EB55 – Daniel Gallancy: SolidX, bridging the gap between Bitcoin and institutional investors

Transcript

right so we're live guys all right we'll get started officially in a minute uh I just tweeted out the uh the episode Daniel if uh if you wouldn't mind retweeting it um I would not mind Twitter I I I mentioned you in the tweet and I mentioned as well oh okay sure uh I rarely hold on so we are live right now yeah we're live no one's watching

yet a couple people might come on at some point oh here we go all right I mean it will be cut out for the audio when we release it as a podcast but yeah how do I do this thing again there we go done cool thanks uh let just tweet this out on our other platforms

okay so we can get started all right all right in five four three hello welcome to epis Center Bitcoin the show which talks about the Technologies projects and startups driving decentralization and the global cryptocurrency Revolution and sometimes even institutional financial markets my name is and I'm Brian from Ukraine so we're here today with Daniel gy he's a CEO of solidex Partners so solidex Partners is um a sort of a Wall Street firm that is trying to make Bitcoin accessible to institutional investors so I actually fought when we started this podcast and

I guess I fought also when I I got into Bitcoin that there was going to be a lot of involvement from the sort of financial institution side that it was obviously going to happen and I feel like it hasn't happened so far at least my impression so I'm excited that we have a chance to sort of speak with someone who really knows what's going on in that area and dive into that so thanks for coming on Daniel that's a flattering description and I appreciate uh but the financial markets are very large and I'm not sure anyone would be able to truly say they understand exactly what's going on but thank you anyway yes yeah at least has a there's a lot going on all at once right yeah so can you just give a brief

introduction to what solid x uh Partners is and what you guys are trying to accomplish of course so solidex Partners is what's known as a swap Market participant and ultimately will be in the future a swap dealer these are terms that are very specific to United States um although swaps are used internationally now the word swap can mean many things um and if you look back at the financial crisis People demonized Credit default swaps in so far as that you know they were um part of you know part of the Meltdown so

to speak that we all endured um but there are many different types of swaps some of them involve risk uh you know between two parties uh some of them are really meant for hedging right there's always there's always risk right but they all have different uses um in this particular context we're offering one kind of swap called a total return swap uh and that's essentially an access vehicle what it does is it enables a counterparty you the who you would think of as an investor to get the economic exposure to an amount of Bitcoin you know pick the amount without actually having to do any of the work involved in

sourcing it storing it or any of the other stuff that they would have to do to to make it I'm using air quotes here you can't see me compatible with the rest of their portfolio and the rest of the way they trade assets so that's a long story long story short we we're a compatibility layer between Bitcoin and Wall Street think of us is middleware financial middleware and for those who are financially illiterate such as myself uh how how does a return swap uh differentiate itself from a an ETF for example how are they different so an ETF is publicly traded um and anyone can

access an ETF as long as they have a brokerage account then you know publicly traded equities and ETF FS can be accessed by individual retail investors and they can also be accessed by institutional investors and in that sense if you think of the gold ETF GLD indeed you have both institutions and also individuals participating um so ETFs are great and I think ultimately there you know there's a good chance there will be a terrific Bitcoin ETF uh it's not here yet uh and you know it's difficult to know when it will arrive and in in the meantime uh there's a barrier for institutions to get involved

uh okay so they are very similar just the one the return swap is built for institutional investors yes and the swap Market in the United States is specifically Geared for institutional investors only so you have to be what's known as an eligible contract participant and E and ECP under uh cftc guidelines cftc in the United States is the uh Commodities futures um I'm see Commodities Futures uh I'm losing my losing my TR of thought here Trade Commission maybe see commodi futes trading commission sorry um I got

distracted by something in the room yeah uh and they the cftc regulates the commodi futur trading commission regulates most swaps and derivatives in the United States there are other kinds of swap and derivatives that are regulated by the SEC um but the cftc in this context is the regulator okay so how did you come up with this idea um I can't how do I come up with this idea it's a good question uh let me rewind for one second and explain two more things that are important swaps these particular types of swaps are not exchange traded so you you can't buy or sell them on an exchange the way you can buy or sell stocks and there are other

kinds of swaps that are exchange traded U very specific kinds that trade on what's known as a Seth um these swaps these particular Total return swaps are what are known as over-the-counter so they're not going to trade on a on an exchange they're not going to be visible to most investors um you you have to know where to go to get them or they have to be able to or you know we have to be able to find you you know and the U in that sentence is a hedge fund or an Institutional Investor um so that that links to what you just asked which is you know how did I come up with this idea so my background before doing this is um largely you know from the

financial services world I spent many years working at hedge funds uh as an analyst covering uh technology stocks and and other types of equities um and when we would get involved with equities overseas uh stocks that would trade in Asia for example we would often use a total return Swap and the reason for that is there are controls both Regulatory and logistical that make it more difficult for us investors to participate in certain overseas markets and as a consequence of that the structure that's grown up around that is Total return swaps so if you think about it the example is you know if I want to

uh purchase a stock in XYZ country in Asia right but I can't for whatever reason purchase it directly you know I call up you know Morgan Stanley or Goldman Sachs or meril Lynch you know whoever it may be and say okay I want to beong $10 million of you know this particular stock that trades you know in XYZ country in Asia and what they do is they say okay you know we're going to do your trade for you and they do the trade and then what I see as an end investor as a hedge fund is the swap right I get the full economic return in US Dollars on whatever movements happen in the underlying Equity overseas but I don't actually own the

equity long-winded way of saying the same thing um is one um so is there any uh restrict or regulation as to what type of underlying assets uh you are used you are able to use for a swap what type of underlying assets you able to use for swap so I can't speak to you know what the regulation looks like in every country um certainly in the United States uh there are regulations as to as to what it's interesting question as to what underlying assets can be can

be used as a reference asset for a total return swap um I don't know the specifics of that R set sorry go ahead one of the interesting things though is that with the ETF we've been sort of waiting for that to happen and I guess one problem is that they were like what is this thing you know oh you have to get approval there and it's a complicated process and if a swap is sort of a way to like you know you can take equities in China or you can take Bitcoin and they don't really care right so then that provides I guess a nice way not having to deal with that so I'm curious you know is there I wouldn't say they the case because it's I wouldn't say they don't really

care they certainly do care the cftc cares I mean they're in a very important regulator here um I so I don't remember the exact criteria one one important criteria is that the asset is the pricing for the asset is readily available right so if there's no reference price for the asset that makes it very difficult to create a swap um so here there are you know there's certainly a reference price uh there may be other regulations as to what you know what can and cannot be you know Ed as a reference asset for Total return swap I'm not sure what those are off the top of my head um but certain certainly the

ability to come up with the price uh is very important and you could conceive of you know for example other reference assets for which it would be far less clear what the price is right I mean you know what's the price of my computer monitor right I could sell it on eBay but it's not a very liquid market and you for this particular brand of monitor right you know like who knows so with Bitcoin although we do have multiple exchanges trading it in different geographies and sometimes there are Arbitrage opportunities or at a minimum price differentials if not actual Arbitrage opportunities you can converge to a price I mean you you can say that it's pretty close to whatever it is right but that's actually an interesting

question because I was going to ask you like that right because you now someone let's say they want to have exposure to 10,000 Bitcoins and now six months to now they get you know the return on those Bitcoins but so the question is like what you use as the the basis of the price index to determine that are you using I mean I presume you're not using like a coindesk average or Bitcoin average but you need you would need something more robust and reliable and durable no there are multiple ways to do it um one could use a robust index and there have you know there is one index in the United States that the cftc has I don't want to I'm not sure I want to use

the word approved maybe they have approved it they certainly allow parties to use it as a reference price index um the way solid X's swaps are set up is such that we have a a specific entry and exit price that are essentially agreed upon with the counterparty so because these swaps are not meant for hedging they're meant for exposure the parameters are somewhat different if you have a swap that's meant for hedging you would almost certainly require a reference price from a third party here the you could have reference prices that are agreed upon by counterparty A

and counterparty B if that makes any sense okay so because I was I was going to ask right so like let's say I want to sell that now or after six months the the swap ends and I want to get the return right so then you have to presumably go out and and you have to sell those Bitcoins so I was wondering if you could if the price was based on an index then it could happen that you have a risk there no especially if it's a large uh if it's a large Swap and someone has 10,000 Bitcoins right and you have to go out and sell 10,000 Bitcoins you may not get the same price that you would have on an index that's right is does that risk exist

or so that risk can exist in the world of swaps we have found ways to mitigate that risk by the the sub agreements within our our swap documentation so we're not going to have that risk ourselves largely because we come to an agreement beforehand with the counterparty as to the range of prices that okay that will be the termination price so we've dealt with that problem UPF front right now of course that's not to say you know when you know if we did a swap today right and then six months from now I'm not I'm not expecting you know the counterparty to say today here's the you know reference price in six months that would

be absurd but there are the right way to put it is that there are parameters around the reference price in the future right so if you know Bitcoin goes from you know here to 200 right um and obviously I'm trying to sell some and the counterparty has maybe they're short so maybe they maybe it's a gain for them right you know the counterparty certainly doesn't want me to to you know purchase the underlying Bitcoin to cover the short at 210 right but there is there are parameters around the price at which we execute that trade and uh end up covering their covering our position and th and thus enabling their position to be covered as

well okay okay so basically you just then liquidate that position and and you have and and then that they get uh what they get at least roughly and you guys can sort of pass that risk on because that's right that's right cool so can you uh talk a little bit about how far you long are you have you already done swaps uh we have at this stage or are you still working on on building the infrastructure we are up and running and

have been for a little while now um but at the same time we're still building more right so we you know we have an organization that is fully operational right now today uh we you know if you if you were a hedge fund and you were calling me today and say Hey I want to do a swap we would make that happen um but of course that doesn't mean that all work is done there's a lot more that we want to do to streamline the process you know add partner add distribut add what we would call a distribution Channel there's a lot to be to be done before I'd say we are you know at the Finish Line I don't think any business ever really gets to the Finish Line because once you've hit a certain point you want to grow some more you add more things so you know we're

not we're not resting on our Laurels by any means we're actually all working tremendously hard to to move this forward um so um before I I would say you like let's in a minute dive a little bit more into sort of you know what the state is of the perception of Bitcoin on Wall Street and and what interest you seeing there but before we do that we want to um do our add because we we have a new sponsor and um they are if you listen to our last episode you will know them because they're gems we had CEO Daniel pette on as a guest and we both we both Lov the potential of this so

jems is a social messaging app so it's a lot like WhatsApp it's sort of like WhatsApp on cryptocurrency steroids so um there a few things we love about this so first of all it's encrypted so sasia is very worried about this because of his selfie taking habit yeah I'm sick of the NSA second seeing all my selfies so jems also takes the full advantage of uh the power of cryptocurrencies first of all it's a it's a messaging app and it's also a Bitcoin wallet and what they also have is their own native token called gems so when you set up the app you get started off some gems so it's sort of a way to bring in new users um and I think we

think it will be a great way to get started H and here is sort of where I think this is most interesting if we think of something like WhatsApp right they got to 400 million users and the people spreading the network the people who are most vital in making that happen they didn't get compensated it in what are you talking about what are you talking about I I got I got some money when WhatsApp sold didn't you get any money didn't you get like 150 bucks from uh from Facebook um no nobody gave me anything no so uh what gems does it it does give uh those it does reward Behavior by giving out

gems so essentially if you make it happen you profit so I we I think this is extremely powerful in getting to this reach so we do think this is super valuable tool and uh in taking cryptocurrencies in the next level so if you want to get involved they're doing a a pre-sale at coinify so which starts actually on the DAT is air so September 1 so um and runs through January 5th so you head over to get g.org and check the project out to participate in the pre-sale they're also offering Early B pressing until December 3rd so if you want in then you know do it now so let's help them build a social network that really uh empowers users and takes cryptocurrency to the next level sorry just to correct your Bri the

pre-sale is December 1st of January 5th not September 1st okay um so Daniel are you can you talk a little bit about the interest you are seeing in this is it hedge funds that are investing and entering these swaps with you or is it I remember somewhere I think you mentioned also a family offices uh is there you seeing interest or are there uh other parties that I didn't even think of that is interested in entering positions at this stage so the largest pool of interested parties are hedge funds that's that's

for sure um you know there there is certainly some interest from family offices as well that's you know no doubt about that um and there are other pools of institutional Capital that are somewhat more esoteric that are interested as well but I would say that right now the largest pool is indeed hedge funds and I think that that's you know that makes a lot of sense because they they tend to be you know hedge funds depending on on the variety tend to be the the the most uh pioneering I would say of investors um you know far more so than say you know Mutual funds um yeah I mean that's also one

thing I sort of thought of like you know when I got in it because the way I've often thought of Bitcoin um is and I've also talked with people like that about it so let's say you think there's a small chance of this happening and this working right let's say you put the chance at at 5% or maybe you say uh you don't think there's you think this 1% but if it does happen right so you say like what if Bitcoin does become really success what if it does become a worldwide used currency and payment Network and people treat it as an asset what would that mean well I think it's it's totally feasible you know people thr around numbers $10,000 per Bitcoin and maybe 50,000 maybe even more right

um so if you think of it like that it just sort of seems like is such um first first of all an extremely high potential uh um sort of game to play if you are after a high return but also an insurance to take because if it does happen it's not like the world all of a sudden has that much more wealth I mean there may be an extent to that that Bitcoin actually can increase maybe GDP but to a large extent it would be a redistribution right so you could think of it as a as a hedge and as an insurance policy uh do you see that sort of perspective also held on Wall

Street so it's interesting that you frame it that way I wouldn't necessarily call it a redistribution of wealth that implies that there's a zero sum game here if you think about it think about the stock market for example when when the market goes up right it's not as though you're redistributing value amongst a set pool of players there's a set amount of value to be distributed right what you're actually doing or what what is actually occurring is actually the creation of new value or at least the perception of the creation of new value we can that getting into the nuances gets a little more confusing but um as you know GDP grows overall and as

asset prices increase on a you know real basis you know excluding inflation you are indeed creating value so to the extent that Bitcoin increases in in in price in the monetary base I I prefer monetary base to market cap because it's not really it's not a stock right it's a it's a money-like asset class to the extent that the monetary base increases in size there is uh in fact a a creation of value right it's not it's not a creation of value out of thin air so to speak in the way that one might might think of right it's a creation of value as a consequence of Market participants making the decision that XYZ asset has more value than it had

yesterday does that does that make sense I can I can frame it differently if that uh that's sort of think of it as uh no it makes sense I I mean the way I think of it I I think of I mean I think of both potentially happening right of you do have a creation of New Wealth right you do have utility you have maybe all of a sudden people able to move their money more easily internationally you can say like this is made uh this is not a serious home thing right this is a positive thing this is about value but at the same time especially when you start to think of people treating Bitcoin as an asset sort of as a a bit like old then I

would think when you start having let's say you have a a a trillion dollars uh or or a value of all the Bitcoins it seems like there's just you can think of it like inflation no I mean that that would be mean more money is there for example in New York to buy expensive Apartments to uh so so if you think of it that way I I do think that you can think of it at least potentially as a type of redistribution um so okay this this is a gets gets into more

economic theory here um when you create value okay so look back to the Stone Age right we were all you know running around and you know chasing animals with sticks and you know picking berries from bushes and over time you know civilization became more and more sophisticated and advanced we learned how to do more stuff we had the actual creation of value right C and when when I say the creation of value I mean you know the ability for all of us to live better lives as a as a consequence of innovation right in in economics that's called the total factor of productivity

right and it it it represents the degree to which GDP grows as a consequence of innovation um and I think in a lot of circumstances today today there's uh there can be confusion between the creation of value and the redistribution of value um and I I I can understand why it's a very it's a very confusing situation and there are sometimes where there are occasions where it's nebulous um in the context of asset prices going up on a real basis excluding inflation what I mean by that is um the value of some particular asset traded for exchanged for other assets

tomorrow gets you more of those other assets than it did today that's real growth in the value of the asset right to the extent that it's it gets you the same amount of assets as in the past right that's inflation right so if if we saw a situation where well okay let let me let me rephrase it okay sure maybe you're maybe you're looking for something else and I'm missing it go ahead though come back to once more and afterwards yeah let me give you an example maybe that sort of explains what I mean is let's imagine uh we had in we were in the

Middle Ages and the only thing used as money was called uh and and then someone comes up with a better thing right it's like gold plus it and it works a little bit better as money and people start using that for let say 90 90% of things it seems like I mean pretty obviously right the people holding gold they they will not be happy about this right because now there's this other thing which maybe has some more use and and that will gain in value and the goal relatively with losen value and and maybe part of it you could say is like well this is more useful so the world is better off value has been created but to a large extent it just seems to be a

transfer redistribution right and uh you have the thing that well was was more useful now and it was the only living money and it's not the only living money anymore so I personally think both are going on but do does that make sense or do you still yes it does no I understand what you're talking about so in the context of a specific substitute for money like asset class A for money like asset class B I guess you should say B for a whatever and subsequent for the prior right and it's a true substitute you know one one one overtakes the other and the value attributed to the the former declines on

a real basis right so what I mean by that is you know we were using let's talk about let's talk about silver just as you know an example right people let's say people are using silver you know in one particular year and you know a hunk of silver buys you four horses right and then the next year people start using gold right and the hunk of gold buys you five horses but the the equivalent hunk of silver as you would have used last year only buys you two horses right then you've had it then you've had a change in the real value of silver right but if you have a situation where the hunk of gold buys you five

horses and the hunk of silver still buys you four horses right then you had creation of new value you're I think you're referring to the the the the destruction of value of of a prior asset and replacement of that value by a new asset and that certainly does happen as well what I think in the in the cont so that so that makes so I think that's the the difference between what we're what we're well the question is you know with with the creation of cryptocurrencies liation of cryptocurrencies and you know uh and and apps being created that are creating new value like gems for instance or other altcoins being created

that are creating value what can we anticipate will happen will is the silver going to buy you three horses or two horses after so meaning meaning will Fiat currencies lose their value I guess is the question that we're trying to get to I'm not an economist I just play one on TV um so I I one can speculate in one can speculate about that uh and come to various different conclusions uh and I think it will depend largely on the context you know how how will this turn out there you know there are important members of the Bitcoin Community who have described

Bitcoin as an experiment I would prefer not to describe it that way but let's let's use that terminology for a moment how will this experiment turn out right will it turn out with a scenario like what you're referring to or a scenario more akin to what I've described or will turn will it turn out some other way that we haven't thought of it's very very hard to predict I'm I'm hesitant to Hazard a prediction um the the one thing that I will say since you asked the question one thing that I will say is when you have a technological advancement you create something that that didn't exist before in so far as new functionality right that is innovation right that is growth in total factor of productivity right

and as a consequence there needn't be destruction now that doesn't mean that things won't get run over right I mean when you know when cars became the norm right people sto buying horses for transport right we've seen that happen all the time and Venture capitalists of course you know take advantage of or I don't mean that in a bad way they they you know they take advantage of innovation in so far as the cost of doing a set of functions could be you know a million dollars and then there's a new way of doing it it only costs a thousand dollar right and then the old way of doing it there are all these prior beneficiaries and they all get wiped out and the new way of doing it there there's only smaller group of beneficiaries and they make less money

right but right they create more value or they create a lot of value for other people right so um sorry if that if that was confusing but does does that does that make sense and I think the with cryptocurrency right with Bitcoin and other cryptocurrency I think it's really that scenario creative destruction it's it's it's often called yeah so I yeah yeah no I I I mean I agree with you I think that's for the most part what's going on today and I think that's what's going to go on in the future and I think Bitcoin is creating value and it will create tremendous value potentially

uh but I do think if you think of Bitcoin becoming like a store value uh so so I guess you know you can sort of separate it right so maybe to some extent it's a utility right it's payments sending money that's all adding value this new value um but when you talk about it as a sore of value then um I I think at least that potential is there over a redistribution but but I guess we will see no I think it will be one of the the fascinating things um of how this will play out and it's absolutely very long scenario we're talking about absolutely I think it will be one of the most fascinating things

about how this will play out and uh it will be interesting to see and I I am interested to see it myself uh I you know it's hard like I said it's hard for me to make a specific prediction um but I can understand the logic behind both sides yeah um so

I've often thought of Bitcoin sort of as an as an ETF on the cryptocurrency ecosystem so right so you think Bitcoin becoming successful it sort of functions in a way that you own some Bitcoins and you profit from all the value that's added by bit pay coinbase etc etc and do you agree with that analogy I think that's a a a very good analogy and a fair assessment I feel like uh I feel like I read either a blog post or something from Tony at bitpay about exactly that um and I think that that is a very reasonable analogy um so the the the it's interesting an ETF is a very

specific thing right ETF is you know an exchange traded um fund which is you know there's an underlying asset that is represented you price of the ETF represents the price of the underlying traded asset um so here with with Bitcoin right and that analogy you know the analogy would be that that the ETF is is indeed Bitcoin with a little B right and that the underlying asset is the value created by coinbase and you know and bid pay and all the other players in the ecosystem um I think it's a it's a fair analogy um

I think it's a good way of thinking about it one of the reasons I think it's a good way of thinking about it is it's not perfect right it's not oh nothing's perfect right one of the reasons I think it's a good way of of thinking about it is that that as the ecosystem grows and as there are more participants and more users more people involved you know more companies doing interesting things uh indeed right the underlying value and I'm I use the word value specifically um not not Price Right the underlying value of of a Bitcoin in increases right um then the question of price versus value is another another story right so that which has value can be mispriced right so you can have an asset that's priced

at $100 and the the true value of that asset might be a $ thousand doll the reason it's mispriced is because Market participants don't realize what's going on it could be any number of reasons right if you're able to identify that mispricing it's to your advantage to buy that asset I think with Bitcoin you one could make the argument that that's exactly what's going on um you're seeing a huge amount of growth in the ecosystem a huge amount of growth in participants a huge amount of growth in intellectual Capital that's entering the ecosystem in terms of getting involved with new projects and you know building on pre-existing structures and adding you know adding New pieces of

code lot of a lot of stuff going on right so um one could make the argument that the fundamentals of Bitcoin have improved tremendously from one year ago today right from you know late November of 2013 uh yet the price is down the price is down right so you know what's the logical conclusion right or you know maybe maybe that you know it's also possible that it was mispriced back then right and um yes the fundamentals have improved but it remains mispriced and and in spite of the fundamentals today it should be below where it is right now

one of the problems with pricing Bitcoin coming up with price and there are various methodologies for it is that looking at the fundamentals is is not done in a way that that's the same sort of construct as we'd use for for something like stocks right for stocks there's a cash flow and you look at the cash flow and you say okay the fundamentals are this and you know it's worth X right um this is a little bit more like a commodity right where you for valuation purposes where you look at the supply curve which we all know is some you know with pretty good Precision right based on the algorithm we know what's gonna you know of course there's some variability around the exact timing of the generation of a block but we have a pretty good sense of the of the supply

curve right um what we don't know is the demand curve and that makes things very very difficult you know whereas with something like oil we know sort of what the supply curve looks like and we can Hazard you know reasonable guesses as to what the demand curve looks like and we can disagree about that but we're g to come to some reasonable range good luck Bitcoin what are some ways that one may try to predict what the what the demand curve would be what are some some indicators that would allow you to at least try to to make some predictions or is that even possible I'm working on it let me get back to you but no but is that is that something that that that no sense to think about is that something that even makes sense

to try to think of or or is that there are other ways look there are other ways that you could the other ways that you could determine that you could come to a determination come to determination as to what the value of the underlying value of Bitcoin is right you could look at it you know you look at look at Bitcoin with a big b the payment Network right and say you know you Bitcoin with a little B is is the money in the payment Network and it's the only money right although you there's you know stuff people built on top of the protocol but let's put that aside um and say you know the velocity of money is this and just not not that difficult to do Susan a at Stanford did you know presented some some good work on that um

and actually uh a buddy of mine here in New York uh Corell GV did some wrote wrote a good paper on it as well you could you could use that is valuation framework for Bitcoin and I I you know I I'm not going to refute it um but that's a different framework entirely and what I was you know referring to a moment ago was a supply curve versus a demand curve and you know your question was can you can you construct a demand curve or is it even you know a reasonable exercise um it and my answer is I'm working on it you I think that there are ways to think about it and and you know come to reasonable conclusions but I'm not there yet I I don't have an answer for you unfortunately um but I I'll tell you this is it worth doing I think it's

I think it's certainly an interesting thing to contemplate and I wouldn't be contemplating it if I didn't think it was worth doing okay well at least it's worth doing right right I think it's it's worth doing I mean you know are we gonna get it right I don't know okay well we we'll get back to that in just a second uh before we do that we'd like to tell you about uh another new sponsor our friends over at shapeshift uh Brian have you ever tried buying all coins I have and how was that experience for you yeah it's pretty painful yeah um yeah I mean sometimes you want

to buy altcoins uh like Litecoin or Dogecoin or some of these new coins coming out like storage or gems and if you have well you've probably come to the same conclusions as us is it's it's really painful uh you have to find a reputable exchange and that's difficult because you know some some exchanges have recently Fallen uh we're finding out they're fraudulent you have to create an account and then you have to give them a bunch of personal information and then you've got to deposit some Bitcoin and then you got to place the order wait for that to be fulfilled I mean that could take hours it could even sometimes take days not with shapeshift shapeshift is the easiest way to buy altcoins they support get this so uh Litecoin pure coin darkcoin Dogecoin namecoin feather coin

I can't keep this off the top of my head I I've got to read it and they're supporting they're adding new coins all the time so the best thing about shape shift is you don't even have to create an account uh they don't need any personal information they don't even want your email address in fact if you gave them your email address I think they' be offended and trading with shap ships they just a few minutes not hours so let's just walk through how this works it's super simple you go to their website uh and here you'll see some sort of it looks like a currency conversion tool you've got uh one currency on the side so it's say Bitcoin and another currency let's say you want Dogecoin on the other side and then you just enter the amount of Dogecoin that you want for for instance

and then you press start and you put your Dogecoin address it could be yours it could be a merchant it could be somebody you want to tip and then all you need to do is uh they'll show you an amount of Bitcoin you send that specific amount to and address this specify and that's it in just a few minutes you'll have dogor in your wallet so shapeshift is is super fast it's super easy there's no accounts needed no personal information is required your privacy is protected and you pay an upfront fee an upfront uh rate rather that is announced when you initiate the trade so head over to shapeshift.io at shap shift like Shape Shifter doio uh give it a try tell us what you think and I really think

you'll love it and we want to thank shapeshift for their support of epicenter Bitcoin So Daniel um moving forward uh with regards to bitcoin and Wall Street I mean we've seen uh a lot of people attempt to try to bridge the gap between um Bitcoin and Wall Street you're certainly trying to do that you know there's been Talk of the Bitcoin ETF and even from the regulatory side uh the bit license you know incorporate some uh some regulation that would try to protect investors in the future um do you think that Bitcoin and cryptocurrencies becoming an accepted

asset class amongst Financial investors is something that's feasible and if so when will that take place you you know how do you see that scenario playing out it's absolutely feasible um feasibility for sure um it's a load you've asked a loaded question so right Is it feasible yes um but think that that might not be the might not be the measurement I'd use um Is it feasible then you know maybe you ask is it likely and when will it happen um it's it's definitely feasible the likelihood of it will will depend on a lot a lot of other factors right I think the likelihood of it will

depend quite largely on what goes on in the Bitcoin ecosystem and whether or not there continues to be progress as well as what goes on in the outside world right so um if we continue to see more and more usage of Bitcoin more transactions more Merchants accepting it uh more people saying hey you know I want this thing you know uh more Accounts at coinbase right more Accounts at at uh at um at bitstamp you know more you know you know you know more accounts of bonex you know more people doing thing more people coding you know you know more GitHub repositories you know more and more stuff right

uh then it will become clearer on a fundamental basis that the value of this thing is increasing and that will entice more institutional investors to get involved right that will certainly raise the interest level um now another another scenario here that would be sort of less uh less palatable but it's entirely possible is that you know you know bad things happen with central banks you know globally you know pick your central bank right you know you some particular country uh and as a consequence of bad things happening um with that Central Bank um you can imagine that people choose to put their

you know value into Bitcoin instead right um so it's sort of what I would call a negative Catalyst versus all these positive catalysts of people getting more and more involved um either set of catalysts would entice would be you know would be create a greater incentive and um interest on the part of in institutional investors to get involved now uh when will that happen how will that happen I don't know with Precision um there is you know there are two other barriers one of which we're trying to deal with I would say both of which we're trying to deal with the first is I think that there is although a familiarity of with Bitcoin and so far

as people have read the word I mean it's been on the cover of the Wall Street Journal right so the the institutional investing Universe folks have read the word Bitcoin some of them have a sense for what it is there's still a lot of confusion as to how it works what it means what you know people still talk a lot about Mount I keep hearing that all the time right um people haven't and I don't mean this just about Investors I mean this about you know the general public H haven't necessarily taken the time to understand it and it's not the simplest of topics right you have to kind of sit and think about it and people tend not to sit down and think about money it's just not something people tend to think about right money is the thing that that shows up in your

checking account on payday right um you know that's the first barrier people have to really sit down and think about it and there's a lot of stuff in this world to think about and a lot of investment opportunities for investors to say hey we know we should be thinking about this particular thing right so you have to have people saying I'm gonna go go do the work and understand this thing and then the second thing you know what we're trying to do is make it accessible put it on the menu right and you know for from this gets to the heart of what we do here at solidex the institutional investing landscape consists of entities that are accustomed to you know very specific parameters around you know settlement clearing custody all these things that

are you heavily regulated pretty well entrenched have incumbent players that you know have a reason for being there right and unfortunately Bitcoin doesn't really fit into any of those into into any of the buckets that the that the current system offers right so it's not as though you know you can buy it on the New York Stock Exchange and then have it clear through you a particular clearing agent and then have it custody did a big custody Bank it doesn't do that it doesn't work that way right now could those entities come around and start to do that it's certainly possible right I mean I don't think that's happening in the near term but it's possible that it could happen until that happens you have

a situation where Bitcoin isn't really on the menu so to speak in the way that stocks are or fixed income securities it's just not there right uh you can't put it into your order management system and say Hey you know I want to be you know long $10 million wor Bitcoin you just can't do it so that's a situation where swaps come in and you use swaps as a mechanism to get that economic exposure in spite of the fact that the underlying asset doesn't fit into the buckets that have already exist in the current Financial ecosystem it's a longwinded answer but I think that let me put it like this do you think that uh the demand will come from the investor side or do you think that the demand

will be created by companies like yours trying to bridge the gap between the Bitcoin space and and the the institutional investors do you think one day all the investors are going to wake up and say we need to buy Bitcoin and the those those uh the ability for them to get into it uh as an asset uh those facilities will not be there or do you think it's the other way around that you guys are creating that that demand so I certainly wouldn't give myself that much credit I would love to think that I'm creating the demand from from thin air but that's uh it's pretty unlikely um I think what we're what

we're really doing is you know providing a mechanism for people to get involved and we are also providing information and and education we're not going around and evangelizing you know I'm not out there saying saying you should be long this thing or short this thing I'm not saying that um we're providing information and and letting people make whatever decision they want to make um there are plenty of people out there who are evangelizing and I think they do a very good job of that that's not my role um my role is to provide information and access so uh it's a very different role in a very different context uh I don't see myself as creating demand um one could look at it slightly

differently and say you know as sorry so so one could look at it slightly differently and say as there as awareness and access increases go ahead sorry yeah apologies there's a there's a lag with the internet here and it is a total pain strangely only when we do the show um so maybe finish your thought but let me ask uh my my question first and you know you decide if you want to finish what you started sure sure go ahead it seems to me that with Bitcoin you have this

sort of likely scenar scario that you know let's say some people on Wall Street start thinking like there is something there right you they start going in this drives up the price and then other people are like well this must be true because the price is going up and even if it's not true I don't want to you know you don't want to be the last one right and it it's this sort of uh I think it's just prone for bubbles uh in that Dynamic and and the interesting thing is if you compare it so let's say something like the dot bubble where uh you maybe had a similar Dynamic where everybody wanted to go in uh and they had a fear of missing out

there was still something in the end tying it to sort of tying it to the floor which was are these companies actually going to generate the profits that justify those valuations with Bitcoin that's not really there right I mean you can say to some extent like its usage as a payment Network adoption Etc to some extent it can function like that but to only to a limited extent so I think that Dynamic is is really interesting uh and I feel like that Dynamic is going to be the thing that's just going to drive it like crazy it hasn't happened yet um do you do you see that too do you think that Dynamic exists and do you think that could be something that would

drive um Drive developments in the in the future people chasing asset prices because asset prices are rising is a phenomena that we've seen throughout you know throughout the history of financial markets so it absolutely could happen here that sounds to me like that's what you're talking about it happens all the time um so it certainly could happen here I wouldn't count on it happening here and I wouldn't I wouldn't uh you know I I I would prefer to look at it on a on a fundamental basis and say you know how is this thing being used you know how is Bitcoin being used how's the Bitcoin

ecosystem developing rather than looking at it on a you know fear of missing out basis or you know asset price increase therefore people buy asset I mean I'd rather look at it on that fundamental basis um but sure it definitely could what you're describing Could Happen um I definitely won't make a prediction as to when or whether it will happen but it could yeah I mean I think there's no way to predict that kind of thing um so so we coming towards the end but there's one thing I I want to touch on which has been on my mind quite a bit and I should give credit here uh to Martin kelman who is the CEO of fair who first Advertiser

and I still our Advertiser so um he gave a talk at the uh meet up here in Berlin which I run um about some issues with Mining and then there's one thing he talked about which I thought was extremely interesting and extremely worrying um which was that let's say you start having a derivatives market and that's a derivatives markets where you know like you and I we do a contract we say like if bitcoin price goes that way I give you um a certain amount like let's say I mean a few the differences you actually buying those Bitcoins right but what if you start having a derivative markets where neither party uh buys the Bitcoins

but people rely on uh the credit risk of the counterparty to actually come through uh in a certain event now if that happens and if the if the derivative Market takes on a size maybe many times the size of the Bitcoin monetary base and I think we've seen that happen sort of in derivatives markets uh very often then the thing that worries me is that you could take a really big short position in a derivatives Market let's say you could maybe stand to make 10 billion dollar if Bitcoin goes to zero and then you could take some of that money you stand to make and attack Bitcoin on a technical level so go for

example bribe mining pools to stop uh including transactions and blocks uh do that kind of thing so it seems to me that as S as because right now in my view at least we are sort of relying on miners being altruistic or at least sort of it being in their long-term interest to generate their money from mining bitcoins and getting transaction fees but if they get their revenues not from there but from somewhere else all bets are off what's going to happen and I that's something that really worries me so I'm I'm curious do you do you think that's a a real risk is that something you've

thought about or you've had someone hurt talk about I certainly have and uh sorry I'm getting a little little feedback here um I certainly have thought about that and um I've thought about various permutations on it and it's absolutely true that we are all uh relying on on minors to to to do their job for the network right we we have significant Reliance on minors and there's there are certainly concerns about the centralization of mining it's not it's not what I I suspect s Satoshi envisioned uh and that's a concern and

what you described in terms of you know the derivatives Market being larger than the underlying Market absolutely possible 100% the scenario that you described it absolutely Could Happen uh a couple of things that I i' sort of think should be thought about in this context if you had a situation where you the incentive structure of of miners were to change or minors Were Somehow to be somehow you know threatened or something something were to happen to mining such that transactions don't clear something weird happens right um the question is this how would the market r act right what we saw in March of 2013 when when

the blockchain forked right we saw the the traded price of Bitcoin declin but it certainly didn't decline to zero right so there was a what I would call an underlying Network event not as severe as the one you're describing but the trading you know the price of Bitcoin didn't go to zero um what would we see today right would we see the the price go to zero right would we see exchanges saying we're halting trading right what what would happen right would this be a situation where it's it's an irreparable problem right um I think there are a lot of parameters that are

very difficult to predict and I think anyone who would be engaged in the sort of activity that you're describing and there certainly are entities that that have enough Capital to do it of course there are um I think they would think carefully about what the consequences would be in terms of you know would they actually be able to cash out on their short position right if if you had the sort of network disruption that you're describing right I'm not so sure that everyone would suddenly give up on bitcoin people might say to themselves hey you know we've discovered a problem we've kind of known that this was a problem for a long time right we've known that we have a Reliance on mining uh We've we've known

that you know for for quite a while and here we are things are coming to coming to a head um now to the extent that that event precipitated a change right now we're being very abstract right but you can come up with concrete scenarios precipitated change right in in the proof of work you know something were to change right you can imagine that Bitcoin would actually emerge stronger right just as it did right you know post the collapse of gaau right you know what happened Bitcoin went down down down down down gaau collapsed right and then it went up right because you sort of this is the Andrea soplos scenario where he says you know we'll have Bitcoin one crashes and then Bitcoin 2 will emerge

and be stronger right now of course you know derivatives contracts can be written different ways and it gets it gets really hairy what so what I would say is on a simplified basis right what you're describing is certainly plausible right but I think that there's a Litany of things that are plausible in terms of disrupt you know disruptive problems for Bitcoin and a Litany of ways in which those problems could potentially be resolved and I think the number of permutations involved here makes it very very difficult to predict what will happen I used to be deeply concerned about mining um really really concerned

about it it's still on my mind right but I I can conceive of various scenarios where things get resolved you know but I'm still worried about it so so look I mean it's I'm trying to be measured here right does that does that make sense as an answer yeah no it does make sense um absolutely I I agree with your point of view uh yeah um I'll add one last thing um it is it is it is entirely possible I agree I think the the yeah yeah yeah it is entirely possible that the specific scenario that you've described could happen so I would I would assign a nonzero probability to that that is not a zero right there is

some probability to that right but I think that that that there are probabilities all around the chart there you go yeah absolutely and I mean it's a it's a scenario that's pretty far off because there is no such der Market uh Bitcoin would actually have to get to significant size so it will have to be as I'm sure there are many things in the meantime that could go wrong as well and maybe they're more likely and more dangerous and more uh imminent it's just it seemed like that will be something very difficult to defend because it's like outside I mean to some extent right I mean of course if you say Bitcoin

itself is is not vulnerable right if you can deal with those uh if you can prevent attack on bitcoin itself then you know perhaps but yeah it's it's one thing of many things that I think has to be on our minds and uh it's certainly not the only thing I mean the the mining centralization is another one um I mean you gotta Wonder but yes you got to wonder if if Satoshi uh thought about mining centralization when when he wrote the white paper I don't know if I don't know if he envisioned the world where uh where uh large mining uh pools and and and large mining companies had so much power so um just

coming back to the solid X um can you talk about about the company what is the what does it look like and the and your team sure uh I have a a terrific team actually I I'm very fortunate to have such a great team so it's folks who are largely from the institutional investing Universe uh or the the legal side of institutional investing and also bitcoiners and people who are who are simultaneously both right so we have you know our our head Trader used to work at a very big hedge fund he's also a bitcoiner um our chief operating officer used to work in the foreign exchange markets and he was had a seite position

and he's a bitcoiner right so I have this team that has this you know fortunate mix of skills right that both institutional and they're also bitcoiners so in that sense I'm I'm truly blessed um you know we also have some others on the team who are purely institutional right and we have others on the team who are really purely technical but we have this great crossover point I I'm very fortunate to have that um you know what does the company look like you know we're we're a bunch of folks in a in an office building in Manhattan um it's how many how many people on your team there are seven of us uh and it looks like there may be some others joining us soon um and uh

it's a little bit on the older side for for for Bitcoin uh you know the youngest member of our team is 29 uh and the oldest member of our team is in his 50s um and most of the team members are are north of 35 sorry got to be in the in the upper limits for the Bitcoin ecosystem right so yeah right third the most of the team members are North are older than 35 so wow yeah and so recently you uh received a round of funding um can you talk about that round of funding where um your investors traditional VCS or is it Wall

Street money combination of both um we were very fortunate to have uh we are very fortunate to have great investors and it is it is in ACC it is in indeed a combination of VCS and uh folks who have more Wall Street Experience um the round was led by Liberty City Ventures and uh had had the participation of of a Syndicate of other VC groups and also some folks from Wall Street as well so uh the capital comes from both sources and uh these are these are people who have a a strong understanding of what the potential is you know for

Bitcoin to become um both the VC side and the and the uh Wall Street side so you know we're we're very fortunate to have that as well and so what are your plans for the next 12 months brly speaking sure so uh as I said you know we are up and running which is great but that doesn't you know that doesn't mean our work is done we have a lot more to do um we want to broaden our Outreach significantly um we want to make sure that the institutional landscape is more aware of Bitcoin and how they can get involved um there are other products that we're that are you know that we're considering in the you

know in the blockchain ecosystem there's a lot of stuff happening um you know not just not just in terms of altcoins but in terms of you know appcoins so to speak and you can you know the great thing about swaps is you can you can match cash flows for cash flows so if you were to make you know a blockchainbased interest rate Swap and you can conceive of that happening right um you could match that with a you know is deform swap right and again we would we would function as the the mechanism that that connects the two things so I think they're going to be there's certainly the potential for we're

already seeing a you know an nent market for blockchainbased Financial assets and as that you know if that matures and as that matures we are positioning ourselves to get more involved with that and we're very excited about that as well cool so working people find you people can find us at uh www.x.com right now the the web page is uh fairly bare uh fairly it's not blank but there's not much on it the reason is that we're we're not you know we're not really retail facing so it's you know not really meant for uh uh you know people who not it's more meant for

institutions and less so for for you're not looking through for customer 3 website right that's right um you know which is not to say that that that we are are not engaged with the Bitcoin ecosystem on the contrary we are very very engaged engaged with the New York uh Bitcoin circuit and also the Bitcoin circuit outside New York um but right now because our our products are regulated in a particular way we are purely institutional uh maybe that changes someday but uh not today cool well uh Daniel thanks so much for joining us today that was really interesting talking to you and it's

really interesting to hear what you guys are doing uh and I think it will be would be great to see I think how things evolve first of all in that sort of space in general like how Bitcoin will be used adopted in the financial world and it would be interesting to see how your role and the role of solid X evolves in in that context so thanks so much for joining us today and and for sharing your experiences with that pleasure speaking with you um yeah and uh to listeners thanks very much for listening or watching uh the show uh if you want to if you want to follow us on Twitter at EP Center BTC

we let you know about the next show uh also you can follow us on Google Plus on our hangouts or announc there so it makes it particularly easy to see uh when it's coming up and finally if you like the show please leave us an iTunes review that's uh helps very much new people uh find the show thanks so much and we'll be back next week