocator to to asset managers as well so it's a really inter interesting perview and view across the space thanks thanks all so let's kick this off I think um in the seats you have today it'd be good to know like what are you seeing institutional investors do um and then you know what's holding some of them back um so Jasmine maybe maybe if you want to kick that off yeah so in I mean we get this question a lot right so institutional when is it coming um there are many different definitions of institutional investors in and we'll just go through that quickly so you're a wholesale kind of you know Pension funds that like to only invest in funds all the way through to institutions that look after your own wealth management highet wealth family offices um so you know your big Banks all the way through to your smaller places none of them are the same they're very heterogeneous um but a lot of them have some similar kind of hesitations one just not understanding the product two volatility three kind of you know whilst there was a beta thesis that this was an inflationary kind of proponent to hedge their uh portfolios where is that beta thesis now um sort of the operating systems and everything that need to come to to light and the headaches of just bringing on new risk and new measurements new valuation policies new execution policies new Cyber um so a lot of it just felt like there were a lot of hurdles for people to get through and we handheld a lot of people through that um and when they were comfortable because of the high kind of nature of it they would end up putting in 20 million $30 million and we're like it's not really a lot for a fund we can't stand up a private fund for under sort of 150 million it's just costs are too prohibitive so then the costs became prohibitive and we sort of stepped back and went how do we fix all of this um in one go so um we've kind of started to think through that and we'll talk through that in the next sort of question um what what's holding institutions back I'd say uh less and less um from our kind of narrow perspective as a a crypto hedge fund for institutional investors we saw a good acceleration in adoption in early 2022 and you just needed to look at the number of Pensions endowments Consultants that were really starting their work in terms of evaluation underwriting and actually starting to deploy into some funds um of course this year that segment generally has taken a big pause for obvious reasons but as we move forward together into 2024 um if Bitcoin ends the year as the world's best performing asset class again um and we get closer and closer to the spot ETF and the the programed Bitcoin harving um improvements to um accounting rules for us uh corporate balance sheets that that's going to be a very very big pull into Bitcoin and and the asset class generally and the willingness of Institutions to do that work and find um the right types of access points in terms of vehicles and solutions that work for them and their mandates is just going to go up and of course added onto that we're now in a world in the US and globally where um there's a higher risk-free rate of at least 5% so a lot of the institutions that we're speaking with are scrambling around now looking for ways to increase returns in their portfolios and the crypto asset class is one of the few spaces that they can reasonably expect that that pull up in returns thanks so so Tim we talk a lot about institutional adoption institutional momentum why why is that important why why are we sort of numerous panels talking about this and just in your lens why why do we we think it's key well there's another way to ask the question which I was thinking about over the last few days which is why is everyone so head up about this ETF story right like why is the entire world apparently waiting for the SEC to approve an ETF and it feels like such a a meaningful moment in the space that that will happen what why and actually the answer is not that we think there's going to be this uh really material Deluge of of capital into that alone that has always been a stepping stone and this and into really the the vast number of access products that currently exist in traditional finance and so I think if you if you if you look at where we are in in the cycle we were talking about this on another panel yesterday like the bare mark this bare Market has very particular characteristics and it's specifically that it wasn't really a crypto bare market like this was this was a bare Market this really a macro all asset bare market and the crypto markets were tripped up up by rates and inflation and the sort of funding Dynamics in in markets and and that caught a bunch of people out and they got carried out in stretches and and now here we are at the sort of the one one would hope at or near the bottom let's just hope I'm not calling it but and what what you hear consistently is that there's this very large wall of what I'll call institutional money but really it's it's the sort of the wealth management money let's put it in that category like the you remember there are large multi-trillion dollar wealth managers that basically don't for the most part give access to crypto products in a very M like significant way but you talk to those players and they will tell you that their clients want that access that's back to the ETF thing like anything that gives them access is really where we want to go from here so I think the the importance of institutional adoption is that it's not going to it can't be a retail Le move from here it's just actually impossible uh we've already kind of crossed the Rubicon into the number of day Traders and sort of retail-based traders that come into this space What we what we're now touching upon is this next big leg up of trillions of dollars of assets that just want access to to different risk profiles um and that's going to be gamechanging and what that constituency expects and this is the part that a lot of more sort of fervent crypto players find it hard to to to Really to really accept because there's this sort of libertarian ideal that everything's going to be decentralized and therefore you know everyone's going to have self sovereignty of their assets and all this stuff and the the truth is it's definitive now because we can just look back at the recent history is that that wall of money won't accept that model that wall of money wants the risks of the asset class but not the risks of engaging in the asset class in the complex way in which it currently exists and let's face it it's rubbish right now but there are there are there are companies and there are innovations that are going to afford that move in a in a secure way and that's really what this is all about this is a fascinating moment in history thanks so so taking that further and as we look to the sort of future what are what are service providers going to have to to sort of support build create in order to to sort of meet that meet that demand and and Link that maybe into that sort of more dedicated portfolio which you I think you touched on earlier Jasmine yeah absolutely so you know in addressing each of those points sort of like okay if if if this space has too much volatility how do we help people uh understand how to sort of dim that down and one way is dilute it which is pretty boring um that there are an incredible number of well-tried strategies in trafi such as Trend where you're long on the way up and you're short on the way down so you're making money in both Cycles um that is very appealing because it changes the whole beta thesis people are just in it for the actual trading aspects of things and then people like okay well that sounds great you're trading five tokens but we are so long Matic already can you take that one out and we're like okay guys we can't personalize things in private funds that are co-mingled it's just too expensive so we went okay why don't we do this we'll set you up a coinbase Prime account and we just do the trading instructions straight in your account no auditor no admin we remove all of that 80 basis points of fees we just purely trade exactly what you need and we thought actually that works so efficient we could do this for $10,000 so what we've rolled out now is a platform it's an SMA platform so separately manage funds you don't have account like an SP or like a new came in vehicle you have your account and you have sub accounts and you can say that strategy I like here's a drop- down menu of 50 different strategies from very high quality um people like hbert you know doing a lot of the work for you instead of you holding this um one you know passive uh Str strategy you can now amplify your returns and get closer to Alpha or actually get pure Alpha so um what happens is trading instructions just come in and they work on your account that means none of your assets leave your account so the trust factor is completely gone um well trust factor is high the security is super high as well your costs are only your cost so you're not sharing costs that people people are coming in and out of a vehicle you're not sharing that which is one of the biggest things about an ETF if you're a long-term holder they're paying for people coming in and out of those structures all day so that's not an efficient way to be a long-term holder so you want your own account hold the tokens have it traded in a smart way for you and then have a look to see all the different strategies that are available to you so we're rolling that out in the next couple of uh weeks um and look forward to getting any of your sort of feedback on that too um and picking up on that the reason uh we're excited to be partnering with coin Bas is because it's going to enable a broader set of clients to access our trading Alpha in a format which is secure transparent and flexible um that solves a problem for us in in one regard so when I first came into Hilbert was looking at the different markets that we could that we could approach in terms of clients and I thought well how about India for instance there there's very deep pools of wealth in India so I phoned a friend uh whose basday is very well networked and kind of outlined what we do and he said uh you don't stand a chance I thought oh maybe I pitched him the wrong way um but he said no it's it's not that I think what you're doing is very interesting uh it's just because of things like tax and capital controls your Cayman format just won't work here um so being able to offer our trading strategies in the coinbase coinbase SMA format um because of its structure because where investment decision- making is made that market is now available to us so that that we're super excited about that um so I'll give you a quick analogy so after 25 years of managing different people in fixed income all they're trading is treasuries and rates and FX and you've got 200 different Traders and you're like how is it possible that they all have completely uncorrelated returns with the same three ingredients and they just do and so this is called Alpha it's like handing four different ingredients to incredible chefs you you can hand them flour milk water and and sugar they'll all create incredibly different things and so we're we're creating a bakery basically where you can come in and and buy on a drop- down menu access to what are very uncorrelated returns from very intelligent people bringing this to Market in the lowest cost way you can do it and and just F within that structure then then of course in terms of the underlying what we ultimately need to deliver as a hedge fund to investors um what they expect from us is we need to make them money and and not give them any bad surprises so we at Hilbert we're a risk manager first crypto investor second um we approach operational risk management as if our lives depended on it and when we look back over the last six years and two crypto Winters um it's absolutely Mission critical to get the operational risk management done extremely well and then there's an abundance of trading and investment opportunities to take advantage of uh in in the crypto market so um making money no bad surprises and a fixation on operational risk management that by the way is not specific to crypto um before I was at brevan Howard doing macro it's the same ingredients that are needed finair emerging markets for any Alpha strategy to be successful it needs to deliver good returns um and and have very good risk management processes so is it just just to sort of maybe take that one step further Richard do you know what what else should people be thinking about when looking to appoint a third party manager or why should they be thinking about that um if they're looking at you know dedicated portfolios in crypto I think in in general when you're you're Outsourcing management of a portfolio of assets um I think three key things a coh investment strategy coherent and repeatable way of making money um operational risk management excellence and then uh the highest levels of Integrity with experience in in this kind of Frontier ecosystem um th those things really stand out I remember being at a conference last summer crypto conference sat in a small Booth where they speed date managers and allocators and it was late into the afternoon it's gone 5:00 and an investor came over pulled up a chair she looked absolutely exhausted we were her 17th crypto manager date of the day and uh she settled and then looked down at our one page and said oh wow you've got an audited 5year track record um I was just with two young guys over there they're really nice guys I'm super Keen to invest in the asset class but I can't reasonably take those guys and show them to my CIO because they've got no track record they've not managed a dollar of external Capital before and they've never faced a market crash and there were hundreds of people with mixed levels of experience launching funds in the crypto Market uh crypto b l crypto Bull Run many of them are many of them didn't make it and when we look into some of the portfolios of our institutional investors it it looks like there are only about 25 to 30 in institutional grade investable crypto hedge funds available globally um and the things that they're looking for the things that our investors tell us they value and Hill butt are those three things coherent value coherent investment strategy um the highest levels of operational risk management um and integrity with experience thanks so so how Tim how as we look forward how should investors be thinking about the next 12 to 24 months emerging trade ends particularly when you're thinking about portfolio construction and what yeah what might be happening uh obviously that's a you know a bit of a view to the Future and we won't hold you to any price predictions either um look I was funny I was talking with someone last night and and they reminded me of you get these sort of traditional adages that you forget when you're in crypto for a while like the bare Market is the time to buy the ball Market is the time to sell is sort of the the basic adage so you didn't really want to be buying in September of 2021 at the thi at the height of the bull market right you definitely want to be buying now right and so I think number one point is the opportunity set and it's vast there's metaverse there's the whole nft side of it which and that's Evolution there's the integration with AI there's payments uh and then you've got all the kind of institutionalization that we're talking about and we haven't even touched on tokenization of Securities and new rails like there's just there's a vast amount of going on in this space so number one point is that there's a huge opportunity set and now is the time to engage the second point this is it is very kind of aligned with the theme of institutionalization if you like the litmus test as far as I'm concerned and if I'm looking at a manager to allocate to in crypto is if they got caught out with the exception of FTX which when I was at Galaxy we got caught out by FTX and we were we we' have considered ourselves very good Risk Managers um and I think that was just fraud so you kind have to take that aside cuz everybody got caught out on FTX and that's a cautionary tale that will sort of last forever but really all the other blowups lunat Tera uh Celsius all these other companies like we at Galaxy we did not get blown up by those why because we have classic old school risk management skills we know trouble when we see it and we never invested in dcg and we never invested in Genesis and we didn't have those relationships to lose money against and a lot of people did and you look at managers and Hilbert's a great example look at managers if they if they got caught out by anything fail like you you generally should be able to navigate those kinds of waters and there are really good managers that have done that and I think that risk management element kind of brings you to the final Point like what is it about risk management that's so special well it's traditional and it's also having this it's interesting actually one of the themes of the discussions I've been having with people over the last 48 hours because I this is my first time I've been out on a conference in a while so it's great to sort of re-engage with everybody and talk about what what are we all seeing and feeling it's actually to me a refreshing moment that I wasn't sure was going to happen this soon and I'm kind of happy it's happening is that there is this sort of finally this realization in crypto that you have to embrace a lot of the things that actually work in traditional Finance you can't throw the baby out with the bath water and say that traditional Finance is rubbish and crypto Finance is the future the truth is at any given time there isn't a crypto finance and a traditional finance and a that Defi and and like a CI and all these sort of odd monikas that we've had to generate like there's only five at any given point there's only one Financial system today there's one way to access risk there's one way to distribute your Capital tomorrow there'll be an evolved one it isn't that there are different systems and so I think the exciting part is now we're moving into this reality where we're we're going to take the Best of Both Worlds and somewhere in the middle is the right answer and I think when you take the overlay of traditional Roots risk management operational risk management governance transpar Arcy through being publicly listed all this stuff like that's all tried and tested it works and you combine it with all these fantastic tools and new risk profiles that we have that's when you've got an entirely new and exciting asset class and that's that's where we're going so it's good to sort of lean into that I think thanks so so we did leave time for questions but I'm not sure if there's a mechanism to actually uh do that or not but I don't know if anyone has a question and we might be able to get someone to facilitate that do we have any questions from the audience for our esteemed experts just put your hand up and I'll uh do some comedy running just to spice things up a bit I'll try not to fall over too many times yes we do we appreciate sirly and uh okay good man could you introduce yourself to the room please sure hey everybody my name is Steve I have a educational content on Tik Tok Instagram um thanks vam for your talk so far my question is what are the top assets that these institutions are looking at in terms of the top five cryptos maybe Jasmine do you want to do you want to start with that or yeah some of them are just purely after a Bitcoin ethereum mix um I mean we've we've gone through the wave of is theana going to be the ethereum killer you know vitalic has proven his team can deliver in upgrading making it more efficient and you know being the dominant player um what we're going to be seeing soon is more VC l2s and potentially layer 3s um because you know there is such a a quest here for tokenized uh product but the people need permissioned private um chains so if you're building off aaic or if you're building off base um you can do uh a like a little node off that so that when you're comfortable bringing yourself back down to a public chain you've got that instant access and you're very evm compatible already um so we're seeing a lot of layer 3es come to Market um bit of investment there but in terms of liquid strategies that is definitely the main area because VC whilst um there were three issues with VC people got into it you saying look you know I can allocate to private Capital I've got that line item but what happened is they ended up getting liquid tokens and they're like what do I do with these liquid tokens they're in lockup for a year so that's fine what happens when that lockup comes out and they're like oh I can't even custody this what do I do with it um and so there are a lot of questions a lot of headaches that people went through in the VC kind of space um so layer layer um liquid trades with the most liquid top five tend to be like in variance of it like what Hilbert's doing you know in out looking at different me and we're seeing the fundamentals of like what's happening in in these chains underneath blockchain and the actual price there was no correlation and we're seeing that Gap start to dissipate um so yeah it's it's got more fundamental kind of proponents to it now I think actually it's a very interesting question when you think about it right your basic question is tell me tell me five examples of tokens that you think are going to go up right it's interesting when you look at like the statistics I believe the statistics are that there are more holders of crypto than there are of equities in the world which is a really odd when if you really put your mind around it like that's an odd it's an odd concept and it can't be that those people all have a really solid understanding of the fundamentals of the coins and the layer ones and the layer twos and the infrastructure and the risks they can't it's impossible because that's a professional's job right that's how big this space has become that's how complicated this space has become it's how important this space has become so I think we're going to evolve to this sort of new reality where you when you you could ask that question and and I think there are people that will always and they've because have identified them we have identified ourselves the people that are holding crypto in in a sort of very call it a dgen manner and and more on that side I think that's topped out I think that's only so far that can go right like that that group's already sort of off and running the the next level is you don't you don't ask what the top five equities are you don't really hear people are saying that right like what are your top five ideas and equities you generally would pay someone with the skills and the track record to manage your money when you're doing that and I think that's kind of that's the Crux of everything that we're talking about right we're going away from the 2017 like tell me what the latest Ico is which is really just sort of an a version of what you said to give me a really sort of Rich view of the risks but you you go figure it out for me and I'll pay you a fee to do it like that's that's the reality I think of the transition that we're in right now I think we're at time but do you think we could do one more question if there is one a quick question oh listen I've got a question Stephen nice to hear of Irish accent there where will we find you on Tik Tok and Instagram what's your handle uh Steve teaches crypto pretty basic Steve teaches crypto you got it there okay quickest question we are counting down the seconds here quick question gentleman with the hand up there okay what's your question sir and please introduce yourself um Dr Leonard Anderson from convex Foundation I'm a little bit older than most of the people here so it's a a factor that people are important but is there any agism do we need young fresh Founders or can old crippled people with experience be considered as being reasonable Founders well that was kind of my point right like if we let a bunch of young kids run around running the place 2022 happens like that's just we like we I don't need to prove it to you it's literally just happened you H and you need to combine that with the gray hairs in the experience and by the way I'm a bit older than I might look like you know I was there when in the crash of 2000 right like if you you you've got to see that stuff happen in order to know how to navigate markets like if you don't 2022 happens you get paralyzed when really important when liquidity crunches happen so I think the the answer to your question is you it's not that is their ages I'm like you have to have that combination you also by the way can't have a bunch of more old stuffy traditional Finance people running the place either because they're not necessarily like qualified for that like that's an old 20th century model by the way that we're trying to change the sweet spot is the the the the experience the wisdom of of the kind of older cooh and the energy and enthusiasm and the lack of baggage with the younger cohort you smash that together bit of Pixie Dusk and boom coinbase cisson their Bakery thank you um just any final comments before we wrap up cuz we're going to really uh probably get taken off the stage yeah so we have a we have the ETF Market everyone's excited about it coming on um I will say be careful about ETFs though make sure you're looking at the costs um the ETF Market in general for the entire ecosystem system is 7 trillion mutual funds is still 40 trillion right so if you think about the main promise of what blockchain's doing it's not about just trading Bitcoin and everything and all of the different things we're going to be adding in tokenization finding mechanisms to really personalize your portfolio and have it traded for you are just some really Innovative things that uh digital trading can provide us so thanks thanks to the panel um I think we can all give them around Applause and enjoy the rest of your day thanks wonderful stuff pix pixie dust and coinbase crons absolutely fantastic oh yeah I'll grab that thank you yeah just stick the mics on the chairs you all good there thank you