Institutional Strategies in Digital Assets: Flows, Yield, and the Road Ahead

Transcript

Excellent. Well, welcome to today's panel. I personally believe that um it's uh quite a good timing to to be discussing this topic particularly because we have been experienced a sustained bull market. And with this uh sustainable bull market, we have seen the need for asset managers to refine their strategies and mature their portfolios. This sustained bull market has also driven substantial amount of inflows and I'm pretty sure that we're going to have a very good conversation today. We have very insightful voices in the space, each of them with uh very diverse backgrounds with their own

perspectives from their own firms. Um and I would like to dive in right away. Um before we start a brief intro from each one of you uh on what do you do and what your firms do. Can Quentin would you like to start? Yeah. Uh good afternoon everyone. So I'm Quentin. I'm in charge of portfolio management within six months. Six Monks is uh the first and today only alternative investment fund manager in Luke Sombo who owns an authorization to handle a regulated crypto fund. So we're first one to be in a position to have regulated crypto fund using a European passport being able to distribute that across Europe.

Yeah. Good afternoon. Uh my name is Martin Label. I'm running out digital asset research at market vector indexes. So we're coming from the treadfire space but uh we developed our first digital asset indexes in 2017. So we're doing that for eight years now and doing the whole suite of single token baskets staking indexes. Um yeah, happy to be here. Um hi everybody. Uh Giovanni Visioso from CME Group, global head of cryptocurrency products. Um for those of you unfamiliar with CME Group, um we are one of the oldest institutions. Um we've been in business for over 180 years helping um participants both institutional and retail across six different asset classes manage risk. We

entered this space um in 2016 with the introduction of a reference rate and followed that up with the introduction of tradable futures products in December 2017. Um we currently have four products in market. We have uh futures and options on futures on Bitcoin, Ether, and recently launched Salana, XRP and and XRP as well. We're trading upwards of about $10 billion a day. And in addition to those ref to those uh products, we also have a family of reference rates and real-time indices covering or soon to cover 28 different coins and tokens. Good afternoon. My name is Paul Guerero.

I'm a co-founder and partner of Berinda. We are a Swiss asset management firm uh based here in Zuk and we are focused on uh Bitcoin strategy. Uh specifically we are very active in uh Bitcoin back lending. Excellent. Thank you Paulo. and wonderful interests as you can see each of them in a league by their own. Um the first question will be focused on TRFA investors because those are the ones that have um majorly shown interest uh in this bull market and and with that being said I would like to ask each of you what specific narratives or asset classes within uh the space have been more compelling to those stratifiers.

we like to start perhaps I I can start on this one. So uh definitely I I would say that Bitcoin has been the being the main asset is the first one that traditional finance player are looking at. We seen it because it was discussed earlier in the panel. Uh the altcoin are not following the same trends and bitcoin in the last months. We have seen a little better in last weeks but still uh however traditional finance player they also like to see the same investment products they are using regularly we have seen a tremendous trend with ETF of black rockck and it's probably one of the best

launch of ETF ever and it's still continuing to attract investor and most of those investor are not retail clients are institutional so we truly believe that the next shift is going to happen is toward mutual fund and investment fund because those fund have not yet deployed uh a lot in crypto and many actors are waiting this fund to be in a position to deploy because for instance if we take an example of a pension fund or insurance company their investment are always toward mutual fund they it's very rare they access the asset directly and Uh that's uh what we see at 610.

Excellent. Yeah. Um for me it's also the store of value narrative but it's less about Bitcoin because Bitcoin didn't change. It's really about what happened to bonds and as a former bond portfolio manager I'm really worried about the long end of the US curve because I think the US lost control about it and and what we see at the moment and I don't mean the the Elon and and and uh Trump debacle we have at the moment. It's really the deficit is out of control. Um, and people are flocking to store of value assets. Yeah, you see that with gold, but you saw yesterday a breakout of silver. You see a breakout of uh platinum. And that's not a coincidence, right? And and so I think I'm finally

happy that Bitcoin diverged. Yeah. Since liberation day, because it was always the the NASDAQ on steroids thing. Now it's really it established itself as a store of value. And the the beautiful thing about Bitcoin is that uh you can trade it spots, you can trade the futures, the options, you have the the strategy companies, uh the treasury companies, sorry. Um you have the mining companies. So we have a different flavor for everybody here and I think that's makes it super attractive. Now I think also that over time that this whole development helps the whole crypto space. Yeah. because I think the old system is deflating and the new system is inflating and uh so that makes me long-term bullish. It's also not a one

day one year thing. Yeah, the US is dollar is too large for that but it's really a long sustainable shift uh shift I see um from diverging diversifying out of dollar assets and into crypto and in international assets as well. Yeah, I mean I I I think that um we're really seeing a a new era for for crypto, right? And I'd say one that's characterized by just growing maturity considering that Bitcoin's been around now since since 2009. Um and just seeing the growth, you know, to Martin's point, um you know, this this year, but we're also seeing increased adoption and that adoption is coming both say from institutions, we're also seeing retail um you know, in in the space as well.

And I think another thing that that characterizes this is when you look at say some of the regulatory say clarity or or better yet reg regulatory comfort that we're seeing certainly out of the US but we've also seen advances with with uh Mika and and and the FCA as well um including say some advances in in Hong Kong. All these things really are are pointing say to increased growth as as these new participants come into the space. There's increased needs for more risk management tools such as those tools that that are offered by by CME Group. Right? So we're seeing um more of interest and more of a push for regulated products, reliable products, liquid products such as those as the

ones that we offer. And incidentally, just um you know, because of some of this um regulatory comfort that we've seen this year, we've been able to launch two additional futures contracts. First futures contracts that we launched was 2017. Four years later, we launched Ether in in 2021. Took us another four years to to finally launch Salana. And now we have two two cryptocurrency contracts or futures contracts that we launched this year. And that's really all because of those factors, maturity, um, adoption and and that regulatory comfort. Yeah, I mean fully agree with what has been already said. I think, uh, the store of value, um, idea has now started to uh to be accepted also by

institutional investors. Um, we see more and more products where uh, Bitcoin is a component. Um I mean we see like all these like Bitcoin treasury company uh you know issuing very interesting depth products uh on the market. We see a lot of like uh strategy around options uh to capture like a yield on these uh um uh like for example strategy uh equities um but as well uh Bitcoin as a pristine collateral. So uh we are seeing in Switzerland but also outside Switzerland

more and more banks that are offering uh uh Bitcoin back loans. Uh so they are now understanding that uh Bitcoin can be seen as a excellent uh uh collateral asset. I would like to double down on what uh Javanni said on the rise of new products and the new era of crypto. Um and one of the ones that have for sure take a lead is a staking across across the whole spectrum. Um Martin I do want to to hear your thoughts on this. What are the key components of that uh optimal uh portfolio around staking strategies and how does investors assess risk versus reward when selecting which

assets and why? Yeah, maybe we should clarify when I talk about staking I mean protocol staking. Yeah. So it's not about uh lending or doing some DeFi stuff. It's still when it comes to strategy uh it's still very focused on uh investing in a single token. Yeah. So ETH leads here then maybe followed by Solana and then it's interesting that also see some traction with Avalanche um recently. So in the last two years it was mainly about having the infrastructure in place. Yeah. staking as a service providers uh of compliant relays and all that stuff but it's really missing. So we we do a staking benchmark to measure

the the total return for example of of Ethereum but uh it's it's almost not used right um and I wonder how people assess their staking performance without any benchmark because it's not like a dividend where you know okay UBS paid a certain amount of dividend and that's your thing uh everybody has basically a different staking rate depending on uh are you doing it as a hobbyist or are you outsourcing it as a to a story staking as a service provider and I think that's really a basic component and my hope is that I mean some are doing that in Europe but my hope is and I'd like to to hear your opinion in the US uh we finally will get that but I think the SEC

uh doesn't require that necessarily um but I think as soon as as one um ETF provider starts providing more transparency uh that should also include um the a total return perspective and also what kind of of distributions are made uh according to a fair benchmark and I don't know if I'm mistaken there if you are seeing the same or if it's still a dormant uh thing and and everybody's still relying just on a plain vanilla price. Yeah. Yeah. No, I I I think that we are beginning to to have a lot more conversation say around staking, right?

um particularly as it as it relates to both um um ether and and our and our soul products. It's still relatively early, but but I do believe though that if um staking is allowed on on those US-based ETFs, I think that it will sort of like bring a a market for products to to to hedge um think of it as uh you know in the equity space where you've got uh index based uh equity products, right? But then with those index based equity products, you also have uh dividend futures for example, right? So um those those futures then allow those market participants to hedge say that dividend risk that that they face and and I would imagine that something similar um could happen say if if staking does does get approved for those

ETFs where there's going to be more need for those types of risk management tools to to hedge that portion of the portfolio and and about um BTC lending max lending specifically Paula what what have what have you experienced in the last few months and what is appetite for such. Yeah, I think probably in the last year we we really seen like a big shift in the market. Um I mean lending is um nothing new. Uh it's uh um it's a strategy that you know banks are already familiar um lumber loans and uh other uh type of strategies. But uh unfortunately in the past uh we seen like some players

that um they they enter into this uh uh this market and they were not really um uh putting good practice around lending. So uh we saw unfortunately a lot of uh company um you know uh losing a lot of uh especially on on retail for retail like a lot of uh bitcoins. So uh I think nowadays the we have like more institutional players entering uh the space. Uh they understand uh the risk framework. They understand um the fact that uh you know reputation is a risk.

uh they understand that they have to rely on qualified custodian uh to store the collateral and uh uh and uh you know if you understand the risk and and and if you are u uh putting proper control around the risk uh it's a very appealing uh investment. So we see more and more banks um in uh in in Switzerland but also in Europe uh starting to offer um to their clients uh Bitcoin back loans. Um we see a lot of lenders that are entering the space. I mean uh rates are still pretty high I would say but uh um I think it's just a matter of time that

they will probably uh go down and we will probably reach uh similar rate that we have in traditional lumbal loans and thank you thank you I think we have covered already some of the major products that are taking the lead and and from a service provider perspective um we have shared our our views and I would like to switch to allocators and specifically the ones uh most difficult for many which are the family office and multif family offices um most of them have tread carefully they have a quiet but secure stance in my opinion to digital assets and they are allocating so I would like to ask all of you what

what is your experience so far have you seen a growing interest in which products there are more interest on and do you see this allocation train increasing and why? Yes. Um so I I would say that a few years ago it was taking a risk to do an allocation to crypto and today when you enter and discuss with a family office for instance you are now having a a more valid conversation where in fact you're speaking of finding solution to have a compliant uh investment structure for them to allow them to access the asset without uh taking risk or without

managing the risk if they ask a manager to do that for them. So to answer your question, yes, we have more and more uh discussion around it. But they are still uh kind of slowness in some of them uh to to to to enter the space but it's more a matter of when now than if they are going to do it. Uh so uh we are quite bullish on the fact that crypto is still going to continue to attract some decent flow of money. Uh we have made a a study recently in Europe. You have approximately 10,000 billion of asset uh under management in alternative uh

investment fund. We have only 50 60 in Europe which is allocated to crypto. We strongly believe that in the four five years to come, crypto is going to attract approximately 500 uh billion of uh investment. So yeah, the market is uh looking promising. Uh I I can speak more for the for the ETP ETF market because that's um primary our clients there. So um by far it's it's still focused on single token products but um what we see there is a shift towards more baskets. Do I mean with baskets that could be a top five, top 10, even broader basket similar to

to what you have in the Treadfi world with uh the S&P 500 for example. And uh it makes sense because um especially in Treadfi people know what Bitcoin is. Um they know what money is. they get the digital gold narrative, but they already struggling with with Ethereum. And and if you're honest, it's it's not a safe bet anymore to say um after Bitcoin, I definitely need Ethereum. Uh maybe it's Solana. Uh others are speculating maybe already in SUI. And so for for most of um the normal investor base who just want to make an allocation, I think that's the better product. The problem is however that um um it's not easy from a regulatory standpoint. So we can do a

lot of interesting indexes um but um it has to be approved from the exchanges now that's is opening up. So we have netra rules you can do much more interesting things also the six exchange opened up but of course it's a completely different picture in the US where still have um just bitcoin and ethereum ETF. Now that will be changing and my hope is that you also get some quantifiable rules because I can't imagine that somebody as the at the SEC is sitting there and thinking about the Pangu ETF or about Sheiba versus Doge, right? That doesn't make sense at all.

Yeah. So um and I think with that market structure, Bill, my hope is that we get these broader baskets, we get sectors. Yeah. So that you can bet on DeFi, you can bet on AI and other things. uh right now it's it's focused on this Bitcoin Ethereum stuff. Yeah, for sure that the the story um you know has been has been Bitcoin, right? And and when you look at um just its relative outperformance and and how it's grown in terms of market capitalization where now Bitcoin represents north of 60% say of of cryptocurrency market cap, right? So I think when you look at family offices, you know, the interest is still is is still there and I remember talking to some family offices, you know, way back when we introduced Bitcoin futures in

2017 and they were already thinking about the space. But I but I think that Bitcoin does continue to to still uh be that story. And for family offices now, it's also about well how do I say continue to increase maybe the yield for for those holdings that I have. So, so we're seeing uh having more conversation say around um other strategies that they can use like covered call writing um you know maybe deploying say uh some leverage or or probably um say looking to benefit from from basis trading as well. Yeah, I fully agree. I think uh I'm talking more about like the Swiss market. Uh I think there is a big gap of what family office are are saying and

what they are doing. uh I believe most of them are already active. They're already buying. They're already allocating capitals. Um of course they are still concern they still have some concern. They still have some potential um uh concern around the reputational risk. Uh but I think it's you know u I mean it was discussed this morning this morning in another panel. Um you know infra the infrastructure is changing. um you know these players they have the possibility to invest in products that they're already familiar with they're familiar about the the legal framework they're familiar about uh the risk so um as as as you already said it's just a

matter of time where we will see like u more and more uh investors coming excellent thank you all for those insights and u I would love also to touch on for me probably some of the most interesting projects out there and that's derivatives um for this I I wouldn't find a better speaker to respond than than CME group right and um I would like to understand Javanni from your perspective how derivative space strategies has been rising what is the demand you're seeing from prop shops hedge funds across the world not only Switzerland and uh and how do you see this space evolving yeah no thank thank you thank you for that

Um I think when you when you look at the space right when we first launched um we attracted some of the traditional say liquidity providers. So these were firms for example that were already active uh within say the CME space and they were just providing liquidity for for these new new futures contracts. Um but we started then very early on attracting some of the cryptonative uh platforms. think of some of the um maybe a few less uh these days but but some of the early say uh crypto lending platforms were active in our space. We started to attract some of the cryptofocused funds um and then um I'd say really beginning in earnest in the summer of 2020 we really started seeing some more say of

those traditional hedge funds um and enter the space right and then we had the launch of futures-based uh ETFs that bought new participants in. we um started seeing um uh you know a rally in in the price of um you know bitcoin in particular. So we launched uh microiz contracts at onetenth of a bitcoin whereas our large bitcoin contract is five bitcoin. So that then started attracting uh more retail or our contracts became a little bit more accessible for retail participants and these smaller contracts actually also helped institutions with fine-tuning exposures as well. uh once the spot ETFs launched uh last year, that's when we really started to see some of those

traditional uh hedge funds really step into the market because now for the first time those those hedge funds that couldn't uh benefit say from relative value plays like like cash and carry basis trading now with the ETF they they could enter that space. So they could easily uh buy the ETF, sell the futures contracts and and you know last year that basis trade was was north of 20%. Um it's come down a bit but that still remains um you know a popular strategy but I'd say what's attracting institutions into our space it's it's the we offer regulated uh contracts. all our contracts are cash settled. Um reliability in our market and then really the sheer liquidity of of of of

what what our markets are trading. We're as I mentioned in in my intro we're trading upwards of about $10 billion a day. If you compare that number to what's traded on some of the um say uh spot exchanges, centralized exchanges or compare it even to the ETFs, we do have market leading liquidity where we're out trading those markets by about three three times, right? Because particularly when you look at the ETF market in particular, the futures contracts really become the the benchmark or the foundation on which those products are built because it allows liquidity providers to access liquidity liquidity very quickly. Um lock in a price and then work um an order say in the spot market to deliver uh spot to the

particular say ETF issuer issuer. The other thing I think that's attractive about our markets is really the financial safeguards that that we offer. You know, we've been doing this for a long time and and if if you're in our market, you're already familiar say with um CME, you already have um certain uh financial safeguards that you're also going to benefit with on on on our crypto side. and anybody new that comes into our space is benefiting from is is is is able say to benefit from from those same same safeguards that all other participants in our space uh benefit from. Excellent. Thank you Javanni and and it's wonderful to to hear your perspective and seeing the growth of CME right in the last few

months it's been quite a quite a huge rise and and before we move into the last question just wanted to open quickly the floor to any of you who might have questions on the topic I do see a few familiar faces trading teams and and and asset managers around so if you do have a question feel free to do so if not we're going to move towards the last question of today's panel any questions Please um so normally the majority of the

volume is uh uh for US dollar uh denominated loans. uh so we don't uh have to deal with the FX risk. Um yeah, I think uh demand for uh Swiss Frank or Euro denominated loans is still relatively low. Any other question on digital asset strategies? Anything that you particularly would like to know from the speakers today, please? What are the emerging trends or strategies around Oh, I I I can take this one. Uh so from

cryptonative people it's clear it's defy from traditional finance player it's not defy it's more looking at getting the um the funding rate by shorting the asset and having it and just getting the the the the funding rate because the problem for uh traditional finance player is that they to access defy it means that you are going to pull your asset with people you don't know, people you can't KYC and that's an issue uh because you're even if you KYC the people who enter the pool and you monitor them you are not sure that someone is not

entering afterwards and not bringing tented uh crypto asset and it's still an issue. We start to see some solution uh where we use a um segregated vault or vault where uh thanks to smart contract they can be accessed only by whit listed white label person and uh we we are really eager to to to promote this solution for traditional finance player because obviously is bring a lot of interest uh for generating some yield on uh crypto assets which are owned by for instance an investment fund.

Does that respond the question? Yeah, absolutely. Great. Any other any other question? Great. If not I would like to wrap up here just because we have just four minutes left and and I would like to ask you what is the best way to connect with you with your companies with your BD teams. Are you going to be around today at the end of the afternoon Paul? Yeah, I will be I will be around. Otherwise, yeah, uh berinda.com, that's our website. Excellent. I'll be around as well. I I hear that there's a boat cruise happening today, so we can chat there.

Uh yeah, I have a next panel at the the Audi media um room on the Coinbase 50. That could be interesting to to some of the people here. I will stay until 4 but please connect with me and we can discuss next week about any question you might have. Excellent. Thank you all. It's time to draw the quart but huge amount of blouses for all of us.