Morgan Stanley: Could A Banking Crisis Drive Adoption?

Transcript

this episode of Empire is brought to you by quick node quick node is an end-to-end blockchain development platform that makes building web 3 apps super easy no matter what you want to build you can effortly develop any application by leveraging their elastic apis go to quicknote.com use codeempire you'll get a free month on their feature back build plan that's right go to quicknode.com you'll get a free month to start playing around you'll hear more about quick node later in the show all right everyone welcome back to another episode of Empire super lucky to be joined by Santiago uh Andrew who's the head of a digital asset markets at Morgan's family and Amy Oldenburg uh the head of emerging markets at Morgan

Stanley so Amy and Andrew welcome to Empire thanks so much yeah excited to have you guys uh let's uh not start with crypto let's start with banking uh we are seeing kind of these uh bit of a banking crisis right now like the Deutsche CDs are blowing out life insurers are getting stressed uh it seems like this banking crisis did not end when the FED came in and backstopped some of the uh some of the banks like First Republic and um Silicon Valley Bank would just be curious to get both of your takes on like this unfolding banking crisis yeah I can start it off uh you know I was in San Francisco the week svb fell apart so I feel like I had a bit of a front row seat I got many phone calls uh

from both fund managers that I know across the board and Founders really trying to understand what's going on uh it's a bit concerning for me especially because we're so close to the crypto space so you know of course many individuals saying you know this is you know uh the uh agencies really trying to impact crypto but it feels broader than that uh you know from so many different Founders regardless of their crypto uh or just Tech startups or or even traditional funds I mean this is having a pretty Major Impact and I'm just a little bit nervous of the trust aspect I think spending 23 years of my career primarily in the Emerging Market space they're starting to be parallels uh that just

um it's not what you would expect from say you know develop Market Per Se you're really trying to find the trust in the system and there's some of that that like can that keeps coming out but but the markets is not feeling that trust right I mean I think you're seeing that even with um how the markets have been playing out on on some of these Banks even this week where we haven't been able to really find stability here and and that's uh that's a little bit uh you know can concerning for me I I hope that there's more of it uh more stability here than than we're seeing in the market right now and Andrew maybe you I'm sure you have other thoughts on it too

yeah it's kind of ironic rightly being in the crypto Market with 24 7 Action News spreading instantaneously on Twitter and Telegram and you know exchanges or D5 projects like liquidity just evaporating like overnight um it's pretty ironic and you see some things that look not too dissimilar just happening in traditional banking world and it seems to have happened at times over the weekends on a Friday again there's other Banks currently impressed like last Friday obviously was a big story around credit suisse's stability and the and the debatable liquidity so it feels like some of the activity we

saw happening throughout crypto world in the past couple of years is in a way some of the same behaviors at least uh of playing out in in the traditional Finance yeah what is your work so we're recording this at almost 11 A.M on Friday March 24th um I just want to almost time stamp it because this stuff moves so quickly and right now Deutsche Bank shares I think Deutsche Bank is Talk of the Town today what is Amy you mentioned this word concerned what is your like working expectation of how almost like far this banking crisis will go [Music] the one thing that we do have to keep uh in mind and I think it's really hard for

people in the industry is you can really to even Andrew's point because of social media you can really get sucked into this Vortex and I do think we have to keep resetting ourselves to like where is it a proper Baseline and what is our Baseline that we're working with because I will say you know even Friday um during you know svb and and uh uh uh signature and silvergate we're living in that you were just like in the center of this Vortex and it was hard to see kind of like where where kind of the bigger like mainstream um state was and and I do feel that there's a bit of trying to continue to remove ourselves from the echo chamber I

think that's getting harder and harder you know someone had mentioned to me uh when Enron happened it was months of chatter um before things really broke Global financial crisis you had weeks of rumors heading before things started to evolve and even in this situation it was 24 to 48 hours and and it really gets exacerbated so you know I think we had called our team had called for increased volatility in markets generally like that was even before this happened we just we had been expecting a higher volatility than we had seen in the past decade to really play out and now we just have to make sure that we're keeping a baseline in terms of like what's creating that and um I I think

that's one of the hardest parts that we're we're seeing because you know every day we keep like jumping around uh it can be very difficult to navigate so you know I I um I don't think we're we're not in any sort of extreme situation but I think we do as investors across the board have to try to keep resetting ourselves and find like a managed calm Baseline to be operating off of so we can make make rational decisions and not fall into that irrational behavior um some of which I think we're seeing in the market on certain days how much of this is a like transparency issue I mean there was some fun man like there were some I guess short sellers that had identified the issue of Silicon

Valley Bank like even as November of last year but it's interesting that it just sort of like has percolated and like it's really come under stress over the last like couple weeks kind of like a Wall Street bet kind of phenomenon um where else do you see kind of fragility in the system broadly um you know obviously the focus is now Europe and then it's commercial real estate and then it's something else and I'm just kind of curious when you talk about it's not as extreme it's perhaps you're referencing like 2008 there are analogies and there's people that are referencing that I'm sort of curious to get both of your perspective on on that point because you've been around for such a long time just curious how we should think about the current situation versus 2008.

Andrew you want to start on that one yeah I mean so it was pretty early in my career in the 2008 crisis but I mean I would say the whole infrastructure in terms of like the support for the banking system and the instruments which have been made available like since then have just evolved massively the whole Basel Frameworks Etc you store with the uh with the merger or let's say takeover of UBS being an out UBS taking over the Credit Service announced last weekend they wrote down 17 billion dollars of 81 debts which is like conditional convertible Bond structure like those instruments didn't exist in 2008 and those instruments were specifically

designed over the years following 2008 for situations that we've been seeing recently when you need additional liquidity or additional uh Capital injected into the corporate structure so I think there's been obviously a lot of learning since that crisis the whole concept of too big to fail is obviously since since Lehman and some of the other significant impacts on the market so we've seen I think this time around in the last 15 years what's what's changed is there's maybe a larger connection between regulations and states to the financial infrastructure and to the financial system and there's probably a far more caution than letting a specific

player that's globally systematic uh fail because we've seen what level of impact it had when Lehman went down I remember spending weeks literally unwinding trades that we had at the time versus Lehman and finding new homes because we were facing clients on Lehman positions it was complete chaos across the whole trading floor at that time and I think we've learned a lot since that so there's a multiple different methods and techniques that The Regulators have found to divert that sort of Crisis from happening again yeah and even if I think back to so I actually started my career in San Francisco in 99 and 2000 and I thought I was gonna stay in the tech world for the

rest of my career I actually didn't expect to to go into Finance even though I studied Finance in school and living through the summer oh sorry living through the spring of 2000 and coming out of the Y2K kind of tech bubble then you know it became quite Grim after that point I mean so uh San Francisco was pretty dark everybody had been living on uh their equity which had no value to it I think a little bit different than even what we're seeing in this environment because at least some of the founders and even in the digital asset space you have cash on hand um all everyone was broke back then uh with exception of a very few number of people but even in the depths of that crisis you know it really ground uh

through especially I had joined Morgan Stanley in the spring of uh 2001 and you know as soon as I'm thinking I have some stability in my life 911 happened that fall uh so we really kind of struggled for a couple of years but even in that well the US was feeling pretty bad the emerging mark Markets started a very strong run in in 2003 and that lasted through 2007 and I think that's one thing to keep in mind too is to constantly be opportunistic in terms of where uh we can find areas to invest in uh or or where there will be opportunity

those that don't have Legacy infrastructure in terms of financial services and might be able to move on this Innovation more actively than than even what we're seeing in in the US so the US has had a very strong run the last decade's been the best decade we've seen for the US and and from our research we have never seen the leader of one decade continue to be the leader of the next uh and I think one thing we have to to be accepting of is we may live in the U.S uh things around us may be changing it may might not feel bad it might not feel where the opportunity is but they're somewhere else in the world where they will be the opportunity and we have to be able to navigate and take

advantage of that so I do still try to stay quite optimistic and and look for that opportunity even as we're seeing these major regime shifts take place yeah I think that's a good pivot almost into crypto but I want to ask one or two more questions on uh on Banks and then uh and then and then we can do the pivot into crypto there's just um one thing that Andrew like one little line that you said Andrew is like uh you know too big to fail kind of became this almost Norm in 2008 and uh you know I just listened to a couple Doom and Gloom episodes of uh Balaji talking about his you know million dollar hyperinflation Bitcoin bet and um it wasn't actually the Bitcoin bet that I think stood out

it was this concept of um at some point in the future Balaji thinks 90 days I think that's a kind of wonky thought but I agree with him that things usually happen faster and people's brains aren't aren't built for exponential um like unfoldings like that but I do but I think the interesting thing that he brought up is that at some point in the future it could be 90 days it could be nine years it could be three years the us is going to have to decide between supporting the banking system and keeping the banking system up and supporting the US dollar and 10 times out of ten they're probably going to choose the U.S banking system so that then creates this kind of dark world where the global Reserve currency is the US dollar but the global Reserve currency starts kind of running away

from us I'm curious how much you like is that tinfoil hat balaji's crazy uh like that's one end of the spectrum other end of the spectrum is like lucky make some really good points I don't agree with the 90 days but I really agree with him on some of these other aspects like where do you two fall foreign angle at this stage I mean I think 90 days agree with you there you know it's it's uh it's it would have to be parabolic and I don't quite understand why you if you have that view why wouldn't you just buy just a bunch of Bitcoin rather than put a bet on that it's going to be a million dollars uh in 90 days interesting nonetheless uh I

would say we are starting to see at least other trades being settled in non-dollar currencies right more recently she uh China together is Mr Mr Putin talking about settlement in Yuan and other nations obviously looking for alternative uh assets to use instead of the dollar as Reserve even if you think about El Salvador's experiment with with Bitcoin there are signs that other nations are starting to move away from the dollar so I don't think it's completely unreasonable to think that there might be a scenario where the dollar is no longer the global Reserve currency it's just tricky to predict in that kind of Doomsday scenario unfolding it

especially at that post you suggested I don't know Fame he's got more views on that given your brother kind of yeah I think it definitely uh you know we're seeing some shifts there I I do think these uh these Dynamics typically take longer to play out than than 90 days uh you can see an evolution uh in this I mean there's there's a lot of things that have to change there's a lot of things like you know even countries that have baskets uh of currencies or pegs to US dollars so you know it's not just say a U.S phenomenon there's there's other impacts broader impacts across the board and I think that takes a little bit of time to play out even if you went down

that path uh I think that the challenge that we're facing is like people's psyche right now like things to your to your point have have changed so quickly right I mean even just think about covid in the U.S no one the population never dealt with something like covet where basically overnight you're shut down you're not going to work everyone's fighting over toilet paper everyone's trying to get food I mean that was quite chaotic and it's coming from like the Emerging Market side it was easy to stay calm and kind of just watch the chaos around you and Sue it was almost concerning to see that level of chaos but I do think um you know I'm hoping we can create we continue to create some uh find some

trust in the system because I think there's there's that erosion of trust that continues to happen and um uh I I really hope that doesn't start to slide further uh than we are now you know I think that's also where we can even uh you know weave in regulation uh we we need regulation to uh work for us we need it to help us uh you know you can't be putting s1s out where you're getting approved by certain agencies but then you know further down the road uh having enforcement actions like that's not going to put a lot of trust in in people's minds and um and and I do think we're working really hard here to try to

build trust again because that's uh that's going to be a big theme going forward here uh Amy I wanna I think your experience in Emerging Markets um is interesting like if you think about what happened Silicon Valley Bank and perhaps other banks that are holding like these effectively bought a lot of treasuries that are at zero and then there's been a huge over the last year there's been a big shift in interest rates and that has big implications when you have this duration mismatch uh the same could be true for some central banks that are holding a lot of treasuries and they have obligations the same with their bank has they have pensions they have other stuff so you know it's interesting that bitcoin's up 25 of the last you know I guess since this banking crisis kind of started um and so I'm curious to get your

thoughts perhaps both of your thoughts and what do you read into that um does this make Bitcoin you know perhaps more compelling for a central bank um you know to to then hold um and and kind of dump treasuries like I'm just sort of curious what your thoughts are um on that they were already researching it right there was a number of central banks that were out there researching it uh there's many central banks out there that are also very actively investigating uh Central Bank digital currencies like they're doing their work and and I and I do give credit to to select emerging markets that even in this current interest rate environment they started really putting more Orthodox policy in

place ahead of even the U.S so uh again I might be biased because clearly I live in uh even though I live in the U.S my my entire world is around the Emerging Markets business uh but but they've been taking some active approaches to try to manage things so you know I do think uh I do think many of them are looking at this very carefully and and some also see it as an opportunity for them so I think it's something we just have to watch I don't think there's any really clear themes that have emerged yet uh but you see the action out there and it's something to pay attention to yeah and if I would just add to that I think certainly obviously Bitcoin was born out of the previous financial

crisis and did the whole reason of creation if you look at the message in the in the Genesis block was regarding bailouts of banks Chancellor on the brink of second bailout for banks and 15 years later we're in that kind of what seems like very similar maybe not exactly the same but certainly has Echoes of that time right and it's frankly encouraging to see Bitcoin performing in this environment and it's clearly a decoupling from the previous regime I think if anything is a Trader you always think about is there a regime change and obviously Bitcoins had multiple narratives over the years it's been flagged as an inflation hedge which potentially didn't play out we've had

the likes of Paul Tudor Jones uh jump on the monetary Supply calling it the fastest horse in a kind of expansionary monetary environment which I think maintains like credibility to a large extent but of course like last year and throughout the end of from frankly the end of 21 it was highly correlated with tech growth equity and just almost intraday mirroring the NASDAQ in terms of the price performance now palmy thinks like is that the fault of Trad fire or institutional players if you will like larger macro funds the quantitative funds coming into the market and flagging it as one of these assets and putting into their model especially given like how how much it was correlated intraday but these

narratives uh have changed over time and yeah as mentioned the regime changes what's very interesting and I feel like the current market environment with signs of 2008 Bitcoin outperforming uh it's doing what it frankly should be doing in this environment and it's one of the most important rallies I think we've seen since 2021 yeah that's not a house for you by the way our house view is very different and this is this is personal view our house view is certainly much around correlation to the M2 money supply M2 money supply so we do have in-house research which called it pretty early I would say in terms of expansionary monetary policy being supported for Bitcoin

I feel like what we've seen recently is is also uh fiscal or let's say monetary instability or concern around the monetary Supply also impacting Bitcoin pretty positively and frankly it's interesting because personally being in crypto for some for some time talking to colleagues and other Traders about it back in the early like 10 years ago it's rather more like everything was crypto native like crypto specific idiosyncratic about protocols new launches tokens now it feels like you've got to be into macro and thinking about money supply and thinking about indices as a crypto guy so it's interesting to see the Two Worlds kind of merge and impact each

other Andrew can you take us inside Morgan Stanley's view I guess current views on on crypto and Bitcoin and Heath but also just I mean you've been pushing for Bitcoin even since when you're a derivatives Trader in 2013 all the way up to joining Morgan Stanley in 2018 really pushing for it and I think there have been these like Ebbs and flows from our conversations over the last five years of Morgan Stanley being very pro-crypto then you know pulling back being pro pulling back so can you just give us kind of the evolution of of Morgan Stanley's crypto strategy and and ending with where we're at today okay sure I mean I can talk about everything in terms of what we've

publicly been involved in I would say we're we're obviously a client focused firm we want to be present to service client needs and initially thinking through the launch of the Futures in 2018 so CME and CBOE at the time thinking which clients are interested in in trading these and there certainly was a list of clients which were interested in in creating those products but typically what we do for any other future in the market is to put a wrap around it and have total return swap and that gives us some flexibility to offer a potentially different like contract sizes for example or other liquidity around around the asset class and those types of uh swaps are also on top of

like individual equities but also on top of like Commodities Futures agriculture other other types of topics other types of underlyings and I personally had been spent time as a Commodities derivatives Trader in the past with positions on corn and wheat and and coffee and those things are way more volatile than Bitcoin and frankly physical settlement is far more difficult than Bitcoin but Bitcoin always comes with this because it's a bit of a new asset it's certainly a new asset class even though it's been around for obviously over now 15 about 14 years still there's like this level of concern around it due to some of the initial press in the in the first place and of

course the regulatory environment so I think at the time with the total return swaps thinking about non-deliverable forwards there's some element of FCA in the UK looking to ban the sale of derivatives to retail investors for example now as a highly regulated institution the last thing we want to do is find a way to you know circumvent or let's say facilitate a market which the main major regulator is looking to put into some level of control so those types of products have were on hold at the time I mean in the meantime given the the conversation has evolved recently uh in terms of tokenization I think we always had the view that this

is something to Monitor and look at and as I mentioned like client coverage certainly a lot of clients have been interested over the last few years around tokenization or like exchange initiatives so I've spent time looking at those types of initiatives in a big crypto bear Market 2019 for example and then when crypto 2020 when you start to see the likes of Paul Tudor Jones's piece macro and I mentioned that earlier but some more macro Focus institutional Focus like these these topics then make clients interested and these pieces are quite influential and when if clients are calling and looking to get more knowledge about this space then we can

start to think about okay well how can we potentially like serve those clients so we've we've spun up full-time research Department Sheena Shaw's published a number of pieces now around Bitcoin and crypto like Amy and I have both spent multiple hours speaking to some of our larger clients just terms of education but also thinking through like how can we work together uh we've spent time thinking through alternative offerings but in addition to the way you know this Market is extremely cyclical I would say significant larger client interest which is what we would need to like move the needle in terms of a new business opportunity is also massively cyclical and and other initiatives which we have

been working on which we haven't sort of been publicly announced with um have been put on hold we did spend we were the first like platform in wealth management to offer Bitcoin funds so we offer two funds on the wealth management platform long only kind of structures just to get for clients to get exposure to bitcoin anything else to add there Amy yeah uh only thing to add is is there's continue there's continued activity uh I you know I think even in permissionless last year when I uh was on a panel there I mean at that point we were dealing with uh the Terra Luna collapse and I

had made a comment saying like it's not going to stop anything in terms of traditional players who are uh institutional interest it slows but it evolves and and as we've seen Cycles uh just get shorter and faster uh I feel like we have we get uh you know a month or two to catch our breath and then we're off to the next opportunity I mean by October of last year even though we're dealing with FTX on one side to Andrew's Point as a tokenization has really taken off with uh you know pretty significant level of activity many of uh our different uh competitors across the space launching or announcing different products so the activities continued and and it's one of the reasons uh that even

Andrew interest has been sitting in sales and trading since he joined Morgan Stanley and official as of just recently has come over to the investment management side to really help us look at the opportunities because uh to Andrew's point on helping clients it's very complicated even for all of us that have been in the space we know how difficult it is to navigate all the different areas the complexities how quickly it changes and and you really do need experts that are helping you navigate the space I think it's very helpful and the clients see that so you know we'll continue to to take advantage of some of those opportunities education a big one right up front and it's not

only education for clients as as Andrew highlighted but we need to upskill a lot of workers also on our side Lawyers Fund administrators product development operations uh you know different investors and and that's especially as you see I mean I see it across the board even within our our different portfolios we have numerous companies that although it's small are being impacted by uh everything from Chip manufacturers and how that uh trend is is impacting you know Bitcoin mining um or other trends that you're seeing play out similar to some of our consumer brand companies we've seen Nike Adidas

luxury Brands all roll out uh nft initiatives we need to really get people up to speed so they're generally aware of of what this is what the impact is to business models and so forth so you know I would say there's there's a lot a lot that continues to go on in the background all right quick break from the show there is this kind of overused cliche saying in crypto but it's true bear markets for building and everyone tells you that and everyone knows it what people don't know is that if you're building apps in crypto and building apps in web3 without using quick node you are building on hard mode so quick note is is this amazing blockchain development platform it reduces costs

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of the regulatory clampdown there's always been regulatory worries that we've had over the last you know since the existence of crypto this time feels much more coordinated and really all-out attack in the US um you know we've had signature basically it's really hard now they there's a major choke point at the on-ramps right you you no longer have the scn network of silvergate um silvergate's no longer in existence you know and signature this crypto business kind of got was shut down pretty quickly um other banks are kind of refusing or shutting down their crypto practices I'm curious if you could just comment on on that and how you guys think internally about servicing the crypto industry

um and the opportunities there um in the face of all this kind of regulatory action it I saw I was in DC this week I went to the DC blockchain Summit and you know it's really a tough space right now I think it's a priority of ours to really dig into this policy side much more than we ever had before you know I think historically my 20 plus years in financial services I can't say that I was going down to DC on a regular basis to try to understand what the heck is going on um there was a lot of other things for us to focus on and we'd focus on macro initiatives but you know you're really trying to get a handle on like what like what is the reason for some of this who

has uh uh is moving in the right direction and there was some positive elements that came out of the the blockchain summit like you felt that there was some working groups and and different activities happening uh I I just it's hard to to to see the discussion and the working groups uh and where the execution is so I guess the question is like where is the execution uh on it if it's if it's you know clamping down on crypto but like okay for good like just say like crypto or D5 like let's just like take the idea that they really are doing that but what about just digitization and innovation

in general like we have to move in terms of the future infrastructure of Finance like everyone's digitized we shop online 24 7. we make plans with our friends 24 7. we text our friends 24 7. we can't get access to our money 24 7. like there's something there that has to uh to change uh or even you know wires like the number of people that sat with wires with like you know spinning time to see if it would get delivered or not there's tons of wire fraud there has to be you know more advanced ways of of uh putting this infrastructure in place and and I think even if you just like set crypto aside for whatever it's worth we need to

keep moving on the the future of uh Financial infrastructure here Andrew I don't know if you have anything else to add yeah I can't comment like specifically on this concept of kind of choke point and regulate or like clamp down on the various on and off ramps um just not having first-hand experience of it it's just probably it can say the same as everyone's seen in the public press I would say it's a big shame to think that such a relatively Innovative like offering such as send uh send Network or the the Sig network is is no longer available because those was pretty critical to obviously crypto Traders and the whole liquidity of crypto and if you

look at like the market depth since that has been switched off I mean we're down to like 50 Market depth there's only takes like 5000 BTC or like 140 million dollars to move the spot price by two percent I mean that's like half the amount of liquidity or half the amount of uh volume that was needed prior to the FTX collapse for example and even just prior to this clamp down recently on Dollar on and off ramps so it's clearly got a significant impact on the market structure for crypto I'm based in Switzerland in Zurich and would say it's certainly been a topic here for new Banks new digital Banks to get licenses

and to get approval and if anything there's been some level of growth in the in the local banks that have got fin regulated and finma licenses to Upper banking services there's quite a number of banks here that do offer liquidity for crypto players and are prepared to onboard crypto players and I think yeah it's harder to comment on the U.S scenario yeah well I'm curious you know one of you is based in Switzerland deal in the US um there's a lot of talk about you can't really stop this industry I mean China's basically try to shut it down for since forever India and some other countries um you know of course if the U.S it feels like it's much more impactful for the industry but

still a lot of these entrepreneurs are going elsewhere I mean Zuck or like they're going to Switzerland they're going to London they're going other places like a gold ETF got approved in London whilst U.S Regulators are really against it and then once it got approved in London then the US Regulators were on board like is that going to happen in crypto as well where like you know from your perspective the interest from clients and corporations are gonna it doesn't feel like it's stopped um on different verticals of course like nfts and whatnot but you know what does that actually mean for the competitiveness of the US U.S banks U.S companies versus others um as I try to kind of take you know opportunities in the space yeah I think it's I mean it's one of the most mobile

Industries globally I would say crypto everything online young like motivated flexible you know talent pool and and Workforce that's just able to relocate and motor and move themselves to other countries be it Middle East Asia Switzerland London I mean it's pretty easy and we've seen that multiple times even if you look at like the major exchanges just go into areas where they're accommodative and that can be done overnight in some cases so I do think it's a it's a very very difficult industry just to say we're going to patch this hole and you know this this is going away it's not going away anywhere this industry moves and is extremely mobile very quickly to go to

other places where the environment's more accommodative but Amy you've seen a lot in in Middle East I guess recently yeah I think the same migration patterns you know we we saw during covid uh folks move from you know New York or San Francisco and and places like Austin and South Florida just continuing to see uh more and more of the population move but I think you know that's a trend more globally also I mean Hong Kong has been a very very difficult place to get to the last three years uh that's been a business Hub historically London dealing with its own challenges uh with brexit making it more complicated lots of protests going on there uh you hear pain

points of people you know hating to go through that airport or rail um rail strikes and everything else and then you have places like Dubai who are taking advantage of the opportunity or UAE more broadly or or Saudi Arabia saying you know we're open for business uh we're focused on Innovation we have a clear plan uh they've made it more lacks in order to even get visas and and that's a big game changer I mean even for someone that runs a global business it's been harder to get visas over the last number of years in the U.S for talent and our talent is very Global we have teams that sit in six uh cities around the world and and we continue to just accept that we're operating like

that and it works uh it works very well and and it allows us to really tap into Talent uh all over the world so it is uh it's it's a broader uh Trend and and it very much is supportive of the digital asset space I mean Andrew what is the um do you find that Bitcoin or uh or eth resonates more with institutional clients right now that's a good question I'll just say I think like I don't know atheism Maybe of Interest given the additional like Tech angle in terms of people thinking through all the on-chain activity

right so that and this the fact that you can buy it and stake it and you know earn a yield adds another level of potential understanding or interest for players which a number of our clients obviously are very sophisticated in terms of their technical abilities uh some of the world's largest Quant funds Etc uh but I do feel like very different asset class I think macro is probably more interested in in the kind of Bitcoin thesis and the you know the play on what we've talked about with interest rates or monetary Supply whereas some of them may be more technical players are thinking about on-chain trading and on-train activity um yeah I would agree with that I was

just going to say I would agree with that yeah I think it kind of goes back and forth uh you know there was a moment last year where it felt like the theme was you know beyond Bitcoin like okay I got the Bitcoin let me like now explain everything else uh that's happening uh in this space so it does tend to go back and forth but I think we're back we're back to bitcoin right now yeah taking off your Morgan Stanley caps for a second what do you two find more interesting I think it's fascinating now with like the ramp up of the L2 Solutions right we just saw the arbitrim airdrop we've got optimism ZK syncs stockware all that kind of scalability which is

coming to the space like the ribs and on-chain options trading like that if the tech is continues to advance at this kind of pace that we've seen in the last couple of years like the ability to absorb some like traditional Market activity on chain is just fascinating right and for me previously thinking through like the amount of systems I had to have like reconciling with each other and like multiple different platforms for quoting trading issuing booking reconciling like if you have everything on chain in an open kind of API format issuance and trading and settlement uh it's just massively constructive and efficient in many ways just to be able to operate a

trading operation yeah and I would say I on my side uh you know trying to continue to see Trends to get a er uh so we're not you know we don't have these Bridges kind of going back and forth between traditional finance and the digital asset space uh you know I'd love to see Trends where you see different funds uh where you're actually subscriptions are not coming in Fiat or uh you know through different uh on-ramps but uh wallet to the wallet of the fund smart contracts executing on those subscriptions so really getting or even uh in the tokenization side we need digitally native uh Investments that are going into tokenized funds uh I'm not a

big fan of kind of merging the two together or you're taking a traditional fun and then say tokenizing it I I'd like to continue to see the evolution of a more purist approach from you know front to back on this point of infrastructure um like where do you think we are in terms of the development of tools that large like Quant funds or institutional players that want to get involved in crypto they come into space and say hey it's really Bare Bones or do you think I mean where are we in terms of that development process I mean custody in exchange just bundle into one that feels like it needs to be separated there's a number of things that probably haven't been built but that could be an opportunity for someone like you guys to pick up the pieces of build another SSN Network or whatnot so I'm curious how

easy is it for your institutional clients to get involved in crypto and and how that's changed over time in terms of like like the broader development right we're super early I mean looking at D5 Summer and the various different bumps in Define 2021 Etc and personally active in some of those areas uh for experimenting and for like liquidity supervision like you you're like it's either the chain getting clogged or going down or the browser extension having issues or your like your Hardware wallet uh given like less sophisticated infrastructure on on personal side not working with the browser extension or Etc like it's it's super early obviously there's some of

the larger market makers the crypto native market makers or some of the Chicago Prop Shops which have got like sophisticated tools to access some of that liquidity have have got more robust infrastructure to engage than your standard like that user but even so it's like the on-chain activity getting clogged and some of the some of the larger blockchains like Solana potentially going down for hours or sometimes afternoons on end uh that feels super early but the pace of development like the speed at which this these things get passion and fixed the speed at which like uh assets like migrate to new platforms or they find like new opportunities is just like phenomenal so

24 7 markets three times like your traditional Market opening hours I would say it's for like five to ten times if not more like the speed of development which which we're operating at now in in the crypto industry yeah I would just add like we continue to need just more service providers and that survive right I think a lot of times the discussion is like who's the winner who's the best we need multiple uh service providers that are great at doing things and that's when you get really a mature Market because there's always conflicts I mean even if you look uh at our business the number of counterparties the number of Brokers we deal with in in various markets across

the board you really need more than one one is not a mature Market one has a lot of risk and and I think we need to continue to uh to build that out and be comfortable that there needs to be numerous players I think the second thing is just in terms of scalability uh when we get into our business like the number of Trades uh the size that we're putting through it can be quite considerable and if we really want to move into more of a mainstream we need to I mean to Andrew's point about things going down uh we we really need redundancy we need that scalability to be much better than it is today yeah I want to transition a little bit into kind of the evolution of your perspective and also institutional clients perspective of the space and

sentiment broadly like what is something that you've really changed your mind on as it relates to crypto that you were really against or you were really like wooden headed about and then like you're like oh wow like I've changed my perspective on that pretty radically uh for me for me it's ETFs for sure uh you know I think maybe coming from the EM space you know living through Russia Ukraine uh you know I've always been pretty vocal like you need to be able to hold your Bitcoin uh ETF is not going to provide you much service if uh you know the traditional Finance space goes down that you'll have that value to uh deliver uh but I think that we're living an environment now where the user experiences is still so difficult we do

need uh to help clients at least in this interim uh be able to have access even if it's price access price exposure to a certain extent as that evolves so for me that's probably a big one I've accepted that ETFs potentially are part of our future that's a good one because I think like the industry's been so fixated on ETFs for as long as I come in like even the wink of Vos application and the 2015 or 16 was like a major Market topic um for me personally I think change the view in like how much D5 will interact with the traditional Financial in in system I think it's fascinating to watch the

likes of maker Dao being you know with probably the largest out there in AUM do you got you guys probably know that definitely better than me but starting to see them investing in like Bond portfolios via more crypto native Banks like one of our local banks here Signum offers make a dow the access to uh bond funds so you're taking like pool of capital which is probably the most like purely crypto native pools of capital and it's allocating like half a billion into bonds so that bridge between D5 which is like was previously in this kind of almost crypto Echo chamber where they're just buying like crypto assets to try

and keep the peg of the diet at one dollar um taking that and buying now traditional instruments through like regulated institutions Andrew does do you think that is the end State though or is the end state that the actual bonds originate on chain and that like work because it does feel like we're kind of living in this in-between state where like on-chain world is trying to connect to the off chain world yeah um but then you kind of mismatch liquidity a little bit I don't know curious to get your take on on if you think that's the end State no I I definitely don't think it's the end of State like I think you're right like we are like Bridging the Two Worlds just to at the moment because frankly the old

world's far like less efficient than the new world and there's some bridges there at the moment which probably go away like one once regulations change and maybe you've got some changes to infrastructure due to like cbdc's maybe some additional changes to regulation to allow like the record of holder or like the actual transfer legal transfer of value of a traditional security to be the blockchain transaction then you start to leverage far more like synergies with like bonds natively issued on chain and the transfer itself being like legally binding and that can open up a whole world of new Financial innovation but prior to the prior to change in

regulation and prior to change of like the old God or the Legacy institutions managing these types of assets there has to be this kind of bridge between the two worlds mm-hmm what do you guys think I mean the way that this kind of Defy is now interfacing with traditional Finance like what do you think where do you think we go from here in in terms of that developing well I think we see a permission default environment and in the sense of like you have I mean the coinbase like base L2 is pretty interesting because I think it's going to provide our hand-holding experience for you know to kind of enter This World um and but you kyc the wallet right and like they're doing the kyc at the

on-ramp level so it's a natural extension that they'll issue you an nft that then represents a physical entity or person and then and then you know your counterparty and then once you're provisioning liquidity and doing all these things and on chain it's all well and good because you know your counterparty and then at that point I think Regulators like it and then also it sort of fits into that mold which feels to me like the biggest bottleneck which is a question for you guys which is why haven't more funds or people really experimented with D5 I mean was a Purify we were looking at it super fascinated D5 before it was even a term um and then it felt like it was only like crypto degenster really like this stuff but a lot of Institutions believed in like hey

we love smart contracts it could minimize counterparty risk like the predictability of the execution is really interesting oracles can be also interesting and that infrastructure has come a long way but D5 has been so out of favor and I wonder if purely it's because of Regulation um and so for that reason I think that it's a permission D5 environment like compound was experimenting with this but it's gone nowhere Ave as well with Arc but I just think now it's probably coinbase it's going to deliver on that promise I don't know Jason what do you think I think that um money will eventually flow where the liquidity is but you can't have liquidity until the products are actually good enough so

like I think Andrew brought up a really interesting point like 30 minutes ago about I mean Andrew you traded derivatives in an off-chain world and you can't really trade amazing derivatives on chain but but eventually you will be able to um and eventually the there will be new products that can only exist in an unchain world and I think that just takes a long time um but hope but hopefully it gets sped up by an Administration and and Regulators that are supportive of uh of a fully of a like an open and transparent Financial system uh instead of what's Happening Now I think one of the challenges with that even if we get support from the regulatory side one of the things I keep observing is you know how

is that executed because even if we can you go through and highlight a number of use cases like even for Regulators or oversight uh there's some opportunities where you can have more real-time dashboards where you can be able to see metrics and you know have different parties plug into that pretty easily then you know some of the just burdensome Administration uh issues that we deal with now but I guess it's you know you're almost in a state where you're trying to rebuild the New York Subway system under New York City you know how do you actually do that and and what sort of initiatives does it take even from a regular for regulatory front to get that done so I think that execution piece even if we get clarity

is is gonna you know be super important yeah I guess I'd like the eye-opening moment for me was curve where there was no reason for you to trade a stable coin in any centralized exchange because it was far more efficient to do it in size and curve and and a lot of critics have like you know dexes were like why would you ever use a decks like you just use a centralized order book model like none of this is going to work and then oh all of a sudden did work and I guess the challenge with thinking of how D5 is going to work and when you talk to people the value proposition of D5 everyone is comparing it to traditional Finance it's like well

there's composability there's other elements it's not to say we're going to do one for one mirror what's to your point around infrastructure maybe you're not building the same blueprint of that subway system maybe you're creating some other rail and might be different just a different method of transportation not this is not to say that people people are still going to use a Subway I think you're not going to blow that up but uh it's funny now because a lot of the criticism of default was Capital efficiency it's like you're over collateralized the world just doesn't work this way it's super inefficient let's try to figure out how to do under collateral is and here we are in the state of the world where all these banks are kind of facing what I think is just a transparency issue because that's what

builds confidence I think if you if banks were to see that maybe in five years time we're going to look it back and say hey it would be kind of really nice to understand in real time the position of these Banks maybe or maybe not maybe the obfuscation is by Design so that these Bank runs don't happen um I don't know I think it's also trying to understand like what are the additional risks that we need or or management we need to build out with that transparency so now I can talk a little bit about this in the world we're living in with active ETFs so one of the things that's continuing to pick up speed across the financial industry is the evolution from passive ETFs to active ETFs but active ETFs have uh full

transparency and it's a very different way that investors have to manage products because you're putting out your Holdings every day in terms of what that is and and that creates opportunities for others to potentially trade around you to get in trickier situations with more liquid positions and um you know I do think that there's just an additional layer of of risk management that we just have to understand like what are the risks and you know Santiago to your point so maybe it's a scooter system you know that or a different uh you know mechanism to get around that City uh but then it's you know what's the other implications of that so it is uh there's just some like second and third degree

implications that we need to continue to think about and uh kind of get more people brainstorming and and be Visionaries around that yeah and going back to your point you know about curves Santiago right that's that that's to me super important because you solve there for the user experience right it's if something's far more efficient and easy to use then that's where people activity will will navigate this whole concept of like let's use blockchain for an initiative or let's like use this technology for something we think is is useful not necessarily works I think it's far more like solving for the user experience first and then choosing the

right Tech or potentially the right implication of it in my opinion like some of these initiatives which we've seen like over the years and let's say we've been we've think we've heard headlines about tokenization of various different Securities from multiple people over the years most of which have gone live but then the liquidity has not been there or there's just been the headline about an issuance and they're not necessarily like any follow-on activity and I personally think like this is mainly because implementing a blockchain issuance alongside like Legacy infrastructure where it's like just another system that reconciles with a bunch of other systems that doesn't make it any more efficient

doesn't necessarily immediately offer any like commercial activity or any kind of additional functionality it's really hard to see like the value case at the moment like you it costs something to build it's another point of potential failure it's expensive it takes resources new skills like it's not an immediate obvious commercial benefit but then at the same time like over time let's say all of the parts of the system get upgraded like front to back issuance trading settlement like we start to see funds other assets like trade like stable coins do currently or like Bitcoin on East do currently and then you start to like see some of that benefit but it's really got to be

the whole value chain which gets adjusted to to leverage those efficiencies there's a fair to say that the the tokenization like the new issuance of instruments like bonds or whatever on chain brings a lot of liquidity and that's like the most impactful thing towards this transition or is there something else in your mind that moves us closer to that kind of Direction where everything kind of operates in this kind of you revamp the digital infrastructure of the financial system like like I said like I said I think it's it's it has to be like far more technical ability and Development Across the entire value system like of all parties involved so you've got like two

institutions that trade frequently versus each other one issues upon one trades the bond one Settles and you know that there's this Loop and there's a venue which supports the same standard for the token that the one issued and the one bought and there's a settlement to be able to like transfer like value that's trusted be it a cbdc or another kind of private potential stablecoin which has been trusted and regulated and of course the regulatory environment right so it's got to be ramped up across the whole value chain and there's got to be the ability to settle on chain and then the whole process has got to be approved from Regulators before I fill like all of the efficiencies they're

leveraged like everything we've seen so far is super interesting don't get me wrong there's been some amazing experimentation across various different uh peers of ours and clients of ours and and counterparties of ours at different exchanges but all of it's largely currently developing abilities to be able to get to a future state which I don't think the path is necessarily super clear or immediately obvious and on my end I think you know Financial inclusion continues to be a major focus of mine I think part of this asset tokenization is to continue to have access to products that weren't always accessible to a broader set of the population but we really need to see that play out even some of the

opportunities that have come to Market so far they're doing it still pretty uh specific in a qualified purchaser level uh it's not really getting down to those that don't have access to the market at this point and and I think even some of the projects that have allowed that to happen it really needs a more vibrant secondary market and a proper distribution initiative uh you know we don't really have that to date I think some of the projects that have come out there's just no liquidity in it so you really need a more vibrant distribution and secondary Market to evolve I want to try to tie this conversation back to the conversation at the very

beginning of the podcast as we as we start to think about wrapping this up do you two think that it's more likely that uh crypto gets you know quotes around this like Mass adoption or whatever you know word we want to put around this by the products being better that would almost be like the ethereum route D5 gets built defy ends up being better than the traditional Capital market system does mass adoption happen that way or does mass adoption happen by almost like forced adoption which I might call like the Bitcoin route which is banking crisis Emerging Markets blowing up inflation around the world something like that and people are forced to move into a safer asset which in this case might be Bitcoin what's the more likely scenario here

I think there's potential for for both so even if you take the evolution of ETFs uh so in early 2000s there was only a handful of them they weren't very popular many people were against them that they'd even be successful and the real J curve for ETF adoption happened around the global financial crisis if you go and look at some of the data uh I think that's a combination both of having better products but then also having a catalyst that helped Drive uh individuals into those better products so so I do think there's a combination of both of those things that need to happen Andrew I don't know if you have any other thoughts on that no I think I totally agree and like there's there's different levels of Interest obviously

macro topic around Bitcoin as mentioned earlier like very important rally happening um raising the awareness of big Bitcoin in times of Financial Market uncertainty uh and then certainly that attention is not going away in my view and typically we see when Bitcoin does its thing and starts to go on a run and we have one of those massive face melting rallies in BTC like the amount of people clamoring after it and talking about it chasing the price can be highly uh impactful on on its broader adoption and then at the same time like I do think solving for like inefficiencies in the existing system for you know for be

it providing like on-chain Dows or other like pools of liquidity access to Trad find more you know efficient ways or trading firms and Prop Shops that are highly technical building infrastructure to be able to trade on trip on chain and settle on chain and providing products which are only possible when you've got like a shared Ledger like also super interesting I think you start to see both evolving I think the tech angle for me personally is like the one more likely like it's nearly every major exchange globally nearly every major custodian globally nearly every major asset manager and trading house has got some level of

involvement in in this space developing proof of Concepts or activity to like Leverage what's what's happening in the digital asset ecosystem yeah do you think we could see a world where either one of the major exchanges like a kraken or a coinbase acquires a let's call it a top 20 bank or or vice versa where uh you know top 20 someone like a Morgan Stanley or a JP or Wells or B of A or something like that acquires or tries to acquire a coinbase or a kraken or something like that I'm not sure I mean if you know if this is going back quite a while that you know when uh clubhouse had just started I know Jesse from Kraken was uh on you

know one of the rooms and someone had asked him you know you have enough cash on hand to buy Wells Fargo uh would you do it and and he made the point that like the cultures don't fit and and and I would agree with that I think it would be a really hard acquisition I've lived through many Acquisitions even of traditional Finance to traditional Finance or fintech firms it's hard and and I do think that that uh that acquisition would be a pretty difficult one especially if you have such an established culture like a coinbase or a kraken to pair with a traditional Finance house awesome

Amy and Andrew this has been great um any other big things that you guys are thinking about any anything else that you guys want to discuss here yeah we just remain close to this face and thinking what what's what's the future and staying close to understand how we can be relevant in the space I really enjoyed the conversation and would love to discuss some of those topics again with you guys cool yeah and I think continued opportunity here you know even uh in the early era of uh you know carrying around a Palm Pilot at one point none of us could see that the iPhone was five years ahead uh and and I think we're we're living through an environment like that

again like some of the products that we we get excited about now um potentially will die for a more advanced more complex opportunity down the road and I think that's super exciting to think about what that might be that's such a great point I had a poem pilot I was super excited about it then I thought it was best thing ever then smartphone came along so if you're excited about like how basic these things are like I think the core principles of of permit composability permissionless immutability are really cool so it's really encouraging to get your perspective and in fact everything that's going on and see how guys you know how excited you guys are and putting the resources behind it so thanks so much for coming on and we'd love to love to have you on again uh later down the road as things evolve

which I'm sure they will pretty quickly thanks guys [Music] foreign [Music]