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Speaker 1: Because you're a subscriber to this Bloomberg podcast, we thought

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Speaker 1: you'd be interested in a sponsored podcast called Evolving Money,

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Speaker 1: produced by Coinbase and Bloomberg Media Studios. It explores how

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Speaker 1: money has changed over the centuries and whether cryptocurrency is

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Speaker 1: just the next logical evolution of how we pay for

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Speaker 1: things and store long term value. Here is a recent episode.

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Speaker 2: So the other week, I happened to be cleaning out

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Speaker 2: my purse. I pulled out some spare keys, a pack

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Speaker 2: of gum. Finally I turned the whole thing inside out.

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Speaker 2: You know what fell out? My checkbook. I literally had

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Speaker 2: to dust it off. I remembered how, not so long ago,

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Speaker 2: at the end of each month, I'd have to clear

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Speaker 2: off the kitchen table and make room for a big

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Speaker 2: stackup bills, a checkbook, and some scratch paper, and I'd

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Speaker 2: tally up how much I owed. If I forgot to

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Speaker 2: carry the two or my rent check got lost in

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Speaker 2: the mail, that tiny mistake could hurt my credit, maybe

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Speaker 2: worse if I wanted to open a new account or

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Speaker 2: get financial plans advice that could take days or weeks

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Speaker 2: to sort out. Long story short, there were all sorts

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Speaker 2: of hurdles to overcome just to do what I wanted

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Speaker 2: to do with my own money. Today, I can breathe easier,

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Speaker 2: I have my bills set to autopay, and I can

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Speaker 2: check my bank balance in real time on my phone.

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Speaker 2: I can even manage my investments without ever setting foot

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Speaker 2: in a bank or going through an intermediary. All of

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Speaker 2: this just goes to show how technology can reallypbend the

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Speaker 2: financial status quo. Now we're looking at another seismic shift.

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Speaker 2: As crypto and blockchain technology have evolved, they've opened up

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Speaker 2: a whole universe of options for investing and building businesses,

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Speaker 2: once again changing how people, both retail and institutional investors

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Speaker 2: handle money. Welcome back to Evolving Money from Coinbase and

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Speaker 2: Bloomberg Media Studios. I'm your host, Maggie Lake. On this podcast,

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Speaker 2: we take a different look at cryptocurrency. It's been cast

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Speaker 2: as a radical departure for the monetary system, But what

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Speaker 2: if it isn't radical at all, just the next logical

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Speaker 2: evolution of how we pay for things and store long

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Speaker 2: term value. Along the way, we'll explore how money has

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Speaker 2: changed over the centuries and look for lessons that might

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Speaker 2: predict its next evolution. Not so long ago, the advent

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Speaker 2: of the smartphone and mobile banking changed everything about how

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Speaker 2: we deal with our money. With blockchain technology now feeling

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Speaker 2: a similar revolution, what new opportunities will it unlock for investors.

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Speaker 2: I'll talk to Samara Cohen, chief Investment Officer of ETFs

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Speaker 2: and Index Investments at Blackrock, who's helping educate investors on

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Speaker 2: cryptocurrencies and harness their power. She'll talk us through three

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Speaker 2: promising avenues for investment that go beyond just holding bitcoin.

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Speaker 2: But first we'll hear the story of how the mobile

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Speaker 2: finance revolution began, opening the door for a host of

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Speaker 2: new products and forever altering the way we handle our money.

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Speaker 3: Apple had just launched the iPhone in two thousand and seven.

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Speaker 2: That's Tim Franz Massey.

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Speaker 4: Today.

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Speaker 2: Tim is the Transformation Program Director for Royal Navy at

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Speaker 2: Capital Limited. But back when the iPhone launched he worked

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Speaker 2: for the Royal Bank of Scotland.

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Speaker 3: Not that many people had them. It was the early

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Speaker 3: adopters that had them. I could see by talking to

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Speaker 3: my colleagues in the Internet banking part of Royal Bank Scotland.

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Speaker 3: So we were starting to see a few tens of

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Speaker 3: thousands of customers who had iPhones trying to access their

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Speaker 3: internet banking through their mobile Safari browser and their new

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Speaker 3: shiny iPhone.

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Speaker 2: But it's not like these phones had all the banking

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Speaker 2: apps we have now. The whole experience was pretty clunky,

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Speaker 2: and on top of that, banks charged for the service.

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Speaker 2: Around the same time, RBS watched as big social media

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Speaker 2: platforms started launching apps on the iPhone.

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Speaker 3: Millions of downloads per week over a few weeks, and

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Speaker 3: Royal Bank Scotland's said, well, maybe there's an opportunity. See here,

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Speaker 3: we could grow further globally through this new technology of mobile.

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Speaker 3: Nobody's launched an IFA mobile banking app, yet, let's be

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Speaker 3: the first. Let's find be the first to do that.

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Speaker 2: With the two thousand and eight financial collapse barely in

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Speaker 2: the rear view customers trust in banks was at an

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Speaker 2: all time low, RBS felt it was imperative to meet

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Speaker 2: customers where they were on their phones. In the fall

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Speaker 2: of two thousand and nine, RBS began ramping up to launch.

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Speaker 2: They planned to text a link to all of their customers,

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Speaker 2: making it as easy as possible to download the app,

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Speaker 2: and internally they estimated they could get about eighty thousand

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Speaker 2: downloads in the first week. If that, I.

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Speaker 3: Remember somebody in senior in marketing telling me, oh, you'll

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Speaker 3: never do that. If you do that, that'll be the

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Speaker 3: most successful products in the history of the bank.

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Speaker 2: But Tim new they had something special. When the product

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Speaker 2: launched in November two thousand and nine, RBS reached eighty

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Speaker 2: thousand downloads by the end of the first day.

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Speaker 3: The app is shooting up in the app store. At

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Speaker 3: one point we got to number four on the overall

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Speaker 3: UK app downloads.

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Speaker 2: Within a few weeks, they had hundreds of thousands of users.

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Speaker 2: As people flocked to mobile banking, RBS had to scramble

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Speaker 2: to make sure it had enough server power to keep

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Speaker 2: the app running.

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Speaker 3: It was just the fastest rollercoaster ride that I've ever

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Speaker 3: been on.

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Speaker 2: In May twenty eleven, RBS launched a new version of

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Speaker 2: the mobile app, one that allowed users to transfer money

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Speaker 2: between accounts. In the first six months, more than one

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Speaker 2: million users downloaded it, transferring more than one billion pounds

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Speaker 2: via their phones. A decade later, almost three quarters of

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Speaker 2: US consumers say they prefer to manage all of their

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Speaker 2: finances through a mobile app.

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Speaker 3: Certainly, the consumers benefited because it's much more convenient. You

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Speaker 3: can just sort of be on a conference score and

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Speaker 3: doing your banking on your phone. At the same time,

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Speaker 3: you can do it on the go.

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Speaker 2: Having banking apps on our phones made it much easier

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Speaker 2: to navigate the financial world. Today. We don't just use

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Speaker 2: them to check our balance. They cater to every need

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Speaker 2: you could imagine. And the same can be said for

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Speaker 2: crypto investing. What started with bitcoin has evolved into a

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Speaker 2: whole universe of trading opportunities.

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Speaker 4: I've been interested in crypto since, you know, really the

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Speaker 4: early years, particularly in the post financial crisis years.

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Speaker 2: That's Samara Cohen, chief investment Officer of ETFs and Index

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Speaker 2: Investments at black Rock.

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Speaker 4: We were looking at ways to modernize markets infrastructure because

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Speaker 4: there was a huge wave of financial regulation coming in

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Speaker 4: response to the financial crisis of two thousand and eight

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Speaker 4: that required creating more transparency, more reporting, more clearing, reductions

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Speaker 4: in counter party risk, a lot of things that in

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Speaker 4: theory it seemed blockchain technology might have relevance and application.

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Speaker 2: To blockchains and tokenization could facilitate record and streamline financial

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Speaker 2: transactions once both parties understood how to harness the new technology.

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Speaker 2: What do you believe was the tipping point that got

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Speaker 2: so many of your colleagues interested in learning about digital assets.

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Speaker 4: I think the tipping point was actually hiring a couple

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Speaker 4: of digital assets experts to come into the firm and

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Speaker 4: help educate us, primarily by being translators. We needed help

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Speaker 4: doing that so that we could get a sense of

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Speaker 4: what the relevance was of this ecosystem as it was unfolding.

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Speaker 2: Once our team understood the potential impact of these innovations,

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Speaker 2: Samara's task was to figure out how to use them

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Speaker 2: to help investors.

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Speaker 4: We would go away into different working groups to come

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Speaker 4: up with pilots and proofs of concept and think about, Okay,

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Speaker 4: are there blockchain technology applications to our different businesses, what

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Speaker 4: are the frictions that exist? And through that kind of

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Speaker 4: body of war and hands on engagement, we developed the

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Speaker 4: ability to work with each other and start thinking much

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Speaker 4: more strategically about ways we might participate.

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Speaker 2: Today, Samara is helping bridge the gap between crypto and

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Speaker 2: traditional finance.

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Speaker 4: I feel like I spend a lot of my time

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Speaker 4: increasingly trying to create a bridge between the two universes

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Speaker 4: because that integration of the best that's offered by blockchain

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Speaker 4: technology and crypto and also the best that's offered by

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Speaker 4: the traditional financial ecosystem really creates the optimal outcomes for investors,

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Speaker 4: and a lot of times that comes down to learning

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Speaker 4: how to speak the same language and defining our terms.

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Speaker 2: If you were to ask the average person on the

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Speaker 2: street for their thoughts on crypto, their answer would almost

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Speaker 2: certainly include the word bitcoin. But many people, serious investors included,

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Speaker 2: still aren't familiar with how to invest in crypto Beyond

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Speaker 2: that single currency.

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Speaker 4: Crypto is actually a really very broad category. Let's unpack

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Speaker 4: what you're talking about when you say crypto, what does

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Speaker 4: that mean to you? And take it piece by piece.

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Speaker 2: Samara says that among the many options, there are three

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Speaker 2: chief avenues investors might consider. First, off, of course, they

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Speaker 2: can buy the actual cryptocurrencies themselves. Second, they can invest

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Speaker 2: through crypto ETPs or exchange traded products what most of

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Speaker 2: us refer to as ETFs. And third, they can buy

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Speaker 2: tokenized assets digital tokens which exist on a blockchain and

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Speaker 2: represent other digital or physical assets. First, let's look at cryptocurrencies. Again.

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Speaker 2: Many think of bitcoin as the cryptocurrency, but in reality,

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Speaker 2: there's a bunch of other cryptocurrencies out there. Samara says

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Speaker 2: it's important to consider what each type of currency brings

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Speaker 2: to a portfolio.

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Speaker 4: So then the question is what's the nature of the asset,

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Speaker 4: what are its fundamental characteristics, what will drive appreciation or depreciation,

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Speaker 4: what are its liquidity characteristics, what's its volatility characteristics, and

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Speaker 4: how will it play in a diversified portfolio.

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Speaker 2: Take Ether, a cryptocurrency that's been steadily gaining traction. While

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Speaker 2: Bitcoin was designed as a peer to peer payment system

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Speaker 2: and has evolved into a store of value for many investors,

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Speaker 2: Ether is different. Ether was created to power the Ethereum network.

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Speaker 2: That's a blockchain platform where people can build programs and apps.

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Speaker 2: That network provides the infrastructure for smart contracts quick refresher

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Speaker 2: Smart contracts are programs that enforce the terms of an

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Speaker 2: agreement automatically and instantly, and leave a permanent record of

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Speaker 2: the transaction on the blockchain. Some major players have already

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Speaker 2: adopted smart contracts using Ethereum and other blockchains. Last year,

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Speaker 2: Walmart used smart contracts to bring transparency to its food

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Speaker 2: supply chain in California. It was the DMV that tapped

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Speaker 2: into blockchain technology to digitize more than forty two million

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Speaker 2: car titles, giving drivers a safe, more efficient alternative to

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Speaker 2: standing in that dreaded DMV line, and the list goes on. IBM,

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Speaker 2: Microsoft and home Depot are just a few other household

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Speaker 2: names that have adopted smart contracts. A recent survey by

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Speaker 2: Deloitte showed that seventy two percent of executives believe smart

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Speaker 2: contracts will play a significant role in the future of

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Speaker 2: business and for individual investors, smart contracts make it easier

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Speaker 2: to trade on decentralized exchanges, where different cryptocurrencies are traded

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Speaker 2: securely without any organizational gatekeepers. Today, Ether is used to

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Speaker 2: power everything from decentralized finance apps to NFT marketplaces to

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Speaker 2: buying and selling carbon credits.

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Speaker 4: So I think anybody who is interested around blockchain technology

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Speaker 4: and its applications to finance is immediately drawn to the

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Speaker 4: Ethereum ecosystem.

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Speaker 2: As investors learn about Ether's utility, they're using it more.

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Speaker 2: It's now the second biggest crypto asset behind bitcoin, but

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Speaker 2: investing in Ether, Bitcoin and other cryptocurrencies as individual assets

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Speaker 2: is still only one of the many paths available to

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Speaker 2: the cryptocurious investor. Another new opportunity that's only recently opened

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Speaker 2: up investing in crypto ETPs or exchange traded products. You're

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Speaker 2: probably familiar with ETFs, exchange traded funds, which are a

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Speaker 2: type of ETP.

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Speaker 4: Part of what has really brought investors into exchange traded

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Speaker 4: products over the last twenty years has been their transparency

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Speaker 4: their accessibility.

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Speaker 2: With ETFs, investors can invest in and trade a basket

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Speaker 2: of securities just as easily as they can an individual stock.

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Speaker 2: That ease of access hasn't always been available to crypto investors,

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Speaker 2: especially those who want to include both traditional and crypto

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Speaker 2: assets in their portfolios. That's partly because buying and selling

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Speaker 2: crypto often happens outside of the mainstream financial system.

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Speaker 4: Investors who want access to those markets have found it

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Speaker 4: complicated to try to run portfolios on two different sets

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Speaker 4: of rails.

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Speaker 2: Not too long ago, it might have seemed daunting to

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Speaker 2: integrate a digital currency into an existing portfolio of traditional assets,

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Speaker 2: but that's changing. In January twenty twenty four, the SEC

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Speaker 2: approved ETPs that held bitcoin. Then in July, Ethereum ETPs

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Speaker 2: received approval, giving investors access to Bitcoin and ether on

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Speaker 2: traditional stock exchanges.

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Speaker 4: For investors who are interested in investing in Bitcoin or ethereum,

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Speaker 4: the approvals have given them the ability to do that.

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Speaker 4: In their kind of more familiar ETP ecosystem. For crypto investors,

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Speaker 4: the ETP approvals were a very important step forward.

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Speaker 2: With the introduction of Ether and Bitcoin ETPs, investors can

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Speaker 2: bring crypto into their portfolios in a way that feels

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Speaker 2: familiar using traditional investment tools, putting their money behind crypto

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Speaker 2: without buying the currency directly, and allowing them to integrate

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Speaker 2: both crypto and traditional assets into their portfolio seamlessly.

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Speaker 4: The idea that you could actually take cryptocurrencies and bring

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Speaker 4: them onto trad five rails in order to assess your

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Speaker 4: whole portfolio risks in one place is something that we

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Speaker 4: learned was really important to investors.

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Speaker 2: These ETPs gave crypto investors more ways to expand and

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Speaker 2: grow their investments, but they also brought a wave of

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Speaker 2: new investors into the space. Bitcoin ETPs now account for

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Speaker 2: more than one hundred billion dollars worth of assets under management,

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Speaker 2: while Ether has reached twelve billion. And while there's certainly

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Speaker 2: been plenty of new individual investors, what's really noticeable is

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Speaker 2: the institutions that are getting on board. Once the approvals

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Speaker 2: took effect, it didn't take long for crypto ETPs to

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Speaker 2: make headlines in August, the state of Wisconsin announced that

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Speaker 2: it owned nearly one hundred million dollars worth of black

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Speaker 2: Rocks Spot bitcoin ETP. There is also Emory University fifteen

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Speaker 2: million dollars worth of bitcoin ETP holdings announced in October.

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Speaker 2: Last November, the state of Michigan made a splash when

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Speaker 2: its pension fund disclosed they had invested almost twenty million

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Speaker 2: dollars in both bitcoin and ether. These aren't just day

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Speaker 2: traders buying crypto. This is the State of Michigan we're

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Speaker 2: talking about, and these are just a few of an

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Speaker 2: ever growing list of institutional investors entering the space. That

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Speaker 2: kind of mainstream adoption underlines how expanded access to cryptocurrencies

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Speaker 2: through traditional financial tools is creating opportunities and returns on

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Speaker 2: a new scale. And that brings us to the third

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Speaker 2: opportunity for investors looking to expand their crypto investment strategy.

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Speaker 2: Tokenized assets. They're digital representations of a real world asset,

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Speaker 2: anything from real estate to intellectual property, or even shares

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Speaker 2: in a mutual fund that exists on a blockchain network,

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Speaker 2: and they've emerged as the latest option for investors looking

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Speaker 2: to harness the benefits of blockchain technology in their portfolios.

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Speaker 2: How do you see that the role of tokenized assets

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Speaker 2: in a portfolio?

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Speaker 4: If I think about just portfolio construction, asset allocation, trading,

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Speaker 4: real world frictions with the existing investable assets that are

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Speaker 4: out there today, tokenization might reduce a lot of costs

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Speaker 4: and frictions associated with managing an investment portfolio. And of course,

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Speaker 4: if you lower costs and frictions, you increase returns.

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Speaker 2: One example, tokenized money market funds. Inefficiencies and counterparty risks

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Speaker 2: have long plagued MMF managers, but tokenized MMFs like black

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Speaker 2: Rocks have the potential to enable faster, seamless management of

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Speaker 2: treasury positions. Just as RBS's app open the floodgates for

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Speaker 2: a whole world of mobile banking, we may again be

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Speaker 2: seeing how a single breakthrough can unlock all manner of benefits.

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Speaker 4: It's a technology that has the potential to make living

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Speaker 4: your financial life a lot easier, less complicated, and by extension,

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Speaker 4: less expensive, so that people can do better as investors.

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Speaker 2: As they begin to bridge the knowledge gap between traditional

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Speaker 2: investment tools and cutting edge financial technologies, institutional investors of

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Speaker 2: all stripes are realizing how much their portfolios stand to benefit.

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Speaker 2: All indicators suggest that investors will continue exploring new cryptocurrencies

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Speaker 2: and investing in ETPs and tokenized assets.

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Speaker 4: For me, twenty twenty four has been a year bridge building.

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Speaker 4: We have major bridges that have been tested and built

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Speaker 4: and succeeded. I think that's a really promising start to

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Speaker 4: what can hopefully be a more integrated ecosystem between the two.

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Speaker 2: Not even Steve Jobs could have predicted the way the

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Speaker 2: iPhone would change the financial world. And now, as investors

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Speaker 2: warmed to the idea of investing in cryptocurrency and blockchain technology,

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Speaker 2: we're seeing the rise of a new set of financial

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Speaker 2: tools and services that are once again changing how we

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Speaker 2: handle money. Someday we may just look back on this

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Speaker 2: moment as another key inflection point in our money's history.

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Speaker 2: Thank you to samar Cohen and Tim Franz Massey. This

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Speaker 2: is Evolving Money, a podcast from Coinbase in Bloomberg Media Studios.

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Speaker 2: If you like what you hear, subscribe and leave us

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Speaker 2: a review. I'm Maggie Late. Thanks are listening.