Podcast Summary
Institutional investors' cautious approach to crypto: Institutional investors bring regulation, patience, and caution to crypto, helping it move towards mainstream acceptance and maturity.
The institutional investment approach to crypto is maturing and becoming more aligned with traditional finance, bringing guardrails and patience to the crypto industry. Eric Peters, a large institutional crypto hedge fund manager, shares his insights on the institutional perspective towards crypto, discussing the importance of regulation, avoiding risky investments, and shorting narcissism. As the crypto industry continues to develop, it's expected to resemble the institutional investors' more cautious and rule-bound investment philosophy. This shift will help crypto move away from its Wild West reputation and attract more mainstream investors. Additionally, Kraken, a trusted and secure crypto exchange, continues to support the growth of the crypto industry by providing a user-friendly platform for both beginners and experienced traders.
Optimal NFT trading experience with Kraken, Bankless Premium's resources for crypto enthusiasts, and Phantom's expansion: Kraken's NFT beta platform offers rarity rankings, no gas fees, and cash purchases. Bankless Premium provides valuable resources, discounts, and exclusive Discord access. Phantom wallet expands to Ethereum and Polygon, bringing user-friendly features and staking capabilities.
Kraken's new NFT beta platform offers an optimal NFT trading experience with features like rarity rankings, no gas fees, and cash purchases. Bankless Premium, on the other hand, provides valuable resources and support for crypto enthusiasts, including a token report, discounts, and access to exclusive Discord channels. Phantom, a popular wallet on Solana, is expanding to Ethereum and Polygon, bringing its user-friendly features and staking capabilities to new chains. Eric Peters, founder and CIO of One River Asset Management, discussed institutional investments in crypto, emphasizing the importance of bridging the gap between traditional finance and crypto. Despite market fluctuations, all three entities remain committed to their respective roles in the crypto space.
Historic Bear Market in Crypto with Extreme Sentiment: Despite navigating a historic bear market, the speaker remains bullish for crypto's medium to long term future due to institutional adoption and growth opportunities.
The speaker, a macro trader with extensive experience, believes we have navigated a historic bear market in crypto, which saw extreme bearish sentiment reminiscent of the worst market crashes in history. He mentions the Deutsche Mark vs Italian Lira crisis in the 1990s as an example of comparable sentiment. The speaker is now bullish for the medium to long term, predicting real institutional adoption and powerful growth in the next phase. Despite the challenging bear market, the speaker expresses gratitude for having navigated it well and for the potential opportunities ahead.
FTX Scandal Shocks Institutional Investors: The FTX scandal, involving a major crypto exchange and its young billionaire founder, raised concerns about the professionalism and credibility of the crypto industry among institutional investors, potentially leading to a larger exodus from the market.
The FTX scandal significantly impacted the sentiment of the institutional investor community towards crypto, potentially leading to a larger exodus from the market. The fraudulent nature of a major crypto exchange, run by a young billionaire with political connections, shocked the institutions and raised concerns about the professionalism and credibility of the crypto industry. The incident served as a reminder of the risks involved, and many institutions may have decided to reevaluate their involvement in crypto as a result. The fact that FTX had met with numerous politicians and regulators added to the unsettling nature of the situation. While the impact on venture capital investors is not necessarily a strong indictment against them, the overall sentiment towards crypto among institutions remains deeply unsettled.
Institutions approach crypto investments differently: Institutions employ research, quantitative screens, and long-term implications to minimize risks and maximize potential returns in crypto investments.
Institutions approach crypto investments with a different cadence compared to individual investors or venture capitalists. While some may have been skeptical or missed the initial wave of crypto investments due to caution, those who have conducted thorough research and identified potential risks, such as with LUNA and FTT, have been more successful in avoiding significant losses. Institutions employ quantitative screens and consider long-term implications when making decisions, helping them avoid the gravitational pull towards hype and potential frauds. The process may be slower, but it is designed to minimize risks and maximize potential returns.
The Risks of High Concentration and External Factors in Crypto Investing: Even seemingly profitable investments can result in substantial losses due to high ownership concentration and external factors. Caution and informed decision-making are crucial in crypto markets, especially when dealing with new technologies and high-risk opportunities.
Even the worst investments can sometimes yield returns, but high concentration of ownership and external factors can lead to significant losses. For instance, the case of Luna, which had structural vulnerabilities, led to substantial losses when it unwound. Another area of concern is the high yields offered in DeFi markets, which may appear attractive but do not compensate for the potential risks involved. As for Three Arrows Capital, a hedge fund that faced significant losses in 2022, it's important to note that there may be various factors at play beyond just inexperience or reckless behavior. Building institutional credibility requires careful consideration and the ability to resist pressure to take unnecessary risks. Ultimately, it's crucial to approach new technologies and markets with a sober and informed perspective.
Lack of regulation and foundation in crypto leads to significant risks: The absence of checks and balances, inexperience, and high leverage in crypto can lead to catastrophic outcomes. Past financial crises provide valuable lessons to mitigate risks and implement necessary regulations and infrastructure.
Crypto's unique retail-first origins and reluctant institutional acceptance led to a lack of regulation and foundation, resulting in significant risks and potential for major blowups. The absence of checks and balances, coupled with inexperience and high leverage, can lead to catastrophic outcomes. The recent blowup of 3 Arrows Capital is a prime example, and it's important for the crypto community to learn from past financial crises and implement necessary regulations and infrastructure to mitigate risks. The consequences of not doing so could be disastrous, as the market cap of crypto has grown to dwarf previous financial innovations. The lessons from the past, particularly from the financial crisis involving CDOs and mortgage-backed securities, should not be ignored.
The fast-paced nature of crypto markets challenges human psychology, leading to increased risk-taking: Understanding human psychology and maintaining self-awareness are crucial in navigating the complex and often euphoric world of crypto investing and trading, helping to mitigate potential risks.
The lack of established guardrails and experience in the crypto industry can lead to emotional decision-making and increased risk-taking, which can result in the blow-up of institutions. Human psychology is particularly challenged by the fast-paced nature of crypto markets, where entire business cycles can occur in just a few years. Institutional money managers, on the other hand, tend to have longer time horizons and a more conservative approach, focusing on avoiding concentrated ownership and constructing institutional-grade indices. Personal experience and self-awareness are crucial in navigating the complex and often euphoric world of investing and trading, helping to develop principles that can guide decision-making and mitigate potential risks.
Avoiding risks in crypto investments: Focus on transparent, auditable crypto assets like DeFi. Regulators should provide guidance on customer protections and stablecoin regulation.
When investing in crypto assets, it's important to avoid those with concentrated ownership and potential for liquidation due to over leverage or bad activity. Instead, focus on assets with transparent and auditable code, like DeFi. Regulators have been slow to enter the crypto scene, but recognizing the unique nature of crypto regulation through transparent and auditable code could help prevent future issues. Providing guidance to centralized exchanges on sensible customer protections and stablecoin regulation could also be beneficial. The potential of stablecoin as an important innovation in global finance should not be overlooked by governments.
Regulatory clarity needed for institutional adoption: Clear guidelines on stablecoins and consumer protection will encourage good actors, reduce enforcement actions, and enable institutional investors to enter the crypto space, driving growth and revenue.
Regulatory clarity is a major factor holding back institutional adoption of cryptocurrencies. Jay Kaplan believes that if clear guidelines are provided around stablecoins and consumer protection, it will encourage good actors to enter the space and reduce the likelihood of enforcement actions. However, there is a cost to compliance, which means weeding out bad actors. Institutional investors, such as pensions and endowments, understand the potential of these assets but are waiting for regulatory frameworks to develop. They believe that as financial players adopt cryptocurrencies, a clear regulatory framework will follow. Institutional investors are not willing to be completely sidelined from this space, as they see significant potential for growth and revenue. The pressure from incumbents, like custodians and asset management firms, will push for regulatory clarity to prevent being overshadowed by innovators like Coinbase. Ultimately, regulatory clarity will be necessary for the mass adoption of cryptocurrencies by institutions.
Expanding Offerings in Crypto: Uniswap and Arbitrum: Uniswap adds fiat on-ramp and NFT aggregation, Arbitrum offers faster Ethereum transactions and attracts projects, both contributing to the crypto space's resilience and adaptability during market downturns
The crypto space has seen significant developments and improvements in 2022, despite the market downturn. Uniswap, for instance, has expanded its offerings beyond DeFi to include a fiat on-ramp and NFT aggregation, making it easier for users to go from traditional finance to decentralized finance and digital assets. Arbitrum, a scalability solution for Ethereum, has attracted numerous projects and ecosystems, providing faster transaction speeds and lower gas fees. Additionally, educational platforms like Metamask Learn are simplifying the learning process for newcomers. While the market setbacks could have potentially led to financial instability, the counterfactual of unchecked growth could have been even more detrimental. The regulatory response to the events of 2022 suggests a continued separation of crypto from the traditional financial system, which could lead to a healthier and more sustainable growth in the future. Overall, these developments demonstrate the resilience and adaptability of the crypto space, even in challenging times.
Learning valuable life lessons through crypto investing: Crypto investing offers opportunities for self-discovery, learning important life lessons, and potential financial gains, despite the challenges and high stakes.
The rapid cycles and separation of traditional finance from crypto may be challenging, but it's beneficial for the overall industry. This separation allows younger, creative, and entrepreneurially-minded individuals to thrive and learn valuable life lessons through the pursuit of trading. Additionally, investing in crypto offers an objective truth about success or failure, and the potential for significant financial gains and social media recognition can amplify the effects on one's ego. The rapid cycles and high stakes of crypto investing make it an excellent venue for self-discovery and learning important life lessons. However, not everyone will be successful in their careers, but the experience and insights gained are invaluable. The theme of shorting ego, as exemplified by successful investors, can lead to impressive returns in the crypto market.
Institutional Investment in Crypto: From Blue-Chip Buying to Detailed Research: Institutional investment in crypto is shifting from blue-chip buying to detailed research and analysis, with the addition of experienced professionals and a focus on DeFi and regulation through code.
The institutional investment in crypto has evolved significantly over the past year, with firms like One River Asset Management delving deeper into research and analysis. Eric Ervin, the CEO of One River, shared his experience of working with a seasoned investor who helped him navigate bear markets in the past. He then pivoted the conversation towards One River's institutional exposure to crypto, discussing the progression from buying blue-chip cryptocurrencies like Bitcoin and Ethereum to more detailed research and analysis. Eric highlighted the addition of Marcel Kasimovich, a renowned strategist, to his team, who brought a wealth of experience and curiosity to the crypto space. The team's approach to DeFi and regulation through code was also noted as unique and crucial in this historical context. However, the challenges of operating in a regulated environment with anti-money laundering and fraud prevention were acknowledged. Overall, the institutional investment in crypto is becoming more precise and sophisticated, with a focus on deep research and analysis.
Unlocking DeFi's potential through regulation and AML/KYC measures: DeFi needs regulatory acceptance and effective AML/KYC measures to integrate with traditional finance and reach its full potential, and our firm is dedicated to understanding and adapting these technologies while complying with major jurisdictions' regulations.
DeFi, while currently regulated by code, needs to be accepted in developed markets and adopt effective AML/KYC measures to unlock its full potential and integrate with traditional finance. Our firm initially avoided DeFi due to insufficient returns and regulatory concerns, but we've since dedicated significant resources to understanding the space and believe in adapting these technologies to traditional financial markets and assets. By doing so, we aim to advance these technologies while complying with regulatory requirements in major jurisdictions and avoiding closed systems. To produce detailed reports, it's crucial to assemble a team of experts and foster deep curiosity. While some firms may produce reports on trendy topics, our focus on polynomials and blob space demonstrates our commitment to thorough analysis and staying informed about the latest developments in the DeFi space.
Long-term success in crypto requires solid team and culture: Focus on long-term success, hire the right people, and offer innovative investment strategies to institutions in crypto asset world
Having a long-term perspective and bringing in the right people with deep curiosity and introspection is crucial for success in the crypto asset world. The speaker emphasized the importance of having a solid team and culture, as well as being fundamentally sound, even during market downturns. They also mentioned the launch of a trend following fund focused on Bitcoin and Ether as a strategy for institutions to gain exposure to crypto assets beyond just buying blue chips. This fund allows institutions to capitalize on upside while also getting out of the way on the downside, and it's expected to attract a significant amount of money due to its popularity in alternative asset management. Overall, the speaker's approach to the crypto asset world is focused on long-term success, smart hiring, and offering innovative investment strategies to institutions.
Bitcoin mining boom like shale gas industry, miners holding onto Bitcoin instead of selling: Unprecedented Bitcoin mining boom, miners hoarding Bitcoin, institutions investing in mining facilities, macroeconomic environment impacting institutional appetite for crypto assets, understanding macroeconomic landscape crucial for crypto investors in 2023
Bitcoin mining is currently experiencing a boom similar to the shale gas industry, but unlike traditional energy companies, miners are holding onto Bitcoin instead of selling it for production costs. This unique dynamic could lead to historic busts in the industry. Doug Wilson, an energy markets expert, predicts this trend and suggests that institutions could invest in mining facilities to create their own Bitcoin as a way to accumulate digital assets. The macroeconomic environment, particularly Fed interest rates, will significantly impact institutional appetite for crypto assets. Last year's historic rate hike cycle took the market by surprise, and the pace and scale of tightening were unexpected. As we move into 2023, understanding the macroeconomic landscape will be crucial for investors in the crypto space.
Speaker's belief in necessary currency debasement: Speaker predicts Fed rate hikes but not causing depression, with potential wild cards in transition year, holding contrarian views for potential gains
Despite differing views on economic policies, the speaker expressed his belief that the decision to debasement the currency and increase nominal GDP with lower interest rates is a necessary step to address societal debts and entitlements. He also predicted that the Federal Reserve will hike interest rates but not to the point of causing a depression. Instead, there will be a transition year with potential wild cards that could impact the economy. The speaker, who holds a contrarian view, believes that he could make significant gains if his predictions come true. The dinner conversation was intense and combative, with the speaker not shying away from expressing his opinions, even if it meant butting heads with industry legends.
Decade of Economic Volatility Ahead: The next decade will bring economic instability due to central bank actions, leading to potential opportunities in crypto markets
We've passed the most challenging phase of the crypto market cycle and the economic environment, but we're not necessarily back in a full-blown bull market. The central banks have been working to regain control of inflation and the economy, but debasement will continue to be a theme for the next decade. The dollar will continue to depreciate, leading to volatility and potential opportunities in markets, including crypto. Historically, periods of significant debasement have been marked by ups and downs, making it an exciting and challenging time for traders. Eric Weinstein, a guest on the Bankless podcast, believes that governments will continue to increase their debt to fund necessary investments, leading to more money in the system and potential inflation. This decade will be marked by economic volability, and crypto could benefit from these conditions. Listeners can catch the full conversation in Bankless episode 89, and for more insights, check out One River's digital assets research section on their website.
Exploring the Exciting World of Cryptocurrencies: While risky, investing in cryptocurrencies like Bitcoin and Ethereum offers potential rewards and contributes to the shift towards a more digital economy. Be aware of the volatility and consider seeking advice before investing.
While investing in cryptocurrencies like Bitcoin and Ethereum carries risks, the potential rewards make it an exciting frontier for some. During our discussion, we touched on various topics, including the potential of decentralized finance (DeFi) and the shift towards a more digital economy. However, it's important to remember that none of this should be considered financial advice. Crypto investments can be volatile and risky, and you could potentially lose the money you put in. But for those willing to take the plunge, the potential rewards could be significant. The journey towards a more bankless future is just getting started, and we're glad you're joining us. Remember, always do your own research and consider seeking advice from a financial advisor before making any investment decisions.
