It seems like this is a strange time for cryptocurrencies, with so many incredible things happening. We have a Clarity Act that is supposedly going through the motions. I've never seen such a buzz around institutional adoption. Hmm, but damn the prices. Here, Bitcoin costs about 60,000.
Hmm, I would say that ETH is now like in the Middle Ages, around the 17th century. Hmm, so when you think about the macroeconomic aspects, what is your opinion? What is happening? Yes, that's a great question, and I think that's something that everyone in the room is puzzled about right now and trying to assess and understand what's really going on. Because going on.
Because , for example, in the last two years there has been so much positive news, so much positive regulation that, um, has been taking shape and creating the foundation for what the entire industry has been waiting for a decade, um, to come and understand: what is the regulatory framework? Hmm, how can we build infrastructure? And so, I think what's really happened over the last two years is that I, uh, approached the inauguration with great enthusiasm about all these positive, uh, tailwinds, but then I realized that there was actually a very strong disconnect. And this disconnect has actually come about because institutions are putting money into infrastructure, mergers and acquisitions, and building rails that allow them to detach their existing business from the legacy settlement, trading, and clearing system and modernize it to a 24/7 infrastructure. And that's where capital is coming in now, and, uh, much more than the price, because it's not so much about buying tokens as it is about building infrastructure.
So this is starting to take off at a record pace, and you can see it everywhere with every existing, uh, traditional institution that now has a digital asset strategy that is actually implementing new permissionless blockchain and, uh, digital digital infrastructure into their business. And I think it's very, very exciting to watch, and I think the disconnect think the disconnect is just a matter of time until there's some kind of recovery in token levels and prices. So I hear we've peaked in the blockchain era, not Bitcoin or Ethereum in this case. Well, I remember sitting at my desk in the City sometime in 2016-2017, and this was this amazing technology that we were going to integrate. We are going to improve settlement times.
We are going to make the world a better place. It will be more effective. But these tokens are garbage. Why do I care? They are not supported by anything.
That was the story back then. And I hear from you that this is the story now. But if you go back to that era, there were some innovations that catalyzed them, and the next thing you know, DeFi came along, and then we had this incredible, you know, summer of DeFi and an incredible shift of attention from blockchain to Bitcoin, back to ETH, back to the tokens themselves. So is this the end game as institutions build using technology to do what we know, or do you think we will see a cycle of returning to tokens, and if so, what will catalyze it? Yes, I think this is a question I think this is a question that our clients often ask us, which is what will drive the next token price cycle .
And I think it really comes down again to simplifying what tokens are for and what drives buyers and sellers. And I think what and sellers. And I think what we've seen in the past is that a lot of token launches have actually been driven by, um, venture capital, investing, and allocating funds to innovation. These innovations have taken shape. Many businesses and projects have launched tokens.
They have a product. They are up and running. But the flows in terms of product implementation diverged from the flows of what investors and founders did after unlocking. And so I think that was one of the factors in the divergence in product usage. Uh, they integrate into existing infrastructure into different token protocols that cooperate and have, ahem, compatibility.
But on the other hand, um, just a steady supply from investors, um, brings those prices down. So I think for this to change, we need to get back to a market where there is real value that arises for token holders, reasons to invest in tokens and hold them regardless of the cycle, and I think we still lack that to a large extent for many tokens. There is no clarity on how the residual funds of the business, hmm, how do they get returned to the token holders? Um token holders? Um , how does an investor who holds a token for five years receive a financial reward other than just government rights?
So I think this is really a very basic question for any stock investor. The first thing they look at is, for example, what is the dividend yield? How do you, um, what is the financial incentive for owning the asset? And they consider it relatively. And given that there's really no clarity on most tokens, that's one of the reasons why capital has just gone and slowly migrated out of cryptocurrencies and also allocated itself in the short term more, like into AI stocks and other sectors where capital is just, ahem, better handled.
So, you mentioned artificial intelligence, and what I also hear is fundamental factors. Fundamentals matter, and many investors today are chasing the shiny new toy that is artificial intelligence. An incredible amount of capital is being invested in this technology. IPOs are coming out, sucking liquidity out of potential token investments in this space. Uh, and many people think that artificial intelligence is competing with cryptocurrency for this capital.
Uh, and then you see artificial intelligence coming in and finding a lot of, um, code issues, um, you know, vulnerabilities and potential hacking issues. We recently saw this with electronic money electronic money . So it seems that we are in a period of maximum competition with artificial intelligence. In my personal opinion In my personal opinion , in the long term it will be a very symbiotic interaction of technologies interaction of technologies that will catalyze each other. How do you rate this interface?
That's a great question. I think everyone in this room over the last year has been able to increase productivity at a non-linear scale with the help of artificial intelligence. And I think that's from an asset class perspective. I think artificial intelligence has become a commodity in itself in the last few years, whereas before it was only in the hands of people, now it's in machines. This means that intelligence now has a price, and it is a commodity that can be bought and therefore used for construction and innovation.
And this has led to a significant amount of intelligence moving away from cryptocurrencies to a sector where there is simply a faster pace of adoption and innovation. Um, and that just means that this commodity is now being used to build, uh, infrastructure, to build systems, to build companies. And I think that in parallel with this, and it affects this whole discussion, token prices and the blockchain itself are, in fact, the rails for calculations. And that's what's materializing now, as more and more existing businesses are implementing and building, uh, blockchain, and incorporating it into their payment flow, injecting flows into their payment rails, and moving token shares into a tokenized world where they're traded 24/7. It's the rail that moves finance and value from point A to point B.
And part of artificial intelligence is the level of intelligence that is a commodity. And so the question really is: At what point does commercialized intelligence start to transact and transfer value from agent A to agent B, or from point A to point B, or from company A to company B? And at that point, I think there could be a recovery and also, um, a point where AI starts to come back into this new 247 infrastructure that all the big, uh, traditional financial institutions are implementing right now. So, you mentioned 247. Um, you're on a leading market leading market maker.
You see all kinds of types of flows. As an AI, you know, being a crypto professional, you've been in the markets 24/7 as much as you've been here. This is new to many people. So how do these trends impact your business model as a leading market leading market maker? Yes, I think from an innovation and construction perspective, it's great.
Uh, it's tremendously increasing our productivity across all the different teams and departments. Um, I think it's interesting to see how the movement from developers moving into cryptocurrency reduces activity in cryptocurrency itself, which means there's just less trading happening. Retail traders who were previously active on Binance and other platforms, trading all day, have just moved there and started trading AI stocks because there is more momentum now. They have more traction and greater profitability for Chase. So, we are seeing a slowdown in retail activity on all major platforms major platforms that were actively providing liquidity.
We are seeing a change in mentality in the crypto community, where after last year, after 1010, there was a strong slowdown when people still believed we were in a crypto bull market, and this continued until the end of the first quarter of this year. Now, over the last 6-8 weeks, during this rally, as life has come back to cryptocurrency a little bit, we have seen that many market participants have simply accepted the fact that we are no longer in a bull market, but in a sideways market, and have started to adapt their trading more around it. This means that at the end of last year, at the beginning of this year, we will not sell the rally because there is still hope. We have now seen a large amount of supply return to the market over the past six weeks amount of supply return to the market over the past six weeks , selling any rally in an attempt to trade in a range. And that's the big trend we're seeing at the moment, which is the influx of current participants in the cryptocurrency market.
They increase range limits in the way they trade. That is, they sell the rally, buy the drop, this compresses the range. We see a large amount of supply coming from sophisticated institutional clients who sell options to generate income. And by selling options, they essentially compress the range in which the tokens trade. And so it reinforces this slow sideways movement that has a self-fulfilling prophecy of slowing down the entire market, which drives active investors who are really chasing yield into other industries and into other asset classes where there's just more volatility.
And so slow markets slow markets even more. And so we are in this very slow lane right now. And the question really is when will that change. And what do you think will lead to change? I mean, there are a million catalysts.
Maybe the Clarity Act, ending the war with Iran. Hmm, I mean , there could be a lot of catalysts. Hmm, new innovations, agents. Uh, what do you think will catalyze us from this in us from this in either direction, up or down? Yes, that's a great question.
And I think there have been so many reasons to see change in the last two years. But the reality is that all this positive news that has been coming in hasn't really changed the way capital is distributed, so the question really is , when will capital be reallocated to cryptocurrency? And when that happens, how will it be redistributed? Hmm, I think the previous bull market where all the boats are lifted by the capital coming in, I think that era is over. Uh, I think we're in a market now where there's going to be a lot more focus on picking winners, and where there's going to be more dispersion across different tokens and across different chains, where there's really a momentum towards adoption, towards infrastructure being deployed and used in existing, um, financial markets.
And so it's really about being aware of these trends, understanding what chains are being built on infrastructure, what chains have TVL that's growing, um, in terms of financial assets being tokenized, and how does that impact the demand for the underlying token itself? So, I think this is really going to be an era of token selection, um, years ahead, where there will be a lot more divergence, and the winners and losers will diverge a lot more than what you've seen in the past, where all the tokens were going up at the same time. So, as an active manager, that's music to our ears, right? You mean right? You mean that the mood is quite bad.
Fundamentals are improving, and value will be found in those tokens that have those fundamentals, right? So, it seems like this is the path we are moving on. Yes. Yes, that's exactly what I think will be moving forward next year. I think we're also seeing a lot more, ahem, structured products and a lot more sophisticated investment strategies being rolled out trying to take advantage of the residual volatility that's currently in this asset class.
And when I hear about structured products, I think of institutions. Is that what you're seeing, or more institutions displacing retail? And how do you evaluate this distribution? Even from a geographical perspective, are you seeing changes in the types of your customers, changes in behavior? I think that within the framework of structural products there are two parts that need to be separated.
Um, there are institutions that are essentially just chasing returns and don't care whether the cryptocurrency goes up or down . They're just looking at making a profit, ahem, or alpha, ahem, as it's commonly known within the asset class itself. So they are essentially just deploying options selling strategies in a very systematic manner . STS, as a market maker, provides options liquidity on over 400 different tokens, making it ideal for facilitating the implementation of such strategies. So on that side, we've seen a strong growth over the last two years in the number of sophisticated clients sophisticated clients who are entering this asset class, just deploying these strategies and scaling them.
On the other hand, we see that there are many traditional market participants, such as asset management companies, private banks, who are actively thinking about how to offer their clients more personalized cryptocurrency exposure exposure . And that means instead of just selling them, “allocate 2% of your net worth into Bitcoin.” The discussion, what they are trying to solve, is to create financial products that will allow them to offer clients 2% of their net worth as a result of Bitcoin's growth, but with a share of the risk of a decline. And this is usually done through options and bundling different options into a financial product that can then be sold to investors sold to investors . And I think there's a lot of opportunity under the surface on that side, where financial institutions are looking at how to create this, how to distribute this, and how to structure this in a scalable way.
And on this front, we are seeing significant growth from our clients and partners. As you create this new set of structured products, are you already integrating prediction markets? And how do you think this will develop? I mean, you could start hedging, for example, as parts of companies. Are you starting to integrate this into your flow?
Yes, that's a great question. I think the way to break down prediction markets or our view of them is that the options themselves are, um, similar to prediction markets in terms of the outcome, but the payoff upon maturity is not going to be binary, meaning it's not going to be zero or one. It will be proportional to how right you were . So that adds a dimension when you think about options trading, which is that it's not just about whether you're right or wrong, it's about how right you'll be ? And that creates this nonlinear type of payoff.
But if you break it down, um, a forecast tick is really no different than a digital option or a binary option, meaning your payout is only 01, and so it can be valued very similarly to how digital asset options or options in general are valued. So what we are actively doing, and we have already been actively doing, is increasing the prices of digital options, that is, binary options that have a binary outcome of zero or one, and which essentially have exactly the same pricing mechanism as the prediction market. So prediction market. So , in this regard, we are becoming quite active and ready to deploy this on various platforms that have price prediction based on Bitcoin or cryptocurrencies. We are less active and less focused on real outcomes real outcomes because to a large extent these real outcomes are not really hedged, and they have specificities in terms of risk and how they are priced, and what are priced, and what actually happens is not controllable or observable.
But I think it's very interesting in terms of all the implementation that's happening right now. This is super interesting. So, to wrap up the session, please, any thoughts for the people in the room, how do you see the market developing over the next six to twelve months, I don't know if now is the time to be long, or maybe it's crab season, stay away from here? Yes, I think this is a market that will reward winners and developers who create product market fit and create services that are actually used by the existing financial world, existing technology platforms, etc. On that side, I think the bare markets are here to build, the slow markets are here to build, so just focus on that and from a pricing perspective.
I think what's really interesting is that the flip side of what we just touched on, which is that slow markets create slower markets, creates an opportunity where with options you can actually reposition and also take advantage of that low volatility to be able to take positions that will reward you every time the tokens recover. And so I think these are complex markets that reward patients, and so it's nonetheless an interesting market to be in and continue to, uh, build and, uh, invest in. Wonderful man. Thank you very much for coming today, and all the best. Yes, thank you very much, Chris.
It was wonderful.
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