WEBVTT - Evolving Money: Building Bridges with Bitcoin (Sponsored Content)

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<v Speaker 1>Because you're a subscriber to this Bloomberg podcast, we thought

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<v Speaker 1>you'd be interested in a sponsored podcast called Evolving Money,

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<v Speaker 1>produced by Coinbase and Bloomberg Media Studios. It explores how

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<v Speaker 1>money has changed over the centuries and whether cryptocurrency is

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<v Speaker 1>just the next logical evolution of how we pay for

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<v Speaker 1>things and store long term value. Here is a recent episode.

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<v Speaker 2>So the other week, I happened to be cleaning out

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<v Speaker 2>my purse. I pulled out some spare keys, a pack

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<v Speaker 2>of gum. Finally I turned the whole thing inside out.

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<v Speaker 2>You know what fell out? My checkbook. I literally had

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<v Speaker 2>to dust it off. I remembered how, not so long ago,

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<v Speaker 2>at the end of each month, I'd have to clear

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<v Speaker 2>off the kitchen table and make room for a big

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<v Speaker 2>stackup bills, a checkbook, and some scratch paper, and I'd

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<v Speaker 2>tally up how much I owed. If I forgot to

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<v Speaker 2>carry the two or my rent check got lost in

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<v Speaker 2>the mail, that tiny mistake could hurt my credit, maybe

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<v Speaker 2>worse if I wanted to open a new account or

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<v Speaker 2>get financial plans advice that could take days or weeks

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<v Speaker 2>to sort out. Long story short, there were all sorts

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<v Speaker 2>of hurdles to overcome just to do what I wanted

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<v Speaker 2>to do with my own money. Today, I can breathe easier,

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<v Speaker 2>I have my bills set to autopay, and I can

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<v Speaker 2>check my bank balance in real time on my phone.

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<v Speaker 2>I can even manage my investments without ever setting foot

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<v Speaker 2>in a bank or going through an intermediary. All of

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<v Speaker 2>this just goes to show how technology can reallypbend the

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<v Speaker 2>financial status quo. Now we're looking at another seismic shift.

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<v Speaker 2>As crypto and blockchain technology have evolved, they've opened up

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<v Speaker 2>a whole universe of options for investing and building businesses,

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<v Speaker 2>once again changing how people, both retail and institutional investors

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<v Speaker 2>handle money. Welcome back to Evolving Money from Coinbase and

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

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<v Speaker 2>we take a different look at cryptocurrency. It's been cast

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<v Speaker 2>as a radical departure for the monetary system, But what

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<v Speaker 2>if it isn't radical at all, just the next logical

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<v Speaker 2>evolution of how we pay for things and store long

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

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<v Speaker 2>changed over the centuries and look for lessons that might

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<v Speaker 2>predict its next evolution. Not so long ago, the advent

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<v Speaker 2>of the smartphone and mobile banking changed everything about how

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<v Speaker 2>we deal with our money. With blockchain technology now feeling

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<v Speaker 2>a similar revolution, what new opportunities will it unlock for investors.

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<v Speaker 2>I'll talk to Samara Cohen, chief Investment Officer of ETFs

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<v Speaker 2>and Index Investments at Blackrock, who's helping educate investors on

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<v Speaker 2>cryptocurrencies and harness their power. She'll talk us through three

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<v Speaker 2>promising avenues for investment that go beyond just holding bitcoin.

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<v Speaker 2>But first we'll hear the story of how the mobile

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<v Speaker 2>finance revolution began, opening the door for a host of

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<v Speaker 2>new products and forever altering the way we handle our money.

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<v Speaker 3>Apple had just launched the iPhone in two thousand and seven.

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<v Speaker 2>That's Tim Franz Massey.

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<v Speaker 4>Today.

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<v Speaker 2>Tim is the Transformation Program Director for Royal Navy at

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<v Speaker 2>Capital Limited. But back when the iPhone launched he worked

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<v Speaker 2>for the Royal Bank of Scotland.

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<v Speaker 3>Not that many people had them. It was the early

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<v Speaker 3>adopters that had them. I could see by talking to

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<v Speaker 3>my colleagues in the Internet banking part of Royal Bank Scotland.

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<v Speaker 3>So we were starting to see a few tens of

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<v Speaker 3>thousands of customers who had iPhones trying to access their

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<v Speaker 3>internet banking through their mobile Safari browser and their new

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<v Speaker 3>shiny iPhone.

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<v Speaker 2>But it's not like these phones had all the banking

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<v Speaker 2>apps we have now. The whole experience was pretty clunky,

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<v Speaker 2>and on top of that, banks charged for the service.

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<v Speaker 2>Around the same time, RBS watched as big social media

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<v Speaker 2>platforms started launching apps on the iPhone.

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<v Speaker 3>Millions of downloads per week over a few weeks, and

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

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<v Speaker 3>we could grow further globally through this new technology of mobile.

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<v Speaker 3>Nobody's launched an IFA mobile banking app, yet, let's be

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<v Speaker 3>the first. Let's find be the first to do that.

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<v Speaker 2>With the two thousand and eight financial collapse barely in

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<v Speaker 2>the rear view customers trust in banks was at an

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<v Speaker 2>all time low, RBS felt it was imperative to meet

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<v Speaker 2>customers where they were on their phones. In the fall

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<v Speaker 2>of two thousand and nine, RBS began ramping up to launch.

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<v Speaker 2>They planned to text a link to all of their customers,

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<v Speaker 2>making it as easy as possible to download the app,

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<v Speaker 2>and internally they estimated they could get about eighty thousand

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<v Speaker 2>downloads in the first week. If that, I.

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<v Speaker 3>Remember somebody in senior in marketing telling me, oh, you'll

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<v Speaker 3>never do that. If you do that, that'll be the

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<v Speaker 3>most successful products in the history of the bank.

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<v Speaker 2>But Tim new they had something special. When the product

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<v Speaker 2>launched in November two thousand and nine, RBS reached eighty

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<v Speaker 2>thousand downloads by the end of the first day.

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<v Speaker 3>The app is shooting up in the app store. At

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<v Speaker 3>one point we got to number four on the overall

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<v Speaker 3>UK app downloads.

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<v Speaker 2>Within a few weeks, they had hundreds of thousands of users.

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<v Speaker 2>As people flocked to mobile banking, RBS had to scramble

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<v Speaker 2>to make sure it had enough server power to keep

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<v Speaker 2>the app running.

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<v Speaker 3>It was just the fastest rollercoaster ride that I've ever

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<v Speaker 3>been on.

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<v Speaker 2>In May twenty eleven, RBS launched a new version of

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<v Speaker 2>the mobile app, one that allowed users to transfer money

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<v Speaker 2>between accounts. In the first six months, more than one

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<v Speaker 2>million users downloaded it, transferring more than one billion pounds

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<v Speaker 2>via their phones. A decade later, almost three quarters of

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<v Speaker 2>US consumers say they prefer to manage all of their

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<v Speaker 2>finances through a mobile app.

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

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<v Speaker 3>can just sort of be on a conference score and

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<v Speaker 3>doing your banking on your phone. At the same time,

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<v Speaker 3>you can do it on the go.

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<v Speaker 2>Having banking apps on our phones made it much easier

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<v Speaker 2>to navigate the financial world. Today. We don't just use

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<v Speaker 2>them to check our balance. They cater to every need

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<v Speaker 2>you could imagine. And the same can be said for

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<v Speaker 2>crypto investing. What started with bitcoin has evolved into a

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<v Speaker 2>whole universe of trading opportunities.

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<v Speaker 4>I've been interested in crypto since, you know, really the

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<v Speaker 4>early years, particularly in the post financial crisis years.

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<v Speaker 2>That's Samara Cohen, chief investment Officer of ETFs and Index

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<v Speaker 2>Investments at black Rock.

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<v Speaker 4>We were looking at ways to modernize markets infrastructure because

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<v Speaker 4>there was a huge wave of financial regulation coming in

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<v Speaker 4>response to the financial crisis of two thousand and eight

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<v Speaker 4>that required creating more transparency, more reporting, more clearing, reductions

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<v Speaker 4>in counter party risk, a lot of things that in

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<v Speaker 4>theory it seemed blockchain technology might have relevance and application.

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<v Speaker 2>To blockchains and tokenization could facilitate record and streamline financial

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<v Speaker 2>transactions once both parties understood how to harness the new technology.

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<v Speaker 2>What do you believe was the tipping point that got

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<v Speaker 2>so many of your colleagues interested in learning about digital assets.

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<v Speaker 4>I think the tipping point was actually hiring a couple

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<v Speaker 4>of digital assets experts to come into the firm and

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<v Speaker 4>help educate us, primarily by being translators. We needed help

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<v Speaker 4>doing that so that we could get a sense of

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<v Speaker 4>what the relevance was of this ecosystem as it was unfolding.

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<v Speaker 2>Once our team understood the potential impact of these innovations,

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<v Speaker 2>Samara's task was to figure out how to use them

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<v Speaker 2>to help investors.

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<v Speaker 4>We would go away into different working groups to come

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<v Speaker 4>up with pilots and proofs of concept and think about, Okay,

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<v Speaker 4>are there blockchain technology applications to our different businesses, what

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<v Speaker 4>are the frictions that exist? And through that kind of

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<v Speaker 4>body of war and hands on engagement, we developed the

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<v Speaker 4>ability to work with each other and start thinking much

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<v Speaker 4>more strategically about ways we might participate.

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<v Speaker 2>Today, Samara is helping bridge the gap between crypto and

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<v Speaker 2>traditional finance.

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<v Speaker 4>I feel like I spend a lot of my time

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<v Speaker 4>increasingly trying to create a bridge between the two universes

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<v Speaker 4>because that integration of the best that's offered by blockchain

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<v Speaker 4>technology and crypto and also the best that's offered by

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<v Speaker 4>the traditional financial ecosystem really creates the optimal outcomes for investors,

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<v Speaker 4>and a lot of times that comes down to learning

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<v Speaker 4>how to speak the same language and defining our terms.

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<v Speaker 2>If you were to ask the average person on the

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<v Speaker 2>street for their thoughts on crypto, their answer would almost

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<v Speaker 2>certainly include the word bitcoin. But many people, serious investors included,

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<v Speaker 2>still aren't familiar with how to invest in crypto Beyond

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<v Speaker 2>that single currency.

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<v Speaker 4>Crypto is actually a really very broad category. Let's unpack

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<v Speaker 4>what you're talking about when you say crypto, what does

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<v Speaker 4>that mean to you? And take it piece by piece.

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<v Speaker 2>Samara says that among the many options, there are three

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<v Speaker 2>chief avenues investors might consider. First, off, of course, they

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<v Speaker 2>can buy the actual cryptocurrencies themselves. Second, they can invest

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<v Speaker 2>through crypto ETPs or exchange traded products what most of

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<v Speaker 2>us refer to as ETFs. And third, they can buy

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<v Speaker 2>tokenized assets digital tokens which exist on a blockchain and

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

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<v Speaker 2>Many think of bitcoin as the cryptocurrency, but in reality,

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<v Speaker 2>there's a bunch of other cryptocurrencies out there. Samara says

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<v Speaker 2>it's important to consider what each type of currency brings

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<v Speaker 2>to a portfolio.

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<v Speaker 4>So then the question is what's the nature of the asset,

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<v Speaker 4>what are its fundamental characteristics, what will drive appreciation or depreciation,

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<v Speaker 4>what are its liquidity characteristics, what's its volatility characteristics, and

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<v Speaker 4>how will it play in a diversified portfolio.

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

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<v Speaker 2>Bitcoin was designed as a peer to peer payment system

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<v Speaker 2>and has evolved into a store of value for many investors,

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<v Speaker 2>Ether is different. Ether was created to power the Ethereum network.

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

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<v Speaker 2>That network provides the infrastructure for smart contracts quick refresher

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<v Speaker 2>Smart contracts are programs that enforce the terms of an

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<v Speaker 2>agreement automatically and instantly, and leave a permanent record of

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<v Speaker 2>the transaction on the blockchain. Some major players have already

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<v Speaker 2>adopted smart contracts using Ethereum and other blockchains. Last year,

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<v Speaker 2>Walmart used smart contracts to bring transparency to its food

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<v Speaker 2>supply chain in California. It was the DMV that tapped

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<v Speaker 2>into blockchain technology to digitize more than forty two million

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<v Speaker 2>car titles, giving drivers a safe, more efficient alternative to

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

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<v Speaker 2>Microsoft and home Depot are just a few other household

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<v Speaker 2>names that have adopted smart contracts. A recent survey by

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<v Speaker 2>Deloitte showed that seventy two percent of executives believe smart

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<v Speaker 2>contracts will play a significant role in the future of

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<v Speaker 2>business and for individual investors, smart contracts make it easier

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<v Speaker 2>to trade on decentralized exchanges, where different cryptocurrencies are traded

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<v Speaker 2>securely without any organizational gatekeepers. Today, Ether is used to

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<v Speaker 2>power everything from decentralized finance apps to NFT marketplaces to

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<v Speaker 2>buying and selling carbon credits.

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<v Speaker 4>So I think anybody who is interested around blockchain technology

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<v Speaker 4>and its applications to finance is immediately drawn to the

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<v Speaker 4>Ethereum ecosystem.

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

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<v Speaker 2>It's now the second biggest crypto asset behind bitcoin, but

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<v Speaker 2>investing in Ether, Bitcoin and other cryptocurrencies as individual assets

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<v Speaker 2>is still only one of the many paths available to

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<v Speaker 2>the cryptocurious investor. Another new opportunity that's only recently opened

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<v Speaker 2>up investing in crypto ETPs or exchange traded products. You're

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<v Speaker 2>probably familiar with ETFs, exchange traded funds, which are a

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<v Speaker 2>type of ETP.

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<v Speaker 4>Part of what has really brought investors into exchange traded

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<v Speaker 4>products over the last twenty years has been their transparency

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<v Speaker 4>their accessibility.

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<v Speaker 2>With ETFs, investors can invest in and trade a basket

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<v Speaker 2>of securities just as easily as they can an individual stock.

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

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<v Speaker 2>especially those who want to include both traditional and crypto

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<v Speaker 2>assets in their portfolios. That's partly because buying and selling

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<v Speaker 2>crypto often happens outside of the mainstream financial system.

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<v Speaker 4>Investors who want access to those markets have found it

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<v Speaker 4>complicated to try to run portfolios on two different sets

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<v Speaker 4>of rails.

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<v Speaker 2>Not too long ago, it might have seemed daunting to

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<v Speaker 2>integrate a digital currency into an existing portfolio of traditional assets,

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<v Speaker 2>but that's changing. In January twenty twenty four, the SEC

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<v Speaker 2>approved ETPs that held bitcoin. Then in July, Ethereum ETPs

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<v Speaker 2>received approval, giving investors access to Bitcoin and ether on

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<v Speaker 2>traditional stock exchanges.

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<v Speaker 4>For investors who are interested in investing in Bitcoin or ethereum,

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<v Speaker 4>the approvals have given them the ability to do that.

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<v Speaker 4>In their kind of more familiar ETP ecosystem. For crypto investors,

0:13:56.120 --> 0:13:59.160
<v Speaker 4>the ETP approvals were a very important step forward.

0:14:03.920 --> 0:14:07.719
<v Speaker 2>With the introduction of Ether and Bitcoin ETPs, investors can

0:14:07.760 --> 0:14:10.960
<v Speaker 2>bring crypto into their portfolios in a way that feels

0:14:10.960 --> 0:14:15.319
<v Speaker 2>familiar using traditional investment tools, putting their money behind crypto

0:14:15.640 --> 0:14:19.520
<v Speaker 2>without buying the currency directly, and allowing them to integrate

0:14:19.560 --> 0:14:23.920
<v Speaker 2>both crypto and traditional assets into their portfolio seamlessly.

0:14:24.320 --> 0:14:29.080
<v Speaker 4>The idea that you could actually take cryptocurrencies and bring

0:14:29.120 --> 0:14:32.800
<v Speaker 4>them onto trad five rails in order to assess your

0:14:33.080 --> 0:14:36.800
<v Speaker 4>whole portfolio risks in one place is something that we

0:14:36.960 --> 0:14:39.280
<v Speaker 4>learned was really important to investors.

0:14:39.720 --> 0:14:43.440
<v Speaker 2>These ETPs gave crypto investors more ways to expand and

0:14:43.560 --> 0:14:46.640
<v Speaker 2>grow their investments, but they also brought a wave of

0:14:46.720 --> 0:14:50.440
<v Speaker 2>new investors into the space. Bitcoin ETPs now account for

0:14:50.520 --> 0:14:53.880
<v Speaker 2>more than one hundred billion dollars worth of assets under management,

0:14:54.040 --> 0:14:57.560
<v Speaker 2>while Ether has reached twelve billion. And while there's certainly

0:14:57.560 --> 0:15:01.600
<v Speaker 2>been plenty of new individual investors, what's really noticeable is

0:15:01.640 --> 0:15:05.800
<v Speaker 2>the institutions that are getting on board. Once the approvals

0:15:05.840 --> 0:15:09.320
<v Speaker 2>took effect, it didn't take long for crypto ETPs to

0:15:09.360 --> 0:15:14.400
<v Speaker 2>make headlines in August, the state of Wisconsin announced that

0:15:14.480 --> 0:15:17.240
<v Speaker 2>it owned nearly one hundred million dollars worth of black

0:15:17.320 --> 0:15:22.200
<v Speaker 2>Rocks Spot bitcoin ETP. There is also Emory University fifteen

0:15:22.200 --> 0:15:26.120
<v Speaker 2>million dollars worth of bitcoin ETP holdings announced in October.

0:15:26.480 --> 0:15:29.760
<v Speaker 2>Last November, the state of Michigan made a splash when

0:15:29.800 --> 0:15:33.280
<v Speaker 2>its pension fund disclosed they had invested almost twenty million

0:15:33.360 --> 0:15:37.400
<v Speaker 2>dollars in both bitcoin and ether. These aren't just day

0:15:37.440 --> 0:15:40.360
<v Speaker 2>traders buying crypto. This is the State of Michigan we're

0:15:40.360 --> 0:15:42.920
<v Speaker 2>talking about, and these are just a few of an

0:15:42.920 --> 0:15:46.920
<v Speaker 2>ever growing list of institutional investors entering the space. That

0:15:47.040 --> 0:15:52.240
<v Speaker 2>kind of mainstream adoption underlines how expanded access to cryptocurrencies

0:15:52.480 --> 0:15:57.320
<v Speaker 2>through traditional financial tools is creating opportunities and returns on

0:15:57.360 --> 0:16:02.000
<v Speaker 2>a new scale. And that brings us to the third

0:16:02.040 --> 0:16:06.320
<v Speaker 2>opportunity for investors looking to expand their crypto investment strategy.

0:16:06.360 --> 0:16:11.320
<v Speaker 2>Tokenized assets. They're digital representations of a real world asset,

0:16:11.800 --> 0:16:15.200
<v Speaker 2>anything from real estate to intellectual property, or even shares

0:16:15.240 --> 0:16:18.400
<v Speaker 2>in a mutual fund that exists on a blockchain network,

0:16:18.840 --> 0:16:21.920
<v Speaker 2>and they've emerged as the latest option for investors looking

0:16:21.920 --> 0:16:25.920
<v Speaker 2>to harness the benefits of blockchain technology in their portfolios.

0:16:28.360 --> 0:16:31.120
<v Speaker 2>How do you see that the role of tokenized assets

0:16:31.120 --> 0:16:32.000
<v Speaker 2>in a portfolio?

0:16:32.280 --> 0:16:38.680
<v Speaker 4>If I think about just portfolio construction, asset allocation, trading,

0:16:39.240 --> 0:16:45.520
<v Speaker 4>real world frictions with the existing investable assets that are

0:16:45.600 --> 0:16:50.800
<v Speaker 4>out there today, tokenization might reduce a lot of costs

0:16:50.840 --> 0:16:56.680
<v Speaker 4>and frictions associated with managing an investment portfolio. And of course,

0:16:56.760 --> 0:16:59.920
<v Speaker 4>if you lower costs and frictions, you increase returns.

0:17:01.000 --> 0:17:05.840
<v Speaker 2>One example, tokenized money market funds. Inefficiencies and counterparty risks

0:17:05.880 --> 0:17:10.480
<v Speaker 2>have long plagued MMF managers, but tokenized MMFs like black

0:17:10.560 --> 0:17:14.320
<v Speaker 2>Rocks have the potential to enable faster, seamless management of

0:17:14.359 --> 0:17:18.560
<v Speaker 2>treasury positions. Just as RBS's app open the floodgates for

0:17:18.600 --> 0:17:21.639
<v Speaker 2>a whole world of mobile banking, we may again be

0:17:21.800 --> 0:17:25.720
<v Speaker 2>seeing how a single breakthrough can unlock all manner of benefits.

0:17:26.359 --> 0:17:30.159
<v Speaker 4>It's a technology that has the potential to make living

0:17:30.160 --> 0:17:35.800
<v Speaker 4>your financial life a lot easier, less complicated, and by extension,

0:17:35.880 --> 0:17:39.959
<v Speaker 4>less expensive, so that people can do better as investors.

0:17:42.760 --> 0:17:45.440
<v Speaker 2>As they begin to bridge the knowledge gap between traditional

0:17:45.520 --> 0:17:50.159
<v Speaker 2>investment tools and cutting edge financial technologies, institutional investors of

0:17:50.240 --> 0:17:54.560
<v Speaker 2>all stripes are realizing how much their portfolios stand to benefit.

0:17:55.119 --> 0:17:59.639
<v Speaker 2>All indicators suggest that investors will continue exploring new cryptocurrencies

0:17:59.760 --> 0:18:02.640
<v Speaker 2>and investing in ETPs and tokenized assets.

0:18:03.240 --> 0:18:05.920
<v Speaker 4>For me, twenty twenty four has been a year bridge building.

0:18:05.960 --> 0:18:10.400
<v Speaker 4>We have major bridges that have been tested and built

0:18:10.480 --> 0:18:14.080
<v Speaker 4>and succeeded. I think that's a really promising start to

0:18:14.160 --> 0:18:19.879
<v Speaker 4>what can hopefully be a more integrated ecosystem between the two.

0:18:21.480 --> 0:18:23.760
<v Speaker 2>Not even Steve Jobs could have predicted the way the

0:18:23.800 --> 0:18:27.359
<v Speaker 2>iPhone would change the financial world. And now, as investors

0:18:27.400 --> 0:18:31.760
<v Speaker 2>warmed to the idea of investing in cryptocurrency and blockchain technology,

0:18:32.000 --> 0:18:34.399
<v Speaker 2>we're seeing the rise of a new set of financial

0:18:34.400 --> 0:18:37.879
<v Speaker 2>tools and services that are once again changing how we

0:18:37.960 --> 0:18:41.520
<v Speaker 2>handle money. Someday we may just look back on this

0:18:41.640 --> 0:18:45.080
<v Speaker 2>moment as another key inflection point in our money's history.

0:18:46.840 --> 0:18:50.080
<v Speaker 2>Thank you to samar Cohen and Tim Franz Massey. This

0:18:50.240 --> 0:18:54.359
<v Speaker 2>is Evolving Money, a podcast from Coinbase in Bloomberg Media Studios.

0:18:55.160 --> 0:18:57.439
<v Speaker 2>If you like what you hear, subscribe and leave us

0:18:57.440 --> 0:19:00.440
<v Speaker 2>a review. I'm Maggie Late. Thanks are listening.