Institutionalizing Crypto Capital Markets - TOKEN2049 London 2021

morning everyone welcome uh i think it's really great to be in here in person a lot of energy and excitement i'm david olson i'm the global head of distribution uh at blockfi uh a crypto financial services company serving retail and institutional clients around the world uh we have a great topic today uh and a real heavyweight panel i think some of the best firms in the institutional space who are clients mutual clients peers great relationships with all of you we had a really exciting pre-panel prep call so i think this is going to be awesome um i'll start with some introductions on my left yeah so darren jordan my head up managing director of bitgo europe um on the south side uh big girl i'm sure you're familiar with uh is usual custodian security provider we currently custody 40 billion dollars of assets um across two i think 600 different clients 50 different jurisdictions so great to be here thank you good morning uh michael morrow ceo of genesis we offer uh prime services to institutional clients involves buying selling spot options borrowing and lending of crypto assets as well as custody we are based in new york but we now have offices here in london as well as in singapore hi max bonen i started b2c2 about seven years ago now it's one of the main market makers in crypto and it's now part of japanese banking group sbi making it officially the first dealing desk a crypto dealing that's actually part of a bank and i look forward to having a panel with my colleagues and peers here great jacob with gsr we're also a market maker and a programmatic trader we work with many of the token issuers out there as well as the exchanges across both um you know the old coins and and and the top tokens okay thank you thank you all um so we'll go to our first question uh which sparked a lot of debate amongst us when we're getting ready uh what does institutionalization mean does it exist and doesn't matter i'm going to start with max because i think you had some interesting views on this one yeah well i think that it's a misnomer what institutions are and in reality in the crypto market all the institutions that need to be in the market have been in it for a very long time um and i think that if we're waiting if we consider that only the likes of blackrock our institutions and perhaps one we're going to wait for a long time and when they do come we're going to be a bit disappointed in terms of what they're going to bring to the market i think the real watershed moment in crypto were when the likes of robin hood revolut etoro added crypto to their offering because crypto remains a very retail centric market and pretty will that's going to be the case for a long while um and even when you think of the likes of blackrock in reality they all serve in the end the general public so it all seeps back to adoption in the retail space so i think what's what's been probably the most interesting um uh moment for crypto of national probably around what i think 2015 now when ig market in london and etoro in israel decided to add crypto and those guys have really been the big drivers in terms of institutional revenue generation for the space because when you think about it the example that i give is think of blackrock again and i'd have nothing against blackrock i just use them as as you know the institution that our grandmothers know about it's that what could they potentially do what sort of mandate could they gather around a crypto fund it probably would be super vanilla like a long-only bitcoin fund and when you think about it i think mike has the biggest uh bitcoin fund in the world it's around 30 billion now depending on the price levels well maybe blackrock could gather something like literally 20 billion under management in a reasonable time scale well if it's a long-only fund with few redemptions that means you're just going to buy 20 billion dollars worth of crypto and frankly that's just nothing a firm like b2c2 we trade several billion dollars a day on the otc front on on the regular and so the big the big brokers like robin hood and revolut they're doing serious volumes that completely do off uh what what the name like blackrock could accumulate for a fund and so i think that of course from the perspective of that being a blue chip name that everyone would be proud to count as a client you know the the sort of tail end of institutions that have not yet joined crypto market because they're too conservative to do so i think we don't really need them in reality as an industry to to do very well thanks max does anyone want to add to that i have some thoughts but i'll let the panel go first um no i i i echo that i think um [Music] there's um there's a lot of talk about the institutionalization from you know pension funds and the likes coming into the space so we talked about this earlier like how do we define institutionalization if we define institutionalization purely as having a big sum of money to deploy um we already have institutionalization and many of the companies or organizations that we work we work with are crypto native but these are you know entrepreneurial companies that are multi-billion dollar organizations disrupting everything we do on a day-to-day basis for us those are institutions as everything that needs to be treated in the same way as institution data same organization same buildup of um you know treasury um same builders of you know staff cost and thinking thinking around it and if if you look at people investing just having big sums of money there is a question around if you have a high friction investment committee it's going to take you a long time to move into anything if you have a low friction investment committee which there are some several wealth funds are pretty nimble many family offices are pretty nimble they've already moved in so even in the most high friction institutional investors because we're a grassroot type of asset class um you know the pension fund itself might not invest but i promise you that the people who works there are already investing so i think we're already seeing this this type of institutionalization and and the other part that i would add the markets that we are trading there's a lot of talk about the market microstructure um being you know unsophisticated and and you know very wide and moving in you know very large ticks and hack it's very sophisticated today the amount of people that are in the space are are real traders we see it every day on the microstructure side and and you know it's certainly not for the faint-hearted to go in and trying to extract alpha from those markets um my view so i think a lot of the institutionalization of the asset classes really like rephrasing when are the big banks getting involved right i feel like it's just one substituting one question ultimately for another um and at the same time i think it's also difficult to say that as an asset class we've now gotten to a 2 trillion dollar market cap yet that's still not institutional grade right from an absolute market size perspective and certainly i'd have a hard time kind of believing that we'd get to a two trillion dollar number without institutional investors getting involved so i think from a size perspective we're there um and now you know i think the competitive advantage a little bit to kind of max's point has really kind of been around can your firm hold bitcoin i think if the answer was yes to that question you've had this competitive advantage over traditional institutional investors for a long time just that fact alone has given you the ability to earn yield and returns in this asset class to kind of get there and so now i feel like a lot of the the bigger institutions are coming into this space are still in the i don't want to touch the spot market i can't hold bitcoin so we're not trying to come up with like synthetic you know cast settled kind of types of products that i think they're like okay i can do this without you know having to worry about custody or anything you know kind of relate to that as well as hey you know i'm a bank i have regulatory capital concerns i can't put this on my balance sheet but i can hold derivatives um so you know i i think from an institutionalization of the asset class perspective um i'm i'm with these guys i think we're there certainly from an asset class perspective it's a different question as to when the banks get involved but arguably you know the banks are joining an institutionalized asset class at that point yeah certainly we've seen some movement on the custody side i think at blackfire we think about kind of the boring topics of risk mitigation mitigating the client's credit risk their operational risk cyber risk all those things that concern uh traditional institutions um and that we work hard with you know with clients to show them actually there is an institutional grade you know set of of inst of people and and companies uh that can service you um it's a very good point actually we should not really touched upon you just mentioned the custody and obviously from bitco's perspective we kind of started the whole journey really about providing that infrastructure but having come from an institutional background back in the early days um the basic concept of how do you store these assets was was a challenge for for even crypto native companies for a traditional institution that's a real challenge because you've got the corporate governance layer you've got the regulation layer you've got insurance and the operational security around that um i think we've just come in huge leaps and bounds over the last couple of years from from all of us here on the panel we've just seen you know that that institutionalization of you know how to store assets and you know technically it's quite a boring subject about the the operational side of business but it's absolutely essential we're now starting to see you know the benefits of all this hard work that we've done by starting to see pension funds explore the space which typically are the last ones to come in um just because they have incredibly stringent fiduciary rules and and concepts of how assets can be stored and um so yeah i mean it's super interesting and definitely agree with the panelists as well yep great um moving on to uh to sort of a related topic um what is the state of prime services in crypto how does it compare to prime and traditional markets and does defy add another dimension uh i'm gonna throw this over to michael um if you want to if you want to start off um sure um so taking a quick step back for a second um so genesis as i mentioned we we trade spot we trade derivatives we have a borrowing and lending business and we have a custody business um in traditional sort of prime brokerage kind of an equity pb for instance um many all of those activities can be like done by a broker-dealer like within one legal entity for genesis to do those four things that i described it literally sit in four different legal entities because not one regulatory structure certainly kind of within the united states where genesis is based we don't have kind of the regulatory framework that ultimately lets you do though all of these activities kind of in one you know kind of in one entity and certainly a part of the challenge is that we run our spot desk through a finra and sec registered broker dealer that in itself um poses some of the the net capital charge conversation that i kind of mentioned in my opening remarks um at the same time the way crypto is kind of treated on the balance sheet of broker dealer certainly makes it difficult to run a lending and borrowing business um because i think the just the receivables and payables would blow up kind of a net cap so um there are certainly challenges to kind of navigating legal regulatory hurdles to be able to offer like a one bundled service ultimately to um to our institutional clients which is certainly i think the goal for for a lot of folks what also doesn't exist today and kind of the holy grail and prime brokerage is kind of the idea of cross-margining and the ability to um you know take positions that exist in various sort of ultimately venues and then be able to net positions against them and provide credit in a seamless way because i think capital efficiency and kind of the difficulties and kind of achieving that in crypto is one of the the friction points it certainly exists within our ecosystem today um so where are we i think we certainly have a long way to go to ultimately kind of getting there um and but i would also argue that we're light years closer to it than we were just a few years ago well uh it's very interesting like what michael says and i should say that genesis and b2c2 are very close competitors so we face very similar issues but it's really interesting that you highlight legal regulatory issues which we also face but you know isn't that a big sign of institutions institutionalization that were actually you know coming up against regulatory capital questions and things like that you know feels like being a bank nowadays sometimes um i think though there are also economic uh questions around uh why there there hasn't been the emergence of prime broker yet in crypto a full-fledged one i think you've got different functions but they're all unbundled you've got um you know just like principal execution like we both do you've got aggregators more on the tech side you've got custody and financing now the the aggregators they don't really work actually on on the tech front because once you solve the question of having execution on different platforms then you go back to the rails and the plumbing and you do need then a prime broker to really make it work so that's why there's no pretty no one here knows like what's the top aggregator in crypto today um and on the on the funding side you know we've got thriving business actually that's one of the businesses that has been doing quite well we'll see what happens now that brian armstrong got into a bit of a minor fight with the sec if the landscape is going to change principle dealing has always been a good business to be in if you can be one of the top players and when it comes to custody uh my personal opinion is that you know fees are compressing it's not gonna be such an attractive business to be in i'm hearing the banks are looking to get into cryptocustody i think that's more sort of asset accumulation kind of play you know trying to then cross-sell some of the products you know all those functions that a prime broker typically performs they exist in crypto2d but they're not they're not found in a in a very seamless way in a single place um i'm not sure whether that's going to change soon it may be that actually there are economic forces at play here that keep those separate for for a little while um and uh and i think that's uh that's uh yet to be we've yet to see a proper prime brokerage in crypto yeah i think certainly from my perspective and maybe because you know from a from a sales you face clients on a day-to-day basis and the the requests we get daily is you know clients are concerned about holding assets on exchanges they're not they're not familiar with this is traditional players here they're not familiar with that model and the arguably the custodian halsey assets and will allow them to trade in various venues and i actually agree but yeah cost margining is is the most significant important part here to enable the the fact that you can trade on various different venues have the assets held with the custodian um kind of emulating the traditional model um i think also capital efficiency as well currently the number of clients or funds would have to have multiple deposits in various different trading venues and that's not capital efficient and to move these from between one exchange to another you have to unchain transaction that could be ten minutes to two minutes depending on what the the the underlying protocol is um yeah in a market that trades in nanoseconds that's just too slow so i think we've done a lot of work i think all of us i think kind of use the word prime maybe a little bit too generous um it's a lot of work to do to complete that that jigsaw that will allow cross margining capital efficiency all from a custodial base but actually allow clients the the the possibility to explore different venues for different liquidities um and also different products like a derivative overlay as well that can allow you to do a basis trading and everything that you would typically do in financial markets without being penalized too lost in margin so um yeah work to be done but we're definitely moving in the right direction actually maybe an example on that to to illustrate the point what all the traditional hedge funds want to do to the encrypto is they want to be able to sell futures and buy the physical in order to to you know to get the carry trade and that that's been yielding in the past year something like up to 20 25 a year so that sounds very juicy but the problem is where are those derivatives trading well on the cme where the margin is super high i think it's 43 so it makes the trade more or less uneconomic and on the likes of binance bitmex and the problem is those traditional institutions they will never in a million years be seen to be trading on those venues and so what they do is they come to they come to my they go to myself and they say hey can you please be a pb for me so that i can face finance but you've got all the credit risk and you know sure if you know my firm or your firm we sell the future at a 20 premium and then we show you know 15 percent to a millennium or or tudor then it works on the first 10 20 million dollars but then what happens when they want to do one two billion dollars of it well obviously we've got no appetite for that kind of exposure to even firms that we've been working with for years and that we trust in some respect and there's no way that we're going to leave a billion dollars on binance um and so the problem is that there is no price at which our crypto native firms are willing to do that even if we were you know showing two percent to uh to a traditional hedge fund and capturing 18 out of the 20 it's just there's just not enough credit appetite in the market for that to happen and i think that will remain the case until we actually have maybe something that looks more like a more independent clearinghouse but the the difficulties of crypto being a better asset that if you get hacked you get hacked and that's it there's no real request i think that to make it very difficult for that to emerge and i think all of you have touched on capital efficiency i wouldn't be doing my job if i didn't mention block fight prime our product which competes alongside yours and really we look to solve that problem which is capital efficiency through the trade life cycle so there's a big difference between trading and equities where you have two days to like kind of like you know look at your hands and and study the the ceiling um and in crypto where you have to have assets on exchange to to trade and we provide that uh t plus two settlements so backward compatibility into traditional markets and then you can flip that into a loan or leverage on our platform um and basically we were known as a lender and we came into the space that you guys are in in spot trading because people said we need that liquidity we need that capital that you guys have um i think you i'm going to continue on something that max touched on which is derivatives and do the questions a little bit out of order if that's all right because i think it's really interesting what what you said and i'll throw this to jacob um in terms of we've seen you know monster volumes and open interest now on offshore derivative exchanges as the years progressed seems like the regulated exchanges have basically stayed kind of level in terms of where the open interest is and where the volumes are do you see that changing how do you see the ecosystem progressing uh for derivatives over time yeah i think i mean we touched upon it um today about um i mean derivatives and options market are instrumental for for healthy behavior in any asset we're talking a lot about you know bitcoin and ether because that's where the real markets that we see or have open interests that that are growing quite a lot um but there's actually um quite a lot of derivatives trading going on in old coins as well which is exciting especially for a firm like us who's doing most of our most of our volumes in in in the old coin space with sort of the crypto issuers even um we found ourselves um being being large in the b2c crosses as well by virtue of that being a very big um uh cross but most most predominantly we've been trying to sort of find these kind of derivatives markets on the on the old con side so um the what's what's happening i think is that is that the current exchanges which have grown tenfold stanford stanford they're nowhere near as as big as the proportions they would be in traditional markets they still very small relative to the spot market if you compare it to any traditional market um are now seeing a little bit of a um you know sort of a regular regulatory hurdle they're starting to go into all these things that we we talked about and and it's not only those that change the station everyone you know michael talked about it max talked about it we do we're going through the same thing um where we're um so i do think there is a place for these people to sort of follow them the regulatory roadmap and they might be starting to catch up a little bit and you know they've done their homework a little bit um and seeing it but where we're really seeing derivative growth at the moment is actually in the in the d5 space um and that sort of peer-to-peer derivatives is really growing i have no doubt that they will have regulatory questions at some point in the future um but but today we're we're seeing quite a lot of development on on that side which is exciting i think i think it's really interesting that derivatives i love because it's kind of my historical background in investment banking and over the years in any asset club it always gets a it can be it can be classed as a kind of a nasty product that has embedded leverage in it but actually you talk to many many clients um there's a significant reason that people want to use hedging techniques you know whether they want to extract volatility they want to smooth the the the portfolio um they're actually positive things and actually fundamentals to the price discovery of the underlying market as well so absolutely 100 agree i think it's that just not on bitcoin but also you know hash rate derivatives and you know the list goes on um so i think it's it's it's a vital development the industry needs you're probably right i think regulatory barriers anything with degree of leverage there's going to be some kind of hurdles in there but um ultimately i think the market needs a more defined derivative structure so i think it's awesome um and yeah it was just going to meant throw in ftx buying ledger x does that i don't know i was going to mention another thing which is that you know all these conversations that we're having and seeing in the papers and from from traditional finance we're all like we're all seeing this trying to solve for bitcoin um which which is really surprising to to me because the real innovation and everything that's going on is not happening in bitcoin today we have all these um you know disruptive technologies that are going to revolutionize the world and and and and yet we we're seeing sort of bridgewater it's been still in the conversation whether whether or not bitcoin is a currency or if it's a commodity i mean that's light years away from where we are today so far behind and the biggest worry that i have is is that all the regulation is trying to solve for bitcoin when what they should solve for is for um you know all the token issuers and and actually making sure that we can have an innovative um you know disruptive technology um and that goes for um derivatives and options as well so today there is there's huge amounts of options and derivatives trading and otc trading going on in in the altcoin space and you can actually do that on a bilateral basis when you're on board with somebody like us somebody like max or somebody like uh michael um you can get those quote and you can you can trade in that sort of non-linear space which is very very healthy across the space but it's a bit concurrency or commodity then i'll take that later i think it's a currency okay great um so moving on to the next question um what are the different types of institutions that we're seeing move into crypto how does the makeup look now compared to a year ago um obviously i think one of the watershed moments for a lot of people in crypto was when paul turner jones announced uh in a research paper that he was putting bitcoin into his bvi fund not most as i think someone alluded to i'm not sure whether it was max or michael said that a lot of the uh or no sorry it was jacob who said a lot of the basically the pms at these hedge funds own crypto personally are trading crypto and their personal accounts but then they can't trade it in the fund and some of them even have kind of spvs set up to do that separate to their main funds um but you know paul tudor jones actually put it in his bvi fund which his investors are in um and so i gave some price discovery on the asset class and then it went from 8 000 you know and we all know the story where it is now um and so you know just kind of you know leading the you know the dialogue here what you know how have things changed since that moment um do we think that more people are coming in like him or what are you guys seeing what's interesting maybe instead of talking about you know what other big names are going to get into the market is you go back to what jacob said maybe it's not just about the institution but the people that work at the institutions and one thing that's not really talked about at the moment is what seems to be turning into an actual brain drain from the banks to crypto because when you look at them the funding that crypto companies have raised and the revenue generation there you get to re-pick now who you're gonna get from traditional markets into your company and you would be surprised at the kind of people that are actually applying for jobs at crypto companies and so i remember in 2017 when we landed the edo fx from goldman we we felt like there was a very big deal but i feel i feel like that's happening every other week now that there's a very senior person from from a well-known bank that's joining a crypto firm and i think you know we're gonna maybe one day soon uh see you know a ceo former ceo of a global investment bank joining a crypto company in a in a senior capacity so that really seems to be accelerating right now of course there's bonus season that gives a seasonality to that but it would be very interesting it would be very interesting to see what's gonna happen around you know february march of next year i mean we have former like u.s regulators joining crypto boards right so it's not just kind of from a bank thing i think from a regulatory landscape perspective i think you're starting to see a rotation into operating firms within the space um so from uh to answer your original question about the types of institutions that are involved i think certainly you know um for us anyway kind of at genesis we started in 2013. so individuals high net worth guys basically people that controlled their own balance sheet were it were like the early early adopters kind of getting involved and but we talked about like when did hedge funds enter we had some hedge fund clients as early as like 2015 call it um and you know certainly like we've seen kind of the crypto native firms like really really pop up and certainly take advantage of a 2017 bull run um but like what i think is also important i think to kind of note is you know we we've seen family offices we've seen kind of the more traditional institutional investors get involved in the last couple years and then in the last 12 months and this was like a story line from earlier this year where corporates where corporate corporations kind of putting bitcoin onto their balance sheet was not a thing 12 months ago really right we were just kind of starting to see the micro strategy starting to put on their position then we saw square and tesla and kind of news around those guys i think certainly in the first half of this year we saw a tremendous sort of increase in you know in corporations putting crypto on their balance sheet and this wasn't just like u.s tech firms i think we saw involvement from firms in south america and southeast asia um again as kind of a diversification of their treasury portfolio play and so um you know that's you know considering that our corporations and the amount of we were working with them you know call it 18 months ago with zero um having you know billions in transactions with them i think is a significant milestone yeah i i think i totally agree with michael specifically i'm glad you brought up the corporates um because that that didn't exist 12 months ago and yeah yeah we can all talk about crypto native firms and et cetera et cetera and we the the the etp providers and all the synthetic providers that need to to have under hold the underlying assets in custody but um the the dramatic change and i have the conversation many many times a week is with corporates um and they are looking to allocate a small percentage of their of their balance sheet um there's a lot of learning involved with it because ultimately they really kind of first step it stepping into this marketplace and they need to understand you know how to access liquidity how do you store it the regulatory framework are they allowed to do it the corporate governance element um which comes back to everything we mentioned right at the beginning the whole framework that allows these institutions to come into this place which we've all been part of and built um but that 100 agree that has been the most significant change we've seen over the last 12 months definitely on the corporate side i mean if if you look at it if you're a portfolio manager for wherever you are it's it's the most obvious case to have you have no knowledge of crypto and most people don't let's just be fair they they know martin they've read a paper somewhere they think bitcoin does transactions very good but your portfolio managed to look at it so i have this asset and by the way i'm out there i'm looking for new sources of potential return yield does yields nowhere everything start correlating in all the traditional asset classes i'm looking at this one thing it's uncorrelated to everything that i have it has a positive risk return characteristics and it's liquid so just by i have no idea what it is but i'm going to put it in my portfolio if that's just quantitative screening if you put on top of that that this industry has the same talent density of technologies that you had in the dot com bubble during you know during the late 1990s plus you have the grassroots funding of the biggest vcs of deferred which is plowing in tens of billions of dollars to these entrepreneurial technologies on an annual basis so it's a well-funded company that's providing disruptive technology in a liquid assets that's uncorrelated with a positive risk return characteristic you'd be pretty stupid not to invest in it generally like it's a very very simple case the last thing you have is um bringing the you know the sort of the regulatory bridge which is where we're spending way too much talking about and you know hiring way too many people to look at it but it's important but but we're you know it's quite exciting yeah yeah you raised a really really important point um the uncorrelated returns the the market in general in 2008 subprime got fixated with this concept of risk on risk off and you would literally come in the morning it'd be a risk off day you'd sell everything and if you're managing assets whether it be a fund or a balance sheet if you have an instrument or asset class which is uncorrelated to that that offers a smoothing function which you just mentioned absolutely um that is yeah that is basic investment strategy to smooth out your returns and and have an asset class around quality so a very very valid point it's interesting i think you mentioned vcs and speaking to a vc who who got into crypto said he loves it because instead of having you know he makes ten bets seven go to zero one does two three times two do a hundred x or whatever and that's how he makes his money he said with crypto actually i don't have the seven go to zero because they're tokenized i can trade out of them and they might be worth 20 cents on the dollar so it actually fundamentally changes my you know my risk return profile um we don't know where that's where that's going to go with the regulatory uh you know kind of noise that's in that that's in the u.s um but it but it is interesting and we've seen also some public pensions start to get into uh at least investing in putting crypto funds in the vc bucket and then saying all right what's the next i'm going deep long only deep into crypto ironically as the first move i'm going to invest in some alpha kind of strategies market neutral um so it'll be interesting to see how that develops there is some education needed for those early investors and they thinking oh i bought this thing and it's it's liquid immediately so i can realize my position that's not the reason why it's liquid the reason why it's liquid is because it's the utility that makes the technology work so just by virtue of a token becoming liquid after you know three four six months after you invested you need to be very careful how to use that liquidity you should still view it as you know three four five years and you need to you know you need to look at the market properties you have this thing which is a token and it's what's driving the underlying technology it was driving transfer of data or money or value whatever it is plus it's a source of financing it's like three in one um but it it it can really hurt the project if you if you trade it very hard very early because you're using you're not using the utility you're using the trading part but you're supposed to use the utility in the beginning um so there's a big educational part of of of getting very early stage um crypto project to liquidity once you have you know 100 million dollars trading per day or tens or 50 you're in a different league but it's a very sensitive project in the beginning i think for ec funds yep good point good point um so we'll go shift now gears a little bit we touched on this um in terms of institutions investing in crypto what do you think are some of the misconceptions that they have things that have changed over the course of the last couple of years um or since 2017 are we still seeing the the same kind of objections or do you think it's different i think actually when you speak to let's say someone running fx at the bank or something like that their main complaints are that the banks are getting in the way themselves right they want to be faster i think when people are a bit skeptical now on the institutional side they're going to say things like well the market's not liquid it's not sophisticated et cetera i completely disagree with that actually maybe one of the watershed moments uh in crypto this year was that spreads for the best clients have moved depending on the sides sub basis point that is completely nuts we're talking you know like of course it's not like euro dollar but maybe the swissy right and that's a market that's at the same time trades very frequently you know i i'd better see you probably would i don't know like on the otc front sometimes 50 000 trades a day something like that maybe more um and so that's a market that trades very frequently that's a market that is uh that is deep uh you can easily move tens of millions of dollars without any problem within way less than one percent and actually the yes that some of the technology that underpins the market is very retail focused so you just have to accept that really binance coinbase etc they're big websites simply because they need to be able to support at peak millions of connections concurrently and that's not something that the nasdaq or the cme are set up to do i'd be surprised if more than 500 people are connected into the nasdaq at any point in time and so the only way to run a platform that can have millions of users at the same time is to have a something like that's web-based and so yes it's not hft like in that sense um and so that means that the technology is slightly slightly different but you still have you know fixed protocols you still have post-trade settlement so it really looks and feel like traditional markets of course there are some quirks but the reason that our quirks i mean and the fact that you have to adjust to them a little bit it's also why there's edge in this market and you know our firms have been able to grow to to a certain size by being willing to be the interface between the market that's a little bit new even though it looks more and more traditional and the rest of the of the world i think crypto is way more regulated than people think i think there's this wild west mentality that still exists in regards to the asset class and we're literally sitting up here talking about regulation and net capital requirements and aml kyc and all of that stuff so i do think there's certainly one misconception from the outsiders that have yet to kind of get involved as to kind of the regulated nature of the asset class and i think one of my biggest frustrations is taking kind of like the banks out of the equation for a second like the traditional investors who still use regulatory uncertainty as a reason to not like buy and hold bitcoin right there's it's perfectly established you can buy buy bitcoin you can hold bitcoin you can sell bitcoin tax guidance on that stuff is very clear like these are all things that's perfectly okay for you to do yet they're still uninvolved now at the same time though you know with genesis being a us-based firm like i think one of the frustrations we certainly have is regulatory you know uncertainty regarding like what our securities and what isn't i think that is kind of like the big question for a lot of us to ultimately um be able to kind of answer and navigate and and certainly for us like we have to kind of operate in a gray area not because we want to but because whether genesis thinks that xyz token is a security or not doesn't matter right it's literally the sec is the only opinion who matters um and so when you know chairman gensler comes out and says you know whatever most of the tokens that are out there trading today is a security yet doesn't name which ones are the securities that's kind of uh you know the the regulatory you know cloudiness that i think kind of exists that we all have to sit there and kind of you know work work with our investors on yeah it is definitely a challenge i mean i think every every kind of yeah i guess geography has its own challenges europe is fragmented there's no passporting rights um your clients are confused what they can and can't do um try to take a view that you we look at kind of the uk switzerland germany germany we've got a baffin license and we're going through the current um license application right now and yet again it still opens more problems um in different markets um so yeah i i kind of say we i think we all go through that pain together it's very regulated like take maybe a venmo company that everyone has heard of what do they have like a money transmitter license that's it no big deal i mean honestly that's like license number one you need to get in crypto if you want to do anything then you need to get you know you broke a dealer you need to get your bit license your trust company all of that stuff yeah it's actually heavily regulated absolutely i think we're all very aware of the regulation of the space um i'm going to move on on a more optimistic note hopefully the last question just to find out what's next for for all of you um what you see either for the next year in the market or on your platforms i'm curious to know start at the end jacob okay so um um we uh i mean we we we continue to work with that um you know with token issues and and and crypto natives even though we have a lot of people on boarding on the bilateral side from traditional finance our um our genesis is uh in uh in in crypto so you know it's about investing in the grassroots level um through sort of the vc side it's developing initial liquidity um working with those um you know entrepreneurs to build treasury strategies over time getting secondary markets for the tokens um helping them um you know we're leaning in a lot into into the d5 space um seeding those pool running those validators and the uh other big part that we're moving into is is sort of investment management so we're we're um sort of in the last end of getting our fca um regulated entity that's going to be sort of set up in a way that institutions um knows it and likes and you know it feels and looks like they want to do and um i think we want to tell them that the real excitement isn't necessarily in bitcoin but all these other disruptive technologies and the main part on on that side is you know if if you're coming into your family office and you go to i'm going i'm going on blackrock again here and you're going on to blackrock you know it's a little bit like they still talking bitcoin it's a little bit like the the blind leading the blind if you're really serious about this space you'd probably go to someone who's been actually working in the space for you know five six years so i think we have a pretty good chance of of getting those phone calls or um yeah that's what we're doing well i'm interested in seeing where the chips are gonna fall on the following topic i think next year something's gonna happen with the involvement of banks in the crypto market when you look at the blueprint from traditional markets the banks have come to realize that they're more into the business of distribution sometimes so we're talking about prime brokerage well prime brokers there's more and more private equity type firms that are actually taking the credit risk of the banks because it's not efficient for them from a capital perspective to take it anymore they're repackaging that and offloading it on even on the on the trading side the emergence of non-bank liquidity providers like xdx and citadel has really changed the games the game for banks as well and i see now that with crypto they're making maybe a play where they hope that you know if they can get the custody of the assets they're going to be able to cross-sell their own products but there's also a possibility that actually it goes is the reverse that happens that the banks start trading crypto with the crypto native firms then the more distributing the prices rather than being the hub and it's possible then that crypto native firms actually will instead start encroaching more and more on their traditional businesses um you look at the company like ftx you know starting doing tokenized equities um incredible that they managed to set it up by the way on the regulatory front i find um and you know you can also infer the direction of travel for a firm like b2c2 now that it's part of a big bank and brokerage um and i think there's a real chance for us to actually you know going to reverse and take business away from the banks and to consider them more as partners for distribution rather than to be you know people we depend on like it's been the case for so long you know we have we had to beg them for bank accounts and things like that i think there's going to be a real moment in 2022.

um i agree certainly i do expect kind of the banks to get involved um in the next 12 months and and certainly we're hearing rumors of a bitcoin futures etf in the united states and and if a product like that ultimately does get involved i cannot see how the banks wouldn't be involved in a bitcoin futures etf product and starting to kind of provide liquidity around it so i think that would certainly be an interesting development and and i agree with max i think you know from a bank's involvement certainly fantastic distribution as well as like you know it's hard for us within the industry to compete when their capital cost is zero um so i do think that there are going to be financing providers um to the crypto space um which i think is a is a welcome development for for sure now as it relates to genesis i think yes we'll continue to kind of build out our prime services and and continue to like work on our technology to achieve that cross-margining that we we were just chatting about um but ultimately i think you know relating a little bit to like my earlier point around regulatory policy in us i think one of our biggest pushes is going to be working with our regulators i think we in the u.s have like a big challenge um with some of the comments coming out from from the sec and trying to figure out how to better work with our regulators within within the us as well as within congress and come up with better smart policies that achieves the goal of regulating the industry in the way that it wants to but without you know the old stifling innovation um sending jobs abroad because all of these things are actually happening um and if i were to start a crypto business us might be one of the more unfriendly places to actually start a business today and given how much of the world's capital exists in the u.s um that's not a good thing right uh to to be certainly kind of in that position so i think we have a big um investment in effort in our regulatory affairs and and public policy area certainly over the next 12 months yeah i mean i agree on everything you've mentioned there the from the new types of exposure to new clients um i think d5 um have you seen the recent news with metamask institution and bitco being connected in the custody product there um yeah i mean it it shows you the direction we're going um i think the biggest thing for me and for big go um is obviously the acquisition um of our friends at galaxy digital um that's going to open up a very interesting chapter in big go's kind of journey um yeah when i first joined it was a software company then a financial regulated custodian in many jurisdictions and now with the combination of our friends and colleagues over at galaxy we truly are now bolting in in many many different exciting areas um whether it be derivatives whether it be mining whether it be trading whether it be asset management um for me and for big go that's going to be the super journey over the next 12 months which is going to be yeah it's going to be really really interesting okay fantastic thank you all for a great discussion really a pleasure and i guess we'll see everybody outside [Applause] you