Coinbase's John D'Agostino on why institutions are moving into crypto

Transcript

GM good morning welcome to the milk Road show The Daily crypto show where March Madness has nothing on The Madness of watching your portfolio during a crypto dip I'm your host Jay Hamilton it's Thursday March the 20th and this Tuesday coinbase released a new institutional survey and this survey got me so fired up and so pumped that we had to bring somebody from the team on to talk about it some quick highlights 86% of those surveyed said they expect to increase their allocation to crypto in 2025 59% plan to allocate over 5% of their assets under management to crypto in 2025 and 84% of Institutions are either already utilizing or expressing

interest in stable coins you know what the survey said to me bullish bullish bullish like so many reasons to think that we are still in a bull cycle and we have a long way to go well at the same time The bearish Vibes have just been never ending for us so to join us today is John G dagostino head of strategy for coinbase where he focuses on their strategic advisory and Partnerships with you guess it institutions within the crypto space also he has been kidnapped before but I don't know if we'll have time to jump into that story today if you guys want to make sure you're up to date every day on crypto you want to subscribe to the milroad newsletter if you're not already subscribed few newsletters you want to catch from this past week one was we went through our five most bullish charts in the crypto

space right now that you should be paying attention to go check that out link is in the show not to subscri subscribe today's episode is brought to you by definitive Advanced trading on every chain it's also brought to you by coin shift powering top crypto treasuries with their yield bearing stable coin CS usdl John welcome to the milk Road Show thanks so much for having me Jay yeah absolute pleasure okay uh let's before we jump into the results from the survey uh I just want to set the uh stage in the context of what this survey who was surveyed and what the survey was about and the bit of methodology so I'm just going to share my screen can you just give us a little bit of background and context of who was in the survey sure well I'll start with the survey was done

in partnership with ernston young um which I think in of itself is an important note uh there's a lot of uh historically some of the big for accounting firms in advisory and consulting firms were were not really very active in crypto all that's changed now and there really isn't a large scale um institutional vendor in the accounting banking or admin space particularly since the change over in administration that is not interested in participating in the Eco systems that's the first point is it's being done with with with a big for accounting advisory firm um I think the sample set was was rough a little under 400 institutional allocators uh that were that were surveyed I'll note a couple things about this which is particularly unusual for these types of surveys the asset sizes skew it's a much larger uh size so not a

lot of small mom and pop shops that's an important thing because as you think about these numbers you know 400 may not sound like a huge number but 400 managing uh on average a billion dollars or more each that's a large large pool of of capital being allocated and uh yeah 352 is the exact exact number um and so yeah 18% over uh 51 billion uh 52% being above above a billion so the mean and the median or you know roughly in the close to a yard close to a billion dollar asset under management other things to I would say are the the dates so this survey took place in early January Jan 13th to 2 fourth which I think is actually great you guys really threaded a nice needle

here with this survey being post elction uh we hadn't yet when the survey came out we didn't yet know about the Strategic Bitcoin Reserve or the or the digital asset pile so there is some stuff that has happened since then but I think we directionally knew that stuff was coming so uh any other things that you would point out on who a great point you make because some somebody might look at the survey and say well hold on you know we've had this Market volatility over the last couple of weeks and would those numbers be different you know what's important to understand is that institutional allocator allocators of the size they don't make capricious decisions based on short-term volatility Trends right so yeah depending on what time you catch them the numbers skew a little bit one way or the other um but these are institutions that take a lot

of time to consider new asset classes and they're looking not just at Price volatility and price Direction they're looking at Market infrastructure is this an investable asset from an Institutional perspective do the mechanisms exist that me as institutional allocator who I myself is I'm probably a fiduciary I owe a fiduciary responsibility to someone else if I'm a hedge fund uh or even an asset owner do the do the conditions exist under which I can trade that's how they're thinking about this then prices price movement quite frankly is sort of the last thing then they're thinking is it a liquid enough environment that I could that I can get in and out of these markets and then finally is there Alpha there uh and the alpha could be from just price Direction price is moving

either up or down uh because you you can trade both sides of that trade uh do variance trades exist basis trades inter ARB trades between jurisdictions is this sufficient enough and robust and and clear enough market that me as a large asset allocator thinking globally can extract Alpha they don't they don't change their mind based on a short-term price trend yeah I don't think anything would have changed in this survey had you done it I don't know last week or something like that uh the other thing I just want to bring up quickly uh just set the stage is um who participated from region standpoint so 61% us 28% Europe uh and then the rest of the world much smaller percentage so a big chunk of the survey is US important to know

that as well okay before we jump into the specific of this survey give us your what was your big takeaways I know you've been doing a few podcasts and a few shows now what are the stories that you're find that you're sharing the most yeah so first of all it it resonates with what those of us who speak to these allocators and a regular basis and these institutional participants it's what we kind of have seen intuitively over the last you know this is these are long go long long ranging conversations going back several years the trend has clearly been positive you know before before we went live you and I were talking about this really interesting bation of vibe right now where understandably G given the price action uh the retail side is a

little bit negative at the moment and but on the institutional side it's never been better uh and and because we've seen over the course of like if I kind of step back and I know it's a luxury to be able to step back and and think about these things um calmly uh uh if you able to step back and think about this six months ago it was a fever dream to think we would be where we are from a regulatory perspective um consistently over the last several years the number one driver of of institutional allocation decisions in the digital asset space has been regulatory uncertainty and that really was a code word to be I don't really like that I mean that's there's in my career of always trading an idiot syncratic assets commodity derivatives uh high frequency trading and other stuff um there's never

been certainty like I I I can't recall a time in 20 years where if you pulled investors and said what are you worried about the answer was always reg so regulatory uncertainty becomes this sort of code word for really I don't like the attitude of The Regulators they're against me if you talk to uh hft right high frequency Traders there was a period of time where The Regulators didn't know what was going on and life was great and then a book was written called Flash Boys and suddenly everybody said well the regulatory environment is uncertain for high frequency traders that was code for The Regulators are out to kill us so over the last five years when you've heard regulatory uncertainty in the US is what's stopping us from entering the market that was a polite way of saying we don't understand why

but these Regulators in the US seem to want to kill this industry even though Congress which creates the laws is not doing it through law through the right way so so you know I don't want to be too flippant about it but um that what a Vibe shift from just six months ago to now where six months ago honestly you know maybe I was being a little bit to paranoid if an Institutional allocator of sovereign wealth fund said to me John you know do you think we could wake up one day and the US Administration could just ban Bitcoin I would say well that's that's highly unlikely but I would have to acknowledge it was a nonzero probability now now we know it's not a non it is a non-zero prob it is a zero probability sorry so so that's a huge shift um and and we will have

legislation coming out we have the genius act and and Congress will act so um but I think you'll always hear people say I'm concerned about regulatory unty because that kind of is code for either I don't like the asset class or I don't want to get into it or I don't want to learn about it um but but I think um optically that should be gone now in the US yeah and you can't you just you can't underscore the significance of that shift like this is why as you mentioned earlier the this Divergence this bifurcation that is happening between retail sentiment and institutional sentiment it's almost like mindboggling like all I got to say it the way I see it like I it it feels like we're being gifted to buy the dip right now right

now look I don't know how the de deep the dip goes and is this the bottom I don't know probably not we probably have further to go like you know JP did not change interest rates yesterday and you know we don't know if he's going to change them in May and you know Trump and Scott bessent are still saying we want we want lower assets so like they're giving us all those signals QT is ending all this stuff and I don't want to get into that deep conversation with you today we'll focus on the report uh although feel free to jump in if you have any thoughts but the main thing that I just this report just shows to me is there is so much enthusiasm on the institutional side and there's so much flows coming like they are exposed but they're they're only going to increase

their exposure significantly this year and the years to come and like I don't know what else do you need don't leave right now that's all I'm saying if you're listening to this Do Not freak out do not leave crypto stay here Stay Stay Stay a couple things about that is one is that they're not doing this emotionally like I I know like a lot of folks in crypto on the retail side they really believe in the reorganization of society around these principles and that's and that's a beautiful thing that's a wonderful thing um the institution the allocators that are giving you this bullish information they're looking at this in a cold analytical fashion so so so some that might be bad that might they don't believe in the underlying thesis behind behind blockchain decentralized ledgers and and decentralized Trust um but I I you should you should be optimistic

about that because the tech is winning that's all they care about that if you if you believe that that ultimately price direction will move in the direction of tech adoption because this is a superior technology and way of organizing ourselves as a society around trust the institutions are telling you however slowly however frustratingly slowly because that's how they operate this is winning so I'll bring one data point you pointed out this notion that um uh I think uh close to 60 or 70% I get the exact number of of uh funds surveyed said that they're going to start trading more than 5% for a lot of people that might not seem material but 5% is a bit of a magic number in hedge fund world if you if you if you have any listeners who know about hedge funds or

private Equity or or any Fund in general generally when you set up a fund you have to tell your investors what you're planning on doing so I'm gonna launch a credit fund Equity long short fund Commodities fund Metals whatever it is and you you produce a document called an offering memorandum and you say this is what I'm allowed to do and your investors give you money based on that and so if you start an equities hedge fund you can't just suddenly spend put 80% of your Investor's Capital into credit usually unless your your plan is very broad which most are not but there's a dominous exemption and it's it's like 5% generally that's like the standard in the industry so you can like play around with credit or Commodities or crypto below 5% without having to tell your investors without having to

get permission from them so it's this magic number that's why you're seeing five so when I see they're plan to allocate allocate over 5 percent what I'm hearing is something profound which is These funds are now gonna have to go to their investors and say we believe so strongly in this that even though when you gave us your money five 10 years ago whever it was and we said we would do X we now want to do X Plus crypto it's a big decision Jay hedge fund managers pre fund they don't like doing that they because when you do that you have to give your investors the right redeem even if they're locked up it's considered a material change to their stratum their offering memorandum so that tells me that they have Supreme

confidence this is not just a thing I'm fiddling with or or a lot of them were doing it because they had a young portfolio manager who was like I'm gonna leave if you don't let me do some crypto and they kind of did it to make them happy this is this is now something significant enough for us that we're going to change our organizational documents to allow for it if you're only trading on centralized exchanges then you're not going to make it the best Traders know the alpha is onchain definitive founded by coinbase alums let you trade any token on salana Bas or any chain all in one platform what makes definitive different is its Advanced order types you can execute limit teawap and stop loss completely on chain plus you get the best prices as

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native yield and protocol rewards built by the team behind coin shift which is trusted to manage over 1 billion in business treasuries on chain including a gitcoin and hundreds of leading institutions cycs usdl is gaining traction at milk.com coin Shi very interesting very interesting so there's a shift in May mandate coming from these institutional investors which as you said that's not to be taken lightly that involves a a restructuring of their documentation reaching out to their LPS allowing them to redeem okay wow that's so that is that 5% is a significant number I got the slide up here just to

dive deeper into that's why they chose five by the way that's the magic number like again seems random but it's not meant to indicate necessarily size I mean um it may only go to seven or eight it doesn't mean that they're going to go up to majority position but it's a it's a it's a sign it's an indication of trust it's a barrier for trust very interesting okay and and what we're seeing here is that in this slide it shows 2024 versus 2025 and you can see that a lot are allocated already in 2024 but they plan to increase their allocation in 2025 a lot of them above what does that what does that tell you it tells you they've had a good experience overall um not just from a a price movement but

from a market infrastructure movement um we have more ways of entering the market uh we have you know I think I think it was announced today that the salana ETF is moving forward um or some announcement happened today with with salana ETF the Futures I think the Futures ETF Futures is now live and so that'll that should lead to the ETF next okay I want I want to step back to uh the report is sort of structured in three sections we have Market Outlook uh which will get our audience and our viewers very excited because everybody wants to know what the Market Outlook is and it's very interesting to have 3502 uh institutions who are managing over a billion dollars or an average billion dollars all give us their Market Outlook right like we don't get that on

the show every day and then and then it talks about investment use cases and then also we'll get into some Defi and stablecoin use which is very interesting I find so let's start with with Market Outlook when we start there what I find very interesting is they talk about the current allocation of crypto and basically what we're seeing here is that there is a plan to significantly increase Holdings within their crypto allocation in 20125 and what stands out to me is the why really stands out to me is 59% say why is because of an expectation of higher returns than other asset classes so there's a real belief that this asset class is going to outperform the rest

the market yeah and again what's important is again these are these are sophisticated highly sophisticated investors what that doesn't mean necessarily and again this may come to the sugrin of some of your retail viewers it doesn't necessarily mean that all of them just think the price is going to go up like that that's that's that's that's fine there's there certain portion that directional what I see is that close to 60% of these allocators believe that there's going to be Alpha generation capability um within the asset class now that could come from direct price you know just long only price direction that could come from Arbitrage trading basis trading that 60% number says to me that highly sophisticated investors who have an array of way of making money within a market see the infrastructure of this Market as supportive of their Capital

again I know I know we all want the price going right now the good news is is that over time and and I'm not saying all of crypto is commodity but it does behave commodity like to some degree what we know from my old days when I was head of strategy for the largest Commodities Exchange in the world is that when you have more and more Market particip ANS in the asset class the underlying reference asset whether it's crude oil natural gas Bitcoin whatever tends to go up tends to move up because more Market participants enter they need that asset more for collateral on shorts or Longs and the overall price Direction tends to increase over time for scarce assets at least like like Bitcoin that's a good thing for for Bitcoin and other uh scarce assets in in crypto so so it's it's a wonderful sign that these

businesses who their only job by the way is to find Alpha and and by the way they're doing this for every their job is to screen every asset class in the world and find Alpha that's their only reason for living and they've decided after you know probably aset class been around for like 10 years I'd say really four to five in modern form in a very short period of time a majority of them have decided to dedicate material Capital to a new asset class I need your viewers to understand despite how depressed they might be at their at their at their bags how profound that is that didn't happen for Commodities that didn't happen for new asset classes like cdos and and it it is Unthinkable five to seven years ago that

an entirely new asset class would take this position of prominence amongst these institutions interesting to get that perspective of how significant you feel like this move is okay let's let's look at the we you mentioned they don't necessarily think price is going to go up but but the the response on this exact question which is what do you expect to happen to crypto prices in the next 12 months 79% said they expect prices will be higher now this and this was in January and we've dipped since then so even more would probably say it's higher now yeah I mean look I I kind of take back my point still stands is that they're they're they're they're able to extract Alpha not just through but there's a general obviously

there's a general consensus that there's going to be more participants entering the market uh and therefore general price you price increase I'd be curious if the question was um you know because you know one the cryptocurrency prices again some people might think Bitcoin some people might think basket you know we have the coin 50 index now so I'm I still I still I I if I could get all of them here and chat with them I think you still see some of them expand that definition but that's that's generally I think the other thing that's saying is that price prices going up also means increased liquidity generally because you're not extracting uh open interest from from the system so I think that's that that's that's their way of saying we see more open interest more volume more liquidity and a general Rising tide for for the asset class

overall yeah I I had the same thought as um uh it would it most of these survey questions in this case the question was uh I expect cryptocurrency prices blank in the next 12 months and will Trend higher was the 79% but as you said it's crypto it's not Bitcoin specifically and my my guess is and we'll actually you know what actually let's let's actually go to that let's look at what are they investing in because that's in here let me just pull that up quickly what tokens here it is so 73% of uh serving investors hold crypto Beyond Bitcoin and eth beyond that was surprising too yeah that's 25% hold Doge

25 hold Doge as a memec coin 25% that's wild to me looking at these assets some of the I mean it makes sense a lot of these they're holding the top 10 right so maybe they're in indexes or maybe they're just making their own index because they are that's the best way to allocate is just you know hold the basket you know and again again just to get back to the optimism here um one of the one of the kind of I think incorrect criticisms uh you hear from time to time is oh well you know all the activity all this excitement is really only in a few tokens only in a small well that may be true um but but look at look at equities seven Fang stocks or a small number of fang stock look at Commodities like go

go to the Chicago mercadal Exchange you know NX where I used to work uh natural gas and crude oil represent the vast majority of open so so most asset classes have clustering at the top I'd argue to some degree we're reaching a point with this analysis that crypto actually might be more Diversified at the top level than some other traditional asset classes so it's just only natural that you gravitate towards a more limited pool of assets investors especially nonprofessional investors they can't spend time analyzing dozens or hundreds or thousands of uh of of anything um and so that clustering isn't unusual for mature asset classes but to your point uh I think a lot of people would have been surprised to learn the interest in some of these uh tokens you know down Market on on liquidity um and that's all that's just a very good sign

for diversification and growth of the overall sector yeah there's clearly a belief Beyond just Bitcoin and I mean 97% said that they hold Bitcoin so like that's obviously I mean hey that's great okay the buy in for Bitcoin is here but beyond that it's it was it was very surprising to me to see all the other assets that they hold as well okay I want to go back up to um the conerns and then because that was a very interesting uh Point as well let me just find that uh here we are so a lot of talk around um what's what are the challeng and what are the concerns that

are as you mentioned what the big concern has been regulatory uncertainty and you put that in air quotes as you gratefully you pointed out to us but moving forward there still are concerns what are the concerns that institutional investors have yeah um so I want to start with the security of asset custody because um it looks prominent there but again I look at that number and I'm shocked at the converse of it 67% of institutional investors are no longer consed concerned about the security of a asaki again Unthinkable a couple of years ago this is a challenging asset to think about Visa custody because it combines the pr principles of high-tech with a bearer

asset um that's challenging for for lots of institutional investors who are used to just like things sitting at DCCC and not having to worry about it right it's the same reason that maybe some investors might not want to invest in real assets like how do you know I'm Harvard endowment or I'm endowment XYZ um I'm now going to hold like that's in you know a foreign country like how how does that all work and how do I ensure the physical Integrity right that's challenging it's just it's out of it's off the run as as as we would say um well crypto has similar characteristics it's it's a bearer asset to some to some degree but it's also highly technical um so am I G to do the work to understand how this is kept safe um again to again again just a couple years ago the notion to me that 67% of

institutional investors would in in a short term not think it's a challenge or an issue to custody and hold these again it tells me it tells me they're getting smarter on it but it also tells me that firms like coinbase and others have gotten better at communicating how far along we are in the Safety and Security of of custody and that's wonderful um volatility is interesting because again it goes back to like how you answer the question because these institutions and and this might be the difference like like hedge funds funds they like volatility volatility is a nonvolatile asset is bad for most hedge funds they need it I think what you're what they don't like what you're seeing here and again shockingly low I think this is a

low numbers that 53% they really they don't want is what we just call V of volatility of volatility so they want volatility is like ice cream for hedge funds you like it you don't want it jammed down your throat a gallon at a time okay so they want these volatil these nice volatility bands if they're too narrow that's no good that's no fun you can't make money but if they're too wide or they're or they they're non-predictable that's problematic now we do sometimes because we have assets that trade on sentiment we have these kind of irrational no one knows why you've gapped up or down I will remind everyone that in the last two years crude oil the Bedrock commodity of the global economy went negative it literally went neg you had

to pay someone for a brief period of time to take the world's most valuable commodity off your hand and it's shocking to me that we don't talk about that more um so I guess my point is they're used to this stuff it happens in lots of different lots of different assets and so what we see now with what I see from this the big thing I see about this survey is yes there are still issues in concerns but these issues and concerns are about the same as other standard asset classes that these hedge funds these asset allocators uh actively invest in very very interesting we wouldn't we wouldn't see that yeah yeah yeah yeah well and I I I like that

you're taking the inverse here the what what stood out to me was that the two two of the biggest concerns uh volatility will decrease over time but we're going to continue to be quite volatile for a while we're not going to change that one but regulatory concerns being number one is being addressed quite rapidly and and then also custody of these assets is also being addressed as there's more Improvement on the ways to custody and the assurances that we can give to these larger investors and the ways they can do that so it feels like I also see a lot of optimism for we are directly addressing these concerns quite rapidly right now again that that's why I think

looking at the inverse of these questions is important how many people have been convinced versus last year versus the year prior uh and that is a function of the technology getting better I think it's also largely a function of how we communicate we've gotten better at communicating uh firms like coinbase that have chosen to go public have been willing to expose themselves to the scrutiny of public markets and the Myriad of analysts and uh investors and critics uh and after a while when those critics don't find fatal flaws you start to trust in these entities and it does take time we were fortunate as an industry to experience unreal dramatic

growth um in in in you know prices in pickup in wallets and unfortunately just mathematically those growth rates are not sustain can't you can't grow 10,000% a year forever you'll be larger than the global economy very quickly so maybe the pace of growth from a percentage basis has has narrowed a bit but the notion that 67% or so of institutional investors I think if you ask them how comfortable they are with real asset custody like Timber gold Etc I think more would say they are scared of it they don't understand it than cryptocurrency that's something to be very very proud of yeah completely it's uh it's just remarkable the the shift

let's look at this is to do with this shift that we're talking about uh another stat that came out of this was one of the questions was which of the following asset classes does your firm assign crypto to where do you place crypto within your allocation and this really surprised me that a lot consider it its own category now its own asset class which we really haven't we've never been there before we've never been in a place where we're now now our own asset class truly yeah and if you it's there's a footnote here that the hedge funds are less likely to characterize it as a different asset class I that's an important distinction um not not all institutional investors are the same

they don't have the same bu I think of them as two big buckets there's fiduciary investors and non-fiduciary investors so fiduciary investors any Institutional Investor that has bosses that has investors themselves right um and then non-idu share investors I think of like Sovereign wealth funds and insurance pools where they're the ultimate asset owner and they kind of can think about things how how they like as opposed to a fiduciary they're more likely to want to put things in a in a discreet bucket and that kind of makes sense when you think about how they think about the world and their duration of holding and whatnot hedge funds professional investors that are just Seeking Alpha um they bucket things by alpha alpha type so how do I extract Alpha from this and then if it's similar to another thing uh then that means the

strategies are similar the ways of analyzing the market are similar so they want to B Bunch it in there and you know again I think it's similar to the way I'm not saying it all crypto is a commodity but I am saying as a former Commodities derivatives Trader and executive it behaves Sim L to how commodity and commodity derivatives behave and therefore they're going to think about it in that bucket um so that makes perfect sense to me that you'd see the asset owners the non-fiduciary investors want to want to label it something very unique for reporting purposes uh and the hedge funds just think about it in terms of its components yeah yeah it's a great it's a great Point uh John just just a star on the show today man just killing it this

is so awesome uh let let me go to um the the interest in tokenized assets so like Beyond just crypto uh because really this is the future that we all I think talk about and we see as like let's tokenize all Financial assets it makes so much sense there's so many reasons what what are institutional investors saying about that I mean that it's it's one of these things where we all know where the puck is going we all know where it's going um it's it's a matter of when so not not to bore you with a quick little story but uh even though I don't look it I'm quite old um I hope I don't look it but I'm old enough to remember when I when I was

a freshly minted NBA and I got my job on the NX floor um and this isn't like 1960 this is 2004 five uh the most important Commodities markets in the world the price was set by a bunch of mostly guys back then unfortunately screaming and yelling and sending hand signals to each other on this massive floor on Lower Manhattan and it was it was anachronistic then even then even as a freshly me in NBA I was like this is insane why are we not doing electronic trading and the response was everything I heard back then I'm hearing now the system works uh all that electronic trading stuff it'll never it'll never you can't trade options on a screen there are too many strikes and months and the human mind is always going to be superior and the only valid argument was

that first one which is it did work it worked shockingly well there were very few trade breaks a trillion dollars of notional trading occurred and there is a certain responsibility if you're going to innovate and displace a critical system like like the pricing of crude oil you better be damn sure your system works and one of the things that's been really great about even some of the recent catastrophes in crypto is we've seen proof of concept we've seen Pro proof of concept that blockchains are strong immutable they work overnight they're fast they're cheap um and and it takes those experiences to gain the trust because we know that that's a better system we we know that my my 11-year-old daughter when she's my age I

know that we will prefer tokenization just like I knew that in my lifetime we'd stop using crazy hand signals and use electronic trading I know that's the Next Generation so it comes down to when and and the when is partially overcoming corporate inertia and not wanting to change and that's again that some some of it's valid some of it is very valid you have to prove you don't want to be the J let me ask you a question if you went on a plane and the pilot came out and said hey I've got a brand new engine designed it's mathematically beautiful and perfect and we're the ones testing it today you might be like look I trust in science I do think we have a responsibility to prove that we're ready but we're proving it it every day um and it will happen I hope it happens fast I

hope I can see it in my my career I think I will um so when you look at the advantages of tokenization versus kind of static securization there's no there's no question that that's better and that's the Next Generation it just really comes down to when and when you have like people like Larry saying you know I think in my lifetime everything will be tokenized uh that that gives us the confidence to experiment more and you know by the way it's been a horrible month for crypto overall um uh tokenized security tokenized us treasuries volume increased by 35% 34 35 in the same quietly right the boring stuff the non sexy stuff right that's all proof concept it's actually happening so I'm very very very

confident that I I I'll be lucky enough in my lifetime my career to see two Paradigm shifts in the way assets are priced and traded open out cry to electronic trading traditional securitization to tokenization it's uh let's let's hope let's hope that it happens sooner rather later I like the uh the view that it'll in our careers come on it's going to happen sooner than that uh the the thing that really gets this stuff gets me so excited and I hate the term rwa because it's it's like the widest bucket of all time but like you mentioned tokenized treasuries growing rapidly right now tokenized private credit growing rapidly

right now like we are seeing this and as you said it's not sexy it's not what most of retail is going to invest in but it is it is a massive part of the financial system that has a lot of reasons to be tokenized I mean in the in the survey 72% of respondents said that they plan to invest in tokenized assets so I'm not talking about like the crypto tokens that we currently invest in I'm talking about as you said tokenized treasury tokenized real estate tokenized uh private credit 72% planed to invest in that by 2026 and currently that's small right now the number of like there's only what 20 billion I think roughly in rwas on chain like yeah I

guess if you include stable coins it's a big but usually stable coins are separate from this it's it's still a small small number that is growing so quick that I think it's just another reason to be bullish well it's just better Tech it's just it's just better way to organize ourselves um I you know it's not if if I can if I can settle in t plus 5 Seconds versus T plus one day or t plus two days uh it's not just convenience and though we we we have entire economies built on convenience it's it's real money it's collateral it's freeing up a tremendous amount it's it's increasing confidence uh so it's just better technology it's it's programmable it's it's it's um it's smarter so it will win uh and what you're seeing is is people realizing

okay not you know I always knew it was better Tech but you know let's face it the better Tech doesn't always win right the classic you know beta was supposedly better than VHS better Tech doesn't always win uh so now there's a realization that it's got enough of a foothold that it will continue to be used and experimented with um and we see things like for example like talk about stable coins uh tether was the seventh largest buyer of us treasuries by country more than Norway with their world's largest Sovereign wealth fund more than Germany so that tells the market this technolog is not only not going away it's going to become critically important I don't know I'm not even old enough to know when's the

last time the US government gave a stamp of approval to an Etc technology the way it's done with a strategic Bitcoin reserve and blockchain and and Bitcoin so it's definitely not going away they're seeing pockets of increased use cases like tokenized treasuries and so they know it's just a matter of time and so of course if you're if you're a betting person which all these people are that's what they do for a living is BET and you're asked do you think you'll do this more or less a year from now of course the answer is more so that again your viewers should be very very excited about this these are dispassionate cold-hearted investors who are who are not emotional they don't care about the underly they don't care about decentralization they don't care about

the ethos of crypto like let's be real like that's the truth right they're not interested in your philosophy they're interested they're interested in in Safety and Security and making money um and they believe they they'll be able to do this more and more on this technology yeah yeah I mean fantastic great awesome high fives all around uh before we let you go John I want to just touch on Defi and stable coins because those are two areas that are getting a lot of use and an increase in use and this number really stood out to me that currently 24% participate in defi I mean that's already a a big number 24% of these survey respondents participate but they they plan to get to 75% of them want to participate in defi in the next

two years that is huge I was I was surprised by that I'll be honest that that that that surprised me that I knew it would be higher I didn't realize it would be that much and what is what is what does this say to you in terms of like how how are these institutions going to use defi are they using it to in sophisticated investor ways to hedge is is that their plan or what do you think their plan is yeah I mean I I don't know about a hedge um there's lots of vehicles now and increasingly there will be vehicles that provide uh good Hedges both onos atic token basis also uh against beta to the market so coinbase for example launched our coin 50 index it's a dynamically

weighted index that takes the 50 uh top vetted tokens from the coinbase listed ecosystem and creates One-Stop shop to hedge out Market beta or get broad Market ba beta beyond the top the top two tokens inclusive of of course um so there'll be more more of these these ways for for these sets when I see again both um fiduciary and non fiduciary uh institutional investors say that they want to use you know three times as many up to a super majority are planning to use defi uh I think that's telling us two things one is they see enormous potential uh they potentially see Alpha opportunity because the defi markets are maybe a little bit more opaque there's a little more fragmentation of liquidity

again professional investors like that um things that might be scary to individual investors that's where they find their Edge that's where they find their Alpha so that's one piece um the the second piece is they see uh defi as an experimentation lab for where the kind of the direction of this this technology is ultimately going and they want to be ahead of that they don't want to you know a lot of folks who it's funny a lot of folks who are negative on crypto who are institutional investors are really folks who can't admit they miss the trade right think about it Jay like you're paid you're only paid to do one thing get the trade and if you're a hedge fund manager and investors calls you up and says hey the top performing asset in the world 10 out of the last 11 years has been Bitcoin um why exactly

did you not get in that trade you know I think there's a valid answer the valid answer is hey you paid me to trade equities I'm not an expert in other stuff and so I wasn't focused on it that's actually a very fair answer but but some of these folks don't like admitting that they were just wrong and so they'll start just maligning the the asset because they have to um what this is telling me is a lot of them are thinking I don't want to miss the next trade I don't want to miss that next big thing and it looks like defi and the way assets trade within Defi and the types of assets that trade over defi um that's one element of it um I think a lot of derivatives will trade uh in a decentralized manner the derivatives Market tends to dwarf for Commodities

the derivatives Market tends to be larger than the spot market and so they see opportunity there but it's a it's an encouraging sign that they don't want to miss out on that next iteration of innovation because a lot of them missed out in the first time you you brought up coin 50 I want to double click on that quickly because index funds are not a big part of crypto yet but index funds are a big part of other asset classes in a great way particularly for retail investors akr listeners a great way to get exposure you know there's a reason why your grandpa and your dad and everybody in your family probably tells you just to buy the S&P 500 right like keep it

simple don't try to outthink the market index very often we had Eric balunis on the podcast a few weeks ago and he talked about why he wrote the book The Bogle effect all about John Bogle who was really the one to create index funds absolute Legend in investing right uh tell us a bit about coin 50 what is that Index Fund is that and is it tokenized is it a do you buy it on chain or do you buy it through equities so you can buy it through a per currently um XX us and we're hoping now with the friendliness of the current Administration to have that accessible for for us investors um it is it represents as as the name says 50 um 50 tokens that trade on coinbase they've gone to the coinbase vetting process of

being listed on coinbase and uh it's also key is it's dynamically adjusted uh so periodically uh tokens can fall in or out depending on their open interest liquidity and uh the way they the way their liquidity profile looks on coinbase so you have a a the couple things there is you you get some broad some some diversification it is still weighted heavily towards the the top few tokens you get diversification you get a mechanism to uh enter and exit uh beta positions in a cheap efficient way um again I think it's really really important if we want to onboard a billion people into crypto we have to get over this notion that um individuals retail and even institutions will have the time and energy to devote to that we do to the underlying thesis behind all

of these tokens in their use cases it's not reasonable most people even if they have the capacity to don't have the time or interest or energy to spend all day thinking about any investment thesis right I I don't spend all day thinking about stocks in my portfolio um credit instruments etc etc and so we have to create easy good UI interfaces and having some that mute some of this volatility while what's most importantly and what's great about the coin 50 index if you look back historically you keep a lot of The Upside right the goal is to mute the downside but not get rid of The Upside ball so if we can create instruments that are easy simple provide some downside protection um and get people excited about investing in the

asset class and think of it as a long-term holding stable holding to grow their wealth over time we will attract we will get that incremental 700 million or so people on board and so coin 50 I think of it as sort of a barometer of the health of the industry you know indexes are are are wonderful things like they don't have to be perfectly designed the Dow Jones Industrial Average is sort of mathematically incoherent it doesn't allow for stock splits or things but it's a barometer of the health of the industry right um and so uh we think the coin 50 index is very welld designed but um if it can becomes standard then uh it becomes just an entry mechanism for retail and then for institutions it becomes a really useful hedging tool and as you said you know I think

everybody listening to this is believes in crypto and is long crypto and believes in the future of crypto but do I know which L1 blockchain is going to be the blockchain that wins not longterm right like I think it's going to be Salon or ethereum right now but maybe not right like it's you know AOL had the early lead in the internet and it didn't win there and so it's yes you can if you are if you are active every day and you want to follow this stuff and you're really in it yeah sure you can go and try to pick your winners but it has been proven over and over again that you are much better off not to try to pick your winners yourself but just to go with an index so uh it's great to see doesn't mean people don't have the capacity to

do that it just means that we have busy lives and money isn't necessarily the most important money isn't what people want to wake up every day thinking and focusing their energy on so let's give them efficient cheap mechanisms let's let them get the benefit of blockchain without having to maybe wake up every day and think about uh blockchain or cryptocurrency that's how we on board the next the next wave yeah yeah okay last last thing before we let you go John touching on stable coins because I mentioned that we wouldn't I want to make sure we squeeze it in uh 84% uh of respondents either use or Express interest in Sable coins in the future what does this say to you I mean it it it says that the you know the killer use case continues to be stable coins um there were killer use

case for uh holders and users of cryptocurrency people who want to stay keep their value locked into the cryptocurrency ecosystem to go to move to bridge from one asset to another but increasingly they're becoming important for governments as I mentioned the US government now is a vested interest in insur if you believe that us if you're American who believes that US dollar dominance is an important thing for our national security you should want to encourage the creation of instruments that the vast majority of which flow into us treasuries that's just that's just common sense right that's what we should all believe um and so it's it's important geopolitically it's important economically um they're they're working that's the key they're working they're

working during nights they're working during weekends you know we've heard um there's been some recent articles about um uh cryptocurrency deals like m&a transactions that were able to uh in some cases people needing overnight value transfers that were able to be done when every Bank in the world was closed or at Le every Bank in the US was closed that's an extraordinary thing that can only be accomplished through these this technology and through stable coins so we see their we see their their the interest from an investment perspective but we see an interest from a geopolitical perspective a policy perspective um and uh stability perspective for our entire economy so to you know that if that's not a use case I

don't know what is um and we've also seen how they just work under the most crazy of situations I think about you know I was there when MF Global collapsed uh at the New York American exchange it took us months to figure out what happened and you see now where there's instances uh in the digital asset space where because of the TR because of the um transparency of chain the market participants can figure out almost immediately what the causes were and decide to support or not support overnight literally overnight through through stable coin transactions um value transfers that's just that's just Unthinkable a few years ago yeah that's

a really good point are key for that yeah I hadn't thought about that we we could do a whole episode on stable coins alone it it could be you know it's it's whole a whole Deep dive on that note on Monday we have Christensen coming on the show everybody uh that's a founder of maker sky so we'll be diving deep into stable coins with him uh John absolute pleasure to have you on the show today thank you so much for your time and shout out to you and your team and to ey to one of the big four accounting firms for jumping into the space and for putting out this fantastic report everybody listening we will link to the report in our show notes so you guys can go and check out the full report uh we'll link to the coinbase 50 index that we mentioned today as well uh and thanks

so much for listening and thanks John for joining us thank you Jay have a great day before I let you guys go I gotta let you know about the crypto.com card this is one of my favorite cards to use in the space if you want to spend your onchain dollars on everyday stuff coffee flights whatever you are spending your hard-earned dollars on here's why I like it no annual fees up to 8% cash back on your crypto in crypto so you're keeping your money on chain you're getting your cash back not in Fiat but you're keeping it on chain also a bunch of benefits like Netflix and Spotify subscription and if you're traveler like me you can get lounge access depending upon the card that you have hit the link in the show notes to check out the card and get yours today thanks everybody

have a wicked awesome day we'll see you again tomorrow as always if you liked today's episode please hit subscribe and make sure you follow us so you don't miss out on the next one there's also a link in the description to our free 5 minute daily newsletter where we simplify crypto for you you while making you laugh and if you're willing to step up your crypto investing game we're going to also leave a link for milk Road Pro you get access to our portfolio where you can see exactly what we are buying this is your number one resource to help you invest successfully in crypto one final note this show is for educational purposes only and nothing we say is financial advice investing in crypto or any asset is risky and you

should never invest more than you can afford to lose thanks so much for listening in my friends have a wicked awesome day