Headwinds to Tailwinds: The New Era for Institutional Crypto | Live From DAS

Transcript

I think when you come to some of these shows, a lot of people go, "Well, how do I get dollars? How do I get fiat into digital assets?" Uh-uh. How do we get digital assets into fiat into treadfi? That's convergence. That's what will make this fly. This episode is brought to you by Aries Markets. To learn more about Aries Markets, follow the link in the show notes below. Hey everyone, quick disclaimer before we get into today's episode. Nothing said on bell curve is a recommendation to buy or sell securities or tokens. This podcast is forformational purposes only and the views expressed by anyone on the show are solely our opinions, not financial advice. Our guests and I may hold positions in the companies, funds or

projects discussed. All right, this is going to be a fun one. We're going to be talking about institutional uh tailwinds here from headwinds to tailwinds. Whoa. David, we got a lot of ground to cover here, but before we get into it, can you just give a quick 30 second background on yourself? 30 seconds. Hopefully, uh, you all know me. Hi, I'm David Mercer, CEO of Elmax Group. I guess we straddle the Rubicon. Uh, we traded about $7 trillion last year. Our seventh biggest currency pair or instrument was BTCUSD. We run six exchanges globally.

One of those is in digital assets. That's Elmax Digital. and hopefully we'll excite you about the future cross asset marketplaces in the next 20 minutes. Awesome. So let's begin at a high level here like help us just set the scene for this particular moment in time. So we've seen a lot of headlines, we've seen a lot of news come out of this particular administration in the US and everyone I think in this room is very bold up and excited on this idea of institutional adoption. So talk to us how much of this is real? How much of this is headlines? How much can we take to the bank? Give us give us the real inside scoop. So, you said it in your intro. Yes, I was listening at 8:30. Um, we've been talking about institutional adoption for the six years you've been doing it. Congratulations, by the way.

Thank you. Um, and then Melum depressed us a little bit with the first 10 minutes there. So, all I can say is this. So, last year 2024 was a record year for Elmax Group across all our asset classes. But what you need to know is the only thing I think about, the only thing we discuss at an executive committee level, the only thing we discussed last week in Singapore at a board meeting was the future marketplace. That future marketplace is digital. Let's let's let's be clear.

What's the name of this show today? The digital asset summit. Thank you for asking. Okay. In five years time it'll just be it'll be TAS not BS it'll be the asset summit it's just a fact that by the end of this decade digital assets will be somewhere in the region of 20 to30 trillion and it's just a fact which about 15% of all the assets out there and by the end of the next decade that's going to be 80%. M so look are they coming not in droves right you saw the graphs that Meltum showed they're not coming in droves today but they're preparing right and I'm going to give you one C there's

two C's that really matter convergence and credit convergence that's institutional adoption in 2025 tradfi is converge converging with digital assets and DeFi and quicker than you know it, that's going to be the future of all marketplaces. So, I deal with the world's top 40 banks. Not one of them is trading directly spot bitcoin with us today.

I believe half of them will touch digital assets by the end of 2026. So that's convergence. That's the future cross asset marketplace. That's what we used to call institutional adoption. Okay. So I want to make sure that we've got enough time to come to credit because it's a very interesting and underdised topic within crypto. You heard Melton talk about it in her last speech. I actually saw a photo of Digital Asset Summit back in 2019. We had Genesis and Celsius and it just reminded me that we had this entire infrastructure built up around credit generation that has not been replaced. So I want to make sure that we get to that. But first let's talk about convergence here and specifically let's start from the lens

of market structure. So finance has a particular way of doing things. There are exchanges which have a relationship with custodians which have a relationship with broker dealers. It's a little bit different in crypto, right? So talk to us about what is the different market structure that exists in crypto versus finance and how is it maybe preventing or what needs to change in order to accelerate that convergence. So that's fair. Look what I would say today if you looked at the digital asset industry or the crypto industry it was certainly fast not perfect. How do we provide market access? How do we allow people to match? How do we settle? How do we pay? How do we

store? And they answered all those questions quickly and mostly ignored Treadfire. Treadfire has got to where it has for a reason over the past 100 years. So I think what's probably wrong and what has to change in crypto today is some simple tenants of traditional finance. Separation of function, segregation of funds. That's it. So when we're talking to David Saxs and everyone else about establishing market structure in the United States of America and in crypto going forward, those are the basic pillars. It's very

simple. Broker dealers are not exchanges. Don't steal the word. Right? Exchanges don't act as principle. Custodians are not exchanges. Okay. We have separation of function and segregation of funds. And why do we do that? Very simple, right? What's regulation there for? Three things. Protect consumers, create a wholesale marketplace, harness innovation.

So let's go back to those simple tenants, right? And I believe that the right people in the right rooms are asking for that. Then we will have an industry that can truly flourish and go back to that word again that can converge with tradi that can become 30 trillion50 trillion hundred trillion not the $3 trillion or just short of that we're talking about today. So, it's a bit like I think when you come to some of these shows, a lot of people go, "Well, how do I get dollars? How do I get fiat into digital assets?" Uh-uh. How do we get digital

assets into fiat into Treadfi? That's convergence. That's what will make this fly. But we've got to get the framework right. If we keep cominging packaging different services under one entity, you're in you're just storing up future credit risk. You mentioned two names there, right, before this, right? Two names that existed. They didn't understand credit risk, right? But that's okay. Sometimes that's okay because the regulation forces you to understand it and forces the right people to understand it. So I think primarily that's what has to change.

Once we get that right and you have different people performing different functions that you have a state and you have a church then you're really going to see the power of this new asset class. This episode is brought to you by Aries Markets. Aries Markets deployed on Aptos in 2022 and is now the largest lending protocol with $280 million in TVL. To learn more about Aries Markets, follow the link in the show notes below. Today's episode is brought to you by Ledger, the global leader in digital asset security. Celebrating 10 years of innovation, Ledger is trusted by 7 million users, secures 20% of the world's digital assets, and remains the most secure hardware wallet for your crypto and login. Follow the link in

this episode's show notes to grab your ledger today. David, how do you think about path dependence in the formation of crypto versus traditional finance here? And you know what I mean by that is you've seen the adoption. There was a period of time where people were very excited about onchain options and that never really took off because that's the preferred uh instrument in finance, but you have something in crypto that's per right and there's a whole bunch of different reasons for why that instrument took off versus options. But, you know, when you look at something like these more integrated, you know, broker dealers, whatever you want to call them, the Binances of the world, the Coinbases of the world, it feels like they've got so much momentum behind them. And I'm kind kind of trying to squint at them and say, well, what would

make them ever separate these parts of their business, right? Is it a regulatory thing? Is there going to be eventually end user demand for these services to be separate? What like what do you see the catalyst being for changing them? So, you mentioned a word, you just said momentum. Where you saw the graphs before me? Where's the momentum? Right. Anyone know what the market cap of gold is today? It's $20 trillion. Okay. I think I said 3 years ago crypto is going to overtake gold. At that stage, gold was $14 trillion. We haven't moved an inch. So, where's the momentum?

Per shameless plug. We will be launching PES in the next few weeks through our Max Digital. But per are a product for today's market. Are they a product for the future market? I doubt it. I think you're going to have more institutional derivatives taking over. But look, that's the beauty of innovation. That's the beauty of competition. Let's see. Why would they change in today's market? Why would anyone change? Geez. You know, I know you've got Richard up later. I'm sure if you speak to Brian, why would they change? I'll tell you why you change, guys. There's $197 trillion of real world assets out there, financial assets, excluding

proper that you're not touching. You've got to go interplanetary. That's it. You're dealing on Mars. You're dealing on Mars. 97% is on Earth. You've got to straddle the two. That's why you might change. Yes, regulation will form part of that. But I think also most successful businesses have a singular area of focus and they're very good at one thing. Be very good at one thing. In capital markets, typically you're good at sales and distribution. You're good at

technology. you're good at liquidity provision, right? Choose one, not all three. Typically, it's the master tradesman, right? You know, the guy that's um can do everything. The jack of all trades, master of none. What's that? So, I think what you're going to see is that they're going to be pulled towards it. They're also going to see that's where the value is of their business. They're going to understand the value of their business. Quick shout out to today's sponsor, Aries Markets. Aries Markets deployed on Aptos in 2022 and is now among the top 10 lending protocols across all blockchains with $280 million of TVL.

Aries Markets has expanded its product suite to become a fully integrated DeFi hub, combining lending, borrowing, and more. In 2024 alone, Aries introduced several new features to better meet the needs of its users, including native USDT support, an incentive program, and more. Click the link at the bottom of the show notes, head over to Aries Markets, and tell them that I sent you. Ledger is the global leader in digital asset security, trusted by 7 million users and securing 20% of the world's digital assets. In recent years, Ledger has built a comprehensive ecosystem of products and services, making digital ownership more secure and accessible for everyone. Ledger's newest devices, Ledger Stacks and Ledger Flex, introduced the world's first secure touchcreens, making it easier and safer

to manage your assets. Alongside Ledger Stacks and Ledger Flex, they have also launched the Ledger Security Key app, offering a safer alternative to traditional password management. Follow the link in today's show notes to get started with Ledger today. Okay, let's focus on credit here for a second. Okay, now you know when we zoom out and look at the economy, we mostly track business cycles based on what's happening in the credit cycle. And so, you know, Meltton's chart, I think, was a real thinker about the market cap and the volumes that we've added. son's Bitcoin and Ethereum should make everyone in this room think quite a bit. And I think one of the differences at least in between, you know, 2019 through to 2022 and today is we did have these businesses. Some of them might not have been set up in the best way or had the

best risk management practices, but we had a lot of credit formation and and new money coming into the space via those channels and those conduits. It doesn't really seem like we've rebuilt that here in crypto today. So my question to you is how do we rebuild the credit complex? Is it going to be startups like it was last time? Is it going to be institutions or prime brokers or how does that whole complex end up getting rebuilt here? To be clear, it's a boring subject, but it's what excites me most about the future of this asset class and the convergence of Treadfi and digital assets.

Let's not talk about what happened before. I mean, there was a der of credit optionality. So, you had a bunch of people with a small balance sheet providing incorrect leverage with valueless collateral. The next wave are people that understand and institutions that understand credits. We're talking tier one bulge bracket banks. Don't all boo at once, right?

They have huge balance sheets to put to work. I sat down with one in my office three weeks ago. Guy who runs the credit function. We're talking 3:1 leverage. Very simple. Jamie Diamond's not wrong when he says Bitcoin is a pet rock today. What do you do with it? I own a bunch. There's not much I could have done really if I'm honest in the last the last six weeks apart from lose money. You put that with you put that with a prime lender they give you two to three times leverage all of a sudden perhaps we're not talking $3 trillion we're talking $6 trillion $9 trillion.

This is going to unlock the tidal wave of institutional money and it's coming. You all probably know in the room there's two big names, right? They're different grade of names than we saw in 2021 and 2022. Now, what does that do? That unlocks the barbell of value in the whole of financial markets. One end the barbell you have private wealth perhaps call it retail, right?

They've got no way to access it today. Do you know Morgan Stanley paid $13 billion for Erade? Erade has 5.5 million customers. They don't offer crypto today. But when you have that credit intermediation, right, when you can go interplanetary, when you can switch from Bitcoin to S&P seamlessly, suddenly you see a whole new market. Suddenly you see what you talk about is institutional adoption. So that's one end. And then at the other end, you've got asset managers. Did you know the two biggest names, you know them well, managed $22 trillion of assets, imagine if they put 5%. Right, into digital assets, just 5%.

Okay, that's a 40% increase in the value of digital assets today. Both ends, all facilitated by credit. And the bit I've missed probably the third the third segment in there. So, you got the wealth management guys, you got the asset managers, and then you got corporates. You sit there. We were at another show recently in Florida. It's all right. I won't name check them, Michael. And you're dealing with a whole bunch of corporates, corporate treasurers. David, how do I put Bitcoin on my balance sheet today? How? Who? What? You want me to send money to Elmax Group? Come on. What's your S&P rating? Right? They just need that bank name. a bank intermediary. So, I think

credit it's coming. It's not Look, they're not going to be doing it in Q2. My hope is Q4 for some names, but I'd say within the next four to six quarters that comes, that unlocks not billions, but trillions of dollars of flow into digital assets and the future of capital markets. So maybe as we start to wind down here, I would just love to get your highle take. So we need to there's a credit element of this. There is a market structuring element where institutional participants would be more comfortable with

segregated function right but you know I want to return to that chart actually that Beltum just showed of market cap and trading volume and as the proprietor of an exchange I'm curious how you see the future of this asset class. Is it, you know, opening up these massive distribution channels for Bitcoin, right? And is this mostly a Bitcoin or Ethereum or kind of a major game or are you excited about the proliferation of lots of new types of assets that may not exist yet or might not have been able to find their footing? Like how what does what does this industry look like? Yeah. All all of the above. I mean, don't be too down on yourself is what I'd say, right? So, you know, for my day job, we do foreign exchange. Guess what? Over 50% of the market trades in two currency

pairs, right? That's it. All right? And over 75% trades in eight currency pairs. Of course, the world assets, 80% trades in 10 instruments, four major currencies, four major indices, gold and oil. That's the world. So, don't be too down on yourselves, right? We have Bitcoin, we have Ethereum. They're good. And we have a lot of other good prototypes. Some rubbish ones, but you know, go back to the early 2000s. go back to to.com. So, I'm very excited by that. There's a lot of room for improvement. Um, you know, if you look at what we do internally, we're building on layer 2s, we've built on optimism, we've built on Salana. A shout out to my to my friend uh who's on stage tomorrow

building out oracles at Pith, Mike Cahill. You'll speak to him. So, there's lots of exciting things going on. There's lots of rooms for improvement. Um, and it's not it isn't not a case of one sizefits all. I mean, if you look at tradine markets, what I do for a living, we match orders in 50 microsconds and we match 7 billion orders a day. That can't happen on chain today, right? So, what's happening with Salana? What's happening with Far Dancer? You know, what's happening with the next version of that?

I don't even know what they are today, right? So, I think we're super excited. But the the big move honestly is going to be the fungeability of tradi assets into digital assets. That's 7 day a week seamless market. You talked about stable coins. Hey, if I'm going to have a stable coin, I don't know if Jeremy's in the room, pay me interest. Okay, because right now my purchasing power of a stable coin is zero in 10 years time. So, so let's get that right um going forward. But it's that fungeibility of collateral will be what powers the future and which we're most excited about. Yeah. And there you start to see data points here, right? There's the adoption of stable coins at large.

So we saw Stripe acquire bridge this year. You actually saw the NASDAQ move to not 24/7 but 245 uh trading. And so there are these data points that are already starting to paint this picture of fungibility. Traders, AI enthusiasts and deans, listen up. The game is changing and Desk is leading the charge. To celebrate their launch, Desk is running a trading campaign with three major highlights. 38% of their token supply will be allocated to airdrops. They're offering the lowest trading fees on Earth. And finally, they will be running a Desk referral program. The more people you invite, the bigger your rewards will be. To get started, click the link in the show notes below and make sure to follow at Trade Ones. This episode is brought to you by Morpho.

Morpho is the first and only DeFi protocol. Coinbase has integrated directly into their main app, giving millions of users access to borrow against their Bitcoin on Coinbase. Just as web 2 companies like Google, Amazon, and Meta were built on internet protocols, the largest financial companies of the future such as Coinbase will build on decentralized protocols like Morpho. Whether you're an individual fund fintech or institution, Morpho is for you. Follow the link in today's show notes to try Morpho today. David, in our closing minute here, let's zoom in. Let's uh tighten the aperture here on the next year from the lens of institutional adoption. What's a prediction or something you're excited about or something that us in the audience who care about seeing the convergence of the space could look forward to?

I'm putting you on the spot. I did not prepare him for this guys. It's okay. Tier One Bank will start to clear major institutions into spot crypto trading. That's not the ETF. That's not a dollar settled um security. That's not a dollar settled derivative. That's spot digital assets. Number one. Number two, Bulge Bracket Bank will offer spot digital asset trading to its customers. Okay. By the way, when I say one of each, when that happens, guess what? They all follow that. Look out for that. Then the

graphs that Meltum shows next year will be vastly different and will look more like Nvidia and you'll understand we're just at the bottom of this current scurve. All right, on that note, David, thank you very much, guys. Give David a big round of applause. Thanks, Michael.