Fireside Chat: Why Crypto Prices Lag Institutional Adoption with Maxime Seiler and Chris Perkins

Transcript

[applause] >> It feels like it's such a weird time for crypto because there's so many incredible things happening. We have the Clarity Act that is kind of navigating through. I've never seen more excitement around institutional adoption. Um but damn, the prices. We have Bitcoin around 60,000. Um I'd like to say ETH is like in the Middle Ages right now, like the 1600s. Um so, as you think about macro, what's what's your take? What's going on?

>> Yeah, it's a great question and I think it's something that uh everyone in the room is currently being puzzled with and trying to gauge and understand like what is really going on because like over the last 2 years, there's been so much positive news, so much positive like regulation that has been um shaping up and creating the foundation for what the entire industry has been waiting for for an entire decade um to come in and understand what is the regulatory framework, um how can we build infrastructure? And so, I think what has really happened over the last 2 years was uh going into the inauguration with a lot of excitement about all these positive uh tailwinds, but then realizing that there's actually

a very strong decoupling that has taken place. And that decoupling is has really come from um institutions allocating into infrastructure and into M&A and into creating the rails that enables them to take their existing business from the legacy framework of how settlement and how trading is done and clearing is done and upgrading it into a 24/7 infrastructure. And so, that's where the capital is flowing in at the moment. And um much more so than into prices because it's less about buying tokens. It's actually about building infrastructure.

So that is coming to play and at record pace. And you can see this across the board with every existing traditional institution that has now a digital asset strategy that is actually hands-on implementing into their business the a new blockchain permissionless and and and digital digital infrastructure. And I think that is very very to see. And I think that decoupling is a question of time until there is some recoupling that will take place on token level and price level.

>> So what I'm hearing is that we are at max blockchain not Bitcoin era. Right? Or Ethereum in this case. I remember sitting at my desk at City back in like 2016 2017. And that was the thing. This is amazing technology. We're going to integrate it. We're going to improve our settlement times. We're going to make the world a better place. It's going to be more efficient. But this these tokens are are are garbage. Like why do I care? They're not backed by anything. That was the story back then. And I'm hearing from you that that's the story now.

But when you go back to that era then some innovations came out. And they catalyzed. And the next thing you know, DeFi comes out. And then we had this incredible you know DeFi summer and an incredible focus away from blockchain back into Bitcoin back into ETH back into the tokens themselves. And so is is this the end game as the institutions are building using the technology to do what we know it does? Or do you think that we're going to see a cycle back to the tokens? And if so, what's going to catalyze it?

>> Yeah, I think that's a question that we get asked by our clients a lot which is around what is going to drive the next cycle in token prices. And I think it comes really back into simplifying again what um tokens are for and what drives buyers and sellers. And I think what we've seen in the past was that a lot of the token launches was really driven by uh venture money um investing and allocating towards innovation. That innovation has taken shape. A lot of businesses and and projects have launched a token. They have a product. They're up and running.

But the flows in terms of the adoption of a product have diverged from the flows of what investors and founders have been doing post unlock. And so I think that has been one of those drivers in terms of this divergence where the product is being used. Uh they're being integrated into the existing infrastructure into different tokens, protocols that collaborate, that have um interoperability. But then on the other hand, um just steady supply from investors coming in uh driving those prices down. So, I think for that to change, you need to go back into a market where there is actual value that accrues to token holders, reasons to deploy capital into tokens and hold it

irrespective of what the cycle is. And I think we to a lot larger extent that is still missing for a lot of tokens. There's no clarity in terms of like how does Where does the residual cash uh of a business um how does it drive back to the token holders? Um how does a investors that holds on to the token for 5 years get remunerated financially beyond just government rights? And so I think that is really a question that is actually very basic for any equity investor. That's the first thing they look at is like what's the dividend yield? What's How do you um what's the financial incentive of holding an asset?

And they look at it on a relative basis. And given that there is not really any clarity on on the majority of the tokens, that is one of the reasons capital has just left and slowly migrated out of crypto and also allocated in the short term more into like AI stock and into other sectors where capital has just uh is being treated better. >> So, you mentioned AI. Um and what I'm hearing as well is fundamentals fundamentals matter and a lot of investors today are chasing the shiny new toy, which is AI. There's incredible capital going into that technology. IPOs are coming out sucking liquidity right out from potential token investments into that space.

Uh and many people think that AI is competing with crypto in a way for that capital. Uh and then you see AI come along and uncover a lot of um issues with code. Um you know, vulnerabilities and potential hacking issues. We saw that with um with with with eCash recently. So, it feels like we're in a period of max competition with AI. Um my personal sense is that long term these are going to be very symbiotic and technologies that catalyze each other. How do you think about that interface?

>> It's a it's a great question. I think everyone in this room has uh over the last year been able to drive up productivity at a non-linear scale with the usage of AI. And I think this is in terms of an asset class, the way I think of AI is that intelligence itself has become a commodity over the last few years. Where previously it was just in within humans, now it's within machines. Meaning that intelligence has now a price and it's a commodity that can be bought and therefore be deployed into building and into innovation.

And that has driven a lot of the um mind share that has moved out of crypto into a sector where there's simply a faster rate of adoption and of of of innovation that is taking place. Um and and that just means that this commodity is now being used to build uh infrastructure, to build systems, to build companies. And I think in parallel what that's ways into this whole discussion here is that token prices and and blockchain itself is really it's rails for settlement. And that's what is being materializing now with uh more and more uh existing businesses that have been adopting and building uh blockchain and in incorporating into their settlement

flows, into their payment rails, um and and taking tokenized equities into tokenized world that is tradeable 24/7. This is the rail where finance and value moves from A to B. And the AI part is the intelligence layer, which is a commodity. And so the question really becomes at what point does the commoditized intelligence start to transact and transfer value from agent A to agent B or from um place A to place B or from company A to company B. And at that point I think there can be a recoupling and also a um point where AI will start coming back into this new 24/7 infrastructure that is currently being incorporated by all

the large uh traditional financial institutions. >> So you mentioned 24/7. Um you're at a leading market maker. You're seeing all different types of flows. How is AI, you know, being a crypto guy even in 24/7 markets for as long as you've been here, it's new for a lot of folks. So how are these trends impacting your business model uh as a leading market maker? >> Yeah, I think from an innovation perspective and building perspective, it's great. Uh it drives our productivity tremendously across the board in all the different teams and departments.

Um I think what is interesting to to observe is the the movement from builders that have moved into crypto has been driving down the activity in crypto itself. Meaning that there's just less trading that is taking place. Retail traders that used to be active on Binance and other platforms trading perps all day long, they have just moved over and are starting to trade AI equities because there's just more momentum, there's more traction on those, and more returns to chase.

So, we've seen a slowdown in terms of retail activity across all the major venues that were active on in providing liquidity. Um we've seen a change in in mindset within the crypto-native community where post last year, post 10/10, uh there was a strong slowdown where where people were still sort of in this mindset that we're in a crypto bull market. And that has lasted up until the end of uh Q1 this year. Now, over the last 6 to 8 weeks during that rally back where where there was a bit of life coming back into crypto, what we've seen is that a lot of the market participants have just accepted the fact that we're no longer in a bull

market at the moment, but in a sideways market, and have started to adopt their trading a lot more around it. Meaning that in end of last year, beginning of this year, it wouldn't be like, "We'll sell rallies because there's still hope." Now, we've just seen over the last 6 weeks a lot of supply come back into the market selling any rally, trying to trade a range. And so, that is a big trend at the moment that we see, which is that the the flow of the current uh market participants in crypto, they are driving more range boundness in the way they trade. Meaning that they sell rallies, they buy dips. It compresses the range. We're seeing a lot of supply come in from sophisticated

institutional clients that are selling options to earn yield. And by selling options, they are essentially compressing the range at which tokens trade. And so, it amplifies this sort of slow sideways grind, which has this self-reinforcing prophecy that is slowing down the entire market. That is driving active investors that are actually chasing return into other industries and into other asset classes where there is just more volatility out there. And so, slow markets are slowing down markets further. And so, we're sort of in this very slow grind right now.

And the question really is at which point that will change. >> And what do you think would bring about change? I mean, there's a million catalysts out there. Could it be the Clarity Act, the end of the Iran war? Um I mean, there could be a myriad of catalysts, um new innovations, the agents. Uh what do you think catalyzes us out of this? Either way, up or down. >> Yeah, it's a great question. I think you have over the last 2 years, there's been so many reasons to see a change. But, reality is that all of these positive news that have come in haven't really moved the market.

capital has been deployed. And so, the question really is at what point is capital being redeployed into crypto? And when it takes place, how is it going to be redeployed? Um I think the previous sort of bull market where all the boats are being lifted by the capital that's flowing in, I think that era is over. Uh I think we're now in a market where there's it's going to be a lot more about picking the winners. Uh and where there's going to be more dispersion between different tokens and between different chains where there's really momentum that is taking place in terms of adoption, in terms of infrastructure that is being deployed and used within the existing

um financial markets. And therefore, it's it's really about staying on top of those trends, understanding on what chains is infrastructure being built, what chains have TVL that is growing um in terms of financial assets that are being tokenized. And then from there, how does that impact the demand for the underlying token itself? And so I think it's it's really going into to be a token picking um era or years ahead of us where there's going to be a lot more divergence and winners and losers of tokens that are going to disperse a lot more than what you've seen in the past where just all the tokens would go up at the same time.

>> So as an active manager, um that's music to our ears, right? You're what you're saying is that sentiment's pretty bad, fundamentals are improving, and value is going to be found in those tokens that have those fundamentals. Right? So it sounds like that is the is the journey that we're on. >> Yeah. Yeah, that's definitely something that I think is going to drive up the next um year ahead. I think what we're seeing as well is just a lot more um structured products and a lot more sort of sophisticated investment strategies being deployed trying to harvest the residual volatility that there is in the asset class at the moment.

>> Yeah, when I hear structured products, I think institutions. Is that what you're seeing? Is more institutions displacing that retail? And and how do you think about that breakdown uh even from a geographical perspective? Are you seeing changes in in your client types, changes in behaviors? >> Where I think there is going to within structured products, there's two parts to break down. Um there is institutions that are essentially just chasing yield. And they don't really want to care about crypto going up or down. They just look at generating returns um or alpha uh as commonly known within the asset class itself.

So they're essentially just very systematic, deploying strategies, selling options. STS is as a market maker providing liquidity on options on over 400 different tokens, perfectly positioned to facilitate these type the implementation of these type of strategies. And so on that side we've seen a strong growth over the last two years of sophisticated clients that are entering that asset class and just deploying those strategies and scaling them up. On the other hand, what we're seeing is that there's a lot of traditional um market participants um firms such as uh wealth managers, private banks that are actively thinking about how to offer more tailored crypto exposure to their

clients. And that means rather than just selling them allocate 2% of your net worth into Bitcoin the discussion what they're trying to solve is creating financial products that enables them to pitch the clients to have 2% of their net worth in the upside of Bitcoin but with a fraction of the downside risk. And that is usually done via uh options and packaging up different options into a financial product that then can be sold to investors. And I think on that side there's a lot of traction under the surface where the financial institutions are looking at how to build that, how to distribute that, and how to structure them at a um scalable way. And on that side we've seen a lot of growth from our

uh clients and partners. >> As you're building out this new suite of structured products, are you integrating prediction markets yet? And how do you think that's going to evolve? I mean, you could start hedging like parts of companies, for example. Are you starting to integrate that into your flow? >> Yeah, it's it's it's a great question. I think the way to break down prediction markets or the way we look at it is options itself have um resemble um prediction markets in terms of the outcome. But the payoff at maturity is not going to be binary, meaning it's not zero or one. It's going to be in proportion to how right you've been.

So it adds a dimension when you think about trading options, which is that it's not just about being right or wrong, it's actually how right are you going to be. And that creates this non-linear type of payoff. But if you break it down, um a prediction market is actually nothing no different than a digital option or binary option, meaning that your payout is just 0 1 and therefore can be priced in a very similar way to how uh digital asset options or options in general are priced. And so what we are getting active in is and we've already been active in is pricing up digital options, meaning binary options that have a binary outcome of zero or one.

And that essentially has the exact same pricing mechanism as a prediction market. So on that part, um we're getting quite active and ready to deploy that into um different platforms that have Bitcoin or or crypto-based price prediction. What we're less active on and uh less focused is real-world outcomes because it will a large extent those real-world outcomes are not really hedgeable and they have um idiosyncrasies in terms of risk and like how they're priced and what actually happens that is not really controllable or observable.

Um but I think something that is very interesting in terms of like all the adoption that is currently taking place. >> That's super interesting. Uh so as we come on into session, uh any thoughts like for people in the room, how do you see the market evolving over the next, I don't know, 6 to 12 months? Is now the time to be long um or is it a it's crab season, stay out of here? >> Yeah, I think I think it's a market that will reward winners and builders that are building product market fit and that are building um and and creating services that are actually being used uh by the existing financial world, by the existing tech uh platforms. And so on that side, I think

it's just bear markets are here to build, Slow markets are here to build. Um so just focus on that. And in terms of prices, I think what is really interesting is that the flip side of what we just touched based on, which is slow markets creating slower markets, creates an opportunity where with options you can actually um reposition and also take advantage of that low volatility to be able to put on positions that will reward you whenever tokens recover. And so I think it is um difficult markets are here and reward the patients. And uh and therefore it's uh nevertheless an interesting market to uh be in and continue to uh build on and uh invest.

>> Awesome, Ed. Really thank you so much for coming on today and uh all the best. >> Yeah, and thanks a lot, Chris. It was great. [applause]