# Liquidity Flood: Effects Of Traditional Capital Entering The Crypto Market - Panel @ TOKEN2049

- Channel: [TOKEN2049](https://streameth.org/token2049)
- Date: 2018-10-09
- Watch: https://streameth.org/watch/yt-ajKqHGcvsyY
- YouTube: https://www.youtube.com/watch?v=ajKqHGcvsyY

## Transcript

[Music] well listen we're in for a treat we have some of the biggest players in the crypto space here they all have been in it for a long time they're running major major organizations in the space and we're gonna talk a little bit about traditional capital flowing into the space so we are seeing this transition from the kind of the retail base to more of an institutional capital base and more of a traditional capital base people that have to Evan invested in equities stocks bonds commodities coming into the space and this group right here is that the forefront of the ball so I'll just do a real quick introduction of everybody I've got right here Bobby Joe he's global head of trading for he's got some fans here too I feel the same way every time I see him so Bobby is global head of trading for for Cumberland one of the bigger over-the-counter Bitcoin traders and cryptocurrency traders we've got Robert dykes from Caspian he's here representing kind of the infrastructure plays we've got Wayne trench from octagon another big player in the over the counter space and then we'll Pete's from passport capital who is here representing the institutional side of the business so you know what why don't I start with you well because we were talking a little bit beforehand of what tell us a little bit about what you guys are doing a passport why you chose to structure how you have an interesting way you structured the business what did you see from the institutional and from the traditional capital flows that you guys said you know what we need the structure at the way we are so explain that to us sure thanks Brian so actually the beginning of last year maybe just briefly on passport where I'm a 17 year old Longford equity hedge fund very macro thematic started first investing in in block changes as a second layer in our portfolio first and more of a commingled type fund and as many of you are probably aware there's a lot of difficulty in investing encrypted currency in a regulated fund structure in the US and so you know learning from that after putting the capital to work last year we had structured to separate vehicles to invest directly into the cryptocurrency so one is a dedicated fund that only invests in liquid currency protocol and to a lesser extent application layer of projects but everything that's traded everything that we think to our best ability doesn't look like a security and then a second fund which is a kind of a hybrid fund of funds that invest in our internal fund that's direct ico investing and also invests in other strategies in the space and part of the rationale there is is twofold one we try to segregate what's considered to be as security so fun is jurists and shafts which helps us we think from a regulatory perspective and then to you know the the platform is really designed to help bootstrap a global network to enable collaboration across the funds that were invested in and really be an institutional platform to allow institutions to to access the space so and you've seen a fair amount of demand from traditional asset managers or are we looking more like family office where's the demand coming from today today still from family offices high net worth individuals you know we we've of course talked a lot of our traditional LPS about investing in the space and there's a tremendous amount of interest and they all want to take meetings they'll want to learn and be educated on it but I still think we're probably six months to a year for some of these more traditional holvey's in in being willing to allocate to the space I think they're also gonna be very kind of compartmentalize and how they actually take exposure and invest in the space perfect actually I think that's a great great transition to Wayne because we talked a little bit about how the there we go it's still working how this how this is the complexion of the investor is changing so an octagon you have a retail side and then a block trading side can you tell me how that complexion is changing and you seen more retail you seeing more block and what did the retail investor look like before what does it look like today 18 months or so we had that the business was originally born out of our retail exchange business and then as the demand I guess grew out that that was primarily driven by the high net worth and ultra high-net-worth individuals I guess based in Asia and I guess that's continued that that demand has continued but in the last sort of three to six months we've seen a definite pickup in institutional interest and I think that interest has come like I'd split the institutional demand in a couple of different ways obviously from the hedge fund space we've got the more systemic trading businesses that are used to using technology to sort of navigate markets and those systems generally like volatility and so I think those players have probably been a little bit more advanced in in in in in the space that as we see it the more traditional long-short hedge funds as they sort of contemplate that work the best way to enter this market they're still I guess getting to or coming to terms with things like security risk custody and so the the way we've seen them start to get exposure is actually through the CIOs or the founders of the fund who who are looking to try and take personal positions I guess to get comfortable with the asset class and actually running running that flow through the fund structure but I paid through that PA I guess with a view to really setting up for a more institutional in play probably later this year okay it's so Bobby Bobby and I have known each other for a long time you've had many iterations are you seen many iterations in this Bobby is runs one of the larger over-the-counter and you deal mainly with institutions now is that right and how have you seen this market change let's say you know a year ago today to today house how is your customer base changed sure so just to give everybody a little background about Cumberland so Cumberland is the leading liquidity provider in the cryptocurrency space we make markets across 30-plus different cryptocurrencies and and we'll do it across different types of pairs that may not be offered on exchanges we are principal trading firms so we do take risks and manage risk propria terms of I guess what we've seen I think for about the last two years everybody's been asking when's Walsh your gonna get involved when or when's the institutional capital kind of flood into the market I think what you actually saw in q3 and q4 last year was that this market is still heavily dictated by retail so you saw what happened in Japan you saw it happen in Korea late last year I still think kind of how will and wane and mentioned that I think a lot of guys are still getting up to speed on what's happening the market educating themselves and just figure out exactly how to make their play and where to allocate capital appropriately so then I'll ask Robert is it in the infrastructure hurdle that they have to get through is that what you're trying trying to achieve or trying to address well I think it's multifaceted I mean obviously the infrastructure is critical I mean as you get institutional investors LPS into the crypto space they're gonna require transparency they're gonna require reporting better risk management portfolio construction there's a bunch of tools that an institutional investor expects from a fund that they're giving capital to so I definitely think the technology training systems are critical but I think there's also you know regulatory clarity that needs to happen in in some of the jurisdictions like the US and then the whole traditional structure between you know administrators you know create that separation that institutional investors want you know they I think institutional investors aren't used to the fund trusting their own assets they want a third party so there's some regulatory stuff that needs to sorted out there's you know traditional structures like administrators custodians and need to Fleur fright as well as the trading technology and I think that's starting to happen you know if you look at some of the administrators that are in the space in the US I think they've got backlogs of 50 hundred different funds that are trying to launch into the space so that's that's interesting they're worse what probably about 200 crypto hedge funds that launched last year so you've got a pretty pretty good target market I'm gonna ask both Wayne and Bobby about this the the typical crypto hedge fund that comes to you are we talking ten million twenty thirty million dollar trades or we talking two hundred fifty thousand dollar trades what's the size of this market right now well let's start with you Wayne I wouldn't say that ten twenty million dollar trades at the norm they do come from time to time out of that but our that institutional target client but we would see bigger volumes and that come out of the high net-worth or ultra high-net-worth client base who might trade 100 200 300 bucks so I think from the from the crypto hedge fund perspective it's normally you know probably a million bucks is probably they're the right amount for them or maybe a little bit lower depending on what they're trying to do interestingly enough you know a lot of our traditional client base that's going into the crypto space it's really not about a um it's you know the turnover or the fun probably a hundred two hundred times there might very much farming different market so there's a lot of very trading centric firms that are in the mix right now and I think I think well mention this is on the back of that you get the more traditional long short that are starting to get into the space yeah I'd echo with what Wayne and Robert BAC mentioned I think what we saw from some of the more institutional guises they understand the eliquid nature of the markets and and having said that I think they realize that if they are going to try to get into a larger position 10 20 million hours 50 million dollars of alternative currency or something that maybe just isn't in the top ten well they're gonna slowly gradually go into that market and build a position that way that's what we've seen and really one of the more interesting themes that we saw towards the end of last year with a lot of the funds that we do business with is that they were doing more and more crypto to crypto transactions so in December we were our transactions are generally in Fiat two crypto about twenty six percent of all of our transactions were crypto to crypto and so we saw a lot of funds or just just our general counterparty base rolling Bitcoin into other types of products and and that's obviously something that we offer Cumberland so if someone wanted to trade light coin for ripple will make them that market which isn't available in any water books interesting that so that to me seems like a significant change because I didn't realize it was that big of a change you're saying twenty percent twenty six percent of the book wrecked so so basically I think what people started to realize is this idea that you don't have to go into fear you don't it'd be amazing if you could buy a home depot stock for IBM I think that's what people are starting to realize that this is peer-to-peer nature of the technology well you can do that in the markets as well why why couldn't you be able to and kind of proliferation of exchanges like bit tricks and Pony acts and finance kind of break the mold and the traditional thinking of how capital should flow and how you should be able to trade in these markets so the one thing okay so what I wanna I want to get to will real quick because you guys brought up I you know asked a question about what the size trades that are going on there is this industry capacity constrained under a um so have a lot of traditional capital came into it can your fun handle it can the funds you invest in handle it or is it capacities constraint is there a certain amount we can only do right now based on liquidity yeah I certainly think it is capital constrained I mean we're we have a platform product that we're targeting at max 150 million and that's also just based on our own perception of liquidity and an opportunity I think you know the headline and Bobby and others can speak to this better than I can but the headline volume numbers that you read about I think are very misstated in terms of this there's very little pooled liquidity so you have to go to know T C desk actually you essentially get liquidity from several venules venues simultaneously there's clearly a lot of reports on you know wash trading and what percent of the total volume that represents and so I think a combination of actual liquidity combined with the opportunity set does create some capacity constraints especially if you want to invest in you know smaller emerging protocols or in dedicated ICO funds or things that are outside of just you know Bitcoin and some of the you know the larger more looking protocols so this whole group including myself has effectively pivoted our careers to focus on this space I'm gonna ask you Robert is is this a new asset class have we made the right decision or are we just kind of crazy and and you know llama coins over here it is a new asset class I mean I think about this you know holistically I mean if you look at technology firms service providers in the Bay Area which is where I'm from every single CEO their top three issues one of them is how do i tokenize my business how do i leverage broth chain and i think that that and we're just at the beginning of that trend and I think it's gonna gain more and more momentum and really democratize is the whole investment process access to capital it's it's a fundamental shift I think and it's here to stay so Bobby then based on what is this liquid venture capital doesn't mash everything together how do you view this asset class yes so just from our counterparty base the funds are set up very very differently right people trade across different time horizons people think more of a VC model people take more of a p/e model and so just some are more actively traded so I think everybody's still trying to figure this out right now well one the game continues to change regulations uncertain you know exchanges are running and sometimes not and so I think people are trying to figure out where this thing goes but back to your first point I think everybody in this room can agree that this is an asset class I think it's peak it was eight hundred billion dollars I think today it's right around 400 billion or so I think at least for Cumberland were here to help grow with the industry and and see what comes but in terms of the the career thing that that ship has sailed a long time ago I was asking for a friend anyways I just I wasn't me okay so Wayne the ship of sail you have moved from Morgan Stanley as where you were before into the space what what was the moment that you said you know what I got to make this leap I guess it happened over a period of time for me I've always been advocated technology and so I'd followed the progress of blockchain as a technology for the last handful of years and in fact I'd used blockchain technology in a in an old-world like real mining application like picks and shovels mining to track and trace parts that were as they sort of they they wore out so I'd sort of learned about the BOK chain space and then I think really as as I I sort of came to terms with why I felt there was a real need for tokenization and and and and originally it was actually from a currency perspective like I I was asking myself the question is there really a need for a decentralized sort of currency and is there a real-world application for that and I came to terms with the fact there are a lot of people around the world who have been affected by poor decisions from their governing bodies and so that was probably the watershed moment for me from a currency perspective but I've been sold on the technology a long time before and since then I think you know as part of octagon strategies business we see a lot of you know primary issuers of icos and new projects and whatnot bring ideas to us I've been fascinated by the way people are leveraging this technology to disrupt and improve processes that that are ripe for disruption so but it's been a journey it's been a journey I'm sure for all of us and the one thing I wanted to hit on with you will is we talked a little bit I you know asked the question is this kind of a mash up of venture capital and investment banking and global macro when you're out there looking for funds to invest in and at the same time you know pitching to institutional clients how do how do you view this is this just everything all together or is this Moscoso that you look for what do you look for let's go something managers themself yeah yeah I mean I think we've really been focused on managers that have a deep domain expertise whether that means they've built companies in blockchain and then now are launching a fund or they're running dedicated ICO funds and so they themselves are founders and have a good skill set for evaluating the projects that they're investing in actually adding value to those teams and and really we look also to for that skill set but also so we can partner with them and provide kind of the kind of institutional and operational background that they you just naturally lack having not run a fund or be kind of in the traditional finance realm so for us it's really kind of allows us to create a partnership with these these funds you know in some cases you've seen managers partner with someone who has more of a traditional finance background and that's that's unique in the fun space I think it's more just on very deep on the tech side but I guess the other piece that we look for is is is kind of smaller more niche focus so for example we're investing in a fund that is just privacy coins and it again gives them to kind of focus their their bandwidth and time and really having that that expertise I want to make sure we leave time for Q&A but I want to ask each you and I'll start with Robert we've talked about what the space looks like now and how it's changed this time next year when we're all back here for this conference what do you see going forward what do you think is kind of the biggest change for 2018 I think that the industry is definitely going to grow I mean if you look at the number of funds institutional funds that are coming into this space if I talk to our traditional client base over 50% of them are trading Bitcoin or plan to be trading a crypto country all currencies including Bitcoin and so I think that the kind of the cats out of the bag and I think people are looking for platforms on how to support that growth regulatory wise you know technology wise and so I just you know I I think if when we're sitting here next year there's there is definitely going to be a lot more institutionalization of this space and I think there's going to be a ton of momentum I think one of the things that's interesting is you know how centralized or how decentralized things become you know right now a lot of liquidity exists OTC and on centralized exchanges but there's obviously a lot of decentralized exchanges are coming to market and how do you leverage technology to piece that liquidity together execute in that and then you know access and access it so I think you know there's some things I you know I have I don't know how those things are gonna turn out but I think technology's gonna be key to being able to leverage it Bobby what do you what do you think what do you see coming down the pike I guess I'll pick something very I guess very particular the last that I saw last week was that 46 percent of all I SEOs have launched in the past year have already failed I think that number continues to grow but at the same time I think this year especially probably q3 and q4 this year you'll see some meaningful technologies actually come out and be a minimal Viable Product so people will be able to use these technologies and actually now have a benchmark for how all future projects should be fundamentally analyzed or just at least you have a base case of what these products are actually are and the time length to actual investment or participation into into these projects and when they'll actually get shipped so I think I think this year will be a big year for certain projects to come out and actually go to market so so so a and I co was an actual working product that would be a refreshing change I hope to see one wait wait what do you see happening or actually will you wanted the safe service oh well I was just saying on the institutional flow coming to the space like clearly it's a macro teach this of ours that that's in fact going to happen I think as institutions come in though they can be very discerning on where they actually invest so I you know I think more liquid currencies or things that are as clear as can be not classified as securities is one area that institutions will invest in I think the tokenization of existing securities is another space that institutions will feel comfortable investing in because there's a regulatory framework Authority sits behind that that they know and understand and and some of these businesses also have kind of traditional cash flows that they can analyze just like they've analyzed companies in the past I think you know the the utility token piece while I personally think there there are utility tokens I think institutions are going to be slow to appreciate that and also because the regulatory ambiguity they're gonna be slow to deploy capital and that that sub segment and so I think you know the way that that flow was circulated when the ecosystem up to this point will actually change quite dramatically when institutions come in so you've seen a lot of people who have done well on a Bitcoin or other main currencies and they use that to fund a lot of more speculative IC o---- projects I don't think institutions will have the same appetite to do that and so I think you'll see a big shift in perhaps there will be a couple of these I SEOs that do have an MVP and institutions will be willing to deploy capital there but I think it's just gonna be a smaller subset of the market that will allow that institutions really put capital to work on which would be a big change from what we've seen in the last you know a couple of years anyway now let's I'll let you lighten us with what you see happening look I think this is all about regulation and I think more than regulation I think we should we should get some a lot more regulatory certainty you know we we kind of view 2017 as being the year of acceptance and this year has been the year of adoption and I think that's from an investor perspective but but also from a regulatory perspective you know some of the small nimble governing bodies around the world have been quite front foot and creative and engaged with the public the private sector on on developing frameworks right in which we can operate and I think you know global regulators are working hard trying to cooperate and as much as difficult as that is across borders I think this year is a year where they'll make a lot of progress that's one that's one hurdle to really get institutional activity to come to the market in size and but in addition I think we spoke about earlier but custody I think's a key thing and then also from a risk security and compliance perspective you know that's whether we like it or not that that is particularly meaningful to to traditional investors and they'll be looking to see progress on all three France peered from exchanges you know having the infrastructure support higher volumes what happens when the exchanges go down if we have things like indices and we start tracking indices and benchmarking performance to that where the weather's the liquidity aggregate you know there's a we don't have closes for example right you know the rise of passive managers in equity markets have concentrated all the flow to a close we don't even have a close so yeah I think regulatory the regulatory landscape will drive the adoption and then of course security risk and compliance will be the things that really need it before they get in bowl' properly so so year transition and hopefully this time next year we'll be talking about how all the institutions came in you know cones next to you yeah oh and Lama corns yes so we've got some of the brightest minds up here we have a few minutes I wanted to make sure I open it up to Q&A so I think we have some microphones out there is that right if you have a question why don't you raise your hand and they'll bring one over to you we got one we got we have one over there hi just curious about the trend you're seeing with Singapore Airlines looking to tokenize its air miles some point this year and talk about Facebook uber these existing Internet companies possibly tokenizing a part of their services where do you see investors fitting into that space would that be attractive to VC or you know a PE fund what's your take on this this trend that's an interesting trend waiting you want to take that yeah I could talk a little about that so as part of the NX group part of the part of the business or services that we provide are in fact tokenizing we've tokenized loyalty points programs already I think that that particular type of business is ripe for disruption the tokenization it makes a lot of sense you know I think seeing Airlines is one example Qantas are looking at something similar as well and in fact I think Qantas frequent flyer points is one of the most profitable parts of their business you know if they can do that more efficiently I think you know that's great and there's been there's been appetite from institutional investors in that loyalty points business for Qantas I can't I can't see why wouldn't happen in other in other parts of the world perfect we've got a question up here right in the front yeah there we go I love it make it work earlier this morning we had to talk on decentralized exchanges I wanted to hear from the panel what impact you think the successful implementation of decentralized exchanges will have or not have on institutional money coming into the Crito space that's that I think that's a great one for you Bobby sure so I think I think with with decentralized exchanges it's still TBD it's too early to tell I'll just tell you from from the institutions that we speak with and and just internally how we how we feel about it is it's very very novel very very new and it could be groundbreaking but at the same time for larger institutions that want to play in that space there is a level of kyc that needs to happen so no broader No no bank no no firm like ours is gonna trade on decentralized exchange that has no level kyc because you do not know who you are facing off with as a counterparty once that changes which I know certain decentralize exchanges are looking at that kind of channel because they realize that for the institutions to get involved in the decentralized exchange Network they're gonna need a layer of that but having said that I still think decentralized exchanges are super interesting for retail level traders or players that are looking to enter in that market but from from an institutional standpoint I think we're still a little bit of ways of ways as they're still trying to figure out Bitcoin and theorem and things like that just to piggyback on that it's I totally agree that institutions themselves won't transact on decentralized exchanges for all the reasons that that Bobby mentioned I do think the great thing about decentralized exchanges is that well it'll preserve the democratization of this space because while institutions will trade on centralized platforms with liquidity KY CML etc that's not gonna be the venues that the smaller retail traders are going to to use and so it's a nice part of this ecosystem and in fact as an investment theme ourselves there's kind of two areas that we've focused on within the exchanges is the kind of those that are gearing up to trade security tokens so things like a teaser or Timberland of the world and they have that repertory stack and then the other end of the spectrum are the decentralized exchanges because you know they are enable kind of the circumvention of some of these these regulations so while we won't trade on them directly it's an investment beam in our portfolio and I think that's probably representative how institutions will will approach it great I think we have time for one more another one right up front grab this thank you and thank you for it informative panel will talk about traditional capital I would like to you know hear your perspective on family offices we've seen them recently coming you know coming through to get an interest because of the rate of returns is coming out of these projects but we've also seen the rate of I mean the duration of the decision-making process being incredibly slow at least six months and be and how can we actually speed that up and how can we get them to be involved and you know like this whole technology and supporting it and obviously there are lots of funds there so so so you're saying that the the speed of which family offices are making investment decisions you find to be very slow okay well if they're slow than the traditional institutions or like molasses because at least when the people that we've talked to you those are the you know the they're more willing to pull the trigger and invest I think in part because they don't have this career risk that you have at an endowment or you know where they don't really get paid to be a hero and find the great investment decision and get paid to kind of keep the status quo where someone in the family office it's you know their own money or you know representative that in terms of how to to speed that up I would like to know the solution that just as well as someone who's actively raising capital I mean I think part of it is is you know maybe it's some products that have an MVP or more actual applications that they can see tangibly how it's being used so something like you know miles on Qantas like that's a concept that they're probably already familiar with and so I guess as you see more of those sorts of use cases and applications maybe it's easier for them to to bridge the gap I don't know if anyone else oh yeah degree III put family offices amongst the more nimble investment base that we have and with the long-only community a long way you know down down the track yeah I think again for all of those institutional investors though really they need to get comfortable with the regulatory space which will allow us to tokenize things that they understand as well said you know like if rates can be tokenized and if you know all sorts of more real-world applications or things that the older world understands then I think that the the investment will flow and flow faster yeah and I said I think there's like different ways that family offices are approaching this I think they're approaching it from like an investment perspective in different protocols or or teams and they they're able to access those markets directly investments or funds like like Brian and Will's but at the same time there are other other family offices that say no I just want exposure to the coin and obviously from the comfort level there there's a there's a aspect of custody which which which is a hurdle for a lot of people who they're not used to holding their own assets right there's there's no State Street there's no Bank of New York Mellon that's gonna be there and say hey we're gonna take care of this and handle all the reporting but maybe that'll start to evolve this year great I think I think that's all the time we have I want to thank the panel for letting us borrow your brains for 30 40 minutes here fantastic thank you very much [Applause]