Michael Kollo talks to Rory Manchee from Brave New Coin. They discuss his journey into the industry, how he sees cryptocurrency as an asset class and as an eventual adoption by investors.
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Rory Manchee
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Brave New Coin
Hi everybody, and welcome to the first episode of Crypto Cappuccino. With me, Dr. Michael Kollo, CEO of the Australian based Digital Asset Management and Crypto Platform Clanz. This series will talk about the development of an exciting new space cryptocurrencies focusing on new projects, new opportunities, and risks, as well as important developments for all kinds of investors looking to allocate into this space.
Before we get into this episode, I want to share with you an opportunity just very quickly. Our baby, the new Clanz platform is currently in open beta and is looking for foundational members to help us shape it. Yes, it's really your chance to help bring a new platform to life. We are looking for first users and members to help us.
And so wanting to ask our community to rally around and help us with our first release. The first 500 members will receive Gen Zero status, which comes with lifetime benefits like priority support, early feature access and heap more. Don't worry, you don't have to be Gen Z to enter, obviously, just like me. Plus, you get to tell us what to do and what you'd like to see improved, which is always nice to find out how you can join us, please see the link in the notes below.
Today I'm starting with a great and kind of broad introductory conversation with Rory Manchee from Brave New Coin, but the journey he's been on to get into this industry and how he sees the development of cryptocurrencies as an asset class and eventual adoption by institutional and professional investors. If you're new to this space like me, you're an investor, maybe an advisor, maybe just a tourist, interested and want to get the lay of the land.
I think this is an excellent episode to get you started. I hope you can join us. Hi, everybody. This is Michael Kollo and I'm here, joined by Rory Manchee, from Brave New Coin. How Rory, how are you?
I'm good. Thanks, Michael. Nice to be here.
Well, thank you so much for coming on and having a chat with us today. I think I was fascinated by a conversation because I think this is such a sort of interesting new space. Everyone's kind of learning about it, and it's often hard to find people who have seen a part of this industry evolve through the various mechanisms.
So when you initially told me about your history in the space and how you've come to be here, I was all ears and I thought that would be a nice place to start as well for our listeners. So yeah, I'd love to hear a bit about how you came to be here, Rory, and how that journey is taking you to this moment.
Yeah, so I'm the head of business development, a Brave New Coin, which is a market data index and content provider for the future crypto asset markets. And I've been in this role since 2006. And so coming up with six years, in fact my first encounter with Bitcoin and crypto was probably 2013. I'd been going to a lot of fintech meet ups and startup pitch nights here in Melbourne.
And one of the first companies I saw in the space was a company called Coin Shop, which you might be familiar with. And they were pitching at that time that a startup digital data exchange for crypto and it was interesting and I thought, yeah, okay, I get some of the use case, but the technology was a little above me and I thought, I need to learn more about this.
You know, I got to know I should tell a little bit through that. And also introduced two gentlemen called Thorsten Hoffman who's a filmmaker. And around the same time he made a documentary on Bitcoin, which if you haven't seen or seen this more recent one, I thoroughly recommend that you do so with Thorsten, I guess with pursuing a slightly different path.
And then one day he said, Oh, you should meet this guy called Fran, Fran Strajnar, who's the CEO of one of the co-founders of Brave New Coin, and friend and I met at a meetup, as you do, and he was talking about what the economy was doing in the data and index space and had just launched their first Bitcoin index the BLX.
And this light bulb moment, this Eureka moment went over my head because I'd come from a long career in financial data and information with Standard & Poor's. And before that, Thomson And when friends started talking about the index and everything, it was like Aha, you need indices, you need benchmarks for price discovery, performance management, risk management, etc.. And he and I had a chat over a few glasses of red as you do, and the rest is history.
I think a month later I signed up and at that time I was number seven with Brave New Coin, the company had been set up about 2014, primarily at that stage, the content business, and then had moved into the digital index. So I guess my journey into crypto seeing something different because I guess I had that legacy background, I was, I have that innate curiosity and I guess I was just intrigued to see where it could go.
And I was fortunate to be in a position to join a startup like this. And even though it's been a rollercoaster ride, you know, six years it and if anything, you know, the business and the industry, the market is just getting busier and it's just more exciting. Notwithstanding everything else that's going on in the world. Yeah, it's been a really fascinating journey for me.
And that's really exciting. So what have you seen evolve in the space in that sense? Because obviously six years is a lifetime in the crypto world.
Yeah, a number of projects.
So yeah. Just curious to see how have you seen that change.
Well, I think a lot of what crypto has had to do with the blockchain perhaps is establish legitimacy for itself and we're still on that journey. I think the idea that this is a whole new asset class is valid and fundamental to your understanding. To get the technology for a moment. Because I'm not a techie, but understanding that this is a new asset class is really important.
Secondly, this is probably the first asset class, which was retail first and institutional later. So you had early adopters, self-directed traders, out, out, crypto maximalists, libertarians, etc. getting into this because for whatever reason they saw this as as a future technology use case. We've then seen again to reflect that almost like a reverse in technology. So if you remember back in 2000 1617, suddenly we had the birth of the ICO initial coin offering and this was a way of issuing tokens via something that was akin to an IPO but had none of the regulatory or other structures for good and bad.
And so with that came suddenly in a regulatory clampdown. Oh, hang on a minute. That ICO is actually a security. You have to do a pilot. You had to be an approved issuer, had to do all these other things. Okay. A lot of projects got burnt, but a lot of projects would then have come through that. And those that have have actually survived and are stronger.
Then we had a lot more focus on the KYC AML aspect because all these exchanges and cause brokers that were acting as fiat on ramps to crypto, what were they doing to ensure that the customers were legitimate, that they had the right credentials in sectors such? So there's been a lot of focus on that here. Obviously Australia, you've got AUSTRAC and you've got Blockchain Australia that are providing that regulatory framework and guidance for the industry to say, Okay, you're going to do this properly, you need to adopt these certain standards and rules.
And I think and then finally we're saying this, okay, well if we, if we assume that you're playing in this space and you're doing the right thing, it's only natural then that you will want to register, whether that's with ESIC or the ICC or equivalent reglatory bodies. Now again, that has pros and cons, but I think the more and more I talk to people in the space, people who've been here for a number of years is they accept that regulation is is required.
They generally say that it's a positive thing because it will bring back additional legitimacy and it will basically give frameworks and standards that have been lacking to date. And the downside, of course, is that you get overregulation and you get something which is either a knee jerk reaction or is uncoordinated at an international or global scale. So then you get forum shopping and you get a whole plethora of different regimes.
And that just makes it really difficult for anyone that's in a decentralized, distributed world trying to do business cross-border. So I think that's sort of where we're at at the moment. I think there's some real positives here in Australia because we've had some really longstanding businesses to to see us grow up in this space here in Australia. Secondly, now we've got a bit more institutional interest coming in, whether that's from the fund management, the asset management side or banking and financial services.
And then of course there's the work that the likes of Senator Andrew Bragg has been doing around the whole framework and roadmap for for crypto and blockchain. So look, you know, I wouldn't necessarily agree 100% everything they've done or the way they're going about it, but I think you have to give them credit for engaging with the industry, taking the debate into Parliament and the Senate and coming out with some constructive ways forward.
So I think that's sort of where we are on that regulatory framework. I happen to talk about more about not so much the tech, but the product development is coming out of tech because I think that's an interesting phase. And maybe some other trends we're seeing, both from an institutional investment and asset management side, but also where this is now crossing over into not just legacy financial markets and capital markets, but also into legacy corporate, how they engage with blockchain and crypto.
Now, I think all of that is is amazing to see. But before you can get there, I suppose the interesting question for me is as this kind of idea sweeps across use cases, as you say, and either sweeps up the fiduciary chain to, you know, institutional and higher into the market, which as you said, is a very fascinating idea that it didn't start there.
It kind of started the other way. So it kind of you kind of that it needs to make its way up that hill as well as to the corporate use cases. I suppose one of the interesting questions for me and this is more of a conceptual question, but how much of the value do you think of this movement into decentralized is about getting away from centralized control?
Because something a lot of the things I read in this space, it starts with almost a because it's partly anarchist or rebellious and a Woodstock feeling of there is the man and whoever that is, central banks or central agencies and so on. And we want to get away from that centralized control because they just are not very good or they're not helping us or is disillusionment with institutions which we've seen across a matter of other use cases probably over the last five or ten years before that.
So I feel like do you feel like it's going to retain that feeling once regulation comes through? Because I think all agree that regulation will come through? Or do you think that that's just going to squeeze that elements of that of this world further into the kind of decentralized and non-regulated space?
Yeah, interesting question. So I think this is probably a couple of parts that the first thing is obviously you the use cases are not just within financial sense. Blockchain and even crypto are going to permeate nonfinancial services, use cases. So that sort of thing, we'll get used to that. Secondly, the reaction or the impetus, I guess really for Bitcoin, if you look back at the history in the last product, was what happened with the GFC, where our existing banking system and financial system somewhat failed because of this whole too big to fail thing, governments and regulators felt on the ground somehow to bail out these financial institutions.
And you know, a lot of people didn't think that was the right outcome. And so the ah, Bitcoin itself was seen as a way of addressing that issue with the decentralized cryptocurrency and blockchain that underpins it and cryptography to secure, etc. I don't think that that element will disappear. I think some people will elect to find other ways to circumvent just as we always get use users who are opting out of the system.
But I think the greater impetus is in making this a better experience for the end user. And now a lot of that still has to be through, I guess, regulatory frameworks, but hopefully in a way that's not going to stifle that innovation and creativity that some of those decentralised initiatives and projects have brought. But I also take some comfort in the fact that, you know, even in Australia with that framework, we're given credence to give credence to DAOs that decentralized autonomous organizations, these are likely to be the companies of the organizations of the future.
So if you have that framework and you, you say that this is a new form of governance and a new way of forming capital for a particular purpose, then I don't see how that fully squeezes out that defi a decentralized component because it's an inherent part of the DAO model. It's just that it's not going to have a more formal structure work in part so that it can be legally recognized so not only has rights and entitlements, but of course it has obligations and it needs to provide protections to participants.
So that's how I, how I see.
Yeah, it's very interesting. I mean, look, I have very much an economics background. So I went through the academic sort of roadmap and so much of that we talked about risk being kind of a central part of the system and risk management and this idea of deposit insurance and the idea that it is too big to fail and has to be protected because of that element that it's a kind of last bastion of risk.
So it's not allowed to lose money. You know, you deposit is not a lot to lose money and so on. And I think that's always been the kind of tension is the fact that these things and that to lose money and the companies that are governing and your accounts also have to make money through through profit for shareholders.
So that's always been a really interesting tension between the two things. I feel like I sort of definitely want to move you onto the next section now, which is more about how you see the insider framework and then maybe we can return to the corporate a bit later. So how do you see that how do you see those participants coming to the market?
How did they think about this type of asset class? I suppose how does that fit into their modeling, into their asset allocation, into into their offerings?
Yeah, so I think at the moment they're still figuring that out. I mean, most of the financial institutions I've talked to, not just here in Australia, but in Europe, North America in large part, they're still offering that. How do we access or sorry, how do we provide access to this asset class, to our existing customers? And how do we as an organization make it compliant, make it, you know, risk averse as possible in line with our other offerings.
And so what you're saying is probably engagement with some of the technology around things like custody and account management.
I think. I think that's a really interesting area. So I'm going to maybe revisit the thing that you said earlier about the institutional adoption area. So that's always an area that we see a lot of growth in. We see institutional, I suppose, players dipping their toes trying to find out what this means for them. What does it mean for their risk modeling, for their asset allocation decisions, that overall portfolio structure and product range as well.
Just love to get your thoughts and what you've seen and how you think that's going to go.
Yeah. So look, I think it's, you know, just talking to institutions here in Australia, but also overseas in Europe, North America and Asia, it's definitely the mood has blown hot and cold. You say dipping a ton of water. You know, a lot of firms didn't necessarily or don't necessarily want to be first into space, but they certainly don't want to be lost.
Secondly, I think some of them have to figure out how they're going to engage in price for themselves. As an institutional and as a as a product manufacturer or distributor. And then how do they give access to their customers to these assets? I think some of them have engaged more on the on some of the technical aspects just so they can understand it, because they need to figure out things like custody and account management and reporting and all that sort of thing.
Then they've got to figure out, okay, well, how do we how do we allow someone to trade Bitcoin in the same way that they trade equities or futures on their portfolios? And I think that is still being figured out. And so what you're seeing is a downward distribution model. So we're seeing the evolution of futures contracts and derivatives, which are a more institutional investors and participants.
Then you've got some, you know, ETF, ETP type products, which again aimed at institutions. And now how do those get distributed through other managed funds or other products to to retail customers? That's still being figured out. You know, I think it won't be too long ago before you log into CommSec or your Charles Schwab account and you will be trading crypto assets, whether you can do everything in that environment that you can possibly do, going direct to an exchange or using a decentralized exchange.
I think obviously Google will probably see some limitations on that, but ultimately that's the that's going to be the path for the transition challenges. Is still though, at that asset management institutional level. Well, what sort of allocation? Where do I fit this new asset class? In my my portfolio allocation? Is it a emerging market? Is it akin to a whole new grid of assets?
Is it linked to my risk weighted assets in some way if I'm using stablecoins, is that akin to fixed income and Treasuries? Some of this is still being knocked it out, but the first, you know, institutional asset consultancy can get this right if this, you know, advising their clients on a strategic allocation to crypto and they're all the appropriate product safeguards, risk mitigation itself to go with it.
The first one does it. So that will probably dominate the market and or at least take a fair chunk of the market in early stage because they'll figure out how to join the dots from 88 to be safe. The other thing is there's obviously because of that retail first component, there are a lot of retail or semiprofessional investors like self-managed super funds, family overseas who are already in crypto.
And so they're being serviced by someone, but it's not being done by their traditional financial advisors and brokers. And that's that's something that is if you're in that sort of legacy space, you've got to figure that out. Otherwise you don't have oversight of that part of someone's portfolio. You're missing out on that value.
And I think I think just just to go back to this whole thing, it's interesting, isn't it, because the one of the things I found really difficult at the beginning to get my head around is why people use the word currency. Like crypto currency, when really obviously this is quite rich ecosystem, some of which are storage of value for transacting digitally but some of which represent tokens or currencies of projects and much more kind of smart areas.
So I felt like the word currency didn't really do justice to the space. And it also kind of almost misaligned this idea that it's like, for example, a life currency, why would I have in my portfolio a currency allocation sleeve that's buying Japanese yen or euros or something? You would feel like a really long stretch for me to do that.
But if you said to me, Look, there's a VC fund here, or there's a kind of early stage technology fund that is investing in all these kinds of interesting projects in techie type projects that will displace banks or provide alternative mechanisms for marketing, metaverse related or whatever, then it would suddenly make sense to me. Although again, what fascinates me about this area is and maybe this is where you can correct me unlike, let's say, equities or fixed income, where I am buying the securities of a business that is for generating profits, employs people, has economic footprints, economic activity, etc. It feels like in some of these cases I'm actually buying representations of value of a project
or an idea, but it's not really clear what part of that value chain. It's certainly not a business with a power line and earnings behind it. It's something else. And it almost feels like maybe, maybe this is my interpretation is that early stage angel fund or VC investment where you say, Look, I've got an idea, I don't yet know fully how it's going to function as a business, but I think it's a very powerful idea and I think we can kind of re engineer or redo a particular thing that is being done in the world.
With this technology. Would you like to give me some money or would you like to get involved in this project and have a representation of value that you will derive value from? If the project is successful, if it goes somewhere in the future? I mean, to me that this is kind of like, hey, when I look across the coins and all the sort of elements and I look at the, the return distributions, which are, which are anything but normal, kind of like nothing, nothing, nothing huge.
You know, it feels to me like more of a exploratory angel VC type space than it does a currency space.
I think I think if you if you are looking at it from a financial purely from a financial asset model and how these projects or these putative businesses get funded, maybe. But if you look back at the ICO, look at the amount some of those I see over raising through these public tokens and I'm not, you know, underscoring or recommending that right now.
I'm just saying that this the fact is that if an ICO project raised $1.3 billion or whatever, that's far beyond VC angel money, you know, so it should have sort of showed it in some ways that the model that model was somewhat broken. I agree that these assets and just call them that aren't the same as a currency. They're not the same the same as a company's stock.
But they do have attributes that you can tie back to them. So if you own a utility token or you would own a token that represents some sort of token network, or marketplace, then if it's structured the right way, you as a token holder get a number of benefits. One is, you know, you get access to that network.
You may even get premium pricing. You then share in the gain, financial gain, a capital gain you want of the token, but you also get distribution through the benefits of what that project is doing. Now, all that has to be tested against appropriate regulation and laws and everything and future promises and all that sort of stuff. But my point is that framework is there and it's starting to be deployed into areas whether it's in a piece or whether it's the use of micropayments and how web3 now it's plugging more value into into internet applications and decentralized application, whether or not you see those as traditional stocks or equities.
I don't think so. The question they have attributes of their own and the value will be generated by the token uses the network effect and the returns that can be generated through that scaling and adoption.
And I think I think but I think this is one of those bridges that we have to build in terms of the traditional finance view versus what we have on the ground here. Because everything you described here about access to the network, to the product today, it feels like it's a much more intimate relationship between token holders and with projects, who is like, you're much closer.
Whereas I feel like institutional asset management certainly has moved to a very vast distance away. So as an example case, you and I are probably super holders. Super funds are invested in diversified likely portfolios, which holds hundreds if not thousands of securities that we don't even know about. And they're out there doing something, some kind of product. And while ESG and other movements have tried to vet that list of of stocks to to be more aligned with our value system, probably you and I really couldn't tell where our capital is in the global financial system and who's it being lent out to and what are they doing with it.
So I suppose what's interesting for me is that some of these strong tendencies toward community or value based investing and so on, which which feels like they're much closer aligned to people's views are, as you say, you know, being represented here a lot clearer and at scale. Because when you're talking about $1,000,000,000 worth of coin raise, that's not a cottage industry or that's not passing around the hat in a community fair going, let's go and build something together.
Isn't that going to be fun to the scale of the money here is is quite staggering.
Yeah. Well, look, that was peak ICO. I don't think any projects would aspire to or expect to achieve any level of funding like that anymore because that was just a phenomenon at that time. I think now expectations are a lot more modest. There is a lot more work going into the structuring of token sales who do get involved in the early stage, which is somewhat akin to the VC.
I knew investing because you bring in strategic partners, not just the money and secondly, you have a roadmap as to what you're going to release when, how are you going to do that? And you you basically have a have a framework that you hold yourself, Campbell, to. I think the the other piece around some of these these projects is, yes, they are more in tune with their community.
But just as with companies, not every member of the community is necessarily going to be an active token holder. They may rely on other people to to make those decisions for them. So you could still going to have a gradation of of participants. And I think just being a bit controversial would second, you say, you know, we don't know what our super funds are investing.
Well, this Post report to their members as to what's in their counter, what's amazing. But imagine if a if a super fund was completely on the blockchain every time they bought or sold an equity or bond, whatever it was recorded and transaction and you could you could see it. I think that might give some cool cause for not concern but pause for thought perhaps by some of these funds.
But it's a great question because I think so I happen to this is an area I can actually talk to so that's good. But if I let's say for example, the MSCI World Index so that's a kind of well-known global index to cover. You know, global equity exposure has about 1600 of the world's largest stocks in it weighted by capital weights, mostly Apple and Amazon and so on.
And so end and there's a long, long tail. And each one of these companies, including the ones in long tail, have multiple operations around the world and they have multiple business divisions and they have multiple things. So if you really want to ask the question, gee, I wonder what my money's doing, just on the equity side, you would have to take those 600 apart into their segments and understand them and so on.
And I think the reason that this industry has become so big and scalable into the trillions I think BlackRock is hitting is closing in on $10 trillion worth of assets under management, which is insane is because of this notion of an embracing diversification. So if diversification is your friend and you want to have lots and lots and lots of assets and I suspect that this digital digital asset space will probably end up going the same way if enough people from the traditional asset management space go and go over there and say, right, I know how this works, I'm going to create massively diversified portfolios how have you thought about that benchmark problem?
I guess you have some expertise
Yes. Yeah. Look, I mean, we've seen all sorts of iterations of this. We ourselves, a brave new coin. We create indices which are passive indices. So they reflect perhaps a sector of assets or a category of assets. And we try and create weighted baskets which then can provide indices for derivatives and asset allocation, etc.. I think it's a huge problem at the moment because there's no formal classification system for crypto assets.
Then all the same obviously and this huge differences from a technology, from a market cap and from just a use case perspective, so another thing that you coin does is create that classification system to help asset managers screen for opportunities and then build a portfolio. But of course we don't have the same sorts of things you would have in an equities portfolio where you got fundamentals.
You can read the panels, you can look at the earnings per share, etc. That doesn't exist in crypto, but there are fundamentals there and people looking at those factors or looking to identify factors that give them an edge. And that's where a lot of our conversations are at the moment. I mean, if there's I mean, we track I think some about 1500 to 2000 digital assets, no way could you build a meaningful portfolio on that.
And even if you're an institution, like MSCI, that's going to be quite an expensive deployment of capital to get exposure and in a meaningful way to all those assets and then manage it. So I don't think we're going to see long tail cons here. There are different approaches. I mean, as I said, a sectoral sector approach could be appropriate.
Top ten, top 20 might make sense if you look at it and say, Well, I don't want stablecoins in that because I'm not going to yield so much remains. Another way is simply to say, well, you know, rather than stock picking I'm going to take a view that the next over the next ten or 20 coins that that issued to them will make it, but I don't know which to offer.
So I'll take some exposure to all of them and then have a strategy to diversify out of that, etc. So there are ways of looking at that asset allocation the, the, the other piece here is getting some sense of the, the scale and the comparability both within crypto and in other asset classes, the correlation and diversification against size.
And look, there's been quite a bit of analysis on that. Clearly it has waxed and waned as crypto markets have gone up and down but I think there's enough time, serious data and outside it goes back to 2010. I think Bitcoin yeah, there's enough time series data that they're available to say, okay, if you had a done allocation to start in some shape or form, this is what your return would have been over over 53 or even two year horizon that they would typically look for back testing purposes and is getting insights on that which is now giving asset managers and portfolio managers getting them interested.
But they need the tools to meet the analytics and they need the data to help run those kinds of strategies. And that's, that's starting to emerge as well.
I think I think that's a really important point is so much of the institutional market works off the data back testing proof, etc. And I'm guessing kind of when you lined up Bitcoin to any other asset class, if you chose to think about as an asset class and you chose the right window, it would just blow everything out of the water.
Right. Because the returns are being so astronomical. But this is why it probably gets compared to, I don't know, a microcap or something like that. But then of course, it's too big now. It's like 700 billion in, you know, in total outstanding. So I feel like it's sort of in risk return space. It's still a little bit, you know, young.
And so I'm guessing that the traditional backtesting methodologies of factor analysis and all these things are going to be a little bit stumped by and by the time series, even if it's Time series and the behind it. But I guess that to me is what makes it fascinating, a redefinition of what fundamentals means for a project like this.
What are the criteria, what are the analytics, what are the right ratios to assess one versus another? Because ultimately, other than time series and analysis, it would be a relative analysis. If, for example, if your benchmark ends up being a standard benchmark that asset management used to have to beat that benchmark to do that. But to do that relative gauge and studying and so on.
So I think it's it's a look it's a fascinating area and I think it's it's a whole new branch of finance. I could imagine coming through which isn't based on the 1930s twenties type Stock-pickers mentality and mindset which we've seen propagate and evolve surely. But concepts like value for example have been around since the 1930 so you shouldn't be too thrilled with yourself if you come up with a value based portfolio in equities.
But I think when it comes to these types of assets with these types of projects, understanding the valuation, it is almost akin to understanding the business case for a defined product call for example, and then understanding its usage and how that will percolate through.
Now I agree. And look, the other factor when you're looking at crypto of course is the price volatility and that was just put it out of the reach of a lot of traditional models how could you absorb that amount of volatility unless you have a strong way of managing and capturing that volatility? So I agree the the approach has got to evolve and you've got to have, if not fundamentals, you've got to identify what are the factors that are making a difference in crypto.
And so we do spend time looking at, you know, quasi corporate actions in this space. So what is what is a hard fork here? What is a token burn? What is this event mean? And some of that is providing I give a qualitative, but it's it's creating some sort of event driven analysis over the pricing and market cap analysis, the technical analysis that put all the chop chop developers are using.
I think the the refinement of that is it's still evolving as to, well, what is going to give me an edge if I'm now looking to construct a diversified portfolio that's going to perform similar to the way I would expect an early stage opportunity for growth opportunities or a income generating portfolio. What do I look for in crypto to either replicate that will give me a proxy perhaps for some of those more traditional styles of investment strategy.
And I think I think that that's an excellent kind of analogy, which is as I said before, when you hold a portfolio in equity line, you either hold it, hold it for the price appreciation or for some kind of fundamental outcome. Dividends, yields, those kinds of things similar with bonds or the bonds have embedded this kind of yield component.
Unless you're talking about very low rate, which kind of determines where you're going to end up at. But I do find it fascinating that this notion of value in trade versus sort of fundamental returns. And so if today you're invested in a hedge fund as an example, you have already bought into the idea of value in trade. You already bought into the notion that somebody can buy and sell a security and make money on that price difference.
No matter what the fundamentals are doing. You don't even need and that doesn't need to be any dividends or if you're buying a high tech portfolio or you already bought into the idea that you're just going to make money through prices, appreciating that you're never going to see a cent of dividends. And so if.
You've signed but you bet that you have already determined that there is value in that sector based on, on, on the industry classification, I mean it's high tech or something you're already you've determined that there is, there is a reason to be and.
Not necessarily maybe you determined that other people would think that there's a value in the sector, right? So a lot of this stuff is around. It's about the Keynesian beauty parade, right? It's you don't have to necessarily pick something that's fundamentally great. You just have to pick something that gets revalued or considered to be fundamentally great or great for any reason, for that matter.
So you often you try to try to front run demands from other people. Either way, it's the price appreciation that you look to capture. So if you think about like a typical hedge fund that is a daily holding period, a weekly holding period, they're typically trying to forecast signals to the markets, to earnings and other announcements that will make other people revalued the company in a high level.
It helps them not at all to understand fundamental forecasts and information coming out that doesn't value the company. And so in that context, I feel like Bitcoin, you know, strategies or any kind of crypto strategies for that matter, that work on just beating price or having a price based return hold the same philosophy as what a typical hedge fund would.
And then I suppose in the defi space, it's more about the staking portfolios in these income generation portfolios that I still feel like haven't quite figured out what the right counterparty risk measure is because I feel like it's highly unnatural to be getting between ten and 15% rate of return forever and an ongoing basis on a essentially US dollar type coin.
I feel like that's, that's there's a latent risk here in the background that we haven't yet encountered because it's so early in the base.
Well yeah, but I think those, those returns are only expected to happen for a short period of time and that's, that's probably you know, high risk reward early movements. I think the mechanisms though for valuing collateral and whether that's a margin lending or staking to and lend out those collateral management tools only improve for crypto as they have in other asset classes.
And then the other thing is that there's probably untapped demand in terms of their capital looking for a home here and things like stablecoins could be the way the vehicle like if I'm holding New Zealand dollars and I know that there's a demand in Brazil for borrowers there at the moment, I can't do that through traditional lending. But if I can stake my New Zealand dollars and it's then available on a liquidity pool to borrowers in Brazil where I can generate more than I'm getting in Reserve Bank rates in New Zealand, then that's an opportunity.
Now that's not going to last forever. But that that is something that could be or will be and is being facilitated by the use of stablecoins staking models and obviously defi decentralized exchanges. So yeah, I think it's, it's sort of emerging through.
Because interesting because as you said, there's almost this notion of new things, new coins, etc. but then there's this other element which is the translation of today's financial securities into that digital blockchain space and therefore making them a lot more powerful than they are today. I'm guessing people are already working on obviously how to replicate share price of Apple or any other kind of stock in that blockchain fashion.
So that it can be just as widely circulated and accessible as the premium as anything else.
Yes. And we haven't even started talking about tokenization of assets, so yes, exactly. To your point, Michael, you can tokenize equities and then have been available for fractional ownership or want a distribution based on on the token representation of the underlying asset or the equity in this case. And so, yeah, I think the next phase will this industry will see a lot more around the use case of tokenization and the technology that's going to be deployed to do that, whether it's smart contracts, whether that's things like digital asset markup language or whatever that's going to be focused focus for some time to come because that will also underpin things like structured products for listing on exchanges
it'll underpin things like ETFs where you're looking to take exposure, physical or synthetic to, to Bitcoin, say, and then you're looking to originate these funds and then distribute them to retail shareholders or unit holders that hold model is predicated on things like the tokenization and the ability to represent the underlying asset in a way that conforms with their custody, the trustee and the other requirements that an ETF needs to have.
It can be listed on a, on a traditional exchange.
Yeah, it's it's fascinating. Again, for people that work in this industry, either for the finance or the side, you can kind of see how the Lego building blocks come together. I think for people outside this industry, they kind of just they can't I followed some of that, but it feels like it's for us. We can think about how we take each component to what we do in an asset management space and recreated on the blockchain with the net effect that it's faster, easier, more transparent, and we can recombine them in a visual way.
But I want to be conscious of of your time and being extremely generous today. So I want to thank you for that. I have one last question before we finish off is I suppose you what are you most looking forward to this year and development in this space? Like what's your what's your passion? What's using that? You're going to go, yep, that's really exciting.
That should be coming this year, hopefully, or maybe next year. And and I'm really excited about that.
Okay. A few things. I mentioned Web3 and micropayments and it's I think there's some really interesting projects that are involved in that space, whether that's in the area of things like a digital content, whether that's art, music or tech space publications where we still haven't yet seen a really good business model for micropayments and I think that's going to be really important for consumers, whether or not they realize they're dealing with blockchain and crypto, that's, that's going to be quite important.
I think you know, the emergence of a fully fledged physical fact ETF for crypto is, is definitely on the cards. I think progress in tokenization is going to emerge this year and that's all going to be underpinned again by the sort of institutional interest. And then finally look at personal sort of involvement in a project outside Brave New Coin.
I've been working with a company here in Australia that's an NFT in the branded spirit space. That's quite interesting. I think that will see some some more developments like that because I think brands now and brands have been a driving a lot of our engagement in digital over the last few years, but brands now trying to figure out, okay, where do we play in this space and how do we utilize some of this technology to better engage with our customers and give customers a bit of experience, more personalized experience at the same time, bringing value to our stakeholders, whether that's our manufacturers and producers or our distributors and retailers yeah.
That whole ecosystem probably is probably what I find interesting as well.
That's fantastic. So by the end of the year, we're going to have a spirit. Where did that kind of and and if perhaps hanging behind you on the wall, maybe.
It's out there already. It's out there. It's already launched. They did an NFT sound like last year and it's going really well. And so I expect to see more similar projects and obviously you know, the use case has to be there and the value proposition has to exist. It's not just about the technology, but yeah, I think a lot of these projects are validation and proof of concept, but they will be the ones that will drive adoption because they'll have figured out, you know, how to engage with the marketplace or to figure out the distribution and promotion and even just the physical minting of these tokens.
All that takes because the upside still a little clunky here and there.
But that's the beauty of this industry, right? It's that we're going to be looking back even on this conversation in three or five years and going, wow, jeez, you know, that was the beginning or that was something else. That's that's really what drew me to this space. I'm sure similarly with you at the very beginning is is on one hand, the possibilities of where I could go, but also just the vibrancy of of that ecosystem and the new projects and ideas coming through.
So that that's fantastic. And I want to thank you so so much for your time and look forward to seeing more and more action and from you and obviously visiting the website, which I love. So it's a really good, good product, great website. Thank you.
Thanks, Michael. Appreciate the time. And yeah, taking contact me through Bitcoin or through social, it's pretty easy if I have two questions.
Thanks for joining me in this first episode of Crypto Cappuccino. If you like the episode, please rate and review. See you next time.
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