Why Institutions Are Bullish With Eric Peters

Transcript

5 years from now I think most of Wall Street will be well on its way to to trading everything in in a tokenized way and that there will be a lot of value that accurs to the Technologies and the entrepreneurs that figure out how to provide great you know great infrastructure great services and uh I I don't think that they they fully appreciate that this is going to be a lively conversation um we have Eric Peters CEO of coinbase asset management also CEO of One River um if you don't know one River they were probably the first like real institutions to start allocating to crypto so very excited for this um this conversation welcome yeah thank you yeah

um you've been trading and investing for a little while um I think you said the other day when we were catching up this is the most interesting time in markets that you've ever seen I'd love to just get your view on markets uh what what is happening right now not just in the crypto markets but in the global macro Market right now yeah sure um I yeah I've been I've been at this since ' 89 so I've been at it for a while um and it is the most interesting time I there there have been some very interesting periods throughout my career I think what what is remark remarkable about this one is there's a real transition from um uh the previous Paradigm which was dominated by um Central Bankers to politicians now so

I think that happened during covid and actually that was our impetus to get invested in crypto we saw this transition to extremely large um fiscal spending uh deficit spending uh which I think was rational coming out of covid but what what we thought was well now that the politicians are engaged politicians love to spend money um and for years they just kind of turned over the economy to Central Bankers but once politicians are engaged we thought okay now we're going to start seeing some real spending and so like for instance one of the Dynamics that's changing right now that's that's are remarkable is that the Germans just today they passed this resolution to allow them to spend massive amounts of money uh in defit Su spending and this is you know

this is in reaction to a political move which was Trump more or less not pulling out of NATO but more or less walking away from nato in Europe and now you know yet again you have a a politician who's saying okay well we need to respond to this so we're going to borrow a ton of money 500 billion euros and we're going to spend it on defense so these types of Dynamics are just they they they haven't really existed politically over the course of my career yeah that's an interesting note it's the first time maybe at least that I've been alive I don't know if it this has happened before but it feels like the market decisions from the top are now politically driven instead of maybe economically driven right poit econ decisions about maybe rates or easing or tightening used to be driven around like

uh unemployment or things like that now it's very politically driven is that a short-term phenomenon long-term phenomenon is this just how it's going to work for from here on out I think it I think it's long term as in decade plus um you know the the era of the central Banker um was literally the entirety of my career so ' 89 up until really 2000 uh and the thing about Central Bankers too is GL if you look at Central Bankers around the world they've all more or less studied the same uh from the same textbooks just you know in different languages and so the amount of policy homogeneity when Central Bankers are in control globally is remarkable when you get politicians involved I mean Trump is

different from Biden is different from you know name your politicians so that so there's just a lot more dispersion a lot more volatility when when uh politicians are in charge and I don't see any reason like is Trump going to turn over uh uh control of the economy to Powell or the next Central Bank like there's just no chance right so it's it's like that period is gone for a long time yeah maybe let's actually go there so if you talk to probably most people in this room who focus on the markets their view I think there're starting to be a consensus view that the reason what Trump is doing right now is he's kind of getting us really close to a recession in order to Strongarm pow into lowering the tenure right he's basically saying this is the one area of the economy I

don't have control over I I'm a real estate guy I want to Inc I want to decrease the rates which will long-term help help the market and help help a lot of different other things um what what is your view of that yeah I I think that we're still uh early enough in this Administration where I Trump loves to blame people for all sorts of things I think he can blame Biden for allow the economy and and I think he already is doing that and I think when you look at um you look at bessent uh just this weekend on on Meet the Press uh he was pretty clear that we need a a reboot of the US economy we can't rely on the deficit spending that you know we inherited from uh from the Biden Administration and he's talking about recession Trump's not denying that there

could be recession I think these guys are preparing for you know one or two quarters of what they hope will be uh a shallow recession and then and then you know kind of coming out of that you can get economic acceleration into the midterm elections which are incredibly important to to Trump and the Republicans will he do you think he has the guts to take us into a recession and stay there because the other side of this would be yeah you got to do hard things for a little bit and Doge and there's all this cutting and the tariffs and uh the whole bunch of other stuff that's happening right now causing a lot of certainty but yeah I don't know if he's got the guts to maybe this last for another 60 days and then he cares about the market too much I you know I I probably thought I I

probably would have agreed with that statement a year ago I think just the way he's behaving is um is increasingly dogmatic about wanting to make real change in the economy and uh you know one of our advisers for our firm is now his chief economic advisor and so you know I've followed pretty closely their views in terms of what how they think about crypto but also how they think about the real economy and there's um you know there's there's a strong need for economic change and I and I think they they really believe that so I I I think that if we had a market crash it's a different issue but I think some some Market weakness not an issue and Scott Scott Besson is someone

that I've I've known for years as well I mean he's a he is a super Savvy practitioner and you look at some of the things that he's doing that will affect crypto in this Bitcoin Reserve they're super clever economic things I I me I think that they want to make real change here why do you think is so clever about it well um so there they revised the the um that that Bitcoin act and one of one of the things that they did in there so the question was how are they going to pay how are they going to pay for Bitcoin and I think the the kind of the obvious response was all right these guys are not going to go out and issue treasury bonds to buy Bitcoin and I would have agreed with that strongly I still agree with that but that doesn't

mean that they can't figure it out but the question is well how do they figure it out and so there's this thing called The Exchange stabilization fund um and so currently the FED has 11 billion of gold marked on their books okay this was set up in I think 1935 um the last time it was I don't remember when it was last revalu but it's it's valued at something like $42 an ounce so what what the treasury can do what Bess and can do is have the treasury revalue its gold let's say they revalued it to to Market that that is about a 750 to$ 770 billion gain okay the FED can then transfer that cash to treasury literally they just create the

cash because now they have this new asset that just appeared on their books so they have value they can then transition or they can just pass that money along to Treasury and then treasury can in the exchange stabilization fund can purchase whatever they want they could they could purchase Bitcoin they could purchase but it it made it it made its way into that into that act so the point is that Scott's the kind of guy who understands the plumbing of this system and can figure out clever ways to do things like that yeah that's interesting um take me into the mind of maybe a CIO you know it's nq1 risk assets are getting hammered it's not just crypto it's Tesla it's paler it's coinbase stock right things are getting hammered

what are what are cios thinking today specifically around risky R risk assets so when when you say CIO and I think a lot of people in this industry talk about number when you're talking about an Institutional CIO not a family office CIO presumably um there are cios of of hedge funds and asset management firms and then there's cios of pension plans and and large endowments and Sovereign wealth funds I think those when when people hope that institutions come to the market they're hoping that that group comes to the market because hedge funds are already here they're hoping that the the the big allocator the pension the endowment and The Sovereign wealth fund yeah so th those are what we would call

they're institutional investors but they're really the asset owners they're the ones everyone in the world myself included is scrambling to hopefully manage some of some of their money and some of it they you know they um they direct themselves as well of course so um what's through the mind of of those folks right now we're seeing I I think that what we'll discover uh is that over the next year they're going to be an awful lot of these sovereigns uh and certain institutions that have started to accumulate I think if you're if you're a sovereign and you're looking at what the us is going to do right now um it would it would kind of be foolish to not start taking a position um but there's no reason to really announce that so I I think that we're going to

start seeing um certain sovereigns invest when it comes to pension and endowments just on the Sovereign side are these because we've seen some sovereigns it's like Bhutan is doing Bitcoin mining El Salvador obviously Middle East has pushed pretty strongly and well we see like I don't know like Western Nations like uh I don't know you mentioned Germany like are we going to see I guess like bigger Western Nations do this do you think I think so I I think look if the us is going to go down this path and I think that we are um then it puts pressure on everyone who's running one of these to make the decision to either do it or not do it and if you don't do it and the price goes up there are consequences if you do

do it and the price goes down they're consequences and uh it seems pretty rational that if you see a real pathway for the us to go down this path and US states to go down this path you should probably acquire some yeah it feels like uh the US doing the Bitcoin strategic Reserve or whatever the official name for it was is actually the equivalent of Remember When Paul tutor Jones said uh bitcoin's the fastest horse in the race I think it was May 2020 that was the that basically removed all the career risk for hedge fund managers they said all right ptj does it I I can do it now and if it goes down he did it so it's fine so it feels like we this this is the equivalent for the on The Sovereign side yeah I think so I mean there are

100 Sovereign wealth funds in the world roughly with $15 trillion doar of assets so you know just a percent uh is a lot of money yeah definitely what about on the um endowments and pensions um those are kind of our clients we we do actually work with some sovereigns uh as well um and uh on sorry I should say on the non- crypto side of our business we work with sovereigns I'm not going to show the hand of any Sovereign when it comes to crypto um I think the the Journey of the of the pensions and endowments has been really interesting so um Yan as you said we we were an early uh institution uh to invest in Bitcoin and eth and that was

in November of 2020 we were Regulators forced us to disclose that in December which is and and I think the market got really excited about that which is that was when um prices blew through the old 2017 highs of the the 20,000 highs and I think that the it was interesting because part of that narrative um was okay the institutions are finally coming and what we didn't see as the institutions actually come so there was a big runup in price over 2021 and during that runup what you saw is the endowments and the pensions set up digital asset working groups they called them dogs um and everyone thought there was the most clever name in the world but they all had the same name and um and and then but they they really didn't

allocate and so then the market rolled over and I think um they just they just stepped away so even even the institutions who looked highly likely to commit and some of them we were working aggressively with and they they were ready to commit but they just didn't do it in in the depths of that bare market and then this bull market happened really so fast you know kind of post that FTX low people there were plenty of people who thought this Market was going to be dead forever and they just didn't want to touch it and the Celsius blow up took most of the Canadian pensions just off the board for quite some period of time because they had made some Investments that um that the news the local newspapers destroyed them over um and so this this bull market has been so

has been so quick that now these digital asset working groups are back um we're starting to see signs of allocation but the real wave of money is not yet here not at all um I think it's coming but it's and this time I think they have done enough work from 21 up through now through 25 that um we we will start seeing these allocations are they going to allocate I feel like uh Venture I'm guessing they're not just like going out and buying Bitcoin and eth and soul tokens I'm guessing they're doing it by allocating to funds um I tell me if I'm wrong there but the fund side the industry has been dominated by Venture funds I'd guess like I don't know 95% of the allocator capital that's come in has gone to the Venture funds are we will that continue will it be more in the

liquid funds am I wrong and they'll just start buying tokens themselves I think they will start buying tokens actually interesting yeah I think they'll be the majors um and that's where they'll they'll start they will also invest in investment funds that focus on crypto um I think we'll see some index investing um there's some very large investors in the world that are looking at at defining what their index is that they will measure their own performance by and so um you know we've we've put out uh the coin 50 index and so that for example that would be the type of thing that they' be like okay well now we have a benchmark these big investors tend to need a benchmark to measure their own performance by so now that we're seeing pretty credible um uh i' say very

credible indices uh but you know indices where you look at you're like okay this is thoughtfully put together you know our index uh has dodged some of the the real catastrophes in this space for instance and so institutions can then get comfortable that and it would make sense that part at least part of their investment would be actually in their Benchmark will they allocate to anything beyond Bitcoin Ethan soul I don't think in size not the type of investor that I'm talking about right now I think they'll be they will be late to anything outside of of those maybe they'll be you know Trace Investments they then may be some Investments that they do make because they're in an index they will have some Investments through their Venture Holdings but I I I don't think

that they're going to they're going to go you know down the cap table and be investing in the you know the the 15th or the 30th largest market cap um they'll get that pass I mean they will have some exposure through some of their managers but not direct buys I don't see that what is the story these days for the big allocators what what is the what so like if Bitcoin is digital gold that's an easy story to tell right I feel like a couple years ago you go in there get into an office you're like ethereum is like superc computered World computer all these apps are going to get built on top of it is that what is what is the pitch now what what is crypto to these allocators yeah I think I think Bitcoin is digital gold for sure um I

think I have always held the view that it is not only digital gold but there is a embedded technology call option in there because it's the most secure network in human history and people just haven't yet figured out how to build something on top of that really I not not its scale and so um I still think that we haven't figured that out but I I hold some hope um that we will and and if that were to start to happen I think Bitcoin is a lot more than digital gold because at the end of the day gold is mutable and and Bitcoin isn't really um I think ethereum you know this idea of This Global computer I I people talked about stuff like that but they didn't

really understand it I think the way we think about ethereum is it's it's going to be what the Global Financial system is built on top of um there'll be some other protocols as well but I think ethereum will be the most important one and when we speak with uh with investors that that's what they're thinking as well or at least they don't reject that yeah do meme coins and like this whole debacle of whatever's happened in the last couple of months or several months does that how much does that hurt our opportunity at this institutional allocation I don't it's a fair question I I think I think it's largely ignored yeah because they just knew that those

silly games and they're like yeah the crypto people are just playing silly games again I yeah I think I think that that type of activity has largely been tuned out which I think is a positive by the way because um I think investors are focused on on the technology I think the fact that the the government has made it that the US government has now made it clear that this is going to be part of the financial system the fact that black rock got behind this with the ETFs and there's been so so much flow I think that the the notion that these assets are Ponzi schemes or you know going to just disappear I think that that's more or less over at this stage and so the the really frivolous activity probably

some portion of the people in this room are really engaged in that or pay attention to it I don't I really think institutional investors are probably spending 98% of their time thinking about the portfolio that's not crypto and with that additional 2% they don't have the brain space to be thinking about mean coins really yeah that's fair there's a good panel I think it's coming up next with Prav and David culk and some other liquid managers I'm sure they'll be talking about where we're at in the cycle and stuff like that but where do you think you said the cycle has happened really quickly do you think we're still in the cycle you think there's no such thing as a four-year cycle you think the four-year cycle is very much intact and this we halfway through what are your views on that yeah I'm I'm not a uh I'm I'm not a

fouryear cycle guy on a forward-looking basis I think you can look back through time and you can see you can see or you can find Cycles in many things and if they persist long enough agricultural Cycles you know certain business Cycles then you can look at that and say you know that that makes sense and there's a certain Cadence to it I think that there probably is an underpinning to a four-year cycle in these assets but due to the nature of the the the the massive change in market cap and the participants coming in I think it's going to change correlations I think it's already change correlations uh and I think it will it it will it'll change the fouryear cycle do you think fundamentals like token

fundamentals like rev and uh like quality active address like like um will we start to Value these applications and these chains more on fund as as the institutional crowd comes in will they look at this on a fund fundamentals basis or will the industry just stay very like narratives driven for a while I suspect it's going to be narrative driven for look there just a lot of people that need to buy these assets uh and uh uh unless they're just going to dismiss them outright they need to they need to get they need to get a position on and that's going to be this next wave is going to be driven by um by investment committees at least from an Institutional perspective I think it's

going to be driven by investment committees who uh it sounds silly but who who just say okay well the us is going to set up a a reserve and there are going to be other sovereigns invested and uh it looks like they're being a lot of things are starting to be built on ethereum and Wall Street seems to be more engaged and I keep hearing more about tokenization and oh my God we actually owne nothing so nothing is the wrong number and so that doesn't sound super fundamental I mean like at a very high level macro argument I think it is fundamental but it's it's not the kind of you know uh discreet not building a discounted cash flow for radium or something like you know that what I

think what they'll do is they'll have their junior analyst try to try to build some of that stuff out and if they come back with the wrong answer be like that's just the wrong answer like we just need we need better give me a number that shows Ethan 10,000 yeah you know just yeah cuz we all we all know that we're going to have to buy some of this stuff so let's just get going yeah sure um maybe as we wrap up um is there anything just your in your position at One River and at coinbase Asset Management you speak with more allocators and institutions than probably most of us in this room anything that feels very obvious to you right now that maybe to many people in this room we're not seeing yet um I think the the lack of the lack of understanding for how impactful

rebuilding the financial system on crypto rails is I think that's really underappreciated so you know when when we entered this space um I think the things that were really underappreciated by very otherwise very knowledgeable investors were they they thought that you couldn't store these assets safely um they thought they were they were overwhelmingly used for criminal activity um and they they thought that because Bitcoin could just be created and copied that there could be an infinite number of bit Bitcoin protocols out there and therefore there would be no value that would ultimately acre to any one or group those were the I think

the big misconceptions now now I think people being forced to uh to recognize that these assets are here to stay and they feel horribly about the fact that they looked into them in 2021 and then they didn't buy in the bare market and it's there's major brain damage that prices are as high as they are right now um and and I think yet what they what they fail to appreciate is you know five years from now I think most of Wall Street will be well on its way to to trading everything in in a tokenized way and that there will be a lot of value that acres to the Technologies and the entrepreneurs that figure out how to

provide great you know great infrastructure great services and uh I I don't think that they they fully appreciate that yeah Eric Peters everybody thank you very much thank you Jason [Music]