Institutional Trends in Crypto

Transcript

[Applause] so yeah good afternoon it's nice to be the sort of university uh environment reminds me of university days but except it's 5 pm and people are selling clouds it's very impressive um so yeah so i am the the institutional uh director uh director visual business at binance um my own background is in traditional finance so i started off back in the day in uh derivatives and and hedge funds after trading as well and i joined finance uh just about a year and a half ago it's been a very interesting period on the institutional side so i wanted to highlight some of the trends that we're seeing on the institute front in the uh in the crypto

space so nikki already gave a nice introduction but for those who may be new to crypto or not from finance so we are the leading uh crypto and blockchain infrastructure provider and that includes the world's largest uh digital asset exchange uh by volume and uh so the my website is finance.com and freedom of money is very much at the heart of our of our mission this is pretty cool a pretty cool slide um so you can see that it's minus has now sort of expanded on and beyond just just being you know a crypto exchange it's a whole ecosystem of offerings so we have p2p we have derivatives different lending products uh with an otc despite a bit more about that later on finance smart chains was a big focus on finance

smart chain and all the neat uh d5 projects in space uh this year but one thing i just want to emphasize is actually um at the bottom uh we do put a lot of uh effort into education so if there's really almost any subject that you're you know interested in it can be bitcoin it could be impermanent loss if you type the subject plus finance academy on google you'll generally find some pretty good uh articles all right so as i said today we're going to talk about institutional trends in crypto uh now you know 2.5 trillion market gap my take down just a little bit over the past few days but it's around there and we've seen some really interesting trends emerge i'd say over the last 18 months or so uh especially after

measurement size we're going to spend a bit of time on that uh today but also on a more macro eleven about pro level sorry on the on the southern wealth side uh corporates and uh the last thing is esg which is quite interesting okay all right uh before i kick off on trends i really like this slide i love the simplicity of it um if you're if you're a trader you consider that all the information available at anyone any point in time is is available and reflected in the price and here if you look at price floors during periods of extreme bearishness you know you can see the adoption has uh increased exponentially especially for the past year as i said year year and a half uh the institutional adoption has

been pushed uh bitcoin to higher levels okay given the the bear market this year is more of a mini bear market but you can see very clearly where the trend is here all right so asset management um you know a lot of interesting things happening in in anastasia as the measurement space in crypto i don't think we'll be able to cover all of them today but i'll try and cover the the main ones first of all you know crypto asymmetric kicked off with what we call crypto natives so pure crypto hedge funds pure crypto market makers brokers etc now we're seeing big traditional financial institutions enter the space so this is the thing that everybody's been building for is now is now happening but if you look at crypto

hedge funds for a second you know i started in crypto uh about five years ago so in absolute terms it's not a long time but in crypto as we know everything is 10x so you know it's a longer longer well at least it feels like a longer period and the landscape in terms of crypto hedge funds has changed dramatically so when i started off anybody who had made about 500k in crypto want to launch a hedge fund uh that's very different now so now the average size of a crypto hedge fund is about 40 million that's doubled uh over the past year alone uh we have you have about 900 crypto funds uh in the ecosystem now that is split more or less evenly between funds that are super active you know between different strategies versus funds that are more sort of uh that have

more of a dc type focus so total aum space is now 4 billion and interestingly one-fifth of traditional hedge funds are now uh either dabbling crypto so they have a small you know crypto pocket but more and more we're seeing big guys who are building and looking to launch uh crypto offerings which is quite uh quite interesting um and even the crypto funds now so now they have more resources right so they're hiring seasonal executives so they're hiring ceos ctos chief compliant officers from traditional space that's another big trend that we're seeing they're using independent admins so they're really trying to do uh things properly and also

all that is also being fueled by investors so how does how is the investor landscape changed well first of all if any of you are in the hedge fund game here or have you know backgrounds with hedge fund you probably know that raising aun is it's a difficult job right it's a hit racial game you do 100 meetings you get five tickets you know you really have to uh put a lot of effort into it and i think it's fair to say that in crypto that effort is double not only do you have to sort of educate your investor on your edge uh but also at times also educate them on on crypto and bitcoin and how everything works which is fine because you know everybody encrypted was at different parts of their of their journey um but there is that sort of extra step to do

and originally you know the lower hanging fruit and the the main investors and crypto hedge funds were high net worth individuals or actually friends and family high net worth individuals and family offices has that changed today no those are they're still the core uh investment group um but uh signs are is that now you have traditional funded funds that are allocating and even endowments you know endowments and smaller pension funds so we're getting there uh progressively so on the investor side how do these guys invest you know if your crypto fund smart way of doing things is to sort of replicate what you see in a traditional space because you want to have well you want your investors to have comfort so they want to see

a structure that they're comfortable with they want to generally see counterparty names that they're familiar with as well so that sort of helps on the on the term sheet front but you can either invest through uh a fund structure or more and more what we call managed accounts so these are actually for those who are familiar with managed account platforms and traditional space like big saw or dbselect it's a little bit different in crypto here we're actually referring to uh accounts on exchanges so on finance for example you can open your own master account and below that you can open sub accounts you can allocate to uh trading teams that you've identified so we call these uh manage sub accounts so you can actually link those accounts together uh from a trading team's perspective for fee

purposes for volumes etc and the the risk framework here is very interesting uh because uh if you're an investor you have your own binance account you have transparency on the assets uh their assets are on your end uh but uh the training team cannot withdraw from that subaccount so everything has to go through the master account all right uh i mean this slide alone warns the whole presentation separately uh but we want to tell you a little bit i mean i'm sure you some of you are aware uh there's an increasing adoption uh amongst countries uh on the on the crypto front uh obviously there's been a few catalysts over the past 18 months kovit was a big one uh increased

deficits uh excessive fat uh printing fears around you know currency debasement inflation uh have increased as well um and uh also countries i wanted to sort of move away from the dependency on u.s fx reserves so we're seeing an increased adoption for for cryptocurrencies and bitcoin in particular el salvador uh was the first to pull the trigger and adopt btc as uh legal tender i mean let's take a look back here you know for those of you who have been in crypto for a few years look what we're talking about here you know actual countries adopting legal tender bitcoins legal tenant that's a huge huge thing um another question is who's going to be next so there's a lot of talk about ukraine um president zizenski is quite a pro-crypto um

some legislation i passed in beginning of september that was quite favorable to you know sort of laying the ground there and building a framework for crypto and they're speaking a lot with their alzheimer's guardian counterparts venezuela is another one i mean they had a crypto experience back in 2018 didn't quite gain the traction that you know they had expected but at least it shows sort of a willpower and a initial framework to do something brazil is often mentioned as well and russia was recently talking about the value of bitcoin and the advantages of a bitcoin another subject i won't go too into today but uh central bank digital currencies so the bank of england the other day was sort of highlighting the advantages of uh cbdc's

i think we'll have a world where the two crypto and and coexist i think cbc's have a lot of um interesting features maybe on a more local level and we'll be using maybe bitcoin other cryptos for international transactions but i don't think one would place the other it'll be more of a coexistence uh type of scenario corporates all right um i'm sure you're aware and being focused on uh corporate treasury management through bitcoin so the big u.s tech firms initially started this trend so tesla mike strategy and michael saylor has really been sort of big uh it's a sponsor and

owner of the industry so pushing that message uh square as well but what people don't talk about is a lot of smaller firms uh and we see them all the time that are watching bitcoin to manage their treasury either as a store uh of value uh or on different different levels so transactional is a big one because more and more vendors in the ecosystem are using uh bitcoin so it makes sense to be involved in that ecosystem also studies have shown that uh most of the people who pay crypto are new clients for those firms and they generally spend more as well which is which is a positive on an operational level you know if you're dealing with programmable programmable money well there are a lot of advantages from a more back office perspective so uh settlement

and reconciliation and obviously on the corporate treasury side you know it might be made a cheaper means uh of accessing tokenized liquidity pools uh cheaper to access for smaller firms versus maybe accessing fixed income markets uh so there's a lot of different uh advantages there you know if you want to manage treasury imbalances you know instance elements is a big one it'll be very helpful on that front as well and all that uh has come you know come alive because now we have the infrastructure in place to allow people to do that now we're talking about huge huge trades here um and if you look to do it through an exchange or through the market you know something called slippage where you might not necessarily get the best

execution price uh that you're looking for so otc trading is very helpful for this so referring here to over-the-counter trading uh we do have an over-the-counter desk and portal at binance that people can uh people can use some more detail here so you can trade any coin that's listed on finance otc with us uh you can either talk to our desk directly so you're actually interfacing with a human being which is a nice uh a nice thing uh but you can also just trade directly through the portal uh if you want to and we'll give you one price for the full size so we take on the execution risk and doing that as i said your voice slippage uh it's very sort of straightforward it's very discreet as well so you don't have to go through the exchange so you

don't see your trade on the order book either all right i'm gonna spend a bit of time on the esg so esg is really interesting uh even you know on and beyond crypto if you look at the esg market i think the projections are that by next three or four years we're talking about you know 53 trillion in aun so that's one third of the aum uh that's out there and uh if i look at crypt um sorry esg hedge funds i know a few that launched a few years ago small amounts 20 million under management within two years they were managing a billion so i'm trying to illustrate here this sort of adoption rate within esg and that would be trends you know or an

opportunity but really unfortunate to miss out on in in crypto and it's really interesting that we're now talking about crypto uh within the esg uh narrative um so when we talk about esg crypto we're mostly talking about miners because they have obviously huge energy consumption to uh to mine their uh their bitcoin so that's more the uh the e part but more and more uh we're seeing the the s and the g uh that are coming into the spotlight and if you look at all the companies that have raised billions of dollars especially on the infrastructure side in crypto you know they're going to have to also take that esg box uh going forward and actually i was speaking to an asg manager the other day he's you know he's he's very transparent he said listen i love i love crypto i think it's really uh it's really an interesting

theme but uh if it doesn't meet my esg criteria i won't be able to uh to invest so it's an important thing to um to take into account but there are some positive trends in space so i think last year about over around three quarters of the miners were using renewable energy to mine their uh to mine their bitcoin there's also a lot of innovation happening so if i look at the finance smart chain for example uh you know we process bsc processes millions of transactions per day and i think the energy equivalent to process that is uh you know lighting up a light bulb for one tenth of a second so pretty impressive um i also came across this company in spain really really neat what they were doing essentially they were

building these facilities next to farms that were housing pigs obviously pigs with gas and they were using that buyer energy so mittan to mine the first carbon negative footprint bitcoin so it's quite quite impressive and especially in the states as well so we have a lot of oil drillers that can't move uh their natural excess natural gas through through pipes so they're actually working with bitcoin miners who are using that natural gas to mine bitcoin and then they're paying for that gas with bitcoin so grace that really interesting uh sort of circle and ecosystem all right just a word about

our institutional services at binance so um i think it's you know we've taken a leap from the traditional finance space here and aimed to provide very much sort of you know institutional grade uh coverage we work with a whole range of different um users on that front so uh hft firms crypto hedge funds now traditional hedge funds renting the space uh as i mentioned but asset managers banks market makers uh brokers etc so it's quite a wide range of uh people that we interact with and again you can interact directly with our team on a human level and we work closely with these people to help them optimize their trading flow through the exchange through our savings products through bsc or on the otc site as well

all right uh for those who are interested when you go to the binance website at the top left there you have like a little track pad uh if you click on that uh the new landing page for all our institutional services so this is actually quite interesting um a lot of faqs that are embedded into this but it covers the full institutional offering uh so api connectivity you can also download uh historical data which is which is free so if you're looking back if you want to backtest a few strategies on the derivative side you can do that as well so everything everything is right here it's quite helpful all right that's it for today i hope that was interesting uh questions already okay we're into questions but uh a question regarding the

corporate and uh do you have the yield on usdc a bank could bring money uh for the diamonds you see that really or not yeah so just coming back to this uh right in the middle there is investment solutions um so that's what we call the sort of staking earned income more about compliance you know

travel rules where in finances because of the global financial and past sports recreation yeah and second question you said about hedge funds just wonder which jurisdictions are the most preferable crypto funds which you can you know which have all aberration uh instruments to be properly operated to be a finance do no i know you're saying i know you're saying it's all right so i'm not in a position to answer the regulatory questions so we'll skip the first one on the second one essentially crypto funds for the most part are replicating what they see in the traditional space as i said so um and that's a very smart thing

i think because you know when you're a family office or a fund of funds that's coming into crypto you do need a lot of reassurance a lot of questions custody counterparty risk wallets and all that those concepts are quite new so if you're fun trying to pitch your strategy you want to be doing it with a message that's comforting for the for the investors so generally they they aim to replicate in terms of jurisdictions in terms of counterparts on the term sheet what you see in the traditional hedge fund space any other yes what do you estimate is the current split between retail money and institutional money both in sports and derivatives in crypto yeah um

well as you know it started off very retail um but that in the institutional size is growing exponentially um so in reality when you talk about institutions and crypto we'll talk about crypto native guys who who uh are they're just pure pure crypto backgrounds or were from the additional space but entered crypto quite early so those are the guys who are doing size today but that will change rapidly because now you have the big guys coming in it's early days uh but you know when you look at a a sizeable traditional hedge fund you know a lot if i take the the carry you know uh spot versus futurist for example you know they have 10 people working on that one strategy versus a two-man potentially you know crypto crypto

entities so uh i i it answered your question i think the size split is gonna grow on the institutional side right but uh perhaps it's hard to say it's hard to say right yeah and the new institutional money is coming on the derivatives yes yes well uh spot and ribs that's actually a really good question uh up until now um i didn't actually touch upon this too much but the the strategy part in in crypto is is really interesting so five years ago um the initial crypto hedge funds were just pure simple delta one tracker funds so that was a good business you know you get access to bitcoin and you're charging 220

in fees that's not the case anymore then we saw arbitrage so inter-market arbitrage on spot then we saw you know triangular arbitrage et cetera then that evolved into derivatives arbitrage now we have funds that are kind of hybrid between trading and and vc-like and there were a few funds like that back in 2018 but they got it completely wrong on the um on the liquidity side because there's a mismatch between being a hedge fund and being abc now that's tailored a little bit uh a little bit better and it's nice to see how things are now come full circle and we have all these etfs launching so delta one products again officer obviously with a lot lower fees i think we're going to see a really intense battle on the fee front when it comes to etf products and then future based spot based etc so

the the strategy front is evolving quite quickly i think the next focus will be options uh more more people will be doing options so i didn't highlight it in detail but we also have an institutional options platform for those who trade options and then d5 so it'll be d5 so we're obviously already seeing some yield based strategies but then derivatives on d5 will probably be the next big thing yes christopher is there any uh institutional interest towards nfts as a part of treasury management that i've seen so far um uh that's a very good question i think nfts like everything start off a little bit retail um but i

think there are a few people looking at doing some strategies from an institutional collective in the nft space but not in terms of i haven't seen anything in terms of treasury yes my question is about the blue chip tier one guys coming into the space the traditional guys so real money asset managers um you know big blue chip hedge fund can you see the trading on platforms with most male liquidity which are finance etc or do you see them going leading towards the more you know the more traditional exchanges like the cme and the cbo you know where do you see them sitting yeah that's a very good point it comes down also to what they internally are allowed to do so

i think the more sophisticated hedge funds are a little bit more fast moving so they're already you know trading derivatives um real money for talking about uh big asset managers long only equity they're if they're going to do something crypto it'll be very straightforward today delta one so as i was saying earlier everybody's um at a different part of their their crypto journey um but those who are restricted to there are people who just wish to trade on cme because they already have the pipes in place to do that yes earlier today we heard from an infrastructure custodian player that exchanges holding with cash through pre-funding accounts holding the

assets and running the um i think everybody has their own opinion when it comes to custody from our perspective i mean obviously we work with some big people in the space very active on the exchange uh we also introduced um uh an insurance fund which is called the safu fund for those who are in crypto they will get the reference but safu um to cover sort of extreme cases so i think custody is a maybe a perception

thing but in the end uh you want to be able to to appreciate counterparty risk essentially you don't see it trend towards clearing houses or potentially the down line it's hard to say i mean crypto's such a fast fast moving space i think it's more and more institutional traditional institutional players interface with the big guys uh we're gonna see the custody space evolve quite rapidly um but different elements take into consideration like balance sheet as you were saying earlier but um it's hard to say crypto where things will be six months from now right so but it will be a big focus for sure yes

uh you were talking about the constitutional accounts before um in order to like how does it work completely for example does it mean that every single client has to open their own account at the finance and then delegate your authority to a investor account that can manage it uh if you want to invest you mean in your example like i'm thinking of for example asset manager so the two questions embedded in your in your question first question if you wanted to invest into a crypto trading team for example there are different ways of doing that uh either you invest directly into the fund structure that could be like a cayman traditional structure or as i was saying

earlier uh you can open an account on binance for example so you're as in the investor and you can open a sub-account underneath your your master account so it's separate you can see the assets you can see the you know the full transparency and you delegate as you say you're basically giving the api keys to the trading team to run the uh to run the uh their strategies on um so that's that's the way people are doing it otherwise if you're on the ask management sites if you're an asset management you might want to hire some new traders okay same same kind of approach you have your master account you open some sub accounts for these new teams and you can allocate capital to them through sub accounts but they won't be able to stay past midnight in the office and would draw

the points to their own personal wallet to disappear because everything has to go through the master account yeah the link between the two so how do you manage other people's accounts you can also do that that's something different okay yes you're getting us well let's call so we do that through what we call our broker program we can talk about that more detail as possible all right okay we had one in the back yeah [Music] quick question you mentioned the cassava services uh one of the products that we

will emerge and then growing demand what other products or institutions are missing to accelerate this institutionalization uh good question i think not necessarily missing but as i mentioned earlier i think options will be a a big focus and you know what we see in the options space today is very plain vanilla you know you can buy calls you can sell because you can buy books and consultants and you can do spread strategies uh around that um when you look at uh spot you know a lot of people are thinking okay if you look at bitcoin versus ether there might be decoupling uh between the two and a few years today everything's very correlated

you know like if there's kind of like a bitcoin on steroids but in terms of price action uh but if things then start to decouple then then that becomes interesting then if you're an asset manager you can start to think a bit more in a creative fashion and think okay well i want to buy a best of put where the payoff is based off basket and so you take a basket and the payoff is based off the best performing asset i.e the one that falls less but in times of crisis everything correlates together so instead of paying two percent for your your insurance protection you're paying zero 50 bips uh because it's based on that but that's only going to become interesting if uh there's a decoupling the other sort of linked to that i think structured products will be more more

prominent in the next uh few years i mean here in system obviously it's a huge huge market for infrastructure products i think in crypto we're only at the very beginning of what we've been able to do or see and give me more more interesting payouts available to uh to investors yes do you have a prospect of launching as in fact as a security token uh not that i know but i think normally it's crypto yeah any other questions this is your chance thank you very much