Coinbase’s Strategic Vision: What’s New and What’s Next? - TOKEN2049 Singapore 2024

so Brett you have uh probably the most access to the institutional crypto space uh in the world and I don't think that's an exaggeration so you're probably the best person out there to ask you know we got the ETFs this year and everyone says the institutions are coming it feels like this is the first year they're actually coming can you just maybe set the scene for us and give us like lay of the land what's actually happen happening in the institutional crypto space uh thank you what an intro psych to be here and thank you for spending the time with me um gosh you know I joined four and a half years ago to try and build this institutional business and pursuing all those relationships and trying to get the world's largest asset managers to to to announce their involvement in the space was a hell of a task it was you know years and years in the making and in between when we started and the moment you know this year that they came we actually had uh a few interesting things that happened with um you know some implosions and some Market softness so you you can't underestimate the significance of having black rocks and Franklin take their brand names uh and really endorse crypto it's just amazing for crypto uh happen to be pretty good for coinbase too we we won a bunch of mandates but the most significant thing um really about the ETFs isn't so much the 17 billion that that's come in which has been nice to have in the Bitcoin space but it's really the fact that it opened a distribution channel so if you think about the profile of the people largely probably retail at the beginning that opted to buy some of those ETFs they're probably unlikely to be in the audience here probably unlikely to be opening a coinbase account themselves so the the access opening up the access to crypto was really um a hugely strategic you know moment for us uh and then we've seen evidence of more institutions coming in so we see a handful of Pensions have come in and usually they're the the last clients theying uh to to activate so really important moment and really sets the stage for making other institutions who haven't entered the stage uh haven't entered crypto think through like what's our plan on crypto um are you sure we don't want want to be involved so anyway big moment okay lot lot to unpack there there's uh big the big Capital allocators pensions coming in there's uh improve brand and Trust in crypto again there's kind of the stamp of approval maybe we could talk about uh the roll out phase of these ETFs because uh to me someone who knows who knew nothing about ETFs a couple years ago uh it felt like okay once they turn on the ETFs we we got the ETFs and we're good and all this money is going to flood in but as you've explained to me in the past there's a slow rollout phase of the ETFs that I think maybe a lot of the crypto native industry doesn't fully understand so can you kind of walk us through just that roll out phase in the timeline of the ETFs and what that actually looks like it's a really good point so we were uh really fortunate to have as much money as that did come in a lot of that were I would say um early and high conviction retail that wanted to come in but really what happens with ETFs is that there's a a phase where the Raa world uh needs to go through an education the ETFs need to be out there on the shelf and Performing for a minimum of 6 months so it's kind of funny like crypto Twitter had this huge expectation of floodgates coming and going to the Moon that was never really in the plant um so we outperformed with respect to our own expectation of what came in but really if you think about like a distribution pipe starting at maybe like 5 to 10% maximum opening without the full marketing Machines of all the asset managers it's progressively opening over time so we're really going to see the full effect of that distribution Channel opening beginning to manifest over the course of the next year or two what is the as we go up the stack of capital you've got like retail and then you've got maybe High Networth individuals then you maybe you have financial advisers and uh Ras maybe you have the funds and then at the top of the stack there's the real Capital allocators the pensions The Sovereign wealth funds folks like that how deep have we penetrated maybe differently asked at the top of the stack the sovereigns and the pensions how far away are they from really pushing into the industry another great question so we're really well penetrated in the high net worth I mean this region is probably the best representation globally of a really sophisticated um and and high impact bunch of users that get trading they understand what a good experience is so really important like this Singapore in particular super important for us so high net worth is activated uh family offices are activated uh crypto hedge funds obviously activated I would say traditional hedge funds are we have a stat that says about 40% of the largest hedge funds in the world are activated on board and activated on on our platform I would say corporates uh small bits of activation here and there corporates are the fortune 500s the micro strategies buying the Bitcoin for the treasury yeah public private you know there's a a few um you know obvious examples but broadly I think they're waiting there's a couple gaming companies there's mstr there's there's a few examples but broadly purpose have yet to be activated Asset Management globally has come through the form of the ETFs but I'd say maybe about 30% activated in total then we're progressively working up to pensions um pensions are the slowest to activate so we're just at the very very beginning of those activations and then Sovereign wealth we've got uh a small handful but we've got a lot of um inquiry and a lot of Investigation going on so I I have great expectation of what will come in the next probably two two to three years interesting okay there are maybe three buckets of those so the on The Sovereign side the reason they could theoretically maybe buy Bitcoin is because it's a scarce commodity and they want to own a scarce commodity the reason so that's maybe on The Sovereign side the reason that a pension might buy Bitcoin I would assume is because all the pensions are underfunded and it's probably going to be a big crisis in the US at some point there what do you think about the you said you use the word yet for the fortune five for the corporates mhm do you think that does like what's the what's the reason that a Fortune 500 or that a corporate would actually put Bitcoin on the on the balance sheet right because they're not putting Apple shares on the balance sheet they're not buying they're not putting gold on the balance sheet I I think you can find quite a lot in the in Michael sailor's rationale for why Bitcoin should be in treasury I think it's um it's good to take note of it's a diversified asset he's got a long rationale for that I I would say more broadly for like crypto broadly for for corporates I I don't think Bitcoin and corporate treasury is going to be the unifying theme across all corporates I do think though um something a little bit less interesting but still very powerful is probably going to be all forms of uh stable coin payments and to facilitate int interc company payments to facilitate uh customer engagement to facilitate supply chain and so we're at the super super beginning of the investigations into that okay so I was doing a little bit of prep for the for this panel uh for this conversation and realized that you guys are the custodian on about 90% of the ETFs out there both the Bitcoin ETFs and the ethereum ETFs how can you just give us a little insight into how you won that business and like what that process looked like uh so it wasn't a moment in time decision which is probably the most important thing to note and um you know Black Rock as one example was probably my first phone call having joined you know coinbase and so um it took long while um to really when was that 2021 or 22 it was four and a half years ago wow okay okay so we're talking about four year sales cycle foure sales cycle so um and not everyone was activated at the time but a lot of credible players in the space we want we want there to be the market needs to have credible Alternatives but for what we built my guess is the reason why we got awarded all those mandates is because we have a a single platform where you have an experience where you can buy sell trade store you can do everything in one place place and we're a public company and we have the track record of operating at scale with with with uh success so it's really kind of a um a proud moment but it was it was it was years and years and years in the making um what about I I notic you so I keep saying the word crypto you keep saying Bitcoin and I'm curious how much of that is because a lot of the conversations that you have around Bitcoin um and so maybe the question here is you know I think I think there's been institutional demand for Bitcoin there's an ETF there's been institutional demand for ethereum there's an ETF there's not a salana ETF there's not an avalanche ETF what what does his appetite Beyond just Bitcoin and E look like yeah if I kept saying Bitcoin I meant say crypto but sure purposeful uh it's a crypto conversation you know for sure and we have um a very large and very loyal and very active crypto first um uh client based with their Venture funds crypto funds you know etc etc I think um it's kind of hard to encapsulate um you know a singular vision for for crypto across a really diverse you know set of segments but I'll say Bitcoin seems like a little bit of like a Gateway and so what we noticed is once clients are on our platform they usually the first thing that buy is Bitcoin eth usually comes next and eth usually lights the imagination on fire and they begin to investigate and say like what's the difference between this protocol versus that what's you know what are the differ what what are companies building and how is crypto going to disrupt you know the broad swath of financial services and like what is this so there's a there's a Natural Curiosity that just builds and that I feel like the dialogue gets richer and richer and richer is it fair to say the conversation around Bitcoin is more of a digital gold Global macro hedge conversation and the eth conversation is more of a technology software platform or it begins there okay I I I think in the in the in the minds of people that have yet to really dive in when think of like the future of money people gravitate towards eth but the people in the room supporting Bitcoin would take exception to that um but that's it begins that way uh and then I think people begin to have a a better and more more precise understanding of the diff the different activations over time nice I looked over your head and saw this panel is actually titled coinbase strategic vision and I'm asking you about why an institution is buying eth so maybe I'll tie it back to coinbase's strategic Vision how do you think about um I mean you guys have a lot of international announcements and expansion stuff going on and this we're obviously in Singapore right now what does it look can you just maybe give us lay of the land and like what the next 12 months could look like yeah so so D like a little bit first on that uh big big picture of strategy so probably the the the two most important things for us right now are expanding our footprint in the derivative Market globally both both domestically and abroad and then expanding internationally so of course we were started in the US naturally we have a bigger share there than we do elsewhere but but uh we have and have had for a while the desire to expand globally so what does that mean we're going to continue to take the trusted and regulated route uh We've launched intx which is our International per exchange and and the the key customer segment for that International expansion is actually Singapore uh so it's actually this room and we're trying hard to build share and trading activity in perss for the people in this room and in this region so those are the two two most important things derivative uh market share and international expanding International footprint and Singapore is the key Market of the international markets you're expanding to it is and Singapore for us is also the hub for all of Asia pack for us as well wh why is that why not Hong Kong or somewhere else uh you know we've had we we've had engagement in different places we've observed that Singapore seems to have a bigger and more active um and more consistent and more sophisticated user set so far we we we struggle to get as much momentum as we would first help a couple years ago in Japan and we've got good engagement in Hong Kong too but this is our choice of where we should serve the region from nice that's cool um what about derivatives why do you guys feel so confident I met I met the guy who's running who's running the derivatives business um and I'm just curious why you guys feel so conf it's a I don't know if it's a crowded Market but it's a tough Market to play in why do you guys feel so confident you can win that market not in a year not in two years but over the long run yeah first of all it's a big wallet and so so it's just big picture perspective if if we want to be relevant to you know crypto users globally we have to be in the per Market that's where most of the liquidity is um and so it's a big wallet for us to penetrate it's a highly competitive uh wallet as well if you look at other actively traded markets as well it seems like most of the liquidity tends to pile up in the derivative space and so when we think through how we can be relevant we W want to be relevant across you know spot trading financing staking all the things that you want to be able to do with crypto assets including derivatives the the next version of that is going to get into cross product margin financing and being more efficient with capital getting the right uh amount of Leverage and and most of all continuing for us continuing to be regulated and trusted in all the markets in which we operate so an example of that um we've uh now have a mhid license and that's going to allow us to actually offer uh derivatives to both retail and institutional all across the European uh space so again important there's probably two schools of thought when it comes to uh the impact of regulation on the industry one school of thought might be look until we get better regulation the industry is NE is is never going to advance and you know there's there's old political conversation to be had that we're going to have but that's one school of thought is this industry can't advance until there's really good regulation the other school of thought is institutions will will do dirty things for for a little bit of yield and for for for good upside how much do you think that uh regulations have um like either hampered crypto the last several months and how how big of a impact do you think regulation will make on the next I don't know one two years of crypto well couple observations I would say the regulatory framework is different and operates at different speeds across everywhere obviously um the US is in many ways lagged behind a lot of other markets um but but crypto adoption for both consumer and institutional has ballooned over the past couple years notwithstanding there hasn't been has not been great uh Clarity in terms of Regulation it's certainly hampered and slowed down I would say uh institutional adoption is people are waiting for clarity waiting should we or shouldn't we if we how but I what I would say it feels like crypto is an Unstoppable Force and and and that's even with the backdrop in the US of a not particularly friendly regulatory environment the world's largest asset managers went forward and kind of brought that you know made that product come to be I think that's a good indication of of collectively what the world thinks of the of the future of crypto um and its ability to to to disrupt financial services and to and to disrupt all sorts of Industry and so with that big of a force and that much momentum going into it I kind of maybe naively believe that that regulation is going to be forced to become more clear and as in when it does it's going to continue to have you know waves other waves of capital uh and engagement propelling crypto further I yeah I I tend to agree with you um I want to go back to something you said at the beginning of the conversation about like the timeline of activations so I think one thing can you can you just explain to us how it actually works with um okay so you guys are the custodian on something like a black rock ETF and then the Black Rock ETF goes onto Charles Schwab's platform and then Schwab has a whole sales team that is responsible for pushing it how do you think about what coin bases like you you guys are sitting at the bottom of that stack right there so how do you think about what your team's or coinbase's role is in uh educating and activating some of those brokerages do you play a role or it's like look at that point it's on the ETFs to educate them you know for many years we've been playing role and advocating and then going out and trying to do introduction and crypto acmy and all sorts of things um I think our strategy is to say let's have a platform let's inviting people that those that are interested you can go directly on that platform great the next best thing is then to position coinbase in a way that it can open up distribution channels which is what you're talking about with black rock and all the other Asset Management that opens up Raa channels as well private banking channels the third uh part of that is really to offer up the infrastructure that we've created to support all those things and offer that you know everything as a service and so that's probably the next phase and so everyone that is a late ented or hasn't has yet to come into the space should think of us as um an opportunity for us to act as a sub custodian to their own offerings right wallet is a service staking as a service you know custody is a service and that's one of the visions that I think Brian's got for the CDP platform yeah I'm getting the signal uh that I have to start we have to wrap this up but so maybe I'll finish with one question which is I think a lot of people in this room spend a lot of time on crypto Twitter and we're scrolling all day you're actually in the room with a lot of these institutional folks what is maybe the most misunderstood thing about the uh institutional interest in crypto that you know we as the people scrolling all day could never get uh from Twitter that that you get because you're in the room so if I had I'm thinking about that I guess I would say the most misunderstood thing would be the fact that institutions uh engagement doesn't e and flow as much as it does on as everyone thinks on price okay and so you have you have a bad week and all of a sudden everyone's uh you know in in a really bad mood and things are going to hell um the other thing that's misunderstood is just the consistency with which the institutions continue to plow forward teams of people real due diligence and even with the es and flows of markets up and down uh we talked like a path up into the right of institutional engagement and that's not something that week to week and month to month we talked about like a a soft summer in terms of price action that by itself is not dissuading the the sort of Unstoppable force of institutional adoption up and to the right institutions Unstoppable Force good words to end it on all right thank thanks