All Markets Summit+: Crypto Investing

Yahoo Finance All Markets Summit+: Crypto Investing special features leaders and innovators in the world of blockchain and crypto. In the past few years digital adoption and innovation has surged in every part of our lives, and the financial markets are no exception. Yahoo Finance's All Markets Summit+: Crypto Investing examines the current digital currency landscape, and looks forward to what’s next for this exciting and profitable new asset class. With the help of our special guests we’ll break down all things crypto and more importantly why it could be a key part of an investor's portfolio. This event is brought to you by Grayscale Investments.

Video transcript

- This is Yahoo Finance's All Markets Summit Plus, Crypto Investing. From Bitcoin to DOGE, we're decrypting crypto, what it is, how it works, and how to get started. Hear the inside scoop from the trailblazers in crypto and blockchain. We're cutting through the hype to cover the hottest happenings in crypto and how you can profit from it, what you need to know about Bitcoin ETFs, where regulators are ramping up pressure, and what it all means for the future of crypto and your investments. Join us now for Yahoo Finance's All Markets Summit Plus, Crypto Investing.

ANDY SERWER: Hello, everyone. I'm Andy Serwer, Yahoo Finance's editor in chief and I want to welcome you to this special show on cryptocurrencies, brought to you by Grayscale Investments. Over the next 90 minutes, we're going to explore many of the big issues surrounding cryptocurrencies. And to that end, we brought together leaders and innovators in the world of blockchain and crypto.

There's little doubt that digital adoption and innovation has surged over the past several years, and it's especially true in the financial markets. Today we're going to examine the current digital currency and crypto landscape, and look forward to what's next for this exciting and perhaps profitable new asset class. With the help of our special guests, we'll break down all things crypto and, more importantly, why it could be a key part of an individual investor's portfolio.

It's a lot to get to, and we're going to begin with a leader in the digital currency space. Michael Sonnenshein, CEO of Grayscale, welcome. Great to see you.

MICHAEL SONNENSHEIN: Thanks Andy, great to be here.

ANDY SERWER: Why don't we start off by you telling us, for those who aren't familiar with your company, what exactly Grayscale does?

MICHAEL SONNENSHEIN: So Grayscale investments is the world's largest digital currency asset manager. We've been in business since late 2013, and we were early to recognize that digital currencies were going to become a bona fide asset class. And when we look at the way a lot of asset managers have grown their businesses, it's really been about providing access to a certain part of the market-- stocks, bonds, you name it.

In the case of Grayscale, we've developed a whole family of investment products that allow investors to access digital currencies, like Bitcoin, Ethereum, et cetera, and now have a family of 15 investment products and over $40 billion of assets under management.

ANDY SERWER: And what about the number of customers? Do you guys talk about that and number of accounts, that kind of thing?

MICHAEL SONNENSHEIN: Well, it's a little bit hard to quantify, sometimes. So customers, sometimes, directly participate in any one of the 15 Grayscale products directly with us. And then six of our products are also publicly traded on the stock market. So we are fortunate to call hundreds of thousands of investors, as Grayscale clients, across those products, as well.

ANDY SERWER: Great. So you are an original gangster here with crypto, an OG, going back, I know, Michael. And so talk to us about how the business has changed over the years.

MICHAEL SONNENSHEIN: Well, I really started my career in more traditional banking mode, and that was a formative experience. But in the middle of my career, I realized I was ready to take on a new challenge. And I wasn't necessarily looking for crypto, but have, through a series of random events, got into it.

And when I joined in early 2014, the only people that would return a phone call or think about crypto were Silicon Valley CEOs and family offices. Many people had balked at the idea of digital currency. They thought that only government should create currency. They didn't really understand the potential of decentralized networks, the power of the underlying blockchain technology.

And over the last eight years, it has been such a humbling experience to have a front row seat to see the evolution of this asset class, which today-- Andy, if you'd asked me eight years ago, I would never have believed that we would see Fortune 500 companies holding Bitcoin on their balance sheet, some of the world's most experienced investors investing in Bitcoin and very publicly talking about digital currencies, or even seeing entire countries adopting Bitcoin as legal tender. So the transformation has been unbelievable.

And I'd say that, more than ever now, investors really believe in the staying power of this asset class and are really trying to understand how and where this may fit into their portfolios.

ANDY SERWER: Now, let's talk about the present. What defines the market today, Michael? And what should investors be looking for?

MICHAEL SONNENSHEIN: Well, I think there is a challenge for investors. There are now hundreds, if not thousands, of digital currencies out there. And many investors, I think, first have to understand that the underlying technology, as well as the use cases around various digital cryptocurrencies, to decide what may make sense for them. Things like Bitcoin are inherently built to be a digital form of money, or a store of value, whereas things like Ethereum are meant to be more of a gas to power decentralized applications. And the list goes on and on. But the truth of the digital currency ecosystem, is that it's not necessarily going to be appropriate for every investor.

We tend to find that those who want to allocate to digital currencies are those that have a higher risk tolerance, a longer time horizon for their investment, and also have found that, especially over the last few years, there's an appreciation now that there's, in fact, a whole asset class. It's not just about Bitcoin or just about Ethereum, but we're starting to see new use cases emerge, whether it's around file storage, or gaming, or privacy, that is also inherently tied back to many of the digital currency protocols that have been created.

And with that, we've seen a trend amongst investors to ensure that, if they do invest, they're also doing it through a diversified way, investing beyond just assets, like Bitcoin and Ethereum, where much of the market cap is concentrated today.

ANDY SERWER: For investors who want to get started and don't know much about this asset class, Michael, what's the best way for them to think about this? And how should they proceed?

MICHAEL SONNENSHEIN: Well, I think, number one, I'd circle back to what I just shared, which is that it's not appropriate for everybody, the same way that every investment under the sun is not something that every investor is going to action. It's generally something that I would tell people to, again, have that longer term time horizon, be able to stomach the volatility, and ensure that it needs your lesson objectives.

When sized appropriately in a portfolio, whether it's 50 basis points, or half of a percent, or sometimes as much as 3% or 4%, it actually can help investors achieve higher risk adjusted returns. And so I tell people to start small and whether they're buying assets like Bitcoin and Ethereum directly whether they engage with a digital currency wallet provider or order book or exchange or it simply is going into their brokerage account or retirement accounts and buying shares of GBTC or ETAT, these are really simple ways to just start getting involved.

And I think once you make that first leap of faith into this and start to understand the asset class a little more, that's the comfort that folks need to really get started.

ANDY SERWER: Michael, one big question with this asset class is correlation with legacy financial instruments, and I'm really curious to get your take on that. There are some indications that it's not correlated, there are some indications that it is correlated. Where do you come out?

MICHAEL SONNENSHEIN: I think that my general feeling is that it would probably be uncorrelated. I think what we typically see is investors thinking about this as occupying a new part of their portfolio. I would certainly think most investors characterize it as being at the high risk end of the spectrum for them, but not necessarily something that's tied to many of their other investments.

And so we've seen a rotation out of things, like gold or other stores of value, and into assets, like Bitcoin, and even some investors starting to believe that they now have this entirely new asset class at their disposal that can actually help them weather market volatility. So I think it depends on the investor. But generally speaking, with only 10 or maybe even now 12 years of a track record, it's hard to really establish that correlation or lack thereof.

ANDY SERWER: Fascinating stuff. We're going to take a quick break with Michael Sonnenshein, CEO of Grayscale. Be right back.

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ANDY SERWER: All right, we're back with Michael Sonnenshein, CEO of Grayscale. Michael, you were talking about this asset class, digital currency, being both a store of value and, as you said, a gas to help power the new economy. And I'm wondering if there is a distinction there from an investing standpoint, whether you want to go into one sort of digital currency or another and if that really matters.

MICHAEL SONNENSHEIN: Well, again, I think many investors are taking, as much as ever, a diversified approach to their digital currency allocation. So that's twofold-- one, that they're diversifying their overall portfolio by investing in digital currencies in general, but also, when they think about that allocation, diversifying within which digital currencies they're investing in. And so I think it depends on where investors historically have allocated capital.

So some investors are finding more correlations for what, historically, has given them comfort as an investor to things, like Bitcoin, because they've historically invested in currencies or have invested in gold, or bonds, or other things that may act as an inflation hedge in their portfolios, whereas other investors may also be interested in assets, like Ethereum, which are now powering decentralized finance, or DeFi, applications and countless other ecosystems within the digital currency ecosystem that are continuing to pop up.

But I think now more than ever, it's really about having that diversified approach, because it is difficult as an investor to choose winners and avoid losers, particularly because the space is evolving quite quickly.

ANDY SERWER: Yeah, I want to talk about some of the new things you guys are working on in particular. You have the Grayscale DeFi Fund. How does that work?

MICHAEL SONNENSHEIN: So the Grayscale DeFi Fund is an investment vehicle that allows investors to make a singular investment, but in doing so, gain broad based exposure to DeFi focused protocols. So that is an entirely new subset of digital currencies, and DeFi, or decentralized finance, really starts to play on protocols that are disrupting things, like exchange, lending, borrowing, the centralized services that we typically get from financial services firms, but instead, building that into decentralized protocols where users can tap a massive base of other participants to achieve the best rates or the best counterparties.

And so this is a new and emerging area of the market, and so taking a diversified approach is inherently something that many investors have chosen to do. And the Grayscale DeFi Fund is a pretty simple way for investors to, again, get that broad based exposure to this part of digital assets.

ANDY SERWER: Let's talk about the future a little bit, Michael. And what's on your radar? What do investors need to know, going forward? How will the space evolve? I know that you're interested in futures, Bitcoin spot, those kinds of things. Tell us what's up there.

MICHAEL SONNENSHEIN: Well, I think one of the most important things that I'm looking at is a catalyst on the horizon. It's not just seeing Fortune 500 companies allocating to Bitcoin or seeing it recognized by countries as legal tender. The interesting thing is, with the seat that I've had over the last eight years, I've never been at this moment more impressed by the talent and the tools that are being built around digital currencies and digital assets today. That's order management tools, that's indexes, that's tax lot reporting, that's settlement systems. All of these types of infrastructure are being built in a really robust way.

But where there's still a lack of connectivity is from those assets and those tools into the legacy financial system. So as an investor, I would be very, very focused on when that plumbing is going to be built. And I say plumbing, because the legacy financial system is well-oiled and has very tried and true ways in which assets and value moves around.

And one would suspect that when the digital asset ecosystems plumbing connects to the legacy system, you're going to see a much, much larger pool of investors and capital will be able to flow into the digital asset ecosystem, and I think that that's going to be really, really exciting.

ANDY SERWER: I have to ask you about the regulatory environment, Michael, and it's such a vast question, really, but what is the most critical regulatory issue that crypto, and Bitcoin, and digital currencies face?

MICHAEL SONNENSHEIN: Well, it's really a patchwork between what we're seeing here in the US and other parts of the world, varying temperatures of accommodative and prohibited stances towards digital assets. I think here in the US, what's really important is continued regulation, but we need to see regulation beyond enforcement. A lot of what we've seen from the SEC and other regulators here in the US has really been calling out bad actors and ensuring that they're brought to justice, which we certainly support.

But unfortunately, our industry can't solely use those examples as the guideposts on how to offer products and services around digital assets. So we certainly need more regulation here in the US and only believe that that'll lend to the validity of the asset class. I think in other parts of the world, places like China, where they've already developed and started to distribute a digital renminbi, or digital yuan, is really interesting and is starting to show other use cases of how even central banks and governments are adopting this technology and moving to blockchain-based protocols.

ANDY SERWER: Fascinating stuff. Michael Sonnenshein, CEO of Grayscale, thank you so much for joining us.

MICHAEL SONNENSHEIN: Thank you.

- Cryptocurrencies have posted big gains in the past year, but who will fuel the next leg up? Up next, we're decrypting crypto and AZA Finance founder and CEO, Elizabeth Rossiello, and BAKKT President, Adam White. Stay with us.

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ZACK GUZMAN: Welcome back to Yahoo Finance's special All Markets Summit+ crypto investing, presented by Grayscale Investments. As we've been highlighting here on Yahoo Finance, we've seen more and more institutions lean into crypto to drive real world solutions. And we put together pretty interesting panel here, with leaders tackling two very different problems, but the common thread being crypto at the heart of the solution.

Joining me on the panel here is Elizabeth Rossiello the founder and CEO of AZA Finance, a crypto centric financial platform fueling transactions across more than 100 countries after setting up the first crypto exchange in Africa. She also co-chairs the World Economic Forum's council on blockchain.

Also along with me is Adam White, the president of Bakkt, a digital asset leader founded by the New York Stock Exchange's parent company. It's currently closing in on its back margin to become a publicly traded company, and he also, I should note, previously served as VP and General Manager of Coinbase, where he was employee number five.

Guys, appreciate you both joining me here on the panel today. And I just kind of wanted to start this one off with a look back on how far we've come since the early days of crypto, and perhaps, more importantly, how much farther we have to go here.

Because I'm sure a lot of people watching this think that they may have missed out, right? We've seen Bitcoin really, really climb here over the last few years. And I'm not sure if that's true. So let's dig into it here. And Adam, we can start with you, because I know Bakkt put out a recent survey that was kind of interesting to look here at US consumers.

And you guys found that nearly half reported investing their money in cryptocurrency here to kick off the year, which seemed higher than maybe some of the other surveys we've seen. But what have you seen in, I guess, kind of the demographic of who's most excited in getting involved now, relative, I suppose, to years past, and really where that excitement lies?

ADAM WHITE: Yeah, that's right. So in fact, just to take a second to explain what we do. We allow consumers to put all their digital assets right alongside one another. So your crypto is going to sit, and does sit, right next to your airline miles, your hotel points, to your gift cards. And we're adding more and more digital assets every month.

What's so exciting about that is it demystifies this idea of crypto. And what we did as part of that work is, we went out and spoke to consumers, spoke to potential users. And we asked, hey, how are you thinking about crypto? How do you plan to use it? And some of the really interesting data points we found is, one, like you said, we're still early. There is still growing interest.

32% of the people that we spoke to have not purchased any crypto, and plan to within the first six months of this year. That's really exciting. We also found that almost 24% of people said that they have plans on using crypto for online digital purchases. So there's real utility behind these assets as well.

But also, we found that we still need more education. 40% of people that we spoke with didn't realize they could purchase a fraction of a crypto, meaning they didn't have to buy a full Bitcoin for $43,000.

So as much as we like to think, wow, crypto's come so far in the last 10 years, I still think we're very early in the process.

Yeah, I still hear that, too. People surprised they can't-- that they don't need to buy a full Bitcoin here, and it's very important to stress. And I suppose Elizabeth, too, when we think about some of the concerns that people might have when it comes to investing in crypto, volatility also one of those things.

Adam, in your guys' survey, I think it was, what? A third of people said they didn't want to get involved because of too much volatility. But Elizabeth just pointed out, with your focus on Africa, even currencies over there sometimes perform a bit more volatile than what we've seen in crypto. So talk to me about maybe when we back up and look at a global stage, how important the technology is.

ELIZABETH ROSSIELLO: Well, first of all, when we're talking about AZA Finance, we're really talking about making a market in foreign exchange in all frontier markets. And when you talk about foreign exchange, you have to talk about treasury and settlement infrastructure.

And going back to what Michael said from Grayscale in the segment before, we're really about building that on and off ramp between the old financial system and the future of finance. So in our basket of over 100 currency pairs that we trade, digital currency pairs are right alongside it.

And when you think about the needs of frontier markets, these are highly volatile assets. So we need to talk about risk mitigation, we need to talk about real time settlements so that we don't have the delay in settlement adding to the volatility.

And we need to be able to trade around the clock. And so when there's a US dollar holiday, for example, in North America, we don't need trading to stop in West Africa or South Africa, or trade between Africa and China. So digital currencies really provide a necessary solution, not just for investing in a future asset class, but also an infrastructure for settlements of foreign exchange in frontier markets. And those markets that don't necessarily match completely with North American or European markets.

ZACK GUZMAN: Yeah, let's stick with that, too, for a second here. Because we've heard a lot of maybe people here in the US who are involved in traditional financial institutions. I know you were involved with prime brokerage before. You have seen kind of the inefficiencies here in the US, and have jumped over to crypto just because of things being quicker to settle.

But when you look at maybe things getting built out in developing economies, there in Africa, particularly, I guess I'm kind of reminded of kind of the way that India and other developing nations kind of jumped, even eating land lines, already getting on to cell phones. If there is a potential benefit there in being able to lay this out at the same time that old traditional systems were getting laid out as well.

I mean, does that maybe give a boost, not just to adoption, but I guess what the future looks like for some of those developing nations?

ELIZABETH ROSSIELLO: 100%. And when we look at an era in the post Bretton Woods monetary policy world, we can't be talking about settling through the US dollar, which settles over swift all the time. When we're trading between continents that don't involve the dollar, why should we be using dollar legacy infrastructure?

And that might sound radical, but it really doesn't make a lot of sense to trade from West Africa, to the US, and then back to South Africa in almost a triangle. And the World Bank was quoted as lending in rupee in India, or lending in peso in South Africa, but the lending in Africa was still in the US dollar.

So the monetary systems, the settlement infrastructure, the banking system across the African continent has been heavily reliant on infrastructure that just doesn't match its needs. We're talking double digit FX margins between South Africa and Nigeria, two of the largest economies on the continent. We're talking about 7 to 10 days to settle between the francophone monetary union, which is the same currency.

So we really need to think about the future of financial infrastructure, and that includes digital currencies which can settle real time globally with counterparties, interconnected in a way that the traditional infrastructure just can't and was never built for.

ZACK GUZMAN: And Adam, I mean, when we see institutions kind of getting interested in crypto for just that, I know you work closely with institutions to provide custody here and have seen a big boost. I mean, that seems to be what has really driven kind of some of the price appreciation we've seen this year, is institutional investors getting involved.

How important is that, in terms of what Bakkt's trying to build here, and what have you seen from that inflow, I suppose, in excitement this year?

ADAM WHITE: Yeah, back was actually launched a couple of years ago, and the first product we offered was regulated custody for financial institutions. And we've done that through our partnership with Ice, a Fortune 500 company that operates some of the world's largest exchanges like the New York Stock Exchange.

But that regulated, trusted financial infrastructure is core to institutions moving into this asset class. Beyond that, stuff like Elizabeth was talking about with the technology as well, it's fascinating. It's incredibly opportunistic growth for the space. But right now where we see most of that institutional interest is on having asset exposure to assets like Bitcoin.

So that is the core of what Bakkt offers, and I spoke a little bit about the consumer products we have. But Bakkt also offers that regulated custody in those futures contracts, which allow institutions to move into this asset class in a way that feels familiar and is fully regulated by regulators here in the US.

ZACK GUZMAN: Yeah, and when it comes to that, too, I mean, I guess there are questions about safety. We're going to take a quick break here, but I want to get one more in with you, Adam, when it comes to safety on that front. Because that too I suppose would be one of the issues maybe preventing some people from coming in here. But how important have improvements been made there to really ensure custody here, relative to some of those early days?

I know people with Bakkt had some exchange hacks before. How far we come from there.

ADAM WHITE: Yeah, we've come a long ways. The reputational debt of crypto still has a lot of people-- the first question they ask is, how are you protecting my crypto assets? And that's the right question. But now we see incredibly sophisticated financial institutions in this space. We see startups that have come a long way, and have some great technology themselves.

So I think of anyone operating in the space right now, I think security and compliance are two things at the forefront, and certainly what we take most seriously here at Bakkt, too.

ZACK GUZMAN: If there's one more issue people have been watching, it's regulation. We're going to get into that on the other side of the break, but stay tuned. We're going to have much more here on Yahoo Finance's special All Markets Summit+ presented by Grayscale, right after this break.

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ZACK GUZMAN: Welcome back to Yahoo Finance's special All Markets Summit+ crypto investing. I'm Zack Guzman here, alongside Elizabeth Rossiello, the founder and CEO of AZA Finance. And Adam White, the President of Bakkt, the digital asset leader founded by the parent company of the New York Stock Exchange.

And Elizabeth, we were talking about regulation heading into break here. And it is interesting to kind of get your insight when we talk about that, given the fact that this year we've seen El Salvador adopt Bitcoin as legal tender. You were talking about the ease of efficiencies in regards to whether we should look at Bitcoin as a commodity or a currency when it comes to transactions across state lines here.

Talk to me about how big that is for the sector, and what it does, maybe, to change the way regulators think about it.

ELIZABETH ROSSIELLO: Well, there's a lot to be said about accepting multiple currencies as legal tender for smaller nations who struggle with liquidity. But I think what we need to think about with regulation is that it's not apples to oranges here. There's a lot of different products, a lot of different uses for this technology and for this asset class. And we can't have one regulation fit them all.

We work with a lot of large Fortune 50 companies and their corporate treasury teams, and they settle with us in stablecoins, for example. USDC. They shouldn't have to have specific license to trade via USDC as opposed to another currency pair going forward. This is just going to be one other currency pair in the basket.

So I think when we think about, should this be legal tender? Should this be a CBDC, or a central bank digital currency? Should it be holding as a portfolio, or as an asset in a wallet that were trusted third party provider? There's a wide range of regulation for this industry, and it is an entire industry. So we really need to be specific when we talk about it.

I think what's most interesting is when we see governments get involved, like in China, and the PBOC issue its own coin, and really set the scene for what it thinks all of the industry within China should look like, based on its own government participation. I think in other places, we've seen the private sector lead. We've seen a mixture of private-public partnerships. And some spaces, we've seen regulators simply include trading in this currency, or using this infrastructure, under existing regulation.

So I think we need to be a little more specific when we talk about it, because this is a major issue for a major movement.

ZACK GUZMAN: Yeah, and I mean, on that front, you know, we talk about it, it's good headline material when we talk about crypto killing traditional finance, or banking, or anything like that. But you've kind of looked at it as a complementary model to kind of work around some of the issues that traditional banking runs into, particularly when it comes to cross-border payments, and transactions, and the like. I mean, is that maybe the right way to be thinking about it now here in 2021? That it's mostly complementary.

ELIZABETH ROSSIELLO: 100%. I mean, I have a t-shirt that says, normalize crypto. But I think we need to think about it in terms of the future of monetary policy, the future of alternative assets to invest in, the future of technology and how we're running companies based on open-source software, interconnected, self-propelling software.

I think it's a lot of different topics that we need to think about, but it's affecting everything from how we trade, to how we interact with each other, to how we move money and the infrastructure beneath it. So I'm sorry to be general when we talk about it, but I think it's-- we need to separate what's going on here.

I mean, there's some very cool things at the edge of the industry in terms of DeFi and NFTs. There's a lot of young startups. There's Fidelity and JPMorgan getting involved, governments like I said. So it's really across all industries, from the front to the back office. Not only just the technology, but also a new way of doing business.

ZACK GUZMAN: Yeah, and Adam, when you kind of dig into the new way of doing business, back here in the US, when it comes to regulation, there have been a lot of complaints in terms of just not having regulatory clarity from the SEC or maybe other agencies as well.

I mean, how do you kind of, I guess, iterate when it comes to the technology there at Bakkt, if there are those uncertainties, because you're dealing with a lot of digital assets. Not just airline rewards miles, but all kinds of loyalty points and crypto assets as well.

ADAM WHITE: Yes. Good regulatory starts with partnership. And what most people don't know is, we spent years working closely with regulators before we ever launched our first product. Namely regulated Bitcoin custody. And then the first physically delivered Bitcoin futures contracts here in the US.

That partnership is what helps provide regulatory clarity. So a lot of the work we do at Bakkt is, we're regulated as a money transmitter in nearly 50 states. We have a New York bitlicense. We have a New York trust license as well. Those licenses and that partnership with regulators allows us to offer new products and continue to be innovative.

So to us, regulatory clarity is not something that happens overnight. It's something that takes time. I think we're optimistic that we're seeing the US ask those tough questions, and we're seeing the crypto industry rally behind that and provide education and partnership.

But it's going to take time, and that's kind of, again, the heart of what Bakkt does, is we want products that we're confident meet regulatory requirements, but can still innovate and leverage all the unique things that crypto provides. Like DeFi, like NFTs, like the Web 3.0.

ZACK GUZMAN: We didn't even get time to get into NFTs. I know you guys were real jazzed to talk about that, but we only have about two minutes left to wrap up here. And we started this conversation with kind of where we are and where we're going, I suppose, in the timelines. Maybe we'll wrap up with a quick one minute each here, bold premonitions for what could happen in the crypto world, that you see some big events and evolution points to maybe keep out an eye for in 2022.

And Elizabeth, we can start with you. Any bold calls for what could happen here?

ELIZABETH ROSSIELLO: I think we're going to see the regulatory map start turning much more green. We've been eight years in this process, even longer. I was on the committee in several countries writing regulation in 2014. It's time now. And as Adam said, we're working together over a long period of time. And you're going to see those lights start to turn on.

And we're at the place where there's no turning back. This is happening. I think seeing the large banks move in in the last bull run was a big indicator. Seeing a lot of the institutional investors come in with big tickets and a lot of sticky investors. I think now we're at the place where, I don't want to say it's too big to fail, but it's too much velocity to stop moving forward.

And I'm not just talking about the price. I'm talking about the technology, the integration, and the idea that we're building something radically new for a new kind of financial system.

ZACK GUZMAN: And Adam, take us home. Your bold claim, your bold call, rather.

ADAM WHITE: OK. I think one of the biggest challenges for the crypto space over the past decade is, what's the killer app? What are people using crypto for beyond speculation, and maybe some early proof of examples of remittances or payments. And I think we're going to see, in 2022, the first very clear example of a killer app.

And if I had to guess, it's going to come across in a way where people have no idea they're using crypto. Predominantly probably through gaming slash the metaverse and NFTs. What's happening with Axie Infinity, and Zed Run, and Star Atlas, we're keeping a very close eye on. And that is bringing in millions of new users into the crypto ecosystem that were never involved in crypto before.

And I think that's fascinating, and I think it's time for that to happen, and we're very excited to see it play out over the next year.

ZACK GUZMAN: Yeah, the growth across all those things has been fascinating to watch here. But appreciate you both joining me on the panel. Elizabeth Rossiello, AZA Finance founder and CEO, along with Bakkt President Adam White. Thanks again for the time, guys. Be well.

- Still ahead on this special All Markets Summit+ crypto investing, Fairlead Strategies founder Katie Stockton will join us. We'll be right back.

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AKIKO FUJITA: Welcome back to Yahoo Finance's special All Markets Summit+ crypto investing, presented by Grayscale Investments. I'm Akiko Fujita.

Over the last half hour or so, we've really been focusing on some of the key issues around cryptocurrencies. But I want to see if we can hone into the investment thesis now. How do you put your money to work in this space? For that, let's bring in Katie Stockton. She's Fairlead Strategies' founder.

Katie, it's great to talk to you today. I want to start with a number out from the University of Chicago, because I think it points to where we are today. A recent survey they conducted showed 13% of Americans traded crypto over the last year. That's about 10% lower than those who said they put their money to work in stocks over the same period.

So that number seems to suggest the exposure is still pretty limited. But as we know, it's changing rapidly. How do you think investors should be thinking about their crypto allocation in the broader portfolio right now?

KATIE STOCKTON: You know it does still feel like it's in the early stages of adoption to me. Kind of at the very low end of that curve, right, that could accelerate to the upside. And that goes not just for individuals, but institutions as well. Especially pension funds, is one source of major, major assets out there, really which have not largely been deployed to cryptocurrencies.

Now, of course, they probably need to see a lot more regulation put in place before they can go there in earnest, but even a very, very small fractional percentage of that capital would really be a game changer for the industry in my opinion.

So we want to take advantage of these trends. And indeed, I look at the Markets from a technical perspective. And the up trends are pretty well established already, in Bitcoin and most altcoins. So we have seen what they're capable of, and I think the only guarantee is that we'll expect some volatility on a short term basis, but we have ways to analyze them from a technical perspective, looking purely at price, which, of course, is driven by supply and demand for those cryptocurrencies.

And it has been validated, really, as a very viable investment, and a way to get sort of a lower correlation to the equity market.

AKIKO FUJITA: Let's talk about those correlations, because we heard, you know, more in the initial days that Bitcoin, for example, is a safe haven asset. It's kind of like a digital gold. And when you look at the price action last week, though, the big sell off that we saw in Bitcoin correlated directly with the big sell off that we saw in equities as well.

So, is there a tighter correlation between those two? How should we be looking at that?

KATIE STOCKTON: I would say at times, there are tighter correlations. But it's not really something that we found that we can rely upon yet, because we are seeing people treat cryptocurrencies as risk assets. So when you have sort of broad risk off in the equity market, you tend to also have broad risk off in the cryptocurrency market. So that, to me, is something that we've come to terms with. And of course, that changes the perception of it, perhaps, as a safe haven or something that you could liken to gold, which of course, has very defensive properties.

So it's really tough to rely on any of these correlations, because they have not really been established on both the short and long term basis. We are working with limited price history for one. But I think rather than relying on those correlations as a reason to invest, perhaps, that we can trust that it is a different asset class, and it's giving us different exposure.

And at the end of the day, that's something that, really, a lot of certainly institutions are very interested in, because we don't want to be too heavily exposed to something just like the US equity market, which as you know, is really very largely driven by five stocks or so.

AKIKO FUJITA: To what extent has the institutional money moved into this space? I know you mentioned it early on here, but you know we've heard for so many years that institutional adoption will lead to more price stability if you look at something like Bitcoin or Ether. And yet, it's still very volatile right now. We got those comments from SkyBridge's Anthony Scaramucci who said, look, anybody who's saying there's widespread institutional adoption is just not being honest. What are you seeing?

KATIE STOCKTON: I don't think we're there yet either. But I think when we get there, we will see that greater sort of liquidity and sort of tighter spreads, if you will, influence them in a positive way, such that there will be less volatility. But we found that using the charts and the technical indicators at our disposal that the cryptocurrencies are really minding support and resistance levels.

So while there is expected volatility, we have ways to manage risk, to navigate those short term swings by identifying key levels and combining them with indicators that measure things like momentum and overbought oversold readings. And that helps us, then, know how to position, perhaps, even if just for the next two weeks. And then, of course, we want to have that context, that longer term context.

For us, that long term context is still very much bullish. But we've been short term bearish through this corrective phase with sort of risk off evident among the altcoins. So we like to try to follow these trends, being very clear about which time frame we're focused on at that time.

AKIKO FUJITA: So what are those technicals telling you right now about the amount of exposure investors should be taking in the space? And you mentioned Bitcoin and Ether already, but what about the other stablecoins for example? I mean, how should people be looking at dipping their toes in how they allocate?

KATIE STOCKTON: Yeah, you know, we've started to do some relative strength analysis on that altcoins relative to Bitcoin. And when you normalize that, you can really see some neat trends in terms of market leadership. Right now, the leaders happen to be Cardano, Chainlink, and Polkadot. That, of course, will shift at some point in the future, but that's where we're seeing some relative performance.

But it doesn't mean you don't also want to have exposure to the more defensive play in the space, which is Bitcoin. Bitcoin has tended to outperform when they're collectively going lower, and they do tend to remain directionally in step. So even though you can always find sources of outperformance and underperformance, you'll find that most of them are all up on the same day and all down on the same day.

And I think that that's just something that we can depend upon, and it's a matter of how much risk are you willing to take going down sort of the market cap spectrum, to gain exposure where there may be leadership? But with that leadership, you may also be taking a bigger risk in terms of how far something is stretched from a support level.

AKIKO FUJITA: And I realize this you know this all depends on the risk profile somebody is willing to take on, but if you think about those who are saying, look, I want some exposure, but I don't want to get caught up in all of the volatility. What's your rule of thumb, or is there a rule of thumb in terms of how much of your money should be allocated to crypto? Is it, you know--

KATIE STOCKTON: I wish there was an easy answer. Yeah, there's no easy answer to that. It's really not a question that I can answer on behalf of anyone else, because it's about their risk tolerance. But I would say that you just want to make sure that that percentage is something that you would be comfortable losing.

Really, like with any other asset class, you have to know that there is always inherent risk, and this one is a newer asset class, and therein carries more of that. So I would say keep it as a small percentage, whatever you're comfortable with in terms of that risk profile. And realize that in some cases, you probably have a bit of a call option here. Something that you're getting in somewhat early, and you're taking on more risk because of that. But the upside is potentially far greater.

And with the base breakouts that we saw in the cryptocurrency space over the past year or so, I think there's a lot of promise that we're in just the early stages of what could be a long term uptrend, but with that, a lot of swings to navigate.

AKIKO FUJITA: Katie Stockton, Fairlead Strategies founder. It's good to talk to you today. Appreciate the time.

- Still ahead, the next frontier for crypto investors, ETFs. The pressure mounting on the SEC to make a decision. Our panel breaks it all down right after this.

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Welcome back to Yahoo Finance's special All Markets Summit+ crypto investing, presented by Grayscale Investments. I'm Brian Cheung. The major topic in the world of crypto is the mythological creature of the Bitcoin ETF. We've heard a lot about it, but we haven't necessarily seen anything yet, and there are a lot of questions about the holdup in why we have yet to be able to invest such a product.

So let's dive deeper with an excellent panel that we've got here this afternoon. We've got Grayscale Investments' Global Head of ETFs, David Lavelle. We also have Outlier Ventures' Partner Rumi Morales, and lastly but certainly not least, we have Davis Polk Capital Markets Group partner, Joseph Hall.

Thank you all for joining us this afternoon. I want to direct my first question to Rumi. You were really team early on crypto. You've been an investor active in this space from the jump, at an extremely high level. What is a Bitcoin ETF, and why is there investor demand for one?

RUMI MORALES: Sure. Well, as I think many people know, an exchange traded fund or ETF is a type of security that can be structured to track anything. From the price of an individual commodity, or in this case, Bitcoin. There'd be-- theoretically be able to purchase or sold on the Stock Exchange. And it'd be a way for many investors to be able to access and take part of the economic opportunity of Bitcoin without having to deal with technical issues right now like registration of wallets or storage of coins.

It can make investing in Bitcoin a lot easier for more traditional investors, and I think that's why many people are excited about possibly seeing this happen.

BRIAN CHEUNG: Well, people are excited, but it seems like the regulatory headwinds are blowing against the Bitcoin ETF, at least for right now. So I want to turn this question over to Dave at Grayscale. I mean, you've been among the many waiting in the wings for a Bitcoin ETF. But in the meantime, you do have a Bitcoin Trust that offers exposure to Bitcoin.

So I guess the natural question is, is an ETF more exciting than a trust? What is it about this type of product that might bring in even new types of investors into the space?

DAVID LAVALLE: Well, it's a story that's very similar in the evolution of the broader ETF market as new asset classes have been brought into an ETF wrapper. It offers the opportunity for an equitable investment opportunity for the broadest range of investors. And so currently, you're correct. We do have GBTC, which is our current product. And we have been committed to converting that product into an ETF when regulators will allow us to, and permit us to do such.

However right now, our investors-- our investor base is more narrow, and if we're able to get regulatory approval for an ETF, all investors will be able to participate in the investment in the form of ETF.

BRIAN CHEUNG: Well, if we get regulatory approval. So Joe, you watch the regulatory developments pretty closely that's coming out of D.C., so give us a sense of the regulatory reasons for why we have yet to see a Bitcoin ETF. It's really the Securities Exchange Commission that has say over this. So what have you heard from Gary Gensler, who's only been in place for a few months so far, about what we should expect, and whether or not the winds are blowing in favor or against the ultimate approval of one?

JOE HALL: Sure. You're right. It's within the-- it's on the SEC's plate. It's a decision that the SEC needs to make. And historically, in this space, historically goes back for or five years, the SEC has refused to approve a Bitcoin ETF on the basis of their concerns about manipulation in the market for the underlying.

And I'm not talking about manipulation on Coinbase or on any of the US based exchanges, but largely manipulation meaning, like, wash trading, other non-economic kinds of trading that might be going on in markets outside of the United States that could nevertheless have an impact on pricing of the commodity inside the United States. That's been the basis for the SEC's disapproval of the various applications that have been made to list an ETF so far.

I would say we actually have had some encouraging news from the SEC recently, in Chairman Gensler in a speech back in the beginning of August seemed to open the door to 40 Act funds, or Investment Company Act funds that are trading in Bitcoin futures. So a product that's actually traded on the CME market and the funds would invest in those.

And the reason that I think that that's potentially a positive sign for the broader ETF market as a whole, including spot funds, is that if there's manipulation happening outside the United States that's impacting the price of the commodity, then that's going to show up in the pricing of the futures market as well.

So it seems to me that if the SEC is moving towards authorizing or allowing funds that invest in Bitcoin futures, that the rationale that they've used in the past to disapprove of commodity funds seems to be dwindling. So very early stages yet. We haven't heard any definitive movement from the staff of the SEC who processes these things. But at least I would say there's some glimmer of hope in the orientation that Chair Gensler seems to have here.

BRIAN CHEUNG: OK, some glimmer of hope. At the same time, a Bitcoin futures is not the same as a Bitcoin spot ETF. So Dave, pinging this over back to you, what is the difference between a Bitcoin futures versus a Bitcoin spot ETF, and why is one or maybe-- is one more attractive than the other?

DAVID LAVALLE: Well, historically, in instances where you have an ETF that's holding an actual commodity that can be reliably stored from a commercial perspective, the physical or spot based product has been much more successful keying on GLD, for example, the physical gold ETF. It's certainly far more commercially successful than some of the other physical gold products on a relative basis to the their counterparts that are holding futures.

Similarly with Bitcoin, we feel that since there's reliably a very strong case to be made that Bitcoin can be reliably stored, that a physical Bitcoin ETF will be far more commercially successful. And the reasons are that it's less complex, it's easier to trade, it's less costly, and therefore a better option for investors for their Bitcoin ETF exposure.

BRIAN CHEUNG: We are far from done with this conversation, and we will have more of that right after this. We'll be right back with more of Yahoo Finance's special Almost All Markets Summit+ crypto investing right after this break.

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BRIAN CHEUNG: You are watching Yahoo Finance's All Markets Summit crypto investing. We've got Grayscale Investments' Global Head of ETFs, Dave Lavelle, Outliers' Venture Partner Rumi Morales, and Davis Polk Capital Markets Group partner Joseph Hall here, talking about Bitcoin ETFs. And extending our conversation before we headed off for a short break.

Rumi, I just kind of wanted to ask you about the big elephant in the room with regards to not just Bitcoin ETFs, but the broad crypto community. And that is the crackdown in China, them declaring virtual currency related activities illegal. It seems like crypto exchanges are stopping new account openings. We know where the wind is blowing over there. How does that affect the regulatory conversation internationally, knowing that a big selling point for crypto is supposed to be the breaking down across borders?

RUMI MORALES: I think it's interesting for those who are waking up to crypto this year, and looking at the China news, and being a little concerned. For those of us who've been in the space for a while, this is not necessarily anything new. I think what is interesting is this may be, like, the fourth time China has tried to crack down on crypto. Versus the one time they said no more Facebook, [INAUDIBLE] that.

This speaks to the power of decentralized networks. The financial [INAUDIBLE]. We will see what happens next, but I'm guessing, given the power of Bitcoin and other decentralized currencies and the ecosystems, that this is going to continue to grow, and the regulators are going to be looking at investors, they're going to be looking at consumers, and saying that this is something that increasingly people want to participate in.

The genie was let out of the bottle a long time ago, and I think regulators [INAUDIBLE] seeing economic opportunity for [INAUDIBLE]. But at the very least understand that this is an important, important economic development, and for all the Chinas out there, there's countries like El Salvador that are really embracing digital currencies.

And so I think there's a lot, there's a lot that we can learn by regulators taking different approaches. But ultimately this is not going away. It's not.

BRIAN CHEUNG: So Joe, on the regulatory story, I mean, how much water do international developments in China, or even El Salvador, basically anything outside of the United States, weigh on what Gary Gensler is trying to do in the SEC offices in D.C.? Is it mostly insulated, or is there some level of not necessarily international cooperation, but just kind of countries keeping an eye on what the other is doing, to make sure that there isn't any sort of arbitrage that could exist legally between different countries?

JOSEPH HALL: Well, two thoughts on that. I mean, you know, I don't think it much matters to the SEC what approach a foreign regulator is taking. In other words, you know, I don't think a foreign regulator's acceptance and welcoming of digital asset investments or barring digital asset investments has much of an influence on the SEC.

That said, I think that activity outside of the United States, you know, definitely has an impact on the way our regulators think about it, you know? You know, when Chair Gensler is talking about digital assets sort of being the wild, wild west, I think he's talking about activity offshore.

And so to the extent that there are blow ups offshore-- I mean, back a few years ago, [INAUDIBLE] or something like that. To the extent that there are big shocks offshore that have an impact on the pricing, or on investor confidence in the asset, I think those sorts of offshore activities very much weigh on the SEC's decision making. But I don't think the relative posture of the foreign regulators is all that persuasive to the SEC, for good or for evil.

BRIAN CHEUNG: So I want to direct this question to Dave. So if-- going back to the specificity of the Bitcoin ETF. This is kind of a little bit more of an insulated conversation, as opposed to people watching what China is doing, per se. What's your messaging to the SEC as they kind of weigh through whether or not they want to have a Bitcoin futures product, or a Bitcoin spot ETF. What are you advocating for? Do you feel like they've been soliciting the industry in trying to get comment as they try to sort through these things?

DAVID LAVALLE: We think that the SEC should really take an equitable approach to allowing investors to choose which type of Bitcoin exposure in the form of an ETF that they would like. And so we're strongly advocating that a Bitcoin futures ETF and a spot Bitcoin, or a physical Bitcoin-- it's a little silly to say physical Bitcoin, but a physical Bitcoin ETF to be brought to market at the same time, to allow the opportunity for investors to choose their own exposure that meets their own investment needs and their own investment thesis.

BRIAN CHEUNG: As a quick follow up to that, I mean, who is the target demo for a Bitcoin ETF? Not just from Grayscale, but across the board, we know there are many other applications out there. Is it people who are scared to get a crypto wallet because they're intimidated by the extra steps that might be involved? It might be easier just to open up the portfolio you already have and jump into an ETF.

Or is it a lot of people who are already in the crypto space, that just want to load up on new products? Who is the target demo for a product like that, if it does get approved someday?

DAVID LAVALLE: I think the answer to that question is yes. I think it's anyone and anybody who is interested in utilizing an ETF for a segment of their exposure to Bitcoin. I think that historically, again, utilizing GLD as an example, it was fairly simple for gold as a means of your investment portfolio, until an ETF came along, and it became you know increasingly more simple and reliable to have gold exposure in your investment portfolio.

And I think this is a similar case. It's very similar that Bitcoin can be a little bit challenging for many investors to determine how to seek exposure, store it reliably, and have a component of their investment portfolio in that asset class. I think the ETF opens up, you know, the pool to a much larger investment universe, and also adds simplicity to the asset class being pieced into somebody's portfolio.

BRIAN CHEUNG: Rumi, last question here. Not to say that this is a zero sum game, but would it be bad on balance for crypto wallets or crypto exchanges for these traditional ETF products that get all the benefit of price movements in Bitcoin, without actually having to be in a Coinbase wallet, for example. Or do you think that because the pie is growing, you know, ultimately the space as a whole can benefit?

RUMI MORALES: I definitely would say the latter. Any new ways for investors to gain exposure and understanding of the wonderful economic opportunities that digital assets provide, let's have all those-- let's have all those ways. As someone who's been in this space for eight, nine years now, it's amazing that type of innovation that we've seen.

But I have to admit, it's only been really appreciated by a really small sliver of people. And for those who know just the great opportunities that can exist in crypto assets broadly, not just with ETFs, but even things like nonfungible tokens now, what's happening in creative economies. Not just financial institutions. It's really important for consumers everywhere to understand this, but participate in it.

This is the greatest economic opportunity of our lifetime, and I'm very proud to be part of it. [INAUDIBLE]

BRIAN CHEUNG: All right. Well, I want to thank, again, our panel for joining us this afternoon. That was Grayscale Investments' global head of ETFs Dave LaVelle, Outlier Ventures' partner Rumi Morales, and David Polk Capital Markets Group partner Joe Hall. Thanks again for joining us here on Yahoo Finance this afternoon.

- Still ahead, the future for crypto. Blockchain Association Executive Director Kristin Smith and Coin Metrics co-founder Nick Carter will be here. As crypto becomes mainstream, what's next, and what are the insiders watching? We'll be right back.

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JULIE HYMAN: Welcome back to Yahoo Finance's special All Markets Summit+ crypto investing. It's presented by Grayscale Investments. I'm Julie Hyman. And I'm pleased to now have this conversation about the future of crypto. It is a very, very big topic. And hopefully we can help narrow it down a little bit, and address some specific questions within that big topic, umbrella topic.

Joining me now is Kristin Smith. She is the Blockchain Association Executive Director and founder, we should say, as well. And Nic Carter, Coinmetrics co-founder and Castle Island Ventures general partner. These guys coming to these questions from sort of different angles here. Kristin for more the D.C., lobbying, regulatory angle. And Nic, of course, from the investment angle.

I want to start broad and just dive right into it here, you guys. Is there an existential threat to crypto, writ large, from regulators? Whether it's in the US, in China, or other places around the globe. And Kristin, I'll start with you on this.

KRISTIN SMITH: I don't think there's an existential threat to crypto markets. As we were hearing in the last panel, decentralization is incredibly powerful, and these networks can exist in many different places. And China has attempted to crack down on crypto multiple times now, and they may be getting more aggressive on that front.

But as long as the internet persists, crypto networks will persist as well. I think when we look at D.C., there is a lot of conversations going on right now around regulation, and what proper regulation should look like. But the reality is, as we saw with the infrastructure bill over the summer that contained a poorly written crypto provision, there is a massive user base, there is a massive number of people that are contributing to these networks, whose livelihoods depend on these networks.

And this is a very powerful political force, so in the United States, I don't think we're going to see anything so draconian that it could shut all of this down. But we might see some changes around regulation around the edges, but crypto networks are here to stay and regulation can't stop it.

JULIE HYMAN: Yeah, and we're going to get into the specifics of what you referred to as going on in Washington in just a second. Nic, I want to bring you into this, though. Ray Dalio said recently, if Bitcoin is really successful, regulators will kill it. Now, if what Kristin says is true, then that's not really going to be possible to do.

And indeed, you have said-- I was looking at an essay of yours from 2019, which you said, effectively, bitcoiners understand the only winning move in politics is not to play. So I assume you agree with Kristin, this is not something that is going to be crimped by regulation.

NIC CARTER: Well, Kristin might disagree about my line about participating in politics or not. But I fully agree. I mean, when markets and the state, clash generally speaking, the market will win eventually. I mean, the Soviet Union could only sort of hold macroeconomic forces at bay for so long, and capitalism ultimately prevailed.

There's countless examples throughout history of countries trying to ban currency conversion, and they always failed. Because free markets are a bottom up phenomenon, and individuals will make the best decisions for themselves for the savings, and to store their wealth in whatever medium makes the most sense for them.

And it just so happens that cryptocurrency, being virtualizable, being something that's peer to peer by its very nature, something that you can take full ownership of on a smartphone, is uniquely resistant to state control. So you can't legislate a market out of existence. You can sort of locally suppress it, maybe. Or you can hold back its growth for a period of time within your borders, if you're an authoritarian state like China.

But in the United States, you know, we have-- our nation is founded on a respect for property rights, and that's written into the fabric of our Constitution. So it doesn't really map, I think. It would have to take an extreme turn towards authoritarianism for cryptocurrency to be legislated out of existence in the US, for instance. So I think when markets and the state clash, the market is going to win.

JULIE HYMAN: Nic, you know, I know that there is a view among some in the crypto world who sort of welcome regulation in the United States, as offering some level of clarity to certain parts of the market. Do you share that view?

NIC CARTER: I think it depends on which portion of the market you're talking about. The securities law, I think most would argue, probably convincingly, that it's still unclear what constitutes a security, and how exactly to apply the various tests to these-- the novel asset class.

With regards to treating Bitcoin from a tax perspective, or from a commodity perspective, how it's taxed and capital gains and things like that, I think that's pretty clear already. But I think certainly the SEC could do more to make it clear what the delineations are in terms of the security. But it seems like they want to keep things deliberately opaque for now, and maintain discretion over those kind of assessments.

JULIE HYMAN: So, since you mentioned the SEC, let's talk a little bit more about that. Kristin, you engage with regulators in Washington. Have you talked to Gary Gensler recently? What have the interactions been like? What kind of guidance-- or even if not guidance, what kind of sort of tenor do your conversations have as of late?

KRISTIN SMITH: Yeah, no, we've tried several interactions with Gary Gensler and his staff. And he, you know, is accessible, and does have a lot of thoughts on this. He very much believes that the securities laws are clear, and thinks that different players within the ecosystem should come and work with him and register.

We disagree with him on that front. We don't think the securities laws are clear, like Nick said. We do think there needs to be some more thought and guidance on how to apply those to crypto networks. But what Chair Gensler is doing right now is, he has seven different work streams, of things that he's looking at, ranging from DeFi, to lending, to spot market regulation.

And we are working within our membership to develop what we think would be thoughtful proposals that we could take to him, and have those dialogues. So you know, it's ongoing. He definitely wants to see more regulation in this space.

You know, I do like to remind people that this space is not unregulated. A lot of the entities that are acting as intermediaries in the crypto space are registered as money services businesses. They have state money transmitter licenses. They have full AML BSA compliance. And so to say that this space is the Wild West is just simply not true.

That being said, I think there's probably a better, smarter, more efficient way that we can do regulation in this space. And it's important to have that dialogue back and forth, because to date, especially on the securities laws front, a lot of the guidance has really come from enforcement actions, and interpreting very old cases that don't necessarily make sense when you're looking at them through the lens of a crypto network.

So I do think we have a lot of work to do. I would also say I think Congress is very interested in this issue as well, because it might not just be that the SEC has a role to play here. It's probably that there are multiple agencies that need to be looked at to figure out the best way to do regulation.

So it's an ongoing dialogue, and we are-- I would emphasize that the industry is happy to engage in these conversations, that they have ideas, they want to make sure we get the regulation right so consumers are protected, so the markets have integrity. But that it's not stifled in a way that prevents the innovation from happening here in the United States.

JULIE HYMAN: Kristin, what do you think accounts for that gap that you were talking about? In other words, you say Gary Gensler says, he thinks things are clear. When you look at things like Brian Armstrong from Coinbase talking about how confused he says they were by the SEC guidance. Why is there that gap?

KRISTIN SMITH: I'm not sure I know a reason why there is that gap. I mean, I can say from working with our 53 member companies at The Blockchain Association, I don't think there's a single one of them that thinks everything is crystal clear when it comes to applying how we test to a decentralized network.

And I think maybe it's a matter of perspective. It's quite a different thing when you're someone who's building-- who is trying to figure out how to apply this. Do you launch in the US? Do you launch someplace else? You know, that's a very different perspective than I think one sitting on the other side of the table from the regulator.

And so I'm not sure what accounts for that disconnect, but I would definitely say there is a disconnect there.

JULIE HYMAN: Nick, Kristin mentioned the sort of-- that this is not a totally unregulated industry. And there are definitely a lot of players in the industry now that are big traditional financial institutions, who have gotten into crypto in one way or another.

As something that-- in that same essay I was referring to, you called it a revolution. As something that does have this revolutionary spirit, if you will. Very much non-traditional, non-establishment spirit. How do you think about the interaction between upstart players, and technologies, and traditional finance? And what role do you think traditional finance should be playing in all of this?

NIC CARTER: Well, I think it's a tremendous opportunity for traditional or legacy finance. I used to work at one of the largest asset managers in the US, in Fidelity, on their crypto practice. And they were fully bought into the industry, from 2014 onwards. They were actively mining Bitcoin. They've now built Fidelity Digital Assets. They custody huge amounts of digital assets, and they're active on the blockchain directly.

And I think many, many more investment banks, custodians, and asset managers from the legacy finance space will begin to engage with the asset class. And we've seen the partial institutionalization of crypto already. You know, that's very well underway. And I think they're seeing it as an opportunity, as a system that's more open than open banking.

Where you have those open banking rails in Europe, where you have some limited access to sort of shared databases. But if you look at DeFi, or public blockchains, you know, everyone has read-write access to the database. And that's pretty transformative. And I think you'll see increasingly public blockchains being treated as an opportunity by the largest banks in the world.

And we're seeing Citibank getting more active now. We're seeing Goldman getting more active. Their disclosure-- their investors in Coinmetrics. Fidelity has been active. You know, State Street is getting more active now, BNY Mellon is getting active.

So there's very few financial firms that have not begun to think about their crypto strategy. And actually, I think you're going to see a lot of strength on the lobbying side, on the public affairs side, from Wall Street embracing crypto. I don't think they see it as a disruptor.

I think the biggest threat to Wall Street, and banks, and the commercial bank sector is actually CBC's, right? Would be the government trying to nationalize-- you know, effectively nationalize the commercial bank sector by pulling it all in-house, and creating a central bank digital currency that sort of [INAUDIBLE] the commercial bank sector.

So it's kind of a strange bedfellows type situation, but I think that's really the direction this is going. If you just look at the flow of investment, you look at the flow of activity, proofs of concept, and actual deployments on public blockchains, it's pretty unambiguous, there's been a, you know, market sentiment shift in favor of open crypto. Open crypto, not private blockchains, from those Wall Street incumbents.

And that's-- you know, some people think in the crypto space that dilutes their values and undoes the crypto anarchist nature of the system. But to an extent, they're participating as equal peers with everyone else. I think that's tremendously powerful for sort of the value proposition of blockchains.

JULIE HYMAN: And Nic, there have been some discussions, very, very initial early discussions, by the Fed in terms of creating a coin such as you describe. Or doing that intermediation that you were talking about. What's the probability of something like that? Is that something that you think is really a concern at this point?

NIC CARTER: I'm extremely concerned about it. And even if the probability is low, the potential for harm is extremely high. So you have to multiply the possible outcome against the probability of it happening, and it still leaves me in a state of concern. Because ultimately a CBDC will give central bank, you know, extreme-- and in my view, potentially, you know, unconstitutional control and discretion over the economy.

It's a way to take an end around legislation, and give this group of unelected bureaucrats, effectively, and largely unaccountable-- you know, folks, technocrats, control in a very detailed and specific way. Not only for the money supply, not only giving them new tools to impose negative interest rates should they want to, but also potentially giving them discretion over who can transact with whom, and when, and where, and how.

And so that brings us close to the Chinese approach to credit, and to the flow of funds in an economy. And I haven't really seen enough persuasive evidence that the architects of the CBDC would take true transactional privacy to heart. All I see is these statements about building in KYC, and building an AML, and counter-terrorist financing into the system.

And so it doesn't look to me like we're going to get a digital version of physical cash. If the state were to produce such a thing, I think it would be tremendously useful and a great product. But I've seen no indication that that is what we're likely to get with a CBDC. And so, you know, I think the crypto industry has made its feelings very clear by embracing stablecoins as a private sector alternative.

But it appears that it's very high on the agenda list for Central Bank officials in this country to pursue a CBDC, and I wouldn't be surprised if they tried to push out a pilot.

JULIE HYMAN: Well, as I expected, this conversation went far too quickly. I have a lot more questions for you, but we don't have any more time. So hopefully we can do this again very soon, you guys. Nic Carter is Coinmetrics' co-founder and Castle Island Ventures general partner. Kristin Smith, Blockchain Association executive director. Thank you so much to you both. Really appreciate your time today.