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Frank Chaparro, Ari Paul, Greg Tusar, Trey Kelly, and Jeanine Hightower-Sellitto Discuss Crypto at Greenwich Economic Forum

Frank Chaparro, Ari Paul, Greg Tusar, Trey Kelly, and Jeanine Hightower-Sellitto Discuss Crypto at Greenwich Economic Forum

Frank Chaparro, Greg Tusar, Jeanine Hightower-Sellitto, Trey Kelly, and Ari Paul discuss Crypto at Greenwich Economic Forum (Greenwich, CT)


  • Negative headlines about bitcoin are easier to understand than concept of bitcoin itself
  • Regulatory uncertainty makes bitcoin ecosystem problematic
  • General idea behind crypto is to reduce intermediation


INTERVIEW TRANSCRIPTS: Frank Chaparro, Director of News at The Block, Greg Tusar, Co-founder/CTO of Tagomi, Jeanine Hightower-Sellitto, Managing Director of Operations of Gemini Trust Co., Trey Kelly, CEO/Co-founder of GRIID, and Ari Paul, CIO of Blocktower Capital

Frank Chaparro – Director of News, The Block: 00:00

Today, we have an amazing group of people for the appropriately named crypto panel. We have Greg Tusar who is the CEO of Tacoma trading firm. We have Jeanine Hightower-Sellitto she’s at Gemini, which is a cryptocurrency exchange. We have Trey Kelly who runs Griid, a mining firm. And last but not least, Ari Paul who runs Block Tower capital, a hedge fund and full disclosure and investor in my company, The Block, which is a media and research firm. And we have a great institutional product for asset managers called Genesis. You want to talk to me after the panel about it? I’d be happy to tell you all about it. There’s my shell for the panel and we shall move on. I think the best place to start just given the backdrop of, of everything right, are the, the anxiety over whether there’s a looming recession, those anxieties are easing. But there’s still these other, there’s other questions in the background. Under underfunded pensions, the growth of government debt, budget deficits, the race to print more money. And many pundits many folks in the Bitcoin world like to think that all of that is good for Bitcoin as a hedge, as an uncorrelated asset. Is that true you think Ari?

Ari Paul – CIO, Blocktower Capital: 01:18

Totally, and I’ve definitely been one of the pundits in that role kind of promoting that view. So I’m a big fan of rate raise and like I, I’ve somewhat frequently posted things like Ray Dalio’s essays and then saying he concludes by gold. He’s not saying buy Bitcoin, but the exact same logic in my view applies to owning Bitcoin. So I don’t want to ramble on on the point, but, but just to, to say very succinctly a lot of the traditional global macro hedge funds, we talked to the employees and the owners most of them own Bitcoin themselves and for their funds, they’re considering it and they’re kind of looking for confirming evidence to view Bitcoin very much the same way they think of as gold in their portfolio. Potentially as a hedge to things like a global currency depreciation deck crises just general instability.

Frank Chaparro – Director of News, The Block: 02:08

That’s a good point. How many folks in the audience own Bitcoin? How many folks in the audience think cryptocurrency is just sest pool? All right, so about even about even why isn’t it assessable, Greg?

Greg Tusar – Co-founder/CTO, Tagomi: 02:25

I think that one complicating thing here is even understanding what cryptocurrencies are in the first instance. And so there are many sort of micro narratives within crypto. So there’s clearly in the winning and most prominent one right now is Bitcoin as cash commodity as digital gold. But when you take a step back and look at globally, what are the different ways the underlying technology is being used? There’s, it’s a commodity. It’s potentially a way to issue equity. It’s a way digitize and tokenize other assets. It’s a potential payments mechanism. And when you look at the universe of potentially tradable cryptocurrencies, each one of those fits a different use case for sure in the here and now. Bitcoin is the preeminent crypto and the one that’s most likely usable as a macro hedge and as a and as digital gold. But I think there are a lot of micro narratives that you really have to consider. Including things as big as you know, looking at big tech and why does value inner to the operator of a network like Uber or Facebook or rather than to the underlying producers and consumers of goods and services. And so crypto as you know, crypto as an asset class is potentially very big in the here and now. I would focus on Bitcoin as the most usable and most practical crypto asset.

Frank Chaparro – Director of News, The Block: 03:30

If we buy into this idea of Bitcoin being historical. And my colleague Ryan today made a point similar to yours, Ari, which is assets deli of yesterday might have been making a case for Bitcoin without really knowing that he was. But if we even buy into that and we buy into the thesis that it can serve as this form of digital gold, I’m sure from a asset allocators perspective, there are so many questions around how do you price this thing? What, how can I value it? There’s no real measures to do that. Perhaps there’s the question of hacks. How do I store this? So even if you get over that first hump of seeing that there’s a thesis there, how do you get over that second hub?

Trey Kelly – CEO/Co-founder, GRIID: 04:48

Yeah, we see and we saw it probably three times more hands or cryptos assessable, then I owned Bitcoin. And a lot of that is for good reason and I can empathize with that because first of all, it is a very dense subject matter. It’s the intersection of game theory, cryptography, math, computer science and you know, on top of that you have, you know, so the learning curves relatively steep and on top of that, you saw in 2017 in early 2018, you know, anytime large amounts of wealth are created in a short amount of time, you attract all the scammers and fraudsters, and especially when it’s done in a form of money. So what we’ve seen is a huge spike in the ICO. As many of those, you know, the headlines are much easier to grab with negative news than with positive news. So we’re not seeing as much around how this can be an uncensorable store value to go across borders. And you’re seeing much more, you know, retail investors scammed out of millions of dollars. And so, you know, the two of those things coupled together, one, you’ve got to dedicate hundreds of hours of time to be able to understand this and have working knowledge of the space. And secondarily what we saw in 2017 and 2018 with the ICO bubble attracting a lot of those folks who did not have the right intentions.

Frank Chaparro – Director of News, The Block: 06:23

What do you think Ari? I feel like there are, I don’t know if it just can be explained away by saying, you know, you haven’t done enough homework, or you haven’t necessarily researched this complex topic enough. There are a lot of characteristics about this space and Bitcoin that make it uninvestible for many people. What do you think are the top reasons why is

Ari Paul – CIO, Blocktower Capital:06:46

Oh kind of two different angles on this? So the clear list of, of obstacles as I see them right now regulatory uncertainty which occurs around the edges. So Bitcoin in most developed countries is very clearly legal. There’s a clear tax the regulatory regimes are actually quite clear around Bitcoin. But around other assets it’s less clear. If you’re trying to be a service provider, like a custodian, like an exchange, it’s very challenging because for example, there’s a massive backlog of broker dealer registrations with various regulatory agencies. So if you’re trying to become a service provider, it’s unclear what regulators want from you. It’s unclear what, you know, how you can be regulatory compliant. It differs by country and there is existential concern that that could change. So while Bitcoin is totally illegal in the US today, none of us know what Donald Trump might tweet next.

Ari Paul – CIO, Blocktower Capital: 07:34

And you know, what kind of even if it remains legal, what kind of pressure might there be on financial institutions? For example, a lot of big banks will close your account. If, for example, you do illegal transfer of US dollars to Coinbase, everything about it is legal, but banks are kind of scared. The treasury department may pressure them, may look at them more closely if they’re supporting those kinds of transactions. Another is the operational infrastructure, things like audits or difficult fund administration. Everything is somewhat unwieldy and ad hoc. All of this really boils down in my mind to this amorphous concept that really runs all the finance, which is abstract trust, which is really psychological. So like we don’t, well I’ll speak for myself. I don’t really know how cell phones work, but I kind of just trust that they work and I might as an investor invest in a cell phone company without having a really deep engineering understanding cause I kind of take that for granted.

Ari Paul – CIO, Blocktower Capital: 08:27

We build up these massive stacks of technology. If we’re evaluating Facebook today, we don’t really think of it as a tech company, right? We’re not worried their databases are going to fail. We think of it as a consumer product company. We kind of take the tech stuff for granted and I’m gradually seeing that happen in cryptocurrency where when I used to give talks on it in early 2017 I would be explaining very bare bones, detailed granular items about how blockchain works today to that same audience of a CFA society or group like yourselves. It’s not that you guys are experts in what a blockchain is in a technical sense, but you probably have enough of an understanding. You’ve heard that same explanation given enough. You’ve heard talents, a technical experts verify it for you. So there’s some truths about it. You probably just take for granted and trust at this point.

Ari Paul – CIO, Blocktower Capital: 09:08

So building up the stack of trust is a huge part of how finance and life works more generally. And that applies with institutions as well. So, for example, Fidelity getting into the custody game and the launch of CME futures on Bitcoin in 2017 were both very exciting events because it lends, that kind of enables us to blindly trust if the CME has Bitcoin futures, you know, we kind of trust that they’re doing their job, that lends a lot of credibility. Institutions like fidelity custody and we don’t need to do as deep diligence into the custody processes. We don’t need to feel like we’re experts on Harbor security and cryptography. We kind of trust the fidelity is going to do that, especially if they have a, you know, a top name auditor come in and verify their work. So I think we’re very slowly building up the stack of trust across a huge number of different areas, almost all of which are still incomplete. But the reason people in this room will be comfortable custodying Bitcoin if fidelity in three years or five years is not because you’re going to be suddenly experts on cryptography. It’s going to be because I’m going to be, because you trust this web of expertise and institutional knowledge that is built up over time.

Frank Chaparro – Director of News, The Block: 10:13

And I’m sure Jeanine would want them cussing with Gemini trust. But what from your perspective to bring you into the conversation over the past year and three months that you’ve been with Gemini, a cryptocurrency exchange, they’re also custodying assets for different investors and such and trading firms. How has the client profile changed and what has changed their minds about this space and help them cross that chasm to invest?

Jeanine Hightower-Sellitto – Managing Director of Operations, Gemini Trust Co.: 10:41

So Gemini, well as a storage services for cryptocurrencies for customers that want to buy and sell cryptocurrency on our exchange as well as stored in a cold storage facility. Similar to what ari was talking about with fidelity, Gemini unlike some of the other competitors in the space, operates as a New York state trust company regulated by the department of financial services like any other trust in the state of New York. It’s one of the big hallmarks for our market. And one of the things I think is really complicated in the crypto landscape is the web of regulatory frameworks that exist in the US as well as other jurisdictions for trading and participating in the crypto markets. There is no a federal regulator like the SEC, I worked in the options business for a really long time. Our markets were regulated by the SEC, the, we only dealt with sell side brokers.

Jeanine Hightower-Sellitto – Managing Director of Operations, Gemini Trust Co.: 11:26

They were all regulated by FINRA. And so when customers and investors were doing business with the exchange, normally had to think about, you know, was the exchange, you know, facilitating money laundering or a beating venting terrorist or things like that. And so there’s different standards for the cryptocurrency markets in terms of who you’re doing business with, what regulatory framework do they operate under and are you comfortable as a business participating with those companies? So for Gemini, as well as some of the other more repeatable participants in the space, reaching out to institutional investors, which tend to be at this point tend to be crypto hedge funds some family offices. And we’re starting to see more interest from some of the larger investors in this space, but they’re not really here yet. I don’t think anyone in this stage would tell you that there is, anyone probably in this room perhaps that has part of their fund devoted to crypto.

Jeanine Hightower-Sellitto – Managing Director of Operations, Gemini Trust Co.: 12:18

But we are seeing some endowments make progress into the crypto space, not necessarily on the listed markets. A lot of those transactions, like other asset classes are done on an OTC basis. But certainly from the custody side, there’s a lot of interest in how you actually go about storing these assets. Some of the biggest challenges people have. And, I would beg to differ with Ari for some polite disagreement that simply trusting someone’s brand name is not enough, especially from some of the firms that have subsidiaries operating their crypto businesses where there is limits to the liability for those businesses, it’s not really fidelity you’re working with. It’s a subsidiary. So I think the biggest thing that we’ve seen is a lot of the institutions that are looking at crypto are really starting to hire and devote resources to looking at this space.

Jeanine Hightower-Sellitto – Managing Director of Operations, Gemini Trust Co.: 13:02

And that’s really the first step to people investing in the space. I wouldn’t recommend anyone just blindly buy Bitcoin and go to fidelity because they know them as a brand name and they think it’s a good time to buy. It’s not only hiring the right people that can really understand the product, but can understand the technology and the security profile. It really is a small and emerging market at this point because there really isn’t that much experts in this space. I think it’s really hard to hire people that have a longstanding expertise in the space. The industry’s only been around for less than 10 years, and so 11 years, I guess we just had our 11th birthday. So I think that’s where people are at and I think we’re seeing continued growth even through some of the slower periods of price movement. Granted, of course, when prices are moving, everybody’s interested, it’s making headlines in some of the main papers and people are interested in looking at it as an asset class because they’re looking at you know sizable returns. But I think it’s the longer-term trends of people developing their digital assett task force. The expertise in house from a security side first and foremost and then from an investment side.

Greg Tusar – Co-founder/CTO, Tagomi: 14:06

One of the, I mean, part of the reason to invest some amount of time into this. You know, there’s, there are a lot of different ways that crypto will end up manifesting over the next decade. You know, like we talked about before, one is it’s a way to raise equity, right? So it may come to pass that some of the companies that you invest in are going to want to give you tokens rather than shares or something else in the future. I think the whole ethos around crypto generally, like I started my finance career on the floor of the exchange. I ended up working at Goldman for the bulk of it, helping institutional investors trade more effectively, shaving basis points off of executions and that sort of thing. And over that period of time there was a general trend towards disintermediation and reducing frictions and getting, you know, getting frictional costs from hundreds or thousands of basis points down to now fractions of basis points.

Greg Tusar – Co-founder/CTO, Tagomi: 15:03

And the general idea behind crypto in all of its manifestations is reducing intermediation. The distance between producer and consumer of goods or services generally, it’s not the case in every instance means that, you know, more value to those two counterparties and the less is lost in the process to people who were who are intermediating along the way. And that means everything from, it’s a token that you get in the form of equity and how you custody that and do all of those things. There aren’t five people in between, or in the case of payments, you’re losing less in the form of you know, money going to payment processors and all of the related intermediaries, etc. So the reason to spend some time on this now is one of these different manifestations of crypto will take hold.

Greg Tusar – Co-founder/CTO, Tagomi: 15:57

I’m very convinced, but it’s impossible to know which of them is really going to be the preeminent narrative in five or 10 years and investing some time to understand how do I store it, how do I, what are the operational belt and suspenders around I would need within my fund to have people who can trade it and do operations for it or how do I evaluate counterparties and credit risk and all of those things are going to matter as the asset class evolves. But there is very clearly in the here and now a Bitcoin as store value narrative, which I think is very worthy of time and investigation. But that by itself wouldn’t be the reason to spin up, you know, a team of groups, you know, having some time invested in the digital asset space at large.

See related article: Gillian Tett and Mohamed El-Erian Deliver Fireside Chat at Greenwich Economic Forum | ESG News – Greenwich, CT

Frank Chaparro – Director of News, The Block: 16:47

Those two things connected in terms of the, the transformational impact that blockchain and tokenization can have on, you know, let’s say US equity trading, that’s one thing. Does that benefit? Does that have anything to do with Bitcoin’s value or the value of the crypto currencies?

Greg Tusar – Co-founder/CTO, Tagomi: 17:07

I mean, the common denominator to those is understanding operationally how to deal with them. How do I, how do I, what do I do once I bought it? Where do I go to buy it? How do I not pay 5 to 10% in transaction costs or whatever it is. It’s much less now. But you know, those are the things that are in common between buying Bitcoin and buying, you know, a smart token that’s related to a smart contract that someday will, we’ll have a much larger use.

Trey Kelly – CEO/Co-founder, GRIID: 17:50

And I think part of that too is that those are big words and new words and intimidating words like tokenizing equity just means that instead of tracing back to a piece of paper, you know, we live in a digital world, it’s digitizing that equity and why would you do so that there’s less friction in the process and why would you use blockchain? Because it’s a distributed, replicated database where there’s not one centralized server keeping those records. And so it’s more redundant. It’s more convenient. It’s just digitizing what we’re doing today.

Frank Chaparro – Director of News, The Block: 18:09

I’m going to play devil’s advocate or the other side of the coin, no pun intended. Many people might argue that we have in the United States say it’s the most liquid capital markets in the world and that if I want to make a large go in and buy, you know, hundred thousand IBM or something, I could very easily do it. Why re-invested pillar this campaign? Why fix it?

Trey Kelly – CEO/Co-founder, GRIID: 18:29

Yeah. I think when we’re talking about the equity piece of this, a lot of this is, you know, access to a private market as well and keeping tabs and tally of those shares. You know, anybody who’s, who’s delved into cat tool math knows why Carta exists and some of these things they can get quite complex. And so having a trustless system, the only thing Bitcoin and this idea of tokenizing equity with smart contracts, which is just a simple way or a complex way of saying simplifying the process to make these things digital is that they’re built on blockchain technology, which is just an inefficient database because it’s replicated all over the place. Instead of one centralized server. To me that’s kind of as far as it goes.

Jeanine Hightower-Sellitto – Managing Director of Operations, Gemini Trust Co.: 19:12

Well, and I think the other thing that comes along with that is just the access to wired distributed base for potential investors in any of those projects because of the lower cost and the profile and the effort to distribute them and keep track of the record keeping, which is, is ultimately what differentiates it from a traditional placement offering.

Ari Paul – CIO, Blocktower Capital: 19:29

I’ll add a few points. So I, I think I’ll, here’s a, I don’t know if this sounds outlandish or be in the crypto world. This would be a very conservative prediction, but I think in 20 years, regulators coin 100,000, within 20 years, regulators will require all equities in developed countries to be tokenized. And the reason is very simple that right now there’s no real time transparency into who owns what assets. It’s very hard to do criminal investigations, for example. Let’s say there’s a big options trade and Microsoft stock right before an earnings announcement SEC says, we want to investigate that. That looks like insider trading. A good chunk of those investigations get abandoned due to difficulty because those the custody of the options trade goes through so many intermediaries that it takes a huge amount of SEC manpower to investigate who actually did the trade, which is comical.

Ari Paul – CIO, Blocktower Capital: 20:12

I mean it’s, we’re using basically 40 year old technology and not availing of ourselves. A very, very simple, mundane, real-time transparency. Another thing with the idea of, of w we are using the term smart contract, which is basically just code is regulators can build regulation into the asset. And this is not Phi. This is very, very simple. It can be done today. So if regulators, say for example a investors should not be able to resell a security for one year, well, currently they have no way of stopping the resale. They just punish people after the fact. What if you could build that limitation into the asset itself? The literally is not transferable for one year. That just makes everyone’s life easier. It cuts down on it makes enforcement much easier. So central banks love it. Regulatory agencies love it.

Ari Paul – CIO, Blocktower Capital: 20:57

It means eliminating a good chunk of the back office. So basically every financial institution, because the stuff just becomes, becomes a mundane routine database instead of trying to figure out like I was a treasury bond trader in a former life. And for example, cascading failures to deliver somewhat frequent where credit Suisse sells a treasury bond to Goldman Sachs who sells a JP Morgan to re rehypothecate it and one entity has a back office failure and you end up with this crazy mess that takes a week on rabble cause no one knows who actually owns what bonds. All of that is very silly because this is already digitized, right? We were just using basically 50 year old databases. So this won’t happen overnight. I’m not naive. Change happens extremely slowly when you have kind of these entrenched bureaucracies and technology, technological systems. But this is the future in a very, very simple, mundane kind of way.

Frank Chaparro – Director of News, The Block: 21:45

I think if I was sitting in the audience, I would appreciate that sentiment and get all right. Sure. Maybe blockchain tokenization improves trading might help with the regulatory agencies and finding nefarious actors. But I still don’t understand why that’s good for Bitcoin and maybe it’s not, maybe they’re two completely different things, but are they connected?

Ari Paul – CIO, Blocktower Capital: 22:11

I think mostly separate. The underlying technology which enables real-time transparency for settlement of, of financial value is kind of the theme that connects them. But mostly they’re separate. I mean, you so this kind of leads into a topic I imagine is on a lot of your minds, which is things like Libra and the Chinese national cryptocurrency DESEP, fed. Now all of these other things, a question we, that we deal with the scripted currency investors is that bullish or bearish or these competitors to Bitcoin. And I do think you get an effect of socializing, normalizing the idea of the technology and the user interfaces. So similarly if we’re tokenizing equity and creating infrastructure to securely transfer value via these ledgers, you do get benefits for Bitcoin. A terminological distinction that that’s also ideological.

Ari Paul – CIO, Blocktower Capital: 23:05

Like how do we think about the difference between you know, if the US dollar is turned into a cryptocurrency, is the federal reserve is talking about half doing with fed now, how should you think about that vs. Bitcoin, a really simple dichotomy is permissioned and permissionless. So Bitcoin, anyone can do a transaction and there’s no basically censorship, it’s close to impossible. Whereas obviously with the fed dollar, it’s a controlled system. So the term permission to permissionless is the best I’ve heard to capture that. And I think the spread of permission systems like tokenized equity do benefit the permissionless just by similar to how almost any investment in internet infrastructure benefits. Every internet company, you get more users, you got more general investment in tech that ends up getting us live. For example, a crypto, US dollar ATM can probably also be a Bitcoin ATM very easily with a few lines of code.

Frank Chaparro – Director of News, The Block: 23:46

Sure. Fair enough. How, I mean, how many folks in the audience buy into this idea of tokenization or blockchain? How many of you are a blockchain but not Bitcoin types? So you get blockchain, you think it’s going to be great, but not Bitcoin. How many of you think we’re big nerds? None, good. Perfect. so let’s focus then on that, I’m sure many of you have conversations, whether it’s with potential counterparties on your trading platform or with potential folks looking to trade on the exchange and maybe just your old hedge fund friends, right? What do you think are some of the main reasons why some, you know, how would you push someone who gets blockchain, understands the benefits and the efficiencies that adds to the system, but don’t think that there’s a value in the Bitcoin trade, especially with this backdrop, right? You look at things that are going on with Hong Kong, the unrest that’s there and it’s translating into the volumes on those exchanges, on the Bitcoin exchanges exploding. Because what you have as a sensor, you know, it is a censorship resistant form of money that I can transfer very easily across borders, right? Or in Argentina where you have crazy inflation, many different areas of the world where you haven’t seen inflation. Well it’s a store of value. It’s going to protect my well. Are those the two key things or are there, are there other aspects?

Greg Tusar – Co-founder/CTO, Tagomi: 25:24)

So those are, those are a couple of the key things. And I think it highlights something about Bitcoin and crypto generally that are unique about this asset class, which are that it’s global and borderless and send it virtually sensorless. So that actually from a regulatory perspective makes it hard. So we in the US regulators would like to have the ability to go to an exchange and put forth some rules and regulations. But at the same time, Bitcoin operates 24 hours a day, seven days a week in a very globally connected set of networks and exchanges which some of which would be in the US as jurisdiction and some of which would not. And that’s made it difficult for regulators to get their arms around, you know, how do I make sure there are sensible, you know, rules around exchange participation, good AML and KYC, etc.

Greg Tusar – Co-founder/CTO, Tagomi: 26:24

There is a global move to adopting better and more stringent KYC and AML rules and regulations in a set of guidelines that the FTF put forth. And I think a serious desire to shed this idea of crypto as a venue for money laundering. But it’s a challenge and it’s unique to crypto because it is so global and well-connected. That also is a feature, right? So in countries where it’s, there’s rampant inflation and you don’t want to own local currency, it is easy and possible to use crypto as a way to you know, to hedge yourself against the effects of, you know, whatever local policy and currency policy.

Frank Chaparro – Director of News, The Block: 27:11

What is the largest, or how you might not be able to answer this, but what is the largest hedge fund that’s linked up to your system or?

Greg Tusar – Co-founder/CTO, Tagomi: 27:21

Yeah. So I think this was mentioned earlier but, but the likes some of the largest endowments, so this was publicly announced that Yale and others had had allocate of order hundreds of millions of dollars to a crypto dedicated sleep. So what we see as typical investors, so we started to go me as a place where a, an institutional investor could open an account, sort of a brokerage firm for crypto. So rather than going exchange by exchange and establishing relationships and worrying about what do I do with my stuff now that I’ve got it the idea of a prime broker in crypto, the same that you might have in other asset classes was our idea. And so what we see is everything from, I’m a VC and I’ve created a sleeve for my LPs to get crypto exposure and I now need to buy of order tens or hundreds of millions of dollar’s worth of Bitcoin, Ethereum, generally the large liquid tokens to crypto specific hedge funds like Ari’s that are experts in this asset class and understand all of the things that we’re talking about. And that tends to be where to the degree they’re are organized asset managers in the space. They look more like that. From our point of view. We’ve seen very few traditional investment managers step in is, as Jeanine said earlier. And then after that you know, minors and so these tend to look like the institutions and entities in the crypto space today.

Frank Chaparro – Director of News, The Block: 29:01

But there are problems. I mean, not too definitely. We don’t definitely want to paint this as a panicky or as an, as a perfect solution to everything or a perfect market. Right. if you look at things like we talked about this in the prep call, the growing, what some are calling a credit crisis in the cryptocurrency ecosystem. $5 billion worth of originations for a market that’s 200 billion in market cap you have firms coming online, it almost seems like every month with a new lending offering, interest rates are like 11%. Sometimes you can find them much higher if you go to some of these staking coins, 200%. Right. It’s pretty remarkable. Bloomberg noted it as a possible, or someone in a Bloomberg article noted it as his biggest fear, this credit bubble as potentially being the MF global or Lehman brother’s moment happening. Is it something that worries you as an investor?

Ari Paul – CIO, Blocktower Capital: 29:45

It’s not yet that big a, I definitely think it could, it could grow to that scale. I’m definitely concerned that similar to in any financial market that people are attracted by high yields without really understanding the risks they’re taking. So for example, it, to be Frank, the cryptocurrency industry is a young one and is populated with a lot of really young people as well as some industry veterans. You know, who come from additional finance. But there’s a lot of people who are very naive about very simple things like counterparty risk, which of course can happen in traditional finance as well. When we were all sure that prime brokers couldn’t fail and the buck couldn’t break and we were all totally certain that, you know, it was impossible. So it happens regional finance as well. But in cryptocurrency it happens very easily that people are just naive about the risk they’re taking, particularly on counterparty risk and technological risk and things like that. But at the moment, the scale is pretty small of the lending operations. An existential fear, this happens periodically is you getting large exchange failure because in cryptocurrency, it’s the most attractive asset in the world to steal. Because if you seal, you know, if someone’s going to steal a hundred million dollars by a bank wire, it’s pretty hard to get away with. If someone steals $100 million in cryptocurrency and they know what they’re doing, their odds of getting away with it are fairly high.

Ari Paul – CIO, Blocktower Capital: 31:14

So exchange operators, exchange employees and hackers, target cryptocurrency exchanges for good reason. There was a, I forget the name of the bank robbery in the old West, but someone asked him why he robbed banks and he said, cause that’s where the money is. So today cryptocurrency exchanges are kind of the obvious place to target if you’re trying to steal a lot of money and get away with it and they fail. Curiosity, big ones, large failures. It spooks the market every time. And over time we are building up a little bit more robust security practices, a little bit better general understanding. So I don’t think it’s a pressing concern for me at least, but the risk of a major credit bubble is certainly high. As people flood into these high yielding products.

Trey Kelly – CEO/Co-founder, GRIID: 31:54

Yeah. I mean I think share similar sentiment. I think largely, you know, that’s not a crypto market specific fear. I think the, you know, the things as I think about all the folks in the audience and their perception of Bitcoin taking it for what it is in the stage that it is and given the fact that we’ve seen such volatility you know, what comes to mind for me is like there are ways to get involved in Bitcoin without being a long-term bull or believer. And more so than just trading the volatility too. I think like, you know what, one of the things that we mined Bitcoin so we look to secure low cost defensible power around the world.

Trey Kelly – CEO/Co-founder, GRIID: 32:40

And believe that independent obit coin value will accrue to low cost power. Whether that’s because of the high density data center or because you’re mining Bitcoin or both. And so I think, you know, there’s, there’s a certain perception that I have to be fully bought into get involved. And it’s intimidating given the volatility of the market that if you start to build a position might fall off a cliff or might it go through the roof. You know, we saw a 42% move just last week. You know, and it happened to be on the upside, but we’ve seen just as many on the downside. So I think there’s merit to the trepidation in the market. I’m sure that the traders love that because it’s, you know, it’s a trader dream with the volatility and a 24 by seven markets. But I, you know, I think it’s important that we come in eyes wide open knowing, you know, knowing the market that we’re in and being aware of the positives and the negatives and kind of the growing pains independent of our own personal beliefs in Bitcoin.

Jeanine Hightower-Sellitto – Managing Director of Operations, Gemini Trust Co.: 33:42

And I think this market is really developing the market that exists today for crypto is not the market that’s going to exist. And felt months or five years or 10 years. The structural differences between a traditional equities or futures or Joe’s market is very different than a spot market in the US even and certainly internationally for crypto, no leverage at all. It’s one of the interesting things for, for me joining this industry is that there is no leverage on Gemini. It’s full reserve as are most of the other legitimate crypto exchanges. And so you need to go to an outside vendor who can provide that leverage to you. Those are just in their infancy. There’s only really a handful of people doing it and legitimately in the space today, your choices are limited and there’s pretty big opportunity for those businesses to grow.

Jeanine Hightower-Sellitto – Managing Director of Operations, Gemini Trust Co.: 34:22

At Gemini, as I mentioned, we’re an exchange and a custodian and we don’t necessarily think we need to provide every service in the industry to, to every investor. It’s the system that’s evolving and there’s different players coming in to fill some of those roles. But there are some things that are sort of missing in the space today apart from the full reserve on each exchange. There is no central clearing feature. You really is a patchwork of exchanges. People are doing business with that have their own set of rules and regulations and what products they’ll list and their own KYC standards. And so navigating that it’s kind of difficult. I think that will mature over time. Gemini along with some other players are trying to develop a regulatory framework at least in the US for exchanges for spot market so that there’s comfort for people looking to invest in this space on the retail side as well as the institutional side. I think one of the things we haven’t said up here today is this market is still very retail focused. Probably, you know, at least half of our business is focused from retail customers. And this is so different than the options business in the US which is probably got similar statistics. But it is a very retail driven market. And so making sure that we’re doing the right things to protect those customers from a security perspective, from a market surveillance perspective, from a compliance perspective is really important to gaining legitimacy. Not just with the people in this room, but the people in Washington and where we want to be as an industry, you know, 10 years from now. And that’s what I think the players up here are speaking about where we want to focus on growing so that it’s a different conversation next year, the year after when are, and hopefully we’re back talking to you.

Frank Chaparro – Director of News, The Block: 35:38

Well, hopefully we can squeeze in room for a question or two and then live. There’s a difference between asking a question and pontificating ad nauseum.

Speaker 1: 35:58

I’d like to challenge been there. It’s because we always sort of, Bitcoin went through different narratives and started with B or on bank and then unit of account and whatever. Now we’re talking about the store of value and potentially gold, like attributes. Well, we trade this professionally as an RA. And the token trades like a risk token. Right now what I’m trying to, I guess driving at is when we’re talking to people who come from traditional asset classes, we’re always talking about the claims of the technology going forward and what seems could be common, you know, tokenizing equity issuances and transparency and the other, we’re just a technology. But I think we need to, in order to get the buy in, we need to talk more about what it is today. And today it trades like a risk token for a particular kind of risk. It trades more VIX like, but not for macro volatility. It doesn’t trade like an AUD JPY pair, but it addresses specific kinds of risks like the Chinese retail going out of Yaun, I’m trying to preserve the value because of tariffs and the local currency getting depreciated or capital controls type issues or runaway inflation. In some countries, that’s what it takes that you can make a credible case and load some factors into the model. Why these crook corals are there. So for somebody from traditional sort of world now that’s what you know is here and now kind of thing. So I’d like to either get challenged on that and see if you guys sort of agree with us because we trade this every day for a living. They derivative specifically options on the futures basis, trades and all that kind of stuff. That’s what it trades like to us.

Ari Paul – CIO, Blocktower Capital: 37:34

One challenge, it’s worth to start acknowledging that the equity value of a stock trading the SB 500 of a company will trade generally very highly correlated to the market. And I think we’d all agree that in another financial crisis, probably everything’s down together with correlations in year one. That’s not because all those companies had fundamental business prospects. That’s not because a, a rise in interest rates really impacts this particular business because you have financial assets, you have underlying business models and there’s a lot of things that separate the performance of the two, right? So you have rebalancing effects like wine, the financial crisis did every, you know, different asset classes become so correlated. Some of that’s explainable fundamentally, but a lot of it is a portfolio effect. Right? investors liquidated their best performing assets to fund their worst, partly just cause that’s what we do.

Ari Paul – CIO, Blocktower Capital: 38:14

So Bitcoin’s performance I think of the currently is a risk on asset. It’s correlated positively with equities. I believe. I think we have a generic recession. It probably sells off now a lot of the value we’re talking about because it potentially serves a different role in a portfolio or as a speculative asset than it does for, for example, someone fleeing an authoritarian regime or idea that it may gain value in that from that perspective. So you have two very different, so like I’ll proselytize about, one of the reasons that I’m in the industry is because I do actually believe in it as a tool against authoritarianism. Obviously that’s not why you’re going to have it in your portfolio. You know, the reason I own it personally and I’m investing in it on behalf of other people is because I think it will produce a financial return.

Ari Paul – CIO, Blocktower Capital: 38:55

So those two things, right? So, we have use cases which are somewhat divorced from short term financial impact. So, so with all that said, here’s my answer. It’s a short term. I think it does function as a risk on asset with mostly idiosyncratic exposure. Any kind of Cisco model says it’s mostly the idiosyncratic it’s head, you know, 10 X returns and 80% falls correlation is a very misleading statistic and that it kind of you can have one asset that it ends up after all these cycles of 10%, another up 1000% that’ll show it’s 80% correlated. Because the days where they both rally tend to be very consistent and yet the magnitudes are very different. Indirections so correlations are high. It’s probably correlated with equities. I’m unclear to currencies. It has benefited when you want a sold off.

Ari Paul – CIO, Blocktower Capital: 39:37

I do think there’s evidence that people in Cheyenne have used it as a currency hedge, although it’s not that popular for that because they have other avenues that are easier. They have a lot of Chinese, wealthy people have a lot of pipelines to have a capital controls to hedge. The one in Argentina for example, they mostly don’t use Bitcoin. They used dollars and dollars are easily accessible in a gray market. Over time, the idea that Bitcoin could gain a foothold as an alternative to gold and dollars in attempt to deal with local currency crises, general global currency depreciate and instability. I think that’s a long-term story that I think is very likely that that’ll take many years to play out. And in terms of the fundamental value proposition I’m not actually going to do this. I thought I’m doing this as a joke, but I was going to say, raise your hands if you’ve been offered a bank account, which I won’t do, but you know, there’s roughly 30 trillion in the offshore banking industry.

Ari Paul – CIO, Blocktower Capital: 40:24

Some of that is illegal activity, tax evasion, but a lot of it, every fortune 500 company, every billionaire who’s ever presented here has assets and off throwbacks and every big politician, but every legal US company and JP Morgan and Citibank, they collect a lot of fees. And banks outside of fees to provide that service. Why do people want that? Because if you have enough money at some point, you don’t want a single judge in your jurisdiction to be able to freeze your assets pretrial, you want to at least have a fallback, right? If you’re a legal billionaire in the US you want to be able to say, a New York judge can’t just freeze my assets pretrial, I should at least have some money overseas so I can pay for a trial. Maybe if I’m eventually found guilty, I’ll be held accountable. But I want some diversification from a regulatory perspective, from a legal perspective. And that’s for us, billionaires, let alone Russian Chinese Indian reach the demonetization a few years ago. So the fundamental demand it’s almost bizarre to me for people to not see the demand for an asset that preserves your wealth from the seizure of governments, even if you don’t personally feel that need of US. We’re very fortunate. We see tens of trillions of dollars of demand today in very high friction form, right? The friction open a bank account in Panama or wherever is very high. Imagine if everyone around the world could open an off for a bank account with $5,000 in a smartphone app.

Frank Chaparro – Director of News, The Block: 41:04

Well, we shall see. I think we’re out of time, but I appreciate the panel. I appreciate the comments.


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