Why institutions are still hesitant on crypto: Gemini's John Burnett

Transcript

GM good morning welcome to the milroad show The Daily crypto show that's like the all-in-one body wash of crypto news insights and laughs all in one place I'm your host Jay Hamilton and today we are joined by John Bernett VP of institutional sales at Gemini this conversation was recorded in person at permissionless a few weeks ago I think you guys are really going to enjoy this because John actually started his career at MX back in 2013 he was the blockchain lead at MX with the CEO and the board coming to him to understand crypto and blockchain fast forward to today John has sold a company to Gemini where he is now and where he has a real behindth

scenes view of how are institutions approaching investing in crypto which institutions are here what's holding them back what is going to be those catalysts that are going to get the institutions into crypto and I got good news for all of you there is a big wave of institutional adoption that is still to come and John's going to break down who those are and what he thinks will make that institution those institutions get into the game and join us here in crypto before we jump into today's episode if you're not already subscribe to our YouTube you're going to want to subscribe we got a campaign going on right now the road to 10,000 and we are oh so close to 10,000 subscribers and if you subscribe before 10,000 you could win a bunch of free prizes away

thousands dollars in free stuff you can check the the show notes to see what we're giving away so hit that subscribe button right now if you're not already subscribed also it'll help more people get into crypto in a safe way oh and of course we got to give a shout out to our friends over at uphold meet uphold a trading platform that's changing the way you think about money imagine this earning up to 4.9% apy on your US dollar no catches no lockup periods and no fees and yes it's FDIC insured up to $2.5 million but it doesn't stop there uphold is a global platform with over 10 million users in

more than 150 countries they offer access to over 300 digital assets which you can trade store and exchange with confidence knowing uphold operates with a 100% reserve and a transparent model so how does it work create your account fund it with a few tabs and you're ready to go want to learn more click the link in the description and join uphold today John welcome to milk Road show thank you Jay it's great to be here thanks all for having me on great to have you it's exciting to be here in permission list doing a show live in person I don't get to do this very often so this is fun this is fun okay let's start with give us a little bit for those of our audience who don't know you you've been in the space for a long time longer than

most that I know give us a little bit of the bio of joh sounds good well at the risk of boring people here so yeah I've been in the crypto space for over a decade now you know started off kind of bridging traditional Finance with crypto I was with American Express in New York I led their first Deep dive into Bitcoin and other cryptos in September of 2013 so very early on it was extremely early days back then right like Bitcoin was what two years old three years old at that point uh yeah well it was it was yeah three three three and a half something so yeah it was uh it was it was very early on and you know Bitcoin was trading at a couple hundred bucks when I first started looking into this right and that got the attention of their CEO Ken chanal and the board of

directors I kind of became known as mx's Bitcoin blockchain guy and you know it was so early that I I went to a a venture capital conference in in Tribeca with some crypto ogs on panels you know talking about this asset and and uh it was it was a very small crowd this is back when in order to actually participate you had to go down to like close by Wall Street with a a handful of cash and exchange it and hope that the guys actually deposit Bitcoin into your wall right so it was just a very very early days I mean the question back then was really whether this thing was going to survive or not right um so we're obviously at a much different point in the market here from MX I then went to State Street they were looking for someone to lead all blockchain and

crypto globally for the bank so I started doing that 2015 it was it was great we were making a lot of good progress and and really seeing kind of institutional interest growing you know in St Street's top clients you know I I would be there presenting to them about what we're doing in blockchain and they would say heyy it's great John we know you guys are like doing a lot in blockchain but what's going on with this crypto asset class how could St stre support our investment in it so myself and two other business partners kind of saw that and said well they're going to need a lot of trading infrastructure and my two other co-founders had built similar trading uh infrastructure for the FX market and so we jumped out of our roles in 2017 we started a company called omniac uh we raised 25 million in

funding and all and Gemini's OTC trading desk came on uh in in 2021 and the conversation turned towards hey what if we joined forces what if we bring together the uh unique assets of omnix and the unique assets of Gemini um we all made sense that it or we we all decided that it made sense and we came to deal terms everybody's happy with and uh they bought us in uh in January 2022 so now I've been there for two and a half years and I while I cover you know helping clients with across the Gemini Suite I really had carved out a bit of a focus on the electronic OTC offering that resulted from the combined entities amazing what an incredible story congrats on uh what a run it's been so in this episode I want to dive into and

you and I talked before we recorded about sort of breaking down institutions into three different categories looking at the more traditional institutional investors looking at fintex and Banks and then also looking at hedge funds and just getting an idea of where those are all at but before we do that I just want to zoom out first and just understand like you have such a unique viewpoint of the way institutions are thinking about crypto you've been within these institutions as well as supporting your clients and their access to investing in crypto what do you think is the current state of how institutions think about crypto yeah so it's interesting right having been in the space for a while I

don't think it really got the main attention or or any any attention frankly from institutions until about that 2016 2017 time frame like in in a meaningful way where they were actually trying get up the learning curve because as we all know the crypto learning curve is is steep right so I think you know the price action back in that time really force a lot of these institutions to get up the learning curve to say okay if clients are asking for this at some point in the future whether that's a year from now or five or 10 we need to understand the asset class and how we can get involved I think that was certainly the case in 2017 we were having well as we were launching the company we were whiteboarding in the the offices of major financial institutions tra trading desks of major fincial institutions

right I mean you know you're talking the goldmans the cities everything like that right and then of course you had the crypto we went squarely into the crypto winner 2018 2019 that caused institutions to pull back I think there was a crisis of confidence in in the asset class alone but also in some of the market infrastructure I think a lot of the tooling didn't exist back then then you have you know the next Bull Run um kicked off frankly by Central bank's responses to covid right and so we saw this huge uh increase in price action throughout 2020 and at that point the banks were up the learning curve I I think they were getting ready and then you know sure enough some of the events of 2022 happen right and you have a lot of Nefarious actors I mean this wasn't this was very different than the crypto

winner of 18 and 19 because it was primarily driven by just outright fraud and so I think that caused another crisis of confidence so I think institutions are still interested and I they are getting involved right I mean we're not starting zero like they are getting involved and I think particularly from like Gemini's perspective I mean Gemini's been around for over decade now always asking for permission instead of forgiveness been regulated as a trust company by the New York Department of Financial Services pretty much from the start right so in terms of the actual infrastructure that we can provide to institutions like that's all there I think you know certainly the the things like regulatory uncertain reg lack of clarity from regulatory perspective right that that's a pretty big barrier I think for people but also as you think about it right

like just thinking about the the size of the crypto asset class at what $2 trillion something like that like it's it's one or two% of just the equity markets right it's it's still very very small let alone real estate Bond markets things like that right so if you think about a major asset manager that wants to allocate to this asset class the Market's got to grow quite a bit before they can be dumping you know tens of billions hundreds of billions into the market on behalf of their clients so I think we're getting there and I think that the you know the very over the years the institutions have have gotten up the learning curve and I think there is interest there and it's obviously going to be driven by their end clients that are asking for it but I think it's still it's still fairly

early if we think about the overall size of other asset classes and and and institutional involvement in it that which is that's bullish isn't it right like or or is it too slow um no I don't think it's too slow I mean look I I worked at State Street for you know a couple years do doing this I I mean I know how slow institutions can can can move right and actually from a blockchain perspective and even a digital asset perspective I think they were I think we they were you know more and more on the on the Forefront than some others yeah but I don't think it's too slow I think it makes sense to to go into this cautiously I think the other thing is you just have you I think you still have headline risk right especially when you have Jamie Diamond

out there still you know obviously not a fan um so I I don't think it's going too slow I think but I but I think it's um I mean I'm extremely bullish on institutional involvement going forward okay and I think that's particularly relevant given the approval of the ETFs and that these are the most successful ETFs in the history of all ETFs from from an initial launch perspective I think that's basically like a gateway drug for people who say okay now in my 401k or my Roth 401k I can allocate and get some exposure to crypto and pretty soon they're they're going to want to be going beyond that right and they're going to want to go to a larger basket of of assets they want to be going down the down the tail not just focused on bitcoin and ethereum they're going to be

leaning on their wealth managers to be able to design custom Tech strategy and to be able to you know trading strategies investment strategies and things like that so I think it's still early days with a lot of potential for it to ramp up amazing and just will you bring up other assets other than Bitcoin because one of the big questions that I have and that I know our listeners have especially with the way the Bitcoin ETF went in comparison to how the eth ETF has gone is just this feeling of like do institutions only care about Bitcoin and are they maybe you're speaking more in the future with what you just said but in the current state are they going be on bitcoin yet do they it's a mix right

answer to anything like this is going to be it's it's a mix but I but absolute concentration on bitcoin and ethereum I think some of the more forward looking ones are going beyond that right and I think that's only gonna continue but you know if we think about the the the narratives around Bitcoin ethereum right like I I would think of you know Bitcoin as the digital gold inflation hedge whereas e is is the underlying platform for the new world of decentralization right which is think about that how easy was it to say what Bitcoin was but how hard is it to say what ethereum is yes right part of ethereum's issue absolutely and and and and you know in my St stre days back then what I would equated to is like okay you know Bitcoin is your you know Nokia phone that was

probably everyone's first phone I'm dating myself here this is good right and so it works it works great right like you could you can always send the text you can make a call you can have a ringtone um again dating myself but not much utility though but not much utility it's really just fun and whereas whereas ethereum really is much more like the iPhone especially in the sense of you know the app store right where developers can actually build on top of the underlying platform of the iPhone that's what people are doing on in ethereum so whatever narratives people necessarily ascribe to at any given time there are different use cases that people are seeing in this asset class and I think the four looking ones are going well beyond the top two but that doesn't mean that the top two aren't the

top two for a reason and do you have clients in conversations where people ask you about outside of Bitcoin ethereum and ask you about salana or ask you about Ripple or etc etc they they do but to be honest like that's for that's that's what they're G to do that's for them to do right like I you know I I often get questions about that kind of stuff and it's like you know hey hey not not investment advice type of thing I'm just I just try to make sure that they know that they have the tools necessary to be able to access the asset class in whatever form they want to right and then they can decide which one to go on but yeah I mean the the questions come up for sure okay okay interesting and we're g to talk about later in this

episode about some of those tools and how Gemini is helping these institutions get into crypto and be able to access this asset class but first let's just talk about so we're going to break up institutions into these three groups sure right institutional invest investors the finex and Banks and then the hedge funds if we were zoom out like where do you think we are now versus where we could be 10 years 20 years I don't know what the the the the time Horizon is not the point because nobody can PR predict the time but are we like 1% of where we where we could be if we really got all this these institutions on

board yeah I mean I I think that's probably fair and especially when you think that like you know the crypto asset class is one is one or two% of the of the of the equity markets right but um and and it's interesting too I mean there are there are more categories than than just those three that we kind of focus on but I think those are those are the the three that we would mostly focus on right and obviously you know in in order I would say like the hedge funds were really the first ones into the pool right so you know whether that's you know custody and you know holding custody and trading on the Gemini exchange or using omniex at to to trade across multiple different venues they were just really the first ones and a lot of them were crypto native right um

and but we've been seeing more and more multi-asset hedge funds getting involved right especially over the last couple years the finex I mean some of them have been have been very early on right like square square cash app I mean we were we were in discussions with them back in 2017 18 to see if they would be users of OMC right so they've been involved for certainly a long time revolute uh Robin Hood those kinds of guys right but it makes sense the fexs are a little more ahead of naturally than than the banks totally right so they're they're just responding to their retail clients that want access stuff right but from like you know the true large institutional players the asset managers everything like that like it's still very very early there it's still very very early and I think you know the the ETF the

ETFs have probably done a lot to to help there okay um because a lot of those asset managers are underlying those ETFs right but I do think that it's going to go well beyond ETFs and it's going to go to you know direct exposure to the crypto asset classes well we're just not I mean it's it's just it's not it's not at scale yet right right so it's possible it's not that the because I think one thing that we all wonder and we talk a lot about this in the space is you know the regulatory issues and just the and the the access through the more traditional trafi markets or the traditional trafi tools but you're saying everything is there that if the institutions want to buy it they can that's exactly right that's exactly

right I mean look I think you know they're obviously like if we think about the overall infrastructure right there are going to be certain pieces that aren't quite there yet from certain from certain areas of the market right but from a Gemini infrastructure right talk Talking our talking our own book here for institutions to get access to crypto assets for their clients or for themselves and to safely securely store Assets in with a regulated Trust Company right to get good execution either through the exchange or through some of these OTC trading services that we have where we get you know multi-venue deep liquidity and you know it's all on a

credit line an intraday credit line so it's you know if there are any concerns around you know any kind of counterparty risk that it ass suades a lot of that concern because assets are only inlight at the end of every day to hit that settlement window and then then it can be all be moved back into secure regulated custody right so the the toolkit is there and it's been battle tested through multiple Market Cycles right and so yes from from a from that perspective institutions should not we were at a very different place than we were in 2017 2018 when it when a lot of this stuff was new but this has all been battle tested and proven and so for for institutions institutions to actually get access it's all it's all ready to go okay so what's the barrier what's

causing tions not to jump in yeah I mean look there there are quite a number but I would say lack of regulatory Clarity okay I think the overall size of the asset class not only because they would you know rip through the market if they tried to allocate what they would for other clients but just also because the p&l has got to be there for them to actually like turn it on right and if if they're not able to kind of get the kind of scale that they need to justify the p&l to enable you know to enable it on their side that's going to be a barrier in of itself I think headline risk is is still unfortunately likely there right and you know particularly the the afor mention mentioned gentleman from JP Morgan it's just I I I but we got Larry fin on our side we do we do doesn't that

count for isn't that balance it out at least and and and you know that's it look I think I think there are still whether it's from an incumbent perspective just being threatened or from you know some Regulators being threatened by it right like what this could do to the monetary system and things like I think there are still barriers being put up and um and even if it wasn't barriers being put up it's also just not giving the guidelines to know where and how to play and so I I think that will come soon I hope that will come soon and I think we're we're just going to continue to move this asset class forward with institutional involvement um getting up to a point of scale right and I think the ETFs are

really helping with that I think just the the supply uh supply and demand Dynamics right now where you have you know the Bitcoin having in April right where new supply has been cut in half and then you have the launch of the ETFs where new demand coming in is increasing significantly and then you have you know the central banks kind of turn on the gas again right so I I think we're painting a pretty bullish picture here and you know assuming that we are I think the price action will not be ignored by the Banks yeah and I yeah I just I feel really I feel like we're in a really good spot right now so so feel like we're I mean I I said I recorded a podcast earlier today where as a person in media the best way to get clicks is to say that the most bullish thing so I

try not to say the most bullish thing every day but I really do i' the setup that we have right now from a macro perspective as you said it's just it feels like it's never been so good and it's just the elections it's like the last chip to fall basically yeah but my question is okay so let's play this out let's say we go into another epic Bull Run uh the probably sometime after election like in 2025 you know let's say and is that when we're going to see big institutions come in or is it more likely we still need even a little bit more time because we're not going to get regulatory Clarity that fast is it more of a next cycle thing assuming we

continue this fouryear cycle like when do you think it really happens it's really hard to say I mean you know again like back thinking back to the 2017 time frame the reason I left my role at State Street was because and this is a very common refrain at the time the institutional wave is coming that's what everyone was saying in 2017 and 2018 right and it didn't end up being a huge wave back then right I mean we've we've made a lot of progress since that time and there is a lot more institutional involvement right now but in terms of actually predicting when that's going to be I I just I don't know I I mean I think you know look this is a very crypto-friendly audience here right so I I I think the answer is the time frame doesn't really matter if you believe in

this asset class if you believe in this asset class and you've been in the space for a while and whatever narratives you necessarily believe in because a lot of this is anybody's guess right I think the important thing is to just be involved to stay involved to allocate allocate more and more of your PA to crypto in anticipation of major institutions coming in and then you know those supply and demand Dynamics so just explode yeah right in a good way so yeah in terms of actually predicting when I it's really tough to say it's really tough to say but I the institutional wave is coming it's coming but we might be saying that four years we might be saying the same thing

possible right it could take that long until we see because when you say wave I'm not thinking like you know slow and steady trickle up like we are right now right I'm thinking like all of a Something's Gonna whatever that event is and maybe it is this cycle in the election and everything starts pumping in price action and everybody's like oh this we got to get into this or maybe it's not and it's the the next time I I don't know I just naturally I want to know when as an investor and I know sorry guys everybody listening we don't exactly have a crystal ball here just keep cost averaging into it yeah I mean that's the best that's the best advice okay let's talk a little bit about what is needed for growth like you being on the ground working with these these

institutions seeing what they need what are the things that we you think we need to do in order to just really enable them to come in in the easier way yeah if you'd ask me that in like 2017 18 I would have highlighted infrastructure but I I I think I think we're already there I think the infrastructure exists and and it's secure and and it's ready to go and um so from that perspective I think it's all good I do think the we will need some regulatory Clarity so that you know asset managers and other institutions know exactly where and how to play I think a lot of it also comes down to education right I I think it's educating some of these institutional clients on the value of the asset class and what value that can add for their for their clients portfolios right

whether that's just purely diversification play whether that is some kind of inflation hedge and and frankly education of of the public that would put the pressure on the institutions that are providing the services to them because that's that's where it's all going to start right so so when we were having some of these conversations with st stop clients in 2017 it was look I know that my clients are gonna be asking me for this soon and so we we have to get ready so I I I think the educational piece I mean I think we're at the point now where the general public knows what Bitcoin is at a at a high level like at the highest level right yeah um but they don't TR I don't think they're truly understanding I mean there there's so many non- coiners out there still which is which

is pretty fascinating right and you know last night before I before I flew out this morning my wife and I were watching um the new HBO oh watch yeah I watched last time I thought it was great but I think you know we flip on HBO and it's like front and center and we were planning on watching it anyway but it was front and center and that's big it's huge right so now you're gonna have people that watch this and I don't know how anyone could sit down and watch that and not after the first 10 minutes I mean they go into the whole story of Satoshi right but in the first 10 minutes it's talking all about 10 10 20 minutes it's talking all about crypto and like why it was created what you know what value people see in MH and so when you have something

like that I mean there had been other document documentaries on Netflix and things like that but when it's on a platform like HBO and it's front and center yeah I I gotta believe that that people start you know signing up with Gemini right and and start start allocating and then they're gonna or or calling up their wealth advice right and saying hey I'm I'm in I'm into this now I I want to get the learning curve it's interesting because up until now just you're you bringing that up made me think what other mainstream documentaries have I watched about crypto and they've all been about scams yeah like right there's a few on Netflix there's a book I think called the Bitcoin widow or something like that and when I think about all of that it's it's never been a positive portrayal

absolutely right it's a catchy story about somebody getting sorry to say it you're absolutely right and like I watched John Oliver right like I watch that like almost every week when it comes out and you know a few years ago he was talking really highly about crypto and I'm like yeah here we we go great and then you know after the events of 2022 that he comes out and he's like and he even referenced his old show and was it was kind of like H maybe we don't really know what's going on here yet at this moment right and so yeah I I think it's becoming it's it's getting more and more mainstream and I think that is going to factor into institutional involvement because they're they're they're going to be getting these questions from their clients a lot more talk to us a little bit about what is

Gemini working on right now that you're excited about and what are you guys offering that's help on board more institutions absolutely so you know again been around for a decade regulated by New York Department of Financial Services as a trust companies from the start so you know qualified custody so if you know if institutions want to securely and safely store their Assets in Cold Storage um in cold custody you know you don't you don't get any better than Gemini right and then you know secure and regulated exchange trading particularly though on on on my front is really focused on the OTC trading side right so that was the result of the the combination of the two entities is we have this fully electronic streaming OTC platform and again you know we're we're

we're drawing in from we're driv we're drawing in multiv venue liquidity so much you know very very deep liquidity I think it's it's it's a timely solution for people who are looking to trade in size right so you know really I mean if you're trading under 100,000 you can do that in an orderly manner on the Gemini exchange or or or you know other places but if you're you know trading you know seven eight nine figures that's really where the deeper liquidity comes into play and you don't have to you know babysit some order for weeks and weeks um so I think you know this is what I'm educating clients on on a daily basis um I think it's a it's a great offering it's a timely offering I think more represents what people would expect from

kind of more traditional markets and I think that resonates a lot with institutions particularly the ones that are looking to trade in Su and I'm gu ing you're doing that because you're preparing because this these size this it's already happening it's not like we're not trading in these big sizes seven eight nine figures yep but you're preparing that more of it's going to come and so you need to be prepared to offer that's right that's right and and and frankly that was a lot of the thesis that led to the acquisition the thesis in 2021 that led to the acquisition in 2022 was we were really trying to say okay how do we really accelerate this for institutional involvement and that's that's one of the one of the one of the products before we wrap a final question is just based upon where we are in the

current cycle what are your thoughts do you think we have another Bull Run coming here and do you think we go into 2025 in a good way I know you don't have a crystal ball and I know you're not predicting I know it's not my inial advice but just curious from somebody's been in the space for so long yeah you know if we look at the factors unique to crypto right like the having and and um the fact that some of the a lot of the smartest Minds and a lot of the most investment dollars have gone into the space over the past few years when you and then when you look at when you pair that with the more macro the central banks given all assets their their crack back if you will right like it's uh I mean I I think I think when you put all

that together and particularly again with like with things like the the ETFs I i' hate to be repetitive but um when you put all that together I really do think that we are starting into the next Bull Run of some kind um the timing on that I mean is anybody's guest but I just think that everything is lining up very nicely and of course I don't want to jinx I think everything's lining up really nicely and I'm I'm I'm extremely bullish on the space and and on on Gemini in particular amazing John it's been a pleasure to have you on thanks so much for your time today thanks so much Jay this a lot of fun thanks for listening in everybody have a wicked awesome day as always if you liked today's episode please hit subscribe and make sure you follow us so you don't

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