The Great Reallocation: Where Crypto Capital Goes Next

Transcript

Love to see so many of you here for day one of Token 2049. A busy week for everyone, so I appreciate these four gentlemen taking some time out to sit with me. So in this conversation, we're looking at the reallocation of capital. I think why this is significant for everyone in the room is looking at where liquidity flows, looking at the different perspectives that all four of you gentlemen have. What kind of things are upcoming and what kind of things are items to to watch and to see what happens next. So starting off, I'd love to to go around the room and Richard, starting with you, just a brief introduction to the organization.

>> Sure. DI Capital Management, we're an institutional manager of, you know, family office institutional capital direct into crypto space. So we work across both early stage VC and liquid markets, and we've been doing so since about mid 2017. >> Uh 50T Funds, we're a growth stage private equity investor, uh focus mostly on companies in the digital asset world making at least 50 to 100 million in revenue. Um we've been around now 6 years. We've made 25 investments, around less than 2 billion AUM.

>> Um Monarch Asset Management, uh multi-strategy hedge fund focused on the liquid markets. Um do everything from on-chain to quantitative strategies to options. Uh we're owned by FalconX. >> Brevan Howard Digital is a multi-billion division within Brevan Howard, just a $35 billion fund. The digital business invests for everything from liquid tokens through to privates. >> Thank you. Thank you all for the introduction. Now, something that we're hearing continuously across the two days on the stage is the convergence of finance, traditional finance, and digital asset space, and also what that means for everyone in terms of investments of capital.

I think first of all, just starting, and Shilang, I'd like to start with you here. When we look at the convergence of the two, when we look at digital assets moving on chain, is this something where we're just seeing traditional markets having better financial plumbing, or are we really seeing a new financial suite of products for people to allocate capital into? >> Yeah, I think it's it's both, right? I think it's both in [snorts] sequence, right? Plumbing is what brings assets on chain. And once it's on chain, I think how it's trader interact with, it's it's the user behavior that changes and creates a new market. Um and I want to differentiate between a new asset and a new market, cuz market takes into account how users interact with the asset and how behavior changes, right? I

think if you look historically at financial markets and how that became, you know, on the internet, uh capital markets, how they became electronic, uh payment markets, how that became digital, all that changed how we, you know, paid, traded, invested, uh and interacted with these new markets, right? And now, I think you're looking at things like um you know, on-chain vaults or uh uh uh you know, yield-bearing stablecoins. Uh these are all fundamental or perpetual swaps, right? These are all fundamentally different markets. They might not all be new assets, but they are fundamentally different as uh markets and how users interact with them um are consistently different than how

historically uh they have, right? Like a a trader on a Saturday, you know, trading AI chip stocks, um you know, on a perpetual market, that that is fundamentally a different market, right? So, um that that I I truly believe that we are creating new new markets. >> And Chris, what about you? Do you agree with the statement of newer products versus better plumbing? >> Yeah, I I align with that. We're seeing really two phases here. The first phase for tokenization is effectively using it as a wrapper. So, with stablecoins and you're effectively you're traditional finance instruments uh with a tokenized layer. That brings significant benefits.

Um as mentioned, 24/7 trading, more efficient allocation of capital. But what gets really exciting is when you hit phase two, which is when you have native issuance on chain. And there's a couple of interesting transactions that really identify that the where the puck is moving. One of those is Bullish's acquisition of Aquinity. And the other is Securitize tie-up with Computershare. In both those cases, they're targeting um native shareholder registries that can be brought on chain. And that really opens up then native [snorts] issuance on chain, which will bring the second phase, which will bring more benefits in terms of efficiency particularly, um but also in terms of operations.

So, what lens I look at it at this point is it's really about where does this value accrue, and where the investment opportunities are as this convergence continues. >> And now you've mentioned the phrase open things up. And Richard, Dan, I want to turn to you now. We've got to talk about liquidity. As we see the barriers to entry come down, do we see that there's new liquidity pools, there's more capital to be allocated, or is this just the same liquidity moving around in different cycles? Richard, I'll start with you. >> Yeah, I think by definition there's more liquidity because if you can trade something on the weekend that you couldn't trade on the weekend before, you've automatically started a new market and new liquidity that didn't exist yeah, probably only 12 months ago.

I think also, you know, people underestimate, particularly people that come from advanced developed markets, the barriers that exist outside of those advanced developed markets to own a lot of assets. And you know, stable coins is a good example of you know, how launching a probably the world's most boring product in terms of a US dollar onto a new technology framework has basically seen the proliferation, particularly through Asia, of you know, new people owning US dollars effectively that never owned them before. And I just think we'll see the same thing again, that we'll see people using this technology to, you know, own an interest in a Tesla stock or own an interest in SpaceX, which for a lot of us is easy to do in our home market, but for a lot of other

people it's not. And, you know, so that adds liquidity. I do think it does start to push the liquidity to the top end of assets, like we've seen with stable coins and US dollars proliferating much more than you would probably expect. You know, there's an Aussie dollar stablecoin market, but it's tiny even in Australia compared to the US dollar stablecoin market. And I think we're starting to see that in tokenization market as well as people sort of congregating to those mega assets around, you know, the SpaceX, the Teslas, those sorts of stocks that they've wanted to own and there's been barriers to stop them before.

>> Mhm. And right now the open access is is quite new. So, we are seeing a broad range of allocations of liquidity. But, Dan, are you starting to see, looking ahead 3 to 5 years time, can there be a concentration in just a few pools or markets? >> Um I don't know. 3 to 5 years, uh in our space and I overlay AI, uh I think it's it's hard to know. Um I would say [snorts] that the space has changed dramatically from 2020-2021. Um at that point it was mostly just about Bitcoin and ETH and maybe the beginning of Solana and then all these venture projects.

Um and in the last 5 years, I mean, Richard's mentioned, you know, stablecoin growth was a zero essentially in 2020. And now RWAs are real and we have, you know, perps trading and uh I think every cycle has has different um aspects that drive it. >> Mhm. >> I think clearly hype is been a driver of this current cycle. I think we're in a bull phase now, finally. Um but then you have prediction markets, which essentially didn't exist before. Um you know, capital uh is definitely going to different places in this cycle than it did in previous cycles. And then I'd say more broadly, unfortunately,

um with the advent of AI, I mean, fortunately, the capital suck out of blockchain crypto has been enormous. And so, it's been a more difficult cycle because, you know, you have the short rates in the US at 5% and um you have all these other, I would say, um frontier capital uh allocations going to space and robotics and uh and to build out the AI, which is trillions of dollars. So, I think we we definitely have seen less capital um so far in this bull phase, and I think it may have been like why it's so grudging

on the on the on the on the surface. Like, Bitcoin again at the same price almost that it was 5 years ago. But then there's been tremendous growth in all these other ancillary areas that I would say are part of the digital asset ecosystem that has really grown. And tokenization uh with the value of all things moving >> [snorts] >> on chain. >> Yeah. >> Right. Um I think that's the leader for this cycle. Yeah. >> Interesting. And you've mentioned the AI capital flows that we did see. There was huge interest and momentum from the AI space. A lot of people in crypto did question if we were seeing liquidity move from the crypto space over into the the AI world. Chris, I'm curious to hear

your takes here for someone that's been kind of watching and seeing both both industries [snorts] emerge. Are these different pools of capital or are we seeing the rotation move from one back to the other? >> I think maybe just to start off, expectation is that you'll see different themes attract capital at different points and momentum can be a good driver of that. The lens of which we look at it is that these two technology cycles are complementary and annotative. Um AI maybe to start with that is early in the sense of the picks and shovels a huge amount of capex.

But what we're seeing there already is a shift from analyzing data to creating data to then acting on that data. And so that transition has happened quickly and the acting on the data brings in a whole new realm of economic actor that requires crypto rails to operate. So that's one kind of cool out on the AI The other interesting observation as well is that AI is facing a lot of the common questions and challenges that crypto did in terms of regulation, energy use, market infrastructure uh whether it should be open or closed.

So that's another indication of how these two cycles have similarities and how they um overlap. And then back to these economic actor again that kind of splits in my mind into two themes. The first is retail. So retail can use AI for a variety of different activities whether it's moving cash. Uh then on the institutional side it can have much bigger implications for treasury management. And so we're still very early in this uh is intertwining of these two cycles uh but I see them as compounding each other and increasing as you see more use cases for crypto rails.

>> And I absolutely agree. I think crypto rails will run for for the AI ecosystem. If we look at the adoption curve of what we've seen for AI compared to crypto, the AI adoption curve was like a hockey stick. It was just straight up. And I think everyone in the room can acknowledge that blockchain rails will provide the the brick-and-mortar infrastructure and currency that we'll use. Do we think that's been priced in yet? >> No, it's not been priced in. I mean, XRO2, which is maybe just in the very early stages. There's no There's actually no significant revenue coming from any of the agentic uh transactions on chain. I mean, it's tens of millions of dollars, I think, at the very most, even though there've been trillions uh trillions millions of

agents that have transacted on chain. It's just very, very small. Um but I definitely think this overlap of AI and blockchain, there're going to be many companies that are being built, and uh I think many protocols that'll be leveraged to that. So, it's just just very early. I mean, it didn't exist even a year ago. I mean, Richard, are you involved in any of these little projects that are popping up? >> Yeah, some of them. And I think the the overlay to um you know, that where's the marginal dollar gone in the last 12 months is pretty stark. If you look at you know, the performance of crypto now, there's you know, you don't want to put too much causality here, but the performance of crypto versus the

performance of the software sector statis- uh software indi- indices in the US is almost a perfect match, right? And software's been sold off because it's a not AI industry. So, I think the marginal dollar made the call early on that crypto's not a AI industry. They've taken money from crypto, they've put it into chase the next thing in the software in the AI space, just like they've sold their software names into the AI space. But, you know, as markets do, they overreact, and you start to get things like software companies that are pretty good trading at six times PEs, and you start to see crypto companies getting assumed they're not going to go anywhere or have anything to do with AI, which I think which I think is wrong. Um You know, everything that digitizes the

world is good for crypto in my view and and then there's nothing around AI that's not digital, right? So, it's just going to bring more and more assets, more and more users, more and more things into the space that move at crypto need to move at crypto speeds. >> Mhm. It's not priced in at all. I mean, I would That was your question. >> Yeah, zero. I mean, I don't >> Well, I think crypto's priced that it's not that it's negative that AI's actually a negative if anything, right? >> Well, I mean, the the future of AI and blockchain together, that 3-5 year future is not priced in today. There's no in the price of the cryptocurrency.

>> There's also a big macro factor as well, which is the redistribution of baby boomers' money in the US. As we age, there'll be uh tens of trillions. And there's been lots of speculation for a number of years about how that will affect markets and how that will affect investing. And this is This is happening and accelerating a point where AI agents are going to be available to individual retail traders to operate and use them on uh blockchain rails. So, we are really at the um really at an inflection point where the form's not priced.

>> Because it's a really interesting advantage for everyday retail traders, people that are in the audience, people like me and you, that are now able to have a much sophisticated strategy for how to allocate that idle capital that's just sitting in a bank. So, do you think that will change any of the adjusted terms? >> Yes, I think we're still very early. And I think we've it'll take a bit of time to build up trust for that, but um yeah, there's a lot of cash sitting at banks and can that be invested in a different way by retail using AI?

Absolutely. Uh and that will mean that banks will have compete for those deposits and there'll be more products available for uh for retail. One of [snorts] the kind of macro implications that sometimes gets discussed, of course, is how does that impact credit formation? In terms of credit impulse but with banks using that cash to make loans into the economy. And where I think is so interesting is that there's going to be a number of direct products, direct credit products that investors are going to be able to use AI agents to find and invest uh as well as the cash. And so I think the impact uh from that transformation that banks undertake will be look much less than perhaps people expect.

>> Interesting. And Richard, what do you think as well? I think for people that are in the asset management space, also looking at digital assets, it's also going to be competitive in terms of working with clients. >> Yeah, I think so. I think the you know, the the easiest read we have on AI's impact on crypto markets is that uh volumes explode. um if you look Robinhood's brought in agents alongside there for their customers to use. Aero drone in the crypto space is launching agents. I think everyone's going to have access to more sophisticated, high-frequency type trading uh capabilities that they've never had before. Even I, you know, who who I'm a fundamental guy, I'll you know, I'm running a bunch of agents trading probably helping Brevans and Monarchs bottom line in terms of them picking me

off in the market, but it's liquidity that wasn't in the market 3 months ago that, you know, scales quite peak. So, I think from our perspective, the opportunity we see around in the short term is that volumes will pick up materially. I think it does mean that um everyone gets access to more sophisticated, more agentic type HFT type um capabilities they haven't had before, but I I'd I'd just be a little cautious because you know, whether that's the right thing to thing for them to put their money in, right? There's still barriers around banks allocating that capital that's still relatively high risk, hard things to understand for a bunch of people. So, um I think in the short term it pushes it pushes volumes up, but there's still a barriers before I think we see a mass reallocation of capital.

>> I think one share probably is just it it matters in a world of AI and agentic trading and agentic finance, probably matters less where capital sits and what that capital represents or how fungible that capital is um and whether you can use that as liquidity across many, many platforms, right? Because an agent doesn't really fundamentally care um you know, where the asset sits. The inertia and barriers in moving that assets kind of falls and dies down over time. And really what that matters is how that asset easily can move across the ecosystem and um various on-chain markets, right? So, I do think yes, more volume. Um I think it matters less about the platform and

ultimately the brand um and ultimately what that asset represents um and how it can be utilized um on chain, for example. >> So, we've talked about looking ahead, the convergence of AI and crypto, blockchain rails on tradfi systems. It seems pretty bullish from what we're seeing, but then there's also the macro environment at play. And I think Dan, this is where I do turn to you as the macro and Bitcoin guy and from a content perspective. So, can you give us a run-through of kind of how the macro environment is lining up right now and what kind of things this is pointing to? okay, you set me up for that one, but yes, you're right. I'm a macro guy all time.

Um look, I had originally not thought the interest rates in the US would back up to this degree. Uh I really think that um it's been overdone. Um the employment data in the US has been very soft. Average hourly earnings just hit 3%. It's been straight down to the last few years. >> [cough] >> You know, [clears throat] the the oil shock from the war is obviously having impact in the US. You can see uh gasoline prices up at $6. You've never seen that before. So, I think that's artificially inflating some of the inflation numbers.

But with uh the Fed Governor Warsh and Scott Bessent at Treasury managing um I actually feel quite confident. I mean, they both uh as I did, they both work for Standard Chartered Bank. I worked at Ducane. I actually was there between Warsh uh between Bessent and Warsh. Um and you know, their framework for analyzing world markets uh is I think of a quality that we've never seen before like in the US, like going back 30, 40 years. So, I'm not worried about the bond market losing control. I lose you know, people saying that that that the bond control bond market's been out of

control. But on the other hand, France really does have a problem and uh spread between French and German bonds is blown out to the most in sort of 15 years or so. So, um and that's for political reasons. I I do think a around the edges liquidity generally. So, what is macro? Macro is assessing changes in liquidity and how they'll affect the broad asset markets. I think broadly underneath the US market there's a lot of damage uh that's being done. So, the top 10, 20 companies are all doing great, but the bottom, you know, 300 in the S&P are just getting

killed. And their businesses uh I think are challenged. So, there's a real bifurcation and this is why you're not hearing Usually, macro there's a very clear direction. Um and what that will mean, of course, for gold and Bitcoin. And I think at the moment you know, it's a bit of a mixed picture. And what I would say is that Bitcoin, ETH, digital assets broadly have massively underperformed the Nasdaq in the last few years.

And I think that that underperformance is essentially coming to an end. You know, I I I think about So, stepping a bit like for a second just back from the traditional macro. If you think back to 2021 when Bitcoin was at 60 and ETH were over 3,000 and you look at how developed the digital asset landscape was then versus today Today it it is much more developed and you have ETFs and all sorts of you have dots, you have the the the whole perps, the whole uh ecosystem has grown multiples.

Um so I think it's just the headline assets, Bitcoin and ETH that are lagging the actual developments uh underneath. and so therefore uh I and they've massively underperformed the Nasdaq. So, I think it's right now is a fantastic time um to be long and making investments in our space. I mean, I don't Do you have the same view? >> Yeah. Yeah, I think. Yeah. >> I mean, to your point, if if prices are down but fundamentals are up, things are cheap.

So >> And they're very clear. It's not like this is a nuanced situation. There were no stablecoins. Now there are 50 trillion dollars of volume. There were no RWAs, now there are. There were no perps, there was no predict There was nothing. So it's just uh a waiting game. You know, we just have to wait. I have a 10-year life fund, thank goodness. Otherwise, I mean >> Well, that's the thing they showed us the flaw in crypto is patience, right? >> Correct. >> And it's hard to be patient against volatility. >> It's very hard. >> But also, if we're seeing a drive and increase in utility for stablecoins, mostly majority US dollar denominated, does that also play a shift in long-term macro outlooks?

Maybe Sheila over to you as well. >> Yeah, I think what we're kind of seeing is um at the central bank global level, perhaps a dedollarization that's kind of happening with the bond markets, right? Uh at least temporary short-term. Uh what we've seen longer term um and what the administration has been pushing at call it the more grassroots, you know, call it retail level globally is kind of the redollarization of of the world, right? And it's almost like a modern Marshall Plan or soft power, whatever you want to call it, right? It is stablecoins generally are denominated in the US dollar um and the more usage of stablecoins globally

ultimately results in more inflow to the dollar um and that that's been a a message and a push from the administration, you know, for the past couple of years, right? So, I think that's been a continuous shift that that we're seeing. Um and then how that ties to maybe crypto markets, I think uh generally we're we're judging the crypto markets in a bifurcated manner, right? We we we have kind of hard assets, Bitcoin, yet it's underperformed the Nasdaq in the past few years. Um but I think it'll continue to be judged as a hard asset and it'll catch up over time. Uh and then there's kind of the stablecoin dollarization of uh the crypto markets, right? Which is

kind of everything from like payments to to trade five to to stablecoins. So, that that's kind of how I would say the crypto markets have bifurcated in general. Um and then everything else is more just risk on risk off assets. >> Can we just say one thing? I think you're right to point out it's it's not traditional macro, but that the advent of stablecoins and the growth is a huge positive macro factor, not just for the dollar, but for assets on chain.

So, I in my worldview of like where we're going, we're in the first inning or two of the tokenization of liquid assets. Um and I think that's a foregone conclusion. The holy grail for me, and it it has always been this from even 6-7 years ago, was is the tokenization of illiquid And so, that hasn't even started. So, when I think about where are we in the growth of our space, um the hardest, most difficult thing, but most needed is the tokenization of illiquid assets, essentially real estate, that's largely frozen. And there are all sorts of other illiquid assets.

So, I think if you like think about like what am I doing? Am I should I be in this industry? Is this what's going to happen? Um to me, the end state is when all of those things, the illiquid things, are tokenized, and that hasn't even begun yet. >> I I Yeah, those are just hard maybe that the macro advising opportunity because we've got a multi-decade technology cycle and we're at the application phase. And that it moves in macro factors such as a long end. You they put pressure on prices.

Those prices don't necessarily reflect what the adoption curve is doing. It's so I see those as good opportunities to to yeah, manage a long cycle with some of the macro volatility that creates those opportunities to trade and invest. >> It's such an interesting time. Now, I know we have 1-2 minutes left. I want to ask each of you if we fast forward to Token 2049 next year, what do you think one of the key conversations that will be on the stage and it could be tokenization of illiquid assets, it can be agentic AI payments and the rails beyond them.

>> Look, I think um I think if we look back in a year's time it'll be how did I miss it? So, um everything we look at now is um particularly from a volume perspective in the market is, you know, near the bottom or close to the bottom of the cycle. And I think people in crypto are good at forgetting that how quickly cycles turn in crypto and that's both on the downside and the upside, but if you look at the volume cycle in particular in terms of trading and liquidity, which is, you know, sort of the key activity that happens in crypto and the key revenue generator, you know, it's down 80% from where it was in in late 2025, right?

And you know, that's that's a hard thing to to go through as an investor, but we've done it before. Like at the market's drawn down 80% last time from 2021 to 2022 and then it grew 16x on the back of that, right? So, I think just, you know, keeping a the longer term view around adoption and where things can go and how quickly sentiment changes in quick in crypto and then how quickly the fundamentals rebound as well, because it still is a relatively small asset class and it doesn't take much of reallocation, much more attention to really see things accelerate. So, I'd hope next year we're talking around how did we miss so so many obvious things a year ago?

>> A little bit contrarian, but what about the idea that the whole conference, and this is a lot of you know, it tends to be a broad cryptocurrency, but that Bitcoin becomes the center of the conference because it's trading at 250,000. And I would say ETH, you know, would come along too, so that it becomes less about all these things we're talking about now and ETH at 8,000 and Bitcoin at 250, everyone's going to be running around talking about the core assets of the space.

>> Um I would say maybe at least from a financial market perspective, perhaps like compute markets, right? I think uh as a trader I'm hopeful that that does develop into a real liquid uh marketplace. Um it intersects a bit with the crypto markets. Uh we're just figuring that now from a regulatory perspective in terms of settlement indices. Hopefully by this time next year CME will actually approve everything and there will be liquid markets there and um but that's an area that, you know, I'm hopeful uh a complete new market that trading firms like ours can participate in.

>> I think the word will be dispersion. I think you'll see some big winners and some big losers. That's a function of where we are in the cycle. Uh but it will be less about like the average performance more about where's the market value, where's the value capture. Uh and I think on that basis we'll have some very very large companies that which are probably 2 billion now should be 20 billion plus when we sit down here next year. >> Fantastic. Well, watch this space, gentlemen. Thank you so much for the insights today. Such a pleasure. >> Thank you. >> [applause]