The Next Stage podcast by Web Summit
00:08:42 · Nik Storonsky, Alastair Marsh
[00:08:42] S2: I think banks are very good at following their big clients. Goldman Sachs, obviously they serve big institutional investors and big hedge funds. So unless these big institutional investors or hedge funds move heavily in the crypto world, I just don't think banks will move because they simply try to make money from their clients. If their clients want to swap some crypto or some kind of borrow crypto to sell, then they will move fast. So it seems as you know there is no interest from big institutional investors so far. [00:09:18] S1: I see. I read an article earlier in the year about Morgan Stanley preparing swaps on kind of Bitcoin ETFs Bitcoin futures, sorry. And basically, the sources that we had said that the offering was ready to go at any moment. They were just waiting to see if there was any institutional demand, which I guess speaks to your point. So perhaps it's not just an impediment on the bank side, but also to see perhaps that the institutional investors, the bank's biggest clients, are not interested in the space. I mean, Larry Fink, the CEO of BlackRock, has said that not one single customer of his I don't know whether that's true or not. He has probably many, many customers, but he's said that not one of them wanted to or has asked BlackRock for crypto business. [00:10:04] S2: I mean, yeah, you're forgetting that all these big institutional funds, they also have compliance department, right? So this compliance department here is, okay, the Bitcoin, swap out Bitcoin, optional Bitcoin, they just scale, right? So then nothing happens.
00:10:04 · Nik Storonsky, Alastair Marsh
[00:10:04] S2: I mean, yeah, you're forgetting that all these big institutional funds, they also have compliance department, right? So this compliance department here is, okay, the Bitcoin, swap out Bitcoin, optional Bitcoin, they just scale, right? So then nothing happens. [00:10:20] S1: So how do we get over this hurdle? Is it the FCA or the SEC needs to come out and give a rubber stamp in some way, shape or form to certain types of crypto activity? Or are there other underlying factors at play? [00:10:34] S2: I think it's just a question of time, right? Because usually people are afraid of anything new. Compliance people are afraid of squared. Yeah, just a question of time when the community becomes more familiar with instruments and then hopefully there will be some more demand and then banks will follow. [00:10:54] S1: Okay. You've worked for a big bank, or a few of worked for Credit Suisse. Do you see a time when the big names in established finance, the Credit Suisse or the Goldman or the JPMorgan, when those guys are really the big names in crypto? I are big names but they're not big names in crypto now. [00:11:13] S2: I don't know. Difficult to say. I think I mean, my bet will be that fintechs will be very big in crypto, right, for the foreseeable future. I just don't think banks will catch up.
00:11:13 · Nik Storonsky, Alastair Marsh
[00:11:13] S2: I don't know. Difficult to say. I think I mean, my bet will be that fintechs will be very big in crypto, right, for the foreseeable future. I just don't think banks will catch up. [00:11:26] S1: Right. Okay. Perhaps one thing that's very interesting to me is that if you look at the ETF market and how that has evolved, actually you have a lot of smaller market makers or smaller in terms of size compared to the banks who actually really control the trading of ETFs or in a big way. Perhaps and actually it seems that there are similar things happening in the crypto market. Do you think that it will be that there will be other key market participants like the high frequency trading shops then that have a bigger role to play in crypto than the banks? Is that how things would evolve, you think? [00:12:01] S2: Yeah, think there is definitely opportunity for high frequency firms in crypto space. I remember when we launched crypto, was just Matt. I was looking at different arbitrage opportunities between different exchanges. Mean, you can make 5%, 5% on the trade, right? And because all are effectively start ups and fintechs in crypto trading, They are mature, so they don't really know how financial world works. So the result market was very inefficient, I guess, and it's still very inefficient. So I think if professionals from hedge funds or high frequency trading firms come in and particularly target this market. So initially, they can make a lot of money on it.
00:12:01 · Nik Storonsky, Alastair Marsh
[00:12:01] S2: Yeah, think there is definitely opportunity for high frequency firms in crypto space. I remember when we launched crypto, was just Matt. I was looking at different arbitrage opportunities between different exchanges. Mean, you can make 5%, 5% on the trade, right? And because all are effectively start ups and fintechs in crypto trading, They are mature, so they don't really know how financial world works. So the result market was very inefficient, I guess, and it's still very inefficient. So I think if professionals from hedge funds or high frequency trading firms come in and particularly target this market. So initially, they can make a lot of money on it. [00:12:39] S1: Okay. A lot of the discussion that we've had thus far is about banks creating new businesses for crypto, whether it be market making or custody or what have you. But banks' bread and butter is lending and sort of deposits. And actually, one way potentially that they could get involved in the crypto space is to bank crypto businesses, like exchanges or brokerages. But that's actually proved to be very, and certainly in some cases, controversial and it's not really happening. Do you think that that kind of lending and banking could be a simple bridge between well, a simple first step into the space for established banks? [00:13:21] S2: So you're asking about whether they would, apart from lending, be involved in, for example, I don't know, deposit in crypto?
00:13:21 · Nik Storonsky, Alastair Marsh
[00:13:21] S2: So you're asking about whether they would, apart from lending, be involved in, for example, I don't know, deposit in crypto? [00:13:27] S1: Well, whether it would make sense for an established bank to provide an account or loans to crypto businesses. Of course it makes sense, right? But if you're a crypto business and then you try to open a [00:13:41] S2: bank account, forget about it. They will not open it for you. So then you will need to probably try to open a bank account with smaller banks. But generally, crypto business is considered extremely high risk business by compliance in banks. And in 99% of the banks, just simply don't take application. But I think there is a big opportunity for banks to sell these clients. They just need to learn how to do it. [00:14:07] S1: They may be high risk, but some of them are also highly profitable too if you look at some [00:14:11] S2: of the exchanges. Exactly. Yeah. Okay. [00:14:14] S1: Do you think that... What would it take to turn the dial? Is it just risk and compliance, getting more comfortable with the idea of crypto? Or does it come again back to regulation? [00:14:28] S2: I think it's purely a risk reward function. If I'm a bank and then a client is risky, so cryptocurrency exchange can go bust. You can have potentially big PR negative PR about it. So just charge more money. So that's what I would do. But for some reason, banks just prefer not to sell these clients. Okay.
00:14:28 · Nik Storonsky, Alastair Marsh
[00:14:28] S2: I think it's purely a risk reward function. If I'm a bank and then a client is risky, so cryptocurrency exchange can go bust. You can have potentially big PR negative PR about it. So just charge more money. So that's what I would do. But for some reason, banks just prefer not to sell these clients. Okay. [00:14:51] S1: And with time drawing to a close or not, I wonder if we could just look ahead to next year. So 2017 was a very dramatic year for the crypto space. 2018 has been kind of a big downer and potentially a kind of weeding out of some of the less fruitful projects, let's call it that. What's your thoughts for kind of 2019 in crypto? Are we another rally? Or is it just building on the constructive stuff that's happened this year? What do you think as we look forward? [00:15:23] S2: I think usually every new thing goes through ups and downs, right? And usually we see double dips. So I think next year there might be something exciting appearing for everyday usage because Rarity is for majority of well, at least our customer script is still a speculative tool. There is opportunities now in B2B. We'll see in 2019 some opportunities in B2C. So some are real use cases. Okay. [00:15:56] S1: So a constructive year, but a very exciting year perhaps. Well, we'll see. We'll see. Okay. Ladies and gentlemen, Nikolay Storonsky. Thank you very much. Thank you. Thank you.