Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wisenthal and I'm Tracy Alloway. Tracy, do you
Speaker 1: remember the recent episode that we did with Aaron Lammer
Speaker 1: about Defy trading in the crypto space? How could I forgot, Joe,
Speaker 1: we are all defy all the time. It feels like, Well,
Speaker 1: I made a joke at the beginning of that episode.
Speaker 1: I was like, oh, by the time, like we're covering
Speaker 1: something that's probably the top and we're you know, there's
Speaker 1: probably gonna be a crash right afterwards. And then like
Speaker 1: I think literally two days or a day after that
Speaker 1: that episode came out, we actually did get one of
Speaker 1: the biggest true crashes in the crypto space in a
Speaker 1: long time. I mean, it's that classic UM magazine cover indicator,
Speaker 1: isn't it. Like by the time the mainstream media is
Speaker 1: talking about something, it's probably reaching its zenith in terms
Speaker 1: of popularity. That kind of makes sense. I gotta say
Speaker 1: I was really disappointed, I um I missed the crypto crash.
Speaker 1: So I took a few days off that week, and uh,
Speaker 1: I was out in the country and I wasn't really
Speaker 1: paying attention to either the news or social media, trying
Speaker 1: to take a break, and then I started getting all
Speaker 1: these messages from people going, look at crypto, look at bitcoin.
Speaker 1: It's at thirty dollars. So it seems like it was
Speaker 1: a very dramatic week. But I'm still trying to wrap
Speaker 1: my head around exactly what happened. Yeah, it was. It
Speaker 1: was a really dramatic week. There was already like a
Speaker 1: bunch of like negative stuff. There was the Elon stuff
Speaker 1: and other things going on that we already talked about.
Speaker 1: And then that Sunday, our episode with Aaron Lammer came
Speaker 1: out on a Thursday. That's Sunday, which was just I
Speaker 1: guess three days ago. So we're recording this Wednesday made
Speaker 1: twenty six, so let me I guess that was Sunday,
Speaker 1: the twenty three. We got this like really intense crash
Speaker 1: and bitcoin touch like thirty thousand and ether fill below
Speaker 1: and so forth, really big crash, and I think are
Speaker 1: a bunch of people that were like ready to say, oh,
Speaker 1: this cycle is over, the see you see you all
Speaker 1: of four years when we do the next one. It's
Speaker 1: actually like, I mean, it hasn't come back all the
Speaker 1: way by any stretch, but pretty resilient actually the last
Speaker 1: few days post that crash. I do think it highlights
Speaker 1: something pretty important for the crypto market, though, which is
Speaker 1: this idea that I think there's a tendency to look
Speaker 1: at it and think that it's just a bunch of
Speaker 1: people who are buying crypto on their computers, you know,
Speaker 1: with their own wallets, when in fact, the market has
Speaker 1: changed enormously and there's a whole ecosystem built around it.
Speaker 1: You have the big exchanges, you have people providing financial
Speaker 1: services that are tied to bitcoin. You have derivatives contracts
Speaker 1: in the form of a futures mark it, which seems
Speaker 1: to be playing a huge role. And I don't think
Speaker 1: people have like appreciated enough the change that has overcome
Speaker 1: crypto and how it actually impacts the underlying price absolutely. So,
Speaker 1: you know, I think there's this sort of like crypto
Speaker 1: conversation and then there's the crypto market structure conversation, and
Speaker 1: we're both super interested in that. So today we're gonna
Speaker 1: talk a little bit bit more about market structure. I'm
Speaker 1: very excited about our guest. We're gonna be speaking to
Speaker 1: Roshan Patel. He has the VP of Institutional Lending at Genesis,
Speaker 1: which can be described as basically a crypto prime brokerage.
Speaker 1: And so I think if we want to think about
Speaker 1: the role institutions are playing in the volatility, the role
Speaker 1: of hedge funds, how they're trading this, what caused the liquidations,
Speaker 1: where the money is coming in to buy the dip
Speaker 1: is a great, a great perspective on all this. So Roshan,
Speaker 1: thank you so much for joining us. Hey, Joe Um
Speaker 1: and Tracy, thank you guys so much for having me.
Speaker 1: It's great to be here. So why don't you actually
Speaker 1: just start off before we even get to the crash
Speaker 1: or get to anything like that, why don't you sort
Speaker 1: of talk to us about where Genesis sits within the
Speaker 1: crypto ecosystem and sort of what your role is there
Speaker 1: and how you got to occupy that seat to just speak.
Speaker 1: You know, Genesis broadly speaking is kind of a basically
Speaker 1: a cell side dusk in the crypto ecosystem, similar to
Speaker 1: kind of a bank prime brokerage desk. We facilitate the
Speaker 1: ability for clients of ours to trade as well as
Speaker 1: lend to us, borrow from US, um get yield on
Speaker 1: their holdings. And then recently, as of last year, trade
Speaker 1: derivatives with us BI lad early over the counter, so
Speaker 1: we kind of offer the whole janet of financial services
Speaker 1: in cryptome markets. Genesis has its roots kind of they
Speaker 1: go back to really that kind of mid two thousands
Speaker 1: to a company called Second Market. Without getting too much
Speaker 1: into the details there, that company basically facilitated buying and
Speaker 1: selling I liquid company stock really like Facebook, Twitter, LinkedIn,
Speaker 1: like those kind of things in the mid two thousands
Speaker 1: between buyers and sellers when those companies weren't really public. Eventually,
Speaker 1: I was sold to NAZAC and one of the dusts
Speaker 1: there started trading bitcoin in like two thousand eleven, two
Speaker 1: thousand twelve, and effectively that desk became Genesis and kept
Speaker 1: the broker dealer license, still based out in New York here,
Speaker 1: and we've kind of grown a lot since then. What
Speaker 1: started as just a spot OTC trading desk added lending
Speaker 1: in twenty eighteen, which is kind of when I joined,
Speaker 1: and derivatives in twenty so like we've you know, added
Speaker 1: at a SLEW services and and Genesis now you know,
Speaker 1: facilitates billions of dollars of trades every you know, it
Speaker 1: used to be every month, now it's like every week,
Speaker 1: which is kind of crazy to think. You know, we
Speaker 1: have a pretty large lending book. When I joined in,
Speaker 1: you know, we had a hundred million dollars in active
Speaker 1: loans outstanding. Now that's kind of grown to nine billion
Speaker 1: dollars in active owns outstanding as of now. I think
Speaker 1: prices are rallied a little bit, so maybe it's a
Speaker 1: little bit more. That mention of second market is kind
Speaker 1: of a from the past, and I haven't heard anyone
Speaker 1: mentioned it for a long time. But what was what
Speaker 1: was the sort of like overlap between dealing with UM
Speaker 1: shares in the private market and crypto, Like is there
Speaker 1: a resemblance between the two asset classes or why did
Speaker 1: UM this service that you just describe spring out of
Speaker 1: the private market area second market? What was interesting about
Speaker 1: that is is connecting to sort of different markets, which
Speaker 1: was like you had early investors in tech companies as
Speaker 1: well as employees that wanted to get some liquidity on
Speaker 1: their holdings or shares or options. And then you also
Speaker 1: and and those guys tended to be on the sort
Speaker 1: of West coast, and then you also had like more
Speaker 1: investor focused hedge fun types on the East coast. New
Speaker 1: York base that wanted to kind of get it on
Speaker 1: that and you know, weren't necessarily physically or you know,
Speaker 1: financially close to Silicon Valley. That kind of uh, you know,
Speaker 1: marrying of two differ markets. I think it's it's sort
Speaker 1: of ties into kind of bitcoin and crypto trading generally,
Speaker 1: just because you know that the people on the West
Speaker 1: coast there that were early on tech tended to be
Speaker 1: the ones that were also early in the crypto space.
Speaker 1: And it led Genesis and ultimately our parent company, Digital
Speaker 1: Currency Group, to establish a lot of these good relationships
Speaker 1: with early holders which are now you know, kind of
Speaker 1: larger clients, no showing, so that we have like a
Speaker 1: good asset base and a good client base and as
Speaker 1: well as investor based to kind of lead on to
Speaker 1: to help build our business into into the future. Let's
Speaker 1: talk about that what that base looks like. And one
Speaker 1: thing that's really exhortinary, I mean, the sort of like
Speaker 1: the flora and fauna of crypto holders really diversified a lot.
Speaker 1: So you know, maybe before it's hobbyists on their phones
Speaker 1: or like weirdos, and now you have pension funds and
Speaker 1: your clients, like how many of them are sort of
Speaker 1: like funds that have some allocation to crypto sub strategic
Speaker 1: allocation or how many of them are sort of like
Speaker 1: very crypto focused. That's really the sort of like their
Speaker 1: main energy. Yes, you know, that's really evolved. I would
Speaker 1: say over time, if you ask me, it was pretty
Speaker 1: much the vast majority of our clients were extremely crypto focused,
Speaker 1: a crypto native, and to to this day, I would
Speaker 1: say like a good portion of them still are as
Speaker 1: of late. It's it's evolved a bit where we do
Speaker 1: have more clients that are not necessarily crypto is their
Speaker 1: main thing, but it's sort of an adject thing that
Speaker 1: they've added recently. I would say, are our cliente based
Speaker 1: now is probably like if I had to put like
Speaker 1: percentages on it, like seventy crypto focus, let's say, and
Speaker 1: the rest like more diverse and has uh as like
Speaker 1: a primary businesses outside of crypto. These funds, and I
Speaker 1: guess maybe sort of the crypto focused ones and the
Speaker 1: non crypto focused ones, but I guess the non crypto
Speaker 1: focused ones, how many of them come into it because
Speaker 1: they say, Okay, we want to have some allocation to
Speaker 1: this space because it seems to be diversified or it's
Speaker 1: going up a lot. We want to have some exposure.
Speaker 1: And how many you see come into the space because
Speaker 1: they see a nascent, inefficient market with lots of trading
Speaker 1: opportunities and lots of essentially arabs so to speak, to
Speaker 1: exploit because the space is still, broadly speaking, pretty immature.
Speaker 1: Both are both are pretty relevant in terms of the
Speaker 1: inflow that we see. Just kind of given the services
Speaker 1: that we provide, our clients are more focused on the
Speaker 1: trading ur and extracting yields and you know, sort of
Speaker 1: value out of the market side of things. So I
Speaker 1: would say it's a little bit skewed towards that side.
Speaker 1: So since you're talking about the services you provide, when
Speaker 1: I hear prime brokerage, I usually think about investment banks
Speaker 1: UM servicing hedge fund clients specifically by providing money, so
Speaker 1: you know, lending the money to trade. Is that something
Speaker 1: that you do as well? Yeah, definitely. So you know,
Speaker 1: we started our core business really by lending out crypto,
Speaker 1: particular bitcoin for cash collateral in terms of the lending
Speaker 1: side of things, and that trade was you know more
Speaker 1: or that real service was more you know, suited towards
Speaker 1: crypto trading firms that had a reason for borrowing bitcoin
Speaker 1: in the first place. Now, um, you know kind of
Speaker 1: in I would say, like around November of eighteen, stable
Speaker 1: coins started becoming a much more popular and real thing,
Speaker 1: and you know, since we were more crypto native and focus,
Speaker 1: we were thinking, like, you know, why don't we consider
Speaker 1: lending out stable coins against bitcoin as collateral kind of
Speaker 1: doing the inverse of what we were doing prior, And
Speaker 1: that business has ballooned quite a bit where now about
Speaker 1: you know, it's about of our active loan book is
Speaker 1: is actually stable coins right now, So you know, it's
Speaker 1: or cash equivalents like like tether dollar circle dollar packs
Speaker 1: as those kinds of things, as well as USD So
Speaker 1: you know, we do land cash against crypto and and
Speaker 1: a lot of the firms that do borrow that cash,
Speaker 1: you know, are probably clients of prime workers at banks
Speaker 1: as well. So I want to get into, you know,
Speaker 1: the recent volatility, but I actually think this is pretty
Speaker 1: important to just draw this point out a little bit
Speaker 1: more lending stable coins. I mean, you know, we had
Speaker 1: um Sam Bankman freed on several weeks ago. He's the
Speaker 1: founder of f t X and Alimator, research is huge
Speaker 1: in the space. And you know, we talked about various
Speaker 1: arbitrage opportunities. How much is the sort of stable coin
Speaker 1: world essentially about the ability to move money quickly across
Speaker 1: different exchanges in a short period of time to either
Speaker 1: take a take advantage of price differences in spot or
Speaker 1: futures markets and essentially attempt to close various arbitrages. Like
Speaker 1: how closely those two concepts are related. I think, probably speaking,
Speaker 1: this distable coin market, a huge aspect of it is
Speaker 1: sort of efficient settlement and timing on moving assets from
Speaker 1: point A to point B, whether that's for exchanges or
Speaker 1: even just more like settling OTC trades and dealing with dusks.
Speaker 1: I think it's it's all relevant. You know. A good
Speaker 1: example to point to is really the most innovative and
Speaker 1: forward thinking banks I think out there are you know,
Speaker 1: kind of building these seven settlement networks UM, some are
Speaker 1: which are really mirrored on kind of Ethereum itself and
Speaker 1: and kind of like private Ethereum networks. So yeah, table
Speaker 1: coins are really just just frankly just easier to use
Speaker 1: than wire is simply put right, So you've laid out
Speaker 1: what you do UM really well and it feels like
Speaker 1: you're in the perfect position maybe to describe um what
Speaker 1: exactly happened during the big crypto sell off. So there
Speaker 1: was a lot of talk about positions being liquidated. I
Speaker 1: think I saw one number that was like outstanding futures
Speaker 1: contracts fell from I think it was as much as
Speaker 1: twenty eight billion in April to something like billion in
Speaker 1: a matter of days. And then there were all the
Speaker 1: disruptions at the individual exchanges like coin base and cracking
Speaker 1: and things like that. So from your perspective, what actually
Speaker 1: happened and what did you observe into the crypto market.
Speaker 1: You know, over the years, you've seen some some pretty
Speaker 1: wicked crashes to the downside, similar to last week, although
Speaker 1: I will say last week was probably the most brutal
Speaker 1: I've ever seen in the last five years, but even
Speaker 1: even crazier than March. I would say for a couple
Speaker 1: of reasons. But you could point to like a specific
Speaker 1: headline or a specific narrative or specific theme that that
Speaker 1: could be the cause of it. But it's really hard
Speaker 1: to say if that was the ultimate reason why, you know,
Speaker 1: the market sold off. At the end of the day,
Speaker 1: the crypto market is really just a spot order book
Speaker 1: and a derivatives order book. The derivatives order book is
Speaker 1: is very levered, and you know, there's a lot of
Speaker 1: people that take take positions down on futures and swaps
Speaker 1: that that want to get upside but have like tight
Speaker 1: liquidation levels to the downside. And you know, that market
Speaker 1: has liquidity until it doesn't, and then you know it
Speaker 1: could get a little hairy on the downside. And then
Speaker 1: the spot market is the same thing. And the spot
Speaker 1: market is consisted of people that are buying and trading
Speaker 1: the underlying and I think really just what happened last
Speaker 1: week was similar to what you've seen before, where the
Speaker 1: you know, the futures market and the swaps market was
Speaker 1: was pretty leveled up. People were very very long, especially
Speaker 1: in the alt coins, thinking that, like, look, bitcoin has
Speaker 1: kind of found a floor here. The next sort of
Speaker 1: thematic narrative shift that we'll see is a rotation into alts,
Speaker 1: and as long as Bitcoin doesn't fall through the floor,
Speaker 1: the alts will kind of rallies. So a lot of
Speaker 1: the positioning was skewed down the risk curve and in
Speaker 1: more volatile assets, and pretty much the exact opposite happened,
Speaker 1: which was spot Bitcoin started selling off in a significant way,
Speaker 1: and when that happens, there's such a scramble for collateral
Speaker 1: in the market, as well as like kind of getting
Speaker 1: assets back to things that you know aren't really going
Speaker 1: to fall like seventy or eight percent, but you know
Speaker 1: things that are going to fall maybe like twenty or
Speaker 1: thirty percent, like bitcoin. So there's a rotation back into bitcoin,
Speaker 1: and you know when that happens that the liquidations can
Speaker 1: get can get pretty wild on alts, and they kind
Speaker 1: of cascade. And the difference I think with what happened
Speaker 1: last week was usually when that happens once and gets
Speaker 1: to a certain point, it kind of bottoms out in floors.
Speaker 1: What was different last week it kind of just felt
Speaker 1: like it kept going and the pressure for the spots
Speaker 1: selling just sort of continued. You know that that that's
Speaker 1: what made it particularly worse, I would say, relative to
Speaker 1: let's say in March of last year, which was kind
Speaker 1: of a one day thing and then kind of we
Speaker 1: rallied and there was also some solace in knowing that
Speaker 1: other markets were behaving the same way. The fact that
Speaker 1: this was you know, sort of idios and neocratic to
Speaker 1: crypto makes it even a little bit more painful, but
Speaker 1: you know, at the end of the day, I think
Speaker 1: what the takeaway is from it is more impactful than
Speaker 1: like the than the actual sell off itself, which is
Speaker 1: look like, you know, there was no lender of last
Speaker 1: resort that had to step in. We sawraw down. There's
Speaker 1: no you know, injection of capital into the market, no
Speaker 1: firms defaulted, you know genesis. It's you know, on our side,
Speaker 1: we manage our risk really well. All of our clients
Speaker 1: you know, topped up or return loans or you know,
Speaker 1: we didn't have any liquidations or defaults, and and the
Speaker 1: more it kind of just carries on and now you
Speaker 1: know that people left or another layer of survivors onto
Speaker 1: the next uh you know sort of market cycle. So
Speaker 1: it happens from time to time. It's hard to point
Speaker 1: to exactly what it is, but overall market moves on
Speaker 1: and we're in a healthier spot. Now, let's say, so
Speaker 1: you mentioned the fact that we didn't get big defaults
Speaker 1: or failures in the market. Can I ask, like, how
Speaker 1: close do you think some market participants actually came to
Speaker 1: failure in that week? Because I saw some pretty crazy
Speaker 1: rumors flying around and I don't want to name specific
Speaker 1: names for obvious reasons, but it does feel like some
Speaker 1: people thought certain entities got pretty close to the brink.
Speaker 1: I guess I'm I'm asking like, how crazy did it
Speaker 1: get that week? Yeah, it's it's an interesting question because
Speaker 1: it really depends on the entity and the sort of firm,
Speaker 1: the type of firm you're talking about, if you're talking
Speaker 1: about trading firms and art shops like, you know, kind
Speaker 1: of our core client based. It was probably one of
Speaker 1: their better weeks on their direction neutral books of all time,
Speaker 1: primarily because their long spot short futures or short swaps,
Speaker 1: and when a move like that happens, those spreads really collapse,
Speaker 1: and not only do they come back to parity, they
Speaker 1: sometimes go the other way, so like they go into
Speaker 1: negative territories, so you get even more juice out of
Speaker 1: the trade. So a lot of our clients actually, you know,
Speaker 1: did really well that week kind of being positioned appropriately
Speaker 1: for that trade and for that move. You know, if
Speaker 1: you're like a crypto hedge fund that's like aggregating you know,
Speaker 1: assets and kind of just sitting net long, it was
Speaker 1: probably not so fun for you. But you're not you know,
Speaker 1: as long as you're not levered on top of your
Speaker 1: SPOT holdings, it's not really that bad for you. The
Speaker 1: only the only way really I would say firms are
Speaker 1: in a in a tough spot is if they're holding
Speaker 1: just spot, they have no cash and then on top
Speaker 1: of that they've taken leverage out against that. You know,
Speaker 1: in this market, I think the participants that do that
Speaker 1: sort of style of trading are it's just almost like
Speaker 1: a ticking time bomb, right. It's like they're not going
Speaker 1: to a round for that long because you don't really
Speaker 1: need that much leverage to capture this market. And even
Speaker 1: Spot itself is volatile enough where where you know you
Speaker 1: you don't really need to like go crazy with futures
Speaker 1: or swaps. So I think people like to speculate and
Speaker 1: say like, oh, you know, this market sold off like
Speaker 1: all you know, there's X, Y and Z might have
Speaker 1: been in a tough spot. But when you really dig
Speaker 1: into it, it's like, you know, exchanges or fine, you know,
Speaker 1: they're just facilitating trades. Trading firms had a great week
Speaker 1: even if they're long on their core spot or down
Speaker 1: on their core long positions and um, yeah, you know,
Speaker 1: service providers like Genesis, as long as you know, we're
Speaker 1: managing our risk and knowing our clients positions and knowing
Speaker 1: what our clients are are up to in their risk.
Speaker 1: Well we're doing fine as well. So overall I think
Speaker 1: it's you know, the price is probably the scariest part.
Speaker 1: The actual underlying behind it is, it's not so bad.
Speaker 1: Can you talk a little bit more. There's been some
Speaker 1: research done. Josh Younger at JP Morgan put out a
Speaker 1: note about different times when the crypto market seems vulnerable,
Speaker 1: and you noted that US hours seem to be a
Speaker 1: little bit more volatile lately than Asian and europe hours.
Speaker 1: And there's been a number of people who have observed
Speaker 1: that weekends tend to be more volatile, maybe there's less
Speaker 1: liquidity than the weeks. And in fact I saw some
Speaker 1: people talking about that on Thursday and Friday before all this,
Speaker 1: like this could be an interesting weekend, and then of
Speaker 1: course it turned out to be. Can you talk a
Speaker 1: little bit more about the texture of markets in different
Speaker 1: times and the way, say, traditional finance wires and institutions
Speaker 1: taking a break for the weekend has an effect on crypto,
Speaker 1: which obviously trades seven. Yeah, there is definitely a case
Speaker 1: of the market depending on the hours, depending on the
Speaker 1: day of the week. I think there's a couple of
Speaker 1: reasons for that. One is like there's like a sort
Speaker 1: of Western market and in an Asian market, um they
Speaker 1: have different Sometimes they're very in line and doing the
Speaker 1: same thing. Other times they have different risk taking proclivities
Speaker 1: and preferences, and you know, they could sometimes be um
Speaker 1: fighting each other in a sense. So like you know,
Speaker 1: you can see different price action in the Asia session
Speaker 1: versus the U S session just because the user base
Speaker 1: is positioned differently and then moving in a different sense,
Speaker 1: like you know, last summer, for example, in May, or
Speaker 1: really after the March crash, a lot of the minors
Speaker 1: and a lot of the sort of very long Asian
Speaker 1: firms had a little bit of concern after the way
Speaker 1: March moved that they were more inclined to hedge, So
Speaker 1: a lot of the cell pressure came out of Asia,
Speaker 1: whereas the U S side of things had more of
Speaker 1: a bid, especially in the spot market. So those kind
Speaker 1: of flows were competing against each other a bit, you know,
Speaker 1: regarding weekends and volatility on the weekends, I think a
Speaker 1: huge part of that is really the market is still
Speaker 1: very human driven it's not like everything is extremely algorithmic
Speaker 1: and high frequency trading and super qui pentative at the
Speaker 1: end of the day, that this is more of a
Speaker 1: speculative marketplace where there's you know, there's leverage, of course,
Speaker 1: but also a lot of humans just kind of clicking
Speaker 1: buying and selling and on the weekend of course, like yeah,
Speaker 1: you know, no wires is definitely a part of it,
Speaker 1: but also like the larger liquidity providers might just be
Speaker 1: a little bit more wide on the screens, so you know,
Speaker 1: you'll kind of have like a easy way to like
Speaker 1: like there's just like a high chance that like a
Speaker 1: small amount of capital could could wipe through a lot
Speaker 1: of levels of the book, so you kind of get
Speaker 1: those sort of drawn out moves. So I think it's
Speaker 1: really just the human element of it and the fact
Speaker 1: that Asia and the West are sort of two different
Speaker 1: markets and have their own little tendencies. So you mentioned
Speaker 1: algorithmic trading, just then why isn't there more algorithmic trading
Speaker 1: in crypto Because when you look at the space, you
Speaker 1: see a lot of fragmentation, a lot of inefficiencies um
Speaker 1: and pricing discrepancies like could in theory um that someone
Speaker 1: had a lot of profits. Why hasn't that happened more?
Speaker 1: Don't get me wrong here, Like I think there's there's
Speaker 1: definitely a lot of algo trade and going out a crypto,
Speaker 1: especially on the art of it at exchange side. Um
Speaker 1: really since since when when March or kind of January
Speaker 1: to February where those spreads were really wild, the very
Speaker 1: smart art trading firms out there definitely started looking at
Speaker 1: the space or and got involved in a big way.
Speaker 1: I just think the way the market is structured leads
Speaker 1: to like some ways that you know, it's it's more
Speaker 1: difficult to be an art shop in crypto. You have
Speaker 1: to manage a lot more nuanced than say like uh
Speaker 1: an exchange or et F art shop. One example is
Speaker 1: really just the blockchain itself. You know, there's a men pool,
Speaker 1: there's different chains. You know, it could be clogged with transactions.
Speaker 1: Things could be slower on chain, so it's like physically
Speaker 1: more difficult to get assets from point A to point B.
Speaker 1: Even service providers like Genesis, you know, we we settle
Speaker 1: trades as fast as we possibly can, but when you
Speaker 1: know the network is clogged, there's really not much that
Speaker 1: we can do other than kind of put put in
Speaker 1: high our fees and wait for transactions to go through.
Speaker 1: So all those sorts of elements make make our nuances
Speaker 1: more prevalent, so you know, you do see a little
Speaker 1: bit of widening there. And then there's also like limits
Speaker 1: on how much you can withdraw from certain places and
Speaker 1: liquidity constraints in terms of how much size can be
Speaker 1: actually thrown at this, where like people that have really
Speaker 1: big balance sheets and really big our trading capabilities might
Speaker 1: not be looking at a specific small art because it's
Speaker 1: not worth their time just notionally what they can make.
Speaker 1: So you know, for all those reasons, I think you
Speaker 1: know you're gonna see these spreads sort of persists for
Speaker 1: a while and and it's a good opportunity I would
Speaker 1: say for like more like nimble, smaller size firms to
Speaker 1: to to really take advantage of. So just out of curiosity,
Speaker 1: what we're settlement times actually like um, the week of
Speaker 1: the big sell off, um, you know, settlement times specifically
Speaker 1: for Genesis. I mean, we we were pretty good about them,
Speaker 1: you know, we we got through all of them totally fine.
Speaker 1: I think on the exchange there are some delays here
Speaker 1: and they're like kind of t plus one, which is
Speaker 1: really just an eternity in crypto, which you know normally
Speaker 1: in traditional finance, it's like T plus three and it's
Speaker 1: like wow, arrives on time. And I think you know,
Speaker 1: there was a little bit of clogging of the ethereum
Speaker 1: mem pool where gas fees went super high, and oh,
Speaker 1: I forgot to mention this earlier. You know that that
Speaker 1: causes it so that it's basically really hard to move
Speaker 1: assets on ethereum. And there is a lot of collateralized
Speaker 1: lending going on on Etherium, like you know, people are
Speaker 1: posting the RC twenty tokens or eth as collateral to
Speaker 1: borrow like stable coins from protocols. When a sell off
Speaker 1: like that happens in spot moves so significantly, all those
Speaker 1: sort of on chain deposits are very difficult to top up,
Speaker 1: both from a collateral perspective or returning the loan perspective.
Speaker 1: So you get this cascade of on chain liquidations where
Speaker 1: the prices of things on decentralized exchanges might be vastly
Speaker 1: different than the price on centralized exchanges. And it's really
Speaker 1: just a product of difficulty actually, you know, coming in
Speaker 1: to support the bid and then and then it all
Speaker 1: sorts of normalizes and then and then it kind of
Speaker 1: builds back from there. But yeah, that that the pace
Speaker 1: of that is difficult, right, and I want to go
Speaker 1: back to the crash, But just from a sort of
Speaker 1: market structure standpoint, speaking of the d the defy exchanges,
Speaker 1: they don't go down, but the fees absolutely sore. The
Speaker 1: gas fees, the sort of the the block space that's
Speaker 1: required to execute your trades, everyone rushing through the door,
Speaker 1: it all, it all holds up structurally, but you could
Speaker 1: it's I guess it's easy to imagine and I'm thinking
Speaker 1: about algorithmic trading, how in periods of high vall are
Speaker 1: opportunities just completely disappear when the sort of I guess
Speaker 1: you could say the de facto commission of the trade
Speaker 1: absolutely sours. Yeah, I mean it depends on the size
Speaker 1: of the art. But in a sense like sort of
Speaker 1: because like people can still pay really high gas fees
Speaker 1: and jam themselves into the into the pool and get
Speaker 1: top priority from miners. It's just a matter of like
Speaker 1: what if the opportunity you're looking at is worth that,
Speaker 1: Like a lot of like the smaller things aren't really
Speaker 1: worth that, so they just kind of hang for a bit,
Speaker 1: so just to go back to uh Sunday for a
Speaker 1: second or that that crash And by the time people
Speaker 1: listen to this, I think it'll be two Sundays from now,
Speaker 1: but everyone should know we're talking about going back to
Speaker 1: that crash. Who bought the dip and you? Was it institutions?
Speaker 1: Was it funds? Was it retail? I actually had someone
Speaker 1: talked to me like, I bought my first crypto today
Speaker 1: after the big crash. I know there was at least
Speaker 1: I know there was at least one retail buyer, probably
Speaker 1: many more. But I'm curious, like what your senses in
Speaker 1: terms of like what what put the floor under the
Speaker 1: market and sort of what contributed to what's actually been
Speaker 1: a very strong bounce back as of right now. Yeah,
Speaker 1: it's it's so funny. I mean, I was working on
Speaker 1: Sunday and kind of on shot with the desk, and
Speaker 1: the amount of times I said, like, who is selling?
Speaker 1: Was that it was kind of crazy because the only
Speaker 1: thing we're seeing on dips like that are our net buyers.
Speaker 1: And granted, our our flow is very skewed and biased
Speaker 1: towards the buy side because it kind of the new
Speaker 1: Sure the clients were dealing with, but we were seeing
Speaker 1: institutions come in buying the dip, like you know, large
Speaker 1: hedge funds, trading firms, as well as ultra high networth individuals.
Speaker 1: Like really every single piece of flow that we saw
Speaker 1: in like the sub two k eight range and sub
Speaker 1: thirty five k bitcoin range was just net buyers. So
Speaker 1: like we were supporting the bid in many ways there,
Speaker 1: and the question was really like, why the heck is
Speaker 1: you know kind of selling off so hard? So you know,
Speaker 1: we we've just seen a lot of net buyers there. Well,
Speaker 1: what's the answer to that question? Like when you were
Speaker 1: asking that, why, so what is the answer? Because I
Speaker 1: feel like we haven't really correct It's like who where
Speaker 1: did the selling pressure come from? And who wasn't Yeah,
Speaker 1: I mean it's like the billion dollar age old question, right,
Speaker 1: It's like I think it's just at the end of
Speaker 1: the day, you kind of just have to look at
Speaker 1: the activity on exchanges and the sort of the trading
Speaker 1: that that occurred. And there was large spots selling on
Speaker 1: certain exchanges. So someone out there with a lot of inventory,
Speaker 1: um basically, and maybe it's not someone. I don't think
Speaker 1: it's definitely one person or anything. Like that. It's just
Speaker 1: like there was just a lot of exiting from the
Speaker 1: market in spots. So you know, we don't know who
Speaker 1: who that was because it's not really the flow that
Speaker 1: we see, but it definitely existed. So you mentioned UM
Speaker 1: leverage right at the very start of this conversation and
Speaker 1: UM more recently, you you mentioned this idea of people
Speaker 1: borrowing in ethere um too and using that to borrow
Speaker 1: UM stable coins and then do something else with them.
Speaker 1: I mean, this is something that has come up again
Speaker 1: and again in all our podcasts on Defy, and I
Speaker 1: know Joe has been asking this question of like where
Speaker 1: is the yield actually coming from? And why is it
Speaker 1: all crypto doing stuff with crypto? I guess it just
Speaker 1: feels very circular or sort of like crypto all the
Speaker 1: way down, Like somehow crypto is generating money from other crypto,
Speaker 1: but like what is the underlying mechanations of like how
Speaker 1: that yield is generated. Yeah, now I've been watching I've
Speaker 1: been listening to kind of the recent podcast and it's
Speaker 1: it's it's it's a question that comes up so off
Speaker 1: and the Aaron one was great, by the way, you know,
Speaker 1: I think there's two there's two sort of aspects of
Speaker 1: that yield that comes from the table point. One is
Speaker 1: the more the one that makes more sense, and the
Speaker 1: one that's easier to understand. It's really just the basis trade,
Speaker 1: which is of course retail and leverage traders want to
Speaker 1: be long. They bid up the market in futures. There
Speaker 1: was a good tweet actually by Sam Bank and Free
Speaker 1: who was on this podcast, that kind of described why
Speaker 1: that exists, and in a nutshell, it's basically like, if
Speaker 1: the crypto market is worth you know, one or two
Speaker 1: trillion dollars, and the sort of traders in the market
Speaker 1: wanted to be worth four trillion dollars, but only five
Speaker 1: billion dollars is being lent to the market as spot
Speaker 1: sort of cash leverage to use. The remaining difference is
Speaker 1: sort of bid up in interest rates, and that causes
Speaker 1: derivatives and futures, you know, to kind of go bid
Speaker 1: relative to spot, and then that's reflected in interest rates,
Speaker 1: and then of course you get good yields on cash
Speaker 1: for coming into the other out of that trade and
Speaker 1: trying to help close it, which you know, it's not
Speaker 1: completely free money in any sense, but it's it's very
Speaker 1: simple to understand why you could earn yield on your
Speaker 1: castion that way, and it makes sense like from an
Speaker 1: end to end non circular crypto perspective. The crypto circular
Speaker 1: perspective is, I think where you're gonna get as more
Speaker 1: on the yield farming side of things, which you know
Speaker 1: that that aspect of the market is game theory psychology
Speaker 1: in terms of kind of getting in getting out yields
Speaker 1: like kind of delta risk and an impermanent loss and
Speaker 1: thinking about all the ways that you know you can
Speaker 1: actually extract the yield but also walk away in notional
Speaker 1: dollar terms in a decent sense without having to take
Speaker 1: uh sort of large bosses there. I would say the
Speaker 1: main reason why those yields exist is really protocols are
Speaker 1: formed which have an native token. That token contributes to
Speaker 1: governance or has some sort of value tied to the protocol,
Speaker 1: either through like a burn mechanism or some sort of
Speaker 1: fee generation mechanism. Basically it's somewhat valuable if the protocol
Speaker 1: is valuable, and then to incentivize people to use the protocol,
Speaker 1: especially at the start of the protocol's launch, the protocol
Speaker 1: will emit sort of that token. Two people that contribute
Speaker 1: to providing liquidity on on the protocol, and that causes
Speaker 1: you to have good yield opportunities in crypto. But you know,
Speaker 1: a lot of what I just said there was like
Speaker 1: you know, at the start and at the beginning, and
Speaker 1: you know that eventually dies down, so like it's not
Speaker 1: really something for like the passive yield yield seeking investor
Speaker 1: to kind of just be like, oh, I'll just park
Speaker 1: this here for a bit, And you can do that
Speaker 1: in many ways on chain, but the sort of the
Speaker 1: crazy yields that you're talking about, you know, you wouldn't
Speaker 1: you wouldn't quite see if you were just so passive.
Speaker 1: It takes a little bit of understanding as well as
Speaker 1: like nimbleness and willingness to be able to move around.
Speaker 1: And also like the fact that Ethereum has like two
Speaker 1: pretty large side chains now. One is called Matic it
Speaker 1: rebranded to Polygon, and the other is Antum, where you know,
Speaker 1: though you're basically if you're willing to go change up
Speaker 1: the change you're looking at, you know, you can be
Speaker 1: compensated in a way because a lot of people aren't
Speaker 1: just going to go do that, so like less people
Speaker 1: are looking at it. And then you get into other
Speaker 1: sort of layer ones like Salana and things like that,
Speaker 1: and you know you're compensated effectively for dealing with crypto,
Speaker 1: but then also going further down the rabbit hole and
Speaker 1: into into areas where you know a lot of people
Speaker 1: might not be looking. So yeah, you know, the first
Speaker 1: time Roe, you and I connected, we were talking about
Speaker 1: the basis trade and I want to get to that
Speaker 1: in a minute, but before we do, just you know,
Speaker 1: one of the theories going into the crash, and you know,
Speaker 1: you were sort of racically questions like who is selling,
Speaker 1: who is selling, and there's some One of the headlines
Speaker 1: that initially hit the market was China climbing down on
Speaker 1: mining activity. And I know there's so many rumors in
Speaker 1: this area and it's always contradictory headlines and very opaque.
Speaker 1: But minors have Fiat obligations. Their liabilities are in FIAT,
Speaker 1: either in the form of electricity or acquiring new hardware
Speaker 1: in the form of chips. How much could that have contributed?
Speaker 1: And I saw a bunch again on Twitter and things
Speaker 1: that are translated out of Chinese like multiple times and reinterpreted.
Speaker 1: But this sort of like miners having to pick up
Speaker 1: their stakes, so to speak, pay off their bills, liquidate
Speaker 1: any holdings of coins that they had generated before winding down.
Speaker 1: How much plausibly could that have been a catalyst. And
Speaker 1: I'm just curious, like sort of more broadly, I know,
Speaker 1: like Genesis, I think you have a mining cousin or
Speaker 1: sister company out there, Genesis Mining. Correct me if I'm wrong,
Speaker 1: But how much does that play into you know, sort
Speaker 1: of like that fit into the ecosystem. Yeah, so our
Speaker 1: our sister company is actually a DCG foundry, which is
Speaker 1: uh it is effectively a mining and staking company that's
Speaker 1: it also has like a core mission to help bring
Speaker 1: pass rate to North America and also do it in
Speaker 1: a more conscious renewable way. But you know, the mining thing,
Speaker 1: and I've talked to to Mike Colier. They're a bunch
Speaker 1: who's kind of runs that business and it's very very
Speaker 1: in tune with with the mining ecosystem. And you know,
Speaker 1: we have fins that are that are miners as as well.
Speaker 1: I think it's it's less likely that the whole cash
Speaker 1: obligation uh woe was like it was a reason for
Speaker 1: this most recent sell off, mostly because the break evens
Speaker 1: for miners in terms of like the prices they need
Speaker 1: these assets to be apt to sustain their electricity costs
Speaker 1: and operational costs are significantly lower than where spot was.
Speaker 1: It was more of the relevant concern, I would say
Speaker 1: in like the March of crash where we saw a
Speaker 1: move past like four k and kind of into the
Speaker 1: five K range on bitcoin, because at those levels you're
Speaker 1: getting really close to this sort of cost of mining,
Speaker 1: and and like you know, it gets a little harrier
Speaker 1: down there in terms of miners staying profitable if prices
Speaker 1: were to sustain in the lows they're here at like
Speaker 1: you know, over third k, miners are doing fine in
Speaker 1: terms of operational expenses relatives revenue. So I don't think
Speaker 1: like a sudden urge for like you know, oh, you know,
Speaker 1: we have to pay our bills, you know, cause the
Speaker 1: sell off. Just on a related note, I mean, even
Speaker 1: before the massive sell off that we saw in May,
Speaker 1: there was a sharp dip in bitcoin. I think it
Speaker 1: was a few weeks before where some people were blaming
Speaker 1: it on a power outage in Shenjong where there are
Speaker 1: supposed to be a bunch of miners. Can you maybe
Speaker 1: just talk more generally about how the miners and changes
Speaker 1: in hash rates and things like that actually feed into
Speaker 1: pricing and the market, because it seems like when like
Speaker 1: every time Bitcoin does something that people can't quite explain,
Speaker 1: the miners often come up. And it's unclear to me
Speaker 1: whether that's just a convenient thing for people to point
Speaker 1: to or whether it's something that actually matters for the market. Yeah,
Speaker 1: I think I think you actually that they're and you know,
Speaker 1: I'll speak broadly on this because I'm by no means
Speaker 1: a mining expert or anything like that, but I think
Speaker 1: from a psychological perspective and a trading perspective and markets perspective,
Speaker 1: and our markets sell off drastically and suddenly all of
Speaker 1: a sudden, there's like a there's a feeling that like
Speaker 1: who is responsible for this? Like where do I point
Speaker 1: the finger? Like someone has to there's something that you know,
Speaker 1: can can bear the blame here. I think miners just
Speaker 1: kind of given there maybe like elusive nature and activity
Speaker 1: are easy to point to, but in reality, like it's
Speaker 1: not really you know, it's not really the cause of
Speaker 1: like you know, like the electricity concerns and the capex
Speaker 1: concerns or the or the or the outages and shen
Speaker 1: and like, you know, those things relative to the actual
Speaker 1: blows in the market, I think are are pretty small
Speaker 1: and and don't don't matter as much. But people like to,
Speaker 1: you know, paint narratives and and find a way to
Speaker 1: like be like why is this happening? So that I
Speaker 1: think you kind of nailed it with like why people
Speaker 1: do it? It's just because people want a reason, and
Speaker 1: miners are conveniently, you know, not that public about what
Speaker 1: they do, so it's easy to kind of say, like, oh,
Speaker 1: it must be the minor. Alright, one last miners question,
Speaker 1: But this is something I've wondered about, and I'm kind
Speaker 1: of guessing the answer is no, because there is, as
Speaker 1: you say, this huge gap currently between spot and UM
Speaker 1: cost for most of them. Do minors currently participate in
Speaker 1: the futures market and use them as hedging instruments at all?
Speaker 1: Kind of the same way oil companies locked in prices?
Speaker 1: And if not, do you see a future in which
Speaker 1: the futures market serves a commercial purpose for miners? If
Speaker 1: that spread word to compress and it became and the
Speaker 1: they had a need to hedge volatility, So they definitely
Speaker 1: do they definitely do they used UM, They use futures
Speaker 1: the use options, I think really after March of last year,
Speaker 1: with with that sell off, I think a lot of
Speaker 1: them are even more inclined to do so, which is
Speaker 1: kind of why you saw us rally from the lows
Speaker 1: of like let's say four four K on bitcoin to
Speaker 1: ten k in June on pretty much a pancake forward curve,
Speaker 1: Like the June futures were barely above or the September
Speaker 1: futures were barely above Spot throughout that whole move up,
Speaker 1: which is historically very different from than what you've seen
Speaker 1: in the crypto market, where like if the market swings
Speaker 1: bullish and like two X is, you know, usually you
Speaker 1: see a bit up in premiums. But the futures were
Speaker 1: really tight relative to Spot. So the prevailing theory is
Speaker 1: there is that, like, you know, there must have been
Speaker 1: a tight offer on futures. Who is selling those futures?
Speaker 1: You know, I think a lot of that people that
Speaker 1: have you know, sort of forward receivables in crypto and
Speaker 1: want to be able to hedge that, and and so
Speaker 1: you know, that's why you saw a little bit of
Speaker 1: pressure there. So there's definitely a sophisticated, you know, participant
Speaker 1: in derivatives by miners. So I want to get to
Speaker 1: We talked about this um several weeks ago Row, and
Speaker 1: you know, I think this trade is still out there,
Speaker 1: and you sort of hinted at it. But there is
Speaker 1: this sort of like I called it in a newsletter,
Speaker 1: the sort of like free money bitcoin trade. And you know,
Speaker 1: nothing is free money, there's nothing guaranteed, but there is
Speaker 1: this big arbitrage opportunity that exists that more and more
Speaker 1: people are talking about, which is that there is a
Speaker 1: huge gap, at least there was between bitcoin spot on
Speaker 1: the various exchanges and the various flavors of futures, whether
Speaker 1: we're talking about CMME futures or some of them more
Speaker 1: exotic futures on the exchanges like f t X and
Speaker 1: cracking and so forth. And a lot of people seem
Speaker 1: to be interested in this opportunity to centrally by bitcoin
Speaker 1: now short the futures because they're trading so much higher,
Speaker 1: and then over time and theory they converge and you
Speaker 1: get free money. And these sort of basis trades are
Speaker 1: like common in commodities, but they tend to be like
Speaker 1: way narrower and rarer than they are, and usually there's
Speaker 1: a cost of carrying. So can you quickly sort of
Speaker 1: like describe this opportunity and the degree to which sort
Speaker 1: of like non crypto interested money is sensing this opportunity
Speaker 1: and interested in exploiting it. Yes, I mean on the
Speaker 1: interest side, there's definitely a lot of more eyes on
Speaker 1: it right now than I would say there ever had been. Um,
Speaker 1: you know, it's it's a lot more popular, it's talked
Speaker 1: abou a lot more. You know, in a nutshell, I
Speaker 1: think you know, you described it pretty well. But you know,
Speaker 1: derivatives traded a premium to spot primarily because people want
Speaker 1: leverage and people bid up those interest rates similar to
Speaker 1: kind of I was talking about what the market cap
Speaker 1: should be worth in the eyes of traders relative to
Speaker 1: what it is versus the amount of cash that's been
Speaker 1: that's being lent to those traders. So you know, all
Speaker 1: those parameters slide around, and I think you know, in
Speaker 1: in February and May and March and April, you had
Speaker 1: a pretty wide gap between where the market cap was
Speaker 1: trading and versus where people thought it was going to go.
Speaker 1: But that is a you know, that is an emotional difference,
Speaker 1: I think, and and it and it ebbs and flows
Speaker 1: over time. So if that gap narrows, which it actually
Speaker 1: has right now as we're talking right now on this date,
Speaker 1: you know, the futures are much more in line with
Speaker 1: Spot because after the whole sell off, all of a sudden,
Speaker 1: people think that the market is not going to go
Speaker 1: up as much and they don't really have a desire
Speaker 1: to own the curve as much. So to the spreads
Speaker 1: and the sort of yields have compressed there in terms
Speaker 1: of the difference between the two. But the underlying market
Speaker 1: is so volatile in crypto like the spot market, where
Speaker 1: you know, the the interest rate market, which is basically
Speaker 1: the basis market, is equally as volatile. So these these
Speaker 1: annualized rates swing all over the place like they were
Speaker 1: pretty much negative the whole way through really since nineteen
Speaker 1: twenty they've been positive, and then you have these like
Speaker 1: really really wild moves where the rates are super positive
Speaker 1: because they're so bit up, and then they kind of
Speaker 1: usually come down. And I would say it's actually a
Speaker 1: in many ways, it's a it's a leading indicator as
Speaker 1: to where kind of spot could move next, because and
Speaker 1: traders talk about this all the time. It's like, as
Speaker 1: these rates kind of get bit up and these curves
Speaker 1: are very blown out. You know, it could indicate that, like,
Speaker 1: look like there's there's some sort of wash up coming
Speaker 1: up next, because you know, things are just a little
Speaker 1: out of control right now and it's way too profitable
Speaker 1: to just buy spots sell future, where like I kind
Speaker 1: of just have to do it, and you know, the
Speaker 1: unwinding of that trade, you know, kind of going back
Speaker 1: to talking about, oh, why is the sell off happening?
Speaker 1: I forgot to mention this then, but I'll mention it
Speaker 1: now because it came up when you unwind this trade
Speaker 1: that the action you have to perform in the market
Speaker 1: is buying future and but more importantly selling spot at
Speaker 1: the same time. So when markets sell off, the basis
Speaker 1: traders that are involved in the market are going to
Speaker 1: have to sell spot and buy future, adding to the
Speaker 1: spot pressure that you see on the order book. So
Speaker 1: that is definitely a huge portion of the of the
Speaker 1: offer you see right after a liquidation sell off. So
Speaker 1: you know, I would say those are kind of the
Speaker 1: things to consider there. But also the margin on the
Speaker 1: futures leg is a concern generally for all traders and
Speaker 1: part of the reason why potentially these markets blow out
Speaker 1: so wide because you don't really want to be in
Speaker 1: a position where you buy spots sell future, but then
Speaker 1: the underlying ten xes or five x is from there.
Speaker 1: You know, it's it's a it's a very tough position
Speaker 1: to be. And like last summer, for example, if you'ring
Speaker 1: was probably trading around, and the September and December futures
Speaker 1: were trading, and even the March futures were trading at
Speaker 1: a pretty good annual eyes basis yield where you would
Speaker 1: be very comfortable to buy spot self future, but then
Speaker 1: ethereum teleports all of a sudden, you're scrambling for margin
Speaker 1: on your future's leg and you know, it gets a
Speaker 1: little harrier. So it's not it's not totally cut and
Speaker 1: dry and and as riskless as as it might seem
Speaker 1: on the surface. This is gonna be a weird question,
Speaker 1: but how much does cryptos allure sort of depend on
Speaker 1: these inefficiencies and having a fragmented market, because it does
Speaker 1: feel like a lot of people are clearly in the space.
Speaker 1: You know, they might talk about blockchain technology and changing
Speaker 1: the world, but there is a big chunk of people
Speaker 1: who just want to make money. Bitcoin is really volatile.
Speaker 1: It's fun to trade. Stuff is happening every day, but
Speaker 1: it does feel like as the market matures, the potential
Speaker 1: for those sort of big discrepancies in things like spot
Speaker 1: versus futures, like maybe that starts to go away a
Speaker 1: little bit and that attracts and starts to wait. I
Speaker 1: don't know if that's I'm having a hard time putting
Speaker 1: this intowards but hopefully you understand what I mean. Yeah,
Speaker 1: I think I get what you're saying, which is like
Speaker 1: a lot of people will be a lot of market
Speaker 1: participants are here for the the inefficiencies of the market,
Speaker 1: and once the market becomes super efficient, it's like, Okay,
Speaker 1: onto the next thing. What's next? Right, It kind of
Speaker 1: gets to the the yield farming idea that you mentioned earlier, right,
Speaker 1: Like a lot of it depends on the new the
Speaker 1: new coins, and that's where the opportunities are. But sorry,
Speaker 1: go ahead, no, I agree with you. I mean, like
Speaker 1: broadly speaking, like, yes, the market is going to get
Speaker 1: more efficient over time, and the amount of very blown
Speaker 1: out or you know, high yield arbitrage opportunities and similar
Speaker 1: kind of are are smaller. At the same time, though,
Speaker 1: I do think the tailwind of the fact that like
Speaker 1: a new asset class is born here, which is like
Speaker 1: pretty rare for anyone to see in their lifetimes. Like
Speaker 1: you know, you don't really get like a new asset class, right,
Speaker 1: Like it's like, okay, you know, you have assets and
Speaker 1: they kind of exist like stocks, realistic a gold, but like,
Speaker 1: you know, now there's a new asset class. It's called crypto,
Speaker 1: whether people like it or not, Like it's here to
Speaker 1: stay that it's like Pandora's boxes open, like you know,
Speaker 1: you can't just put this back and like end it.
Speaker 1: So it's gonna be around in some form of the other.
Speaker 1: And and given the difference between the crypto market and
Speaker 1: the traditional market, which I think the key difference really
Speaker 1: is access, Like there's really low barriers to entry for
Speaker 1: someone and and individuals to kind of come in and
Speaker 1: trade and and you know, do leverage or whatever they
Speaker 1: want to do. Where um, it's going to be much
Speaker 1: more tied into like the nature of like the way
Speaker 1: humans are are trading, and the emotional aspect of and
Speaker 1: then the psychological aspect of markets more so than like
Speaker 1: let's say the stock market and the you know, the
Speaker 1: commodities markets, out there. And on top of that, there's
Speaker 1: no sort of blender of rap last resort or or
Speaker 1: or similar in crypto, where like you know, liquidations can
Speaker 1: happen and markets can can go really really south and
Speaker 1: and no one's really gonna no one really has to
Speaker 1: come in and step in and be like a designated
Speaker 1: market maker. Similar like you know on the CME there
Speaker 1: are designated market makers and a lot of these products
Speaker 1: out there which are forced to be on the bid
Speaker 1: if markets sell off a certain amount. You don't have
Speaker 1: that in crypto. So the democratic nature of the market,
Speaker 1: the fact that it's a new asset class, I think
Speaker 1: it's going to cause these opportunities to almost persist a
Speaker 1: lot longer than we think. So, you know, maybe some
Speaker 1: very very future hyper efficient state like crypto has just
Speaker 1: used as colloquially as as as cash or or you know,
Speaker 1: venomo or stable clans, whatever, But I think we're long
Speaker 1: ways away and these inefficiencies should persist for some time.
Speaker 1: I just want to go back real quickly to the
Speaker 1: orb the spot futures are. I mean, you mentioned the
Speaker 1: risk that can happen even if the trade should close profitably.
Speaker 1: We get this sort of teleportation higher, which happens all
Speaker 1: the time in crypto, and so even if eventually the
Speaker 1: spread does close, you have to put up a lot
Speaker 1: of cash. Potentially. Is anyone working on or you know,
Speaker 1: just solving the problem of using your spot as as
Speaker 1: your collateral. Josh Younger has done that work. It's like
Speaker 1: if there was an e t F, then it would
Speaker 1: be super simple because then you'd have this liquid product
Speaker 1: that traded on all the normal exchanges, just let you know,
Speaker 1: on a desk, and then the futures trade on a desk,
Speaker 1: and then the e t F becomes your collateral and
Speaker 1: you don't have to worry about putting up new cash.
Speaker 1: Like how much could that you know, could that be
Speaker 1: made easier? But basically yeah, I mean you know one
Speaker 1: example of this is and it's very relevant, is really
Speaker 1: Genesis started our registrating desk in May. We've seen explosive
Speaker 1: volumes there. I think that's actually kind of why I'm
Speaker 1: on this podcast. Anyways, Joe I shared you that that
Speaker 1: report on Q one which had a huge options and forwards,
Speaker 1: uh sort of trading section. Genesis is one of those
Speaker 1: venues where you can post spot bitcoin against a short
Speaker 1: futures position. You could face this bilatterally over the counter,
Speaker 1: or you know, we can cross you on CME or
Speaker 1: a different exchange of your choice. But you know, well
Speaker 1: we'll we'll do that for you because like we think
Speaker 1: it's good collateral. We know that your short future is
Speaker 1: long spot. It's a place that you know, it makes
Speaker 1: sense to us and we're happy to Can we just
Speaker 1: set that up after the podcast? Can I just go
Speaker 1: do a Genesis account to like do that because it
Speaker 1: seems pretty easy. Yeah, just onward and yeah, shoot me
Speaker 1: a message and I'll get I'll get you also have
Speaker 1: very very simple and straightforward but in all seriousness, um,
Speaker 1: the Genesis is one. But but also more exchanges are
Speaker 1: are getting involved in that too. I think what Josh
Speaker 1: Younger brings up is really like a liquid point of
Speaker 1: access for similar in the brokerage model, like the CMME model,
Speaker 1: the ETF model needs to have that sort of be
Speaker 1: a thing to to really close the spread. That is
Speaker 1: true in the sense that we would we would need
Speaker 1: that to see like that the trade be much more
Speaker 1: in line with like the traditional cash financing. Great in
Speaker 1: the market. I think the closest thing honestly you can
Speaker 1: see to that you know not financial advice or anything,
Speaker 1: but like if hypothetically, you know, g BTC was used
Speaker 1: as collateral, which is not actually you know, how to
Speaker 1: discount to NAV, Like you know that that's something where
Speaker 1: like you know, long GBTC short features is like a
Speaker 1: trade where you get the discount to NAV and then
Speaker 1: also the collapse of the curve as well. So there's like,
Speaker 1: if you're prime broker, even where to take that and
Speaker 1: maybe some out there to do. I'm not I'm not
Speaker 1: actually quite sure, but you know, those are kind of
Speaker 1: things you have to see for it to be more
Speaker 1: of a point of access from those sort of brokerage
Speaker 1: accounts into the marketplace. So yeah, wait, the idea of
Speaker 1: Joe transacting with you actually reminds me of a question
Speaker 1: that I wanted to ask, which is how do you
Speaker 1: manage your counterparty risk? Because you know there are a
Speaker 1: lot of i would say sketchy players in the crypto space. Um,
Speaker 1: there's a huge question mark over doing due diligence and
Speaker 1: how you do that and avoid money laundering and things
Speaker 1: like that. Joe clearly sketchy guy. Um No, but like
Speaker 1: how would you how would you go about like doing
Speaker 1: due diligence? On a potential client, and how does it
Speaker 1: differ from investment than doing due diligence for prime brokerage
Speaker 1: services for something more traditional like a hedge fund. I
Speaker 1: mean to start regarding the m L and ky C
Speaker 1: we we actually Genesis is in the New York entity.
Speaker 1: The broker dealer is kind of the point of access
Speaker 1: for all the onboarding. So we're SEC and FINN are regulated,
Speaker 1: and our onboarding is the same that you'd see for
Speaker 1: onboarding to any broker dealer, which you know, in short,
Speaker 1: means that it's a long process and very thorough. Then
Speaker 1: we do kind of warren clients before they onboard, like
Speaker 1: look like you know, set aside thirty minutes to fill
Speaker 1: out the app and then also expect some questions from
Speaker 1: compliance if anything isn't perfectly right, so you know they're
Speaker 1: The onboarding is I would say, as robust as any
Speaker 1: bank out there in terms of the other part of
Speaker 1: the risk, which is the counterparty and credit risk. And
Speaker 1: this is kind of I think what makes Genesis a
Speaker 1: pretty unique player in the space because of the client
Speaker 1: base we've chose to to have at this point, you know,
Speaker 1: there's definitely a lot of variety of players out there
Speaker 1: in the crypto market. What we do is we kind
Speaker 1: of are facing not that many borrowers really, you know,
Speaker 1: we're not a type of shop where you know, any
Speaker 1: sort of retail client can just post bitcoin is collateral,
Speaker 1: borrow cash, go do whatever with it. But then like
Speaker 1: if the price sells off, there's no like human interaction there,
Speaker 1: and like we're just gonna liquidate that collateral across thousands
Speaker 1: and thousands of customer accounts right now as at a
Speaker 1: nine billion dollar it's probably ten billion now active loan
Speaker 1: book outstanding, you know, we have I would say less
Speaker 1: than a hundred and fifty active borrowers, which is, you know,
Speaker 1: not that many considering the size. And also like the
Speaker 1: top ones, the top trading firms, you know, like our
Speaker 1: our core clients that we've known for years. But also
Speaker 1: we understand the nature of the risk they're taking, the
Speaker 1: nature of the of the markets they're participating and the
Speaker 1: and the trades that they're involved in. So when an
Speaker 1: event like March happens and bitcoin goes from like eight
Speaker 1: K to five K, like rather than liquidating a bunch
Speaker 1: of retail accounts across thousands and thousands of clients, like
Speaker 1: what we're doing is like, hey, like we understand that
Speaker 1: the bitcoin or the ethereum collateral you've posted with us
Speaker 1: is has fallen in value significantly, Like how fast can
Speaker 1: you get me the p m L from the future
Speaker 1: is leg to close up this margin gap, like whereas
Speaker 1: it is it on CMME, is it on some of
Speaker 1: the more faster settlement exchanges. And we kind of have
Speaker 1: that conversation and we work with our clients to to
Speaker 1: understand their risk and and and bring bring the assets
Speaker 1: back into line with with where they should be on
Speaker 1: collateral levels. So that's kind of the main thing. And
Speaker 1: then really just like in terms of managing our book,
Speaker 1: I think we've done a really good job of understanding
Speaker 1: you know, liquidity and duration and and creating like a
Speaker 1: very good internal platform which we spent a lot of
Speaker 1: time in nineteen developing to help us have very good
Speaker 1: visibility into purve risk and things like that, so a
Speaker 1: very good picture of kind of how assets are going
Speaker 1: to move in and out of the firm. And then
Speaker 1: also lastly on this point, I'll bring up kind of
Speaker 1: like reserves and balances, like banks have to obviously keep
Speaker 1: like reserves on their balance sheet for outflows and things
Speaker 1: like that. We're really good at like kind of thinking
Speaker 1: about the interest rate market and kind of how the
Speaker 1: market is position from a demand perspective and supply perspective
Speaker 1: in terms of Bitcoin, ethery UM, and cash and then
Speaker 1: all the other or altos of course, but those are
Speaker 1: really the three main ones um and really you can
Speaker 1: call it crypto and cash, where you know, we we
Speaker 1: can position ourselves in a defensive way if we think
Speaker 1: that market's going to sell off and bitcoin is going
Speaker 1: to be much more valuable relative to cash and kind
Speaker 1: of skew our inventory that way. And then when you know,
Speaker 1: markets bottom out and curves are flat and things are
Speaker 1: kind of looking like they can go the other way,
Speaker 1: we'll we'll position the reserves and inventory accordingly. We're we're
Speaker 1: floating large balances but also thinking ahead. So like going
Speaker 1: into March of last year, we were well positioned for
Speaker 1: that because we we're really talking about it on the
Speaker 1: dusk before we're like, look like, I feel like it
Speaker 1: makes a lot of sense to hold a lot of
Speaker 1: bitcoin here. We're probably going to have some sort of
Speaker 1: move that that we might need it, and even last week,
Speaker 1: like you know, we're positioned, we're positioned very defensively on
Speaker 1: the on the reserve front in that nature, and um, yeah,
Speaker 1: you know, we're always thinking ahead rather than like, you know,
Speaker 1: we're not reacting, we're kind of like setting up for
Speaker 1: the future. You know. I want to go back to
Speaker 1: something that you said early on. I think it might
Speaker 1: be really important in this idea of like can the
Speaker 1: crypto market hold up with Bitcoin selling off and with
Speaker 1: the rise of ethereum this year more talk about the
Speaker 1: so called flipping ng and maybe a theorium will be
Speaker 1: a bigger coin this year. Could that happen in a
Speaker 1: sort of orderly manner. I mean, of course, eventually that
Speaker 1: could happen, Maybe it could even happen this year. But
Speaker 1: are we still at this point where there's just so
Speaker 1: much of the money is Bitcoin related that any Bitcoin
Speaker 1: decline sort of automatically creates triggers and liquidations across the
Speaker 1: the across the ecosystem. Yeah, that's an interesting question because
Speaker 1: I think crypto market it evolves and involves at a
Speaker 1: pace that's that's that's pretty fast, sort of astounding in
Speaker 1: manuates in terms of like the narratives and kind of
Speaker 1: what people are doing and talking about or thinking about
Speaker 1: it's like you're almost on from one thing to the next. Like,
Speaker 1: you know, two weeks ago everyone hated Elon Must, now
Speaker 1: everyone loves Elon Must. Like what's happening? You know, there's
Speaker 1: like that the shift in the narrative there. But speaking
Speaker 1: specifically about Bitcoin and its position in the market relative
Speaker 1: to the others. Um, you know, I think for now,
Speaker 1: bitcoin it is the it does have like the most
Speaker 1: common sort of collateral use case all over the all
Speaker 1: over the place, whether that's at Genesis or even on
Speaker 1: like the exchanges, where a sell off in bitcoin will
Speaker 1: always kind of impact other markets because kind of the
Speaker 1: collateral need for for it to be acquired as well
Speaker 1: as kind of like alts are usually haircut as collateral
Speaker 1: even for us, Like you know, the the LTV that
Speaker 1: we'd lend against bitcoin is very different than the LTV
Speaker 1: would lend against alts, and where we issue a margin
Speaker 1: call is different. So like if the alts were to
Speaker 1: sell off, you know, like it's going to be more
Speaker 1: likely that those have to kind of move into Bitcoin
Speaker 1: to support margin and things like that. Um. That being said,
Speaker 1: I think like we're going back to the fact that
Speaker 1: narratives can change very quickly. And the flipping being and
Speaker 1: Eve and whatnot. Like, I think the market is transcending
Speaker 1: in many ways a lot of the ties to its
Speaker 1: past that it had before, like even for forgetting bitcoin
Speaker 1: for a second, but like tying assets to personalities, like
Speaker 1: you know it really like you know, everyone's like, oh,
Speaker 1: I think Tracy mentioned this on previous podcasts, like, oh,
Speaker 1: it's like decentralized. It's like the market's like, you know,
Speaker 1: so out there and democratic. But like you know, a
Speaker 1: single tweet from a CEO could like move it right,
Speaker 1: but as that happens more and more, it could dilute
Speaker 1: the impact of that, and then the market sort of
Speaker 1: transcends that. So as you know, mapping that analogy to
Speaker 1: liquidations and collateral on bitcoin, like as all this stuff
Speaker 1: moves down quite a bit, and bitcoin you know, has
Speaker 1: to be used as a collateral last resort. Like over time,
Speaker 1: I think more and more exchanges and even Genesis will
Speaker 1: will start using and and and liquidity will improve in
Speaker 1: other alts where we can use it more as collateral.
Speaker 1: And then you know, maybe bitcoin doesn't have to be
Speaker 1: that sort of de facto collateral piece um that's used
Speaker 1: in the market sort of transcends that nature. It's just
Speaker 1: gonna take time, and I think the fact that bitcoin
Speaker 1: is like the sort of underlying based layer denomination of
Speaker 1: everything will probably stick around for a bit. But I
Speaker 1: do think don't be surprised if it changes and change
Speaker 1: as faster than we think. Right. Wait, can I push
Speaker 1: you just slightly on that, because this is something I've
Speaker 1: been thinking about as well. But like, the bitcoin is
Speaker 1: almost designed to what it is designed to sort of
Speaker 1: be this static, stable pool of value, and it's the
Speaker 1: supply is like destined to reach a certain amount. I
Speaker 1: can't remember exactly how much it is right now, but
Speaker 1: then it will stay at that forever. Is there a
Speaker 1: point at which there's a mismatch between bitcoin the size
Speaker 1: of the market and it's usefulness as collateral versus the
Speaker 1: size of the overall crypto market, Like, is there just
Speaker 1: a point at which crypto could outgrow bitcoin? Yeah? I
Speaker 1: know you're you guys are getting really into the weeds
Speaker 1: of the questions here, which I actually love because it's funny,
Speaker 1: like when you talk about long term bitcoin security and
Speaker 1: kind of the concerns that might be there, Like a
Speaker 1: lot of people that are involved in the bitcoin space
Speaker 1: will like really just shun you, like kind of dismiss it.
Speaker 1: So maybe I'll get some hate for this response, but
Speaker 1: I will say that you bring up a good point,
Speaker 1: which is like, yes, bitcoin does have a finality to it,
Speaker 1: where if actively the the subsidy that's issued for you know,
Speaker 1: the blocks have to sort of ways of paying miners
Speaker 1: for securing the network. One is the block subsidy and
Speaker 1: the other is transaction fees. So the block subsidies is
Speaker 1: the one that's declining in half every four years, and
Speaker 1: eventually it's going to asmotically approach zero, where it's basically nothing.
Speaker 1: So and and bitcoin is proof of work where miners
Speaker 1: have to spend energy and real you know, sort of
Speaker 1: uh power to secure the network, where they're going to
Speaker 1: have to be compensated in some way. And at that point,
Speaker 1: the way that it's going to the conversation occurs is
Speaker 1: through the transaction fee, which is like the people that
Speaker 1: are trading or the people that have transactions in the
Speaker 1: block are effectively paying the miners a certain amount. So
Speaker 1: what needs to develop them the long term for bitcoin
Speaker 1: is a robust market for block space um so that
Speaker 1: the miners are compensated to pay for it. What's happened
Speaker 1: now empirically in the past two years is you know,
Speaker 1: there's a robust mark it for blocks based on Ethereum,
Speaker 1: and people are paying to be included in transactions quite
Speaker 1: a bit there on Bitcoin less. So part of that
Speaker 1: is because you know, it is sort of a store
Speaker 1: value narrative now less so than a medium exchange. And
Speaker 1: it's not like it doesn't really have robust decentralized finance
Speaker 1: protocols in it yet. So what I think would have
Speaker 1: to change there in order for that market to develop
Speaker 1: appropriately is like this type of stuff you see on
Speaker 1: ethereum where you can like borrow of lend even trade
Speaker 1: like you need swap deck style, like Bitcoin needs to
Speaker 1: figure out in many ways to incorporate that into its
Speaker 1: on chain layer one sort of status the way I
Speaker 1: see it, And this is like, you know, maybe there's
Speaker 1: some cryptographers out there that are going to argue with
Speaker 1: me on this point in some ways, but I do
Speaker 1: think like at the end of the day, you're gonna
Speaker 1: need like applications built on bitcoin where people are paying
Speaker 1: to use them so that the miners can be compensated
Speaker 1: when there's no block reward. And I think how that
Speaker 1: develops in the future, like you know, in the past
Speaker 1: few years, it's it's really been ethereum show there. Could
Speaker 1: that change? I do think so? And do I think
Speaker 1: it has to change at some point? Yeah, Like I
Speaker 1: think you know it's going to have to that market's
Speaker 1: gonna have to develop in many ways. I guess I
Speaker 1: just have one last question, and I just want to
Speaker 1: say I enjoy these conversations a lot because talk about
Speaker 1: market structured and future it doesn't hurt my head quite
Speaker 1: as much as the conversations about like staking and all
Speaker 1: that stuff, And I need to learn more about that.
Speaker 1: Do you worry or is there concerned about like this
Speaker 1: sort of like whether the future of crypto is entirely
Speaker 1: on chane trading at some point, I mean, Genesis is
Speaker 1: a regulated financial institution, point bases, all these are. Is
Speaker 1: there like a threat long term to these sort of
Speaker 1: like I guess middle ground companies that handle what you do,
Speaker 1: which is like you're dealing on the chain and dealing
Speaker 1: with wires and traditional finance companies. And do you think
Speaker 1: about like risk of getting squeezed by more activity just
Speaker 1: people trading directly on the decentralized exchanges without the knee
Speaker 1: need for a GENEFF. I think, you know, in the
Speaker 1: long term, there's going to be more of a harmony
Speaker 1: between centralized finance and decentralized finance. They're gonna have to
Speaker 1: work together in many ways, um more so than they
Speaker 1: are now in order to kind of provide services to
Speaker 1: the broader marketplace. I do think the future, you know,
Speaker 1: broadly and like ultimate finality speaking, is going to have
Speaker 1: a lot of more on chain activity than it does now.
Speaker 1: But I think the way, you know, kind of bringing
Speaker 1: this more high level back to kind of like the
Speaker 1: user and the participant in the marketplace, at the end
Speaker 1: of the day, they're they're humans, right, like you know,
Speaker 1: we're all we're all humans. We we view counterparty risk
Speaker 1: to protocols, to exchanges, um to to to really banks
Speaker 1: whatever in different ways you know, f d i C
Speaker 1: non f d i C, things like that. There's always
Speaker 1: going to be in need and desire for market participants
Speaker 1: to have things that are not completely bearer because like
Speaker 1: you want that as like a as an asset holder,
Speaker 1: as like a diversified and responsible whether you're an individual
Speaker 1: or a family office, hedge fund or whatever, Like you
Speaker 1: shouldn't have everything be in your control or nothing be
Speaker 1: in your control. There should be a balance in a ratio,
Speaker 1: and I think a lot of services like Genesis and
Speaker 1: other companies in space, you're going to kind of be
Speaker 1: there to help marry that that difference and and and
Speaker 1: provide that diversification that holders want. But I do think
Speaker 1: of course that yes, DeFi is going to be it's
Speaker 1: it's going to be big in the future, and there's
Speaker 1: gonna be a lot of stuff going on chain. I
Speaker 1: think another thing to think about when thinking when like
Speaker 1: kind of looking at the outlook, there is like the
Speaker 1: pie is growing right now year over year, a day
Speaker 1: over a day really where like nothing is cannibalizing into
Speaker 1: each other quite yet. Where it's like as long as
Speaker 1: the market is growing, there's more and more stuff to
Speaker 1: to to do in trade, and more clients are entering
Speaker 1: and more participants are entering. So you know that that
Speaker 1: as long as that's going on, that's going to be
Speaker 1: you know, not very competitive and more like sort of collaborative.
Speaker 1: Of course, like once Crypto is that it's like finals,
Speaker 1: they were like every single human on the planet is
Speaker 1: like involved in it, and there's now like three thousand
Speaker 1: exchanges like yes, then then gets a little bit more
Speaker 1: competitive and cannibalistic. But like there's like a lot of
Speaker 1: room there right, Like you know, it's like not that
Speaker 1: many people are using this stuff just yet, like you
Speaker 1: we talked about it. But when you look at like
Speaker 1: this sheer number of people out there. I was listening
Speaker 1: to like CNBC this morning or wherever, it's like, you know,
Speaker 1: they're like asking people that have never used Defy if
Speaker 1: they think Defies the future or or on Chaine is
Speaker 1: the future, and they're like no, and then then everyone's agreeing,
Speaker 1: like yeah, like look at this guy brings up a
Speaker 1: good point. It's like no one's using this yet, Like
Speaker 1: you know, you're asking people that aren't using it if
Speaker 1: if they think it's real. So I think there's a
Speaker 1: lot more room to grow. And you know, CFI and
Speaker 1: d FI will have a lot of sort of harmony
Speaker 1: in the future. Broh. That was great. That was a
Speaker 1: fantastic conversation, Super helpful both on the sort of what
Speaker 1: just happened over the last several days, but also the
Speaker 1: big picture and the long picture. I love talking to
Speaker 1: you and thanks for coming out on a lot. Yeah,
Speaker 1: thank you guys so much for having me. This is awesome.
Speaker 1: Thanks for that was so good. All right, take care
Speaker 1: of man. You know, I sort of got got there
Speaker 1: in my last question. But I do find like, you know,
Speaker 1: like I know we have some DeFi episodes coming up,
Speaker 1: but some of these questions about market structure and futures
Speaker 1: trading and arbitrage and hedge funds and prime brokerages, it's
Speaker 1: just like I feel like like I've been a cozy
Speaker 1: like blanket or like hoodie we're talking about it. I
Speaker 1: still like sort of like feels like I kind of
Speaker 1: get it in a way, you know what I'm saying. Absolutely,
Speaker 1: I definitely feel more comfortable having these kind of conversations
Speaker 1: than they old farming one with Um Aaron for instance,
Speaker 1: that was a bit tough. Um. But I gotta say,
Speaker 1: like the thing that jumps out at me, the thing
Speaker 1: that jumps out at me is just this idea of
Speaker 1: how far the market has actually come. So I think
Speaker 1: there are people, you know, probably my self included, but
Speaker 1: I think of a bitcoin minor, and you know, it's
Speaker 1: some guy that maybe has a few computers hooked up
Speaker 1: somewhere slightly cold, um, with good temperatures and cheap energy,
Speaker 1: and he's sort of like doing it in his basement
Speaker 1: or backyard or whatever. But the way Row was describing
Speaker 1: the ecosystem, now, you know, you have huge miners basically
Speaker 1: computer farms doing this and taking out futures to hedge
Speaker 1: their exposure. Like that is such a sea change from
Speaker 1: where we were at the beginning of all of this,
Speaker 1: and I think it's still kind of like, I don't know,
Speaker 1: it's really noteworthy, I have to say, like my misconceptions
Speaker 1: of it are probably the flip. Like I feel like
Speaker 1: I've been like conceiving of miners for quite a long time,
Speaker 1: as these like super industrial operations largely out of China
Speaker 1: and other or not even largely out of China, but
Speaker 1: it's sort of all around the world where there's cheap
Speaker 1: energy and good temperatures and stuff like that, and that
Speaker 1: like that that's been this industrial thing. But the speed
Speaker 1: with which, like the sort of like pure financialization of it,
Speaker 1: and the the existence of crypto prime brokerages and the
Speaker 1: popularity of stable coins to move money in a way
Speaker 1: that's in many ways, I actually do think it's probably
Speaker 1: much better than the traditional wire system. That's the part
Speaker 1: that I would say in recent you know, not now
Speaker 1: but it's sort of like thinking about mentally updating my
Speaker 1: model of the space, the swaps market, the derivatives market.
Speaker 1: How big that's gotten is the part where I've like
Speaker 1: sort of most needed to sort of like update my
Speaker 1: mental model, so to speak. That's a really good way
Speaker 1: of putting it, updating mental models. I gotta say the
Speaker 1: point about you know, um crypto sort of getting worried
Speaker 1: over settlement times that are something like T plus one
Speaker 1: when most of the traditional financial market deals with something
Speaker 1: like T plus two or T plus three, and I
Speaker 1: think some parts of the corporate ball market like still
Speaker 1: send trade settlements by facts and things like that. It's
Speaker 1: it's pretty amazing, and it does speak to really interesting
Speaker 1: things happening in the space that could potentially be applicable
Speaker 1: to more traditional finance. Yeah. Also Rose just like so
Speaker 1: good at uh so clear um and I love like
Speaker 1: just sort of like getting the full lay of the
Speaker 1: land from him, in the full picture and sort of
Speaker 1: like going back and forth between translating crypto speak to
Speaker 1: traditional finance speak. Uh is. It's a real treat to
Speaker 1: get to speak with someone like that. Absolutely, and I
Speaker 1: gotta say I appreciate his um willingness to risk the
Speaker 1: ire of the Bitcoin maximalists by talking about potential downsides there.
Speaker 1: It's a it's a risky strategy as I personally know. Yes, exactly.
Speaker 1: Wait Tracy before we go, Uh, how do you enjoy
Speaker 1: blogging these days? Um? It's fun. I've had a like
Speaker 1: a slightly difficult time getting back into it, but I
Speaker 1: am starting to ratch it up my volume, so I'm
Speaker 1: looking forward to that. How about you. I love it.
Speaker 1: I love getting to write. I'm super excited. And I
Speaker 1: don't just say this as a plug, but people should
Speaker 1: go check out the Low Odd Lots blog because I'm
Speaker 1: I feel like I'm home again, getting to uh to
Speaker 1: be a blogger again, and I'm really enjoying it. Shall
Speaker 1: we leave it there? Yeah, let's leave it there? All right?
Speaker 1: This has been another episode of the All Thoughts Podcast.
Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at
Speaker 1: Tracy Alloway and I'm Joe Why isn't all? You can
Speaker 1: follow me on Twitter at the start? Everyone should go
Speaker 1: follow our guest on Twitter, Roshan Patel. He's at Roshan Patel,
Speaker 1: the VP of lending at Genesis Trading. Very clear, very great.
Speaker 1: Follow on this whole crypto space. Follow our producer on Twitter,
Speaker 1: Laura Carlson. She's at Laura M. Carlson. Followed the Bloomberg
Speaker 1: head of podcast, Francesca Levie at Francesca Today. And check
Speaker 1: out all of our podcasts at Bloomberg under the handle
Speaker 1: at podcasts. Thanks for listening to