The Institutionalization of the Crypto Industry | KBW2023

thank you for the introduction hello people so uh welcome to this panel on institution and crypto industry um I've been I've been speaking on in institutions in crypto for now about two three years and the room size seems to be growing every year there seems to be a lot of interest especially this year uh we're seeing a lot of uh Reg military framework coming out of Korea the US uh from Europe um so and there's other markets especially on the Emerging Markets that's following through so we're seeing a a very uh Fast Very Speedy um uh institutionalization of cryto Industry so here we have three uh experts um we have Dena from the us and we have Ryan from Korea and US and Alex from us so if you could go around maybe start with you Alex and quickly introduce yourself and what you do and what your company's focused in absolutely hi everyone uh my name is Alex uh Krueger and uh basically been in crypto for a decade and uh uh pretty much trading my own book so independent portfolio manager and uh I'm a founder of uh a couple of uh protocols as well I had buys a few crypto projects uh mostly in Defi and uh as well I run an advisory firm for basically Macro for crypto and crypto for macro audience and before crypto I um I'm an economist and uh I worked in uh basically cide uh trading trading Forex and trading uh physical commodities for uh uh a little bit over a decade thank you very much great how about you Ryan oh yeah hi everyone um I'm Ryan from vix and our company is providing um almost anything I mean including teken strategy to the uh smaller institutional players in this market uh and as a chief of staff I'm in charge of uh all the products and um strategy that we are offering to our clients and at the same time I'm uh overseeing our development efforts uh for our Quant uh engine which is the infrastructure that uh for our uh strategy that we are providing um and uh I in a pretty unique position because like Sam introduced me um because our team base is mostly in Korea but our um clients is hugely uh centralized in the United States so uh I have a good experience to uh watch these two markets evolved at the same time so I'm very happy to share what I've uh experienced today here thank you uh yeah so um my name is Dena I'm the co-founder and chief investment officer of syncretic Capital so mostly I'm responsible for day-to-day oversight of the portfolio as well as doing everything that's involved in running a hedge fund including talking to counter parties onboarding things building out systems um I'm a Quant by training so prior to doing this I was at Bridgewater for four years working with one of the chief investment officers Bob Prince so I was his technical prototyper um I was also the co-author on several of Bridgewater's pieces on the crypto space um including the ray piece on bitcoin that he put out several years ago um and before that I spent several years working at Goldman as well so I've experienced AC cross portfolio um allocation trading technology and um you know strategy development great thank you Dina and a quick introduction of me my name is Sam Kim I'm the founder of goapa we are our first licensed crypto wallet in Africa and we're working with The Regulators to build regulation and to give out licenses which has been an uphill battle but we're we're we falling through um so um so today I think this is an this is a very excellent opportunity to ask really good questions regarding not just regulations but where the market is headed because that seems to be the big variable where the market is headed and we have three experts with very very um very detailed background and experience so if I could start with you Alex I mean you're you have a very Broad View you're a microt Trader uh do you have a sense uh you just want to pick your brain on this uh what's your sense of the risk appetite currently the market yeah the the risk appetite on uh it's interesting because on one hand on traditional assets uh we are in a in a bull market and uh interestingly a very large percentage of the uh investing crowd is is uh not aware of it or do not want to participate for uh very significant fears around the world's macroeconomy that's on the on the traditional Finance side on the crypto side unfortunately is is very different we're in a market which is basically driven almost exclusively by uh Futures flows so it's basically very little spot flows and uh what that means is that it becomes a what we call a P2 P market player versus player because there's no real followup so so the the way to think about this is what Traders are doing right now nowadays is basically focusing on literally liquidating retail basically wait for news to come in get everybody excited get everybody excited on Leverage and then push it lower and liquidate them um and uh the the expectation is that that would change uh and there's one way for it to change is the Bitcoin spot ETF and um which I think we're going to talk a lot about that but it's it's uh unfortunately it's the one is the one key variable nowadays that really defines where crypto is going which also means we're going to have to wait a little bit because quite likely there will be no uh decision on this matter until January of 2024 excellent I mean um yes definitely we do want to save five to seven minutes on talks on ETF where it's going where it's headed and on each each major jurisdiction being North American and Asia uh but before we really deep dive into uh what's going on with the ETF if we could also go around and get an opinion from Dina on Europe uh she's just coming back from Europe as well uh what are the European institutions looking at what um what is their appetite um I don't have a strong sense of the European institutions specifically I I have a better perspective on American institutions I would say the major things that they're waiting for is as Alex said the ETF approval um the other thing they're kind of worried about right now especially with respect to allocating to crypto and liquids in general is how managers are going to be able to handle the recession so many of the asset managers over the past decade have only really kind of experienced the growth only environment and crypto being as volatile and new of an asset class as it is just doesn't have that many experienced TR that are able to navigate this kind of dynamic so there's the ETF approval that's required for beta holding because even you know holding through coinbase um right now is a little bit controversial given you know the regulatory action against coinbase so a lot of these institutions have actually had to you know uh sell their Holdings because they don't want to be seen as interacting with a company that may or may not be you know compliant with the current regulatory State and the other one is you know potentially accessing crypto through funds and we've seen a lot of exposure to the VC space but um a lot of Institutions are kind of overallocated to El liquids and so it's really you know seeing whether hedge funded managers can survive this difficult Market that lays ahead and also waiting for beta exposure through ETFs which are going to be the primary compliant way for for these allocators to hold um Capital great and for Ryan a question for you is I'm guessing your clients are most based in the US because there are some barriers in Korea for Korean institutions to enter what's your opinion on that yeah like you mentioned uh in Korea it's not um it's not actually there's actually no legal basis to uh invest directly into this asset class because that's because uh the the government wants to treat this assets uh with the both with the existing one the the legal one uh and and the new uh guidelines that they will announce soon uh but um in the existing in the ex existing one uh asset managers cannot uh treat this uh asset class because that's not included in in the legal documents and for the uh newly uh announced uh uh guidelines that's been uh announced recently uh they don't have it's it's actually about the license and they don't have a type of business uh as a manager so which means they don't provide any illegal bases for uh anyone to um you know operate businesses in this in this industry directly so uh that's why uh in Korea even even though there's a very high interest from the institutions there's no single players that's being uh you know um outstanding uh to and saying out loud they they they are preparing it but I know for a fact that they're preparing it at the you know uh in internally but there's no one actually saying that so uh they're uh preparing they're doing some testing in the uh other countries that's more generous to this asset class but in Korea there's uh nothing there but uh I also believe that the decisions in the United States uh will be uh crucial because uh Korean Regulators are uh tend to follow uh the direction uh what's been decided in the United States so I think you touched a very critical point that where we are moving on so what are the critical factors that we're waiting for from the US besides from ETF obviously ETF would say is the 80 to 90% of what the Korean Regulators are looking into as well but are there any other factors that we should also keep an eye on besides from ETF that other markets such as Emerging Markets or in Europe or other parts of Asia that's less developed in terms of crypto should Benchmark and also a study I'm addressing this question to anybody uh well the thing there is the U I mean what's driving crypto right now used to be uh let's put it this way correlation between Bitcoin and and macro assets or or equities uh used to hover around zero for a full decade and then 2020 came and we had uh basically Paul Tor Jones and uh uh a very large number of macro people coming into the market and uh correlation went above 50% consistently for uh very consistently across time frames you pick weekly daily uh intraday minute it's like everywhere it was largely driven by equities and risk and and that's gone now the way to put it is Bitcoin is not a macro asset any longer the play is that the ETF not only changes flows it also changes B basically it's it is my view is that uh once we have an ETF market makers are going to start coming back into the market that basically the way to think about it what does a market maker do they make markets and uh to make markets they run pricing algorithms that basically are largely not not fully but largely driven or impacted by correlation algorithms so when when these market makers left the market which happened uh early this year between basically April and May and they kept on living um the the view is that this is temporary so basically that it's it's a temporary change in the market and it's going to shift back up assuming we there is an approval and and uh briefly aside of that like I'm very very bullish on on traditional assets uh I think the uh the artificial intelligence generative AI um changes that the the the world economy is seeing they're just starting and it's like fading the internet before the bubble however that's not impacting crypto yet so the view is this will change sometime early of uh next year and I keep on talking about Bitcoin when crypto is so much larger but the thing is uh most the the correlation again correlation right but correlation of uh crypto assets and Bitcoin is it's higher than 75% and this is extremely consistent so it's very hard for a healthy Market to be for us to have a healthy market and price is going up when Bitcoin is actually flatlining yeah I think um there's a couple other things that um we're kind of waiting on and it's better solutions for custody so there's a lot of fear around counterparty risk exchanges Etc after what happened with FTX and so there's several new solutions that are starting to come online like for instance you know mirror and um other things like that that basically allow people to preserve custody of their assets while being able to trade on centralized exchanges so I think the sophistication of some of these new tools coming out is going to be helpful to bring um investors in as well as just other technology so for example um one of the problems that's kind of challenging to solve in the crypto space is prata allocation among investors so how traditional funds often work is they have SE several different managed accounts that they will trade simultaneously for but in crypto um this the technology for doing that hasn't really been solved yet I think this is another thing that'll kind of you know allow more sophisticated investors to come into the space and bring large capital is some of these you know compliance nuances that just need to be addressed definitely I think we're touching on very sensitive issues regarding ETF Also regarding the institution institutional investors uh who are in charge of mostly uh diversifying their portfolio and you touch on a very critical point which is correlation which nobody pays attention to but we we should all be because correlation has been jumping up and down it's it's the general view was that crypto was viewed as a risk asset a risky asset uh however is your view um uh to you ran after the institutions come in uh or enter into the market um are they coming in viewing crypto as risk asset and and accepting that correlation or is it becoming more of a store value something more um for them to diversify their portfolio um from my experience there are we can actually uh categorize the institutions into two uh and that's uh like like you very uh handsomely put there are those who are are interested in a short-term FIA return they are uh they don't actually care about the asset class itself they just see it as an opportunity because this Market gives uh uh volatility uh enough liquidity so they see this as an uh another Market they can uh deploy their strategies like Arbitrage volatility play and any other Market neutral strategies um so that that's one type and the other guys they want uh the they they're so called you know crypto maximalist they think that uh collecting as many uh major cryptocurrencies as possibly is the best way to um you know uh secure their uh Financial goal so uh there's there are actually two types like I said and um it seems like those who are active in this market right now those who remained they uh have more for a long-term view uh reliably speaking because uh because when you think about that what FTX uh told us at least shortly it's it's it's a risk that uh could make your fund go zero because you picked a wrong counterparty right and when you put that into your calculation that's a huge risk because that's something that you can it's it's almost impossible to hatch so those who want just the just uh Seeking Alpha in this uh class they uh they left most of them and uh those who remain they want some they have some longer View and uh they I I believe they are uh they those who want to want to get more exposure in this market allocating more capital in this market they uh have similar view I think great that's some very interesting points um I think um before we move into a deep dive into uh what what what is going on with the ETF currently in the US mostly and also in Korea uh just to just to give you a very quick news update in Korea uh the current regime has been Pro crypto uh have been rolling out a lot of different kinds of uh changes and changes and updates to the current capital markets law and uh like Ryan says uh Korea is benchmarking a lot of what SEC is saying and doing and will do so uh obviously this will turn the tide on how we think and how we view uh crypto as um as a as part of a traditional let's say a national pension fund which oversees trillions of dollars uh for them to have uh exposure into crypto so before we Deep dive to into ETF i' would love to get your Market views um and just ask a very fun question uh and we can go around and just give you a view on this um do you think the current I mean you've already kind of given your view but do you think the current prices of of crypto Bitcoin mostly is already pricing in an approval for ETF or not it's 100% not priced in too much too much fear uh if we actually look at the chart uh we are sitting exactly where the Black Rock news uh came in yeah so no I think anything under uh anything in the 20s is basically noise and represents a a very uh very good entry point and I think that eventually B as a risk asset is going to catch up with not all of equity but but some of it and and something I wanted to touch upon very briefly there is uh just like on the equity world you have a uh what is called unprofitable Tech that has been doing terribly in a world of high interest rates crypto can be also considered as impr profitable Tech or it's most of crypto generates no revenues but there is a percentage of of crypto a small and growing sector that uh generates a lot of Revenue and is attracting a lot of interest so I I know we we've been kind of pessimistic here but uh up Beyond approval look under the hood and there are some very good things going on great how about you Ryan um I mean it's it's a hard question right but about the pricing of the Bitcoin but uh for me um it's I think it's we are in a we are we are beyond the distribution phase because um it's because it's been uh we we've been uh sideway for a while and there's uh uh a lot of um you know traces that we can uh think as a movement of the another collection phases so uh even though it's before the approval it seems like there's a movement from the uh beer institutions uh or or those who with with with bigger Capital uh to collect more uh more of these major currencies uh i' would say so I believe for that question uh I'm not saying that there will will be no correction anymore but uh we are I mean that that this is what I'm saying to my friends I am saying that it's okay for you to start buying it again so that means we cannot we cannot predict the price itself but uh at least I think I'm a little more comfortable uh in the the range of the price we are right now yeah I I don't think it's priced in yet I think for it to get fully priced in you need new capital to flow into the space and that Capital flow will happen mechanically once the ETFs are created and so um yeah as um as was said basically crypto isn't trading in this PVP environment and we need stop uh real spot inflows in order to actually create that upward pressure and push the prices up because right now trading on derivatives is just kind of shuffling the same Capital around within the industry great um so I would like to go around and ask you the same question as well uh what are the current barriers in the US um that that we should be uh looking forward to or looking after um that is stopping or that is uh that is delaying the current process by the SEC to approve the application for the ETFs oh I think there's nothing specific delaying it they one should be assuming that they will do what they've done so far very consistently which is wait until the very last minute and just then then they change or hopefully yeah so that's uh 245 days from from the moment it was filed um that that puts it in in uh in January great how about you Ryan uh I'm actually totally agree with thethis here because you know logically there's no you know uh no way to defend them to ACC that's what I'm thinking so uh yeah yeah I I totally agree with Alex here yeah I think the biggest hurdle we have has been resolved and so um now hopefully it's uh clear sailing from here but again it's a matter of timing and time and if the recession hits before the ETF approval hits then Bitcoin could have more downside so I think this is probably one of the things that is you know causing fear with new allocators entering the space right now is you know how is the recession going to play out or is the ETF going to come first what happens if the ETF comes then the recession happens all this creates a lot of potential offsetting pressure on on bitcoin sure and I think there there has been a lot of emphasis on the US um SEC on the ETF but as you know uh even in Asia uh ETF is the driving force of every Equity market and uh all the institutions there's about 65 broker dealers in Korea licensed broko dealers that is all preparing to take part in however they can um the do you think the current situation in the US because you have NASDAQ which is such an advanced Market Place uh that can that is actually ready to trade the ETF if you're going into other markets uh Europe and Asia um should we be looking and studying um the the launch of the ETF and how we trades on NASDAQ what is the kind of time frame that you would recommend for Regulators outside the US to study uh post the ETF approval um on that I do want to say the um let's put it this way ownership of uh let's take gold as an analogy ownership of gold uh ETFs basically 50% is in the US 50% is in the rest of the world uh when you look at Bitcoin is uh it's 25 25 billion out of 30 billion uh in asset standard management by several uh ETF like uh uh Vehicles 25 billion out of 20 out of 30 are in the US so it's it's really it's a us thing uh like it or not that's but that's that's the way it is and um the rest of the world already has spot ETFs approved in in quite a few places so I I think is there's no real lesson to be taken we're just waiting for the green light and to move on yeah um I want to say something uh some some different aspect about this so uh it's and this is this might be uh limited to Korea situation but um I I I believe the the major things that's stopping uh our regul Regulators uh from the anything related to cryptocurrencies um is the the image that this word uh has in our society because to be honest the cryptocur the word cryptocurrency is not uh consumed as a positive image in in in our society because usually usually it's tied up with uh the uh the words like gambling uh high risk and the greatness those kind of stuffs so uh and and even even with uh you know the most passionate investors in the world um it's it's unfortunate they our Korean investors were uh experienced uh losses than profit and a lot of the losses they experienced was because of the scam or scam like businesses and there are there are a lot of ongoing invest investigations for them um so I'm um I have to admit that the The Regulators is can feel uncomfortable to give the positive sign to this asset class so um I believe um the the process the the way how we can handle those um those cases and uh the the the right regulation that we can put into this uh asset class could be the uh the another key for the adaption of the um institutional uh adoption in this industry thank you and how about you D oh I I don't have any additional yeah regarding the global aspect can I add something sure thing um there is 130 countries right now developing uh Central Bank digital currency uh out of us out of those 130 we look at G20 and G20 is 19 out of 20 and uh of those uh of of those 199 are in BAS basically already running pilot um P pilot program so there is we barely talk about this in the industry but this is happening many of these abs are going to be based in uh in blockchains or public blockchains are being compatible with such blockchains therefore I think at some point we're going to see a lot of innovation back in the space from coming from the cbdc side and the thing is this Innovation I think is going to be such that we can't even yet imagine what's going to happen it's like the same thing with ch GPT and AI it's going to be so big at some point that things going to change dramatically in a way that we can't yet even imagine I agree with you Alec 100% And we were running out of time so we couldn't touch on other aspects obviously stable coins Central Bank Junior currency so much so much to talk about but we do had we did want to touch and deep dive into ETFs definitely just to summarize um after speaking with three experts we can all agree that ETF is already it's already here uh The Regulators and both sides have to have a very open and transparent discussions going forward it's not a matter of when but it's not a matter of if but when uh I think us has been leading the market definitely Asia has been getting ready and uh we uh chances are if like you said if FTF gets approved in January uh a lot of the institutions in Asia will likely trade through adrs they will likely trade through other forms of uh product that they have access to and then we'll see a we'll see a huge Capital flight outside out of Asia and then The Regulators will start moving and we'll probably start having ETFs approved in Korea as soon as next year so so thank you Alex Ryan Dina uh excellent discussion and thank you all for joining this uh discussion on institution and crypto industry thank you thank you than you everyone thank [Applause] you oh sure