Dr. Michael Kollo is joined by Amit Sinha, head of Multi Asset Design at Voya Investment Management; the U.S. based Fortune 500 company managing approx. 268bn in assets. They discuss institutional adoption of crypto, regulation, culture and how it may evolve and integrate with our existing systems.
Hi everybody. This is Michael Kollo from Crypto Cappuccino. Please join me today. As I'll be speaking with Amit Sinha from Voya. Voya has a 250 billion asset management company in the us, and we'll be talking about the institutional adoption of cryptos. We'll be talking a little bit about this as an asset class, backed by economic outcomes and cash flows.
We'll also be talking about the regulation and some of the culture and themes around this very exciting space. We'll be finding out a little bit more about amids, uh, fascination and how he thinks this space might evolve and incorporate and integrate into our industries and our countries and the way that our systems operate.
It's a really interesting question, really interesting conversation. So I hope you can. Welcome everybody. This is Michael Culo. I'm here joined from New Jersey from New Jersey. Uh, it's my best accent I could do. Sorry, uh, by Amit, how are you MI Hey Mike. Um, doing well and happy to be here, right? Could you please introduce yourself to our lovely, uh, listeners today?
Absolutely. Hi everybody. This is Amitha. I am the head of multiset design at Voya investment management, uh, Voya for those who are not familiar, we are a, um, roughly 250 billion, um, asset manager, um, mainly based out of, uh, New York, Atlanta. Uh, and I, as part of multi-asset design, I'm responsible for managing portfolios that as the name suggests multi.
So across equities, fixed income alternatives, derivatives, um, mainly focused on trying to meet any particular custom outcome that our clients are looking for. Brilliant. Fantastic. And I often like to kind of wonder with, um, people's careers and how they kind of came to be at this moment in, in their life.
Um, so just love to hear a little bit about, I suppose, how you, you came to be here and what, what are the steps you took and, and what brought each of this conversation? Sure. Um, as, as everything in life, you know, it goes exactly according to plan. And so this was exactly what I wanted to do. Uh, just kidding.
Um, so, uh, life started out. Um, so I grew up in India, um, town coach, and I in the south of India. Came to the states for my undergrad, went to a small liberal arts school in Pennsylvania. Franklin Marshall, um, had a good time there and, um, joined JP Morgan in the sales and trading group as a summer intern, uh, on the derivatives test.
So, um, my, that was my first introduction to finance. So I learned about an interest rate swap before I knew what a stock bond was, um, liked it, enjoyed it. Um, joined, joined the group full time after graduating and, uh, did that for about six years. And then a group of us from, from the swaps desk ended up starting a pension advisory business where.
We looked at pensions as a, um, asset liability problem and like derivatives people, we decomposed and we said there's interest rate risk and there's asset risk and all of these, um, other things. And we felt we could that there was a need for people who understood both asset and liability side to help pensions.
And it was. Back then we didn't know what to call it, but it became what you would call today. A L D I O . CIO. So live driven, investing, outsource CIO business. Um, so I was, I was managing portfolios there, uh, mainly on the hedging side and through that, got also interested in, um, how to, how to use derivatives and Sy and algorithmic strategies to replicate asset plus exposures you want.
That led to quantitative investing. So I ran a couple of point funds, um, and then try to build out a startup that married technology, finance, and human behavior, which ended up leading to Voya, where I was trying to build the startup, trying to raise capital around the same time, talking to Voya when raising capital, as you probably are aware, sometimes work sometimes doesn't and.
And at the same time, Boyer was building out this, um, really interesting platform. And, uh, they were like, well, would you like to do what you were trying to do as a startup, within a larger organization? And that's what brought me here. Wow. That's that? That's really cool. So you've kind of had a little bit of everything you, you started with that big business mindset.
You've had the startup, you've had the quant life. You've had the entrepreneur raising cap life so all the different kind of elements. I mean, it, it always fascinates me how. Uh, is kind of what you began by saying is when you look back on your career, it, it, it feels a bit meandering, but there's kind of a structure to it, maybe, but obviously at the time you have no idea where it's gonna go.
So, um, that's interesting about this whole space. So you wrote something really interesting recently for me around your thoughts around this entire space of blockchains and, um, metaverse and defi, and the reason I kind of liked it is because it made points. You know, the disruption and the industry impact of these technologies.
And, and I suppose the evolution of these technologies coming into these industries and creating new channels of economic wealth and, and output and so on. So the reason I kind of like that is because again, it reinforces this narrative of, of the idea that there's some real technological changes or shifts that could be happening, but they also are materializing in the context of how these industries themselves are, are changing and reshaping.
So. Um, for those of you haven't read it. Definitely. Uh, see if you can get a coffee copy, but, um, maybe if you wanna talk about it briefly AIT, and then we can kind of start to talk about some of the points.
Yeah, sure. Yeah. I think, let me first start with the, uh, with the key points of the, of the article I wrote.
Cause I think that will help frame frame the points in the, so the article was really my, uh, it was really my open exploration into. Some of the more, um, philosophical aspects of what I see as an inevitable evolution. Right. And, um, and I'm stealing this from Josh Wolf at Lux capital five to 10 years from now.
I feel very certain that a large part of our daily lives and the financial economy. Will be somewhere in the call, it web three D five blockchain type of world. I have zero idea how we're gonna get there and what's gonna be the way to get there. Right. But, and, but then the more you look at it, um, and at least the way I was approaching it was, I was sort of deconstruct cuz there's a lot.
There's a lot of noise. Um, I'd say it's still hard to get signaled from that noise today, but there's a lot of noise and there's a lot of activity and there's a lot of opportunity, right? And there's a lot of capital, a lot of smart, brilliant people. Um, and when you have that type of movement, you have Bo you have two things that are very important in, in the evolution of any system.
Right? So one is. The nuts and bolts and the, it can call it economics, the technology, whatever. And then there's also culture. And so my article was really more of a note to myself about how there is this evolution of culture and economics, and what's happened in the past that I, that you can use as an analogy.
And, um, and so what I went through was trying to think about. Uh, think about things like, you know, starting with the origin of, uh, transactions and value and trust. So way back, when, when you think about evolution you had, um, you know, we initially started with the bought system and, and my article I talked about, yeah, if you want a glass of milk, you, you give a bushel of wheat and you trade that becomes unwieldy and, and has its constraints.
So we moved into, uh, we moved into a world. Having some sort of transaction token, if you will, right. It could be cover shells, gold, silver were the end evolution of that. And, and so if you think about that progress and then you come to the world of Fiat money that we have today, and there is money in itself, doesn't have value unless someone trusts it as a medium of exchange.
And so that then led me to think about. What does that mean? When we get into the world of crypto web three defi, and you know, we were talking about this before we got online, where there are, there are a bunch of evangelists, very smart people, very driven, but they think that the whole world is gonna be changed by crypto and this whole decentralized world.
Um, I take a slightly different look towards it, which is that. If it, if you're looking at a store of value, something like a Bitcoin or something like that, you need people to believe that it has a store of value. Similar to gold, transactional value is gonna come from trust and, and we can go many different directions.
So I won't, I won't go deeper over there, but that's the other element. And then the last element is I try to compare. What you see with the metaverse and how you have this race now, amongst a lot of the tech platforms to build metaverses as kind of almost like virtual countries and economies. So whether it's like India with Indian repeat or China with the Chinese one, and these closed economies, Roblox Facebook and are their own closed economies.
How does that change? Settle up. So why don't I pause there and, and see what direction you wanna go?
I think there's a lot to decompose here and there's a lot to say. I mean, I, why don't we start kind of in a macro way, kind of the top, and then we can work our way down. I mean, your point regarding economies and economic development, I think is an interesting one, especially considering currencies in how they, uh, act and, and react.
I mean, I suppose, what are the big narratives around Bitcoin specifically is around this notion that we are gonna create a new world order, right? Where there's no boundaries and no borders and capital moves across all borders. Essentially the ultimate peer tope network. Where, you know, all of us are connected to each other and we can send money without institutional frictions, without banks getting in the way without government imposing capital controls.
And, and the fact that actually currencies themselves form an interesting kind of barrier of entry or movement between things and that the control of, you know, conversion of currencies does something similar. I feel like Europe had this experiment or has this experiment going right now? And I feel like.
What we have discovered is in our economic system today, the currency is not only a means of, of exchange for goods and services, but it's also a fiscal tool. And it's a, um, tool in order to create relative competitiveness between industries and companies in different places, as well as a, you know, a, a tool essentially for the government to intervene in, in economics.
Now, whatever you might say, I suppose, I suppose when the question becomes, do you think that's a useful tool or do you think that's an abused tool? And, uh, you know, because I think if you think it's a useful tool, then you would say, well, that's a really useful tool. So if we break down the barriers and create one big global currency for exchange only, you're kind of removing a really big part of economics, which is around, you know, uh, actions related at tool, the interest rate policies, for example, of, of the currency and so on.
I suppose there's another point of view that says actually very much the, um, you know, the, the, um, let the market kind of ascertain or determine the right way of doing things, kind of approach. I don't know. I'd love to hear your thoughts about it. My, I suppose my display, my cards openly, I. I feel like a number of times we have let markets, um, govern in terms of, uh, asset prices and, and we've seen, um, behavior that hasn't been quite efficient, uh, and it's lead to, you know, animal spirits and booms and bust and, and some clear, quite big disasters.
I think the arguments around, well, that's just because governments are interfering kind of true, but actually I, I would suggest not true for a lot of different ways. And so I, I don't, I'm a really believer in capital prices will kind of work themselves out. And therefore, if we have one global currency, then the right interest rate will emerge and the right conversion will just emerge out of that system.
Um, and therefore I do see, for example, dangers in. The idea that there can be one, um, sort of means of exchange. However, I definitely see the point that it's also become very political and the currencies actually serve a strong political purpose. As we've seen recently with the sanctioning, for example of Russia, where they become weaponized and they, they form a part of a political agenda.
Particularly an agenda that is waging a certain kind of warfare between nations. Um, so lots to unpack there, but I guess broadly the notion of Bitcoin and the reason we should all adopt Bitcoin and use Bitcoin. And Bitcoin is the future, I think has one set of arguments behind it to. Because we'll be able to, you know, be integrated as a global society and we'll be able to kind of remove a lot of these boundaries.
Is that, do you think that's a good reason to adopt, uh, Bitcoin?
Um, so I think we, there, there are three layers at which I'll I'll address that. Right? So the one is, um, on the valuation side, the other is a decentralization argument. And then the final is basically the, the equivalent of the central bank rule, or if you will to take the currency analogy.
So we take the first one, which is sort of the store of value. I think, um, I think Bitcoin's value arises from the fact that there are a hundred million people who believe Bitcoin has. For whatever it's right. It's kind of similar. And, and that's where I think the simplest way to think about it. At least the way I think about it is like gold.
So, you know, with, with the specific Bitcoin protocols, and if you stick to the sat AMO to 18 page, original memo and all that, forget the number, it's like 18 million Bitcoins, it's a finite supply. And so there's finite supply in this culture. So effectively it's like digital. And the same way, you know, I'm from India, Indian's love gold jewelry.
It's, India's the world's largest importer and consumer of gold, but borrowing its use in jewelry, borrowing Gold's use in, um, let's say some high tech, uh, components. There's a lot more supply of gold than utility of gold and the gap is made up because. For thousands of years, we have been programmed to think of gold as having value.
And because Bitcoin in the eyes of a hundred million people has value, it has value. So that's what now what that value is that's going to flood through. Right. Could it go to a hundred thousand? It could, could it go to 20,000? It could. That's just a matter of relatively the us dollar. That's a matter of, you know, what people perceive.
They can exchange that unit of Bitcoin in a regular traditional world. Right? So if, if you are going out there and buying a candy bar at the street, uh, at my, at the grocery store, across the street, I gotta convert that Bitcoin into all this. Right. So, so that's one we can start with store of value. The second is when you think about, uh, when you think about Bitcoin, from the perspective of, um, the whole decentralization argument.
Now what's interesting is when it was original peer-to-peer network, the decentralization made sense. But if you see what's happening now, and this is not just for Bitcoin, but for any system, like, even if you look at the internet, when you have a lot of decentralization, you'll end up with two to three large players controlling system.
Think about Google and Facebook in the world of, uh, online media. Technically there are no barriers to. Crypto cappuccino becoming a brand for which people would pay ad, uh, would, uh, pay advertising dollars for yet because of network effects and economy. And just because there are no barriers, you have two to three big players like Facebook and Google who own the digital lab space, similar in the world of crypto.
As you have more and more people coming. We go back to the original word, matter of trust. And so where does that trust come? The trust comes from these norms Alans, for example, or a coin base. And so suddenly the intermediaries who are trying to reduce the friction between me so that I don't have to type in my private key every time.
And so they're EAs using friction, but what that means is they're also creating points where let's say a regulator can cover. So your decentralization, I think once you read scale, It's very hard for you to be decentralized. If that makes sense.
And I think I just wanna course that that's a really interesting point.
And it takes us into the notion of what is the value I suppose, of, of the decentralization proposition. Right. So one way to think about that is with blockchain. One of the primary considerations is that. That or part of the motivations or people get enthusiastic is a little bit similar to the, to the Bitcoin argument, which says we don't like centralizing agents.
They have too much power. And what used to be an intermediary to facilitate transactions between two parties has become a blocker or a controlling agent. So these agents are not only intermediating me, for example, putting money deposits and you taking out a mortgage. But is now telling me how much I can put in, um, is maybe restricting you from accessing that capital market and so on and so on.
So the, the observation is that, well, we've got enough people with enough abilities, so we need to kind of reset this relationship. But I think what you're saying is that if you start to do this at scale, you naturally get. Points of nexus or consolidation, if you will, where people are passing through those points in high frequency.
But I suppose the question becomes if we can, um, ensure that those points have a smart contract or some such very limiting structure, which says they will only ever facilitate two things. Because even though it says smart contract, it's many ways a dumb contract, a limited contract, and it says that he can only do that.
Then you essentially, you know, essentially put a, put a ceiling on the kind of a monopolistic or, or kind of . Expansionist idea. So in other words, that node where people are exchanging money or people are borrow and selling, there will only ever be that node. Right? So for example, if, if Klans is, is a great exchange crypto exchange, We will then never grow into a, and we're a smart contract.
If we were a smart contract, then we would, it would guarantee the fact that it's highly unlikely if not possible for us to ever grow into something more expansive than that. Um, I suppose I suppose the question is, you know, from a, uh, what you are saying is that that's actually not really likely because.
Uh, again, unless you have everything as smart contracts, even then you might have an expansion of smart contracts. And just naturally these industries tend to consolidate, uh, especially if they're transactional into single players and as they do basically, um, their, their monopolistic or their kind centralization of power, uh, returns, even once you've decentralized it.
And you've created very low powered independent nodes, which are very simple functions. Um, Eventually you you'll have this consolidating agent or this monopolist that comes in well, unless, unless it's restricted. Right.
Which is sort of almost counterintuitive because restrict you're building the decentralized network so that you're not regulated.
You're not restricted, but the less, the restrictions are the more. The greater, the likelihood of these monopolistic and Monopoli may not be bad. Right? True. Could end up be we're not passing judgment on whether monopolistic is good or bad. I think where, where I'm going with that thought process is that if there are no restrictions, You will get these consolidation nexus points in a decentralized work.
But I, I think that's, that's an interesting cause to your back to your previous point about how this will integrate into our economy. So what we have here is a technology that says, look, we can do transactional activities much more efficiently. We can do that by essentially. Um, uh, you know, creating these rules based decomposed structures, we can make sure that the systems are, uh, using, um, certain structures in cryptography to keep track of the truth and therefore we can trust them.
So we understand what the trust them, I suppose the question becomes. Are these tools that will come to challenge institutions themselves, or will they be integrated into institutions? Kind of like how FinTech has gone in the past where I think there's initially when FinTech was really hot in 2012, 13, thereabouts, I think people were like, yes, this is a new way for banks.
We're gonna replace banks. And then they realized that banking was hard. Client acquisition was hard. Trust was not easy to get. You couldn't solve all these problems with an algorithm. And it was all very difficult. So I think a lot of these companies, not all of them, a lot of them ended up selling their technology to banks.
Essentially banks themselves became a lot more, um, you know, financially, um, savvy. They, they brought a lot more expertise in house. They brought a lot more technology off the shelf, some successfully, some not so. So, I suppose the question becomes, do you see blockchain as a kind of technology, um, or NFTs for that matter integrating into existing providers?
Or do you see them challenging them?
That's a fantastic question and something that I I'm actually very excited about. Cause I, I, I think I'll give you the short answer at the end and then I'll do, and then walk backwards to the long answer. I think the short answer is you will see you will. I don't think it'll be a challenge.
It'll be integration. And the players though may not be the ones that you, that may be natural. Right. And I'll try to explain what I'm saying both directly and by analogy. So direct directly, um, something like a smart contract is actually very exciting and it opens up a lot of possibilities. Um, Like, so, you know, I work like I, like I mentioned earlier, I start out in derivatives.
If you think about derivatives derivatives are the, in a way, an original smart contract, because except in sort of a blockchain, they've written on a piece of paper with very extensive lawyers, but it's, it's basically a promise between you and me that says if X happens, I will pay you money. Right. And by doing that, the very first inter intra rate swap was between IBM and, uh, and the world bank back in, like, I wanna say the 1980s today, the size of the interest rate derivatives market is probably 10 or 20 times the size of the fiscal market, because there's a very well established set, established set of rules.
And those rules are not coded into exchanges and OTC contracts and all of. And so I can definitely see something like that happening and it would be fantastic if it happens through technology at the very simple way. You know, you take blockchain, you take smart contract. Theoretically, if you take NFD is not the board a kind, but just the fact that the NFD is a pointer and an immutable pointer.
Right. So you can think about things like, you know, whether it's your, um, your housing deed, right? So your house could technically become an NFT connected to a smart contract, allows you to have much more efficient, let's say, um, home loan system, right. Or credit. So the possibilities from that are endless to your point about like the players, but for a end consumer to adopt.
You're going to need things like KYC, things like customer acquisition things and all of these things which established players have now is that established player, a bank like a JP Morgan in the us or ANZ in Australia, or is it gonna be apple Google, or is it gonna be coin based tax? That's a TBT. Right.
But what's amazing. Is that what all of these are now in the realm of possibility? Yeah. And, and I think this is the kind of the 64,000 or the, in this case, sorry, it's a $42,000, whatever the price of Bitcoins kind of question, which is because part of this movement and what I find fascinating about its industry and we get really excited about is they're onto something really interesting in the technology.
It's it's outlandish in some ways, right? It it's, we can replace a bank with a smart contract and we're looking at this stuff going, can you really? Wow. That's a, that's incredible. Of course, people from finance were like, well, maybe, but it feels like there's a lot more to it than that. But then I sort of think back on whether this conversation's very similar to what we had in passive and active management.
So then back in the 2006, 2005, if you ask people, yeah, it's active managers, you have to have. Uh, an asset manager is managing your money because they understand the market. They understand earnings, you have to pay them one and a half percent for their privilege. And then along came passive and said, actually, we can do this quite transactionally.
We can just buy the top players in, you know, the market. And we can deliver that for you for 50 basis points or a third of the price, essentially. And you won't. You know, the same, uh, personal face and personal brand behind it, but you kind of get very similar economic outcomes and therefore, why not? And of course it took a crisis like 2008 to switch people onto the importance of fees and, and, uh, and basically to get them out of this habit.
But now it's just been a one way street toward passive management for, for a decade or more. And so it feels like it's an industry that's kind of really struggling to establish its value proposition in light of an alternative that is passive and it's quite rules based and is very simple. So I kind of look at blockchain and I think is this the passive investment moment that was for asset management, both for the banking system or in the, in the terms of defi contracts, for example.
So decentralized finance, where you've got lending and borrowing, which is pretty. You know, fully collateralized basis. So it's not the kind of really sexy stuff. Um, and you're kind of looking at it going, yo, if, if a simple contract can do that and it can, you know, take care of 6 billion or 10 billion, it feels like maybe you could do more volume.
Right? I mean, the, I think the total defi contract space, according to certain sources on somewhere in 170 billion type of range, Um, which is still nothing compared the 850 billion that's in the credit card books of the top five us banks, for example, or the trillions that are in the total consumer lending portfolios or the 45 trillion that's in the bond market.
Like it's tiny. And so you kind of, I guess what you're doing here is you're trying to understand what is the value economic value of this idea, but on the back of it, the cultural element, which is you began by talking about how it feels like there's a critical mass of talent and people going to this space.
I feel like the mission vision of these people is not to reduce the lending costs or to, to automate, uh, lending functions. Cuz that feels a bit boring. But the mission and vision of these people are, are all about, you know, um, basically shaking the foundations of, of these institutions, of these mono monopolies of this whole structure and system that quietly you and I are part of admit, or certainly a lot of us spent a lot of our careers being part of, um, And I suppose, you know, the question for me is whether that's a futile event or not, because once it becomes a futile event, I feel like that part of this industry will just exit.
They will kind of say, well, nice one. But the reason I'm here is not because I, I like making blockchains in my spare time is because I want to disrupt this industry. Cuz I want it to change. I don't want it to be the same as it was before I wanted to be, give us a voice. I wanted to get out of our way. I want to be more peer to peer.
I don't wanna be controlled by governments, by banks and so on. If in five or seven years, we're standing at a point where nothing's really happening and, and the banks are just, you know, integrating these technologies. I, I, I wonder where that passion and energy of this industry will start to manifest or how, cause it, that to me is one of the big differences between the AI.
Integration problem, which where a AI came along, everybody was like, yes, AI, future electricity, right? It's a new electricity. It's gonna go everywhere. But I feel like the fuel that was fueling AI, wasn't, we're gonna destroy the establishment. It was, it was more around, Hey, we're gonna do things quicker and easier and more intelligently, and we're gonna give more access to more people and so on.
So I, I, I often kind of, as you said, a lot of intelligent people, but there's a certain underlying culture. And, and I just wonder kind of, how do you think about their economic adoption and the value of these technologies versus how that, or their culture will kind of evolve?
So I, I think that's a fascinating question, a fascinating topic, like, because I take a slightly different view than you, maybe it's a slightly more optimistic view.
That was the classic judgment on our views. Um, and that comes like definitely those who start out. Other visionaries. Right? They're the, and I don't mean this in a pejorative way zealot, right? Sure. But the zealots in a good way, and they're, they're truly passionate about something which will just be a revolution, but as we've seen, you know, whether it's the internet or going back in time to any major disruptive force or.
In a way that disruption happens only when it becomes a part of society. Sure. And because that's, when you get your adoption, that's when you get your critical loss. So if we take that scenario of, let's say banks and, and I use the term banks loosely because. You know, a few years from now, a bank may not be institutions we're talking about.
It could be very different institutions, but them adopting. Let's say let's for what we're talking about. Defined smart contracts as the way business gets done, or the reals on which financial products are made, sold transacted. That's a win for the system as a whole, right. Um, So I look at it from that perspective, but the other point that you, that came to my mind while you were talking, is that one of the big differences between, let's say what happened with the internet revolution in the nineties and over here is that the internet was allowed to go a long way before the need for regulat.
Right. Like, I don't know if most people know or not, but like at least in the us, um, internet purchases were not taxed until I want to say maybe even post 2000. So it's been less than 20 years at internet. Um, uh, internet sales have been taxed, so regulation kind of let the techies just do their own thing until it became too big trick door.
The biggest difference here in which, you know, is. I would say a little concerning along growth is the regulation regulatory side, right? Where I think if you put the regulatory breaks on too late, you have the problem of losing trust. You put it on too early and you're gonna choke off a very good system.
And, and I, and so. That's that's the one, one very big variable that, that I see in terms of adoption down line and,
and, and look, regulation is an interesting one because unlike many other industries, this industry has started from the bottom up. So we have 40 million customers in the us who have access, for example, own big cryptocurrency at some point.
And the way that it's been. Kind of, I suppose, sold has been this just enough of a emotional hook, AKA anti-establishment and then an essentially a very steep price rise. So people wouldn't have put, you know, thousands of dollars into Bitcoin, but the price rises helped. So. The magic combination of those two things means that lots of people have been lots of retail investors or retail people, not investors have been exposed as a kind of a speculative gambling idea long before the regulator actually defined it to be a financial asset or an asset at all.
And so in that context, it was probably more conceived of as a bet, as a kind of a gambling kind of, I, I put five bucks on this random outcome, you know, we flip a coin and, and I win something. Not. I suppose as the industry is now trying to attract a lot more serious capital and growth in capital. It's now looking to move up that scale into the high net worth into the, into family office, into the bigger space.
And, and to do that, I think it, you do need regulation because you need the custodians of these assets and the institutional investors and, and the Midear investors to basically have trust and faith and, and so on. And I guess what we are seeing, I'd love to hear what you're seeing from new, New Jersey, from, from what we're seeing on this side of the world.
Um, we just have a rapid expansion of custodian services and all these support services that are coming on board. And basically meeting a demand from institutions across the board as setting up crypto funds and ultimately crypto, uh, products, uh, for investment preparing themselves for the mid tier and the upper tier type of, uh, client to come in and basically talk about crypto as an asset class.
And so hiring research teams, hiring product teams. And creating a lot of activity in this area. And that's certainly something that obviously we are keeping a very close eye on because it's part of our road product map as well. I, I think in order for that to happen though, you need some amount of regulation, I suppose.
Your point is how do you not make it? Ridiculously difficult to develop new blockchains and to, you know, develop this technology or, or even put a, a great burden on young companies to try to work in this space because a lot of countries like Australia need this as a industry of the future. So there's a whole other picture here, which talks about industry development and says, look, it's the end of fossil fuels.
And for countries that are dependent on fossil fuels or, or have significant industries linked to this stuff, it needs to develop new technology based industries in one of these industries in the future could be blockchain. And therefore what's the right way to walk this in such a way that you don't create a financial crisis, but equally you, you kind of create some GDP growth and some industry growth as well.
Yeah. And I, you know, I totally agree with you, Michael, that I. For the industry to thrive for institutional capital to put in money, you're gonna need regulation and you're gonna need smart regulation, which is, and by smart regulation, I mean, keeping the guardrails, right? Cause I mean, with what you started up, like there's a right now, a lot of this industry is being run by speculation.
Right? and probably 18 90% of the protocols that you see are probably gonna be worthless in a few years. You just don't know which one. Right. And there'll be people who will be burned. There'll be people who, and, and so trying to provide regulation, you know, similar to, similar to what you see in, in just like the public equity markets.
Right. No different than that. I mean, we've, we have a thriving capital market system, global capital market system that seems to be working pretty well in a regulated environment. So I think regulation is normally necessary. There are a lot of benefits to regulation. It's just where you regulate and why, if you're under regulate to protect your own.
Maybe not that great. If you're trying to truly regulate to protect the users in that system and have a rule of law, it'll be very good and helpful to take that to that next level about, you know, what's the institutional involvement in crypto, right. And that's something that, you know, we're still like say a few ways away from.
Broad spread adoption as an asset class. Like even though term crypto as an asset class, I think is a misnomer because Bitcoin is its own animal, the, the protocols, so an Ethereum or Solana their, their own world. Then you've got defi smart contracts, different world. You've got the whole meta worst web three as a different world.
Right? Um, so you're gonna see some activity and you're always seeing that in the venture space venture and growth equity. So you've got institutions going in that route. Um, but getting to the point where, you know, you can have like a crypto hedge fund where. The reason there is a crypto hedge fund is because similar to an equity analyst doing discounted cash flow projections, or somebody doing a relative value between brand versus, uh, WTI in the commodity market, uh, or doing like a future, that level of maturity.
I think we're still a reasonable,
well, that's a really interesting point because, so I, I saw this recent report, um, done by JP Morgan that try to put a fundamental value in Bitcoin. Now I agree that I think Bitcoin is a separate entity and it's about a storage of value and a transmission of value, more importantly, across the system.
And it derives a lot of value from that. But I feel like some of the other protocols that you mentioned, or at least the applications that run on those protocols layer two layer, three have economic value to them, and you could potentially do various different valuation elements on it. And I agree that that's currently all being bundled together, but they're quite different.
I, I guess I'm a little bit. What, what I see here is, um, a lot more aggressive and rapid adoption, this of this as an asset class, primarily for the idea that they're creating product to meet demand. Yeah. So when people say, listen, I wanna get into crypto, but I'm not a speculator that just wants to look at, you know, Bitcoin prices every day.
And financial advisory all the way up to services all the way up to funds are looking at this person going, okay, we'll give you a fund, I guess. And they, you know, look around and go, maybe those five coins will do and whatever else. And so I, it, it's funny where. Um, it just, it really reminds me of, I remember being in a conference in London and it was a quantitative conference, 200 qu in the room.
There was four of us on the panel. We talk about the adoption of AI and we're all kind of agreed that AI model in the form of neural networks was not really useful for finance. Finance was way too noisy. It was way too non stationary. Um, you know, thanks. But no thanks. Right. And we all kind of noded at each other went.
Yeah, yeah, yeah, yeah. That's probably right. And so 200 people went. Yeah. Yeah. That's probably right. And then you walked out that room and you thought to yourself, I wonder how this is how the dinosaurs thought about humans. They kinda looked at them. Yeah. You guys have no scales. You have no claws please.
And of course the next conference, the next in three months time wasn't should we do AI was how do we do AI? And so I think the conversation had started because of the competitive pressure that said, no, we have to do something in this space. We have to say something in this space. So I, I kind of wonder even before there is a economic argument for these coins and, and that the fundamental group root development, I suppose, of this industry, whether our financial services industry is gonna swoop in and goes fantastic.
We're gonna make some products here. And the next time you turn on Bloomberg, you're gonna see, you know, a, uh, Ethereum or Sal. Strategist from a reputable, uh, you know, asset management company talking about, you know, a range of Solana projects and with MPVs next to them and estimating the market to be 20 billion or 30 billion or 50 billion or whatever else it is.
Um, cause I feel like these conversations already beginning, but they haven't yet. Progress to that level, but all it will take is for them to hire five people and to start working on this stuff, because, you know, unlike the rest of the industries, nobody can say they've got 20 years experience in this field.
It doesn't been around long time. No. Yeah, absolutely. And, uh, I, I love that AI conference analogy because I, I, I do think that's where we are in this industry where, you know, you've got all of, and I'll include myself and my, me and my firm in that, you know, you've got all of us crusty old style asset managers that hang on a minute.
Yeah. You know what? This is good, blah, blah, blah. But this all while. The development's happening. Right. So to take your global example, right, there is no reason for a coin base or an FTX or a galaxy, you know, with the type of revenues they're making right now to hire five people and just start pushing quote unquote research out there.
Right. So I, I think you'll see that, that movement, um, you'll probably see it. At a pace that's more rapid than I imagine it to be. Right. Um, and, and that's why the, the question I keep asking is who are the emerging players? What's the, what, what are the emerging business models? Um, so it's real, it's really not, will it happen?
It will happen. It's just, what's the path. Exactly. Which is the answer.
Exactly. But, but, but I feel like because we, we understand the hunger of this financial system to create products and to kind of move things . Forward. I feel like we kind of know, kind of intuitively know the answer, which is we'll, we'll end up describing this thing as, or parts of this thing called blockchain community as.
Economic value. We'll start using the language of risk, return, volatility, relations, beaters, whatever, and we'll start, you know, it's already begun actually. There's number of really good surveys and reports talking about what is the optimal asset allocation of one to 2% to this asset class. Um, and then obviously, but as you say, we don't have a language evaluation.
I mean, I, I looking at this space myself, the closest I've come to, um, thinking about this is. Like micro caps where you've got, I don't know, a hundred investments and two of them will do really, really well and 19. Yeah. Just do nothing as you say. And so that, that really skewed distribution path, um, which again, is a sign of a, of a startup or a starting industry is probably gonna be similar.
So getting economic exposure to these projects, probably through the coins and through the currencies, maybe in some cases through some of the bigger listed entities, uh, potentially. um, but it's, it's kind of playing this theme in thematic investing and, and various other products will probably be a natural area that a lot of this capital starts to find its way into the system.
I, I guess the question for me also goes back to how does that change the. Production cycle. So what kind of projects will therefore come on board? Cause we know there's a lot of money from VCs and PEs chasing blockchains or blockchain creators. I wonder whether this other kind of institutional money coming in, buying the, the currencies or listing assets, how that will also change some of the focus areas of, of these companies.
So I'll use and in your qu you'll appreciate this. I'll actually one of the reasons why right now, and you'll see this for a little while the money's coming from the DC space is because of that power law dynamic. Right that he just explained. So as long as the distribution is more of a power law, right.
Type distribution or a Carto 80 20 type distribution, where one to two winners and a lot of losers that lends itself well to a BC tech more that's right. Yeah. Right. And, and that's what you're seeing. And that's why you're seeing BCS investing in tokens and protocols. It's not quote unquote equity, but they're basically saying that.
If X succeeds net, net, net, if we are in a hundred, a hundred different, we have different protocols. One is a thousand X we'll do fine. Right. The next evolution. And which is where I think you'll see what the, the dynamics that you are talking about comes when that power law distribution converts the more of a normal log, normal type of distribution.
So then. The traditional things like, and you'll, and you, I mean, there are some, some hedge funds that have already gone down the path, some high net worth funds that are doing this, where you'll have like, okay, like these classifications of large cap, mega caps, like Bitcoin Ethereum, then the next 10 tokens and a few microcap tokens.
Right. You're big need to see that. What will get really interesting is when you then start doing these relative value plays between let's say a coin base, which is a publicly traded entity and is an exchange, and you can do exchange dynamics against something that's not right. Um, and then, and then as this evolution becomes, it goes back to like, again, like I would use the internet as the example.
Right. And then you earlier would just have an internet analyst. Right. Covering all internet stocks. Look at it today. You've got, Amazon is not covered by the same person who covers Google. They're two very different businesses and you, I think that's just a natural evolution and the more. It's sort of like a feedback loop.
And so the more of that evolution, you see, the more institutional players come in, the more institutional players come in, the more of that evolution you'll see. And you'll see the market maturity.
Yeah. It definitely feels like that, but it might be quite accelerated one, but look, it's been a brilliant conversation to me.
I want to ask you one more question before we wrap it up, which was. Slightly controversial, but purely, I suppose, based on what you've seen so far, is there a particular area of this entire web free blockchain metaverse or throw in some NFT I'll throw in some more lingo, um, this entire area that, you know, excites you and you go, wow, this is really cool.
Definitely the defi smart contract, defi smart defi smart contract with the concept of NT. Right? So going back back to what I said, which is if you can provide an immutable record, like a GPS coordinate of something, and that is permanent and cannot be. And cannot be, um, cannot be counterfeit if you will.
Right. Or right. Combine that with the value of a smart contract, which means I don't need to negotiate or there's no controversy behind it. The amount of real world friction, something like that can eliminate is housing. You look at third world economies. The trust that you,
it feels like bad news for the legal industry as well.
Quite frankly. I think that's a lot of contract law, but you're right. I think. Certainly the underbanked or unbanked as well as the inefficient, but even in that bigger, I suppose in developed markets, there's a sense by which it's a, um, not a reimagining, but it's a kind of a, a back to first principles, automation type idea that feels very, very powerful.
And as you say, as soon as you start to link in, um, assets that are verifiable, like an NFD on your house, Ownership contract. It feels like you can take it further and further. So again, it definitely feels like some, an area that banks should be looking at and probably are looking at. Right.
I wouldn't be surprised we're already looking at right.
Like. Absolutely. Well, listen, thank you so much for, to your time today. IMiD, it's been a pleasure having you on and, and talking about this space. I, I feel like, you know, what was I saying? Oh, to live in interesting times. Right? And so I, I feel like this is maybe the second or third big technology evolution or wave.
Of, um, so AI being one of the, maybe passive in rise of passive was another, um, that, you know, this industry financial services and asset management is going through and I'm sure, you know, even in ESG and a few other kind of very significant waves that we're all kind of dealing with. Um, so yeah, fantastic to have you on and, and to get a chance to talk about it.
I absolutely enjoyed it. Thanks for having me.